CAMP - NASDAQ

Welcome to CalAmp’s Fourth Quarter 2021 Financial Results Conference Call. As a reminder, this call is being recorded. I would now like to introduce your host for today’s conference call, Joel Achramowicz, Managing Director of the Shelton Group, CalAmp’s Investor Relations firm. Joel, you may begin.

Good afternoon and welcome to CalAmp’s fiscal fourth quarter 2021 financial results conference call. I am Joel Achramowicz, Managing Director of Shelton Group, CalAmp’s Investor Relations firm. With us today are CalAmp’s President and Chief Executive Officer, Jeff Gardner; and Chief Financial Officer, Kurt Binder. Before we begin, I’d 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 these 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, and then Kurt will provide additional details about the financial results and our outlook followed by a question-and-answer session. With that, it’s my great pleasure to turn the call over to CalAmp’s President and CEO Jeff Gardner. Jeff, please go ahead.

Thank you, Joel. Welcome, everyone and thank you for joining us today. We finished fiscal 2021 on solid footing, with revenue for continuing operations in the fourth quarter, increasing 6% year-over-year primarily due to robust customer demand in support of the global 3G to 4G upgrade cycle, which continues to accelerate and was the key driver of our results as well as our largest customer, Caterpillar, setting another quarterly record. We saw some of our smaller TSPs, resuming more normal ordering patterns, both because of this industry upgrade and also due to the gradually improving global conditions as more businesses and regions reopen. We also continue to see sustained demand in our SaaS solutions in the quarter, which exceeded 42% of total revenue from continuing operations. All in all, it was a solid finish to our fiscal year. As we look back over this past fiscal year, I wanted to take some time to review the progress the CalAmp team made since I assumed the CEO role in March of 2020. Over that time, it has, of course, been very challenging for companies across the globe due to the COVID-19 pandemic. But I’m very pleased with the accomplishments we have been able to achieve against this backdrop and the progress we have made as a company. As you may recall, one of my key strategic priorities was to improve the performance metrics across the organization, including improvements to our EBITDA by focusing on our efforts on the most profitable markets. 2 key actions we took to help drive these efforts were: first, the decision to transition out of the automotive vehicle finance business as part of our efforts to improve the quality of our overall SaaS revenue, while increasing margins and profitability within the business; second, and more recently, we announced the sale of the LoJack U.S. and Canada business to Esperion, which was a very positive development both for our customers and the company following our earlier decision to wind down this business. The decision aligns with the commitment we made to customers in December, as well as to the public safety groups to seamlessly transition dealers to a leading provider of aftermarket GPS and sensor-based telematics. In addition to being an exceptional financial outcome for CalAmp, it further supports our aggressive efforts to expand our strategic SaaS initiatives worldwide. Another one of my top focus areas over the past year has been establishing and sustaining a strategic level of engagement with our key customers. I believe that we’ve never been closer to our customers than we are today, in particular, we’ve been helping customers navigate their 3G to 4G transition cycles with a powerful technology migration plan. The growth we have achieved with Caterpillar over the past year, which includes an extension of our relationship in August is an example of the depth of the relationships we have enhanced with our key customers. Moreover, when looking at our other large enterprise accounts engaged in the LTE migration, revenue from these important customers has grown over the past year and is evidence that the technology transition is building momentum. Aaron Diamond, our Chief Revenue Officer, who joined us about a year ago, has really been instrumental to sustaining these relationships and building new ones with his team. We’ve also implemented new recurring revenue programs with our large global freight transport and package delivery customer, and we now have 135,000 trailers under contract. Recently, we have begun to retrofit 35,000 of them with new devices, and we’re working on various projects after that, offering exciting potential in the months ahead. These examples reflect the progress we are making with customers around the world who utilize our telematics solutions, both to improve their operations and fulfill their business objectives. As another one of my top priorities, we have been making great progress on key product development initiatives by focusing our valuable R&D resources on the most promising verticals. Our Senior VP of Product Development, Jeff Clark, who has also been here for about a year, has been a key factor in leading these efforts with his team working in concert with our SVP of Engineering, Anand Rau. Recently, our team has completed the development and release of our new data enriched intuitive user interface on our iOn family of telematics solutions. This easy-to-use software interface provides actionable insights to fleet operators so they can manage their entire mobile workforces from a single screen dashboard. The new platform provides real-time data alerts and utilization reports to customers on their fleet, operational dynamics, thus allowing them to make better decisions, leading to improved performance, workflow efficiency and lower cost. It’s an innovative AI-enabled resource that fleet managers will really appreciate as they look to streamline operations, to improve customer satisfaction. We’ve put a lot of time and effort into this development after spending a great deal of time talking to customers to understand their key pain points. The result of this work is reflected in this best-in-class application platform that provides a real-time snapshot of all fleet activities across geographies and a unique level of control for our customers. I’m very pleased with our team’s innovation here as this new platform represents the unified and consistent interactive interface for all of our software solutions going forward. We’ll be providing more updates in the coming months with additional features and functionalities as we roll out iOn to our customers across our suite of solutions. Going forward, we are committed to the regular and consistent enhancements to our innovative software stack to demonstrate to customers that the software they are using today will continue to deliver more value in the years ahead. I also wanted to mention that we unveiled our new SC 1302 single-use smart tracking device this week that can monitor temperatures as well as minus 20 degrees Celsius. This smart device provides granular visibility for the safe and efficient transport of COVID-19 vaccines and other pharmaceuticals and perishables as well as various electronics, another high-value cargo, with first shipments anticipated in the first half of 2021. In summary, the CalAmp team has made great progress over the past year, positioning the company for increasing profitable growth by improving the quality of our revenue and also driving a higher percentage from our SaaS solutions. As a result of our execution on strategic initiatives, our SaaS revenue now represents more than 42% of total revenue, with the objective to continue increasing its contribution to overall results. As we enter a new fiscal year, our backlog is at near-record levels, supported by strong customer demand across our business and target geographies. We’re working closely with our suppliers to manage the supply shortages for certain components that are also impacting companies across the globe. This cooperation has certainly helped us keep our lead times below what others in the industry are quoting, but they’re impacting our ability to fully ship against the increasing demand. We also continue to see lingering effects from the COVID-19 pandemic that are still affecting installation schedules, mainly in Italy and the U.K. However, I want to be clear that we remain very optimistic about the prospects ahead as we seek to drive further improvements in our operating performance and expand our SaaS solutions in the coming year and beyond. With that, I will now turn the call over to Kurt for a closer look at our fiscal fourth quarter and full year financial results. And then we will open the call to your questions. Kurt?

Thank you, Jeff. Today, my commentary will include reference to the 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 fourth quarter and full year earnings that was issued this afternoon. Also, as indicated in our press release today, the financial results of our LoJack North America business that was sold to Esperion in March are being accounted for as discontinued operations. Unless indicated otherwise, these financial results reflect our continuing operations, and we have revised prior periods for historical comparison purposes. Quarterly revenue, together with revenue from discontinued operations increased sequentially to $89.5 million, including $7.6 million from LoJack North America. Revenue from continuing operations increased 6.3% year-over-year to $81.9 million. For the full year 2021, total revenue from continuing operations declined 4.1% to $308.6 million from $321.8 million, due mainly to the impact from the global pandemic. International revenues totaled $27.5 million or 34% for the quarter, and $107.9 million or 35% for the year. For the full year 2021, revenue by region was $6.2 million for the United States and Canada combined $58.5 million from EMEA, $27.1 million from LATAM, and $16.8 million from the Asia Pacific region. The revenue breakdown by vertical market for the year included $142 million from transportation and logistics, $69.3 million from industrial heavy equipment, $57.1 million from connected car and $40.2 million from government and municipalities. Software and subscription services revenue was up slightly from the prior quarter at $34.7 million and represented approximately 42% of consolidated revenue from continuing operations. For the full year, software and subscription services revenue rose 5.2% to $129.9 million from $123.5 million and represented 42% of the total. In today’s earnings announcement, we provided additional performance metrics related to our software and subscription services business. This was done in an effort to help investors track the progress in our transformation to a global SaaS solutions provider. In preparing these metrics, we excluded our automotive vehicle finance business, which we decided to exit earlier in our fiscal year. The first metric, annual recurring revenue, or ARR, represents revenue from recurring application subscriptions, which excludes revenue from the hardware device in a bundled arrangement with the customer that is recorded at a point in time or upon installation. ARR was up 15.1% in fiscal 2021 to $87.4 million from $75.9 million in the prior year. Another key metric, remaining formats obligations, or RPO, is all contracted revenue, including deferred revenue and contracted but unbilled revenue related to bundled contracts with customers. RPO rose 18.6% to $136.5 million at the end of 2021 compared to $115.1 million in the prior year. And finally, our total active subscribers grew 8% year-over-year to 954,000 from 884,000 at the end of fiscal 2020. Telematics products revenue in the fourth quarter was up 6.3% sequentially and 10.9% year-over-year to $47.3 million, primarily due to continued strong demand from the 3G to 4G upgrade cycle, especially at our larger customers. For the full year, Telematics products revenue declined 9.9% to $178.7 million from $198.3 million due to the impact of the pandemic, primarily in North America. Within the Telematics Products reporting segment, network and OEM products revenue increased 22.4% sequentially and 30.8% year-over-year to $23.4 million, primarily due to record revenue from our largest customer, Caterpillar, which increased 12.9% to $18.6 million from $16.4 million in the prior quarter. For the full year, CAT revenue increased 19% and to $59.6 million from $50.1 million in the prior year. We continue to expect solid demand from CAT for the remainder of the calendar year, along with many of our other telematics customers also engaged in this pivotal transition to 4G. Consolidated gross margin in the fourth quarter increased 240 basis points to 42.2% compared to 39.8% last quarter, and gross margin for the full year increased 70 basis points to 39.7% from 39% in 2020. And the increase in gross margin is due to improvement in revenue mix with our software and subscription services business, along with the benefit from certain cost reduction initiatives. While we expect these initiatives to provide continued benefit to our gross margin over time, the recent supply shortages have resulted in cost increases by suppliers, which we are working to pass-through to our customers as we are able to. We anticipate the short-term impact to margins could be between 100 to 200 basis points until such time that the supply shortages normalize or our price increases are able to offset some of the additional costs that we’re seeing from suppliers. Adjusted EBITDA in the fourth quarter was $9.9 million with an adjusted EBITDA margin of 12% and compared to adjusted EBITDA of $8.2 million and an adjusted EBITDA margin of 10% in the prior quarter. The increase in adjusted EBITDA is primarily due to the increase in revenue, coupled with the improvement in gross margin, as previously mentioned. For the full year 2021, adjusted EBITDA declined to $32.1 million or 10% of total revenue from $38.9 million or 12% of total revenue in 2020. The annual decline is due to reduced revenue and the resolution of a product performance matter that we addressed earlier in the year. Also, we generated $21.6 million in free cash flow from continued operations for the year compared to a net free cash outflow of $14.5 million in the prior year. The improvement in free cash flow of approximately $36 million is primarily due to working capital improvements and reduced capital expenditures compared to fiscal year 2020. Our non-GAAP operating expense as a percentage of revenue was approximately 35% for the fourth quarter and the full year 2021. With the sale of our LoJack North America operations, the various cost reduction measures related to this business have been accelerated and incorporated within the transition service agreement with Experion. We believe the sale transaction coupled with ongoing internal initiatives will help to further align our cost structure to a SaaS-based business model that should result in certain operating efficiencies, leading to solid improvement in our consolidated operating margin over time. Now, turning to our current liquidity position, at the end of the fourth quarter, we had total cash and cash equivalents of approximately $94.6 million as compared to $91.7 million last quarter. Subsequent to quarter end, we received $6.8 million from Esperion, including estimated adjustments for working capital, related to the sale of the LoJack North America operations. Our aggregate outstanding debt is approximately $238 million, including the $230 million of the 2% convertible senior notes due August 2025. CalAmp expects to continue to maintain a strong financial position and balance sheet with significant cash for working capital going forward. In reference to our outlook, for the first quarter of 2022, we are maintaining our policy of not providing quarterly guidance as visibility into product shipments remains uncertain due to both global supply shortages, and the lingering effects from the COVID-19 pandemic. With that, I will turn the call back over to Jeff to provide some final comments before we open the call up for questions.

Thank you, Kurt. I am pleased with the progress we have made, but look forward to raising the bar in the New Year as our CalAmp team continues to execute on our strategic initiatives across the organization. Our efforts are squarely set on driving our SaaS business to a level where will be the driving force of our growth, profitability and cash generating potential. With that, now I would like to open the call up to questions. Operator?

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

Great. Thanks for taking my questions and congrats on the strong results and margins. First question for me is just on the 3G to 4G upgrade cycle. Any way you can help us think maybe about longer term organic growth post the cycle? And particularly for Caterpillar, I know you have extended your agreement, have a strong relationship there. But any way to segregate what’s a 4G upgrade cycle versus maybe a sustainable annual amount of revenue you think you can generate from your long-term Caterpillar relationship?

Yes. Thanks Mike. This is Jeff. Thanks for the question. Yes, we – there is no doubt that the 3G to 4G upgrade cycle has really helped on the Caterpillar side. But at the same time, we are seeing increasing demand as their business. If you think about their business early on in the pandemic, their outlook was affected and they are really delivering more product today. So, I think the mix will change over time. But our – we are pretty bullish on Caterpillar over the next 12 months as we look at all that we have to do with them. And I think it’s a great opportunity for us.

And Mike, just to highlight on the 3G to 4G. I mean, it’s broader than Cat, obviously, and we have seen the demand come in more recently from a lot of our small to medium-sized customers that are rebounding after the pandemic, probably about close to 95% to 97% of all of our orders right now are for the LTE product, which is evidence that we are building momentum coming into the 3G, 4G sunset. So, I just wanted to highlight that. And additionally, we also are seeing increased demand internationally. And so we tried to highlight some of the markets that we are selling into for just that purpose. Because as we look at it, although the current sunset opportunity resides primarily in the United States, most of our customers outside of the U.S. are just starting that transition as well, which we think is another wave of demand.

That’s helpful. It sounds like there is still quite a tail to go. Jeff, maybe just switching gears for my follow-up question here. Just lots of progress on your end, your team transforming the business model to higher ARPU recurring revenue subscription services. With the iOn family of telematics solutions, and you are adding more and more capabilities such as low-temperature monitoring, etcetera. Can you share with us kind of what areas you are most excited about in terms of new growth opportunities for the company? And with these low-temperature solutions, is cold chain an area that you are really aggressive going after and with like [indiscernible] being acquired, does that maybe open up the market and create even a new opportunity for your solution set? Thanks.

Thanks. Yes. We are really pleased with the way – with what we have done this year in terms of I think, Mike, what you talked about focusing the business on those verticals that are most promising. As we look forward, I think with the rollout of our new iOn suite product with the new user interface, puts us in a very good position to compete in a number of areas, and the team is making good progress. So, in terms of areas I am most excited about, I mean, I think we are going to continue to do very well in the government and municipal sector. Our connected car business internationally is strong. But overall, when you look at transportation and logistics and our announcement around the cold chain today, we think there is a ton of opportunity. That’s a very big market today. And there is very few companies that bring the full package to market. The device, the platform and the end solution like CalAmp can do. And so that’s really where our team is focused. We are investing there, not only on the R&D side, but also on the sales and product side. So – and we have already proven ourselves in those spaces. You look at our customer list across the board, and we can demonstrate very clearly that we can serve very large complex markets. So, that’s what I would say about that.

Okay. And just a follow-up on that, and I will pass the line. Just with sharing ARR and RPO, and potentially those new metrics, but some of these opportunities in these new areas are – it can take quite a long time to close. I know you are not providing guidance, but should we expect just steady growth in subscription services revenue going forward or are there any seasonality or any trends Kurt we should think about in the short-term that might slow that growth trajectory?

Well, thanks, Mike, for highlighting the SaaS metrics. We feel pretty confident right now that those metrics are good indicators of showing how we, as an enterprise are transforming to a global SaaS enterprise. So, we felt like this was the right time to highlight those metrics. In terms of the growth coming in this upcoming fiscal year and beyond, a couple of things are in play. Obviously, we are coming out of the lows of the pandemic, and that has impacted principally our telematics services – our telematics device business. So that’s a big driver of growth. And additionally, obviously the move to 4G. As we have talked about in the past, one of the key things to our strategy is as we move from 3G to 4G is working with our customer base to transition them out of onetime transaction, onetime sales transaction of hardware into those subscription arrangements. And the first step in that overall strategy has been trying to deploy enterprise agreements and work closely with our customers to bring a package solution or bundle of services to play. We believe that we can do that effectively. So, I think it’s a combination of factors that are in play here, which should allow us to ride that momentum of growth into fiscal ‘22.

Okay. Thank you.

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

Hi guys. Thank you very much. I guess, also I will add my congrats on the results and thank you for providing additional metrics on ARR and RPO. I guess I wanted to kind of ask you more about the lack of guidance. You guys cited, I think, lack of visibility and then also obviously, component issues. But at the same time, I think you said record backlog or near record backlog, and obviously, we have got a higher mix of recurring in the business now. So I guess I am hoping you could kind of square those statements and kind of give us some more color on why no ongoing guidance? Thanks.

Yes. George, it’s really about – it’s more driven by this global supply chain issue related to semiconductor shortages across the world. Really, when you look at it, you have seen companies like big automotive companies. We have problems with some of our components. And so that’s really – the good news is we have got a great backlog and that we are – our customers are really interested in our products, and that will be good. But that’s really the only reason that we are hesitating on guidance going forward. And Kurt and I will take a look at that. We are not saying that’s going to be the case for the whole year, but we will look at that each quarter as we kind of play through. Right now, there is pretty – I would say, the uncertainty is just at a level where we just feel more comfortable not providing guidance at the time. But as I said, we will take a look at it going forward.

Got it. And then just as a follow-up.

Well, the other thing I will add is just, George, since you highlighted the visibility and predictability into our SaaS business. And although that’s true, I mean, the one challenge we have, like any telematics service provider is in order to activate our SaaS services, we have to have the device, and we have to transact on that installation. So that, in combination with the supply chain, obviously, creates some uncertainty. So, but as Jeff pointed out, I think we are going to evaluate it quarter-to-quarter and I don’t think it’s very far off that we will be back to providing guidance.

Got it. And then just as a quick follow-up. Could you talk about the impact you may have had in the quarter in terms of COVID impact on installations? Is there some amount of revenue that you could point to that was held up because of installation issues or even component shortages? Anything you can give us just metric-wise, you could help us understand how much revenue is getting held up. And then any impact on gross margins?

Sure. So I will just highlight a couple of things. It’s very hard to give specifics. But what I would say to you, and we have talked about this a bit in the past is, as you look at our MRM business, that business has historically been on a quarterly run rate that’s been in the low $30 million to $35 million range. And we are still working through some of the challenges around the pandemic in that space. But I think it’s a combination of not only the impact of the pandemic, but also some of the supply chain challenges. So that’s why we felt it was really important to highlight our backlog. And if you look at the current backlog, as we presented in our 10-K from a hardware perspective, we are right now at about $65 million to $66 million in the quarter, which I think from a historical perspective, is a near, if not a record level.

Okay. Thank you.

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

Yes. Hi, good afternoon.

Hi Jerry, how are you?

Doing well. Thank you. And congratulations on the strong progress here. I am wondering if we could talk about the cadence of subscriber growth that you folks are seeing thus far in the quarter. Can you just talk about whether the year-over-year growth run rate, excluding vehicle finance has continued in the quarter? Any comments on cadence there would be helpful.

Well, right. So Jerry, in terms of the new metrics that you see, that we have presented. Obviously, the one key to that will be increased subscribers. And we want to highlight that or we will continue to highlight that as we give quarterly information, financial information. Year-over-year, you are correct. We grew within our core businesses, about 8% was our overall subs growth. That 8% has come out of both the, what we call tracking and monitoring our services that we provide primarily to fleet, transportation and logistics as well as within connected car services, which we referenced internally as our recovery services. So it’s broad based. We think that trend in subscriber growth can expect to be – continue. So we are very optimistic about that. Additionally, what we also saw was close to an equivalent increase in our overall monthly ARPU rate. And I do want to highlight that when we gave information in those new metrics, we were focused on just the application subscription services. So that doesn’t incorporate, as you know Jerry, that there’s a hardware element to all of our arrangements. But we think that, that subscriber growth and ARPU growth can expect to continue into fiscal 2022. But we are at this point, not going to provide any specific guidance.

Jerry, what the whole team is focused on is, I mean, especially after we have simplified the business with the transactions that we did this year is 3 key metrics; subscriber growth, ARPU from continuing to deliver value added services in our stack of software and then managing attrition. So, we hang on to our customers. And so I feel like when you look at this overall, the story is going to be a lot simpler going forward. And really in businesses that we feel are growing. We have got great sales team, great product people and R&D people on each of these verticals. So yes, we are optimistic about growth in the future and driving improvements in those three metrics.

And in terms of the cadence of revenue per subscriber growth on the new definition that excludes vehicle finance. Can you help us understand the cadence of that ARPU growth over the course of the quarter and into the new fiscal year here as well?

Yes. So Joe, I think our intention is to continue to provide similar metrics each quarter. If – in terms of our cadence, we would expect to bring some of our guidance or information each quarter.

Yes, sorry, Kurt, I meant what’s the year-over-year sequential performance on that ARPU metric, excluding vehicle finance. In other words, have you folks built momentum into the New Year on that metric.

So Jerry, I think overall, our ARPU growth year-over-year was 7%. And that ARPU growth, we would expect to continue into fiscal 2022. As it relates to sequential growth, I don’t have that number on the top of my head.

Okay. I appreciate the color. And then in terms of – within telematics systems, can you just talk about what the first quarter is looking like based on shipments to date, obviously, demand is very strong on one hand, but their supply chain shortages that we all know about on the other hand. So are we at a point where we can see year-over-year shipment growth in the quarter? Or can you just calibrate us on the magnitude of the supply chain shortages?

Well, all I can say right now is that our backlog right now within the telematics device base is that $65 million to $66 million, which is a near record high for us. In terms of our ability to ship for the first quarter, we’re not in a position to give guidance given the supply chain challenges that we’re working through.

Yes. And our team is doing everything possible, you might imagine as it relates to that, to deliver for our customers, but it’s been a really challenging environment. We covered most of that in the fourth quarter. And so I think that’s just going to be a battle we’re going to fight probably for the next couple of quarters.

Okay. I mean…

The great news, Jerry, is the backlog. And customers are they want our products. They understand that the 3G to 4G transitions taking effect. And so that business is there for us.

Okay, got it. And lastly, you mentioned the margin headwind from the supply chain issues. Was that a comment about the fourth quarter? Or is that the current magnitude of headwind that we can expect until the supply chain shortages are relieved?

Well, we were extremely pleased with the margin performance in the fourth quarter. We were over 42% for the fourth quarter. And as we look to fiscal 2022, there are a couple of areas that do give us pause that, as I mentioned, could result in some downward pressure of 100 to 200 basis points. Obviously, the component shortage and a number of the spot buys that we’re being forced to execute on in order to try to meet customer demand. Those two factors we expect to impact us over the next two quarters. We are seeing some signs that in the second half of our upcoming fiscal year that may subside. But for right now, we felt like it was important given the strength of Q4 to highlight that there is a bit of risk out there, and we think that risk will reside for probably the first half of fiscal ‘22.

Okay. I appreciate the discussion. Thank you.

Sure. Thank you.

[Operator Instructions] Your next question comes from the line of Scott Searle from ROTH Capital. Your line is open.

Hey, good afternoon. Thanks for taking my questions. Nice quarter, guys.

Thank you.

Hey, just a couple of quick clarifications. Given the reporting of continuing operations, so the OpEx now is fully reflective of the sale of LoJack to spray and the OpEx that goes along with it, is that correct? So going into the first quarter here, is this a normalized OpEx number that we should be working off of or are there any one-time events in either direction that we should be modifying that going forward?

Well, hey, Scott. So yes, so because of the fact that we’ve been able to classify the LoJack business in discontinued operations. And because of the fact that we have a transition service agreement with Esperion, we have been able to reduce our OpEx to a level which is in what I would characterize as a more normalized level going forward. That being said, there are some, what I would characterize as indirect costs that we are still going to have to carry for a little bit longer until the relationship with Esperion ends at the conclusion of our transition services agreement. The way we had executed that agreement was that all of the direct costs of that business would be carried by them. And then additionally, the indirect cost, a portion or, I should say, a reasonable portion of those costs would be carried by them, but we will continue to have to absorb some of those costs. I would expect that over the next fiscal year and into fiscal ‘23, we’re going to continue to work on optimizing our OpEx. Our focus is really on reducing G&A and moving that cost really up to where it matters, which is sale market in R&D. And so we’ve embarked on a number of [Technical Difficulty] to make that happen. And I’m pretty optimistic on the progress we’ve made so far, but there is still a little bit of work to do there.

Got it. Very helpful. Just to clarify though, Kurt. So any of those indirect costs over the next couple of quarters, are you going to be netting them out in terms of one-time charges or otherwise? Or are we going to just expect to see that rolled into normalized OpEx?

Yes. So I think it would most likely be normalized into our typical OpEx for a period of time when we’re being held to servicing the transition service agreement with Esperion.

Got it. And if I could, Caterpillar front, record quarter for you guys. Sounds like the book of business and the backlog is very strong there. I’m not sure if you commented specifically on them in terms of the outlook for the year, but I’m wondering without component constraints, what your visibility is to Caterpillar this year? Is it kind of in the ballpark of flattish? Or is it something that actually grows, given the 3G to 4G upgrade cycle? And then extending the 3G to 4G upgrade cycle to the rest of the MRM business. I’m wondering what you saw in the quarter as it relates to the non-network OEM business. Was there a big component of that was going through the upgrade cycle as well? Because it still looks like it’s at relatively depressed levels. So there is room for growth there. Any color you could provide on that front would be helpful.

Yes, Scott. On Caterpillar, I would just say that we’re bullish on – as we look at the year, we’re continuing to work very closely with them. We’re improving our quality with them. We’re so I talked about in my script that they are one of the customers that we’ve really, I think, is a great example of we’ve gotten a lot closer to our customers. So the outlook is positive there. I don’t want to give any specific direction in terms of – but you can see the trend is very good and relationships in a very good spot. So we’re going to continue to focus on them going forward. For the balance of the business, I think our backlog really reflects the fact that some of these smaller TSPs are really now starting to understand that they need to move more quickly with respect to the 3G to 4G transition. So I feel like that it’s more broad-based now, no, because we’ve seen it with our large customers throughout the year. But now you’re seeing it kind of show up in our backlog. I think that’s one of the reasons we’re – Kurt talked about a $66 million backlog, which is a record for us.

Got it. But Jeff to clarify that backlog as opposed to fourth quarter revenue. So you’re starting to see it, but we didn’t actually see it in the numbers in the just reported quarter?

That’s fair.

Okay. And lastly, if I could, starting to broaden [indiscernible] the mix of the business on the SaaS side in terms of the iOn product portfolio, etcetera, and some of the announcements related to cold gain. Historically, this has been a connected car, right, with LoJack and Synovia business. But I’m wondering, if you look at that sub base of 950,000 subs, if we look at a year or 2, how do you kind of expect the composition of that business to be across some of the different end markets? And if I could just to on the back end there as well, Jeff, any thoughts related to 5G? Are customers talking about? Are they concerned about it? You’re seeing interest there, whether it’s in in industrial or private networks, that kind of cropping up? And where is CAT M fit into the overall discussion these days? Thanks.

Yes. And so as we look at our end markets, you talk about connected car, gov muni, transportation and logistics, we see the outlook is positive for all of those. We’ve had very good growth in our connected car business over the last few years. So I mean, I feel like what we’ve done with the company is we’ve kind of focused on the verticals that we think can provide us growth in the future. So I feel good about all of our verticals in terms of their potential to deliver both subscriber growth and ARPU. As it relates to 5G, we do – we are talking to our customers about that. It’s not really generated anything meaningful in the business yet. But I mean, CAT M is all about that, right? It’s what enables that. And so our engineering team and product team has done a great job delivering CAT M products across the world. And so that’s been a focus of ours throughout 2021.

And Scott, one of your first part of your question was just around the mix of subscribers. So as you look at the subscriber mix, for fiscal ‘21. It was probably about a 60-40 split with 60% coming from recovery services or closely aligned to our connected car services and 40% coming from tracking and monitoring services, which is really fleet and govern municipalities. We do see that going into fiscal ‘22 and into 23, that, that mix shifting a bit. It’s important for us because it has an impact on the overall ARPU because mix impacts our monthly ARPU. So we are working hard to increase the number of subscribers in our tracking monitoring space and not necessarily decrease the recovery, but make sure that we’re accelerating growth in the key areas. In those key areas, from an end market standpoint, our transportation, logistics, government municipality and industrial heavy equipment.

Great. Thanks so much.

Thanks, Scott.

Thanks, Scott.

Your next question comes from the line of Mike Latimore from Northland Capital. Your line is open.

Hi, this is Aditya on behalf of Mike Latimore. So could you talk about the opportunities you see around the school? I mean, are there more greenfield or replacement prospects around the school?

Yes. Thanks for the question. Yes. I think that we’ve seen good strength in our K-12 business all year-long despite the pandemic and that market, although many of the large districts have telematics equipment, there is still quite a few that don’t. And we’re doing very well. The team has done a nice job this year innovating in that space with adding some new features, particularly ones that were real relevant during the pandemic. So we continue to be very excited about that business. We’ve got a great sales team there, a great support team there. We’ve got a very nice pipeline going into 2022 – our fiscal year 2022.

Alright. Alright. Fine. And regarding the restrictions in Europe, in countries such as Italy and UK, so how much does it affect in terms of revenue for this particular quarter?

In terms of the fourth quarter?

Yes.

Well, yes. Okay. In terms of the fourth quarter, fourth quarter from the international recover connected car space is typically – there is seasonality in it. And we did see a bit of a dip when you looked at Q3 going into Q4. Relative to last year this time, I think it was fairly consistent. But if you recall, we started to feel the impact of the pandemic in our fourth quarter, which is really that in the January-February time frame. We are seeing some, I would say, limited, but some limitations on installations, but nowhere near the magnitude that we experienced back in March, April, May time frame. So as we look forward, I think we’re feeling pretty good about that business. We think that we’re still not totally out of the woods as it relates to the COVID-19 pandemic. The UK, our office there has indicated that there are some things that we have to be aware of and just be sensitive to. But I think, generally, we’re feeling that we should be beyond this in the beginning of Q2 and throughout the remainder of fiscal ‘22.

Alright. Alright. Thanks. That’s it. Thank you.

Thank you.

There are no further questions at this time. I’ll turn the call back over to Mr. Jeff Gardner.

Yes. Well, thank you for joining us on the call today and for your continued interest in CalAmp. One final note, we will be attending the upcoming Needham Virtual Tech and Media Conference on May 19. If you’d like to request a meeting, please contact Needham or the Shelton Group, our Investor Relations firm. I look forward to discussing our continued progress during our fiscal first quarter call in June. Thanks for joining us today. Operator, you may now disconnect the call. Thank you.