| DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | NOTE 1 – DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Description of Business CalAmp Corp. (referred to herein as “CalAmp”, “the Company”, “we”, “our”, or “us”) is a connected intelligence company that helps people and businesses work smarter. We partner with transportation and logistics, industrial equipment, government and automotive industries to deliver insights that enable businesses to make the right decisions. Our applications, platforms and smart devices allow them to track, monitor and recover their vital assets with real-time visibility that reduces costs, maximizes productivity and improves safety. We are a global organization that is headquartered in Irvine, California. Recent Events COVID-19 In March 2020, the World Health Organization declared COVID-19 as a pandemic. The full impact of the COVID-19 pandemic is inherently uncertain at the time of this report. The pandemic has resulted in travel restrictions and in some cases, prohibitions of non-essential activities, disruption and shutdown of businesses and greater uncertainty in global financial markets. Through fiscal 2021, our revenues were negatively impacted by COVID-19 as various small-to-medium customers postponed their capital expenditure due to the pandemic and related macro-economic uncertainties. The pandemic has also created certain global supply imbalances resulting in supply shortages in certain components that we use. It is difficult to predict the extent to which the COVID-19 pandemic will continue to impact our future business or operating results, which is highly dependent on uncertain future developments, including the severity of the continuing pandemic and the actions taken or to be taken by governments and private businesses in relation to its containment. Because our business is dependent on telematics product sales, device installations and related subscription-based services, the ultimate effect of the outbreak may not be fully reflected in our operating results until future periods. We have considered all known and reasonably available information that existed throughout fiscal 2021 and as of February 28, 2021, in making accounting judgements, estimates and disclosures. We are monitoring the potential effects of the health care related and economic conditions of COVID-19 in assessing certain matters including (but not limited to) supply chain disruptions, decreases in customer demand for our products and services, potential longer-term effects on our customer and distribution channels particularly in the U.S. and relevant end markets as well as other developments. If the impact results in longer-term closures of businesses and economic recessionary conditions, we may recognize additional material asset impairments and charges for uncollectible accounts receivable in future periods. Currently, we estimate that the existing cash, future cash flows and available borrowings under our revolving credit facility will provide sufficient cash flows for at least twelve months after the issuance date of the consolidated financial statements. Wind Down and Subsequent Sale of LoJack U.S. SVR Operations On December 16, 2020, our Board of Directors approved a plan for management to commence with the wind down of the LoJack U.S. SVR operations. This business unit has historically provided stolen vehicle recovery (SVR) products operating on a radio frequency allocated by the FCC for domestic automotive dealerships. These products and related services have been provided predominately as a hardware-based offering that no longer aligns with our core strategy. Subsequent to the public announcement of this plan, we received inbound inquiries from certain parties interested in acquiring the business. On January 22, 2021, we received a formal proposal from Spireon Holdings, L.P. (“Spireon”) to acquire the LoJack U.S. and Canadian SVR (“LoJack North America”) business for a purchase price of $8.0 million. Effective March 15, 2021, the Company and Spireon entered into a purchase agreement pursuant to which we sold certain assets and transferred certain liabilities of the LoJack North America business to Spireon. Since the LoJack North America operations were deemed a business that met the held for sale criteria under ASC 205-20-45, Presentation of Financial Statements – Discontinued Operations Discontinued Operations Unless otherwise indicated, the financial disclosures and related information provided herein relate to our continuing operations and we have recast prior period amounts. Acquisitions On February 25, 2019, we completed our acquisition of Tracker Network (UK) Limited (“Tracker UK”), a LoJack licensee and a market leader in stolen vehicle recovery (“SVR”) telematics services across the United Kingdom, for a cash purchase price of approximately $13.0 million. On March 18, 2019, we acquired Car Track, S.A. de C.V. (“LoJack Mexico”), the exclusive licensee of LoJack technology for the Mexican market and former customer. We purchased the 87.5% of the LoJack Mexico shares not currently owned by us for a purchase price, net of cash on hand, of approximately $13.0 million. On April 12, 2019, we acquired Synovia Solutions (“Synovia”), a North American market leader in fleet safety and management for K-12 school bus and state and local government fleets for a purchase price, net of cash on hand, of $49.8 million. Synovia was a customer prior to our acquisition. These acquisitions expand our fleet management and vehicle safety services portfolio and accelerate our transformation to high-value subscription-based services. Since the LoJack U.S. SVR Products operating segment is presented as discontinued operations, we now operate under two reportable segments – Telematics Products and Software & Subscription Services. Principles of Consolidation Our consolidated financial statements include the accounts of CalAmp Corp. (a Delaware corporation) and all of our wholly-owned subsidiaries. The financial position and operating results of the LoJack North America operations have been reported as discontinued operations in the consolidated financial statements for the current as well as prior comparative periods. All intercompany transactions and accounts have been eliminated in consolidation. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States (“U.S. GAAP”) requires us to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results may differ from those estimates and assumptions. Significant items subject to such estimates and assumptions include allowances for doubtful accounts; charges for excess and obsolete inventory; deferred income tax asset valuation allowances; goodwill and other long-lived assets; intellectual property and accrued royalties; stock-based compensation; legal contingencies and revenue recognition. The current COVID-19 pandemic and general economic environment, and our supplier and customer concentrations also increase the degree of uncertainty inherent in these estimates and assumptions. Revenue Recognition and Related Judgements We recognize revenue under ASC 606, Revenue from Contracts with Customers
•
identify the contract with a customer;
•
identify the performance obligations in the contract;
•
determine the transaction price;
•
allocate the transaction price to the performance obligations in the contract; and
•
recognize revenue when (or as) we satisfy a performance obligation. We only apply the five-step model to contracts when it is probable that we will collect the consideration we are entitled to in exchange for goods or services we transfer to the customer. Products . We recognize revenue from product sales upon transfer of control of promised products to customers in an amount that reflects the transaction price, which is generally the stand-alone selling prices of the promised goods. For product shipments made on the basis of “FOB Destination” terms, revenue is recorded when the products reach the customer. Customers generally do not have a right of return except for defective products returned during the warranty period. We record estimated commitments related to customer incentive programs as reductions of revenues. Software-as-a-Service (“SaaS”) . We recognize the following revenues and related cost of revenues in our revenues and cost of revenues because we enter into arrangements that combine various hardware devices as well as installation and notification services that are provided over a stipulated service period. Our integrated SaaS-based solutions for our fleet management and certain other verticals provide our customers with the ability to wirelessly communicate with monitoring devices installed in vehicles and other mobile or remote assets through our software applications. The transaction price for a typical SaaS arrangement includes the price for the customized device, installation and application subscriptions. We have applied our judgment in determining that these integrated arrangements typically represent single performance obligations satisfied over time. Accordingly, we defer the recognition of revenue for the customized devices that only function with our applications and are sold only on an integrated basis with our proprietary applicable subscriptions. Such customized devices and the application services are not sold separately. In such circumstances, the associated device related costs are recorded as deferred costs on the balance sheet. The upfront fees for the devices are not distinct from the subscription service and are combined into the subscription service performance obligation. Generally, these service arrangements do not provide the customer with the right to take possession of the software supporting the subscription service at any time. Revenues from subscription services are recognized ratably on a straight-line basis over the term of the subscription. The deferred revenue and deferred cost amounts are amortized to application subscriptions and related products and other services revenue and cost of revenue, respectively, on a straight-line basis over the estimated average in-service lives of these devices, which is four years in the fleet management vertical. In certain fleet management contracts, we provide devices as part of the subscription contracts but we retain control of such devices. Under such arrangements, the cost of the devices is capitalized as property and equipment and depreciated over the estimated useful life of four to five years. The related subscription revenues of these arrangements are recognized as services are rendered. Our deferred revenue under ASC 606 also includes prepayments from our customers for various subscription services but does not include future subscription fees associated with customers’ unexercised contract renewal rights. Accessories may also be sold to these customers. We recognize revenue for sales of accessories upon transfer of control to the customer based on estimated stand-alone selling prices. In certain customer arrangements, we sell or lease vehicle location devices together with related monitoring services as part of the contractual arrangement. The devices leased to our customers are capitalized as property and equipment and are being depreciated over the life of the devices. From time to time we sell devices and monitoring services separately to customers and sell similar devices on a stand-alone basis. Accordingly, we recognize revenues for the sales of the devices upon transfer of control to the customer and recognize revenue for the related monitoring services over the service period. The allocation of the transaction price is based on estimated stand-alone selling prices for the devices and the monitoring services. Deferred revenues consist primarily of the deferred amounts on integrated SaaS solutions and advance payments for monitoring services. Professional Services . We also provide various professional services to customers. These services include project management, engineering services and installation services, which are typically distinct from other performance obligations and are recognized as the related services are performed. For certain professional service contracts, we recognize revenue based on the proportion of total costs incurred to-date over the estimated cost of the contract, which is an input method. Sales Taxes . We exclude from the measurement of the transaction price all taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction and collected by us from a customer. Contract Balances . Timing of revenue recognition may differ from the timing on our invoicing to customers. Contract liabilities are comprised of billings or payments received from our customers in advance of performance under the contract. We refer to these contract liabilities as “Deferred Revenues” in the accompanying consolidated financial statements. During fiscal year ended February 28, 2021, we recognized $33.9 million in revenue from the deferred revenue balance of $57.1 million as of March 1, 2020. Certain incremental costs of obtaining a contract with a customer consist of sales commissions, which are recognized on a straight-line basis over the life of the corresponding contracts. Prepaid sales commissions included in and amounted to $2.1 million and $2.4 million, respectively, as of February 28, 2021. Prepaid sales commissions in are expected to be amortized within the next 12 months. We disaggregate revenue from contracts with customers into reportable segments, geography, type of goods and services and timing of revenue recognition. See Note 21 for our revenue by segment and geography. The disaggregation of revenue by type of goods and services and by timing of revenue recognition is as follows (in thousands):
Year Ended February 28/29,
2021
2020
2019
Revenue by type of goods and services:
Telematics devices and accessories
$
193,486
$
214,374
$
246,452
Rental income and other services
17,844
21,587
13,591
Recurring application subscriptions
97,257
85,812
51,495
Total
$
308,587
$
321,773
$
311,538
Revenue by timing of revenue recognition:
Revenue recognized at a point in time
$
209,902
$
232,971
$
254,054
Revenue recognized over time
98,685
88,802
57,484
Total
$
308,587
$
321,773
$
311,538
Telematics devices and accessories revenues presented in the table above include devices sold in customer arrangements that include both the device and monitoring services. Recurring application subscriptions revenues include the amortization for customized devices functional only with application subscriptions. Remaining performance obligations from continuing operations represents contracted revenue that has not yet been recognized, which includes deferred revenue on our consolidated balance sheets and unbilled amounts that will be recognized as revenue in future periods. As of February 28, 2021 and February 29, 2020, we have estimated remaining performance obligations for contractually committed revenues of $145.1 million and $129.4 million respectively. As of February 28, 2021, we expect to recognize approximately 50% in fiscal 2022 and 22% in fiscal 2023. As of February 29, 2020, we expected to recognize approximately 44% in fiscal 2021 and 26% in fiscal 2022. We have utilized the practical expedient exception within ASC 606 and exclude contracts that have original durations of less than one year from the aforementioned remaining performance obligation disclosure. Revision of Previously Issued Consolidated Financial Statements . Subsequent to the issuance of the consolidated financial statements for the year ended February 29, 2020, we concluded that the presentation of revenues and cost of revenues should be adjusted to present product and service revenues and the related cost of revenues for each separately in accordance with SEC Regulation S-X, Rule 5-03(b). Additionally, certain historical information in the notes to the consolidated financial statements have been revised to reflect the impact of these and other classification corrections. We have determined that the correction of these classification errors is not material to the previously issued consolidated financial statements. The following table summarizes the impact of the immaterial adjustments.
Year ended February 29, 2020
As Reported
Reclassification for Discontinued Operations
Adjustment
As Corrected and Reclassified
Revenues:
Products
$
241,212
$
(37,112
)
$
10,274
$
214,374
Application subscriptions and other services
124,895
(7,222
)
(10,274
)
107,399
Total revenues
$
366,107
$
(44,334
)
$
-
$
321,773
Cost of revenues:
Products
$
154,654
$
(23,125
)
$
4,458
$
135,987
Application subscriptions and other services
68,150
(3,399
)
(4,458
)
60,293
Total cost of revenues
$
222,804
$
(26,524
)
$
-
$
196,280
Year ended February 28, 2019
As Reported
Reclassification for Discontinued Operations
Adjustment
As Corrected and Reclassified
Revenues:
Products
$
285,883
$
(42,277
)
$
2,846
$
246,452
Application subscriptions and other services
77,917
(9,985
)
(2,846
)
65,086
Total revenues
$
363,800
$
(52,262
)
$
-
$
311,538
Cost of revenues:
Products
$
175,009
$
(26,337
)
$
2,059
$
150,731
Application subscriptions and other services
41,027
(4,039
)
(2,059
)
34,929
Total cost of revenues
$
216,036
$
(30,376
)
$
-
$
185,660
Year ended February 29, 2020
As Reported
Reclassification for Discontinued Operations
Adjustment
As Corrected and Reclassified
Revenue by type of goods and services:
Telematics devices and accessories
$
258,449
$
(37,112
)
$
(6,963
)
$
214,374
Rental income and other services
24,415
(2,733
)
(95
)
21,587
Recurring application subscriptions
83,243
(4,489
)
7,058
85,812
Total
$
366,107
$
(44,334
)
$
-
$
321,773
Revenue by timing of revenue recognition:
Revenue recognized at a point in time
$
279,880
$
(39,845
)
$
(7,064
)
$
232,971
Revenue recognized over time
86,227
(4,489
)
7,064
88,802
Total
$
366,107
$
(44,334
)
$
-
$
321,773
Year ended February 28, 2019
As Reported
Reclassification for Discontinued Operations
Adjustment
As Corrected and Reclassified
Revenue by type of goods and services:
Telematics devices and accessories
$
295,750
$
(42,277
)
$
(7,021
)
$
246,452
Rental income and other services
13,293
(3,525
)
3,823
13,591
Recurring application subscriptions
54,757
(6,460
)
3,198
51,495
Total
$
363,800
$
(52,262
)
$
-
$
311,538
Revenue by timing of revenue recognition:
Revenue recognized at a point in time
$
300,378
$
(45,802
)
$
(522
)
$
254,054
Revenue recognized over time
63,422
(6,460
)
522
57,484
Total
$
363,800
$
(52,262
)
$
-
$
311,538
Cash and Cash Equivalents We consider all highly liquid investments with maturities at date of purchase of three months or less to be cash equivalents. Concentrations of Credit Risk Financial instruments that potentially subject us to concentrations of credit risk consist principally of cash equivalents, marketable debt securities and trade accounts receivable. Cash and cash equivalents as well as investments are maintained with several financial institutions. Deposits held with banks may exceed the federally insured limits. These deposits are maintained with reputable financial institutions and are redeemable upon demand. We have not experienced any losses in such accounts. Accounts Receivable and Allowance for Doubtful Accounts Accounts receivable consists of amounts due to us from sales arrangements executed in our normal business activities and are recorded at invoiced amounts. We typically require payment from customers within between 30 to 60 days of our invoice date with a few exceptions that extend the credit terms up to 90 days and we do not offer financing options. We present the aggregate accounts receivable balance net of an allowance for doubtful accounts. Generally, collateral and other security is not obtained for outstanding accounts receivable. Credit losses, if any, are recognized based on management’s evaluation of historical collection experience, customer-specific financial conditions as well as an evaluation of current industry trends and general economic conditions. Due to the COVID-19 pandemic, there has been uncertainty and disruption in the global economy and financial markets. Except for the increase in expected credit losses, we are not aware of any specific event or circumstances that would require an update to our estimates or assumptions or a revision of the carrying value of our assets or liabilities as of the date of this annual report. These estimates and assumptions may change as new events occur and additional information is obtained. Past due balances are assessed by management on a periodic basis and balances are written off when the customer’s financial condition no longer warrants pursuit of collection. Although we expect to collect amounts due, actual collections may differ from estimated amounts. As a result, actual results could differ materially from these estimates and assumptions. We analyzed the credit risk associated with our accounts receivables and lease receivables. Our historical loss rates have not shown any significant differences between customer industries or geographies, and, upon adoption of ASU 2016-13, Financial Instruments – Credit Losses (“ASU 2016-13”) Segment Information and Geographic Data Inventories Inventories are stated at the lower of cost (using the first-in, first-out method) or market (net realizable value). Inventories are reviewed for excess quantities and obsolescence based upon demand forecasts for a specific time horizon. We record a charge to cost of revenues for the amount required to reduce the carrying value of inventory to estimated net realizable value. Ongoing changes in cellular carrier technology, supplier changes, changes in demand or significant reductions in product pricing may necessitate additional write-downs of inventory carrying value in the future, which could be material. Property and equipment Property and equipment are recorded at cost and depreciated using the straight-line method over the respective estimated useful lives of the assets ranging from two to seven years. Leasehold improvements are amortized using the straight-line method over the lesser of the lease term or the estimated useful life of the assets. Maintenance and repairs are expensed as incurred. We capitalize certain costs incurred in connection with developing or obtaining internal-use software and software embedded in our products. These costs are recorded as property and equipment in our consolidated balance sheets and are amortized over useful lives ranging from three to seven years. The devices leased to our customers are capitalized as property and equipment and being depreciated over the life of the devices. Business Combinations The purchase price of an acquisition is allocated to the underlying assets acquired and liabilities assumed based upon their estimated fair value at the date of acquisition. To the extent the purchase price exceeds the fair value of the net identifiable tangible and intangible assets acquired and liabilities assumed, such excess is allocated to goodwill. We determine the estimated fair values after review and consideration of relevant information, including discounted cash flows, quoted market prices and other estimates made by management. We may refine the preliminary purchase price allocation, as necessary, during the measurement period of up to one year after the acquisition closing date as we obtain more information as to facts and circumstances existing at the acquisition date impacting the asset valuations and liabilities assumed. Goodwill acquired in business combinations is assigned to the reporting unit expected to benefit from the combination as of the acquisition date. Acquisition-related costs are recognized separately from the acquisition and are expensed as incurred. Goodwill and Long-lived Assets Goodwill represents the excess of the purchase price over the fair value of net assets acquired in a business combination. We test goodwill for impairment in accordance with the provisions of ASC 350, Intangibles – Goodwill and Other, The estimates of fair value of the reporting units are computed using either an income approach, a market approach, or a combination of both. Under the income approach, we utilize the discounted cash flow method to estimate the fair value of the reporting units. Significant assumptions inherent in estimating the fair values include the estimated future cash flows, growth assumptions for future revenues (including future gross margin rates, expense rates, capital expenditures and other estimates), and a rate used to discount estimated future cash flow projections to their present value (or estimated fair value) based on estimated weighted average cost of capital (i.e., the selected discount rate). We select assumptions used in the financial forecasts by using historical data, supplemented by current and anticipated market conditions, estimated growth rates, and management’s plans. Under the market approach, fair value is derived from metrics of publicly traded companies or historically completed transactions of comparable businesses (i.e. guideline companies). The selection of comparable businesses is based on the markets in which the reporting units operate giving consideration to risk profiles, size, geography, and diversity of products and services. Long-lived assets to be held and used, including identifiable intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be fully recoverable. These events or changes in circumstances may include a significant deterioration of operating results, changes in business plans or changes in anticipated future cash flows. If an impairment indicator is present, we evaluate recoverability by a comparison of the carrying amount of the assets or asset group to future undiscounted net cash flows expected to be generated by the lowest level of asset group. If the assets or asset group are impaired, the impairment recognized is measured by the amount by which the carrying amount exceeds the fair value of the assets. Fair value is generally determined by estimates of discounted cash flows. The discount rate used in any estimate of discounted cash flows would be the rate required for similar investment of like risk. The recoverability assessment with respect to each of the tradenames used in our operations requires us to estimate the fair value of the asset as of the assessment date. Such determination is made using discounted cash flow techniques (Level 3 determination of fair value). Significant inputs to the valuation model include future revenue and profitability projections associated with the tradename through relief of royalty approach; estimated market royalty rates that could be derived from the licensing of our tradenames to third parties in order to establish the cash flows accruing to the benefit of the Company as a result of our ownership of our tradenames; and rate used to discount the estimated royalty cash flow projections to their present value (or estimated fair value). In the fourth quarter of fiscal 2020 and throughout fiscal 2021, we determined that the prolonged secular decline in revenues from our legacy LoJack U.S. SVR products coupled with the slower than anticipated market penetration of our telematics solutions in the U.S. automotive dealership channel represented determinate indications of impairment. These factors were further exacerbated by the continuing unfavorable impact that the COVID-19 pandemic has had on the automotive end markets over the past ten months. As a result, we initiated an assessment of the carrying amount of the related goodwill, intangible and long-lived assets supporting these products including the LoJack tradename and dealer and customer relationships in both fiscal years. Based upon our assessment of economic conditions, our expectations of future business conditions and trends, our projected revenues, earnings, and cash flows, we determined that goodwill and certain of our long-lived assets were impaired in fiscal year 2021 and 2020 as follows (in thousands):
Year Ended February 28/29,
2021
2020
LoJack U.S. SVR Products goodwill
$
12,023
$
-
Other intangible assets:
Developed technology
478
-
Tradenames
-
11,540
Dealer and customer relationships
1,005
6,194
Property and equipment and other assets
10,483
514
Operating lease right-of-use assets and related liabilities
658
895
Total
$
24,647
$
19,143
Of the above amounts, $23.8 million and $13.4 million were included in discontinued operations, respectively (see Note 2, Discontinued Operations Fair Value Measurements Our cash equivalents, accounts receivable, accounts payable and accrued expenses approximate fair value due to the short-term maturities of these items. Our marketable securities are measured at fair value on a recurring basis. The framework for measuring fair value and related disclosure requirements about fair value measurements are provided in ASC 820, Fair Value Measurements Level 1 – Quoted prices in active markets for identical assets or liabilities. Level 2 – Observable inputs other than quoted prices in active markets for identical assets or liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 3 – Inputs that are generally unobservable and typically reflect management’s estimate of assumptions that market participants would use in pricing the asset or liability. Convertible Senior Notes and Capped Call Transactions We account for our convertible senior notes as separate liability and equity components. We determine the carrying amount of the liability component based on the estimated fair value of a similar debt instrument excluding the embedded conversion option at the issuance date. The carrying amount of the equity component representing the conversion option is calculated by deducting the carrying value of the liability component from the principal amount of the notes as a whole. This difference represents a debt discount that is amortized to interest expense over the term of the notes using the effective interest rate method. The equity component of the notes is included in stockholders’ equity and is not remeasured as long as it continues to meet the conditions for equity classification. We allocate transaction costs related to the issuance of the notes to the liability and equity components using the same proportions as the initial carrying value of the notes. Transaction costs attributable to the liability component are being amortized to interest expense using the effective interest method over the respective term of the notes, and transaction costs attributable to the equity components are netted with the equity component of the note in stockholders’ equity. We account for the cost of the capped calls as a reduction to additional paid-in capital. Research and Development Costs Research and development costs are expensed as incurred. In certain cases, costs are incurred to purchase materials and equipment for future use in research and development efforts. In such cases, these costs are capitalized and expensed as consumed. Product Warranty All products have a one- or two-year Patent Litigation and Other Contingencies We accrue for patent litigation and other contingencies whenever we determine that an unfavorable outcome is probable and a liability is reasonably estimable. The amount of the accrual is estimated based on a review of each claim, including the type and facts of the claim and our assessment of the merits of the claim. These accruals are reviewed at least on a quarterly basis and are adjusted to reflect the impact of recent negotiations, settlements, court rulings, advice from legal counsel and other events pertaining to the case. Such accruals, if any, are recorded as general and administrative expense in our consolidated statements of comprehensive income (loss). Although we take considerable measures to mitigate our exposure in these matters, litigation is unpredictable; however, we believe that we have valid defenses with respect to pending legal matters against us as well as adequate provisions for probable and estimable losses. All costs for legal services are expensed as incurred. Income |
