CAMP - NASDAQ

Welcome to the CalAmp's first quarter 2021 financial results conference call. As a reminder, this call is being recorded. I would now introduce your host for today's conference, Leanne Sievers, President of Shelton Group, CalAmp's Investor Relations firm. Leanne, you may begin.

Good afternoon and welcome to CalAmp's fiscal first quarter 2021 financial results conference call. I am Leanne Sievers, President of Shelton Group, CalAmp's Investor Relations firm. With us today are CalAmp's Interim President and CEO, Jeff Gardner and Chief Financial Officer, Kurt Binder. Before we begin, I would like to remind you that this call may contain forward-looking statements. While these forward-looking statements reflect CalAmp's best current judgment, they are subject to risks and uncertainties that could cause actual results to differ materially from those implied by those forward-looking projections. These risk factors are discussed in our periodic SEC filings and in the earnings release issued today, which are available on our website. We undertake no obligation to revise or update any forward-looking statements to reflect future events or circumstances. Jeff will begin today's call with a review of the company's financial and operational highlights, then Kurt Binder will provide additional details about the financial results and outlook, followed by a question-and-answer session. With that, it's now my pleasure to turn the call over to CalAmp's Interim President and CEO, Jeff Gardner.

Thank you Leanne. Welcome everyone and thanks for joining us today. I am pleased to be hosting my second earnings conference call since being appointed Interim President and CEO on March 25. Our first fiscal quarter operating results were solid considering the ongoing impact from the COVID-19 pandemic, especially when taking into account that our fiscal quarter ended on May 31 at a time when business closures and work-from-home mandate were still largely in place across the globe. Consolidated revenue in the first quarter was $80.2 million with an adjusted EBITDA margin of just over 8%. Overall, the CalAmp team did an amazing job maintaining a high level of efficiency and productivity while staying in close contact with our customers to support their product and solution requirements. I have been focusing my efforts over the past several weeks on executing against the plan I discussed with you on our last earnings call. I am pleased to announce that we have already made significant progress against this plan. First, we continued making improvements across our global supply chain that have enabled enhanced communications between our sales and operations organization. And to further accelerate these efforts, we recently appointed a highly experienced Senior VP of Global Supply Chain and Operations, Nathan Lowstuter. Nathan has over 20 years of supply chain and operations experience at large Fortune 100 companies such as Honeywell, Boeing, and FedEx as well as emerging companies in automotive, aerospace and solar. It will be his primary objective to help CalAmp further elevate the efficiency, quality, and on-time delivery of our products and services to our customers. Second, we’ve continued to increase our resources towards expanding our SaaS business, which include improvements to the quality and growth. As part of these efforts and as I mentioned in today's press release, we made the strategic decision to transition out of the automotive vehicle financing business. This business has operated significantly below our corporate average gross margins and has been dilutive to our overall ARPU targets. This action will enhance the quality of our SaaS revenue while improving gross margins and profitability within our software and subscription services business. Additionally, Arym Diamond, our newly appointed Chief Revenue Officer, is actively driving our SaaS solutions into the market underpinned by a new sales incentive program that has reenergized his sales organization and aligned the team with the company's objective of increasing organic SaaS revenue growth. Also noteworthy, as a part of our efforts to aggressively transition our hardware business to a SaaS model, this month we are preloading our first large automotive dealer that will focus exclusively on our LoJack Connect and LoJack Connect Plus product using a recurring revenue sales model. Third, we have made notable progress on the telematics side of our business, strategically elevating our engagements with key customers. In particular, we are helping customers through their 3G to 4G transition cycles and have initiated a powerful new technology migration plan for this purpose. In fact, when looking at our largest enterprise accounts, revenue from these important customers have grown significantly over the past year and represents a growing portion of our total consolidated revenue as we further support their LTE migration. Fourth, another key objective of my strategic plan is to focus R&D resources on the most promising verticals. Leading these efforts is our new Senior VP of Product Management, Jeff Clark. One of our near-term product opportunities is with our iOn suite of applications including iOn Vision, which will be released this fall. CalAmp's iOn suite of fleet management software applications will play a vital role in providing safe and secure management of freight, especially at a time when the transportation of essential goods is becoming more vital as a result of COVID-19. As such, our iOn Vision application should be of significant interest to freight companies and other shippers who need to ensure the integrity of critical freight cargo. Lastly, one additional comment that I would like to make as part of my commitment to provide more transparency to investors regarding progress across our business. This quarter, we decided to break out our U.S. LoJack SVR product revenue as a separate revenue line item. As many of you know, this business has been challenged from a performance perspective, and it's one of my top objectives to begin transitioning this business to a recurring revenue model that offers significant value to our dealer partners and their customers, similar to a model that we provide through all of our international businesses. In terms of additional progress across other areas of our business, we just announced an exciting collaboration between our LoJack Mexico subsidiary and Overhaul that will bring supply chain visibility and security to enterprises shipping across Mexico, effectively preventing theft and improving the integrity of these shipments. Our Synovia Solutions subsidiary is also making solid progress despite nationwide school closures and has recently introduced two new technology offerings to help support schools, children, and their parents during these uncertain times. The first is designed to help schools better manage unconventional bus routes like field trips, sports, and COVID-19 related trips in order to comply with social distancing and stay-at-home mandates. And the second is a new application called Bus Guardian that serves as a powerful, flexible, and scalable solution designed to help schools deliver instant and actionable reporting of school bus ridership based on contact tracing, which is particularly important if a student or driver becomes ill. The program also delivers a hygiene verification system to help administrators monitor and report on real-time sanitation efforts. These products will bring great value to school districts around the nation as kids return back to school in the fall. To conclude my remarks today, I want to reiterate how proud I am of the CalAmp team for managing through these unprecedented times while continuing to maintain a high level of focus and productivity. I remain convinced that CalAmp is positioned to build lasting shareholder value as a full stack software solutions provider delivering high growth recurring revenue. We have a solid team in place to continue advancing our strategic initiatives and operating plan. With that, I will now turn the call over to Kurt for a closer look at our fiscal first quarter financial results, and then we will open the call to your questions. Kurt?

Thank you, Jeff. Today, my commentary will include reference to non-GAAP financial measures of adjusted basis net income, adjusted EBITDA, and adjusted EBITDA margin. A full reconciliation of these non-GAAP measures with the closest corresponding GAAP basis measures is included in the press release announcing our fiscal 2021 first quarter earnings that was issued earlier today. Additionally, I want to emphasize as I did in May that we continue to monitor all COVID-19 developments across our worldwide operations. The cost-containment measures we implemented earlier this year, particularly in areas such as personnel, travel, and other discretionary spending are still in place, and we remain confident that our existing cash, future cash flows, and available borrowing capacity are sufficient to fund our ongoing operations through these uncertain economic conditions. Overall, we are pleased with our financial performance in the quarter considering the economic uncertainty created by the pandemic. First quarter consolidated revenue was $80.2 million compared to $87.2 million last quarter, down 8% sequentially. Our first quarter of fiscal 2021 commenced just prior to when the shelter in place mandate was enforced by most states across the U.S. Our international revenue reached a record $28.7 million or 36% of consolidated revenue in the quarter, driven by some of our larger international enterprise customers like Caterpillar, Verizon and Trimble. We believe that our global scale and diversified base of large customers creates a point of differentiation for the company. Software and subscription services revenue was $28 million or approximately 35% of consolidated revenue and representing a 10% increase year-over-year. The year-over-year increase was driven primarily by Synovia Solutions and LoJack Mexico. Software and subscription services revenue declined $6.8 million sequentially from $34.8 million last quarter due to a slowdown in system installations resulting from COVID related shutdowns and work from home mandates, particularly for Synovia Solutions and our LoJack Italy subsidiary. We expect scheduled installations to increase in the second half of our fiscal year when the mandates are lifted in geographic regions like the U.S. and Italy. As Jeff mentioned, we made the strategic decision to transition out of the auto vehicle financing business as part of our efforts to improve the quality of our overall SaaS revenue while increasing margins and profitability within the business. This business produces about $2.3 million in quarterly revenue from approximately 385,000 subscribers. However, this business has realized gross margins well below our corporate average for the past few years and does not meet our expectations for the SaaS business. Therefore, we made the decision to transition out of this business over the next 12 to 24 months while we honor the service commitment period stipulated on our existing customer contracts. This transition resulted in a one-time charge of approximately $600,000 in the quarter, principally for the write-off of excess and obsolete inventory. Additionally, during the first quarter, we decided to present the legacy LoJack U.S. SVR business as a separate reportable segment to provide greater visibility into this product line as we aggressively transition it to a subscription-based business model. Revenue from this segment was $6.6 million, down from $11.2 million in the prior quarter. As discussed on our last quarter call, the decline is due to a slowdown in device installations across our U.S. dealership network due to the COVID related shutdown. Further, this business continues to be impacted by the transition from proprietary radio frequency technology to GPS-based telematics solutions within the automotive vertical. Telematics products revenue was $45.5 million in the first quarter compared to $41.3 million last quarter with MRM telematics products revenue increasing to $30.8 million compared to $23.4 million last quarter. In the first quarter, MRM telematics products revenue benefited from the shipment of a substantial portion of the incremental backlog from the fourth quarter that resulted from the supply chain challenges in China, prompted by the pandemic. Telematics products revenue also included network and OEM product revenue of $14.7 million, compared to $17.9 million last quarter. Revenue from Cat was $10.9 million in the quarter compared to $14.7 million last quarter, reflecting some unevenness in certain product shipments to Cat's worldwide factories that were affected by the pandemic. Overall, demand from Cat remained strong as we continue supporting their transition to next-generation LTE-based telematics as part of its 3G to LTE upgrade. We expect this strong demand to continue in the second quarter and into the second half of our fiscal year. We believe that our portfolio of large global customers like Cat is another point of differentiation for the company. Revenue growth across these top customers today is being driven largely by the ongoing 3G to LTE upgrade cycle. Consolidated gross margin in the first quarter of fiscal 2021 was 38.7% and consistent with the prior quarter and prior year. although stabilizing, our gross margin remains under pressure, due mainly to the decline in telematics products revenue attributed to the COVID-19 outbreak in the quarter coupled with the write-off of excess inventories as we transition out of the automotive vehicle financing business. Now that we have completed the closure of the Oxnard, California manufacturing facility and moved all product assembly to Tier 1 contract manufacturers, we will be able to leverage the efficiencies gained in working with these experienced manufacturers to enhance the margin profile for our telematics devices. Further, we are very focused on transitioning our extensive device installed base to a software and subscription business model, which will also help improve our future consolidated gross margin. Adjusted EBITDA in the first quarter was $6.5 million with an adjusted EBITDA margin of 8.1% compared to adjusted EBITDA of $7.8 million and an adjusted EBITDA margin of 8.9% in the prior quarter. Although, out EBITDA margins declined 80 basis points, the company executed well around its cost savings initiatives in the quarter. As adjusted EBITDA was impacted by the decline in telematics products revenue, we instituted various cost-containment measures, which resulted in savings of approximately $2 million in the quarter. Moreover, we continue to manage our spend carefully in this period of uncertainty and our focus has been on closely managing personnel costs, including delayed hiring as well as the timing of discretionary spend around T&E, professional services and marketing, among others. As such, during this time, we have maintained a relatively consistent headcount level without instituting layoff or employee furloughs. Our non-GAAP operating expense as a percentage of revenue was 36% for the current and prior quarter and we expect to manage our operating expense in line with consolidated revenue growth as we navigate through this period. Now, turning to our current liquidity position. At the end of the first quarter, we had total cash and cash equivalents of approximately $104 million compared to $107 million last quarter. Our aggregate outstanding debt is approximately $263 million and we recently redeemed the remaining $27.6 million of our 2020 convertible notes which were paid on May 15. During the first quarter of fiscal 2021, we were also pleased with our net cash flows from operating activities of $5.9 million compared to $8.2 million in net cash provided by operating activities in the prior quarter. As we navigate through the downturn and finalize the integration of our acquired businesses, our focus will remain on improving working capital in order to enhance cash flows generated from operating activities. With that said, we believe that our strong balance sheet and available capacity on our revolving credit facility will enable us to weather through a potentially extended downturn, while also positioning us to compete effectively across the fragmented markets we target. Now, turning to guidance for the second quarter. Visibility into customer demand and product shipments from our suppliers in Southeast Asia and Mexico remains uncertain at this time. As a result, we are not providing guidance for the second quarter. We still expect revenue pressure in the second quarter with customer demand increasing in the second half of our fiscal year. Overall, our team is doing an effective job proactively addressing and managing this crisis in order to mitigate the impact to our business. As we obtain more clarity regarding the future business outlook and overall customer demand, we expect to return to providing quarterly guidance. With that, I turn the call back over to Jeff to provide some final comments before we open the call up for questions.

Thank you Kurt. In closing, I am pleased with our solid results in the quarter as well as our continued progress on our operating plan and strategic initiatives. We are making improvements across our business and remain focused on aggressively transitioning our business to a SaaS model. Although visibility remains limited due to the current pandemic, we feel confident that we will emerge from this crisis as a leaner, more focused and more profitable company. With that, now I would like to open the call up to questions. Operator?

[Operator Instructions]. Your first question comes from the line of Mike Walkley of Canaccord Genuity. Your line is open.

Great. Thank you for taking my questions and congratulations on the strong results in a tough environment.

Thanks Mike.

First question for me, just gross margins longer term. I mean, clearly you are not giving guidance for Q2, but can you talk about gross margins where they could trend to by phasing out of the car theft business? And then also, you talked about some synergies from contract manufacturers and scale and improving hardware gross margins. So, without giving near term guidance, how should we think about kind of gross margin targets as business starts to recover in the second half of the year and longer term?

Yes. Mike, so as you pointed out, we aren't giving any future-looking guidance. I would say that for the second half of this year, margins will continue to be under pressure. Primarily this quarter, we noted that the COVID-19 impact which impacted our telematics systems revenue was a factor. Additionally, as we made the move to transition out of the auto vehicle finance and we took $600,000 hit on excess inventory impacted this quarter. But I will say that we are pretty pleased with the fact that we finally closed our Oxnard, California facility. We are now moving to gain efficiencies in working with these Tier 1 contract manufacturers, which we think will help us improve margins. Additionally, I think as we continue to work hard to transition more to our software and subscription services, that will help drive margins up. And so, there are a number of initiatives that are in place. But I just have to say that in terms of this year and in particular the second half of the year, the margins will remain under pressure, and then as we come out of this, the impact of COVID-19, we believe some of these cost measures that we have taken will ultimately allow us to expand margins to above the 40% range.

Okay.

Yes. And then just, Mike, one other thing I’d just like to add to that. I was very pleased that we were able to hire a key member of our management team to head the SVP Global Supply Chain job, Nathan Lowstuter. He has deep experience in supply chain. And to-date, our focus has really been more on on-time delivery and quality, and I think over time, Nathan is going to really help us get much more focused on the margin part of our business in terms of managing our contract manufacturers.

Got it. Understood. And then just on the software and services. I know you are not providing guidance, but with the drop this quarter due to timing of some installations, how should we think about the roll-off of the car theft recovery over the two-year period, I think, for the contracts? How should we think about that as a headwind versus maybe some tailwinds as installations come on board later in the year? Thank you.

Yes. There is a couple of things going on. One, that's a pretty small business, as Kurt described. In addition to that, we are going to honor existing service commitments. So it's a fairly slow wind down or it's very manageable in terms of -- all that said, you know it allows us to really focus on our fleet management and supply chain logistics business that we think is more critical to the long term growth in SaaS, and we expect to see continued improvement some this quarter and more in the back half of the year as installations improve across the business. We talked last quarter about in particular our Synovia business. The installations were affected and that slowed some of the SaaS revenue there. So, we have got a number of things going on in addition to the sales focus that will help offset that. And I think more importantly, rather than focus on that business gradually moving away, I think it allows us to really get focused on what can be real drivers of the kind of revenue growth organically that I think all of our investors are looking for.

Great. Last question for me, and I will pass the line. Just in your talking with your U.S. customer base on the LoJack business, what's the feedback and what do you think the timing is as you transition that business from hardware to more recurring revenue? How should we just think about that as you break out that piece of business in terms of that modeling down but helping your overall recurring revenue line? Thank you.

Yes. I think on the LoJack business, we took this action this quarter as a part of our commitment to providing more transparency to investors across the business. And last year, we also appointed a general manager to specifically oversee that business because we believed it needed attention, right. And so, our goal there is, in terms of our dealer partners, the business is changing. We have been primarily offering our legacy SVR product that operates on a different RF frequency as opposed to mobile frequency, and the world's really moving to telematics, and we think we will have much more, we will have a product that delivers a lot more value to the customer in addition to still having the SVR capability and that will allow them to be more connected with their customers post sale. So not only does it help them from a lot management perspective, but this post sale engagement with the customer is really, really important. So, what's going to be incumbent upon us is to really convince our top dealer partners, and it's a pretty concentrated business when you look at it. So, we are being very aggressive on that in the quarter to convert as many of them as we can to a telematics solution.

And just to add to that, Jeff, I think Mike you asked about the timeframe. This transition has been in place for a little while now, but certainly with the new leadership here and guidance from Jeff, there is a heightened focus on it. As we look at the timeframe that this may take, realistically speaking, it could be as much as a low end 18 months, but probably could be as much as 36 months out there for the full transition to actually take effect.

Okay. Thanks for taking my questions and best wishes for the year.

Thank you.

Our next question comes from the line of Scott Searle of ROTH Capital. Your line is open.

Hi. Good afternoon. Thanks for taking my questions. Nice quarter, guys, in a very tough operating environment. Maybe to sort out, just a couple of questions around calibrating of the quarter. MRM had a very nice step-up. Part of that seems like it was catch-up in terms of the inability to ship product due to component availability in the fourth quarter. Could you help us understand what that one-time catch-up was so maybe we can normalize for what the real run rate of MRM as maybe linearity on a monthly basis that you are seeing in the quarter for MRM?

Sure. Scott, thanks for the question. So just to give you some perspective and I think we laid this clearly out in our fourth quarter earnings announcement back in the May timeframe. We had indicated at that time that we had approximately $8 million of incremental backlog that unshipped at that point in time. In this quarter, we do believe that we shipped a large portion of that backlog. And as a result of that, that did impact or helped impact our MRM products revenue. You pointed out that sequentially that revenue line item was up and I believe it was at least partially impacted by that. I think our focus right now on Q2 is, there still remains pressure. As we have said before, the impact of COVID-19, we believe will be highly concentrated on the first half of this year and the second half will really be the timeframe when things will start to lift a bit. So currently, we shipped, I would say, a large portion of that backlog and it did impact our MRM product revenue.

Very helpful. And then maybe just to follow-up then on the LoJack SVR product side. A big step down this quarter, managed step down to the $6 million and change, it sounds like. So that will transition, the expectation is what? To zero? Or to a couple of million a quarter over an 18 to 36 month period? And then along with that, what are the ARPUs that you are your thinking about within that LoJack dealer base because now it sounds like you referenced some comments related to specific frequencies to LoJack versus more standards-based or maybe LTE or CAT M type solution where you could offer more conductivity, more different types of solutions to that existing installed base once you get the product onboard there? So I am wondering what the thought process is and what the target is in terms of how you are thinking about ARPU, maybe 18, 24, 36 months out?

So Scott, I will sort of break that question down. There was a lot of questions there. I think, first off let me just answer by saying, obviously the LoJack business or LoJack products business was impacted by the shutdowns, the shelter in place mandate for the quarter. So we do not expect that this step-down that you see this quarter will persist out beyond, let's say, that the next couple quarters. That being said, we also do not expect that this business will run aground to zero. We do believe that there is a baseline revenue that can be realized through the sale of legacy LoJack products. All that said, obviously, our focus has been on transitioning to a telematics solution and that is in progress. Still early days, but we expect that to happen more rapidly here and that's been the milestone or expectations that Jeff has set forth for the team. In terms of the ARPU associated with that, right now we have a growing base of subscribers. We are targeting an ARPU that is, say, in the range of $7 to $9 on a monthly basis which is fairly consistent with what we have done with our international businesses. And Scott, you know very well that we believe that the success we have had in Italy and now in places like Mexico, we can replicate here in the U.S. We have just got to educate our dealer partners and be more aggressive at transitioning them from the hardware sale to a telematics solution.

Got you. Very helpful. Thanks. And one last multipart question, if I could. Looking at the software and services side of the equation, it looks like there were installation headwinds there. Was that all of the shortfall or were there some other elements like with Synovia where there was a churn where the deactivations, given what's been going on in terms of the pause or shelter in place? And I am wondering if you have some early thoughts as to what the SaaS mix would look like if we are looking at 18 or 24 months? What the bogey is on that front? Thanks.

Yes. So, on the SaaS revenue, yes, it was predominantly affected by the installations. From a churn perspective, we didn't see any particularly big spike in churn. It is more of a normal quarter there. And we were affected in some of the school districts by not being able to get access to the buses in those cases. Some of our LoJack Mexico and Italy businesses as well as the U.K. were also affected there in that SaaS category as well. And then the second part of the question, I am trying to remember. Kurt, do you recall?

Scott, can you repeat the second half of that? I know you asked about churn, but?

No, just in terms of your overall SaaS focus for the company as we look out over the next couple of years. You have brought on Arym. You are obviously bringing in more management team with the DNA in and around recurring solutions. So I am kind of wondering what the high level thoughts are? Where you would like that to be?

Yes. Preliminarily, I think we were on record saying, we are trying to get that to 40%. Longer term, more aspirational than that. But we have already seen some great things as Arym and his team have done a few things. One, we have rolled out a new compensation process this quarter. A system that I think does a better job, one, in sending our salespeople to go out there and get much longer term enterprise agreements with customers, rewards them for SaaS revenue versus product revenue and really drives this, I think, more strategic thinking. I have been really pleased with what we have been able to do in terms of the level of engagement we have with our customers and in fact the level of their discussion. We are going in there very proactively as it relates to 3G to 4G and that's a great opportunity to introduce the new sales team there and drive up those software revenues. And to be over time, again, the more we can focus on our core products here, so some of these strategic moves we made may seem little but inside the company, I think they are going to be big and the company is very aligned on this SaaS initiative.

Great. Thank you.

And our next question comes from the line of George Notter of Jefferies. Your line is open.

Hi guys. Thanks very much. I guess I am curious about this step-down sequentially in the software and subscription services business. I understand not getting access to vehicles and having installs delayed. But I guess I would have expected that revenue number to be more consistent with the February quarter given that it's more of a recurring model here. Is there something I am missing that explains the step function down here?

Sure. George, let me take a stab at that. I guess the first thing to keep in mind is with especially the Synovia business as well as the LoJack Italy business, which was the product lines that were probably the most significantly impacted by the lack of installations. There is oftentimes a component of that recurring revenue arrangement that is recognized upfront associated with the value of the actual hardware installation. And so that did have an impact in the quarter. So said another way, specific values, LoJack as a good example because we sell LoJack hardware as a standalone device and other aspects of our business, especially here in the U.S. that's then used and coupled with a subscription arrangement. In those instances, we are required to record that revenue upfront. So although LoJack Italy may have an enterprise arrangement, say, with a customer like ALD that requires continuous installation of the hardware devices, when you are impacted by a pandemic like that you can't get access to any vehicles or to the customer, it has a pretty sizable impact. So anyway, that's really the explanation. It is around installations and the inability to recognize the revenue associated with the hardware element of those subscription contracts.

Got it. And then of that revenue number for this quarter, just out of curiosity, could you give us a sense for how much is tied to that hardware installation? How much is it? Is it a third? Is it a half? Just out of curiosity.

Yes. Great question. And the best way for me to answer that is just in terms of the typical type contract. If you have a contract, let's say, for a higher-end fleet management service, we would expect an ARPU that may range anywhere from $18 on the low-end to a high-end of $25. And of that contract that may be over 48 to 60 months, we tend to see something between, say, 25% and 30% could be allocated to the installation of the actual hardware device depending on the type of hardware devices that they ultimately go with in the overall service arrangement.

Got it. Okay. Great. Thank you.

Sure.

And our next question comes from the line of Jerry Revich with Goldman Sachs. Your line is open.

Yes. Hi. Good afternoon. This is Jerry Revich here. It's nice to hear from you all. I am glad you are all doing well. I am wondering if we could talk about the subscriber count. Can you tell us what the subscriber count was at quarter-end? And can you just give us an update on how it tracked by international LoJack versus Synovia versus other businesses?

Sure. So just to answer part of that question this way. So last quarter, our subscriber count was somewhere in the range of 1.325. This quarter, it declined to about 1.307. Most of that decline was in the area of the automotive vehicle finance category. That category, as I mentioned earlier in the prepared remarks, had about 385,000 subscribers and that did decline a bit this quarter. Outside of that, across the board, most of our subscriber count remain fairly consistent for the other businesses. As it relates to international, I don't have the exact number calculated. I probably would say, may be a quarter to a third of it is probably international with the rest being domestic.

Okay. Thank you. And then I was impressed with your performance in MRM this quarter, given the production shutdowns globally. Can you talk about how much of a benefit you have from LTE transition? Just expand on other drivers of your performance here?

Yes. Jerry, we definitely benefited from the 3G transition especially on some of our big customers. We saw very good growth. Whether we have COVID-19 or not, right, the fact of the matter is that these networks are going to be transitioned in short order. So working with our customers, our product team did a very nice job enabling the sales team with data to go directly to the customers and talk to them how we can best solve this in a multi-year arrangement. And we have success, as Kurt mentioned in his script, with the large customers. I think when we think about our business in this fragmented industry, the fact that we do have some very good customers who are internationally focused is a real advantage to us and that definitely helped this quarter and it will for the balance of the year as well, I believe.

Yes. Just to give you some perspective, Jerry. In terms of our overall MRM revenue composition, practically 80% to 85% was generated from the purchase of LTE products.

And Kurt, is it possible to parse it out to say, out of that 80%, 85% that's LTE, how much was specifically because of replacement on existing hardware versus on new hardware? Is that something that's possible to tell?

It's not something that we have available right now. We are looking at that pattern in assessing our existing customers as well as a number of customers or potential customers that are out there looking at the type of data that's available in the marketplace as to the number of devices that they have and where they might stand in their overall upgrade program. We do know, just based upon our experience, especially over the last year or so, that the larger enterprises as I just pointed out and these are enterprises like Caterpillar, Verizon Connect, Trimble, they have been much more quick to move. However, we are seeing that a lot of our smaller or medium-sized customers and in particular the telematics service providers, the TSPs, have been a bit slower to move, probably because of the cash flow implications of that change. So that being said, as Jeff had mentioned, we are strategically engaged with our customers and having those conversations right now trying to understand what we can do to meet their needs in an effort to ensure that we don't have a mad rush as the sunset is upon us and to handle it in a more orchestrated fashion.

Okay. And last thing, can you please expand on U.S. LoJack SVR? If you could define even before the decline this quarter, the business was EBITDA negative a year ago and obviously facing some challenges. So what's the path forward here because you have still have the cost to support the legacy product base? Can you just expand on that part of the discussion? And you know, the fact that you are splitting it out as a separate segment, I am wondering if that's a signal for evaluating a strategic as well?

Yes. Thanks Jerry. Listen, I think that as we look at the business, you are right, it's been under pressure for quite some time in addition to our focus on telematics. And we have probably been saying that for a long time but I think that what you will -- the differences, we have really got a focused strategy to drive that with specific milestones and time frames that we can evaluate to see, okay, we said we were going to convert and transform this business. How are we doing? How are we doing at the end of the second quarter and the end of the third quarter and the end of the fourth quarter, so we can evaluate whether it makes sense to continue down this path or do we need to think about other alternatives there? But I think we have got a really good shot. The team is doing a really good job getting in front of our large customers. At the same time, we are looking for opportunities in the short run to take out some additional expense. We have always been very cautious there. You are right. You still have to maintain some of the infrastructure for the legacy products but I think we can make some progress there. But importantly for our investors, I think the difference are these milestones and the fact that we are now really, we have got a general manager in charge of that business. We are very, very focused on how we are doing each month and each quarter throughout fiscal year 2021.

And Jeff, it just feels like the overhead cost for that business is going to be a lot to absorb because the problem is not really at the gross margin line. We are running at what looks like about $6 million per quarter in overhead for a $12 million revenue business a year ago, $6 million revenue business this year. Can you cut cost significantly out of that SG&A base? It just looks like the network cost are extremely high and I am having trouble seeing the path forward here.

Yes. Kurt, would you talk about some of the things we have done on the network side, please?

Yes. Sure. Jerry, I mean you do have a great point and it's something that we are looking at carefully. I mean we do think that there are some cost attributes that we can rationalize out. Obviously, things like the tower infrastructure is critical to maintaining the services on the legacy systems, meaning the RF technology. But as you start to move the customers to a cellular based technology, those costs dissipate over time. So we are looking at the business in the present tense, identifying those costs that we can strip out of the business, but do it in a way that it doesn't disrupt our opportunities to move rapidly to the telematics space. And we believe that once we get the telematics model to subscription model, we will be bringing, number one, more value to our customers, our dealer partners, but two, delivering in a way that's a lot more cost-effective to us as an enterprise. So those are topics that we are looking at very closely. And as Jeff mentioned, we have appointed a general manager in there to assisting that effort and I am pleased to say that we are going to be providing additional transparency to hold us accountable so that we execute.

Okay. I appreciate the discussion. Thank you.

Sure.

You are welcome.

[Operator Instructions]. Your next question comes from the line of Mike Latimore of Northland Capital. Your line is open.

Hi. Thanks. Yes, just on the software and subscription business, just kind of curious about the pattern of that for the quarter. Was there kind of a big step-down in the first month and then a stabilization? Or has it been sort of declining month by month throughout the quarter?

Well, in terms of, as we mentioned that really one of the drags in the quarter was around the installation and so that got better as we got later in the quarter as more of the markets around the country opened up. But it was a struggle. I mean it was the kind of thing where every day we were looking at our list of pending installs, talking to installers, working with our sales team to reach out to our customers. And so it did get better at the end, but still you know when you look at what's going on across the country, you know that the opening is taking place at a different pace depending on the region or the state. And so we had to manage through all of that. But I do think it got better. And as we enter into this quarter, we felt better about our prospects of getting access. There will still be some drag there, but we are feeling better. That's getting better each day.

The only think I would add, Mike, just on that is, a big part of that is Italy. And you know in listening to all of the media that Italy was pretty significantly impacted as a country and in particular our business is concentrated in northern part of Italy. So there was an impact, especially early in the quarter. And as you look to Q2, keep in mind that we are going into summer months. And so are our hope is that the business will pick up. However, given some of the seasonality that goes into it, Q2 will still be impacted a little bit by the normal seasonality with the summer months.

Great. And then on the school district commentary, I guess have your school customers signaled that, hey, we know we are going to reopen. We know we will be able to do more installs. What kind of commentary are they giving you at this point?

Yes. We are still proceeding with installs as we get access. So we have had good success with that. And as I have just mentioned, we are building momentum there. As it relates to next year, they don't have all the answers yet. As you know, when you look across the country, it still remains unclear. I am very happy that our sales team hosted a customer advisory board meeting with a number of our leading customers in that space to kind of walk through what next year looks like. And I still think a lot remains to be determined on that. And just to remind our investors that this is a recurring revenue model, so it's a Software-as-a-Service subscription for us. And as they talked about the various ways they could open up, who knows? It could offer some opportunities to run two routes a day for the school buses versus one because of social distancing. And so I think the team has been fairly innovative adapting and rolling out new services to support our customers as they navigate through these COVID-19 issues. But it's still uncertain exactly how they are going to open up next year. We are just trying to be a very good partner and work with them through that process.

Yes. Okay. Great. It makes sense. I just wanted to make sure either way the right number here. Network and OEM, so that was $14.7 million?

I am sorry. The actual hardware?

Yes.

Yes. About $14.7 million for the quarter.

Okay. Great. All right. Thank you.

Thanks Mike.

Thank you. And at this point, I would like to turn the call back over to Jeff Gardner, President and CEO, for any closing remarks.

Thank you. And thank you all for joining us on the call today and for your continued interest in CalAmp. One final note. For those that would like to schedule a meeting with us, we will be participating in the Jefferies Global Industrials Conference in the first week of August and the Canaccord Conference in the second week of August. Both are virtual events. Please contact your sales representative or the Shelton Group if you would like to be added to our meeting schedule. I look forward to discussing our continued progress during our fiscal second quarter call scheduled in late September. Operator, you may now disconnect the call.