CalAmp Corp. (CAMP) Q2 2021 Earnings Call Transcript

CalAmp Corp  (NASDAQ: CAMP) Q2 2021 earnings call dated Sep. 24

Corporate Participants:

Leanne Sievers — Shelton Group

Jeff Gardner — President, Chief Executive Officer and Director

Kurt Binder — Executive Vice President and Chief Financial Officer

Analysts:

Mike Latimore — Northland Capital Markets — Analyst

Mike Walkley — Canaccord Genuity — Analyst

George Notter — Jefferies — Analyst

Jerry Revich — Goldman Sachs — Analyst

Scott Searle — Roth Capital — Analyst

Paul Coster — JP Morgan — Analyst

Presentation:

Operator

Welcome to CalAmp’s Second 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, Leanne Sievers President of Shelton Group, CalAmp’s Investor Relations firm. Leanne, you may begin.

Leanne Sievers — Shelton Group

Good afternoon, and welcome to CalAmp’s fiscal second quarter 2021 financial results conference call. I’m Leanne Sievers, President 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. Then Kurt will provide additional details about the second quarter results followed by a question-and-answer session.

With that, it’s my pleasure to turn the call over to CalAmp’s President and CEO, Jeff Gardner. Jeff, please go ahead.

Jeff Gardner — President, Chief Executive Officer and Director

Thank you, Leanne. Welcome everyone, and thanks again for joining us today to discuss our second quarter results, which were solid especially considering the ongoing global pandemic. We continue to execute across the organization with notable progress against the operating plan objectives we put in place upon my appointment. The entire CalAmp team continues to perform at high levels of productivity and efficiency as we strive to position the Company for increased growth and profitability.

Consolidated revenue in the second quarter was $83.5 million, with adjusted EBITDA margin of 6.5%, which included some one-time costs incurred in the quarter. SaaS revenue was up 20% sequentially due to an increase in installations across our global operations particularly in Italy and the UK as automotive dealerships began to reopen and in our US, K-12 fleet management operations as students return to school.

Network OEM revenue also increased in the quarter due to strong growth at cap as their 3G to 4G upgrade cycle continues to accelerate. The one area of our business that continues to see variability and demand from the pandemic is our MRM Telematics product sales, and the associated device installations. This has been most prominent among our regional TSP partners. As one of our top objectives, we are looking to drive increased growth of our SaaS business and this is evidenced by our strong sequential growth in the quarter to 40% of total consolidated revenue. We’re also continuing to further enhance our supply chain under Nathan Lowstuter’s leadership.

Now I’d like to highlight some of our additional achievements during the quarter in support of our key operating objectives. First, let me start with our international expansion initiatives, which continue to be a strong contributor of our growth. Our operations in Italy have been a key contributor to these efforts and revenue rebounded in the quarter as the enterprise customers began to reopen. We were able to resume our installation activities for which there was a sizable backlog due to lockdown.

Customer demand also remained strong throughout the quarter. We expect to see continued strength in this market, and last week’s announcement of a safety alliance with Maldarizzi, one of Italy’s largest automotive dealerships further supports our continued growth in that region. The expanded partnership is designed to improve road safety by providing timely preventative maintenance reminders, instant crash response, and stolen vehicle assistance to 12,000 customers throughout Southern Italy.

We also continue to enhance strategic engagement with partners and critical customers to expand our opportunities in telematics. For example, we recently extended our relationship with our largest customer, Caterpillar to facilitate their continued expansion of connected assets, including the migration of several existing fleets to 4G LTE. We also pushed hard on our initiative to transition our LoJack US business to a telematics model by converting seven dealerships to LotSmart and SureDrive telematics solutions.

I believe these particular developments mark solid progress, considering the current market backdrop. We also expect to gain further traction in the US when we have more access to dealerships, as they begin the reopening process. Our focus on key product development initiatives also remains paramount to our long-term operating plan as I’ve discussed with you on past calls. The objective is to earmark critical development resources to the most promising product areas and markets.

One of these is our iOn suite of applications, including iOn Tag as well as iOn Vision, which would be released to the market this year. iOn Vision is a fully integrated video and safety visibility telematics solution that provides fleet operators and service providers with actionable and deterministic video insight to improve driver safety, mitigate liabilities and protect assets during shipment. We were pleased to announce that this highly anticipated product received the 2020 IoT Evolution Product of the Year Award.

Additionally, our CalAmp iOn suite of solutions was named to Equipment Today’s 2020 Contractors’ Top 50 New Products list. Another one of our solutions that has also received significant recognition this quarter was our newly released contact tracing and hygiene verification application called Bus Guardian, which complements our flagship, Here Comes The Bus platform. It was even featured in a segment on Good Morning America, which can be viewed on our website.

What’s particularly noteworthy about this offering is our team was able to turn it around from ideation to publicly available solution within three months and in time for the start of the school year. One final comment regarding our efforts to further strengthen our corporate governance and demonstrate our commitment to Board diversity. Last month, we appointed Independent Director, Amal Johnson as Chair of our Board. She has served on our Board since 2013. Additionally, we appointed a new Independent Director, Kirsten Wolberg who has over two decades of experience with top SaaS and software companies, including DocuSign, PayPal and Salesforce.

These appointments reflect the work we’re doing throughout CalAmp to strengthen our Company with critical skills and insight to support our strategic transformation as a SaaS solutions provider. In summary, as evidenced by my comments today, we’re making solid progress across the business. Even in the midst of these uncertain times, although visibility remains limited, we remain focused on carefully managing our business to drive sustained top line growth and profitability.

With that, I will now turn the call over to Kurt for a closer look at our fiscal second quarter financial results and then we will open the call to your questions. Kurt?

Kurt Binder — Executive Vice President and Chief Financial Officer

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 second quarter earnings that was issued earlier today.

I want to reiterate once again that we continue to monitor all COVID-19 developments across our worldwide operations and as the cost controls we put in place, particularly in areas such as personnel, travel and other discretionary spending remain in place. We continue to believe that our existing cash, future cash flows and available borrowing capacity are sufficient to fund our ongoing operations as we continue to navigate these uncertain times.

As Jeff mentioned, we are pleased with our solid second quarter results in which revenues increased 4% sequentially to $83.5 million. International revenue in the quarter totaled $24.6 million or 29% of consolidated revenue. Software & Subscription Services revenue grew 20% sequentially to $33.7 million or approximately 40% of consolidated revenue. In addition to growing demand for our SaaS solutions, revenue benefited from the fulfillment of installation backlog that we discussed last quarter, which ranged from $2.5 million to $3.5 million as automotive dealerships and school districts advanced plans for reopening.

We continue to see strong demand across our SaaS business as scheduled installations proceed, now that mandates have been lifted and reopenings are occurring principally in the United States. One important decision we made last quarter was the wind down of our vehicle finance business in the US. Revenue from this business was up slightly in the second quarter to $2.8 million as we sold through and installed a majority of the remaining inventory to select customers. However, we do expect this business to decline over the next 12 months to 24 months as the customer contracts we support begin to expire.

Telematics products revenue of $40.7 million was down approximately 11% from $45.5 million in the first quarter, with MRM Telematics products revenue decreasing to $23.5 million compared to $30.8 million last quarter. This decline was primarily due to two factors. First, the continuing uncertainty around the pandemic and related global economic environment has resulted in our small to medium sized customers differing product orders as they carefully manage cash flows and assess end customer demand.

Second, we experienced unusually high product shipments in the first quarter as we sold through a substantial portion of the incremental Q4 backlog associated with the supply chain challenges in China prompted by the pandemic. Offsetting the decrease in MRM Telematics products revenue was a 17% sequential increase in network and OEM products revenue to $17.2 million, which also represents a 37% increase year-over-year.

Revenue from our largest customer CAT increased 26% sequentially to $13.7 million, supported by strong demand for next-generation LTE-based telematics as part of its 3G to 4G upgrade. We continue to expect solid demand from CAT in the second half, along with many of our other telematics customers also engaged in this pivotal transition to 4G.

Also last quarter, we began presenting our domestic LoJack SVR business as a separate reportable segment. Revenue from this segment increased to $9.1 million from $6.6 million in the prior quarter as the backlog of installations related to this business was fulfilled. While this is a respectable rebound in demand especially at our largest dealership, installations and new business remain challenging since in-person interactions are limited.

Consolidated gross margin in the second quarter of fiscal 2021 was 36.9% compared to 38.7% last quarter, which was largely due to the impact of a $1.4 million one-time charge to COGS related to the resolution of a product performance matter with a customer. Although the product malfunction related to a supporting technology included in our telematics solution, the issue led to excess data carrier costs that we resolved through an over-the-air firmware upgrade distributed to the affected devices.

Excluding this charge, our gross margin would have been consistent with the prior quarter, and we expect our gross margin to normalize in the third quarter in the 38% to 39% range. In the current environment, there are a number of factors that are limiting our gross margin expansion in the near term. It is important to note that we have kept headcount stable during the pandemic and in the face of slower customer demand. This decision was made in anticipation of the increased customer demand we expect as the overall economic environment improves and our customers navigate towards the 3G network sunset deadline in early calendar 2022.

This staffing decision has contributed to lower fixed cost absorption as a result of lower production volumes against stable costs. Additionally, freight costs have gone up, especially for air shipments from our contract manufacturers located in Asia, as the freight carriers have increased rates due to capacity limitations from recent global demand increases. We are closely managing these short term challenges with the anticipation that gross margin will improve as these pressures lift and our transition to a subscription-based business model increasingly benefits margins over the longer term.

Adjusted EBITDA in the second quarter was $5.4 million, with an adjusted EBITDA margin of 6.5% compared to adjusted EBITDA of $6.5 million and an adjusted EBITDA margin of 8.1% in the prior quarter. The decrease in adjusted EBITDA was primarily due to the one-time charge for the product performance matter discussed earlier in addition to one time executive relocation expenses, collectively amounting to $1.7 million or 200 basis points of EBITDA margin.

Excluding these items, adjusted EBITDA would have improved in the quarter, reflecting the benefit of our cost containment measures. 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. Our non-GAAP operating expenses as a percentage of revenue was approximately 37% for the current period. 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 second quarter, we had total cash and cash equivalents of approximately $107 million compared to $104 million last quarter. Our aggregate outstanding debt is approximately $263 million including $230 million of the 2% convertible senior notes due August 2025. This is also the third consecutive quarter in which we generated solid free cash flow since acquiring three businesses in the past year to accelerate our move to a subscription-based business model.

CalAmp continues to maintain a strong financial position with additional capacity available on our revolver and sufficient cash for working capital going forward. In reference to our outlook for the third quarter and as mentioned in today’s release, we are maintaining our policy of not providing quarterly guidance due to the ongoing uncertainty related to the pandemic and reduced visibility into customer demand and product shipment.

I do want to state that we are proceeding into the third quarter with solid demand in our SaaS business and we also expect another solid quarter from CAT as we continue to support their 3G to 4G transition. Together, we expect these factors will help to offset the normalization of installation backlog activity in the current quarter and the ongoing weakness in demand for our MRM Telematics products due to the pandemic.

With that, I’ll turn the call back over to Jeff to provide some final comments before we open the call up for questions.

Jeff Gardner — President, Chief Executive Officer and Director

Thank you, Kurt. In closing, I’m very pleased with our performance in the second quarter as the CalAmp team continues to execute on our strategic initiatives across the organization. I believe the success we continue to achieve in our SaaS business is an indication of the opportunities ahead of us as we transform our business toward becoming a leading SaaS, telematics solutions provider. We have an exceptional team in place to advance to the next level of growth and expansion.

With that, now I’d like to open the calls up to your questions. Operator?

Questions and Answers:

Operator

[Operator Instructions] Our first question comes from Mike Latimore with Northland Capital Markets. Your line is open.

Mike Latimore — Northland Capital Markets — Analyst

Thanks, Jeff. And congratulations on the solid quarter there. So I just wanted to touch on, you gave a little bit of color around third quarter dynamics. It sounded like sort of positive offsetting weakness. So should we think about it as kind of a 3Q being similar to 2Q?

Jeff Gardner — President, Chief Executive Officer and Director

Yeah, Mike, and thanks for your comment on the quarter. We were real pleased as you saw, particularly, you know what we’re trying to do here in terms of transformation. So the SaaS business came in real strong. Some of that was backlog as Kurt referred to, but we also had some fairly strong demand in LoJack International and also in our K-12 Here Comes The Bus business. So that was very solid, and another real strong quarter with Caterpillar, as they continue their 4G migration. And so I think those are the strong points. And as Kurt mentioned, MRM continues to be soft related to the regional TSPs and kind of their outlook. These are smaller companies that are just being more cautious understandably in this environment.

So as we look forward, I think we’ll see more of that to come, continued strength in the SaaS business, continued strength in Caterpillar going forward. And we’re really focused on accelerating some of the 4G work that we know is in front of us. So whether or not, our customers have moved forward with 4G today or not, we know there is still a big opportunity there. And so, working with them as they kind of navigate through these difficult times will be important. But overall, I mean, yeah, it’s kind of a mixed approach, but on average we’re feeling really good about how we performed in the quarter.

Mike Latimore — Northland Capital Markets — Analyst

Great. And then on the school environment, can you talk a little bit about maybe just segment out kind of how much access you have within the school districts? Are you back to kind of complete access for — at normal deployment opportunities and then separately, what does the sort of the new deal flow look like there?

Jeff Gardner — President, Chief Executive Officer and Director

Yeah, the school market has been a great surprise in terms of — there is a lot of uncertainty as to what was going to happen as we got closer to the Fall here, and many of our customers are opened up. We were able to make substantial progress on our backlog. So we got access to some of the vehicles that we’ve been trying to get access to for some period here. So that was all good. And we’ve just been very pleased with the adoption. I think the innovation that the team came up with on Bus Guardian made an already attractive product to really add software technology to school buses to provide assurance to parents, which is more important now than ever.

And when you include the ability to provide contact tracing information and hygiene verification, it gives everybody, fleet managers, parents a lot of peace of mind. So we’re feeling good about that segment. It’s a very strong SaaS business for us. We are a leader in market share but there is still plenty of market to get and we added a lot of new logos, and double-digit new logos this quarter. So we’re very, very pleased with that.

Mike Latimore — Northland Capital Markets — Analyst

Great. And then just last on the one-time cost that you said there was a $1.4 million one, did you say there was another one-time cost, I think I might have missed that?

Jeff Gardner — President, Chief Executive Officer and Director

Yeah, there was a small relocation expense that was in G&A that Kurt mentioned, that was about $300,000 that’s — those are truly one-time. And then I think Kurt mentioned the one-time cost, the $1.4 million was related to a firmware problems that drove some excessive airtime charges. We corrected it immediately. So it’s not going to be recurring. It’s no longer an issue. It was the right thing to do for one of our very big customers.

Mike Latimore — Northland Capital Markets — Analyst

Okay, thanks a lot.

Operator

Our next question is from Mike Walkley with Canaccord Genuity. Your line is open.

Mike Walkley — Canaccord Genuity — Analyst

Great, thanks for taking my question. Jeff, just a clarification on Caterpillar. Did you — thought I might have heard in the script that you might have expanded some business with them. Can you just maybe clarify that? And then for Caterpillar, any color you can give how far they are into the 3G to 4G upgrade and kind of the run rate opportunity with this key client going forward?

Jeff Gardner — President, Chief Executive Officer and Director

Yeah, yeah. Well, it wasn’t really new business. Basically what we had was affirmation, which is important now. It was a big deal to us to — you might have seen the press release earlier in the quarter to reaffirm that we’re going to be their partner as they upgrade to 4G for their critical devices. So that’s really important. As you know, all customers have optionality when it comes to these equipment change-outs. So with our largest customer to get that was very meaningful to us and they are making good progress on their 4G migration, but they’ve still got plenty to do.

I think Kurt mentioned that we think the outlook for next quarter remains very strong there. And so, we’re really focused on doing the best possible job to deliver to them on time, good quality so that they can make as much progress on that in 2021 as possible.

Mike Walkley — Canaccord Genuity — Analyst

Great, thanks for clarifying and yeah congrats on keeping them as a partner, that’s key. And just the overall 3G to 4G upgrades, anything you can share maybe on number of your 3G devices still out there that you have a good chance to upgrade to 4G as a tailwind as things reopen through the sunset data over the next call it six quarters?

Jeff Gardner — President, Chief Executive Officer and Director

Yeah, we still — we still have a big opportunity. We estimate somewhere between 500,000 and 1 million devices translate that to revenue, somewhere between $50 million and $100 million of revenue. And that’s with our existing customers and hopefully we’ll get some opportunities with new customers as well. So, I mean as I said earlier, this 4G conversion work is going to be done, the timing, the pandemic — the pandemic is affecting the timing in some cases, but we think that that’s an opportunity for us over the next six quarters as you say.

Mike Walkley — Canaccord Genuity — Analyst

Great, thanks. Last question for me, I’ll pass the line. Congrats on the words for Vision and iOn — for your Vision product. Can you talk about maybe the timing, when that starts to hit revenue and any early feedback you have from customers that might be trialing that key product?

Jeff Gardner — President, Chief Executive Officer and Director

Yeah. The Tags are out there already as you know and it’s early days for that. But over the next quarter or two, you’ll see us really do more volume. It won’t be big volume early in terms of revenue. But I mean, importantly, that is a very important step in our roadmap and we thought, we think that although there are other camera products out there, this one is quite unique, and some of the capabilities that it offers our customers. So I think in terms of when you’ll see it hit revenue, will be over the next couple of quarters, but it’s something that our customers were really interested in us in terms of our roadmap.

Mike Walkley — Canaccord Genuity — Analyst

Great. Congrats on the execution and thanks for taking my questions.

Jeff Gardner — President, Chief Executive Officer and Director

Thank you.

Operator

Next question is from George Notter with Jefferies. Your line is open.

George Notter — Jefferies — Analyst

Hi guys. Thanks very much. I know with the new person you’ve brought in running supply chain, I know there were some works going on around cost redesigns on specific products and specific SKUs, and is there a big cost savings there that you guys can capture? How big might that be? How — what might the timing look like on that? Thanks.

Jeff Gardner — President, Chief Executive Officer and Director

Yeah. Thanks, George. Yeah, Nathan Lowstuter joined. We’ve got a really solid supply chain team that’s been really focused on-time delivery over the last, if you look back four quarters. We do think there’s upside in terms of managing our BOMs, our costs better going forward. That takes time as you know, it’s not something that changes overnight. But I will tell you we have a comprehensive program to work on margins across our product lines. And I think you’ll see us make progress over the next couple of years on that and see some results maybe starting in the fourth quarter of this year.

George Notter — Jefferies — Analyst

Got it. And then just as a follow-up. I was — obviously, the environment and the headlines are being dominated by COVID and the vaccine and certainly there’s got to be logistics challenges associated with distributing a vaccine. Is there any role for CalAmp in that distribution supply chain?

Kurt Binder — Executive Vice President and Chief Financial Officer

George, in terms of distributing a vaccine?

George Notter — Jefferies — Analyst

Correct.

Kurt Binder — Executive Vice President and Chief Financial Officer

So, as you know, we do have a solution called SCI on which is all about managing inventory across the supply chain, in particular, high-value inventory. And so we do see opportunities, I can’t say specifically that I can speak to an exact example. But yes, we think we have a solution that will allow logistics and distribution companies the visibility that they need to make sure that a vaccine is getting to the right location and that it isn’t being impacted by whether it’s humidity, climate, anything of such. So we do feel like there is a solution there that CalAmp can bring to bear. And we’re working to find customers that will allow us to put that in play.

George Notter — Jefferies — Analyst

Got it. Thanks very much.

Operator

Our next question is from Jerry Revich with Goldman Sachs. Your line is open.

Jerry Revich — Goldman Sachs — Analyst

Yes, hi, good afternoon, everyone.

Jeff Gardner — President, Chief Executive Officer and Director

Hi, Jerry.

Kurt Binder — Executive Vice President and Chief Financial Officer

Hey, Jerry.

Jerry Revich — Goldman Sachs — Analyst

Can you talk about in Software & Subscription, you had excellent profitability performance in terms of gross profit drop through relative to sales growth. Can you just talk about what allowed you to deliver the strong operating leverage in the quarter? And then separately, on the topline performance in Software & Subscription, can you just give us an update on what proportion of that was driven by revenue per subscriber growth versus the subscriber count increasing?

Kurt Binder — Executive Vice President and Chief Financial Officer

So Jerry, I’m trying to think, there was a couple of questions I think in that. First off, we were extremely pleased, yes. We saw organic growth in our Software & Subscription services business year-over-year, probably around 5% to 8%. The growth was primarily coming from really two locations. One was selling into the K-12 municipality government fleet end market; and two was really starting to get some traction internationally with our international recovery services.

We’ve been extremely pleased with the way that we’ve been executing on the businesses that we acquired last year, early last year. And we’re seeing that the subscriber growth is coming back after the last quarter, which we had a bit of the overhang from the pandemic. We’re also seeing that the ARPUs associated with the subscriber growth are pretty robust. So overall, very, very pleased.

You referenced to the gross margin improvement. Now we’ve always anticipated that our Software & Subscription service businesses had the ability to execute to a gross margin level at or above 50%. And although we had some challenges early on with the acquisitions, because of various purchase accounting adjustments that did have an impact on our overall margin. The impact of those purchase accounting adjustments now are starting to dissipate, which is certainly helping us. So hopefully, I think that answers the nature of your question.

Jerry Revich — Goldman Sachs — Analyst

It does, yeah, thank you for the color. And then the purchase accounting adjustments, should we look for an additional tailwind sequentially going forward or is this the current clean margin run rate at this point?

Kurt Binder — Executive Vice President and Chief Financial Officer

Actually, there is still some remnants of the purchase accounting, which should dissipate over the balance of this year, and once we’ve gotten past fiscal ’21, it should be completely behind us. But there is a little bit of the remnants still there and it is impacting our margins finally.

Jerry Revich — Goldman Sachs — Analyst

Got it, okay. Thank you. And then in the Mobile Resource Management sub-segment, it looks like revenue was down sequentially, which compared to most industrial markets, there was a pickup over the course of, call it, June, July, August from April, May levels. Can you just talk about what drove the sequential decline for your MRM business in the quarter? And what — to what extent you expect that pickup compared to what’s going on in end markets? Thanks.

Jeff Gardner — President, Chief Executive Officer and Director

Yeah. In our business, as you look at those two businesses. OEM, which tends to be larger customers with bigger balance sheets more in a better position to handle the uncertainty related to the pandemic. On the MRM side, a lot of the softness with some of our regional TSPs who in my mind are understandably cautious — cautious as they kind of navigate through the pandemic and manage their balance sheets. And so we’re working very closely with them. These customers still need to do their 4G conversions. We really are trying to help them get through this time. And I think that we’ll see that improve over time. But I think you’ll still see some softness in the next quarter in that particular group.

Jerry Revich — Goldman Sachs — Analyst

Okay. And then in terms of the LoJack turnaround, Jeff, you referenced, I believe you had seven dealers that have signed on the telematics offering, which is a better cost solution for you folks. Can you just put them at the context for us, what inning of the transition are we in seven out of how many dealers and what’s the roadmap in terms of from getting the sign-ups to seeing them improved operating performance?

Jeff Gardner — President, Chief Executive Officer and Director

Yeah, so first of all, I’m very proud of what the LoJack US team did. They bounced back after a very tough quarter, their sequential growth and just product revenue is quite good. So that that was nice to see, a nice recovery like other parts of our business, we had more access. In terms of telematics conversion, it’s early innings, Jerry that the team — very pleased the fact that we got — we were able to do our installations at seven dealers of our telematics product across the country, which is really solid. But that’s — there is still much more potential there.

And with some of our biggest dealers, although we have access to the dealerships now, when you’re doing something of this magnitude you need access to the executive team. So we’ve had a number of meetings most recently with our largest partner in that category. So I think the team is doing a great job, they are very focused there. But it’s very early days there and I expect that telematics to continue to accelerate throughout the year.

Jerry Revich — Goldman Sachs — Analyst

And in terms of just for context, how significant are those seven dealers transition, is this the first inning of their transition, Jeff? Or is that a meaningful number relative to the dealer account?

Jeff Gardner — President, Chief Executive Officer and Director

It’s really the first inning, I think it’s fair. I mean it was, there is a lot of work that goes into these conversions, so I’m pleased to get those done. But we really want to start tapping some of our top 5 dealers. That’s where it’s going to really make a difference and you will see that happen in the coming quarters.

Jerry Revich — Goldman Sachs — Analyst

Okay, terrific. I appreciate the discussion. Thanks.

Jeff Gardner — President, Chief Executive Officer and Director

Thanks, Jerry.

Operator

The next question is from Scott Searle with Roth Capital. Your line is open.

Scott Searle — Roth Capital — Analyst

Hey, good afternoon. Thanks for taking my questions. Hey, a couple of clarifications and some clean-up questions. First off, on the $1.4 million charge to COGS, I just want to clarify is that in product or is that in services? It sounds like it related in incremental services cost, but it wasn’t clear to me if that was going through your product channel.

Kurt Binder — Executive Vice President and Chief Financial Officer

It’s been recorded as a product’s COGS — charge, probably equivalent to sort of a product warranty charge that go into cost of goods sold. We recorded a 100% of that in this quarter.

Scott Searle — Roth Capital — Analyst

Got you. Perfect. On the opex front, just kind of looking at normalized non-GAAP opex, looks like it was up a little bit sequentially. Is this the level we should be operating off of going forward? Are there some one-time elements in there that were not broken out in the release?

Kurt Binder — Executive Vice President and Chief Financial Officer

Yeah, the only one time of significance and Jeff alluded to that earlier was some of these relocation — executive relocation costs. Outside of that, we have in the back of the earnings announcement a reconciliation of the one-time costs that we typically breakout for non-GAAP purposes. But I think that what you’re seeing at least from the — and I think I referenced this in my original comments was our overall opex as a percent of revenue is fairly stable right now and obviously, we’re going to work to try to improve that.

And of course, we will make investments in areas like sales and marketing, in R&D as we see the revenue start to tick up when we see light coming for the end of this pandemic. But I would suggest right now that the opex in aggregate as a percent of revenue is probably where you can expect at least going into the next quarter.

Scott Searle — Roth Capital — Analyst

Got you. And to quickly follow up on Mike’s earlier question, in Caterpillar, the mix of business, it sounds like you’re getting some upgrades as well from 3G to 4G as well as new sales. I was wondering, can you help us understand what the mix is there in terms of what are retrofits and upgrades for existing customers versus what are you seeing in terms of new heavy equipment vehicles going out the door?

Jeff Gardner — President, Chief Executive Officer and Director

Well, a lot of our current business, a good percentage of it is relating to the upgrade cycle, and to — some of their 3G fleets to 4G. So I don’t have the precise percentage, but it’s a significant amount of the volume and driving some of the increases that we talked about sequentially.

Scott Searle — Roth Capital — Analyst

Got you. And just last two if I could. MRM, it sounds like continues to be headwinds on that front. I was wondering if you could provide a little bit of color in terms of what the linearity looked like in the quarter? And lastly LoJack US, it’s nice to see some US dealers kind of coming on board. Is there a target, as you look out 12 months or 24 months of what percentage of the dealerships are — you would expect are hope to have converted? Thanks.

Jeff Gardner — President, Chief Executive Officer and Director

Yeah, I’ll let Kurt answer the first question on MRM linearity. And then, I’ll take the LoJack question after that.

Kurt Binder — Executive Vice President and Chief Financial Officer

Yeah, Scott. That’s a great question, because we’ve been looking at that very closely. If you go back and we did some analysis over the last three quarters, with the impact of the pandemic, we’ve seen that business, the MRM business running somewhere between $23 million to $25 million on a quarterly run rate. If you go back past those three quarters probably seven quarters, eight quarters back, we were more averaging in the area of, say $33 million to $35 million per quarter. So we’re down quite a bit off of what we would consider to be our normal cadence.

And so what we’ve done in there as we’ve mentioned last quarter and in this quarter is, we’ve doubled down in terms of keeping our head count stable. We believe that the growth will come, all of the customers that were actively engaged with have been communicating to us that they are absolutely committed to making the 3G to 4G conversion. We haven’t really lost any customers. So our expectation is as we go through the balance of this fiscal year and into early part of next fiscal year that we’ll start to see the uptick in demand from 4G and we’ll get back to that say, $33 million to $35 million quarterly run rate. Do you want to touch on — and Scott, your last question on LoJack.

Jeff Gardner — President, Chief Executive Officer and Director

Yeah. The LoJack expectation is that we’re going to make a major shift this year to telematics. It’s really what we’re leading in every one of our discussions with our customers. The seven dealers that I referenced in my script is just the beginning. For this year to be a successful, we’re targeting to shift the majority of our top 10 dealers to a telematics solution. It’s a much better value add for the customer, provides a lot of benefit to the dealers, it allows us to reach all customers across the nation. So there’s a lot of upside there. And as you know, we’re really interested in moving that business more to a recurring revenue model.

Scott Searle — Roth Capital — Analyst

Great, thanks so much guys.

Jeff Gardner — President, Chief Executive Officer and Director

You’re welcome.

Operator

[Operator Instructions]. Our next question is from Paul Coster with JP Morgan. Your line is open.

Paul Coster — JP Morgan — Analyst

Yeah, thanks for taking my questions. First off, the backlog that you had in the telematics segment, is that now cleared? Or are you carrying any over into the next quarter?

Kurt Binder — Executive Vice President and Chief Financial Officer

Yeah, Paul. So at this stage, yeah, we’ve pretty much cleared the backlog. And really the backlog was in two locations. One was with the K-12 municipality of Fleet Services. We probably had close to $2 million to $2.5 million of backlog that we couldn’t fulfill because there was no access to the school districts. And then in addition to that, within the LoJack business and not having access to the dealership network, we probably had another $0.5 million to $1 million of backlog. We were pleased with the performance of our installation team over the quarter and they were absolutely effective at clearing that backlog.

Paul Coster — JP Morgan — Analyst

Got it. And [indecipherable] on the SaaS side, you said you’re onboarding new logos. Is there a trend there in terms of the size of the customers you’re on-boarding and the number of subscribers?

Jeff Gardner — President, Chief Executive Officer and Director

Yeah, I mean it’s — there’s quite a bit of diversity in terms of the size of the school districts. A lot of these are school districts in terms of the new logos. So some can be as big as 1,500 vehicles. The average probably in the — more in the 100 range. So they’re good solid — yeah, as you know, that business has very strong ARPU, Paul, and good long-term contracts. And we’ve got a very good solution that’s very easy for customers to understand.

So as I said earlier, we’re pretty bullish about that space. I love our product. We’ve got a great bunch of engineers developing, making that product better every day. So we’re not sitting on our laurels, taking — resting on our leadership position. We’re trying to get even stronger in that space.

Paul Coster — JP Morgan — Analyst

Got it. Jeff, any credit or churn issues you’ve detected in the context of the slowdown and impacts on some vertical?

Jeff Gardner — President, Chief Executive Officer and Director

No, not too much. I mean, the biggest impact has been just the slowdown in the MRM that we’ve talked about. We’ve been really trying to use this time to stay very, very focused on our customers and to make sure we’re very proactive if there are any issues with any one of our customers. So outside of that, not really.

Kurt Binder — Executive Vice President and Chief Financial Officer

The only thing I’d highlight is that, I think we’ve mentioned in the original comments around the vehicle finance business. As you know, we communicated last quarter that our position that we were going to start to transition out of that. And so we are starting to see — and we’ll continue to see the churn in subscribers in that over the next several quarters.

Paul Coster — JP Morgan — Analyst

Got it, okay. My last question, Jeff, is a little bit sort of out there, but I’m sure like everyone, you’re seeing this massive amount of innovation in the commercial vehicle space with what looked like a slew of new electric vehicles, primarily coming to market and about two years from now, I’d say that seems to be the surge and they are picking off specific niches, many of the business models assume some kind of relationships with the end customer rather than just a straightforward style. And I’m just wondering, is this an opportunity? Are you seeing designing opportunities coming your way? I mean to an extent, this is an opportunity or a threat?

Jeff Gardner — President, Chief Executive Officer and Director

Yeah, I think it’s going to be a big opportunity. It’s early days for that, so in terms of the opportunity for near term, but I mean the information that is needed by the customer and fleet managers as it relates to electric vehicles is slightly different, but not much of it’s the same. And so our engineering team is trying to stay ahead of that and work on a solution so that when that market gets traction, we’ll be a player there. As you know, our business is tracking, monitoring, recovering mobile assets, whether they are powered by a motor or by electric battery.

Paul Coster — JP Morgan — Analyst

Sure. Okay, all right. Thanks so much.

Jeff Gardner — President, Chief Executive Officer and Director

Thank you.

Kurt Binder — Executive Vice President and Chief Financial Officer

Thank you.

Operator

This concludes the Q&A period. I’ll now turn it back over to Jeff Gardner for any closing remarks.

Jeff Gardner — President, Chief Executive Officer and Director

Great, thank you. Thank you all for joining us on the call today and for your continued interest in CalAmp. On a final note, for those of you who would like to schedule an introductory call or an update meeting with us, please contact the Shelton Group. I look forward to discussing our continued progress during our fiscal third quarter call scheduled for late December just prior to Christmas. Operator, you may now disconnect the call.

Operator

[Operator Closing Remarks]