CalAmp Corp.

CAMP Details 

A quick Look at CAMP’s 4QFY20 Key Highlights: CalAmp Corp. (NASDAQ: CAMP) is engaged in offering wireless communications products to crucial data, information, and entertainment content. The company offers cost-effective high-quality solutions to a wide range of customers and end markets. During the quarter ending 29 February 2020, the company reported total revenue of $87.2 million, up from the year-ago figure of $84.4 million. The increase can be attributed to higher revenues from software & subscriptions Services which soared 83% year over year and came in at $34.8 million, primarily owing to synergies from recent acquisitions and solid growth in LoJack® international subscription services. However, revenues from Telematics Systems declined year over year from $65.4 million to $52.4 million, due to the shortage in supply chain owing to COVID-19 pandemic-related issues and lower demand for MRM telematics products. Revenues from network & OEM products were up quarter over quarter and stood at $17.9 million. Total subscribers increased to 1.3 million, up 0.3 million year over year.

Gross margins for the quarter came in at 38%, down from 40% reported in the year-ago period, due to unfavorable product-mix. During the quarter, the company reported net loss of $55.8 million, as compared to a net profit of $11.3 million reported in the year-ago period. In 4QFY20, the company reported adjusted EBITDA of ~$7.78 million, down from $10.92        million compared to the previous corresponding period.

Key Highlights (Source: Company Report)

Balance Sheet Position: The company had repurchased $94.9 million in aggregate principal amount during the quarter. The company ended the period with cash and cash equivalent of $107.4 million, with long-term debt amounting to $177.1 million. Net cash provided by operating activities stood at 11.5 million for the year ending 29 February 2020. 

Key Developments: During the quarter, the company unveiled LoJack's new Connect Family of subscription services to dealers and drivers throughout the United States. It also stated that the new iOn Tags™ and iOn Vision™ run by the CalAmp Telematics Cloud is now available. It also announced that its subsidiary, LoJack México, has signed a collaboration deal with GNP Seguros, a leading insurance provider in Mexico, in order to curb the car theft in Mexico, provide high security to consumers and lessen risk for insurers. 

Risk Analysis: On the flip side, the outbreak of coronavirus in China adds to the woes. CAMP depends on few suppliers for a portion of its components, assemblies, and electronic manufacturing parts. The company faces supplier concentration risk as inventory purchase from its top four suppliers accounted for approximately 48% of total inventory purchases in 2019. These suppliers are in Asia, including China. Further, the company had top 10 manufactures which contributed more than 10% of accounts payables for fiscal 2019. The loss of any supplier may reduce orders, consequently impacting revenues and operating results.

What to Expect: Due to the coronavirus pandemic, the company has suspended the outlook for 1QFY21. With the rising social distancing and government regulations to work from home along with limited access to labour in Malaysia and Mexico, the company is witnessing global supply chain issue which is creating delivery and scheduling challenges for installations.

Valuation Methodology- EV/Sales Multiple Based Relative Valuation (Illustrative)

EV/Sales Based Valuation (Source: Refinitiv, Thomson Reuters)

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months

Stock Recommendation: The stock of CAMP closed at $7.03 with a market capitalization of ~$241.3 million. The stock made a 52-week low and high of $3.7 and $13.17, respectively, and is currently trading below the average of its 52-week trading range. The stock has delivered a positive return of ~32.73% in the last one month but went down ~32.54% in the last three months period. The company’s debt to equity ratio in FY20 stood at 1.52x, higher than the industry median of 0.31x. The company remains focused on cost-reduction efforts. Additionally, the company is taking the necessary steps to curb the impact of COVID-19 on its business, thereby enhancing its customer base and improving profitability. Considering the above factors, we have valued the stock using the EV/sales multiple based illustrative relative valuation method and arrived at a target price with an upside of lower double-digit (in % terms). For the purpose, we have taken the peer group - ORBCOMM Inc (NASDAQ: ORBC), Sierra Wireless Inc (NYSE: SWIR), and Digi International Inc (NYSE: DGII). Hence, we recommend a ‘Speculative Buy’ rating on the stock at the closing price of $7.03, down 4.74% as on 22 May 2020.

CAMP Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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