CalAmp Corp. CAMP - $ NASDAQ Buy

Transcription

1 Scott W. Searle, CFA, (646) Sales (800) , Trading (800) COMPANY NOTE EQUITY RESEARCH June 28, 2018 Technology: Communications, Wireless & IoT CalAmp Corp. CAMP - $ NASDAQ Buy Company Update Estimates Changed, Target Price Changed Stock Data 52-Week Low - High $ $25.45 Shares Out. (mil) Mkt. Cap.(mil) $ Mo. Avg. Vol. 267, Mo.Price Target $27.00 Cash (mil) Tot. Debt (mil) $156.2 Est. 3Yr. EPS Growth 12% EPS $ Yr Feb E 2020E Curr Prev Curr Prev 1Q 0.29A 0.29A 0.28E 0.32E 0.31E 2Q 0.27A 0.28E 0.31E 0.33E 0.36E 3Q 0.31A 0.32E 0.35E 0.36E 0.38E 4Q 0.30A 0.34E 0.37E 0.38E 0.39E YEAR 1.17A 1.23E 1.31E 1.38E 1.44E P/E 18.2x 17.3x 16.2x 15.4x 14.8x Note: EPS estimates are fully diluted and pro forma adjusted for stock comp, amortization of intangibles and one-time items Revenue ($ millions) Yr Feb E 2020E Curr Prev Curr Prev 1Q 88.1A 94.9A 93.4E 100.6E 99.7E 2Q 89.8A 96.1E 96.7E 102.3E 105.9E 3Q 93.7A 99.3E 100.8E 105.6E 107.5E 4Q 94.4A 101.5E 103.8E 108.0E 110.9E YEAR 365.9A 391.8E 394.7E 416.4E 424.0E Vol (m) Jul-17 CAMP One-Year Price and Volume History Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun Price CAMP: GMs Mute Otherwise Solid Results and Outlook CalAmp reported another solid quarter with slight top-line and bottom line upside driven by MRM and software. However, mix and platform transitions translated to a gross margin shortfall which will persist over the next several quarters. While we are slightly tweaking down our EPS for the GM outlook, we believe the fundamental picture remains strong with growing presence in OEMs, general telematics and services to leverage the growing installed base. Maintain Buy, with slightly lowered $27PT. Upside to F1Q19 driven by MRM and Software: CalAmp reported another solid quarter with sales of $94.9M, up 8% y/y and at the high end of guidance, with EPS of $0.29, ahead of our $0.28 estimate. Upside was driven by continued strength in MRM products, up 24% y/y, and Software and Subscription Services, up 15% seq and y/y, driven by continued strength in Italy and freight. Network and OEM sales also remained strong with Caterpillar (CAT: NC) at 12% of the mix and a second heavy equipment OEM reaching $1.7M in sales. Top line headwinds continue to be the ongoing transition of the US LoJack channel, down over 20% y/y, which continues to push to a longer-term recurring model. The offset to top line strength was gross margins of 40.1% which were 120bp below our expectations. Non- GAAP EPS of $0.29 were a penny ahead of our estimate. Cash generation remains strong at $29M in free cash flow, partially reflecting payment from prior settlement with a Lojack supplier. Solid op line outlook, but gross margin headwinds persist: CalAmp guided FY2Q19 sales at $93-98M, largely bracketing ROTH and Street expectations (although the midpoint of $95.5M is below our prior estimates of $96.7M). However, non-gaap EPS and adjusted EBITDA guidance of $ and $11-15M is our below our prior expectations at the midpoint (effectively we were at the high end of the range). The delta is reflective of gross margins due to sales mix as well as product and platform transitions in both hardware (new LTE solutions) and software. We expect gross margins to improve over the course of FY19, but will weigh on near-term EPS. Consequently, we are lowering our EPS for FY19 and FY20 to $1.23 and $1.38 from $1.31 and $1.44. Continued... Important Disclosures & Regulation AC Certification(s) are located on page 6 to 7 of this report. Roth Capital Partners, LLC 888 San Clemente Drive Newport Beach CA Member FINRA/SIPC

2 Continued Fundamental story remains on track: Key components of the CalAmp thesis remain solidly on track including general strength in Telematics/MRM solutions, growing OEM penetration and traction (Caterpillar and others), and growth in the telematics subscriber base (now at 776k uniques). This continues to position CalAmp as a leading telematics solutions provider to monetize an installed base of ~20M devices (~9M active Lojack users) and 7M cloud connected devices. In addition to Crashboxx, lotsmart and suredrive, we see opportunities such as TransUnion leveraging the CalAmp footprint with next generation hardware offering future proof solutions for incremental services. We believe this places CalAmp on track for its target $100M of SaaS sales over the next several years. Maintain Buy; Reducing PT: While we are reducing our price target to $27, 14x our slightly revised FY20 EBITDA estimate of $69.3M, we maintain our Buy rating as CalAmp remain a uniquely positioned leader within Telematics and IoT sector. Buy. Page 2 of 7

3 VALUATION Trading at ~10-11x EV/CY19E EBITDA, shares of CAMP remain slightly discounted to solidly performing, and growing, industry peers (ALRM - Buy, ORBC - Buy and USAT - NC). At present CalAmp is firing on all cylinders with strength in core telematics (fleet and asset tracking), OEM and LoJack. Given CalAmp s industry leading scale, a strong balance sheet, positive cash flow and attractive growth in SaaS solutions, we believe that shares of CAMP are attractive with upside to the $27 level, or 14x EV/FY20E EBITDA. Impediments to achieving our price target include pricing and the competitive landscape, slower adoption of new services into the LoJack channel, and the general market growth of Telematics, Asset Tracking and Connected Vehicle markets. RISKS Quarterly volatility: While CalAmp has scale and has returned to growth, its end markets can be fast moving and volatile from quarter to quarter. Importantly, CalAmp maintains fairly limited customer concentration with Caterpillar (CAT: NC) as the largest customer at 10-12% of sales. Overall, we believe all business segments are experiencing good demand and growth. Competitive markets: The market for telematics hardware is fairly fragmented and competitive. As one of the largest players in the industry, CalAmp has scale and maintains attractive gross margins in excess of 40% on a blended basis. The company targets higher end market segments that are more protected and can be somewhat insulated with advanced feature sets and software. SaaS remains small: SaaS remains below 20% of the mix. The company continues to target $100M in recurring sales within two to three years, up from the current run rate of slightly in excess of $60M. To achieve this target will require acceleration in Lojack and other subscriber segments and/or additional M&A, in our opinion. LoJack has been slow to ramp: After a digestion and integration period following the mid 2016 acquisition, LoJack has begun to enter a more sustained period of growth. Additionally, redesigned hardware solutions, enable the Trojan Horse of incremental services such as LotSmart, SureDrive and CrashBoxx. COMPANY DESCRIPTION CalAmp Corp. is a pioneer and leading supplier of Industrial IoT and connect solutions targeted at the Telematics, Asset Tracking and Connected Vehicle markets. CalAmp provides a combination of hardware, software and solutions to these end markets. Page 3 of 7

4 CalAmp Fiscal Year Ends February Fiscal Year May-16 Aug-16 Nov-16 Feb-17 May-17 Aug-17 Nov-17 Feb-18 May-18 Aug-18 Nov-18 Feb-19 May-19 Aug-19 Nov-19 Feb-20 Income Statement 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19E 3Q19E 4Q19E 1Q20E 2Q20E 3Q20E 4Q20E Revenue COGS Gross Profit R&D G&A Operating Income Amortization Non-recurring Costs Operating Income (reported (2.0) (2.3) (1.3) (0.6) Net Interest (2.0) (2.0) (2.3) (1.9) (2.2) (2.2) (2.6) (2.6) (2.7) (2.7) (2.7) (2.7) (2.7) (2.7) (2.7) (2.7) (5.7) (8.2) (9.6) (10.7) (10.7) Other 0.5 (0.1) (0.6) (0.0) (0.1) EBT (3.5) 1.8 (1.1) (4.2) (3.4) (7.0) Income Tax (1.1) (1.0) (1.1) (1.1) Net Income (2.3) 0.9 (1.2) (3.2) (2.3) (4.5) (5.9) Share (Basic) Shares (FD) EPS (Basic) - GAAP ($0.06) $0.02 ($0.03) ($0.09) ($0.07) $0.36 $0.35 ($0.13) $0.25 $0.08 $0.13 $0.15 $0.13 $0.14 $0.17 $0.19 $0.49 ($0.16) $0.51 $0.61 $0.63 Pro Forma EPS (FD) $0.30 $0.27 $0.21 $0.28 $0.29 $0.27 $0.31 $0.30 $0.29 $0.28 $0.32 $0.34 $0.32 $0.33 $0.36 $0.38 $1.15 $1.06 $1.17 $1.23 $1.38 % of Sales Gross Margin 38.3% 42.0% 42.5% 41.6% 42.7% 41.4% 41.0% 41.2% 40.1% 40.4% 40.9% 41.4% 41.6% 41.9% 42.3% 42.6% 36.7% 41.1% 41.5% 40.7% 42.1% R&D 6.5% 6.1% 6.0% 5.5% 6.4% 7.1% 6.3% 7.3% 7.0% 6.9% 6.8% 6.8% 6.9% 6.9% 6.9% 6.9% 6.8% 6.0% 6.8% 6.9% 6.9% G&A 7.2% 10.4% 11.5% 9.8% 10.0% 9.8% 9.3% 9.5% 9.3% 9.2% 9.1% 9.0% 9.1% 9.0% 8.7% 8.5% 6.1% 9.7% 9.6% 9.2% 8.8% Op Inc (normalized) 12.5% 12.0% 10.2% 12.0% 12.4% 11.2% 12.3% 11.8% 10.7% 11.8% 13.0% 13.7% 13.8% 14.2% 15.1% 15.6% 15.7% 11.7% 11.9% 12.3% 14.7% Net Inc (2.6%) 1.0% (1.4%) (3.7%) (2.6%) 14.0% 13.1% (4.7%) 9.4% 3.1% 4.6% 5.4% 4.5% 5.0% 5.9% 6.4% 6.3% (1.7%) 4.9% 5.6% 5.5% % Change Revenue 39.3% 29.6% 11.6% 21.6% (3.4%) (0.8%) 12.4% 9.6% 7.7% 7.1% 6.0% 7.5% 6.0% 6.4% 6.4% 6.4% 12.0% 25.1% 4.2% 7.1% 6.3% Op Inc 14.7% (1.1%) (27.6%) (8.7%) (3.9%) (6.8%) 35.0% 7.4% (7.2%) 12.1% 12.4% 25.0% 36.5% 28.9% 22.9% 20.9% 23.5% (6.6%) 6.2% 10.7% 26.6% EPS 15.9% 0.0% (32.3%) (11.6%) (3.0%) 0.0% 47.6% 7.5% (0.3%) 2.3% 2.5% 13.5% 8.7% 19.4% 12.4% 9.9% 79.1% (7.8%) 10.6% 4.6% 12.4% Source: SEC Filings, company reports & ROTH Capital Partners Scott W Searle, CFA ssearle@roth.com (646) Page 4 of 7

5 CalAmp Sales Summary Fiscal Year Ends February Fiscal Year May-16 Aug-16 Nov-16 Feb-17 May-17 Aug-17 Nov-17 Feb-18 May-18 Aug-18 Nov-18 Feb-19 May-19 Aug-19 Nov-19 Feb-20 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19E 3Q19E 4Q19E 1Q20E 2Q20E 3Q20E 4Q20E E 2020E Sales Telematics Hardware MRM & LoJack OEM Services Satellite Total Mix Telematics Hardware 74.6% 76.6% 81.1% 83.1% 81.7% 82.5% 82.8% 82.9% 80.5% 80.5% 80.5% 80.3% 79.6% 79.3% 79.3% 79.2% 70.8% 78.8% 82.5% 80.4% 79.3% MRM & LoJack 56.5% 61.6% 66.3% 63.4% 64.9% 66.2% 63.0% 64.4% 63.5% 63.2% 63.4% 62.1% 62.6% 62.1% 62.4% 61.0% 49.4% 61.8% 64.6% 63.0% 62.0% OEM 18.1% 15.0% 14.7% 19.7% 16.8% 16.3% 19.8% 18.5% 17.0% 17.3% 17.0% 18.3% 17.0% 17.2% 16.9% 18.2% 21.4% 16.9% 17.9% 17.4% 17.3% Services 16.2% 16.0% 18.9% 16.9% 18.3% 17.5% 17.2% 17.1% 19.5% 19.5% 19.5% 19.7% 20.4% 20.7% 20.7% 20.8% 15.2% 17.0% 17.5% 19.6% 20.7% Satellite 9.2% 7.4% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 14.0% 4.3% 0.0% 0.0% 0.0% % Change (y/y) Telematics Hardware 44.1% 37.2% 29.6% 46.1% 5.8% 6.9% 14.7% 9.4% 6.1% 4.4% 3.0% 4.1% 4.8% 4.8% 4.9% 5.0% 39.1% 9.2% 4.4% 4.9% MRM & LoJack 55.1% 52.6% 48.9% 71.8% 11.1% 6.7% 6.7% 11.3% 5.3% 2.2% 6.7% 3.6% 4.5% 4.5% 4.6% 4.6% 56.6% 8.9% 4.4% 4.6% OEM 18.0% (2.8%) (18.1%) (1.2%) (10.7%) 7.4% 50.8% 3.0% 9.1% 13.6% (8.7%) 6.0% 5.9% 5.9% 5.9% 6.0% (1.3%) 10.1% 4.2% 5.9% Services 38.5% 28.2% 47.5% 46.7% 9.4% 8.3% 2.4% 10.8% 15.0% 19.7% 20.2% 23.9% 10.9% 12.9% 12.6% 12.3% 39.9% 7.6% 19.7% 12.2% Satellite 10.4% (16.5%) (100.0%) (100.0%) (100.0%) (100.0%) (61.7%) (100.0%) Total 39.3% 29.6% 11.6% 21.6% (3.4%) (0.8%) 12.4% 9.6% 7.7% 7.1% 6.0% 7.5% 6.0% 6.4% 6.4% 6.4% 12.0% 25.1% 4.2% 7.1% 6.3% % Change (Seq) Telematics Hardware 38.9% 1.9% (2.5%) 5.9% 0.5% 2.9% 4.7% 1.0% (2.5%) 1.3% 3.3% 2.1% (1.9%) 1.3% 3.4% 2.1% MRM & LoJack 62.0% 8.2% (0.7%) (1.3%) 4.8% 3.9% (0.7%) 3.0% (0.9%) 0.8% 3.7% 0.0% (0.0%) 0.9% 3.8% 0.0% OEM (3.9%) (17.6%) (9.8%) 38.3% (13.1%) (1.0%) 26.7% (5.5%) (8.0%) 3.1% 1.8% 9.8% (8.1%) 3.1% 1.8% 9.9% Services 48.6% (1.6%) 8.8% (7.8%) 10.8% (2.6%) 2.8% (0.2%) 15.1% 1.4% 3.2% 2.9% 2.9% 3.2% 3.0% 2.6% Satellite (29.5%) (20.5%) (100.0%) Total 28.7% (0.7%) (7.9%) 3.3% 2.3% 1.9% 4.3% 0.8% 0.5% 1.3% 3.3% 2.2% (0.9%) 1.7% 3.3% 2.2% Source: SEC Filings, company reports & ROTH Capital Partners Scott W Searle, CFA ssearle@roth.com (646) Page 5 of 7

6 Regulation Analyst Certification ("Reg AC"): The research analyst primarily responsible for the content of this report certifies the following under Reg AC: I hereby certify that all views expressed in this report accurately reflect my personal views about the subject company or companies and its or their securities. I also certify that no part of my compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in this report. Disclosures: ROTH makes a market in shares of CalAmp Corp., Alarm.com Holdings, Inc. and ORBCOMM, Inc. and as such, buys and sells from customers on a principal basis. Page 6 of 7

7 Each box on the Rating and Price Target History chart above represents a date on which an analyst made a change to a rating or price target, except for the first box, which may only represent the first note written during the past three years. Distribution Ratings/IB Services shows the number of companies in each rating category from which Roth or an affiliate received compensation for investment banking services in the past 12 month. Distribution of IB Services Firmwide IB Serv./Past 12 Mos. as of 06/28/18 Rating Count Percent Count Percent Buy [B] Neutral [N] Sell [S] Under Review [UR] Our rating system attempts to incorporate industry, company and/or overall market risk and volatility. Consequently, at any given point in time, our investment rating on a stock and its implied price movement may not correspond to the stated 12- month price target. Ratings System Definitions - ROTH employs a rating system based on the following: Buy: A rating, which at the time it is instituted and or reiterated, that indicates an expectation of a total return of at least 10% over the next 12 months. Neutral: A rating, which at the time it is instituted and or reiterated, that indicates an expectation of a total return between negative 10% and 10% over the next 12 months. Sell: A rating, which at the time it is instituted and or reiterated, that indicates an expectation that the price will depreciate by more than 10% over the next 12 months. Under Review [UR]: A rating, which at the time it is instituted and or reiterated, indicates the temporary removal of the prior rating, price target and estimates for the security. Prior rating, price target and estimates should no longer be relied upon for UR-rated securities. Not Covered [NC]: ROTH does not publish research or have an opinion about this security. ROTH Capital Partners, LLC expects to receive or intends to seek compensation for investment banking or other business relationships with the covered companies mentioned in this report in the next three months. The material, information and facts discussed in this report other than the information regarding ROTH Capital Partners, LLC and its affiliates, are from sources believed to be reliable, but are in no way guaranteed to be complete or accurate. This report should not be used as a complete analysis of the company, industry or security discussed in the report. Additional information is available upon request. This is not, however, an offer or solicitation of the securities discussed. Any opinions or estimates in this report are subject to change without notice. An investment in the stock may involve risks and uncertainties that could cause actual results to differ materially from the forward-looking statements. Additionally, an investment in the stock may involve a high degree of risk and may not be suitable for all investors. No part of this report may be reproduced in any form without the express written permission of ROTH. Copyright Member: FINRA/SIPC. Page 7 of 7