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As Of Filer Filing For·On·As Docs:Size Issuer Filing Agent 9/22/22 CalAmp Corp. 10-Q 8/31/22 90:13M ActiveDisclosure/FA |
Document/Exhibit Description Pages Size
1: 10-Q Quarterly Report HTML 3.23M
2: EX-31.1 Certification -- §302 - SOA'02 HTML 32K
3: EX-31.2 Certification -- §302 - SOA'02 HTML 32K
4: EX-32 Certification -- §906 - SOA'02 HTML 28K
10: R1 Document and Entity Information HTML 79K
11: R2 Condensed Consolidated Balance Sheets (Unaudited) HTML 132K
12: R3 Condensed Consolidated Balance Sheets (Unaudited) HTML 43K
(Parenthetical)
13: R4 Condensed Consolidated Statements of Comprehensive HTML 149K
Loss (Unaudited)
14: R5 Condensed Consolidated Statements of Cash Flows HTML 120K
(Unaudited)
15: R6 Condensed Consolidated Statements of Stockholders' HTML 62K
Equity
16: R7 Description of Business, Basis of Presentation and HTML 181K
Summary of Significant Accounting Policies
17: R8 Discontinued Operations HTML 99K
18: R9 Cash, Cash Equivalents and Investments HTML 196K
19: R10 Inventories HTML 42K
20: R11 Goodwill and Other Intangible Assets HTML 153K
21: R12 Other Assets HTML 50K
22: R13 Financing Arrangements HTML 85K
23: R14 Leases HTML 146K
24: R15 Income Taxes HTML 32K
25: R16 Earnings Per Share HTML 126K
26: R17 Stockholders' Equity HTML 159K
27: R18 Concentration of Risk HTML 92K
28: R19 Other Financial Information HTML 133K
29: R20 Segment Information and Geographic Data HTML 312K
30: R21 Legal Proceedings HTML 35K
31: R22 Description of Business, Basis of Presentation and HTML 201K
Summary of Significant Accounting Policies
(Policies)
32: R23 Description of Business, Basis of Presentation and HTML 141K
Summary of Significant Accounting Policies
(Tables)
33: R24 Discontinued Operations (Tables) HTML 95K
34: R25 Cash, Cash Equivalents and Investments (Tables) HTML 196K
35: R26 Inventories (Tables) HTML 42K
36: R27 Goodwill and Other Intangible Assets (Tables) HTML 158K
37: R28 Other Assets (Tables) HTML 50K
38: R29 Financing Arrangements (Tables) HTML 70K
39: R30 Leases (Tables) HTML 150K
40: R31 Earnings Per Share (Tables) HTML 123K
41: R32 Stockholders' Equity (Tables) HTML 159K
42: R33 Concentration of Risk (Tables) HTML 90K
43: R34 Other Financial Information (Tables) HTML 136K
44: R35 Segment Information and Geographic Data (Tables) HTML 308K
45: R36 Description of Business, Basis of Presentation and HTML 70K
Summary of Significant Accounting Policies
(Narrative) (Details)
46: R37 Description of Business, Basis of Presentation and HTML 44K
Summary of Significant Accounting Policies
(Disaggregation of Revenue by Type of Goods and
Services and by Timing of Revenue Recognition
which Reflect the Immaterial Adjustments)
(Details)
47: R38 Description of Business, Basis of Presentation and HTML 41K
Summary of Significant Accounting Policies
(Narrative 1) (Details)
48: R39 Description of Business, Basis of Presentation and HTML 41K
Summary of Significant Accounting Policies
(Summary of Impact of Adoption of ASU 2020-06 on
Opening Consolidated Balance Sheet) (Details)
49: R40 Discontinued Operations (Narrative) (Details) HTML 51K
50: R41 Discontinued Operations (Summary of Statement of HTML 54K
Operations Included in Discontinued Operations)
(Details)
51: R42 Discontinued Operations (Summary of Statement of HTML 63K
Cash Flows That Are Included in Discontinued
Operations) (Details)
52: R43 Cash, Cash Equivalents and Investments (Details) HTML 62K
53: R44 Cash, Cash Equivalents and Investments HTML 27K
(Parenthetical) (Details)
54: R45 Inventories (Details) HTML 32K
55: R46 Goodwill and Other Intangible Assets (Schedule of HTML 66K
Other Intangible Assets) (Details)
56: R47 Goodwill and Other Intangible Assets (Schedule of HTML 27K
Other Intangible Assets) (Parenthetical) (Details)
57: R48 Goodwill and Other Intangible Assets (Narrative) HTML 28K
(Details)
58: R49 Goodwill and Other Intangible Assets (Schedule of HTML 41K
Future Amortization Expense) (Details)
59: R50 Goodwill and Other Intangible Assets (Schedule of HTML 35K
Goodwill) (Details)
60: R51 Other Assets (Schedule of Other Assets) (Details) HTML 38K
61: R52 Financing Arrangements (Summary of Debt) (Details) HTML 52K
62: R53 Financing Arrangements (Summary of Debt) HTML 34K
(Parenthetical) (Details)
63: R54 Financing Arrangements (Details) HTML 97K
64: R55 Leases (Summary of Lease-related Assets and HTML 36K
Liabilities) (Details)
65: R56 Leases (Summary of Lease Costs Included in HTML 35K
Condensed Consolidated Statements of Comprehensive
Loss (Details)
66: R57 Leases (Schedule of Supplemental Information HTML 35K
Related to Operating Leases) (Details)
67: R58 Leases (Schedule of Reconciles the Undiscounted HTML 49K
Cash Flows for Operating Lease Liabilities)
(Details)
68: R59 Income Taxes (Narrative) (Details) HTML 29K
69: R60 Earnings Per Share (Details) HTML 76K
70: R61 Stockholders' Equity (Schedule of Stock-based HTML 40K
Compensation Expense) (Details)
71: R62 Stockholders' Equity (Summary of Stock Option HTML 58K
Activity) (Details)
72: R63 Stockholders' Equity (Summary of Restricted Stock HTML 51K
Shares and RSUs Activity) (Details)
73: R64 Stockholders' Equity (Narrative) (Details) HTML 30K
74: R65 Concentration of Risk (Narrative) (Details) HTML 40K
75: R66 Concentration of Risk - Schedule of Significant HTML 47K
Customers and Significant Suppliers Concentration
Risk Percentage (Details)
76: R67 Other Financial Information (Schedule of Other HTML 40K
Current Liabilities) (Details)
77: R68 Other Financial Information (Schedule of Other HTML 35K
Non-Current Liabilities) (Details)
78: R69 Other Financial Information (Schedule of Interest HTML 43K
Expense) (Details)
79: R70 Other Financial Information (Schedule of Interest HTML 29K
Expense) (Parenthetical) (Details)
80: R71 Other Financial Information (Schedule of Cash HTML 30K
Payments for Interest and Income Taxes) (Details)
81: R72 Segment Information and Geographic Data HTML 27K
(Narrative) (Details)
82: R73 Segment Information and Geographic Data (Schedule HTML 53K
of Segment Information) (Details)
83: R74 Segment Information and Geographic Data (Summary HTML 71K
of Adjusted EBITDA) (Details)
84: R75 Segment Information and Geographic Data (Summary HTML 42K
of Revenues by Geographic Area) (Details)
85: R76 Legal Proceedings (Legal Proceedings) (Details) HTML 31K
88: XML IDEA XML File -- Filing Summary XML 180K
86: XML XBRL Instance -- camp-10q_20220831_htm XML 4.18M
87: EXCEL IDEA Workbook of Financial Reports XLSX 167K
6: EX-101.CAL XBRL Calculations -- camp-20220831_cal XML 246K
7: EX-101.DEF XBRL Definitions -- camp-20220831_def XML 545K
8: EX-101.LAB XBRL Labels -- camp-20220831_lab XML 1.31M
9: EX-101.PRE XBRL Presentations -- camp-20220831_pre XML 1.00M
5: EX-101.SCH XBRL Schema -- camp-20220831 XSD 205K
89: JSON XBRL Instance as JSON Data -- MetaLinks 443± 701K
90: ZIP XBRL Zipped Folder -- 0001564590-22-032154-xbrl Zip 301K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form i 10-Q
(Mark One)
|
i ☒ |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended i August 31, 2022
or
|
i ☐ |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
COMMISSION FILE NUMBER: i 0-12182
CALAMP CORP.
(Exact name of Registrant as specified in its Charter)
|
i Delaware |
|
i 95-3647070 |
|
(State or other jurisdiction of |
|
(I.R.S. Employer |
|
incorporation or organization) |
|
Identification No.) |
|
|
||
|
i 15635 Alton Parkway, i Suite 250 |
|
|
|
i Irvine, i California |
|
i 92618 |
|
(Address of principal executive offices) |
|
(Zip Code) |
i (949) i 600-5600
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
|
Title of each class |
Trading symbol |
Name of Each Exchange On Which Registered |
|
i Common stock, $0.01 per share |
i CAMP |
i Nasdaq Global Select Market |
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. i Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). i Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
|
Large accelerated filer |
☐ |
|
i Accelerated filer |
☒ |
|
Non-accelerated filer |
☐ |
|
Smaller reporting company |
i ☐ |
|
|
|
|
Emerging growth company |
i ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes i ☐ No ☒
The number of shares outstanding of the registrant’s common stock as of September 21, 2022 was i 37,062,965.
CALAMP CORP.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED AUGUST 31, 2022
|
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Page Number |
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|
|
PART I – FINANCIAL INFORMATION |
|
|
|
|
|
|
|
|
|
ITEM 1. |
|
|
3 |
|
|
|
|
|
|
|
|
|
|
Condensed consolidated balance sheets (unaudited) as of August 31, 2022 and February 28, 2022 |
|
3 |
|
|
|
|
|
|
|
|
|
|
4 |
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5 |
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|
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|
|
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6 |
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|
|
|
|
|
|
|
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Notes to unaudited condensed consolidated financial statements |
|
7 |
|
|
|
|
|
|
|
ITEM 2. |
|
Management’s discussion and analysis of financial condition and results of operations |
|
25 |
|
|
|
|
|
|
|
ITEM 3. |
|
|
34 |
|
|
|
|
|
|
|
|
ITEM 4. |
|
|
34 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PART II – OTHER INFORMATION |
||||
|
|
||||
|
ITEM 1. |
|
|
35 |
|
|
|
|
|
|
|
|
ITEM 1A. |
|
|
35 |
|
|
|
|
|
|
|
|
ITEM 2. |
|
|
35 |
|
|
|
|
|
|
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ITEM 5. |
|
|
36 |
|
|
|
|
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|
|
ITEM 6. |
|
|
37 |
|
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CALAMP CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except par value)
(Unaudited)
|
|
|
August 31, |
|
|
February 28, |
|
||
|
Assets |
|
2022 |
|
|
2022 |
|
||
|
Current assets: |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
i 47,721 |
|
|
$ |
i 79,221 |
|
|
Accounts receivable, net |
|
|
i 74,802 |
|
|
|
i 61,544 |
|
|
Inventories |
|
|
i 22,145 |
|
|
|
i 18,269 |
|
|
Prepaid expenses and other current assets |
|
|
i 24,781 |
|
|
|
i 22,348 |
|
|
Total current assets |
|
|
i 169,449 |
|
|
|
i 181,382 |
|
|
Property and equipment, net |
|
|
i 34,621 |
|
|
|
i 37,674 |
|
|
Operating lease right-of-use assets |
|
|
i 10,367 |
|
|
|
i 12,327 |
|
|
Deferred income tax assets |
|
|
i 3,633 |
|
|
|
i 4,165 |
|
|
Goodwill |
|
|
i 93,377 |
|
|
|
i 94,436 |
|
|
Other intangible assets, net |
|
|
i 28,769 |
|
|
|
i 31,965 |
|
|
Other assets |
|
|
i 30,822 |
|
|
|
i 29,632 |
|
|
Total assets |
|
$ |
i 371,038 |
|
|
$ |
i 391,581 |
|
|
Liabilities and Stockholders' Equity |
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
|
Current portion of long-term debt |
|
$ |
i 1,828 |
|
|
$ |
i 2,585 |
|
|
Accounts payable |
|
|
i 39,863 |
|
|
|
i 31,815 |
|
|
Accrued payroll and employee benefits |
|
|
i 10,181 |
|
|
|
i 10,929 |
|
|
Deferred revenue |
|
|
i 23,378 |
|
|
|
i 26,174 |
|
|
Other current liabilities |
|
|
i 15,675 |
|
|
|
i 18,951 |
|
|
Total current liabilities |
|
|
i 90,925 |
|
|
|
i 90,454 |
|
|
Long-term debt, net of current portion |
|
|
i 226,892 |
|
|
|
i 189,703 |
|
|
Operating lease liabilities |
|
|
i 10,717 |
|
|
|
i 13,382 |
|
|
Other non-current liabilities |
|
|
i 20,684 |
|
|
|
i 22,640 |
|
|
Total liabilities |
|
|
i 349,218 |
|
|
|
i 316,179 |
|
|
Commitments and contingencies |
|
|
|
|
|
|
|
|
|
Stockholders' equity: |
|
|
|
|
|
|
|
|
|
Preferred stock, $ i i .01 / par value; i i 3,000 / shares authorized; i i i i no / / / shares issued or outstanding |
|
|
— |
|
|
|
— |
|
|
Common stock, $ i i .01 / par value; i i 80,000 / shares authorized; i i 37,061 / and i i 36,052 / shares issued and outstanding at August 31, 2022 and February 28, 2022, respectively |
|
|
i 371 |
|
|
|
i 361 |
|
|
Additional paid-in capital |
|
|
i 180,463 |
|
|
|
i 242,386 |
|
|
Accumulated deficit |
|
|
( i 155,993 |
) |
|
|
( i 165,965 |
) |
|
Accumulated other comprehensive loss |
|
|
( i 3,021 |
) |
|
|
( i 1,380 |
) |
|
Total stockholders' equity |
|
|
i 21,820 |
|
|
|
i 75,402 |
|
|
Total liabilities and stockholders' equity |
|
$ |
i 371,038 |
|
|
$ |
i 391,581 |
|
See accompanying notes to condensed consolidated financial statements.
3
CALAMP CORP.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(In thousands, except per share amounts)
(Unaudited)
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
|
August 31, |
|
|
|
|||||||||||
|
|
|
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
|||||
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Products |
|
$ |
i 45,694 |
|
|
$ |
i 51,529 |
|
|
$ |
i 85,089 |
|
|
$ |
i 103,526 |
|
|
Application subscriptions and other services |
|
|
i 27,134 |
|
|
|
i 27,482 |
|
|
|
i 52,465 |
|
|
|
i 55,159 |
|
|
Total revenues |
|
|
i 72,828 |
|
|
|
i 79,011 |
|
|
|
i 137,554 |
|
|
|
i 158,685 |
|
|
Cost of revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Products |
|
|
i 30,298 |
|
|
|
i 32,030 |
|
|
|
i 56,033 |
|
|
|
i 65,684 |
|
|
Application subscriptions and other services |
|
|
i 13,518 |
|
|
|
i 13,611 |
|
|
|
i 26,862 |
|
|
|
i 27,184 |
|
|
Total cost of revenues |
|
|
i 43,816 |
|
|
|
i 45,641 |
|
|
|
i 82,895 |
|
|
|
i 92,868 |
|
|
Gross profit |
|
|
i 29,012 |
|
|
|
i 33,370 |
|
|
|
i 54,659 |
|
|
|
i 65,817 |
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development |
|
|
i 6,757 |
|
|
|
i 7,729 |
|
|
|
i 13,757 |
|
|
|
i 14,669 |
|
|
Selling and marketing |
|
|
i 12,734 |
|
|
|
i 12,047 |
|
|
|
i 24,212 |
|
|
|
i 24,509 |
|
|
General and administrative |
|
|
i 13,530 |
|
|
|
i 13,198 |
|
|
|
i 28,692 |
|
|
|
i 26,220 |
|
|
Intangible asset amortization |
|
|
i 1,330 |
|
|
|
i 1,394 |
|
|
|
i 2,672 |
|
|
|
i 2,647 |
|
|
Total operating expenses |
|
|
i 34,351 |
|
|
|
i 34,368 |
|
|
|
i 69,333 |
|
|
|
i 68,045 |
|
|
Operating loss |
|
|
( i 5,339 |
) |
|
|
( i 998 |
) |
|
|
( i 14,674 |
) |
|
|
( i 2,228 |
) |
|
Non-operating income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment income (loss) |
|
|
( i 58 |
) |
|
|
i 420 |
|
|
|
( i 172 |
) |
|
|
i 1,068 |
|
|
Interest expense |
|
|
( i 1,464 |
) |
|
|
( i 3,804 |
) |
|
|
( i 2,997 |
) |
|
|
( i 7,653 |
) |
|
Other expense, net |
|
|
( i 507 |
) |
|
|
( i 710 |
) |
|
|
( i 1,449 |
) |
|
|
( i 1,986 |
) |
|
Total non-operating expenses |
|
|
( i 2,029 |
) |
|
|
( i 4,094 |
) |
|
|
( i 4,618 |
) |
|
|
( i 8,571 |
) |
|
Loss from continuing operations before income taxes |
|
|
( i 7,368 |
) |
|
|
( i 5,092 |
) |
|
|
( i 19,292 |
) |
|
|
( i 10,799 |
) |
|
Income tax provision from continuing operations |
|
|
( i 126 |
) |
|
|
( i 333 |
) |
|
|
( i 375 |
) |
|
|
( i 626 |
) |
|
Net loss from continuing operations |
|
|
( i 7,494 |
) |
|
|
( i 5,425 |
) |
|
|
( i 19,667 |
) |
|
|
( i 11,425 |
) |
|
Net income from discontinued operations, net of tax |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
i 4,052 |
|
|
Net loss |
|
$ |
( i 7,494 |
) |
|
$ |
( i 5,425 |
) |
|
$ |
( i 19,667 |
) |
|
$ |
( i 7,373 |
) |
|
Loss per share - continuing operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
( i 0.21 |
) |
|
$ |
( i 0.15 |
) |
|
$ |
( i 0.55 |
) |
|
$ |
( i 0.33 |
) |
|
Diluted |
|
$ |
( i 0.21 |
) |
|
$ |
( i 0.15 |
) |
|
$ |
( i 0.55 |
) |
|
$ |
( i 0.33 |
) |
|
Earnings per share - discontinued operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
i 0.12 |
|
|
Diluted |
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
i 0.12 |
|
|
Shares used in computing earnings (loss) per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
i 36,006 |
|
|
|
i 35,152 |
|
|
|
i 35,864 |
|
|
|
i 34,998 |
|
|
Diluted |
|
|
i 36,006 |
|
|
|
i 35,152 |
|
|
|
i 35,864 |
|
|
|
i 34,998 |
|
|
Comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
( i 7,494 |
) |
|
$ |
( i 5,425 |
) |
|
$ |
( i 19,667 |
) |
|
$ |
( i 7,373 |
) |
|
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments |
|
|
( i 1,830 |
) |
|
|
( i 623 |
) |
|
|
( i 1,641 |
) |
|
|
i 283 |
|
|
Total comprehensive loss |
|
$ |
( i 9,324 |
) |
|
$ |
( i 6,048 |
) |
|
$ |
( i 21,308 |
) |
|
$ |
( i 7,090 |
) |
See accompanying notes to condensed consolidated financial statements.
4
CALAMP CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
|
|
Six Months Ended |
|
|||||
|
|
|
||||||
|
|
|
|
2021 |
|
|||
|
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
Net loss |
$ |
( i 19,667 |
) |
|
$ |
( i 7,373 |
) |
|
Less: Net income from discontinued operations, net of tax |
|
- |
|
|
|
i 4,052 |
|
|
Net loss from continuing operations |
|
( i 19,667 |
) |
|
|
( i 11,425 |
) |
|
Adjustments to reconcile net loss from continuing operations to net cash provided by (used in) operating activities: |
|
|
|
|
|
|
|
|
Depreciation expense |
|
i 8,215 |
|
|
|
i 8,472 |
|
|
Intangible asset amortization |
|
i 2,672 |
|
|
|
i 2,647 |
|
|
Stock-based compensation |
|
i 6,156 |
|
|
|
i 5,409 |
|
|
Amortization of debt issuance costs and discount |
|
i 594 |
|
|
|
i 5,191 |
|
|
Noncash operating lease cost |
|
i 1,756 |
|
|
|
i 1,691 |
|
|
Revenue assigned to factors |
|
( i 1,524 |
) |
|
|
( i 2,601 |
) |
|
Deferred tax assets, net |
|
i 129 |
|
|
|
i 250 |
|
|
Other |
|
( i 67 |
) |
|
|
i 200 |
|
|
Changes in operating assets and liabilities of continuing operations: |
|
|
|
|
|
|
|
|
Accounts receivable |
|
( i 14,242 |
) |
|
|
i 1,013 |
|
|
Inventories |
|
( i 4,681 |
) |
|
|
i 6,479 |
|
|
Prepaid expenses and other assets |
|
( i 4,438 |
) |
|
|
i 398 |
|
|
Accounts payable |
|
i 8,258 |
|
|
|
( i 5,138 |
) |
|
Accrued liabilities |
|
( i 2,842 |
) |
|
|
i 7,270 |
|
|
Deferred revenue |
|
( i 3,093 |
) |
|
|
( i 6,656 |
) |
|
Operating lease liabilities |
|
( i 2,901 |
) |
|
|
( i 2,354 |
) |
|
Net cash provided by (used in) operating activities - continuing operations |
|
( i 25,675 |
) |
|
|
i 10,846 |
|
|
Net cash used in operating activities - discontinued operations |
|
- |
|
|
|
( i 395 |
) |
|
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES |
|
( i 25,675 |
) |
|
|
i 10,451 |
|
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
Capital expenditures |
|
( i 4,891 |
) |
|
|
( i 6,569 |
) |
|
Net cash used in investing activities - continuing operations |
|
( i 4,891 |
) |
|
|
( i 6,569 |
) |
|
Net cash provided by investing activities - discontinued operations |
|
— |
|
|
|
i 6,616 |
|
|
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES |
|
( i 4,891 |
) |
|
|
i 47 |
|
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
Taxes paid related to net share settlement of vested equity awards |
|
( i 1,568 |
) |
|
|
( i 4,017 |
) |
|
Proceeds from exercise of stock options and contributions to employee stock purchase plan |
|
i 502 |
|
|
|
i 900 |
|
|
NET CASH USED IN FINANCING ACTIVITIES |
|
( i 1,066 |
) |
|
|
( i 3,117 |
) |
|
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS |
|
i 132 |
|
|
|
( i 954 |
) |
|
Net change in cash and cash equivalents |
|
( i 31,500 |
) |
|
|
i 6,427 |
|
|
Cash and cash equivalents at beginning of period |
|
i 79,221 |
|
|
|
i 94,624 |
|
|
Cash and cash equivalents at end of period |
$ |
i 47,721 |
|
|
$ |
i 101,051 |
|
See accompanying notes to condensed consolidated financial statements.
5
CALAMP CORP.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands)
(Unaudited)
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
August 31, |
|
|
|
|||||||||||
|
|
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
|||||
|
Total stockholders' equity, beginning balances |
$ |
i 28,589 |
|
|
$ |
i 95,727 |
|
|
$ |
i 75,402 |
|
|
$ |
i 95,085 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock and additional paid-in capital: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balances |
|
i 178,279 |
|
|
|
i 235,728 |
|
|
|
i 242,747 |
|
|
|
i 234,044 |
|
|
Cumulative-effect adjustment related to the adoption of ASU 2020-06 |
|
— |
|
|
|
— |
|
|
|
( i 67,003 |
) |
|
|
— |
|
|
Stock-based compensation expense |
|
i 3,196 |
|
|
|
i 2,937 |
|
|
|
i 6,156 |
|
|
|
i 5,434 |
|
|
Shares issued on net share settlement of equity awards |
|
( i 1,143 |
) |
|
|
( i 2,956 |
) |
|
|
( i 1,568 |
) |
|
|
( i 4,017 |
) |
|
Exercise of stock options and contributions to employee stock purchase plan |
|
i 502 |
|
|
|
i 652 |
|
|
|
i 502 |
|
|
|
i 900 |
|
|
Ending balances |
|
i 180,834 |
|
|
|
i 236,361 |
|
|
|
i 180,834 |
|
|
|
i 236,361 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated deficit: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balances |
|
( i 148,499 |
) |
|
|
( i 139,922 |
) |
|
|
( i 165,965 |
) |
|
|
( i 137,974 |
) |
|
Cumulative-effect adjustment related to the adoption of ASU 2020-06 |
|
— |
|
|
|
— |
|
|
|
i 29,639 |
|
|
|
— |
|
|
Net loss |
|
( i 7,494 |
) |
|
|
( i 5,425 |
) |
|
|
( i 19,667 |
) |
|
|
( i 7,373 |
) |
|
Ending balances |
|
( i 155,993 |
) |
|
|
( i 145,347 |
) |
|
|
( i 155,993 |
) |
|
|
( i 145,347 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balances |
|
( i 1,191 |
) |
|
|
( i 79 |
) |
|
|
( i 1,380 |
) |
|
|
( i 985 |
) |
|
Foreign currency translation adjustments |
|
( i 1,830 |
) |
|
|
( i 623 |
) |
|
|
( i 1,641 |
) |
|
|
i 283 |
|
|
Ending balances |
|
( i 3,021 |
) |
|
|
( i 702 |
) |
|
|
( i 3,021 |
) |
|
|
( i 702 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders' equity, ending balances |
$ |
i 21,820 |
|
|
$ |
i 90,312 |
|
|
$ |
i 21,820 |
|
|
$ |
i 90,312 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to condensed consolidated financial statements. |
|
||||||||||||||
6
CALAMP CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE AND SIX MONTHS ENDED AUGUST 31, 2022 AND 2021
iNOTE 1 - DESCRIPTION OF BUSINESS, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
iDescription of Business
CalAmp Corp. (including its subsidiaries unless the context otherwise requires, “CalAmp”, “the Company”, “we”, “our”, or “us”) is a connected intelligence company that leverages a data-driven solutions ecosystem to help people and organizations improve operational performance. We solve complex problems for customers within the market verticals of transportation and logistics, commercial and government fleets, industrial equipment, and consumer vehicles by providing solutions that track, monitor, and recover their vital assets. The data and insights enabled by CalAmp solutions provide real-time visibility into a user’s vehicles, assets, drivers, and cargo, giving organizations greater understanding and control of their operations. Ultimately, these insights drive operational visibility, safety, efficiency, maintenance, and sustainability for organizations around the world. We are a global organization that is headquartered in Irvine, California.
Recent Events
COVID-19
In March 2020, the World Health Organization declared COVID-19 (“COVID-19” or the “pandemic”) to be a public health pandemic of international concern, which has led to adverse impacts on the U.S. and global economies and continues to impact our supply chain and operations. More recently, we have experienced supply shortages as a result of global supply imbalances driven by component shortages, disruptions in accessible labor, other freight and logistical challenges and other related macro-economic factors. These supply imbalances negatively impacted all parts of our business during fiscal 2022 and have continued into fiscal 2023. It is difficult to predict the extent to which these factors will continue to impact our future business or operating results, which are highly dependent on uncertain future developments, including the severity of the continuing pandemic, the actions taken or to be taken by governments and private businesses in relation to the resolution of supply chain issues and component shortages. Because our business is dependent on telematics product sales, device installations and related subscription-based services, the ultimate effect of these factors may not be fully reflected in our operating results until future periods.
Transition of MRM Telematics Customers to Subscription Arrangements
In the second half of fiscal 2022, we prompted a strategic shift with customers who have historically purchased Mobile Resource Management (“MRM”) telematics devices from us. These customers are being transitioned to subscription-based arrangements by way of bundling services with telematics devices under multi-year (generally three years) subscription contracts. Our plan is to transition the MRM business to multi-year subscription contracts over the course of fiscal 2023. As a result, our financial results associated with such subscription arrangements will be reported within our Software & Subscription Services reporting segment prospectively from the effective date of such underlying contracts. In the short term, we expect that this will lead to significant growth in our Software & Subscription Services business with a corresponding decline in our Telematics Products business. Long term we believe this shift will allow us to drive revenue growth as we generate incremental revenue from our existing customer base as well as new customers through current and anticipated broader future subscription service offerings.
Basis of Presentation
In the opinion of our management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments (consisting of normal recurring adjustments) considered necessary to present fairly our financial position at August 31, 2022 and our results of operations for the three and six months ended August 31, 2022 and 2021. The results of operations for such periods are not necessarily indicative of results to be expected for the full fiscal year ending February 28, 2023.
Certain notes and other information included in the audited financial statements in our Annual Report on Form 10-K for the fiscal year ended February 28, 2022 are condensed in or omitted from the interim financial statements presented in this Quarterly Report on Form 10-Q. Therefore, these financial statements should be read in conjunction with our 2022 Annual Report on Form 10-K as filed with the U.S. Securities and Exchange Commission (“SEC”) on April 28, 2022.
All intercompany transactions and accounts have been eliminated in consolidation.
The accompanying condensed consolidated financial statements have been prepared with the assumption that the Company will continue as a going concern. Based on our current and projected level of operations we believe that our future cash flows from operating activities, our existing cash and cash equivalents and our revolving credit facility will provide adequate funds for ongoing operations and working capital requirements for at least the next 12 months. However, our business is subject to various factors that could materially impact our assumptions leading to the consumption of our available cash before that time.
Effective March 15, 2021, the Company and Spireon Holdings, L.P. (“Spireon”) entered into a purchase agreement pursuant to which we sold certain assets and transferred certain liabilities of the LoJack U.S. and Canadian stolen vehicle recovery business (“LoJack North America”) to Spireon for a purchase price of $ i 8.0 million. Operations for LoJack North America are presented as discontinued operations in the
/ /7
accompanying condensed consolidated financial statements for the three and six months ended August 31, 2021. See Note 2, Discontinued Operations, for additional information.
Estimates and Assumptions
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. We have considered all known and reasonably available information that existed throughout the three and six months ended and as of August 31, 2022 in making accounting judgements, estimates and disclosures. We are monitoring the potential effects of the health care related and economic conditions of COVID-19 in assessing certain matters including (but not limited to) supply chain disruptions, decreases in customer demand for our products and services, potential longer-term effects on our customer and distribution channels particularly in the U.S. and relevant end markets as well as other developments. If the impact results in longer term closures of businesses and economic recessionary conditions, we may recognize material asset impairments and charges for uncollectible accounts receivable in future periods.
i
Revenue Recognition
Revenues from subscription services are recognized ratably on a straight-line basis over the term of the subscription, which generally ranges from two to five years.
We recognize revenue from telematics product sales upon the transfer of control of promised products to customers in an amount that reflects the transaction price. Customers generally do not have a right of return except for defective products returned during the warranty period. We record estimated commitments related to customer incentive programs as reductions of revenues.
From time to time, we provide various professional services to customers. These services include project management, engineering services and installation services, which are often distinct from other performance obligations and are recognized as the related services are performed. For certain professional service contracts, we recognize revenue based on the proportion of total costs incurred to-date over the estimated cost of the contract, which is an input method.
In many customer arrangements, subscription services are bundled with the sale or lease of telematics devices within the same contractual arrangement. To determine the performance obligations under these arrangements, we assess the contractual elements and, in particular, whether the telematics products within the arrangement are distinct. This is an area of judgment that includes the consideration of all elements of the arrangement. Significant factors in determining whether telematics devices are distinct are whether such devices are sold separately, as well as the degree of integration and interdependency between the subscription elements of the arrangement and the associated telematics devices. If we conclude that the telematics devices within a customer arrangement are distinct and therefore represent a separate performance obligation, the total expected consideration associated with the contract is allocated between the performance obligations based upon the relative stand-alone selling price associated with each performance obligation. We base stand-alone selling prices on pricing for the same or similar items.
For some customer arrangements, we have concluded that the subscription services and associated telematics devices are not distinct performance obligations and thus represent a single combined performance obligation. For certain other customer arrangements under which devices are leased in combination with subscription services, we consider the arrangement to be predominately a subscription service and thus a combined single performance obligation for purposes of revenue recognition. In both of these circumstances, we generally recognize the total expected consideration as revenue over the term of the subscription. Device related costs associated with arrangements in which title to the device is transferred to the customer under a single combined performance obligation are recorded as deferred costs on the balance sheet and are amortized into cost of revenues over the term of the subscription or the estimated in-service lives of the devices. In contractual arrangements under which we provide devices as part of the subscription contract but we retain ownership of the devices, the cost of the devices is capitalized as property and equipment and depreciated over the estimated useful life of three to five years.
As described above, we are in the process of transitioning our MRM customer base to subscription arrangements. This transition may have an impact on our future determinations around contractual performance obligations as we anticipate selling fewer telematics products that do not include related subscription services.
We exclude from the measurement of the transaction price all taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction and collected by us from a customer.
The timing of revenue recognition may differ from the timing on our invoicing to customers. Contract assets are comprised of unbilled amounts for which we have transferred products or provided services to our customers and are classified as accounts receivable. Contract liabilities (deferred revenues) are comprised of billings or payments received from our customers in advance of performance under the contract.
8
During the fiscal quarter ended August 31, 2022, we recognized $ i 10.8 million in revenue from the deferred revenue balance of $ i 39.7 million as of February 28, 2022.
Incremental costs of obtaining a contract with a customer consist of sales commissions, which are recognized on a straight-line basis over the life of the corresponding contracts. Prepaid sales commissions included in prepaid expenses and other current assets and other assets were $ i 1.9 million and $ i 2.8 million, respectively, as of August 31, 2022.
We disaggregate revenue from contracts with customers into reportable segments, geography, type of goods and services and timing of revenue recognition. See Note 14, Segment Information and Geographic Data, for our revenue by segment and geography. The disaggregation of revenue by type of goods and services and by timing of revenue recognition is as follows (in thousands):
i
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
|
August 31, |
|
|
|
|||||||||||
|
|
|
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
|||||
|
Revenue by type of goods and services: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telematics devices and accessories |
|
$ |
i 45,694 |
|
|
$ |
i 51,529 |
|
|
$ |
i 85,089 |
|
|
$ |
i 103,526 |
|
|
Rental income and other services |
|
|
i 6,656 |
|
|
|
i 3,495 |
|
|
|
i 10,926 |
|
|
|
i 7,105 |
|
|
Recurring application subscriptions |
|
|
i 20,478 |
|
|
|
i 23,987 |
|
|
|
i 41,539 |
|
|
|
i 48,054 |
|
|
Total |
|
$ |
i 72,828 |
|
|
$ |
i 79,011 |
|
|
$ |
i 137,554 |
|
|
$ |
i 158,685 |
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
|
August 31, |
|
|
|
|||||||||||
|
|
|
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
|||||
|
Revenue by timing of revenue recognition: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue recognized at a point in time |
|
$ |
i 50,685 |
|
|
$ |
i 53,419 |
|
|
$ |
i 92,174 |
|
|
$ |
i 108,123 |
|
|
Revenue recognized over time |
|
|
i 22,143 |
|
|
|
i 25,592 |
|
|
|
i 45,380 |
|
|
|
i 50,562 |
|
|
Total |
|
$ |
i 72,828 |
|
|
$ |
i 79,011 |
|
|
$ |
i 137,554 |
|
|
$ |
i 158,685 |
|
/
Telematics devices and accessories revenues presented in the table above include devices sold in customer arrangements that include both device and subscription services. Revenues related to recurring application subscriptions include subscription revenues as well as amortization of deferred revenue for contractual arrangements under which the subscription services and associated telematics devices were determined to be a single combined performance obligation.
Remaining performance obligations for Software & Subscription Services represents contracted revenue that has not yet been recognized, which includes deferred revenue on our consolidated balance sheets and unbilled amounts that will be recognized as revenue in future periods. As of August 31, 2022 and February 28, 2022, we have estimated remaining performance obligations for contractually committed revenues of $ i 210.3 million and $ i 202.0 million respectively. As of August 31, 2022, we expect to recognize approximately i 27% of the revenue under these remaining performance obligations in fiscal i 2023 and i 33% in fiscal i 2024. As of February 28, 2022, we expected to recognize approximately i 47% of the then remaining performance obligations in fiscal i 2023 and i 24% in fiscal i 2024. We exclude contracts that have original durations of less than one year from the aforementioned remaining performance obligation disclosure.
i
Cash and Cash Equivalents
We consider all highly liquid investments with maturities at date of purchase of three months or less to be cash equivalents.
iAccounts Receivable and Allowance for Doubtful Accounts
Accounts receivable consists of amounts due to us from sales arrangements executed in our normal business activities and are recorded at invoiced amounts or in some cases amounts expected to be invoiced. Our payment terms generally range between 30 to 60 days of our invoice date with a few exceptions that extend the credit terms up to i 90 days, and we do not offer financing options. We present the aggregate accounts receivable balance net of an allowance for doubtful accounts. Generally, collateral and other security is not obtained for outstanding accounts receivable. Credit losses, if any, are recognized based on management’s evaluation of historical collection experience, customer-specific financial conditions as well as an evaluation of current industry trends and general economic conditions. Past due balances are assessed by management on a periodic basis and balances are written off when the customer’s financial condition no longer warrants pursuit of collection. Actual collections may differ from estimated amounts.
Due to the COVID-19 pandemic and other related macro-economic factors, there has been uncertainty and disruption in the global economy and financial markets. Except for the increase in expected credit losses, we are not aware of any specific event or circumstances that would require an update to our estimates or assumptions or a revision of the carrying value of our assets or liabilities as of the date of this quarterly report. These estimates and assumptions may change as new events occur and additional information is obtained. As a result, actual results could differ materially from these estimates and assumptions.
/9
We group all accounts receivables and lease receivables into a single portfolio and analyze the credit risk associated with our accounts receivables and lease receivables. Our historical loss rates have not shown any significant differences between customer industries or geographies. As disclosed in Note 14, Segment Information and Geographic Data, we do not have significant international geographic concentrations of revenue, and, as a result, we do not have significant concentrations of accounts receivables or lease receivables in any single geography outside of the United States.
The allowance for doubtful accounts totaled $ i 2.1 million and $ i 2.6 million as of August 31, 2022 and February 28, 2022, respectively.
iGoodwill and Other Long-Lived Assets
Goodwill and long-lived assets to be held and used, including identifiable intangible assets, are reviewed for impairment annually in the fourth quarter or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be fully recoverable. These events or changes in circumstances may include a significant deterioration of operating results, changes in business plans or changes in anticipated future cash flows. If an impairment indicator is present, we evaluate recoverability by a comparison of the carrying amount of the assets or reporting unit to the estimated fair value of those assets or reporting unit determined using either an income approach, a market approach, or a combination of both. If the assets are impaired, the impairment recognized is the amount by which the carrying amount exceeds the fair value of the assets.
i
Fair Value Measurements
We apply fair value accounting for all financial assets and liabilities and non-financial assets and liabilities that are recognized or disclosed at fair value in our financial statements. We define fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly manner in an arm’s-length transaction between market participants at the measurement date. Fair value is estimated by using the following hierarchy:
Level 1 – Quoted prices in active markets for identical assets or liabilities.
Level 2 – Observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 – Inputs that are generally unobservable and typically reflect management’s estimate of assumptions that market participants would use in pricing the asset or liability.
iLitigation and Other Contingencies
We accrue for litigation and other contingencies whenever we determine that an unfavorable outcome is probable and a liability is reasonably estimable. The amount of the accrual is estimated based on a review of each claim, including the type and facts of the claim and our assessment of the merits of the claim. These accruals are reviewed at least on a quarterly basis and are adjusted to reflect the impact of recent negotiations, settlements, court rulings, advice from legal counsel and other events pertaining to the case. Such accruals, if any, are recorded as general and administrative expenses in our condensed consolidated statements of comprehensive loss. Although we take considerable measures to mitigate our exposure in these matters, litigation is unpredictable; however, we believe that we have valid defenses with respect to pending legal matters against us as well as adequate provisions for probable and estimable losses. All costs for legal services are expensed as incurred.
iForeign Currency Translation
We translate the assets and liabilities of our non-U.S. dollar functional currency subsidiaries into U.S. dollars using exchange rates in effect at the end of each period. Revenue and expenses for these subsidiaries are translated using rates that approximate those in effect during the period. Gains and losses from these translations are recognized in foreign currency translation included in accumulated other comprehensive income (loss) during the period. The aggregate foreign currency transaction exchange rate gain (loss) included in determining income (loss) before income taxes was ($ i 0.3) million and ($ i 0.6) million for the three and six months ended August 31, 2022, respectively. The aggregate foreign currency transaction exchange rate gain (loss) included in determining income (loss) before income taxes was ($ i 14) thousand and $ i 49 thousand for the three and six months ended August 31, 2021, respectively.
/ i
Comprehensive Income (Loss)
Comprehensive income (loss) consists of two components, net income (loss) and other comprehensive income (loss) (“OCI”). OCI refers to revenue, expenses and gains and losses that under GAAP are recorded as an element of stockholders’ equity and excluded from net income (loss). Our OCI consists of foreign currency translation adjustments from those subsidiaries not using the U.S. dollar as their functional currency.
iRecently Adopted Accounting Pronouncements
In August 2020, the Financial Accounting Standards Board (“FASB”) issued ASU 2020-06, Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40), which removes certain separation models for convertible debt instruments and convertible preferred stock that require the separation of a convertible debt instrument into a debt component and an equity or derivative component. Specifically, the new pronouncement removes the separation models for convertible debt with a cash
10
conversion feature or convertible instruments with a beneficial conversion feature. We adopted ASU 2020-06 effective March 1, 2022, the beginning of fiscal 2023, utilizing the modified retrospective approach whereby the cumulative effect of the change in accounting was recognized as an adjustment to the opening balance of retained earnings (accumulated deficit) at the date of adoption. Comparative information has not been restated and continues to be presented in accordance with accounting standards that were in effect for those periods.
Prior to the adoption of ASU 2020-06, we allocated the gross proceeds of the Convertible Notes between the liability and equity components under the cash conversion feature model using the accounting rules in GAAP (ASC 470-20). The carrying amount of the liability component was calculated based on the fair value of a similar debt instrument excluding the embedded conversion option at the issuance date. The carrying amount of the equity component representing the conversion option was calculated by deducting the carrying value of the liability component from the principal amount of the notes as a whole. This difference represented a debt discount and was being amortized to interest expense over the term of the notes using the effective interest rate method. The equity component of the notes was included in stockholders’ equity and was not remeasured as long as it continued to meet the conditions for equity classification.
Effective March 1, 2022, we no longer separately present in equity an embedded conversion feature of such debt. Instead, we account for a convertible debt instrument wholly as debt unless (i) the convertible debt instrument contains features that require bifurcation as a derivative or (ii) the convertible debt instrument was issued at a substantial premium. Prior to the adoption of ASU 2020-06, debt issuance costs attributable to the liability component were amortized to interest expense using the effective interest method and debt issuance costs attributable to the equity component were netted with the equity component in stockholders’ equity. Upon adoption, the entire amount of debt issuance costs is reflected as a contra-liability and amortized as interest expense using the effective interest method over the respective term of the notes. We account for the cost of the capped calls as a reduction to additional paid-in capital.
After adopting the new guidance, the use of the if-converted method is required when calculating diluted earnings per share (“EPS”) for convertible instruments and the treasury stock method should no longer be used. Under the new guidance, convertible instruments that may be settled in cash or shares are to be included in the calculation of diluted EPS if the effect is more dilutive, with no option for rebutting the presumption of share settlement based on stated policy or past experience. If we make an irrevocable election to settle the principal of the Convertible Notes in cash and the excess conversion spread in shares, the if-converted method will result in a reduced number of shares issued to reflect only the excess conversion.
The below adoption adjustments were calculated based on the carrying amount of the Convertible Notes as if it had always been treated as a liability only. Furthermore, these adjustments address the debt issuance costs contra-liability and equity (additional paid-in capital) components under the same premise (i.e., as if the total amount of debt issuance costs had always been treated as a contra-liability only). Lastly, we derecognized the deferred income taxes associated with the debt discount and adjusted deferred income taxes relative to unamortized debt issuance costs associated with the Convertible Notes. This resulted in a net increase in gross deferred tax assets of $ i 9.4 million but no impact to the net deferred tax asset balance due to the valuation allowance recorded against our deferred tax assets. We expect lower interest expense related to the Convertible Notes to be recognized in future periods subsequent to adoption as a result of accounting for the Convertible Notes as a single liability measured at amortized cost.
i
The following table summarizes the impact of the adoption of ASU 2020-06 on our consolidated balance sheet on March 1, 2022 (in thousands).
|
|
|
|
|
ASU 2020-06 |
|
|
|
|||||
|
|
|
As Reported |
|
|
Adoption Impact |
|
|
As Adjusted |
|
|||
|
Deferred income tax assets, net |
|
$ |
i 4,165 |
|
|
$ |
- |
|
|
|
i 4,165 |
|
|
Total debt (1) |
|
|
i 192,288 |
|
|
|
i 37,365 |
|
|
|
i 229,653 |
|
|
Additional paid-in-capital |
|
|
i 242,386 |
|
|
|
( i 67,003 |
) |
|
|
i 175,383 |
|
|
Accumulated deficit |
|
$ |
( i 165,965 |
) |
|
$ |
i 29,639 |
|
|
$ |
( i 136,326 |
) |
|
(1) |
Prior to adoption, the carrying value of convertible debt represented the principal amount less unamortized debt discount and unamortized debt issuance costs. After adoption, the carrying value of convertible debt represents the principal amount less unamortized debt issuance costs. |
Recently Issued Accounting Pronouncements, Not Yet Adopted
There are currently no accounting standards that have been issued but not yet adopted that we believe will have a significant impact on our unaudited condensed consolidated financial position, results of operations or cash flows.
i
NOTE 2 – DISCONTINUED OPERATIONS
Effective March 15, 2021, a wholly owned subsidiary of the Company and Spireon entered into an agreement (“Sale Agreement”) pursuant to which we sold certain assets and transferred certain liabilities of the LoJack North America business (“LoJack Transaction”) for an upfront cash purchase price of approximately $ i 8.0 million. We received net proceeds of $ i 6.6 million, based on an estimate of certain adjustments to the gross purchase price as of the closing date. On November 9, 2021, the purchase price was reduced by $ i 0.9 million, which was paid to Spireon,
/11
due to final working capital adjustments. We recognized a gain on the sale of the LoJack North America business of $ i 4.1 million during the year ended February 28, 2022.
Concurrent with the closing of the transaction, we also entered into a Transition Services Agreement (the “TSA”) to provide support to Spireon in the transition of customers to its telematics solution and to provide recovery services to the existing installed base of LoJack North America customers, as an agent of Spireon, for a period of six months commencing March 15, 2021. Subsequently, the transition period was extended and then effectively terminated on March 31, 2022. As consideration for these services, Spireon reimbursed us for the direct and certain indirect costs, as well as certain overhead or administrative expenses related to operating the business. Additionally, we entered into a services agreement that commenced April 1, 2022 upon the expiration of the TSA, under which we will provide certain services related to the LoJack North America tower infrastructure for a period no longer than fifty-four months. As consideration for these services, Spireon will pay us a monthly service fee over the stipulated contract term. Further, we entered into a license agreement pursuant to which we license certain intellectual property rights related to the LoJack North America business in the U.S. and Canada to Spireon. In connection with the services provided to Spireon during the three and six months ended August 31, 2022, respectively, we incurred a total cost of $ i 0.7 million and $ i 2.0 million of which $ i 0.5 million and $ i 1.0 million was billed to Spireon for the services under the TSA and the net amount of $ i 0.2 million and $ i 1.0 million is included as a component of other expense in the condensed consolidated statement of comprehensive loss as these costs represent non-operating expenses. During the three and six months ended August 31, 2021, respectively, we incurred a total cost of $ i 1.2 million and $ i 3.3 million of which $ i 0.6 million and $ i 1.4 million was billed to Spireon for services under the TSA and the remaining $ i 0.6 million and $ i 1.9 million is included within other expense in the condensed consolidated statement of comprehensive loss.
The operating results and cash flows related to the LoJack North America operations are reflected as discontinued operations in the unaudited condensed consolidated statements of comprehensive loss and the unaudited condensed consolidated statements of cash flows for the six months ended August 31, 2021. For the six months ended August 31, 2021, we have reported the operating results and cash flows related to the LoJack North America operations through March 14, 2021:
i
The amounts in the statement of operations that are included in discontinued operations are summarized in the following table (in thousands):
|
|
|
Six Months Ended |
|
|
|
|
|
|
||
|
|
|
|
||
|
Revenues |
|
$ |
i 823 |
|
|
Cost of revenues |
|
|
i 950 |
|
|
Gross profit (loss) |
|
|
( i 127 |
) |
|
Operating expenses: |
|
|
|
|
|
Research and development |
|
|
i 32 |
|
|
Selling and marketing |
|
|
i 167 |
|
|
General and administrative |
|
|
i 75 |
|
|
Intangible asset amortization |
|
|
i 141 |
|
|
Restructuring |
|
|
i 404 |
|
|
Impairment losses |
|
|
— |
|
|
Total operating expenses |
|
|
i 819 |
|
|
Operating loss from discontinued operations |
|
|
( i 946 |
) |
|
Gain on sale of discontinued operations |
|
|
i 4,998 |
|
|
Net income from discontinued operations, net of tax |
|
$ |
i 4,052 |
|
/
12
The amounts in the statement of cash flows that are included in discontinued operations are summarized in the following table (in thousands):
|
|
Six Months Ended |
|
|
|
|
|
||
|
|
|
||
|
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
Net income from discontinued operations, net of tax |
$ |
i 4,052 |
|
|
Adjustments to reconcile net income from discontinued operations to net cash used in operating activities: |
|
|
|
|
Intangible asset amortization |
|
i 141 |
|
|
Stock-based compensation |
|
i 25 |
|
|
Gain on sale of discontinued operations |
|
( i 4,998 |
) |
|
Changes in operating assets and liabilities: |
|
|
|
|
Accounts receivable |
|
i 452 |
|
|
Inventories |
|
i 425 |
|
|
Prepaid expenses and other current assets |
|
i 4 |
|
|
Accounts payable |
|
( i 331 |
) |
|
Accrued liabilities |
|
( i 135 |
) |
|
Deferred revenue |
|
( i 30 |
) |
|
NET CASH USED IN OPERATING ACTIVITIES OF DISCONTINUED OPERATIONS |
|
( i 395 |
) |
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
Net proceeds from sale of discontinued operations |
|
i 6,616 |
|
|
NET CASH PROVIDED BY INVESTING ACTIVITIES OF DISCONTINUED OPERATIONS |
|
i 6,616 |
|
|
Net change in cash and cash equivalents |
$ |
i 6,221 |
|
i
NOTE 3 – CASH, CASH EQUIVALENTS AND INVESTMENTS
iThe following tables summarize our financial instrument assets (in thousands):
|
|
As of August 31, 2022 |
|
|||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet Classification |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of Fair Value |
|
|||||
|
|
|
|
|
|
Unrealized |
|
|
|
|
|
|
Cash and |
|
|
|
|
|
||
|
|
|
|
|
|
Gains |
|
|
Fair |
|
|
Cash |
|
|
Other |
|
||||
|
|
Cost |
|
|
(Losses) |
|
|
Value |
|
|
Equivalents |
|
|
Assets |
|
|||||
|
Cash |
$ |
i 26,767 |
|
|
$ |
— |
|
|
$ |
i 26,767 |
|
|
$ |
i 26,767 |
|
|
$ |
— |
|
|
Level 1: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds |
|
i 454 |
|
|
|
— |
|
|
|
i 454 |
|
|
|
i 454 |
|
|
|
— |
|
|
Mutual funds (1) |
|
i 1,156 |
|
|
|
( i 1 |
) |
|
|
i 1,155 |
|
|
|
— |
|
|
|
i 1,155 |
|
|
Level 2: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase agreements |
|
i 20,500 |
|
|
|
— |
|
|
|
i 20,500 |
|
|
|
i 20,500 |
|
|
|
— |
|
|
Total |
$ |
i 48,877 |
|
|
$ |
( i 1 |
) |
|
$ |
i 48,876 |
|
|
$ |
i 47,721 |
|
|
$ |
i 1,155 |
|
13
|
|
As of February 28, 2022 |
|
|||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet Classification |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of Fair Value |
|
|||||
|
|
|
|
|
|
Unrealized |
|
|
|
|
|
|
Cash and |
|
|
|
|
|
||
|
|
|
|
|
|
Gains |
|
|
Fair |
|
|
Cash |
|
|
Other |
|
||||
|
|
Cost |
|
|
(Losses) |
|
|
Value |
|
|
Equivalents |
|
|
Assets |
|
|||||
|
Cash |
$ |
i 28,394 |
|
|
$ |
— |
|
|
$ |
i 28,394 |
|
|
$ |
i 28,394 |
|
|
$ |
— |
|
|
Level 1: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds |
|
i 7,327 |
|
|
|
— |
|
|
|
i 7,327 |
|
|
|
i 7,327 |
|
|
|
— |
|
|
Mutual funds (1) |
|
i 851 |
|
|
|
i 107 |
|
|
|
i 958 |
|
|
|
— |
|
|
|
i 958 |
|
|
Level 2: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase agreements |
|
i 43,500 |
|
|
|
— |
|
|
|
i 43,500 |
|
|
|
i 43,500 |
|
|
|
— |
|
|
Total |
$ |
i 80,072 |
|
|
$ |
i 107 |
|
|
$ |
i 80,179 |
|
|
$ |
i 79,221 |
|
|
$ |
i 958 |
|
|
(1) |
Amounts represent various equities, bond and money market mutual funds that are held in an irrevocable “Rabbi Trust” for payment obligations to non-qualified deferred compensation plan participants. In addition to the mutual funds above, our “Rabbi Trust” also included Corporate-Owned Life Insurance (COLI) starting in fiscal 2020. As of August 31, 2022, the cash surrender value of COLI was $ i 5.5 million. |
NOTE 4 - INVENTORIES
iInventories consist of the following (in thousands):
|
|
August 31, |
|
|
|
|||
|
|
|
|
2022 |
|
|||
|
Raw materials |
$ |
i 8,447 |
|
|
$ |
i 6,090 |
|
|
Finished goods |
|
i 13,698 |
|
|
|
i 12,179 |
|
|
|
$ |
i 22,145 |
|
|
$ |
i 18,269 |
|
/ i
NOTE 5 – GOODWILL AND OTHER INTANGIBLE ASSETS
iOther intangible assets consist of the following (in thousands):
|
|
|
|
|
Gross (2) |
|
|
Accumulated Amortization (2) |
|
|
Net |
|
||||||||||||||||||||||||
|
|
|
Useful Life |
|
|
|
Additions & Adjustments, net (1) |
|
|
|
|
|
|
|
Expense |
|
|
|
|
|
|
|
||||||||||||||
|
Developed technology |
|
4-6 years |
|
$ |
i 26,958 |
|
|
|
( i 102 |
) |
|
|
$ |
i 26,856 |
|
|
$ |
i 25,470 |
|
|
$ |
i 632 |
|
|
$ |
i 26,102 |
|
|
$ |
i 1,488 |
|
|
$ |
i 754 |
|
|
Tradenames |
|
10 years |
|
|
i 30,192 |
|
|
|
( i 205 |
) |
|
|
|
i 29,987 |
|
|
|
i 20,571 |
|
|
|
i 1,067 |
|
|
|
i 21,638 |
|
|
|
i 9,621 |
|
|
|
i 8,349 |
|
|
Customer relationships |
|
10-15 years |
|
|
i 35,404 |
|
|
|
( i 217 |
) |
|
|
|
i 35,187 |
|
|
|
i 14,883 |
|
|
|
i 969 |
|
|
|
i 15,852 |
|
|
|
i 20,521 |
|
|
|
i 19,335 |
|
|
Patents |
|
5 years |
|
|
i 589 |
|
|
|
— |
|
|
|
|
i 589 |
|
|
|
i 254 |
|
|
|
i 4 |
|
|
|
i 258 |
|
|
|
i 335 |
|
|
|
i 331 |
|
|
|
|
|
|
$ |
i 93,143 |
|
|
$ |
( i 524 |
) |
|
|
$ |
i 92,619 |
|
|
$ |
i 61,178 |
|
|
$ |
i 2,672 |
|
|
$ |
i 63,850 |
|
|
$ |
i 31,965 |
|
|
$ |
i 28,769 |
|
|
(1) |
Amounts also include any net changes in intangible asset balances for the periods presented that resulted from foreign currency translations. |
|
(2) |
This table excludes the gross value of fully amortized intangible assets totaling $ i i 23.0 / million at August 31, 2022 and February 28, 2022. |
/
Intangible assets with finite lives are amortized on a straight-line basis over the expected period to be benefited by future cash flows. We monitor and assess these assets for impairment on a periodic basis. Our assessment includes various new product lines and services, which leverage the existing intangible assets as well as consideration of historical and projected revenues and cash flows. Amortization expense of intangible assets from continuing operations was $ i 1.3 million and $ i 2.7 million for the three and six months ended August 31, 2022, respectively. Amortization expense of intangible assets from continuing operations was $1.4 million and $2.6 million for the three and six months ended August 31, 2021, respectively.
/
14
i
Estimated future amortization expense as of August 31, 2022 is as follows (in thousands):
|
2023 (remainder) |
|
$ |
i 2,640 |
|
|
2024 |
|
|
i 4,440 |
|
|
2025 |
|
|
i 4,325 |
|
|
2026 |
|
|
i 4,056 |
|
|
2027 |
|
|
i 2,435 |
|
|
Thereafter |
|
|
i 10,873 |
|
|
|
|
$ |
i 28,769 |
|
i
Changes in goodwill are as follows (in thousands):
|
|
|
Software & Subscription Services |
|
|
Telematics Products |
|
|
Total |
|
|||
|
Balance as of February 28, 2022 |
|
$ |
i 55,256 |
|
|
$ |
i 39,180 |
|
|
$ |
i 94,436 |
|
|
Effect of exchange rate change on goodwill |
|
|
( i 1,059 |
) |
|
|
— |
|
|
|
( i 1,059 |
) |
|
Balance as of August 31, 2022 |
|
$ |
i 54,197 |
|
|
$ |
i 39,180 |
|
|
$ |
i 93,377 |
|
/
As further described in Note 1 under the caption Transition of MRM Telematics Customers to Subscription Arrangements, we have begun entering into subscription arrangements with customers who have historically purchased MRM telematics products from us, which is expected to result in growth in Software & Subscription Services revenues and a corresponding decline in Telematics Products revenues as we transition the MRM telematics business to long-term subscription contracts. This transition is expected to be completed throughout Fiscal 2023. As a result of this strategic shift, we anticipate that the goodwill presently associated with our Telematics Products reporting unit will be re-allocated to our other reporting units in Fiscal 2023 at such time that this customer transition is substantially complete.
i
NOTE 6 – OTHER ASSETS
iOther assets consist of the following (in thousands):
|
|
August 31, |
|
|
|
|||
|
|
|
|
2022 |
|
|||
|
Deferred product cost |
$ |
i 1,135 |
|
|
$ |
i 1,493 |
|
|
Deferred compensation plan assets |
|
i 6,692 |
|
|
|
i 7,215 |
|
|
Lease receivables, non-current |
|
i 17,161 |
|
|
|
i 15,118 |
|
|
Prepaid commissions |
|
i 2,750 |
|
|
|
i 2,894 |
|
|
Other |
|
i 3,084 |
|
|
|
i 2,912 |
|
|
|
$ |
i 30,822 |
|
|
$ |
i 29,632 |
|
/ i
NOTE 7 – FINANCING ARRANGEMENTS
i
The following table provides a summary of our debt as of August 31, 2022 and February 28, 2022 (in thousands):
|
|
Maturity |
|
Effective |
|
|
August 31, |
|
|
February 28, |
|
|||
|
|
Date |
|
Interest Rate |
|
|
2022 |
|
|
2022 |
|
|||
|
2025 Convertible Notes, i i 2.00 / % fixed rate (2) |
|
|
i 2.49 |
% |
|
|
i 230,000 |
|
|
|
i 230,000 |
|
|
|
Due to factors under revenue assignments |
2020 - 2024 |
|
|
i 4.70 |
% |
|
|
i 2,305 |
|
|
|
i 3,829 |
|
|
Total term debt |
|
|
|
|
|
|
|
i 232,305 |
|
|
|
i 233,829 |
|
|
Unamortized discount and issuance costs (1) |
|
|
|
|
|
|
|
( i 3,585 |
) |
|
|
( i 41,541 |
) |
|
Less: Current portion of long-term term debt |
|
|
|
|
|
|
|
( i 1,828 |
) |
|
|
( i 2,585 |
) |
|
Long-term debt, net of current portion |
|
|
|
|
|
|
$ |
i 226,892 |
|
|
$ |
i 189,703 |
|
|
(1) |
The debt discount associated with the Convertible Notes and related unamortized debt issuance costs as of August 31, 2022 reflects the adoption impact of ASU 2020-06 effective March 1, 2022. See Note 1, Significant Accounting Policies – Recent Accounting Pronouncements, for further information regarding the adoption of ASU 2020-06. |
|
(2) |
The effective interest rate was i i 7.56 / % prior to the adoption of ASU 2020-06. |
/
15
The effective interest rates for the convertible notes include the interest on the notes and amortization of the debt issuance costs. As of August 31, 2022 and February 28, 2022, the fair value of the 2025 Convertible Notes were $ i 204 million and $ i 209 million, respectively, based on Level 2 inputs.
2025 Convertible Notes
In July 2018, we issued debt of $ i 230.0 million aggregate principal amount of convertible senior unsecured notes due in 2025 (“2025 Convertible Notes”). These notes require semi-annual interest payments at an annual rate of i 2.00% until maturity, conversion, redemption or repurchase, which will be no later than i August 1, 2025. i We may redeem the notes at our option at any time on or after August 6, 2022 at a cash redemption price equal to the principal amount plus accrued interest, but only if the last reported sale price per share of our stock exceeds 130% of the conversion price on (i) each of at least 20 trading days, whether or not consecutive, during the 30 consecutive trading days ending on, and including, the trading day immediately before the date we send the related redemption notice; and (ii) the trading day immediately before the date we send such notice. The 2025 Convertible Notes are convertible into cash, shares of our common stock or a combination of both, at our election, based on an initial conversion price of $ i 30.7450. Holders may convert their 2025 Convertible Notes at their option upon the occurrence of certain events, as defined in the 2025 Indenture.
In accounting for the issuance of the 2025 Convertible Notes prior to the adoption of ASU 2020-06, we allocated the gross proceeds of the Notes between the liability and equity components under the cash conversion feature model using the accounting rules in GAAP (ASC 470-20). The carrying amount of the liability component was calculated by measuring the fair value of a similar debt instrument without the associated convertible feature. The carrying amount of the equity component, representing the conversion option, was determined by deducting the fair value of the liability component from the principal amount of the notes as a whole. The equity component was not re-measured as long as it continued to meet the conditions for equity classification. The excess of the principal amount of the liability component over its carrying amount (i.e., the debt discount) was amortized to interest expense using the effective interest method. Approximately $ i 51.9 million, net of tax, was allocated to additional paid-in-capital upon issuance of these notes.
Upon adoption of ASU 2020-06 on March 1, 2022, we reversed the separation of the debt and equity components and accounted for the Convertible Notes wholly as debt. We also reversed the amortization of the debt discount, with a cumulative effect adjustment to retained earnings (accumulated deficit) on the adoption date. Prior to the adoption of this pronouncement, debt issuance costs attributable to the liability component were being amortized to interest expense using the effective interest method and debt issuance costs attributable to the equity component were netted with the equity component in stockholders’ equity. Effective March 1, 2022, we reversed the debt issuance costs attributable to the equity component and account for the entire amount as debt issuance costs that will be amortized as interest expense using the effective interest method, with a cumulative effect adjustment to retained earnings (accumulated deficit) on the adoption date. See Note 1, Significant Accounting Policies – Recent Accounting Pronouncements, for further information regarding the adoption of ASU 2020-06 and Note 10, Earnings Per Share, for a description of the dilutive nature of the Convertible Notes.
In July 2018, in connection with the 2025 Convertible Notes, we entered into capped call transactions with certain option counterparties who were initial purchasers of the 2025 Convertible Notes. The capped call transactions are expected to reduce the potential dilution of earnings per share upon conversion of the 2025 Convertible Notes. Under the capped call transactions, we purchased options relating to i 7.48 million shares of common stock underlying the notes, with a strike price equal to the conversion price of the notes and with a cap price equal to $ i 41.3875. We paid $ i 21.2 million for the note hedges and as a result, approximately $ i 15.9 million, net of tax, was recorded as a reduction to additional paid-in capital within stockholders’ equity.
Revolving Credit Facility
i On July 13, 2022, we replaced our revolving credit facility with JP Morgan Chase Bank, N.A. and we entered into a new revolving credit facility with PNC Bank, N.A., that provides for an asset-based senior secured revolving credit facility for borrowings up to an aggregate of $ i 50.0 million, subject to certain conditions, including borrowing base provisions that limit borrowing capacity to i 80% of eligible accounts receivable and i 50% of eligible inventory. / At our election, the borrowings under this revolving credit facility bear interest at either the Bloomberg short-term bank yield rate plus a margin of i 2.50% per annum or an alternate base rate plus a margin of i 1.50% per annum. We also pay an unused line fee ranging from i 0.50% to i 0.75% per annum, based on the level of borrowings, payable quarterly in arrears. Amounts owed under the revolving credit facility are guaranteed by the Company and certain of its subsidiaries. We have also granted security interests in substantially all of our respective assets to secure these obligations. The revolving credit facility will terminate, and all outstanding loans will become due and payable on the earlier of i July 13, 2025 and the date that is ninety days prior to the maturity date of our 2025 Convertible notes. The proceeds available under the revolving credit facility could be used for working capital and general corporate purposes, which could include acquisitions. The revolving credit facility contains customary events of default, that upon our default may require us to pay all amounts outstanding and allow PNC Bank to foreclose on collateral. At August 31, 2022, there were i no borrowings outstanding under this revolving credit facility and total borrowing availability was $ i 34.0 million.
The revolving credit facility contains certain negative and affirmative covenants, including financial covenants that require us to maintain a fixed charge coverage rate of not less than i 1.10 to i 1.00, measured as of the last day of each fiscal quarter if our liquidity position, consisting of specified cash balances plus unused availability on the revolving credit facility, falls below $ i 40.0 million on such day. Additionally, the revolving credit facility contains a cash dominion trigger whereby PNC Bank may direct domestic cash balances and receipts to pay down borrowings under the revolving credit facility should our liquidity position, consisting of specified cash balances plus unused availability on the revolving credit facility, fall below $ i 25.0 million at the end of any month. As of August 31, 2022, we were in compliance with our covenants under the revolving credit facility.
16
i
NOTE 8 – LEASES
We have various non-cancelable operating leases for our offices in California, Texas, Massachusetts, Indiana, Minnesota and Virginia in the United States, and Italy, Mexico and the United Kingdom. We also have various non-cancelable operating leases for towers and vehicles throughout the United States, Italy and Mexico. These leases expire at various times through 2033. Certain lease agreements contain renewal options, rent abatement, and escalation clauses that are factored into our determination of lease payments when appropriate.
iThe table below presents lease-related assets and liabilities recorded on the condensed consolidated balance sheet (in thousands):
|
|
|
|
|
|
||||
|
Assets |
|
|
|
|
|
|
|
|
|
Operating lease right-of-use assets |
|
$ |
i 10,367 |
|
|
$ |
i 12,327 |
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
Operating lease liabilities (current) |
|
$ |
i 5,038 |
|
|
$ |
i 5,086 |
|
|
Operating lease liabilities (non-current) |
|
|
i 10,717 |
|
|
|
i 13,382 |
|
|
Total lease liabilities |
|
$ |
i 15,755 |
|
|
$ |
i 18,468 |
|
|
|
|
|
|
|
|
|
|
|
Lease Costs
iThe following lease costs were included in our condensed consolidated statements of comprehensive loss as follows (in thousands):
|
|
Three months ended August 31, |
|
|
Six Months Ended August 31, |
|
||||||||||||||
|
|
|
|
|
|
2021 |
|
|
2022 |
|
|
|
|
2021 |
|
|||||
|
Operating lease cost |
$ |
i 1,075 |
|
|
|
|
$ |
i 1,157 |
|
|
$ |
i 2,194 |
|
|
|
|
$ |
i 2,288 |
|
|
Short-term lease cost |
|
i 37 |
|
|
|
|
|
i 14 |
|
|
|
i 73 |
|
|
|
|
|
i 31 |
|
|
Variable lease cost |
|
i 16 |
|
|
|
|
|
i 101 |
|
|
|
i 51 |
|
|
|
|
|
i 203 |
|
|
Total lease cost |
$ |
i 1,128 |
|
|
|
|
$ |
i 1,272 |
|
|
$ |
i 2,318 |
|
|
|
|
$ |
i 2,522 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
/
Supplemental Information
iThe table below presents supplemental information related to operating leases (in thousands, except weighted-average information):
|
|
|
Six Months Ended |
|
||||
|
|
|
|
|||||
|
|
|
|
2021 |
|
|||
|
Cash paid for amounts included in the measurement of operating lease liabilities |
|
$ |
i 2,943 |
|
$ |
i 2,835 |
|
|
Right-of-use assets obtained in exchange for new operating lease liabilities |
|
$ |
i 34 |
|
$ |
i 1,919 |
|
|
Weighted average remaining lease term |
|
i 3.5 years |
|
i 4.44 years |
|
||
|
Weighted average discount rate |
|
i 5.16% |
|
|
i 5.17 |
% |
|
/
17
Undiscounted Cash Flows
iThe table below reconciles the undiscounted cash flows for each of the first five fiscal years and total of the remaining years to the operating lease liabilities recorded on the condensed consolidated balance sheet as of August 31, 2022 (in thousands):
|
Remainder of 2023 |
|
$ |
i 2,920 |
|
|
2024 |
|
|
i 5,539 |
|
|
2025 |
|
|
i 3,941 |
|
|
2026 |
|
|
i 3,077 |
|
|
2027 |
|
|
i 1,322 |
|
|
Thereafter |
|
|
i 477 |
|
|
Total minimum lease payments |
|
|
i 17,276 |
|
|
Less imputed interest |
|
|
( i 1,521 |
) |
|
Present value of future minimum lease payments |
|
|
i 15,755 |
|
|
Less current obligations under leases |
|
|
( i 5,038 |
) |
|
Long-term lease obligations |
|
$ |
i 10,717 |
|
/
i
NOTE 9 - INCOME TAXES
We use the assets and liabilities method when accounting for income taxes. Under this method, deferred income tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to the taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
We evaluate our estimated annual effective tax rate (“ETR”) on a quarterly basis based on current and forecasted operating results. The relationship between our income tax provision or benefit and our pretax book income or loss can vary significantly from period to period considering, among other factors, the overall level of pretax book income or loss and changes in the blend of jurisdictional income or loss that is taxed at different rates and changes in valuation allowances. The income tax expense of $ i 0.1 million and $ i 0.4 million for the three and six months ended August 31, 2022, respectively, was primarily attributable to one of our foreign subsidiaries. Any income tax benefit associated with the pre-tax loss for the quarter ended August 31, 2022, resulting primarily from the U.S. jurisdiction, is offset by a full valuation allowance.
/ iNOTE 10 - EARNINGS PER SHARE
Basic earnings (loss) per share is computed by dividing net income (loss) for the period by the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed by dividing net income for the period by the weighted average number of common shares outstanding during the period plus the dilutive effect of outstanding stock options and restricted stock-based awards using the treasury stock method. i The calculation of the basic and diluted loss per share of common stock is as follows (in thousands, except per share value):
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
August 31, |
|
|
|
|||||||||||
|
|
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
|||||
|
Net loss from continuing operations |
$ |
( i 7,494 |
) |
|
$ |
( i 5,425 |
) |
|
|
( i 19,667 |
) |
|
|
( i 11,425 |
) |
|
Net income from discontinued operations, net of tax |
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
i 4,052 |
|
|
Net loss |
$ |
( i 7,494 |
) |
|
$ |
( i 5,425 |
) |
|
$ |
( i 19,667 |
) |
|
$ |
( i 7,373 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average number of common shares outstanding |
|
i 36,006 |
|
|
|
i 35,152 |
|
|
|
i 35,864 |
|
|
|
i 34,998 |
|
|
Effect of stock options and restricted stock units computed on treasury stock method |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Diluted weighted average number of common shares outstanding |
|
i 36,006 |
|
|
|
i 35,152 |
|
|
|
i 35,864 |
|
|
|
i 34,998 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income (loss) per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations |
$ |
( i 0.21 |
) |
|
$ |
( i 0.15 |
) |
|
$ |
( i 0.55 |
) |
|
$ |
( i 0.33 |
) |
|
Income from discontinued operations |
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
i 0.12 |
|
|
Diluted net income (loss) per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations |
$ |
( i 0.21 |
) |
|
$ |
( i 0.15 |
) |
|
$ |
( i 0.55 |
) |
|
$ |
( i 0.33 |
) |
|
Income from discontinued operations |
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
i 0.12 |
|
All outstanding options and restricted stock units for the three and six months ended August 31, 2022 and 2021 were excluded from the computation of diluted loss per share because we reported a net loss for each of these periods and the effect of inclusion would be antidilutive.
/18
We adopted ASU 2020-06 on March 1, 2022 under the modified retrospective method and applied the new guidance to our 2025 Convertible Notes outstanding as of that date. We have not changed previously disclosed amounts or provided additional disclosures for comparative periods. ASU 2020-06 requires the if-converted method to be applied for all convertible instruments when calculating diluted earnings per share. Under the if-converted method, diluted earnings per share will be calculated assuming that all the Convertible Notes were converted solely into shares of common stock at the beginning of the reporting period, unless the result would be anti-dilutive. Since we had a net loss for the three and six months ended August 31, 2022, respectively, the 2025 Convertible Notes were determined to be anti-dilutive and therefore had no impact to basic or diluted net loss per share for the period as a result of adopting the new pronouncement.
iNOTE 11 – STOCKHOLDERS’ EQUITY
iStock-based compensation expense is included in the following captions of the condensed consolidated statements of comprehensive loss (in thousands):
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
August 31, |
|
|
|
|||||||||||
|
|
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
|||||
|
Cost of revenues |
$ |
i 30 |
|
|
$ |
i 795 |
|
|
$ |
i 85 |
|
|
$ |
i 789 |
|
|
Research and development |
|
i 672 |
|
|
|
i 321 |
|
|
|
i 1,436 |
|
|
|
i 1,031 |
|
|
Selling and marketing |
|
i 749 |
|
|
|
i 979 |
|
|
|
i 1,309 |
|
|
|
i 1,623 |
|
|
General and administrative |
|
i 1,745 |
|
|
|
i 723 |
|
|
|
i 3,326 |
|
|
|
i 1,783 |
|
|
Other non-operating expense |
|
- |
|
|
|
i 119 |
|
|
|
- |
|
|
|
i 183 |
|
|
|
$ |
i 3,196 |
|
|
$ |
i 2,937 |
|
|
$ |
i 6,156 |
|
|
$ |
i 5,409 |
|
i
Changes in our outstanding stock options during the six months ended August 31, 2022 were as follows (options in thousands):
|
|
Number of Options |
|
|
Weighted Average Exercise Price |
|
|
Weighted average remaining contractual life (years) |
|
|
Aggregate intrinsic value |
|
||||
|
Outstanding at February 28, 2022 |
|
i 664 |
|
|
$ |
i 16.38 |
|
|
|
5.4 |
|
|
|
|
|
|
Granted |
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
Exercised |
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
Forfeited or expired |
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
Outstanding at August 31, 2022 |
|
i 664 |
|
|
$ |
i 16.38 |
|
|
|
4.9 |
|
|
$ |
- |
|
|
Exercisable at August 31, 2022 |
|
i 577 |
|
|
$ |
i 15.94 |
|
|
|
4.8 |
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
i
Changes in our outstanding restricted stock shares, performance stock units (“PSUs”) and restricted stock units (“RSUs”) during the six months ended August 31, 2022 were as follows (restricted shares, PSUs and RSUs in thousands):
|
|
Number of Restricted Shares, PSUs and RSUs |
|
|
Weighted Average Grant Date Fair Value |
|
|
Shares Retained to Cover Statutory Withholding Taxes |
|
|||
|
Outstanding at February 28, 2022 |
|
i 2,940 |
|
|
$ |
i 10.39 |
|
|
|
|
|
|
Granted |
|
i 2,237 |
|
|
|
i 4.65 |
|
|
|
|
|
|
Vested |
|
( i 857 |
) |
|
|
i 11.14 |
|
|
|
i 327 |
|
|
Forfeited |
|
( i 198 |
) |
|
|
i 11.13 |
|
|
|
|
|
|
Outstanding at August 31, 2022 |
|
i 4,122 |
|
|
$ |
i 7.09 |
|
|
|
|
|
As of August 31, 2022, there was $ i 24.0 million of total unrecognized stock-based compensation cost related to outstanding nonvested equity awards that is expected to be recognized as an expense over a weighted-average remaining vesting period of i 2.3 years.
/19
NOTE 12 - CONCENTRATION OF RISK
Significant Customers
We sell telematics products and services to large global enterprises in the industrial equipment, transportation and automotive market verticals. One customer in the industrial equipment industry accounted for i 17% and i 16% of our consolidated revenue for the three and six months ended August 31, 2022, respectively, and 18% and 20% of our consolidated revenue for the three and six months ended August 31, 2021, respectively. The same customer accounted for i 14% and i 12% of our consolidated accounts receivable at August 31, 2022 and February 28, 2022, respectively.
Significant Suppliers
We purchase a significant amount of our inventory from certain manufacturers or suppliers including components, assemblies and electronic manufacturing parts. These suppliers are located in Mexico and Asia, including China. The inventory is purchased under standard supply agreements that outline the terms of the product delivery. The title and risk of loss of the product generally pass to us upon shipment from the manufacturer’s plant or warehouse. i Some of these manufacturers accounted for more than i 10% of our purchases and accounts payable as follows (rounded): /
|
|
|
Three Months Ended August 31, |
|
|
Six Months Ended |
|
||||||||||
|
|
|
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
|||||
|
Inventory purchases: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplier A |
|
|
i 9 |
% |
|
|
i 17 |
% |
|
|
i 10 |
% |
|
|
i 18 |
% |
|
Supplier B |
|
|
i 14 |
% |
|
|
i 9 |
% |
|
|
i 13 |
% |
|
|
i 11 |
% |
|
Supplier C |
|
|
i 17 |
% |
|
|
i 14 |
% |
|
|
i 21 |
% |
|
|
i 14 |
% |
|
Supplier D |
|
|
i 11 |
% |
|
|
i 10 |
% |
|
|
i 11 |
% |
|
|
i 12 |
% |
|
|
|
August 31, |
|
|
|
|||
|
|
|
|
|
2022 |
|
|||
|
Accounts payable: |
|
|
|
|
|
|
|
|
|
Supplier A |
|
|
i 4 |
% |
|
|
i 3 |
% |
|
Supplier B |
|
|
i 16 |
% |
|
|
i 15 |
% |
|
Supplier C |
|
|
i 15 |
% |
|
|
i 11 |
% |
|
Supplier D |
|
|
i 9 |
% |
|
|
i 7 |
% |
We are currently reliant upon these manufacturers and suppliers for products. Although we believe that we can obtain products from other sources, the loss of a significant manufacturer or supplier could have a material impact on our financial condition and results of operations as the products that are being purchased may not be available on similar terms from another manufacturer or supplier.
/ i
NOTE 13 – OTHER FINANCIAL INFORMATION
iSupplemental Balance Sheet Information
Other current liabilities consist of the following (in thousands):
|
|
August 31, |
|
|
|
|||
|
|
|
|
2022 |
|
|||
|
Operating lease liabilities |
$ |
i 5,038 |
|
|
$ |
i 5,086 |
|
|
Warranty reserves |
|
i 1,757 |
|
|
|
i 1,823 |
|
|
Customer deposits |
|
i 2,217 |
|
|
|
i 2,586 |
|
|
Omega litigation reserve |
|
- |
|
|
|
i 3,000 |
|
|
Other (1) |
|
i 6,663 |
|
|
|
i 6,456 |
|
|
|
$ |
i 15,675 |
|
|
$ |
i 18,951 |
|
/
|
(1) |
Amount represents accruals for various operating expense such as professional fees, vendor incentives and other estimates that are expected to be paid within the next 12 months. |
/
20
Other non-current liabilities consist of the following (in thousands):
|
|
August 31, |
|
|
|
|||
|
|
|
|
2022 |
|
|||
|
Deferred revenue |
$ |
i 12,034 |
|
|
$ |
i 13,496 |
|
|
Deferred compensation plan liability |
|
i 6,343 |
|
|
|
i 6,800 |
|
|
Deferred tax liability |
|
i 233 |
|
|
|
i 216 |
|
|
Other |
|
i 2,074 |
|
|
|
i 2,128 |
|
|
|
$ |
i 20,684 |
|
|
$ |
i 22,640 |
|
i
Supplemental Statement of Comprehensive Loss Information
Interest expense consists of the following (in thousands):
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
August 31, |
|
|
|
|||||||||||
|
|
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
|||||
|
Interest expense on 2025 Convertible Notes: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stated interest at i i 2.00 / % per annum |
$ |
i 1,150 |
|
|
|
i 1,150 |
|
|
$ |
i 2,326 |
|
|
|
i 2,326 |
|
|
Amortization of discount and issue costs (1) |
|
i 262 |
|
|
|
i 2,511 |
|
|
|
i 529 |
|
|
|
i 5,028 |
|
|
|
|
i 1,412 |
|
|
|
i 3,661 |
|
|
|
i 2,855 |
|
|
|
i 7,354 |
|
|
Other interest expense |
|
i 52 |
|
|
|
i 143 |
|
|
|
i 142 |
|
|
|
i 299 |
|
|
Total interest expense |
$ |
i 1,464 |
|
|
$ |
i 3,804 |
|
|
$ |
i 2,997 |
|
|
$ |
i 7,653 |
|
|
(1) |
We adopted ASU 2020-06 during the first quarter of fiscal 2023 using the modified retrospective method. Accordingly, prior year reported amounts were not revised. |
/
Supplemental Cash Flow Information
i“Net cash provided by (used in) operating activities” includes cash payments for interest expense and income taxes as follows (in thousands):
|
|
Six Months Ended |
|
|||||
|
|
|
||||||
|
|
|
|
2021 |
|
|||
|
Interest expense paid |
$ |
i 2,408 |
|
|
$ |
i 2,400 |
|
|
Income tax paid, net of refunds |
$ |
i 75 |
|
|
$ |
i 356 |
|
/
i
NOTE 14 - SEGMENT INFORMATION AND GEOGRAPHIC DATA
We operate under i two reportable segments: Software & Subscription Services and Telematics Products. Our organizational structure is based on a number of factors that our CEO, the Chief Operating Decision Maker (“CODM”), uses to evaluate and operate the business, which include customer base, homogeneity of products, and technology.
Our Software & Subscription Services segment offers cloud-based, application enablement and telematics service platforms that facilitate integration of our own applications, as well as those of third parties, through open Application Programing Interfaces (“APIs”) to deliver full-featured IoT solutions to a wide range of customers and markets. Our scalable proprietary SaaS offerings enable rapid and cost-effective deployment of high-value solutions for customers all around the globe. Software & Subscription Services segment revenues include SaaS, professional services, devices sold with monitoring services and amortization of revenues and costs for customized devices functional only with application subscriptions that are not sold separately.
Our Telematics Products segment offers a portfolio of wireless data communications products, which includes asset tracking units, mobile telematics devices, fixed and mobile wireless gateways and routers. These wireless networking devices underpin a wide range of our own and third party software and service solutions worldwide and are critical for applications demanding secure, reliable and business-critical communications. Telematics Products segment revenues consist primarily of distinct product sales.
i /21
Segment information is as follows (in thousands):
|
|
Three Months Ended August 31, 2022 |
|
|
Three Months Ended August 31, 2021 |
|
||||||||||||||||||||||||||
|
|
Reportable Segments |
|
|
|
|
|
|
Reportable Segments |
|
|
|
|
|
||||||||||||||||||
|
|
Software & Subscription Services |
|
|
Telematics Products |
|
|
Corporate Expenses |
|
|
Total |
|
|
Software & Subscription Services |
|
|
Telematics Products |
|
|
Corporate Expenses |
|
|
Total |
|
||||||||
|
Revenues |
$ |
i 44,511 |
|
|
$ |
i 28,317 |
|
|
|
|
|
|
$ |
i 72,828 |
|
|
$ |
i 41,434 |
|
|
$ |
i 37,577 |
|
|
|
|
|
|
$ |
i 79,011 |
|
|
Gross profit |
$ |
i 20,865 |
|
|
$ |
i 8,147 |
|
|
|
|
|
|
$ |
i 29,012 |
|
|
$ |
i 21,332 |
|
|
$ |
i 12,038 |
|
|
|
|
|
|
$ |
i 33,370 |
|
|
Gross margin |
|
i 47 |
% |
|
|
i 29 |
% |
|
|
|
|
|
|
i 40 |
% |
|
|
i 51 |
% |
|
|
i 32 |
% |
|
|
|
|
|
|
i 42 |
% |
|
Adjusted EBITDA |
$ |
i 6,623 |
|
|
$ |
( i 1,244 |
) |
|
$ |
( i 613 |
) |
|
$ |
i 4,766 |
|
|
$ |
i 9,638 |
|
|
$ |
( i 378 |
) |
|
$ |
( i 959 |
) |
|
$ |
i 8,301 |
|
|
|
Six Months Ended August 31, 2022 |
|
|
Six Months Ended August 31, 2021 |
|
||||||||||||||||||||||||||
|
|
Reportable Segments |
|
|
|
|
|
|
Reportable Segments |
|
|
|
|
|
||||||||||||||||||
|
|
Software & Subscription Services |
|
|
Telematics Products |
|
|
Corporate Expenses |
|
|
Total |
|
|
Software & Subscription Services |
|
|
Telematics Products |
|
|
Corporate Expenses |
|
|
Total |
|
||||||||
|
Revenues |
$ |
i 84,068 |
|
|
$ |
i 53,486 |
|
|
|
|
|
|
$ |
i 137,554 |
|
|
$ |
i 76,477 |
|
|
$ |
i 82,208 |
|
|
|
|
|
|
$ |
i 158,685 |
|
|
Gross profit |
$ |
i 38,923 |
|
|
$ |
i 15,736 |
|
|
|
|
|
|
$ |
i 54,659 |
|
|
$ |
i 38,154 |
|
|
$ |
i 27,663 |
|
|
|
|
|
|
$ |
i 65,817 |
|
|
Gross margin |
|
i 46 |
% |
|
|
i 29 |
% |
|
|
|
|
|
|
i 40 |
% |
|
|
i 50 |
% |
|
|
i 34 |
% |
|
|
|
|
|
|
i 41 |
% |
|
Adjusted EBITDA |
$ |
i 10,578 |
|
|
$ |
( i 1,991 |
) |
|
$ |
( i 1,965 |
) |
|
$ |
i 6,622 |
|
|
$ |
i 15,532 |
|
|
$ |
i 3,254 |
|
|
$ |
( i 2,100 |
) |
|
$ |
i 16,686 |
|
The amount shown for each period in the “Corporate Expenses” column above consists of expenses that are not allocated to the business segments. These non-allocated corporate expenses include salaries and benefits of certain corporate staff and expenses such as audit fees, investor relations, stock listing fees, director and officer liability insurance, and director fees and expenses.
Our CODM evaluates each segment based primarily on revenue and Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (“Adjusted EBITDA”), and we therefore consider Adjusted EBITDA to be a primary measure of operating performance of our reportable segments. We define Adjusted EBITDA as earnings before investment income, interest expense, taxes, depreciation, amortization, stock-based compensation, impairment loss and other adjustments as identified below. i The adjustments to our net income (losses) prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) to calculate Adjusted EBITDA are itemized below (in thousands):
|
|
|
Three Months Ended August 31, |
|
|
Six Months Ended |
|
||||||||||
|
|
|
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
|||||
|
Net loss |
|
$ |
( i 7,494 |
) |
|
$ |
( i 5,425 |
) |
|
$ |
( i 19,667 |
) |
|
$ |
( i 7,373 |
) |
|
Less: net income from discontinued operations |
|
|
- |
|
|
|
- |
|
|
$ |
- |
|
|
$ |
i 4,052 |
|
|
Net loss from continuing operations |
|
$ |
( i 7,494 |
) |
|
$ |
( i 5,425 |
) |
|
$ |
( i 19,667 |
) |
|
$ |
( i 11,425 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment expense (income) |
|
|
i 58 |
|
|
|
( i 420 |
) |
|
|
i 172 |
|
|
|
( i 1,068 |
) |
|
Interest expense |
|
|
i 1,464 |
|
|
|
i 3,804 |
|
|
|
i 2,997 |
|
|
|
i 7,653 |
|
|
Income tax provision |
|
|
i 126 |
|
|
|
i 333 |
|
|
|
i 375 |
|
|
|
i 626 |
|
|
Depreciation |
|
|
i 4,059 |
|
|
|
i 4,242 |
|
|
|
i 8,215 |
|
|
|
i 8,472 |
|
|
Amortization of intangible assets |
|
|
i 1,330 |
|
|
|
i 1,394 |
|
|
|
i 2,672 |
|
|
|
i 2,647 |
|
|
Stock-based compensation |
|
|
i 3,196 |
|
|
|
i 2,937 |
|
|
|
i 6,156 |
|
|
|
i 5,409 |
|
|
Non-recurring legal expenses |
|
|
i 1,417 |
|
|
|
i 471 |
|
|
|
i 4,548 |
|
|
|
i 1,119 |
|
|
Costs incurred in transition of LoJack North America business to acquiror |
|
|
i 233 |
|
|
|
i 482 |
|
|
|
i 985 |
|
|
|
i 1,715 |
|
|
Other |
|
|
i 377 |
|
|
|
i 483 |
|
|
|
i 169 |
|
|
|
i 1,538 |
|
|
Adjusted EBITDA |
|
$ |
i 4,766 |
|
|
$ |
i 8,301 |
|
|
$ |
i 6,622 |
|
|
$ |
i 16,686 |
|
Our CODM does not obtain identifiable assets by segment because our businesses share resources, functions and facilities. We do not have significant long-lived assets outside the United States.
i22
Revenues by geographic area are as follows (in thousands):
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
August 31, |
|
|
|
|||||||||||
|
|
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
|||||
|
United States |
$ |
i 46,240 |
|
|
$ |
i 54,320 |
|
|
$ |
i 86,642 |
|
|
$ |
i 105,520 |
|
|
EMEA |
|
i 12,275 |
|
|
|
i 12,878 |
|
|
|
i 24,814 |
|
|
|
i 27,353 |
|
|
LATAM |
|
i 8,189 |
|
|
|
i 7,625 |
|
|
|
i 14,166 |
|
|
|
i 14,150 |
|
|
APAC |
|
i 5,590 |
|
|
|
i 2,794 |
|
|
|
i 10,809 |
|
|
|
i 8,195 |
|
|
All other |
|
i 534 |
|
|
|
i 1,394 |
|
|
|
i 1,123 |
|
|
|
i 3,467 |
|
|
|
$ |
i 72,828 |
|
|
$ |
i 79,011 |
|
|
$ |
i 137,554 |
|
|
$ |
i 158,685 |
|
Revenues by geographic area are based upon the country of billing. The geographic location of distributors and OEM customers may be different from the geographic location of the ultimate end users of the products and services provided by us. No single non-U.S. country accounted for more than 10% of our revenue in the three and six months ended August 31, 2022 and 2021.
iNOTE 15 – LEGAL PROCEEDINGS
Omega patent infringement claim
On April 28, 2022, we filed our Form 10-K for the fiscal year ended February 28, 2022 which disclosed the current status of the Omega Patents LLC (“Omega”) patent infringement claim.
The parties commenced a mediation on April 12, 2022, and on May 17, 2022, CalAmp and Omega executed an agreement for a settlement and release and a covenant not to sue under certain patents. On June 1, 2022, we paid $ i 4.9 million pursuant to this settlement agreement. The parties filed a Joint Stipulation of Dismissal With Prejudice on June 15, 2022, and on June 16, 2022, the court dismissed the case with prejudice.
Philips patent infringement claim
On December 17, 2020, Koninklijke Philips N.V. (“Philips”) filed i four separate legal actions against us, and several other companies, accusing the companies of infringing Philips’s 3G and 4G wireless standard-essential patents: (1) first, in the U.S. District Court, District of Delaware, Philips v. Quectel Wireless Solutions Co. Ltd. (“Quectel”), CalAmp, Xirgo Technologies, LLC (“Xirgo”), and Laird Connectivity, Inc. (“Laird”), Philips alleges that our location monitoring units infringe certain claims of U.S. Patent No. 7,831,271 (“the ’271 patent”), U.S. Patent No. 8,199,711 (“the ’711 patent”), U.S. Patent No. 7,554,943 (“the ’943 patent”), and U.S. Patent No. 7,944,935 (“the ’935 patent”) (all four patents collectively, the “Patents”); (2) second, in the U.S. District Court, District of Delaware, Philips v. Telit Wireless Solutions, Inc., Telit Communications Plc, (collectively, “Telit”), and CalAmp, Philips alleges that our location monitoring units and certain modules therein infringe certain claims of the Patents; (3) third, in the U.S. District Court, District of Delaware, Philips v. Thales DIS AIS USA LLC (F/K/A Gemalto IoT LLC “Gemalto”) F/K/A Cinterion Wireless Modules NAFTA LLC (“Cinterion”), Thales DIS AIS Deutschland GmbH (F/K/A Gemalto M2M GmbH), Thales USA, Inc., Thales S.A., (collectively, “Thales”), CalAmp, Xirgo, and Laird, Philips alleges that our location monitoring units infringe certain claims of the Patents, and (4) fourth, before The International Trade Commission (“ITC”), Philips v. Quectel, CalAmp, Xirgo, Laird, Thales, Gemalto, Cinterion, and Telit, Philips alleges violations of section 337 of the U.S. Tariff Act based upon our importation into the United States, the sale for importation, and the sale within the United States after importation of certain UMTS (Universal Mobile Telecommunications System) and LTE (Long Term Evolution) cellular communication modules and products containing the same by reason of our location monitoring units that allegedly infringe on certain claims of the Patents, and seeks (a) an investigation and a hearing under the Tariff Act for unlawful importation of allegedly infringing product, (b) an exclusion order excluding entry into the U.S. of all allegedly infringing communication modules, and (c) a permanent cease and desist order barring the importation, marketing, advertising, and sale of allegedly infringing products in the U.S.
On April 1, 2022, the administrative law judge (“ALJ”) at the ITC issued a Final Initial Determination on the question of violation of section 337 (19 U.S.C. § 1337). The ALJ determined that a violation of section 337 has not occurred with respect to any of the asserted patents. On July 6, 2022, the ITC affirmed the Final Initial Determination of no violation of Section 337 and terminated the investigation.
The three district court cases are currently stayed. Considering the ITC’s determination of no infringement of any of the i four patents asserted we believe that we have strong defenses should the Delaware district court cases proceed. Also, we believe we have strong indemnification claims against our communication module suppliers, and are entitled to have our defense costs and any losses resulting from these proceedings paid by those suppliers, who are co-defendants in these proceedings, should the stays be removed in the three district court cases. Currently, it is not feasible to predict with certainty the outcome of the three district court cases, and no specific amount of damages has been identified. Additionally, we believe the ultimate resolution of the proceedings, including indemnification and defense by our module suppliers, will not have a material adverse effect on our consolidated results of operations, financial condition, or cash flows.
/23
Other matters
In addition to the foregoing matters, from time to time as a normal consequence of doing business, various claims and litigation may be asserted or commenced against us. In particular, we may receive claims concerning contract performance or claims that our products or services infringe the intellectual property of third parties which are in the ordinary course of business. While the outcome of any such claims or litigation cannot be predicted with certainty, management does not believe that the outcome of such matters existing at the present time would have a material adverse effect on our condensed consolidated results of operations, financial condition or cash flows.
24
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Our discussion and analysis of financial condition and results of operations is based upon our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The preparation of these financial statements requires management to make estimates and assumptions that may affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues, costs and expenses during the reporting periods. Actual results could differ materially from these estimates. The critical accounting policies listed below involve our more significant accounting judgments and estimates that are used in the preparation of the consolidated financial statements. These policies are described in greater detail in Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) under Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended February 28, 2022, as filed with the U.S. Securities and Exchange Commission (the “SEC”) on April 28, 2022, and include the following areas:
|
|
• |
Revenue recognition; |
|
|
• |
Patent litigation and other contingencies; |
|
|
• |
Goodwill and long-lived assets; and |
|
|
• |
Deferred income tax assets and uncertain tax positions. |
We are a connected intelligence company that leverages a data-driven solutions ecosystem to help people and organizations improve operational performance. We solve complex problems for customers within the market verticals of transportation and logistics, commercial and government fleets, industrial equipment, government and consumer vehicles by providing solutions that track, monitor and recover their vital assets. The data and insights enabled by CalAmp solutions provide real-time visibility into a user’s vehicles, assets, drivers, and cargo, giving organizations greater understanding and control of their operations. Ultimately, these insights drive operational visibility, safety, efficiency, maintenance, and sustainability for organizations around the world. We are a global organization that is headquartered in Irvine, California. We have two reportable segments, Software & Subscription Services and Telematics Products. Our organizational structure is based on a number of factors that our CEO, as the Chief Operating Decision Maker (“CODM”), uses to evaluate and operate the business, which include, but are not limited to, customer base, homogeneity of products, and technology. A description of the reportable business segments is provided below.
Software & Subscription Services
Our Software & Subscription Services segment offers cloud-based application enablement and telematics service platforms that facilitate integration of our own applications, as well as those of third parties, through open APIs to deliver full-featured mobile IoT solutions to a wide range of customers and markets. Our scalable proprietary applications and other subscription services enable rapid and cost-effective development of high-value solutions for customers all around the globe. Services include tracking and monitoring services within Fleet Management as well as Supply Chain Integrity and International Vehicle Location.
Telematics Products
Our Telematics Products segment offers a series of advanced telematics products for the broader connected vehicle and emerging industrial IoT marketplace, which enable customers to optimize their operations by collecting, monitoring and effectively reporting business-critical information and desired intelligence from high-value remote and mobile assets. Our telematics products include asset tracking units, mobile telematics devices, fixed and mobile wireless gateways, and routers. These wireless networking devices underpin a wide range of solutions, and are ideal for applications demanding secure, reliable and business-critical communications. Products and sales channels include OEM and MRM products.
Adjusted EBITDA
In addition to our GAAP results, we present Adjusted EBITDA as a supplemental non-GAAP measure of our performance. Our CEO, the CODM, uses Adjusted EBITDA to evaluate and monitor segment performance. A non-GAAP financial measure is defined as a numerical measure of a company’s financial performance that excludes or includes amounts to be different than the most directly comparable measure calculated and presented in accordance with GAAP in the statements of comprehensive income (loss), balance sheets or statements of cash flows. We define Adjusted EBITDA as earnings before investment income, interest expenses, taxes, depreciation, amortization, net income (loss) from discontinued operations, stock-based compensation, acquisition and integration expenses, non-cash costs and expenses arising from purchase accounting adjustments, litigation provisions, gain from legal settlement, impairment losses and certain other adjustments. We believe this non-GAAP financial information provides additional insight into our ongoing performance and have therefore chosen to provide this information to investors for a more consistent basis of comparison to help investors evaluate our results of ongoing operations and enable more meaningful period-to-period comparisons. Pursuant to the rules and regulations of the SEC regarding the use of non-GAAP financial measures, we have provided a reconciliation of non-GAAP financial measures to the most directly comparable financial measure. See Note 14, Segment Information and Geographic Data, to the accompanying condensed consolidated financial statements for additional information related to Adjusted EBITDA by reportable segment and reconciliation to net loss.
25
Recent Developments
COVID-19 Impact and Supply Chain Constraints
In March 2020, the World Health Organization declared COVID-19 to be a public health pandemic of international concern, which has resulted in travel restrictions and in some cases, prohibitions of non-essential activities, disruption and shutdown of businesses and greater uncertainty in global financial markets.
Since March 2020 our revenues have been negatively impacted by COVID-19 as various small-to-medium sized customers postponed their capital expenditures due to the pandemic and related macro-economic uncertainties. More recently, we have experienced supply shortages as a result of global supply imbalances driven by the global pandemic. These global supply imbalances have negatively impacted all parts of our business, both in the form of reduced availability of components and devices as well as increased costs to procure available components and devices. It is difficult to predict the extent to which these factors will continue to impact our future business or operating results, which is highly dependent on uncertain future developments, including the severity of the continuing pandemic, the actions taken or to be taken by governments and private businesses in relation to its containment and resolution of supply chain issues and supply shortages. Because our business and operating results depend on telematics product sales, device installations and related subscription-based services, the ultimate effect of the pandemic and the current supply shortages may not be fully reflected in our operating results until future periods.
We have considered all known and reasonably available information that existed throughout the six months ended and as of August 31, 2022, in making accounting judgements, estimates and disclosures. We are monitoring the potential effects of the health care related and economic conditions of COVID-19 in assessing certain matters including (but not limited to) supply chain disruptions and inflationary impacts, decreases in customer demand for our products and services, potential longer-term effects on our customer and distribution channels particularly in the U.S. and relevant end markets as well as other developments. If the impact results in longer term closures of businesses and economic recessionary conditions, we may recognize material asset impairments and charges for uncollectible accounts receivable in future periods.
Transition of MRM Telematics Customers to Subscription Arrangements
In the second half of fiscal 2022, we prompted a strategic shift with customers who have historically purchased MRM telematics devices from us. These customers are being transitioned to new arrangements by way of bundling subscription services with telematics devices under multi-year (generally three years) subscription contracts. Our plan is to transition the entire base of MRM business to multi-year subscription contracts over the course of fiscal 2023. As a result, our financial results associated with such subscription arrangements will be reported within our Software & Subscription Services reporting segment prospectively from the effective date of such underlying contracts. In the short term, we expect that this will lead to significant growth in our Software & Subscription Services business with a corresponding decline in our Telematics Products business. Long term, we believe this shift will allow us to drive revenue growth as we generate incremental revenue from our existing customer base as well as new customers through current and anticipated broader future subscription service offerings.
Sale of LoJack North America Operations
Effective March 15, 2021, we sold certain assets and transferred certain liabilities of the LoJack North America business.
As further described in Note 2, Discontinued Operations, to the accompanying condensed consolidated financial statements, the LoJack North America operations are presented as discontinued operations in the accompanying condensed consolidated financial statements for the six months ended August 31, 2021. For the six months ended August 31, 2021, we have reported the operating results and cash flows related to the LoJack North America operations through March 14, 2021.
26
OPERATING RESULTS
Three months ended August 31, 2022 compared to three months ended August 31, 2021:
Revenue by Segment
|
|
Three Months Ended August 31, |
|
|
|
|
|
|
|
|
|
|||||||||||||
|
|
|
|
2021 |
|
|
|
|
|
|
|
|
|
|||||||||||
|
(In thousands) |
$ |
|
|
% of Revenue |
|
|
$ |
|
|
% of Revenue |
|
|
$ Change |
|
|
% Change |
|
||||||
|
Segment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software & Subscription Services |
$ |
44,511 |
|
|
|
61.1 |
% |
|
$ |
41,434 |
|
|
|
52.4 |
% |
|
$ |
3,077 |
|
|
|
7.4 |
% |
|
Telematics Products |
|
28,317 |
|
|
|
38.9 |
% |
|
|
37,577 |
|
|
|
47.6 |
% |
|
|
(9,260 |
) |
|
|
(24.6 |
%) |
|
Total |
$ |
72,828 |
|
|
|
100.0 |
% |
|
$ |
79,011 |
|
|
|
100.0 |
% |
|
$ |
(6,183 |
) |
|
|
(7.8 |
%) |
Our Software & Subscription Services enable customers to gather and analyze critical data used to track, monitor and recover vital mobile assets with real-time visibility and insights. Our services focus on three principal end markets: (i) transportation and logistics, (ii) government and municipalities, and (iii) connected car services. As described above, in the second half of fiscal 2022, we began entering into subscription-based arrangements with customers that historically purchased MRM telematics hardware from us, a shift that favorably impacts revenues in our Software & Subscription Services segment and unfavorably impacts revenues in our Telematics Products segment. This is a transition that we expect will continue throughout fiscal 2023 as we work toward transitioning the entire MRM telematics customer base into subscription arrangements. In fiscal 2022 we began experiencing supply shortages driven by the global pandemic. These supply imbalances have intensified in the past few quarters and adversely impacted all parts of our business. We expect these supply shortages to continue for the foreseeable future as suppliers strive to create additional production capacity.
As of August 31, 2022, our remaining contractual performance obligations were approximately $210 million, compared to $141 million as of August 31, 2021. The majority of the growth in contractual performance obligations was driven by the conversion of telematics products customers to multi-year subscription contracts as well as new customer acquisitions within the government and municipality markets and connected car markets.
Software & Subscription Services revenue increased by $3.1 million or 7.4% for the three months ended August 31, 2022 compared to the same period last year largely due to increased transportation and logistics revenues generated through the transition of MRM telematics hardware customers onto multi-year subscription arrangements, which commenced in the third quarter of fiscal 2022. Such customer transitions contributed $12.4 million to revenues during the three months ended August 31, 2022. Partially offsetting this increase in revenues was $7.5 million of revenues in the prior year period associated with 3G to 4G equipment upgrades for specific larger customers that did not recur in the current year. Active subscribers increased by 32% in the three months ended August 31, 2022 when compared to the prior year period. As mentioned above, supply shortages have impacted our ability to procure the devices we utilize to deliver our subscription services, which has constrained our ability to install our devices and initiate new subscription services.
Telematics Products revenue, comprised primarily of MRM telematics and OEM/network products, decreased by $9.3 million or 24.6% for the three months ended August 31, 2022 compared to the same period last year. This decrease was largely driven by the conversion of certain MRM telematics hardware customers onto multi-year subscription contracts, and thus revenues generated after the contract effective dates for these customers are classified within Software & Subscription Services revenues to the extent they are associated with a subscription arrangement. We expect the conversion of the rest of our MRM customer base to continue over the next two to three quarters as we continue to implement our strategy to engage with our customers under subscription arrangements, which will lead to further decreases in Telematics Products segment revenues with an associated increase in Software & Subscription Services revenues. Telematics Products revenues have also been negatively impacted by the supply shortages described above, thereby limiting our ability to fulfill customer orders during the three months ended August 31, 2022.
Gross Profit by Segment
|
|
Three Months Ended August 31, |
|
|
|
|
|
|
|
|
|
|||||||||||||
|
|
|
|
2021 |
|
|
|
|
|
|
|
|
|
|||||||||||
|
(In thousands) |
$ |
|
|
% of Revenue |
|
|
$ |
|
|
% of Revenue |
|
|
$ Change |
|
|
% Change |
|
||||||
|
Segment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software & Subscription Services |
$ |
20,865 |
|
|
|
46.9 |
% |
|
$ |
21,332 |
|
|
|
51.5 |
% |
|
$ |
(467 |
) |
|
|
(2.2 |
%) |
|
Telematics Products |
|
8,147 |
|
|
|
28.8 |
% |
|
|
12,038 |
|
|
|
32.0 |
% |
|
|
(3,891 |
) |
|
|
(32.3 |
%) |
|
Gross profit |
$ |
29,012 |
|
|
|
39.8 |
% |
|
$ |
33,370 |
|
|
|
42.2 |
% |
|
$ |
(4,358 |
) |
|
|
(13.1 |
%) |
27
Consolidated gross profit decreased by $4.4 million or 13.1% for the three months ended August 31, 2022 compared to the same period last year largely due to decreased revenues in our Telematics Products business. Consolidated gross margin decreased by 240 basis points for the three months ended August 31, 2022 compared to the same period last year primarily due to an unfavorable shift in customer and product mix coupled with increased costs incurred in the manufacture and procurement of our telematics devices. These negative impacts to gross margin were partially offset by the increased proportion of overall sales occurring within Software & Subscription Services, which has a higher margin profile, in the current year period.
Software & Subscription Services: Gross profit decreased by $0.5 million or 2.2% for the three months ended August 31, 2022 compared to the same period last year, and gross margin decreased by 460 basis points primarily due to customer mix and increased costs in the manufacture and procurement of our telematics devices.
Telematics Products: Gross profit decreased by $3.9 million or 32.3% for the three months ended August 31, 2022 compared to the same period last year primarily due to decreased revenues. Gross margin decreased by 320 basis points primarily due to product mix and increased costs in the manufacture and procurement of our telematics devices.
As mentioned above, we are presently experiencing adverse impacts to revenues as a result of global supply shortages of certain components, which is also leading to cost increases on many of these components. As a result, in the coming quarters we may continue to experience lower gross margins if we are unable to effectively offset the impacts of these cost increases.
Operating Expenses
|
|
Three Months Ended August 31, |
|
|
|
|
|
|
|
|
|
|||||||||||||
|
|
|
|
2021 |
|
|
|
|
|
|
|
|
|
|||||||||||
|
(In thousands) |
$ |
|
|
% of Revenue |
|
|
$ |
|
|
% of Revenue |
|
|
$ Change |
|
|
% Change |
|
||||||
|
Research and development |
$ |
6,757 |
|
|
|
9.3 |
% |
|
$ |
7,729 |
|
|
|
9.8 |
% |
|
$ |
(972 |
) |
|
|
(12.6 |
%) |
|
Selling and marketing |
|
12,734 |
|
|
|
17.5 |
% |
|
|
12,047 |
|
|
|
15.2 |
% |
|
|
687 |
|
|
|
5.7 |
% |
|
General and administrative |
|
13,530 |
|
|
|
18.6 |
% |
|
|
13,198 |
|
|
|
16.7 |
% |
|
|
332 |
|
|
|
2.5 |
% |
|
Intangible asset amortization |
|
1,330 |
|
|
|
1.8 |
% |
|
|
1,394 |
|
|
|
1.8 |
% |
|
|
(64 |
) |
|
|
(4.6 |
%) |
|
Total |
$ |
34,351 |
|
|
|
47.2 |
% |
|
$ |
34,368 |
|
|
|
43.5 |
% |
|
$ |
(17 |
) |
|
|
0.0 |
% |
Consolidated research and development expense decreased by $1.0 million or 12.6% for the three months ended August 31, 2022 compared to the same period last year due to a reduction in research and development activities associated with our Telematics Products business, partially offset by increased development efforts focused on expanding our telematics services offering both domestically and internationally. We plan to continue to invest in research and development to supplement and expand our telematics solutions offering.
Consolidated selling and marketing expense increased by $0.7 million or 5.7% for the three months ended August 31, 2022 compared to the same period last year primarily due to increased compensation costs resulting from changes in the composition of our salesforce to drive sales of our telematics subscription services.
Consolidated general and administrative expenses increased slightly for the three months ended August 31, 2022 compared to the same period last year.
Amortization of intangibles decreased slightly for the three months ended August 31, 2022 compared to the same period last year.
Non-operating Income (Expense)
Investment income (loss) decreased to a loss of $0.1 million for the three months ended August 31, 2022 from investment income of $0.4 million for the three months ended August 31, 2021. The decrease was primarily driven by lower investment returns on invested funds.
Interest expense decreased to $1.5 million for the three months ended August 31, 2022 from $3.8 million for the three months ended August 31, 2021 due to the adoption of ASU 2020-06 effective March 1, 2022 under which the conversion feature associated with our convertible notes is no longer separately accounted for as a debt discount and amortized to interest expense. The impacts of the adoption of ASU 2020-06 are more fully described in Note 1, under the caption “Recently Adopted Accounting Pronouncements”, to the accompanying condensed consolidated financial statements.
Other non-operating expense was $0.5 million for the three months ended August 31, 2022 as compared to $0.7 million for the three months ended August 31, 2021, and was largely comprised of costs incurred related to the wind down and transition of the LoJack North America business as well as net foreign currency exchange rate losses.
28
Overall Profitability Measures
Net Loss:
GAAP-basis net loss for the three months ended August 31, 2022 was $7.5 million compared to a net loss of $5.4 million in the three months ended August 31, 2021. The change in the net loss was largely driven by lower revenues in the current year period.
Adjusted EBITDA:
|
|
Three Months Ended August 31, |
|
|
|
|
|
|||||||||
|
(In thousands) |
2022 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|
||||
|
Segment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software & Subscription Services |
$ |
6,623 |
|
|
$ |
9,638 |
|
|
$ |
(3,015 |
) |
|
|
(31.3 |
%) |
|
Telematics Products |
|
(1,244 |
) |
|
|
(378 |
) |
|
|
(866 |
) |
|
|
229.1 |
% |
|
Corporate Expenses |
|
(613 |
) |
|
|
(959 |
) |
|
|
346 |
|
|
|
36.1 |
% |
|
Total Adjusted EBITDA |
$ |
4,766 |
|
|
$ |
8,301 |
|
|
$ |
(3,535 |
) |
|
|
(42.6 |
%) |
Adjusted EBITDA for Software & Subscription Services decreased $3.0 million compared to the same period last year primarily due to lower gross margins and higher operating expenses as a result of investments we are making to develop, market and sell our telematics solutions, partially offset by higher revenues. Adjusted EBITDA for Telematics Products decreased $0.9 million compared to the same period last year as a result of decreased revenues. Corporate Expenses decreased by $0.3 million compared to the same period last year.
See Note 14, Segment Information and Geographic Data, to the accompanying condensed consolidated financial statements for information related to Adjusted EBITDA by reportable segment and a reconciliation to GAAP-basis net loss.
Income Tax Provision
We evaluate our estimated annual effective tax rate (“ETR”) on a quarterly basis based on current and forecasted operating results. The relationship between our income tax provision or benefit and our pretax book income or loss can vary significantly from period to period considering, among other factors, the overall level of pretax book income or loss and changes in the blend of jurisdictional income or loss that is taxed at different rates and changes in valuation allowances. Consequently, our ETR may fluctuate significantly period to period and may make quarterly comparisons less meaningful.
Income tax expense was $0.1 million for the three months ended August 31, 2022, compared to income tax expense of $0.3 million in the same period last year. The $0.2 million decrease in tax expense was primarily driven by a decrease in pre-tax income attributable to one of our foreign subsidiaries in the current period.
Six months ended August 31, 2022 compared to six months ended August 31, 2021:
Revenue by Segment
|
|
|
Six Months Ended August 31, |
|
|
|
|
|
|
|
|
|
|||||||||||||
|
|
|
|
|
2021 |
|
|
|
|
|
|
|
|
|
|||||||||||
|
(In thousands) |
|
$ |
|
|
% of Revenue |
|
|
$ |
|
|
% of Revenue |
|
|
$ Change |
|
|
% Change |
|
||||||
|
Segment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software & Subscription Services |
|
$ |
84,068 |
|
|
|
61.1 |
% |
|
$ |
76,477 |
|
|
|
48.2 |
% |
|
$ |
7,591 |
|
|
|
9.9 |
% |
|
Telematics Products |
|
|
53,486 |
|
|
|
38.9 |
% |
|
|
82,208 |
|
|
|
51.8 |
% |
|
|
(28,722 |
) |
|
|
(34.9 |
%) |
|
Total |
|
$ |
137,554 |
|
|
|
100.0 |
% |
|
$ |
158,685 |
|
|
|
100.0 |
% |
|
$ |
(21,131 |
) |
|
|
(13.3 |
%) |
Software & Subscription Services revenue increased by $7.6 million or 9.9% for the six months ended August 31, 2022 compared to the same period last year largely due to increased transportation and logistics revenues generated through the transition of MRM telematics hardware customers onto multi-year subscription arrangements, which commenced in the third quarter of fiscal 2022. Such customer transitions contributed $20.9 million to revenues during the six months ended August 31, 2022. Partially offsetting this increase in revenues was $10.5 million of revenues in the prior year period associated with 3G to 4G equipment upgrades for specific larger customers that did not recur in the current year. As mentioned above, supply shortages have impacted our ability to procure the devices we utilize to deliver our subscription services, which has constrained our ability to install our devices and initiate new subscription services.
Telematics Products revenue decreased by $28.7 million or 34.9% for the six months ended August 31, 2022 compared to the same period last year. This decrease was largely driven by the conversion of certain MRM telematics hardware customers onto multi-year subscription contracts, and thus revenues generated after the contract effective dates for these customers are classified within Software & Subscription Services revenues to the extent they are associated with a subscription arrangement. We expect the conversion of the rest of our MRM customer base to continue over the next two to three quarters as we continue to implement our strategy to engage with our customers under subscription
29
arrangements, which will lead to further decreases in Telematics Products segment revenues with an associated increase in Software & Subscription Services revenues. Telematics Products revenues have also been negatively impacted by the supply shortages described above, thereby limiting our ability to fulfill customer orders during the three months ended August 31, 2022.
Gross Profit by Segment
|
|
Six Months Ended August 31, |
|
|
|
|
|
|
|
|
|
|||||||||||||
|
|
|
|
2021 |
|
|
|
|
|
|
|
|
|
|||||||||||
|
(In thousands) |
$ |
|
|
% of Revenue |
|
|
$ |
|
|
% of Revenue |
|
|
$ Change |
|
|
% Change |
|
||||||
|
Segment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software & Subscription Services |
$ |
38,923 |
|
|
|
46.3 |
% |
|
$ |
38,154 |
|
|
|
49.9 |
% |
|
$ |
769 |
|
|
|
2.0 |
% |
|
Telematics Products |
|
15,736 |
|
|
|
29.4 |
% |
|
|
27,663 |
|
|
|
33.7 |
% |
|
|
(11,927 |
) |
|
|
(43.1 |
%) |
|
Gross profit |
$ |
54,659 |
|
|
|
39.7 |
% |
|
$ |
65,817 |
|
|
|
41.5 |
% |
|
$ |
(11,158 |
) |
|
|
(17.0 |
%) |
Consolidated gross profit decreased by $11.2 million or 17.0% for the six months ended August 31, 2022 compared to the same period last year largely due to decreased revenues in our Telematics Products business. Consolidated gross margin decreased by 180 basis points for the six months ended August 31, 2022 compared to the same period last year primarily due to an unfavorable shift in customer and product mix coupled with increased costs incurred in the manufacture and procurement of our telematics devices. These negative impacts to gross margin were partially offset by the increased proportion of overall sales occurring within Software & Subscription Services, which has a higher margin profile, in the current year period.
Software & Subscription Services: Gross profit increased by $0.8 million or 2.0% for the six months ended August 31, 2022 compared to the same period last year, primarily as a result of increased revenues. Gross margin decreased by 360 basis points primarily due to customer mix and increased costs in the manufacture and procurement of our telematics devices.
Telematics Products: Gross profit decreased by $11.9 million or 43.1% for the six months ended August 31, 2022 compared to the same period last year primarily due to decreased revenues. Gross margin decreased by 430 basis points primarily due to product mix and increased costs in the manufacture and procurement of our telematics devices.
As mentioned above, we are presently experiencing adverse impacts to product sales as a result of global supply shortages of certain components, which is also leading to cost increases on many of these components. As a result, in the coming quarters we may continue to experience lower gross margins if we are unable to effectively offset the impacts of these cost increases.
Operating Expenses
|
|
Six Months Ended August 31, |
|
|
|
|
|
|
|
|
|
|||||||||||||
|
|
|
|
2021 |
|
|
|
|
|
|
|
|
|
|||||||||||
|
(In thousands) |
$ |
|
|
% of Revenue |
|
|
$ |
|
|
% of Revenue |
|
|
$ Change |
|
|
% Change |
|
||||||
|
Research and development |
$ |
13,757 |
|
|
|
10.0 |
% |
|
$ |
14,669 |
|
|
|
9.2 |
% |
|
$ |
(912 |
) |
|
|
(6.2 |
%) |
|
Selling and marketing |
|
24,212 |
|
|
|
17.6 |
% |
|
|
24,509 |
|
|
|
15.4 |
% |
|
|
(297 |
) |
|
|
(1.2 |
%) |
|
General and administrative |
|
28,692 |
|
|
|
20.9 |
% |
|
|
26,220 |
|
|
|
16.5 |
% |
|
|
2,472 |
|
|
|
9.4 |
% |
|
Intangible asset amortization |
|
2,672 |
|
|
|
1.9 |
% |
|
|
2,647 |
|
|
|
1.7 |
% |
|
|
25 |
|
|
|
0.9 |
% |
|
Total |
$ |
69,333 |
|
|
|
50.4 |
% |
|
$ |
68,045 |
|
|
|
42.9 |
% |
|
$ |
1,288 |
|
|
|
1.9 |
% |
Consolidated research and development expense decreased by $0.9 million or 6.2% for the six months ended August 31, 2022 compared to the same period last year due to a reduction in research and development activities associated with our Telematics Products business, partially offset by increased development efforts focused on expanding our telematics services offering both domestically and internationally. We plan to continue to invest in research and development to supplement and expand our telematics solutions offering .
Consolidated selling and marketing expense decreased slightly for the six months ended August 31, 2022 compared to the same period last year. We expect to continue to make changes in the composition of our salesforce to drive sales of our telematics subscription services.
Consolidated general and administrative expenses increased by $2.5 million or 9.4% for the six months ended August 31, 2022 compared to the same period last year primarily driven by increased legal fees and the recording of $1.9 million of incremental litigation reserves related to the final settlement of the Omega legal matter, which is described in Note 15, Legal Proceedings, to the accompanying condensed consolidated financial statements.
Amortization of intangibles increased slightly for the six months ended August 31, 2022 compared to the same period last year.
30
Non-operating Income (Expense)
Investment income (loss) decreased to a loss of $0.2 million for the six months ended August 31, 2022 from investment income of $1.1 million for the six months ended August 31, 2021. The decrease was primarily driven by lower investment returns on invested funds.
Interest expense decreased to $3.0 million for the six months ended August 31, 2022 from $7.7 million for the six months ended August 31, 2021 due to the adoption of ASU 2020-06 effective March 1, 2022 under which the conversion feature associated with our convertible notes is no longer separately accounted for as a debt discount and amortized to interest expense. The impacts of the adoption of ASU 2020-06 are more fully described in Note 1, under the caption “Recently Adopted Accounting Pronouncements”, to the accompanying condensed consolidated financial statements.
Other non-operating expense was $1.4 million for the six months ended August 31, 2022 as compared to $2.0 million for the six months ended August 31, 2021, and was largely comprised of costs incurred related to the wind down and transition of the LoJack North America business as well as, to a lesser extent, net foreign currency exchange rate losses.
Net Income from Discontinued Operations, Net of Tax
Net income from discontinued operations, net of tax was $4.1 million for the six months ended August 31, 2021 and related to the sale of the LoJack North America business that was completed on March 15, 2021. See Note 2, Discontinued Operations, to the accompanying condensed consolidated financial statements for additional information.
Overall Profitability Measures
Net Loss:
GAAP-basis net loss for the six months ended August 31, 2022 was $19.7 million compared to a net loss of $7.4 million in the six months ended August 31, 2021. The change in the net loss was largely driven by lower revenues in the current year period and the gain recognized on the sale of the LoJack North America business in the prior year period
Adjusted EBITDA:
|
|
Six Months Ended August 31, |
|
|
|
|
|
|||||||||
|
(In thousands) |
2022 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|
||||
|
Segment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software & Subscription Services |
$ |
10,578 |
|
|
$ |
15,532 |
|
|
$ |
(4,954 |
) |
|
|
(31.9 |
%) |
|
Telematics Products |
|
(1,991 |
) |
|
|
3,254 |
|
|
|
(5,245 |
) |
|
|
(161.2 |
%) |
|
Corporate Expenses |
|
(1,965 |
) |
|
|
(2,100 |
) |
|
|
135 |
|
|
|
6.4 |
% |
|
Total Adjusted EBITDA |
$ |
6,622 |
|
|
$ |
16,686 |
|
|
$ |
(10,064 |
) |
|
|
(60.3 |
%) |
Adjusted EBITDA for Software & Subscription Services decreased $5.0 million compared to the same period last year primarily due to lower gross margins and higher operating expenses as a result of investments we are making to develop, market and sell our telematics solutions, partially offset by higher revenues. Adjusted EBITDA for Telematics Products decreased $5.3 million compared to the same period last year as a result of the decrease in revenues. Corporate Expenses decreased by $0.1 million compared to the same period last year.
See Note 14, Segment Information and Geographic Data, to the accompanying condensed consolidated financial statements for information related to Adjusted EBITDA by reportable segment and a reconciliation to GAAP-basis net loss.
Income Tax Provision
Income tax expense was $0.4 million for the six months ended August 31, 2022, compared to $0.6 million in the same period last year. The $0.2 million decrease in tax expense was primarily driven by a decrease in pre-tax income attributable to one of our foreign subsidiaries in the current period.
LIQUIDITY AND CAPITAL RESOURCES
Consistent with fiscal 2022, our primary recurring cash needs have been for working capital purposes and to a lesser extent, capital expenditures. We have historically funded our principal business activities through cash flows generated from operations and cash on hand. As we continue to grow our customer base to a subscription model while increasing our revenues, there will be a need for working capital in the future. Our immediate sources of liquidity are cash and cash equivalents, and our revolving credit facility. As of August 31, 2022, we have $47.7 million of cash and cash equivalents and $34 million available under our revolving credit facility. We expect to continue to finance our operations with cash on hand and cash generated from operations. See Note 1, Description of Business, Basis of Presentation and Summary of Significant Accounting Policies, for additional information on the Company’s liquidity.
31
On July 13, 2022, we replaced our revolving credit facility with JP Morgan Chase Bank, N.A. and we entered into a new revolving credit facility with PNC Bank, N.A., that provides for an asset-based senior secured revolving credit facility for borrowings up to an aggregate of $50.0 million, subject to certain conditions, including borrowing base provisions that limit borrowing capacity to 80% of eligible accounts receivable and 50% of eligible inventory. The revolving credit facility will terminate, and all outstanding loans will become due and payable on the earlier of July 13, 2025 and the date that is ninety days prior to the maturity date of our 2025 Convertible notes. Borrowings under our existing credit facility bear interest at either the Bloomberg short-term bank yield rate plus a margin of 2.50% per annum or an alternate base rate plus a margin of 1.50% per annum as selected by us on a periodic basis. As of August 31, 2022, there were no borrowings outstanding on this revolving credit facility.
We are a defendant in various legal proceedings involving intellectual property claims and contract disputes. On May 17, 2022, we executed an agreement with Omega for the settlement and release of the Omega claim and a covenant not to sue under certain patents and on June 1, 2022, we paid $4.9 million pursuant to that settlement agreement. On June 16, 2022, the court dismissed the Omega case with prejudice. Regarding the Philips patent infringement claim, the ITC affirmed the Final Initial Determination of the administrative law judge of no violation of Section 337 and terminated the investigation on July 6, 2022. To date Philips has not exercised any appeal right it may have. The Delaware District Court cases are stayed pending resolution of the ITC matter, and may be reinstated after Philips’ appeal rights expire. In connection with this matter, we may be required to enter into a license agreement or other settlement arrangement that requires us to make a significant payment in the future. While it is not feasible to predict with certainty the outcome of this legal proceeding, based on currently available information, including the ITC’s affirmation of no violation of Section 337, we believe that the ultimate resolution of this matter will not have a material adverse effect on our condensed consolidated results of operations, financial condition and cash flows.
See Note 15, Legal Proceedings, of the Notes to Unaudited Condensed Consolidated Financial Statements for additional information on legal proceedings.
Sale of LoJack North America Operations
On March 14, 2021, we entered into an agreement with Spireon pursuant to which we sold certain assets and transferred certain liabilities of the LoJack North America business for a purchase price of $8.0 million. The transaction was completed effective March 15, 2021 and we received net proceeds of approximately $6.6 million. Subsequently, on November 9, 2021, the purchase price was reduced by $0.9 million, which was paid to Spireon, due to final working capital adjustments. We also entered into a Transition Service Agreement with Spireon on March 15, 2021 (“TSA”) to support Spireon in the transition of LoJack North America customers and to provide recovery services to the existing installed base of LoJack North America customers as an agent of Spireon, which effectively terminated on March 31, 2022. During the service period, we invoiced Spireon for certain costs incurred in operating this business.
We also entered into a post-TSA Services Agreement with Spireon on March 15, 2021 (“SA”), that commenced April 1, 2022 upon the expiration of the TSA, under which we will continue to provide certain services related to the LoJack North America radio frequency tower infrastructure for a period of no longer than fifty-four months, as needed. As consideration for these services, Spireon will pay us a monthly service fee over the stipulated contract term.
Future Cash Obligations
During the second quarter of fiscal 2023, there were no significant changes to our estimates of future payments under our fixed contractual obligations and commitments as presented in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, included in our Annual Report on Form 10-K for our fiscal year ended February 28, 2022 as filed with the SEC on April 28, 2022.
Cash flows from operating activities
Cash flows from operating activities consist of net loss adjusted for certain non-cash items, including depreciation, intangible asset amortization, stock-based compensation expense, amortization of discount and debt issue costs, deferred income taxes, amortization of certain revenue assignment arrangements and the effect of changes in components of working capital.
Our cash flow from operating activities are attributable to our net loss as well as how well we manage our working capital, which is dictated by the volume of products we purchase from our manufacturers or suppliers and then sell to our customers along with the payment and collection terms that we negotiate with them. We purchase a majority of our products from significant suppliers located in Asia and Mexico that generally provide us 60-day payment terms for products purchased.
Our significant customers are located in the United States as well as certain foreign countries. We believe that our relationships with our key customers are good and that these customers are in good financial condition. We generally grant credit to our customers based on their financial viability and our historical collections experience with them. We typically require payment from our customers within 30 to 45 days of our invoice date with a few exceptions that extend the credit terms up to 90 days. Historically, since we paid our suppliers at or within 60 days of inventory purchase and our payment terms on our accounts receivable are generally within 45 days, we generated positive cash flows from operating activities. In the second half of fiscal 2022, we began entering into subscription arrangements with key customers who previously purchased telematics devices from us. While these subscription arrangements create recurring multi-year revenue, they elongate the cash
32
conversion cycle as we must outlay cash for the associated device but recover this cash outlay over a subscription period. Thus the conversion of customers onto subscription arrangements has had an unfavorable impact on cash flows. We anticipate that this trend will continue over at least the next six months as we continue our efforts to transition our entire MRM telematics customer base onto similar multi-year subscription arrangements.
For the six months ended August 31, 2022, net cash used in operating activities was $25.7 million and net loss was $19.7 million. Our non-cash expenses from continuing operations, comprised principally of depreciation, intangible asset amortization, stock-based compensation expense, amortization of debt discount and issuance costs, noncash operating lease costs and changes in deferred income taxes totaled $19.5 million. These non-cash expenses were slightly offset by non-cash revenues of $1.5 million related to acquired revenue assignment arrangements. Changes in operating assets and liabilities from continuing operations used $23.9 million of cash, largely as a result of the increase in accounts receivable and the decrease in deferred revenue. Both the increase in accounts receivable and decrease in deferred revenue were driven by differences in timing of collections under new subscription arrangements such that less cash is collected at contract inception. Operating cash flows were favorably impacted by the timing of payments on accounts payable.
For the six months ended August 31, 2021, net cash provided by operating activities was $10.5 million and net loss was $7.4 million. Our non-cash expenses from continuing operations, comprised principally of depreciation, intangible asset amortization, stock-based compensation expense, amortization of debt discount and issue costs, noncash operating lease costs and changes in deferred income taxes totaled $23.9 million. These non-cash expenses were partially offset by non-cash revenues of $2.6 million related to acquired revenue assignment arrangements. Changes in operating assets and liabilities from continuing operations provided $1.0 million of cash, primarily driven by the impact of lower inventory levels, partly offset by a net decrease in accounts payable. Net cash used in discontinued operations was $0.4 million.
Cash flow from investing activities
For the six months ended August 31, 2022 and 2021, our net cash used in investing activities of continuing operations was $4.9 million and $6.6 million, respectively. In each of these periods, our primary investing activities consisted of capital expenditures. We expect that we will make additional capital expenditures in the future, including the devices that we lease to customers under subscription agreements in order to support the future growth of our business.
Net cash provided by investing activities of discontinued operations was $6.6 million during the six months ended August 31, 2021 and was comprised of cash proceeds received from the sale of the LoJack North America business.
Cash flow from financing activities
For the six months ended August 31, 2022 and 2021, our net cash used in financing activities was $1.1 million and $3.1 million, respectively, driven primarily by payments for taxes related to the net share settlement of vested equity awards.
We continue to monitor the impact of the pandemic and supply chain constraints on our operating results and liquidity as they have had an unfavorable impact on our financial condition and results of operations and we believe the pandemic and supply chain constraints may continue to have an unfavorable impact going forward.
FORWARD LOOKING STATEMENTS
Forward looking statements in this Form 10-Q which include, without limitation, statements relating to our plans, strategies, objectives, expectations, intentions, projections and other information regarding future performance, are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The words “may”, “will”, “could”, “plans”, “intends”, “seeks”, “believes”, “anticipates”, “expects”, “estimates”, “judgment”, “goal”, and variations of these words and similar expressions, are intended to identify forward-looking statements. These forward-looking statements reflect our current views with respect to future events and financial performance and are subject to certain risks and uncertainties that are difficult to predict, including, without limitation, product demand, competitive pressures and pricing declines in our markets, the timing of customer approvals of new product designs, intellectual property infringement claims, interruption or failure of our Internet-based systems used to wirelessly configure and communicate with the tracking and monitoring devices that we sell, global component supply shortages due to ongoing supply chain constraints, the effect of tariffs on exports from China and other countries, the ongoing effects of the COVID-19 pandemic, and other risks and uncertainties that are set forth in Part I, Item 1A of the Annual Report on Form 10-K for the fiscal year ended February 28, 2022 as filed with the SEC on April 28, 2022 and in Part II, Item 1A of the Quarterly Report on Form 10-Q for the quarter ended May 31, 2022, as filed with the SEC on June 23, 2022. Such risks and uncertainties could cause actual results to differ materially from historical or anticipated results. Although we believe the expectations reflected in such forward-looking statements are based upon reasonable assumptions, we can give no assurance that our expectations will be attained. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
33
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Foreign Currency Risk
We have international operations, giving rise to exposure to market risks from changes in currency exchange rates. A cumulative foreign currency translation loss of $3.0 million related to our foreign subsidiaries is included in “Accumulated other comprehensive loss” in the Stockholders' Equity section of the condensed consolidated balance sheet at August 31, 2022. The aggregate foreign currency transaction exchange rate losses included in determining loss before income taxes was $0.6 million and $49,000 for the six months ended August 31, 2022 and 2021, respectively.
As our international operations grow, our risks associated with fluctuation in foreign currency rates will become greater, and we will continue to reassess our approach to managing this risk. In addition, currency fluctuations or a weakening U.S. dollar could increase the costs of our international expansion and operations.
Interest Rate Risk
Our exposure to market rate risk for changes in interest rates relates primarily to our investment portfolio. The primary objective of our investment activities is to preserve principal and liquidity while at the same time maximizing yields without significantly increasing risk. To achieve this objective, we maintain our investment portfolio in a variety of available-for-sale fixed debt securities, including both government and corporate obligations and money market funds. Investments in fixed rate interest earning instruments carry a degree of interest rate risk. Fixed rate securities may have their fair market value adversely impacted due to a rise in prevailing interest rates. Due in part to these factors, we may suffer losses in principal if we need the funds prior to maturity and we choose to sell securities that have declined in market value due to changes in interest rates or perceived credit risk related to the securities’ issuers.
As the majority of our investment portfolio has a short-term nature, we do not believe an immediate increase or decrease in interest rate would have a material effect on the fair market value of our portfolio, and therefore, we do not expect our operating results or cash flows to be materially affected by a sudden change in market interest rates.
We do not believe our cash equivalents have significant risk of default or illiquidity. However, we cannot provide absolute assurance that in the future our investments will not be subject to adverse changes in market value. In addition, we maintain significant amounts of cash and cash equivalents at one or more financial institutions that are in excess of federally insured limits. We cannot be assured that we will not experience losses on these deposits.
Loans outstanding under our revolving credit facility bear interest at either the Bloomberg short-term bank yield rate plus a margin of 2.50% per annum or an alternate base rate plus a margin of 1.50% per annum. Changes in interest rates would impact our variable rate borrowings. As of August 31, 2022, there was no outstanding borrowings under our revolving credit facility.
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Our principal executive officer and principal financial officer have concluded, based on their evaluation of disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report, that our disclosure controls and procedures are effective to ensure that the information required to be disclosed in reports that are filed or submitted under the Exchange Act is accumulated and communicated to management, including the principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure and that such information is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal controls over financial reporting (as defined in Rules 13a-15(f) and 15d 15(f) under the Exchange Act) that occurred during the second quarter of fiscal 2023 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
34
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See Note 15, Legal Proceedings, of the Notes to Unaudited Condensed Consolidated Financial Statements above for information regarding the legal proceedings in which we are involved.
ITEM 1A. RISK FACTORS
The reader is referred to Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended February 28, 2022, as filed with the SEC on April 28, 2022, and to Part II, “Item 1A. Risk Factors” in our Quarterly Report on Form 10-Q for the quarter ended May 31, 2022, as filed with the SEC on June 23, 2022, for a discussion of factors that could materially affect our business, financial condition, results of operations, or future results.
Other than the risks described in the above-referenced Form 10-K and Form 10-Q, the Company is subject to the following risk:
Our revolving credit facility contains covenant restrictions that may limit our ability to operate our business.
Our senior asset-based revolving credit agreement contains, and any of our other future debt agreements may contain, covenant restrictions that limit our ability to operate our business, including restrictions on our ability to, among other things, incur additional debt or issue guarantees, create liens, repurchase stock, or make other restricted payments, and make certain voluntary prepayments of specified debt. In addition, under certain circumstances we are required to comply with a fixed charge coverage ratio. As a result of these covenants, our ability to respond to changes in business and economic conditions and engage in beneficial transactions, including to obtain additional financing as needed, may be restricted. Furthermore, our failure to comply with our debt covenants could result in a default under our revolving credit facility, which could permit the holders to accelerate our obligation to repay the debt. If any of our debt is accelerated, we may not have sufficient funds available to repay it.
The revolving credit facility also contains certain negative and affirmative covenants, including financial covenants that require us to maintain a fixed charge coverage rate of not less than 1.10 to 1.00, measured as of the last day of each fiscal quarter if our liquidity position, consisting of specified cash balances plus unused availability on the revolving credit facility, falls below $40.0 million on such day. Additionally, the revolving credit facility contains a cash dominion trigger whereby PNC Bank may direct domestic cash balances and receipts to pay down borrowings under the revolving credit facility should our liquidity position, consisting of specified cash balances plus unused availability on the revolving credit facility, fall below $25.0 million at the end of any month. As of August 31, 2022, we were in compliance with our covenants under the revolving credit facility. However, if we are unable to comply with our covenants under the revolving credit facitilty in the future, our availability of cash resources may be reduced and our business may be adversely affected.
ITEM 2. UNREGISTERED SALES OF SECURITIES AND USE OF PROCEEDS
The following table contains information with respect to purchases made by or on behalf of CalAmp or any “affiliated purchaser” (as defined in Rule 10b18(a) (3) under the Securities Exchange Act of 1934), of our common stock during the second quarter ended August 31, 2022:
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|
|
Total Number of Shares Purchased (1) |
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|
Average Price Paid per Share (2) |
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Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs |
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|
Approximate Dollar Value of Shares that may be Purchased Under the Plans or Programs |
|
||||
|
June 1 - June 30, 2022 |
|
|
5,454 |
|
|
$ |
6.75 |
|
|
|
- |
|
|
$ |
- |
|
|
July 1 - July 31, 2022 |
|
|
237,726 |
|
|
$ |
4.62 |
|
|
|
- |
|
|
$ |
- |
|
|
August 1 - August 31, 2022 |
|
|
1,417 |
|
|
$ |
6.13 |
|
|
|
- |
|
|
$ |
- |
|
|
Total |
|
|
244,597 |
|
|
$ |
4.68 |
|
|
|
- |
|
|
$ |
- |
|
(1) The amounts in this column represent shares of our common stock surrendered by employees to the Company, upon vesting of restricted stock, to satisfy tax withholding requirements.
(2) Amounts in this column reflect the weighted average price paid for shares tendered to us in satisfaction of employee tax withholding obligations upon the vesting of restricted stock granted under our stock plan.
35
ITEM 5. OTHER INFORMATION
Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.
On September 20, 2022, the Board of Directors of the Company appointed Xiaolian (Cindy) Zhang as the Company’s Senior Vice President and Interim Chief Financial Officer, and Erik Schulz as the Company’s Interim Chief Accounting Officer, each to be effective as of September 23, 2022. Ms. Zhang replaces Kurt Binder, who provided the Company with notice on August 24, 2022 that he will resign as the Company’s Executive Vice President and Chief Financial Officer. Mr. Binder’s resignation was not the result of any disagreements with management.
As Senior Vice President and Interim Chief Financial Officer, Ms. Zhang will be the Company’s principal financial officer on an interim basis, and as Interim Chief Accounting Officer, Mr. Schulz will be the company’s principal accounting officer on an interim basis.
The Board adjusted Ms. Zhang’s compensation in connection with her appointment to Senior Vice President, Financial Planning and Analysis that occurred on August 31, 2022, by increasing her annual base salary to $270,000 from $264,000 and increasing her annual target incentive opportunity to 40% of base salary from 30% of base salary. In connection with Ms. Zhang’s appointment as Senior Vice President and Interim Chief Financial Officer, the Board approved (i) a $10,000 per month bonus while serving in this interim role, and (ii) a retention bonus in the amount of $80,000 that will be payable contingent upon Ms. Zhang remaining employed by the Company through April 30, 2023. In connection with the appointment of Mr. Schulz as Interim Chief Accounting Officer, he received an increase in his base salary to $263,750 from $258,750, effective September 25, 2022. Additionally, the Board approved a retention bonus in the amount of $60,000 that will be payable contingent upon Mr. Schulz remaining employed by the Company through April 30, 2023.
Ms. Zhang, age 50, joined CalAmp in 2017 and has been a senior leader of the finance team, contributing to the Company’s strategic multi-year financial plan, forecast models, and accounting functions, while working closely with the Company’s operations and sales teams. Ms. Zhang most recently served as Senior Vice President, Financial Planning and Analysis since August 2022, and prior to that served as Vice President, Financial Planning and Analysis. Prior to CalAmp, Ms. Zhang served as Senior Director, Finance at Vizio Inc. from 2015 to 2017 and prior to that served as Senior Manager, Finance & Strategy at The Walt Disney Company from 2005 to 2015. She holds a Master of Business Administration from The University of Chicago Booth School of Business, a Master in Foreign Trade from Hunan University and a Bachelor of Science in Electrical Engineering from Wuhan University of Technology.
Mr. Schulz, age 51, joined CalAmp in October 2020 and since then has served as the Company’s Vice President and Corporate Controller. Mr. Schulz has over 20 years of financial leadership experience. From June 2019 to September 2020, Mr. Schulz served as Vice President of Finance and Corporate Controller of Sonendo Inc., a dental technology company, and from September 2012 to May 2019, Mr. Schulz served as Vice President and Corporate Controller of Universal Electronics Inc., a smart home technology company. Prior to this experience, Mr. Schulz held various senior finance roles with Guess? Inc., VF Corporation and Iteris, Inc. Mr. Schulz began his professional career as an assurance manager with Ernst & Young LLP where he served clients in a broad range of industry sectors. Mr. Schulz is a certified public accountant (inactive) in the state of California and holds a Bachelor of Arts degree in finance and accounting from California State University Fullerton.
Neither of Ms. Zhang nor Mr. Schulz has a family relationship that would require disclosure under Item 401(d) of Regulation S-K, and there is no arrangement or understanding between Ms. Zhang, or Mr. Schulz, and any other person, pursuant to which Ms. Zhang or Mr. Schulz is to be selected as an officer of the Company that would require disclosure under Item 401(b) of Regulation S-K. Neither of Ms. Zhang nor Mr. Schulz is a party to nor has any direct or indirect material interest in any transaction with the Company that would require disclosure under Item 404(a) of Regulation S-K.
36
ITEM 6. EXHIBITS
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Chief Executive Officer Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
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Chief Financial Officer Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
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Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
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101 .INS |
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Inline XBRL Instance Document |
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101 .SCH |
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Inline XBRL Taxonomy Extension Schema Document |
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101 .CAL |
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Inline XBRL Taxonomy Extension Calculation Linkbase Document |
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101 .DEF |
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Inline XBRL Taxonomy Definition Linkbase Document |
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101 .LAB |
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Inline XBRLTaxonomy Extension Label Linkbase Document |
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101 .PRE |
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Inline XBRL Taxonomy Extension Presentation Linkbase Document |
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104 |
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Cover Page Interactive Data File (embedded within the Inline XBRL document) |
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37
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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CALAMP CORP. |
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/s/ Kurtis Binder |
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Date |
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EVP & Chief Financial Officer |
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(Principal Financial Officer and Chief Accounting Officer) |
38
| This ‘10-Q’ Filing | Date | Other Filings | ||
|---|---|---|---|---|
 | ||||
| 8/1/25 | ||||
| 7/13/25 | ||||
| 4/30/23 | ||||
| 2/28/23 | ||||
| 9/25/22 | ||||
| 9/23/22 | ||||
| Filed on: | 9/22/22 | 8-K | ||
| 9/21/22 | ||||
| 9/20/22 | ||||
| For Period end: | 8/31/22 | |||
| 8/24/22 | 8-K | |||
| 8/6/22 | ||||
| 7/31/22 | ||||
| 7/13/22 | 4, 8-K | |||
| 7/6/22 | ||||
| 6/30/22 | 4 | |||
| 6/23/22 | 10-Q, 3, 8-K | |||
| 6/16/22 | ||||
| 6/15/22 | ||||
| 6/1/22 | ||||
| 5/31/22 | 10-Q | |||
| 5/17/22 | 8-K | |||
| 4/28/22 | 10-K, 4, 8-K | |||
| 4/12/22 | ||||
| 4/1/22 | ||||
| 3/31/22 | ||||
| 3/1/22 | ||||
| 2/28/22 | 10-K | |||
| 11/9/21 | ||||
| 8/31/21 | 10-Q | |||
| 3/15/21 | ||||
| 3/14/21 | 8-K | |||
| 12/17/20 | 10-Q, 8-K | |||
| List all Filings | ||||
As Of Filer Filing For·On·As Docs:Size Issuer Filing Agent 3/21/23 CalAmp Corp. S-3 5:651K Donnelley … Solutions/FA |