CalAmp (CAMP) is trading lower today (-5%) after reporting 3Q18 (Nov) earnings last night. In case you're not familiar, CAMP is a supplier of antennas, amplifiers and transceivers. It previously had two segments: Wireless Datacom (WD) and Satellite, but the Satellite segment ceased operations last year.
Its WD segment is clearly the focus going forward. Its WD segment sells equipment to utilities, oil & gas, mining, railroad and government customers in remote/rural areas where there is little infrastructure. Breaking down the WD segment a bit more: the majority of WD segment sales are Mobile Resource Management (MRM) products which allow customers to know where and how their assets are performing (fleet management, asset tracking, school bus tracking, remote asset security, pipeline flow monitoring). CAMP's products streamline what are otherwise complex Machine-to-Machine (M2M) communications.
A lot of companies (onshore oil pipelines, utility lines etc.) have assets that are located in remote areas where there is not much communications infrastructure. CAMP is bridging that divide with customers being able to monitor those assets and make changes in real time. Corporations want more and better performance data in real time from their remote assets so they can make better operational decisions and be more efficient. CAMP's products help with that.
Of note, in March 2016, CalAmp acquired LoJack, a provider of vehicle theft recovery systems for $113 mln. CAMP believes the combination of LoJack's world-renowned brand for car theft protection and strong auto dealer relationships, coupled with CalAmp's portfolio of wireless connectivity devices will create a market leader well-positioned to drive the broad adoption of vehicle telematics.
Turning to the NovQ results, non-GAAP EPS rose 48% YoY to $0.31, which was within prior guidance of $0.27-0.33. Revenue rose 12.4% YoY to $93.7 mln, which was at the high end of prior guidance of $89-94 mln. Adjusted EBITDA margin rose to 15% from 12% last year. In terms of guidance, CAMP expects 4Q18 (Feb) non-GAAP EPS of $0.27-0.33 and revenue of $91-96 mln. Both numbers are in-line with market expectations.
Revenue growth was driven principally by its Telematics Systems business, which grew by building upon its existing base of blue-chip customers, including Caterpillar. Additionally, its Software & Subscription Services business strengthened as the company broadened its technology portfolio with new and enhanced product platforms that are uniquely positioned in the connected vehicle and industrial Internet of Things (IoT) marketplace.
On the call, management broke the numbers down a bit. CAMP's Telematics Systems business had what the company called an exceptional quarter with revenue of $77.8 mln, up 5% sequentially and 15% YoY. MRM Telematics products revenue was a strong contributor to this business, posting revenue growth of 3% sequentially and 24% YoY with broad-based demand.
The revenue performance in the OEM and heavy equipment market was also remarkable, driven by another strong quarter with CAMP's largest customer, Caterpillar. Caterpillar's revenues grew 24% sequentially to $13.2 mln, a new quarterly record. This was above expectations although it's expected to moderate a bit in Q4 (Feb). CAMP expects demand to remain robust through the next fiscal year based on the recovery in the CAT core business, as well as through an expanding partnership.
In sum, CAMP's quarters can be pretty hit-or-miss on a quarter-to-quarter basis. The results were good but investors seem to be focusing on the Caterpillar business being down sequentially in Q4 (Feb). CAMP says Q3 was much stronger than anticipated. And some of the opportunities, specifically in the OEM area, CAMP had expected to hit a little bit later in the year than they did.
As a result, CAMP was able to benefit from that in Q3 and some of that will not be recurring in Q4. But as it relates to the business outlook across the company, CAMP says everything feels strong. It has good momentum on most fronts. The only exception to that may be on the Caterpillar account in Q4, although the outlook there being down sequentially will still be quite strong relative to the prior-year period.