When CalAmp (NASDAQ: CAMP) released its fiscal third-quarter 2019 results in late December, its early pivot toward more recurring revenue sources provided a bright spot on which long-term investors could focus.
On one hand, revenues in the company's core telematics business fell around 12% to $68.6 million, hurt by lower sales of its LoJack Stolen Vehicle Recovery (SVR) hardware products. Sales in CalAmp's budding software and subscription segment, on the other hand, grew more than 25% to $19.9 million, led by additions to both its freight transport and LoJack service subscriptions. CalAmp also touted a new multimillion-dollar software-as-a-service (SaaS) contract with an unnamed leading cloud service provider to help track high-value assets.
But that SaaS strength was overshadowed by weak forward guidance at the time -- which CalAmp blamed on supply disruptions stemming from its decision to move away from Chinese manufacturers to minimize the impact of current and future tariffs.
A busload of recurring sales
On Monday, the company drastically accelerated the aforementioned pivot by announcing an its acquisition of Synovia Solutions for $50 million in cash.
Synovia specializes in fleet safety and management for both K-12 school bus and state and local government fleets, and will add more than 125,000 vehicles to CalAmp's fleet-management and vehicle-safety portfolio. The company's client base includes 10 of the 25 largest school districts in the U.S. and Canada, and it boasts 300,000 daily active users of its popular, award-winning "Here Comes the Bus" smartphone app, which provides real-time location alerts for bus pickups and drop-offs.
As for financials, Synovia grew SaaS recurring revenue in the double-digit percentages last year to over $28 million, achieving roughly 30% EBITDA margins in the process. And with a roughly 30% share of the K-12 school bus market at the time of its acquisition, it has room to continue growing from here.
The road ahead
Coupled with its separate acquisitions of LoJack Mexico and U.K.-based telematics services company TRACKER in February, the Synovia purchase should boost CalAmp's quarterly recurring SaaS revenue to over $30 million by the second half of this fiscal year.
What's more, CalAmp expects the deal to provide product and cost synergies by combining Synovia's offerings with its own SaaS applications and LoJack connected-car services.
"The product synergies between our companies open up exciting opportunities to develop new innovations that help students transition to safe teen drivers and deliver greater visibility into fleet operations for administrators and fleet managers," added Synovia CEO Jon King.
Judging by CalAmp's past reporting schedule, investors should receive more color -- both on the near-term financial impact of the acquisition and those future growth opportunities -- when CalAmp releases fiscal fourth-quarter 2019 results around the end of this month. If the company was able to simultaneously resolve last quarter's supply-chain issues, I suspect the stock's recent decline could prove to be a fantastic buying opportunity for patient shareholders.
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