CalAmp (CAMP 15.01, -1.98, -11.68%) is trading lower today after lowering guidance for
3Q19 (Nov) earnings last night.
CalAmp is a supplier of hardware and software that helps companies track assets. This is especially useful in remote areas without other communications infrastructure. 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.
Its telematics product portfolio includes a series of Mobile Resource Management (MRM) telematics devices which collect, monitor, and report business-critical information from high-value remote and mobile assets. These wireless networking devices include asset tracking units, mobile telematics devices, fixed and mobile wireless gateways and routers etc.
For example, fleet operators may use it for vehicle tracking, dispatch, and route optimization, fleet diagnostics and maintenance, driver behavior monitoring etc. Another example is providing monitoring, control and automation of remote industrial equipment and critical infrastructure. This would include wastewater management, irrigation system control, traffic monitoring systems, oil & gas flow, and automated reading of commercial utility meters.
The company lowered Q3 (Nov) non-GAAP EPS guidance to $0.23-0.25 from prior guidance of $0.29-0.35 while its revenue outlook was lowered to $88-89 mln from prior guidance of $94-99 mln.
Those are some pretty big guide-downs. So, what is going on? CAMP had previously discussed an accelerated supply chain diversification program to transition its manufacturing to tier one global contract manufacturers with facilities outside of China. This program was initiated due to the escalation of trade tensions between the US and China.
During Q3 (Nov), the company experienced various supply disruptions related to this transition, as well as extended lead times driven by component shortages. This resulted in inbound product supply delays at quarter end and impacted the company's ability to ship certain products to meet customer demand. CAMP is taking steps to address these operational challenges. However, these supply chain challenges, coupled with macroeconomic factors, have heightened near term uncertainty.
In sum, whenever a company changes its supply chain operations, there is always a risk of disruptions and that was the case with CAMP this quarter. Our overall take with CAMP is that we'd be cautious with this stock. In addition to changing suppliers, the company is also going through a large push to focus more on software/subscriptions (particularly for the cloud) and less on hardware.
Telematics is a burgeoning area and lots of companies are understanding the importance of tracking and being more efficient generally with their remote assets. However, CAMP is undergoing a lot of changes and there are more risks for hiccups in the future. Even with the stock having fallen from $22 in late September to around $15 now, it's probably safer to let the company prove itself and get some stability before investing in this stock. It was good to see CAMP try to mitigate the situation by also announcing a $20 mln share buyback authorization last night. However, we would still suggest caution.
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