CAMP4 Therapeutics Corporation
Q2 2016 Earnings Call Transcript

Published: 2 Oct 2015

[Operator:]

Greetings and welcome to the CalAmp Fiscal 2016 Second Quarter Earnings Conference Call. At this time all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation [Operator Instructions]. As a reminder, this conference is being recorded. I’ll turn the conference over to Mr. Lasse Glassen of Addo Communications. Thank you, Mr. Glassen. You may now begin.

[Lasse Glassen:]

Thank you operator. Good afternoon and welcome to CalAmp's fiscal 2016 second quarter results conference call. With us today are CalAmp's President and Chief Executive Officer, Michael Burdiek and Chief Financial Officer, Rick Vitelle. Before I turn the call over to management please remember that our prepared remarks and responses to questions may contain forward-looking statements. Words such as may, will, expect, intend, plan, believe, seek, could, estimate, judgment, targeting, should, anticipate, goal and variations of these words and similar expressions are intended to identify forward-looking statements. Actual results could differ materially from those implied by such forward-looking statements due to a variety of factors including competitive pressures and pricing declines in the company's Wireless Datacom and satellite segments, fluctuations in product demand from a key OEM customer in heavy equipment industry and other risks and uncertainties that are described in the company's annual report on Form 10-K for fiscal 2015 as filed on, April 21, 2015, with the Securities and Exchange Commission. Although the company believes the expectations reflected in such forward-looking statements are based upon reasonable assumptions it can give no assurance that the expectations will be attained. The company undertakes no obligation to update any forward-looking statement whether as a result of new information, future events or otherwise. Michael Burdiek will begin today's call with a review of the company's financial and operational highlights. Rick Vitelle will then provide additional details on the company's financial results and Michael will then wrap up with CalAmp's business outlook and guidance for the fiscal 2016 third quarter and full year. This will be followed by a question-and-answer session. With that, it's now my pleasure to turn the call over to CalAmp's President and CEO, Michael Burdiek.

[Michael Burdiek:]

Thank you, Lasse. We had an outstanding second quarter posting record revenues of $69.8 million and a 30% year-over-year increase in non-GAAP net income. Our continued operational execution resulted in adjusted EBITDA of $11.8 million and operating cash flow of $12.4 million. During the quarter, we experienced robust demand for our Mobile Resource Management or MRM products from fleet management and asset tracking customers along with growth in our wireless networks business. Our satellite segment revenues were in line with expectations while a favorable product mix drove higher gross margins and strong profitability. Our momentum exceeding the quarter coupled with an expanding pipeline of opportunities is providing CalAmp with a strong tailwind heading into the second half of fiscal 2016. Looking at our second quarter results in more detail, consolidated revenue was $69.8 million with Wireless Datacom revenue up 23% year-over-year to $61.8 million, while satellite revenue was down 11% to $8 million. Consolidated gross margin increased to 36.2% in the second quarter up from 34.6% in the second quarter of last year and adjusted EBITDA margin increased to 16.9%, up from 14.1%. At the bottom line we achieved GAAP basis earnings of $0.10 per diluted share in the second quarter with non-GAAP earnings at $0.27 per diluted share which includes a full quarter impact of interest expense from our convertible debt offering that was completed late in the first quarter. Operating cash flow totaled $12.4 million in the second quarter and $28.8 million in the first six months of fiscal 2016 resulting in year-to-date free cash flow of $26 million. This helped push our cash equivalence and marketable securities balance up to $218 million at quarter end. Our strong liquidity position provides ample flexibility to take advantage of future growth opportunities including pursuing strategic M&A. Now I'd like to review our operational highlights for the quarter in more detail. Our Wireless Datacom segment posted another record setting revenue quarter as we continue to see strong customer demand for our core products and services globally. Revenue from telematics products shipped to Caterpillar were generally in line with expectations and are expected to further expand through the balance of this year and into fiscal 2017. As a strong endorsement of this key partnership Caterpillar recently awarded CalAmp with platinum level certification as part of its supplier quality excellence process. Certification recognizes suppliers that demonstrate a commitment to excellence that drives zero defects culture within their organizations. To be awarded the highest level certification in our first year as a CAT supplier is a significant achievement for CalAmp and speaks volumes to our dedication to product quality and customer service above and beyond our technology leadership pedigree. Growth within our wireless data comp segment was broad based in the second quarter including healthy year-over-year revenue growth for our software as a service solutions. In total recurring revenues from our fleet management automotive aftermarket and communications services comprised 15.9% of consolidated revenue for the second quarter, up from 15.6% in the immediately preceding quarter. Total recurring revenue in the second quarter reached a record $11 million driven by a 23% year-over-year increase in overall SaaS revenue. Across all of our market verticals we had approximately 487,000 unique software application subscriptions at the end of the second quarter with fleet subscribers increasing on a sequential quarter basis while automotive aftermarket subscribers remained flat versus the prior quarter. Margin trends and sales pipeline indicators were positive across all applications in the second quarter including in the automotive aftermarket vehicle finance application where elevated turn experienced over the prior two quarters abated considerably. Another second quarter highlight was the announcement of an OEM partner agreement to provide mobile routing devices and platform services to power Toyota Industrial Equipment's new T-Matics mobile vehicle management system. A fleet management tool that tracks and reports operating dynamics of forklifts and their operators. This innovative in building and outdoor vehicle monitoring solutions will be installed directly on Toyota Industrial Equipment's production line and enables electronic hour meter collection, action at detection and alerting, fleet utilization optimization and asset tracking. Moving on to our MRM and products business we continue to see strong demand for products used in fleet management and asset tracking applications both domestically and with key international customers. In fact the second quarter represented the strongest quarter ever for fleet management product sales. Customer demand in the U.S. was particularly robust with solid demand also coming from customers in Canada, Europe, Latin America and the Pacific Rim. Looking ahead to the second half of fiscal 2016 we believe the core fleet management products business will continue to drive growth coupled with demand for newer asset tracking products with a growing international base of customers. We're also making good progress in building the sales pipeline with new large enterprise customers, some of which have historically developed their own products internally. In the auto insurance telematics market we continue to advance our strategic initiatives. Our recent acquisition of Crashboxx has positioned CalAmp at the forefront of telematics technologies for streamlining claims processing through the automation of crash notification and vehicle damage estimation. We have made excellent strides towards validating the core technologies through controlled crash testing with insurance carriers and key ecosystem players and we're well on our way to productizing the core IP. In the hardware device front our significant investment in vehicle telematics technologies are beginning to provide tangible differentiation in the marketplace, with broad vehicle coverage in both North America and Europe supported by our scaled and secure device management platform ecosystem. We believe our ability to securely and reliably support an ever growing variety of vehicle makes and models for specific customer requirements is unrivaled. In our view these strengths are highly leveragable and should help drive additional device revenue growth not just in emerging markets like insurance telematics, but also help expand our opportunities in other segments such as fleet and heavy equipment. Overall, we were thrilled with the progress we have achieved over the past year in advancing our strategic initiatives in the vehicle telematics space. We will continue to invest in the technologies, channels and strategic partnerships that I believe will position CalAmp to play a foundational role in the evolution of the marketplace. Over the next several quarters, we'll focus on productizing these technologies as well as on strategic business development activity on a global basis to drive the adoption of novel after-market connected vehicle solutions. Moving onto our satellite segment, revenue in the second quarter was $8 million in line with the expectations. We continue to be pleased with the satellite segments operational performance which achieved gross margins of 27.6% in the second quarter, a new record for this business unit and provide a healthy contribution to bottom line results. With that, I will now turn the call over to Rick Vitelle, our Chief Financial Officer for a closer look at our second quarter financial results.

[Rick Vitelle:]

Thank you, Michael. I will provide a summary of our gross profit performance, income tax position, working capital management and cash flow results for the fiscal 2016 second quarter. Consolidated revenue for the fiscal 2016 second quarter was $69.8 million, an increase of 18% compared to the second quarter last year. Consolidated gross profit for the second quarter was $25.3 million, an increase of $4.8 million or 23.5% over the same quarter last year. The gross profit increase is the result of higher revenue in the Wireless Datacom segment. Consolidated gross margin was 36.2% in the latest quarter compared to 34.6% in the second quarter last year. Looking more closely at gross profit performance by reporting segment, Wireless Datacom gross profit was $23.1 million in the second quarter with a gross margin of 37.4%. Year-over-year Wireless Datacom's second quarter gross profit was up $5.1 million, while gross margin increased by 140 basis points. Our satellite business had a gross profit of $2.2 million in the second quarter with a gross margin of 27.6%. This compares to gross profit of $2.4 million and a gross margin of 27.2% in the second quarter of last year. GAAP basis net income for the fiscal 2016 second quarter was $3.5 million or $0.10 per diluted share compared to $3.3 million or $0.09 per diluted share in the second quarter of fiscal 2015. Although the company's GAAP basis effective tax rate of 37% in the latest quarter approximates the combined U.S., federal and state statutory tax rate, the company's pretax income is still largely sheltered from taxation by net operating loss and research and development tax credit carry forwards. Our non-GAAP net income for the fiscal 2016 second quarter was $9.8 million or $0.27 per diluted share compared to $7.5 million or $0.21 per diluted share for the same quarter last year. Non-GAAP earnings excludes the impact of intangible asset amortization, stock-based compensation expense and non-cash interest from amortization of debt discount and includes income tax expense for cash taxes paid or payable for the period. Adjusted EBITDA which is also a non-GAAP measure was $11.8 million in the fiscal 2016 second quarter with an adjusted EBITDA margin of 16.9%. This compares to adjusted EBITDA of $8.3 million and an adjusted EBITDA margin of 14.1% for the same quarter last year. Adjusted EBITDA excludes the impact of investment income, interest expense, income tax expense, depreciation expense, intangible asset amortization and stock-based compensation expense. For a reconciliation of the GAAP and non-GAAP financial results, please see our fiscal 2016 second quarter earnings press release that was issued today which is available on our website. Now moving on to our liquidity position and balance sheet. As of August 31, 2015 the company had total cash and marketable securities of $218 million and total outstanding debt with a carrying value of $137 million. Essentially all of this debt on our balance sheet is associated with the convertible notes that we issued in May of 2015. Net cash provided by operating activities was $12.4 million during the second quarter and $28.8 million for the first six months of fiscal 2016. In addition, the unused borrowing capacity on our bank revolver at quarter end was $15 million. Our consolidated accounts receivable balance was $45.8 million at the end of the second quarter, up slightly from $45.1 million at the end of the preceding quarter. This represents an average collection period of 54 days compared to the receivables collection period of 56 days at the end of the preceding quarter. Our total inventory at the end of the second quarter was $22.6 million, representing annualized inventory turns of approximately 8 times, down from inventory turns of approximately 10 times in the preceding quarter. Total inventory increased by $6.5 million compared to the previous quarter as we prepare for projected increases in shipments in the second half of the year. Despite the increase in inventory balance, our cash conversion cycle of 29 days remained unchanged from the prior quarter and is within our targeted range. For the fiscal 2016 second quarter, our GAAP basis effective tax rate was 37.0% compared to 34.8% in the second quarter of fiscal 2015. For the full year in fiscal 2016, we continue to expect that our GAAP basis effective tax rate will be approximately 37% and our non-GAAP tax rate will be about 1.5%. With that, I will now turn the call back over to Michael for our guidance and some final comments.

[Michael Burdiek:]

Thank you, Rick. Now let’s turn to our outlook including our financial guidance for the fiscal third quarter and full year. Looking at our fiscal 2016 third quarter, we expect to achieve consolidated revenue in the range of $71 million to $76 million. We expect our wireless Datacom and Satellite segment revenues in the third quarter will be solidly higher on both the sequential quarter and year-over-year basis. At the bottom line, we expect third quarter GAAP basis net income in the range of $0.08 to $0.12 per diluted share and non-GAAP net income in the range of $0.26 to $0.30 per diluted share. For our fiscal 2016 full year outlook, we continue to expect consolidated revenues to gain momentum as the year progresses with full-year revenues estimated in the range of $281 to $289 million, driven by our continued growth in our Wireless Datacom segment and a much stronger second half in our Satellite segment. In closing, I would like to recap some key points. First, I am quite pleased with our performance in the first half of fiscal 2016. Our strong results reflect the continued operating momentum in our core MRM products business and Software as a Service application. Second, investments in strategic initiatives including our opportunities in the heavy equipment sector, evolving initiatives in the insurance telematics market and geographic expansion activities are expected to be growth catalyst for CalAmp for the remainders of fiscal 2016 and beyond. Third, our strong liquidity position gives CalAmp the flexibility and financial wherewithal to take advantage of both organic and inorganic growth opportunities. And finally, our ever increasing scale, impressive roster of global enterprise customers and ongoing strategic investments position us well to sustain our momentum into fiscal 2017 and beyond. That concludes our prepared remarks. Thank you for your attention. And at this time, I’d like to open up the call to questions. Operator?

[Operator:]

Thank you. [Operator Instructions] Our first question is from Mike Walkley of Canaccord Genuity. Please go ahead.

[Mike Walkley:]

I want to ask a question just starting on Caterpillar, what's giving you the confidence? It sounds like the visibility that you said can improve all the way through beginning of fiscal '17. And then also what trend are you seeing with other large global companies maybe outsourcing more [indiscernible] opportunities to CalAmp?

[Michael Burdiek:]

Sure, Mike, well thanks for the complement on the quarter, it was an outstanding quarter. So the outlook for Caterpillar really hasn't changed at all and obviously there has been a lot of noise about Caterpillar adjusting its guidance down for this year and next as it experiences softness in many of its markets around the world. I think it's important to remember what the motive is behind Caterpillar broadening out its telematics strategy across more of its products and certainly on a global basis. Caterpillar sees that as a way to not only gain more information about its products and their performance in the field, but also generate incremental revenue stream. So despite the relatively poor cyclical backdrop for Caterpillar and its core business, they view this program as a key and critical, in fact a way of sort of hedging against the softness in the global economy by creating a platform to generate incremental revenues. So this is as important if not more important than ever for Caterpillar. And obviously there are others in the marketplace who feel much the same way and we made excellent program in terms of engaging with other heavy equipment OEMs and including many OEMs in heavy-duty truck sector on a global basis and each and every one of those major players in the global environment are really-really interested in identifying ways of layering on additional value to their products and obviously creating additional revenue streams and profit streams to the enterprise.

[Mike Walkley:]

Great that's helpful. And then just outside of the heavy equipment area, how should we think maybe about some of the wireless networks business? Is there any improved visibility in some of the other strategic areas such as Europe, larger energy customers and maybe the PTC?

[Michael Burdiek:]

Sure, great question. So in the energy markets, the quarter was good and in fact that the first half of this year was pretty much in line with where we were in the first-half of last year from a revenue perspective. Actually, the outlook for the energy business through the balance of this year is probably pretty consistent with what we experienced this quarter and in the first-half of this year. We have seen a couple of projects slip out of the year with our customer in the solar marketplace, but that’s pretty typical as it relates to project based activity like we have with that customer. So despite those projects slipping out the rest of the year looks to be pretty solid and we’re very, very comfortable with the outlook in that regard. On the PTC front we had a very strong quarter and in fact we had the strongest quarter in PTC radio shipments since the wind down of the development program three years or so ago and we’re going into Q3 with a pretty solid backlog position and I think we’re comfortable in expressing that we’re pretty certain -- not certain, not completely certain, but pretty certain we’re going to have a much stronger year as it relates to PTC radio shipments than we had last year which was a pretty good year overall.

[Mike Walkley:]

Just one last question from me and I’ll pass it on, just for housekeeping can you give us MRM mix within Wireless Datacom and just comment -- I think you said it was -- was it the second strongest quarter ever in MRM and that maybe due to your fleet customers?

[Michael Burdiek:]

No, it's actually the strongest quarter ever for our MRM products, yes. And as it relates to the breakdown it was 60% MRM products and 40% Wireless Networks products and solutions in Q2, consistent with what we saw in Q1.

[Operator:]

Thank you. The next question is from Mike Crawford of B. Riley and Company. Please go ahead.

[Mike Crawford:]

On the insurance front it sounds like you're progressing with productizing new IP, can you just go into that a little bit more please?

[Michael Burdiek:]

Yes, I am assuming you're talking about IP as it relates to the Crashboxx technology, she’s a lot more to the insurance telematics for us than just a Crashboxx technology, but that’s obviously a key area of focus for us. Over the last quarter or so we’ve had some very, very interesting conversation as it relates to crash detection and damage estimation technology that we believe we have now in our possession through the Crashboxx acquisition and we’re seeing that the application of that technology is actually probably a lot more broad-based than just the insurance segment. We’re seeing interest from existing fleet customers, we’re seeing interest -- keen interest from companies who manage lease fleets, we’re also seeing a little bit of interest in the rental car market and we believe that we now have in front of us a multitude of options as it relates to monetizing that technology. So where we’re today is investing in some additional product development activities as it relates to not necessarily so much the algorithms or the crash detection technology itself, but the means to deliver it through multiple channels both directly through and insurance telematics service provider, but also indirectly potentially over the top two existing device customers in the fleet and car leasing marketplaces. There may also be an application of that technology somewhere down the line even in the heavy equipment market. So in a sense we think we got the tiger by the tail as it relates to very innovative package of IP that we acquired from Crashboxx and we continue to enhance with some of our current investment.

[Mike Crawford:]

Okay, thanks. And then I know that some of that’s been offered in your B2B CalAmp app store, what else is there that’s new or active in that store today? It's hard to see from the outside.

[Michael Burdiek:]

Well, we haven’t really offered anything commercially through the app store yet, but it's been a great incubator platform as you saw at our Analyst Day earlier this year we featured Crashboxx and we had another partner there that had some content that it was trying to develop and commercialize that would be appropriate to offer through our app store. So it's been a great incubator platform. As it relates to the Crashboxx technology, we think that the app store is going to play a critical role in how transactions are process and how that technology is potentially delivered to some of these end market applications I described a little bit earlier.

[Mike Crawford:]

Okay, thanks. And then final question is that I know you dodge some foreign currency bullets by not delivering straight into Brazil for bulk of your revenue there with [indiscernible], but can you just describe the impacts of currency movements?

[Michael Burdiek:]

Well as it relates to revenue impact in our latest quarter, it's not discernible, because we were up in every region in the world including Brazil in Q2 versus the prior quarter with the exception of Africa, that’s the only region in the world where we actually saw a sequential quarter decline in sales and I wouldn’t even call that precipitous and certainly I wouldn’t necessarily attribute that to any foreign exchange factors. We had a very good quarter in Europe and UK in particular. As I've mentioned we saw increased revenues in South America, we saw increased revenues in Australia and New Zealand and so overall we haven't been able to detect significant foreign currency challenges although I'm sure if things were going in the other direction it would be a good tailwind for us as we continue to focus on international expansion.

[Operator:]

Thank you, the next question's from Mike Latimore of Northland Capital Markets. Please go ahead.

[Mike Latimore:]

Thank you, yeah and a great quarter. Michael you mentioned you're making an excellent progress on other heavy equipment and heavy-duty truck opportunities, can you talk just a little more about that? Does that mean that you're getting into new trials there, or you have new customers, or that the trials you're already in are progressing nicely to an end, maybe a little more color would be helpful?

[Michael Burdiek:]

Well I did say we're in a number of different trials with what I would term significant players. There is no certainty that those trials will result in large scale programs, but you know a large -- a lot of large numbers suggest that the more trials we're involved in the more likely it is that we're going to land one of those as a meaningful opportunity.

[Mike Latimore:]

When might some -- when might a trial or two come to an end and a decision will be made?

[Michael Burdiek:]

Excellent question and I wish I had the answer. You know in most cases these are very large global OEM and you know things take time. I think it's important to point out that before we shipped product one -- revenue generating product one to Caterpillar, we had been engaged with them for something in the order of three years. But as we've proven with Caterpillar and other opportunities historically you know we are patient, and we'll hang with the opportunity as long as necessary to close it.

[Mike Latimore:]

I think you mentioned the fact that the UBI vertical could help effective tax [ph] growth here, is that still kind of the core customers growing or is that new customers adding to that?

[Michael Burdiek:]

Little bit of both. We have one -- one of our customers is -- has come on pretty strong first half of this year, we expect them to grow through the balance of this year. We've actually had a new partner come online that we think -- we’re working with on a number of trials last year, who contribute a little bit of revenue to Q1, but more so in Q2 and we expect them to continue to ramp. And by the way both of those references relate to companies based in the UK. And in fact about two thirds of our UBI related device revenue in Q2 came from European opportunity. One of our domestic programs has continued to ramp through this first half of this year after being in pause mode for really the last three quarters of last year, and then another one of our partners domestically has continued to face some challenges, not so much with their technology but with regard to their end customer, trialing a number of different solutions as potential alternatives to their solutions for insurance telematics purposes. However that partner has landed an international opportunity which we hope to see ramping in the second half of this year.

[Mike Latimore:]

Great and then just last question, the DSOs have been trending nicely lately, should we assume that they can kind of stay in this range for a while?

[Michael Burdiek:]

Well, I'll let Rick amplify this, but I think generally we're at the new normal which I think is around 54 days this last quarter. Rick?

[Rick Vitelle:]

I would not expect it to get higher than that, I'd like to see them trend down a bit, but it may be the new norm.

[Mike Latimore:]

Okay, great, thanks a lot.

[Michael Burdiek:]

You're welcome.

[Operator:]

Thank you, the next question's from Jonathan Ho of William Blair, please go ahead.

[Jonathan Ho:]

Hey guys, congratulations on the strong quarter. Just wanted to start out with your SaaS growth, can you guys talk in a little more detail on terms of maybe where you're seeing strength there and you know just sort of business expectations for the second part of the year?

[Michael Burdiek:]

Sure. Well I think the key contributor to SaaS revenue growth this last quarter was in the automotive aftermarket category. Both in vehicle finance and in remote car start. We're just at the beginning of the remote car start season. I mean so there's some, obviously, channel filling activity there. So that was a contributor, really strength in terms of how we've been able to reconstitute our vehicle finance sales channels which we’ve talked about in the last couple of quarters, so I think we’ve found some nice success there. And also we're trying to position the vehicle finance sales channel as one that we can leverage in other applications down the line, we think it's got potential opportunities as it relates to the delivery of insurance telematics services and some other application. So really we’ve reconstituted that business both internally and externally with regard to our channel partners. And then of course as we’ve talked about late last year and early part of this year we had some pretty significant fleet SaaS wins, enterprise fleet SaaS wins in the latter part of last year, those -- many of those subscribers have come online and obviously contributed positively to revenue growth this latest quarter.

[Jonathan Ho:]

Got it, and then can you maybe talk a little bit about -- I think the last quarter you had mentioned that maybe some of the ASP's are going to start looking at -- maybe some different sourcing methodologies. Has there been any shift there in terms of the traction with some of the larger ASPs?

[Michael Burdiek:]

Yes, continued progress I would say. Again, I think we're in excellent position as it relates to converting some of the long standing holdouts, as it relates to potentially outsourcing the hardware component of their solution.

[Jonathan Ho:]

Just one, last one, in terms of the satellite business, can you maybe give us your citations around the second half ramp there as well?

[Michael Burdiek:]

As we noted, we expect the second half to be quite a bit stronger than the first half. And in some way we would expect the second half of this year to resemble really the first half of last year, where we saw roughly $20 million of revenue plus or minus, between the two quarters.

[Operator:]

Thank you. The next question is from Howard Smith of First Analysis. Please go ahead.

[Howard Smith:]

Congratulations on solid execution. Particularly internationally I'm very surprised to hear Brazil and South America up sequentially, I was wondering if you lookout at your international expansion efforts. How do you allocate resources going forward? Do you take into account kind of the macro environment of the different regions and adjust your relative efforts accordingly maybe wait in Europe a little more now, relative to South America? Or do you kind of just go where the opportunities in the partners and the RFPs are? How do you kind of balance that effort around the world?

[Michael Burdiek:]

Well, we're not quite as ad hock as perhaps the last part of your question there. We have dedicated resources based in South Africa as well as in the UK to address really the entire EMEA region. So, it's not like we shift people around to take advantage potentially cyclical back -- at the cyclical backdrop in each of the regional economies. And we're in this sort of long run, Brazil is a large economy. It's tough to do business there, but if you make the appropriate investments and you stick with it, sooner or later if you have the right products, the right people, the right technology all delivered from the right company, which we think we are. We'll find success as we have thus far despite the challenges as it relates to the Real-Dollar exchange rates and the trends there. And obviously, we've had resources in the UK for some period of time, there's a lot of great opportunities in the UK, it's a growing economy, it's on solid footing and I think certainly not only do we have the people and the technology all being delivered from the right company, but obviously the macro-economic backdrop there is more favorable. And I think that we're seeing things improved overall in Europe and the overall economy Europe-wide I think is modernizing and that modernization, obviously, creates a much more attractive backdrop to contemplate outsourcing certain parts of previously internally developed solutions to trusted third-party. Our global brand has continued to build as well. Whereas three or four years ago we could have flown into South Africa or any number of countries in Europe and no one would have known CalAmp from the man in the middle, that's not the case anymore. We're a well-known entity on generally a global basis as it relates to telematics technologies.

[Operator:]

Thank you. [Operator Instructions] And the next question is from Rajesh Ghai of Macquarie. Please go ahead.

[Rajesh Ghai:]

My first question is, Michael you talked about strengthened fleet management, could you give us a little bit more color as to what's driving that strength and how sustainable that could be going forward?

[Michael Burdiek:]

Well, again the revenue strength in Q2 was driven by the subscriber growth we saw late FY'15 through the beginning of this fiscal year. And it's kind of two for us, as it relates to fleet services. One is with enterprise customers, large enterprise customers who tend to have anywhere from let's say 100 to 100's to, in some cases a few thousand vehicles in their fleets and we also have a thrust into the municipal government market and we've had a lot of good success there. However those fleet opportunities are much smaller in magnitude, generally in the dozens and in some cases up to a 100 vehicles in the fleet and I think we've got a solid-solid sales organization, I think that sales organization has become very-very functional over the last year and I think we'll continue to cultivate opportunities and I think we've got a good future in front of us, as it relates to our efforts in the fleet’s SaaS area.

[Rajesh Ghai:]

Could you comment upon those timing and magnitude of the Toyota opportunity?

[Michael Burdiek:]

The third opportunity?

[Rajesh Ghai:]

The Toyota, forklifts?

[Michael Burdiek:]

Well, the Toyota. Well, in terms of revenue contribution this year, it's not going to be great, certainly less than $1 million dollars. But it's significant, I mean it's really one of our first publicized platform as a service opportunity and obviously with a significant brand in the forklift marketplace. So it's strategically important, it's not that material to the results for this fiscal year, it certainly wasn’t in Q2. However, we think that grows overtime. And it's just I think an additional endorsements along the lines of the endorsements we received from Caterpillar when they selected us a trusted partner and these large global enterprise players don’t want to do business with fly-by-night operation who don't have staying power. And I think that's a significant strength for us and a competitive advantage in the marketplace as it relates engaging with Toyota like opportunity.

[Rajesh Ghai:]

And considering your confidence in the momentum of fleet service side -- the SaaS side of business, could you expect some margin uplift -- gross margin uplift as we move toward the end of the end of the year into next year?

[Michael Burdiek:]

I think we might realize some of that in Q2, and obviously SaaS revenues as a percentage of consolidated revenues were higher sequentially. But remember most of our efforts in fleet area are enterprise focused and those come in chunks, they can actually come and go in chunks, but fortunately we haven't seen any significant turn over the last several quarters and therefore the subscriber adds and customer wins we've recognized over the last few quarters have been contributing to revenue nicely and subscriber grow on a net basis. So we’ll continue to forge ahead and obviously we not only have a focus on enterprise customers, we have somewhat of a vertical focus as well in areas like transportation, energy, heavy equipment and the municipal government space.

[Operator:]

Thank you. The next question is from Greg Burns with Sidoti. Please go ahead.

[Greg Burns:]

In regards to Toyota and you providing a platform as a service for them, can you just give little more color on exactly what you're doing for Toyota? Are you hosting their application, what is that entail in terms of you providing that platform as a service?

[Michael Burdiek:]

We're not hosting their application. It's not actually dissimilar to what we're doing with the direct electronics for the remote car start product. So basically, we're supplying a device, it's a very -- actually it's quite a complex device, given its unique attributes in its ability to navigate and detect crash events both internal inside building as well as outside of building and vehicles moving relatively slow velocities, so there are some interesting algorithms embedded in that device that were developed specifically for Toyota. So that device obviously connects through a traditional wireless network and we're not providing the network services, however, we're interfacing through the network carrier’s infrastructure to our platform services that then communicate with Toyota's application to what’s termed the data pipe or API which feeds their application. So we host the device essentially on our platform but then we provide data feeds to Toyota and its applications which they host themselves.

[Greg Burns:]

Okay thank you and in terms of the electronic lock device mandate in the fleet market, I haven't heard you talk about that, could that potentially be a catalyst for your MRM products business?

[Michael Burdiek:]

It could be really from two points view. Number one, the more telemetry that fleet operators either desire to have or are obligated to have through regulatory influences, the more likely it is that they require higher end mobile router products and we've actually seen a shift to more higher end what I call vehicle area networking products, which is actually a positive for us both from a revenue and a margin perspective within our MRM products business. But also because of some of these regulatory requirements, there is a stronger demand or actually a regulatory obligation for there to be an in-cab display system for the drivers and that we believe is a potential tailwind for us as it relates to MDT android tablet demand. We've seen a number customers start to adopt our MDT platforms specifically because of some of these regulatory influences.

[Operator:]

Thank you. The next question is from Anthony Stoss of Craig Hallum. Please go ahead.

[Anthony Stoss:]

So Mike you just talked about Caterpillar expanding into additional platforms over the next several quarters. Can you give us a sense of maybe a few quarters out what a likely revenue -- quarterly revenue range might be on that? And then lastly given the cash position on the balance sheet now has that opened up additional new M&A opportunities? Thanks.

[Michael Burdiek:]

So you've -- we kind of re-wind the tape and go back to the end of last year where we talked about our Q4 sort of potentially being indicative run rate for once their program was fully ramped. We reached about $7 million of revenue with Caterpillar in Q4 last year. I think that outlook is still pretty much in place. And as it relates to the second half of this year, I think the second half expectation and certainly what’s contemplated in our guidance is that second half that may not necessarily be dissimilar to what we saw second half of last year. Maybe not necessarily distributed in the same way but roughly 12 million or so of revenue versus something around nine or 10 that we experienced in the first-half. And assuming we could get up to a $7 million or more quarterly run rate, I would say that would define being fully ramped.

[Anthony Stoss:]

Okay and the M&A side?

[Michael Burdiek:]

M&A, I don’t think that the capital raise has necessarily changed the backdrop there. Obviously, in the public market there has been some significant multiple compression. So as it relates to potential public company target that maybe a more favorable backdrop today than it was 90 days ago. On the private side, evaluation, expectation are all over the map. But I don’t necessarily think that the funnel and the flow of opportunities through our funnel has changed in any meaningful way simply because we have now something in the neighborhood of $218 million of cash on our balance sheet.

[Anthony Stoss:]

Okay, great job. Thank you.

[Operator:]

Thank you. At this time I would like to turn the conference back over to Mr. Burdiek for any closing comments.

[Michael Burdiek:]

Well, thank you for your support and for joining us on today’s call. We look forward to speaking with you again when we report our fiscal 2016 third quarter results later this year.

[Operator:]

Thank you. Ladies and gentlemen, this does conclude today’s teleconference. You may disconnect your lines at this time. And thank you for your participation.