2020 Annual Report
Connectivity. Real-Time Analytics.
Data in Motion.
Telematics Services
Contextual insights to
optimize operations and
improve business
performance
CalAmp Applications
Intelligent analytics and
reporting, purpose-built
for vertical market needs
CalAmp Telematics
Cloud™ Platform
Application, data, and
device hosting and
management through
an enterprise-grade
cloud platform
Professional Services
Plan, manage and execute
complex telematics
deployments
Telematics Devices & Sensors
A broad portfolio of industry-leading
devices to capture data insights from
mobile assets, and their contents
Dear Fellow Stockholders,
These are challenging times for all of us as we battle COVID-19 and do all we can to create value for our stockholders and
stakeholders alike. My first priority is to keep our associates, partners, and customers safe. CalAmp is committed to do our
part to fight the coronavirus and return us to full global capacity while delivering compelling value to you.
As the interim CEO, my focus is on accelerating our transformation to a SaaS solutions provider with a solid base of world-
class customers. I joined this management team after serving for five years as a board member for four reasons:
• An outstanding management team bolstered by new additions in the critical areas of sales and product;
• Exceptional technology solutions in fleet management, transportation and logistics, industrial equipment and connected
cars;
• A customer list that includes a number of Fortune 100 companies in addition to innovators helping us build out vertical
applications in growing markets; and
• A board committed to accelerating the transformation of the company and fully supporting the team.
We made significant progress this past year as we grew SaaS revenues to 34% of our consolidated revenue. Much of
the progress is attributable to our recent acquisitions. In fiscal 2021, we will focus on positioning CalAmp for organic
SaaS growth. Accordingly, I have developed a detailed plan to help improve key performance metrics across the global
organization as we focus our efforts on the following key strategic initiatives:
• Increase the organic growth rate of our SaaS business;
• Establish and sustain a strategic level of engagement with our key customers;
• Focus engineering resources on our most promising verticals, including our flagship iOn Suite of applications;
• Accelerate our global supply chain improvements;
• Transition our LoJack Stolen Vehicle Recovery (SVR) business to a recurring telematics model; and
• Improve our EBITDA by focusing our efforts on our most profitable market segments and driving synergies from our recent
acquisitions.
In summary, I believe CalAmp is in a solid position to build lasting stockholder value as we organically expand our
SaaS businesses and enter new markets with the objective of generating increasing profitability and cash flow in the
years ahead. My top priority is to deliver consistent execution for our stockholders, while also providing transparent
communications regarding our activities, progress and achievements. I remain fully committed to transforming CalAmp into
a world-class SaaS solutions provider, supported by steady and predictable recurring subscription revenue streams.
I would like to take this opportunity to thank our associates, customers and partners for your ongoing contributions to our
current and future success. I would also like to thank our fellow stockholders, and all of our stakeholders, for your support
of and contributions to CalAmp. We are making progress in creating a “winning” culture at CalAmp.
Sincerely,
Jeff Gardner
Interim President and CEO
The CalAmp
Connected World
We would like to extend a thank you to our customers and partners
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
FOR THE FISCAL YEAR ENDED FEBRUARY 29, 2020
COMMISSION FILE NUMBER: 0-12182
CALAMP CORP.
(Exact name of Registrant as specified in its Charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
15635 Alton Parkway, Suite 250
Irvine, California
(Address of principal executive offices)
95-3647070
(I.R.S. Employer
Identification No.)
92618
(Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (949) 600-5600
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
TITLE OF EACH CLASS
$0.01 par value Common Stock
TRADING SYMBOL(S)
CAMP
NAME OF EACH EXCHANGE
The Nasdaq Stock Market LLC
(The Nasdaq Global Select Market)
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒.
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes ☒ No ☐.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to
submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal
control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that
prepared or issued its audit report. ☒
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company,
or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging
growth company” in Rule 12b-2 of the Exchange Act.:
☐
☐
☐
Large accelerated filer
Non-accelerated filer
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with
any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. Yes ☐ No ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of August 31, 2019, the aggregate market value of shares held by non-affiliates of the registrant was approximately $264.9 million. For purposes
of calculating the aggregate market value of shares held by non-affiliates, we have assumed that all outstanding shares are held by non-affiliates,
except for shares held by each of our executive officers, directors and 10% or greater stockholders. These assumptions should not be deemed to
constitute an admission that all executive officers, directors and 10% or greater stockholders are, in fact, affiliates of our company. As of April 30,
2020, there were 34,325,681 shares of the registrant’s common stock outstanding.
Accelerated filer
Smaller reporting company
☒
☐
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive Proxy Statement for the Annual Meeting of Stockholders to be held on July 29, 2020 are incorporated by
reference into Part III, Items 10, 11, 12, 13 and 14 of this Form 10-K. This Proxy Statement will be filed within 120 days after the end of the fiscal
year covered by this report.
Table of Contents
Business.......................................................................................................................................
Risk Factors.................................................................................................................................
Unresolved Staff Comments .......................................................................................................
Properties.....................................................................................................................................
Legal Proceedings .......................................................................................................................
Mine Safety Disclosures..............................................................................................................
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases
of Equity Securities .....................................................................................................................
Selected Financial Data ...............................................................................................................
Management’s Discussion and Analysis of Financial Condition and Results of Operations .....
Quantitative and Qualitative Disclosures About Market Risk ....................................................
Financial Statements and Supplementary Data ...........................................................................
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure ....
Controls and Procedures..............................................................................................................
Other Information........................................................................................................................
Directors, Executive Officers and Corporate Governance..........................................................
Executive Compensation.............................................................................................................
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters.........................................................................................................................................
Certain Relationships and Related Transactions, and Director Independence............................
Principal Accounting Fees and Services .....................................................................................
Page
2
14
31
31
31
32
33
34
37
56
56
98
98
101
102
102
102
102
102
Exhibits, Financial Statement Schedules.....................................................................................
103
PART I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
PART II
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
PART IV
Item 15.
ITEM 1.
BUSINESS
Company Overview
PART I
CalAmp Corp. (including its subsidiaries unless the context otherwise requires, “CalAmp”, “the Company”,
“we”, “our”, or “us”), incorporated in 1987, is a global technology solutions pioneer leading the transformation to a
mobile connected economy. We help transform businesses and improve lives around the globe with technology
solutions that streamline complex mobile Internet of Things (“IoT”) deployments using wireless connectivity and data
analytics.
We have created a cloud-based connected IoT ecosystem that is enhanced through our Software-as-a-Service
(SaaS) subscription services and applications. Our platform provides greater visibility, scalability and connectivity
across automotive, insurance, transportation and logistics, government and construction markets creating a massive
global IoT ecosystem. By employing our cloud platform and SaaS subscription services, global businesses can
dramatically improve their operations, streamline communications and gain critical insights from their business data
that can transform the speed, cost and reliability of their services and operations.
Our unified and integrated cloud-based IoT ecosystem combines SaaS-based applications, telematics services,
a scalable global cloud platform and intelligent edge computing products. Together these elements deliver a
comprehensive view of vehicles, machines, drivers, assets and cargo in real time that would otherwise require multiple
disparate applications. Our applications and services all tie back to our cloud platform, generating actionable data and
insights that help management optimize business operations through better decision making at the edge. While each
one of our offerings can be combined for a complete end-to-end telematics solution, they can also be customized and
integrated with custom applications or back-office systems, without losing the actionable mobility data that only
CalAmp can provide.
Our cloud platform offers valuable telematics services that provide enhanced insights to help companies more
efficiently manage their assets including fleet video intelligence, remote asset monitoring, real-time crash response
and driver behavior scoring. Our programmable telematics devices enable computing at the edge and capture business-
critical data from mobile assets, their passengers and content anywhere in the world at any time. We call this The New
How: powering autonomous IoT interaction, facilitating efficient decision making, optimizing resource utilization and
improving road safety.
Economic conditions, competitive markets, global regulatory environments, the COVID-19 pandemic and the
transition to 4G and 5G connectivity are challenging traditional businesses to drive operational efficiencies, track
processes, reduce costs, fund business growth and innovation, and enhance profitability and cash flow. Therefore,
effective management of business spend is imperative if businesses are to achieve significant profitable growth.
Businesses must evaluate their underutilized resources and leverage the new connected ecosystem. CalAmp helps
enterprises and mid-to-large businesses compete in the on-demand economy, and thus fulfill consumer expectations
for fast, reliable and on -time products and services at their fingertips.
Our company culture is driven by our five core values:
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Integrity – take personal responsibility - we value our customers and look for ways to enhance our
solutions to benefit them and the community.
Inspiration – foster high performance - we design all of our products and services with the highest quality,
knowing that whether it’s a shipment of critical refrigerated pharmaceuticals, children on their way to
school, or packages en route to a retail store, they should all be handled with care.
Innovation – bring value to our customers - optimizing businesses all over the world is at the heart of what
we do and we’re always seeking ways to learn about their needs in order to improve their overall
operations.
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Execution – understand, anticipate and be responsive to our customers - our on-the-ground representatives
know our success is dependent on the people using our products every day. Their success results from
overcoming obstacles, so we seek to provide top of the line customer support services to address those
issues.
Excellence – exceed customer requirements by delivering best-in-class solutions - our customer-focused
approach includes enabling better business outcomes by offering our customers the finest products,
services and support to help them optimize their business operations.
The successful execution of this approach, in combination with our core values, will help customers to succeed
and thus drive our growth.
We have approximately 1.3 million software and service subscribers and more than 20 million products installed
globally in multiple market verticals including automotive, insurance, transportation and logistics, government and
construction. There are over two million Here Comes The Bus® mobile app users operated by fleet managers and
school districts. We believe the installed base represents a significant recurring revenue opportunity as we strive to
deliver additional over-the-top services and data monetization opportunities to subscribers in collaboration with our
customers and partners.
Growth Strategy – Capitalize on $30B Total Available Market
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Over the past three years, we have focused on growing our new subscription-based business model. We intend
to grow this core business and expand into new markets and geographic regions in the years ahead. Our business
operates at the nexus of several large market opportunities including the connected vehicle ecosystem, enterprise asset
tracking, and fleet management product and services markets. We believe these market opportunities constitute a total
available market (“TAM”) of approximately $30 billion. In order to capitalize on this TAM, our growth strategy and
the metrics by which we measure ourselves includes the following five key elements:
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Drive SaaS Applications Across Market Verticals. We are relentlessly pursuing our goal to grow our
software and subscription services business. To accomplish this goal, our team is focused on continual
product innovation across our proprietary software stack. We believe that by leveraging our existing
brand presence and customer base in four market verticals including transportation, construction,
government and the automotive aftermarket, we can drive growth in our SaaS applications. And as we
steadily grow our base of SaaS subscribers, we’ll continue to migrate to a pure-play solution provider of
subscription services by combining our broad portfolio of SaaS applications, cloud-based platform and
programmable telematics devices.
Create Innovative Solutions in the Emerging Connected Vehicle Market. With the acquisition of
LoJack® licensees in the U.S., U.K., Italy and Mexico, we now have a highly recognizable, consumer-
facing brand as well as strong and unique relationships with law enforcement agencies (in the U.S. and
other geographical regions), auto dealerships, insurance companies, rental car agencies, regional and
global transportation and logistics providers, and heavy equipment original equipment manufacturers
(OEMs). We plan to develop telematics applications for the connected vehicle market similar to LoJack®
SureDrive™ targeting the consumer telematics segment and LoJack® LotSmart™ for automotive dealer
inventory management. We plan to increase our investment in research and development to expand and
enhance the features and capabilities of our products and solutions and drive further innovation through
synergies created among our Synovia acquisition and LoJack subsidiaries.
Expand Presence in Industrial IoT. We believe that our current distribution footprint covers a
significant portion of the global industrial IoT market due to our strong relationships with large enterprises
such as Caterpillar. We believe there is an opportunity for us to leverage our core competencies of working
with these global enterprises and expand our presence with other industrial OEMs.
Continue Expansion into International Markets. We are leveraging our existing customer relationships,
international subscribers and recent Tracker UK and LoJack Mexico acquisitions to further expand into
global markets including Latin America, Europe, Middle East, Africa and Asia Pacific. Our global
expansion strategy is focused on countries with anticipated demand for our full stack of SaaS application
and services, cloud platform and telematics devices.
Create Opportunities to Monetize our Installed Base. We believe that our strong and growing installed-
base of over 20 million telematics devices and approximately 1.3 million unique software and services
subscribers provide us with an opportunity to create additional revenue streams by delivering high-value
data sources, applications and other over-the-top subscription services to enterprises in large markets such
as automotive, insurance, transportation & logistics, government and construction.
Subsidiaries and Recent Acquisitions
Synovia Solutions - In April 2019, we acquired Synovia Solutions (“Synovia”), a North American market
leader in fleet safety and management for the K-12 market as well as state and local government organizations. At the
forefront is Here Comes The Bus, an award-winning mobile app powered by GPS services that delivers real-time
school bus and student tracking intelligence. Since the acquisition, downloads of the application have exceeded two
million serving over 300 school districts in 35 states across the U.S. Synovia Solutions also provides government fleet
management solutions designed to improve utilization, lower insurance premiums and enable preventative
maintenance while expanding our fleet management and vehicle safety services portfolio. This acquisition also
accelerates our transformation to high-value subscription-based services. Moreover, in the wake of the COVID-19
outbreak, schools districts throughout the U.S. are now using Here Comes The Bus to assist in meal delivery to students
while schools remain closed.
4
LoJack Mexico - In March 2019, we acquired Car Track, S.A. de C.V. (“LoJack Mexico”), the exclusive
licensee of LoJack technology for the Mexican market. LoJack Mexico is a provider of innovative automotive and
stolen vehicle recovery (“SVR”) services throughout Mexico and Latin America. LoJack Mexico is leveraging
CalAmp’s full stack of telematics and SaaS solutions to expand product offerings to its substantial subscriber base of
consumers, auto dealers and OEMs, insurance providers and leasing companies. This acquisition provides us with a
profitable business and world-class brand. With strong channels, consumer awareness and law enforcement
relationships in major cities across Mexico and Latin America, LoJack Mexico boasts approximately 139,000 software
and services subscribers and has announced recent partnerships with Hertz, MAN Truck, Volkswagen Financial and
Dogo Informatique.
Tracker - In February 2019, CalAmp acquired Tracker Network (UK) Limited (“Tracker”), a LoJack licensee
and market leader in SVR and telematics services across the United Kingdom since 1993. Tracker is strategically
aligned with LoJack Italia to drive CalAmp’s European expansion by leveraging a complete, vertically integrated
portfolio of SaaS applications and services, cloud platform and telematics devices to develop advanced connected car
solutions for auto dealers, OEMs, insurance providers and other enterprise customers. The acquisition brings strong
brand awareness across the U.K. and extensive law enforcement relationships by integrating two of Europe’s most
advanced SVR and telematics solutions providers. Tracker recently announced a new SmartDealer solution for lot and
fleet management, a SmartDrive connected car application as well as partnerships with Auto Capital and NG Bailey.
Extended Business Network
Because our connected IoT ecosystem is constantly collecting, monitoring and reporting business-critical
information from mobile and remote assets, our customers can run their business operations more efficiently. We also
make it easy for our customers to purchase our end-to-end connected fleet and supply chain solutions via a SaaS
subscription-based model that enables us to create greater customer engagement and long-term enterprise relationships
while driving incremental recurring revenue.
Today we sell into numerous market verticals including automotive, insurance, transportation and logistics,
government, K-12 and construction in the United States, Latin America, Western Europe, Asia Pacific, Middle East
and Africa. We sell our connected car applications to consumers through all of LoJack distribution channels. We serve
parents, students and school administrators through our Here Comes The Bus mobile app that can be found in the App
Store and Google Play Store. Our brands and technological leadership have driven the adoption of our connectivity
solutions with small to midsize customers as well as large global enterprises. We also serve numerous government
organizations and municipalities and over 300 school districts across North America. With our international network
of LoJack subsidiaries and a strong ecosystem of industry partnerships, we bring intelligence to the edge in the mobile
connected economy to help drive business efficiencies.
Our software subscription business model allows us to continuously listen to our customer’s needs and learn
about their pain points and how they affect their day-to-day business. Our partnerships and acquisitions have enabled
us to get in front of new customers furthering our abilities to digitize their businesses, and capitalizing on our
reputation and history as a true telematics pioneer.
Enterprise Customers - We sell our products and services directly to large global enterprises and industrial
OEM customers. These customers require very different selling approaches and support requirements, and we have
organized our teams to address these different requirements. Additionally, certain customers often have unique
technical requirements and manufacturing processes, and may request specific product configurations, feature sets
and designs. Sales to large enterprise customers often involve complex program management and long sales cycles,
and require close cooperation between sales, operations and engineering personnel. As such, we have developed teams
of key account managers and business development managers to serve the unique requirements of these customers.
Some of the global enterprises we serve include Amazon, Caterpillar, Hertz, Omnitracs, Pioneer, Toyota, TransUnion,
Trimble and Volkswagen Financial.
5
Telematics Service Providers (“TSPs”) and Channel Partners - We market and sell our products and services
to small- and mid-sized companies through our well-established sales team and Channel Partner Program that sells
our full product portfolio into Telematics Service Providers, Value-Added Resellers (“VARs”), systems integrators
and mobile network operators. These partners integrate our telematics solutions with their value-added applications
to deliver purpose-built solutions that are sold through to restaurant, farming, water & waste management and
construction industries among others.
Strategic Partners - CalAmp has developed third party strategic partnerships to serve a wide range of customers
from enterprises to small businesses. CalAmp has established strategic partnerships with supply chain management
service providers including CargoSense, Overhaul, Cryoport and RoviTracker. We also partnered with TransUnion to
work with insurance companies and to provide stolen vehicle recovery services and help insurance carriers better
manage risk, minimize replacement losses and improve customer service. We partner with mobile network operators
including AT&T, Verizon, Sprint and Telefonica among others to provide connectivity solutions for our customers.
This year we established a partnership with Sprint to deliver intelligent telematics devices and software applications,
along with unique CalAmp iOn™ DaaS subscription services to expand Sprint's broad range of connected car, fleet
and asset management services that drive operational efficiencies and secure high-value assets for enterprise and
business customers.
Our global direct sales organization consists of teams of field salespeople, key account managers and business
development managers, who work closely with product and applications specialists and other internal sales support
personnel based primarily across our U.S. locations. We have organized our field sales personnel, together with
internal sales and field support personnel, into teams within each business group based on their specialized knowledge
and expertise relating to specific product and service areas, geographies and customer groups. These sales teams are
closely aligned with their respective product management, engineering and operations organizations.
We expect that our reputation for providing innovative and high-quality solutions will continue to play a
significant role in our growth and success, and that high customer satisfaction will continue to fuel referrals of our
brand to new customers. Through our trademarked name – CalAmp – we have built a highly recognizable brand in
the global enterprise, fleet management and supply chain market verticals. Also, in connection with the acquisitions
of LoJack and Synovia Solutions, we acquired a highly recognizable consumer-facing brand in the K-12 market with
Here Comes The Bus.
Customer Benefits
Our connected telematics products, software solutions and other subscription services address a wide variety of
applications across key vertical markets ranging from small to large enterprises. They are in constant communication
with remote and/or mobile assets as they perform business-critical tasks and services that are otherwise difficult to
manage in real time on a remote basis. In such situations, our solutions provide a clear and demonstrable return on
investment. Our products and solutions benefit our customers in the following ways:
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Increasing productivity, improving communications and optimizing performance of fleets and
mobile workers. Applications include vehicle monitoring, dispatch and route optimization, fleet
diagnostics and maintenance, workflow improvement, workforce communications, driver behavior
monitoring, as well as training and work-alone safety initiatives.
Improving the automobile dealer, vehicle owner and vehicle insurer experience. Applications include
connected car and insurance telematics solutions that expedite the claims process for insurers, improve
lot management for automobile dealers and provide early warning alerts, accident reconstruction and other
connected car and road safety services for consumers.
Enabling multi-modal supply chain visibility tracking and management services from the cab to the
containers and cargo. Applications include local and long-haul trailer tracking, management and
logistics, container tracking and status, refrigerated container monitoring and control, high-value asset &
pet-tracking solutions for in-air travel, environmental condition monitoring of cargo down to the product
level, and, delivery assurance combined with local and intermodal pallet and cargo logistics and tracking.
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Recovering stolen vehicles and assets, and providing peace of mind through connected car services.
Applications include stolen vehicle recovery directly integrated with law enforcement, vehicle safety and
security technologies, alerts to emergency response personnel triggered by collisions, vehicle arrival alerts,
speed alerts, driver behavior monitoring, and auto dealership inventory management, that enable safe
driving, improve the customer experience and drive incremental revenue opportunities for automobile
dealers.
Facilitating comprehensive monitoring, tracking and telematics for heavy equipment and
commercial trucking. Applications include heavy equipment maintenance, usage optimization and
tracking, rental equipment tracking, high-value tools and asset tracking, yellow iron and attachment
management, indoor/outdoor forklift and loader location, impact detection and telematics.
Enabling usage-based insurance, enhanced claims processing and delivery of comprehensive value-
added services for the vehicle insurance industry. Applications include stolen vehicle recovery for
insurance providers, driver behavior scoring and feedback, crash discrimination, collision alerts and
reconstruction, damage assessment and estimation, teen driver tracking and management, roadside
assistance and predictive maintenance.
Delivering end-to-end visibility and regulatory compliance for supply chain management.
Applications include granular visibility of product location and environmental status for temperature-
sensitive drugs, perishable food and high-value consumer goods.
Enabling rapid delivery of comprehensive managed services for machine and equipment OEMs.
Applications include service, maintenance, tracking, monitoring and control for generators, turbines,
compressors, small engines (e.g., outboard motors, ATVs and electric carts) and power tools.
Creating a safe and reliable school bus riding experience for students and parents. School bus
tracking and student tracking mobile app that gives students and parents peace of mind through regular
real-time tracking of pick-up and drop-off information for K-12 students all over the U.S.
Differentiators
We pride ourselves in servicing each layer of a business’s telematics value chain, from software service
applications through devices. This integrated approach puts us ahead of competitors because we can provide customers
with a complete solution or a flexible, configurable solution that can easily enhance other third party applications or
back-office enterprise systems.
With a trusted and growing global presence, CalAmp provides a secure, scalable, and flexible solution with
application for multiple industries and continues to expand its offerings in different geographies and market segments.
Our powerful technology and financial strength empower us to bring innovative solutions to market. The CalAmp
mobile connected ecosystem, for example, offers a seamless, end-to-end telematics solution that addresses the most
complex operational challenges.
Within the ecosystem, exists CalAmp Telematics Cloud™ (“CTC”) which captures, analyzes and transforms
data from equipment and mobile assets into actionable insights. Powered by an enterprise-grade cloud platform and
advanced security, CTC facilitates integration between CalAmp applications and third-party management systems to
enable flexible IoT solutions and innovative telematics services. Many multinational shipping enterprises rely on
CalAmp, such as Amazon which uses CTC to build a mission-critical business application that enables them to quickly
develop tailored solutions designed around their own applications to meet specific use cases.
Our enterprise customers tell us that only CalAmp offers a seamless one-stop shop for mobile asset management
with these critical capabilities:
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Integration: CTC’s Application Development Environment (“ADE”), along with CalAmp’s broad
portfolio of devices, easily links vertical, back-end applications to remote assets providing only the
information needed for each key stakeholder within the organization.
Scalability: The ADE provides an embedded framework to help create tailored solutions enabling faster
deployment with minimized infrastructure. Our Device-as-a-Service (“DaaS”) model minimizes costs for
managing devices and telematics services as well as technical support, so customers can scale their
solutions in a more cost-effective manner.
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Simplicity: Customers can directly link intelligent devices--installed on vehicles and mobile assets with
software applications and telematics services-to their existing enterprise systems for more holistic and
actionable insights.
Speed: With CalAmp’s industry-standard APIs, customer development teams can capture the information
they need from mobile assets to speed time-to-market of custom telematics solutions.
Reliability: Large global logistics companies can’t afford downtime or loss of data. This is especially
imperative for surviving peak seasons in freight transportation. Data reliability and zero operational
downtime on that kind of global scale only comes with experience. Our customers have come to know
whom we serve and the importance and scale of those telematics deployments. Reliability comes in large
part from CTC being built on one of the most reliable and scalable enterprise-grade cloud infrastructures
in the business: Amazon Web Services. That kind of reliability played a part in Amazon choosing CalAmp
for one of its telematics needs.
Our Platform
CalAmp’s unified IoT ecosystem includes our SaaS-based applications, CalAmp Telematics Services, CalAmp
Telematics Cloud Platform and intelligent edge computing products. Companies of all sizes leverage our integrated
suite of IoT services and devices into their operational infrastructure to reliably and securely transmit business-critical
data points from high-valued mobile assets to address the most complex operational challenges. This tight integration
of IoT technology provides greater visibility to help meet customer expectations in the on-demand economy.
SaaS Applications. We provide our customers with intelligent analytics and reporting tools that are accessible
via a single view, user-friendly interface through SaaS-based applications designed to address specific vertical market
needs. CalAmp iOnTM is purpose-built for service fleets, government fleets and construction, turning multiple data
feeds from previously unconnected networks of vehicles, drivers and associated assets into clear and actionable
insights that optimize operations, increase productivity and deliver compelling ROI for virtually any business
challenge. CalAmp SC iOn Supply Chain delivers real-time visibility about the environmental status of
pharmaceuticals, electronics, food or other perishables from manufacturing to the point of purchase, helping to manage
quality and compliance across land, air or sea shipments. LenderOutlookTM enables vehicle finance, automotive
dealers and credit unions to secure their assets, reduce risk and build customer loyalty while driving revenue. Here
Comes The Bus® is an award winning mobile application that provides real-time school bus location through push
notifications and email alerts to help families monitor bus arrival and keep students safe. LoJack SureDrive is a
connected car app that provides crash alerts, movement detection, arrival notifications and speed alerts to help drivers
and their families save time and stay safe. LoJack LotSmart is an inventory management system that empowers
dealers with vehicle location, battery level and other diagnostic information to streamline operations and improve the
customer experience.
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CalAmp Telematics Services. CalAmp delivers enhanced contextual insights that help manage mobile workers,
vehicles, mobile assets, tools and cargo. Our subscription-based telematics services enable customers to optimize their
operations by collecting, monitoring and effectively reporting business-critical information and desired intelligence
from high-value remote and mobile assets. CalAmp iOn Vision provides fleet operators and service providers with
actionable video insights to assess driver behavior, mitigate liabilities and improve fleet safety. CalAmp iOn Tag
Service helps service fleets to minimize project delays and prevent loss by enabling greater visibility and control over
their assets and tools. CrashBoxx provides crash detection and delivers instant crash alerts to speed life-saving
assistance to drivers, expedite the claims process and reconstruct the collision to help fleet operators mitigate liability
and fraud. Driver Behavior Scoring enables fleet managers to improve driver safety and identify the need for training
based on speeding, harsh braking, hard cornering and other risky driving behaviors. LoJack Stolen Vehicle Recovery
is the only SVR solution directly integrated with law enforcement that has a 90%+ recovery rate and over $1 billion
worth of recoveries in the U.S. alone. LoJack Stolen Asset Recovery allows construction and heavy equipment rental
companies to protect and recover high-value construction equipment and commercial vehicles. Security is of greatest
importance to CalAmp especially in a rapidly evolving cyber threat landscape. CTC is SOC 2 certified, meaning it’s
designed to securely retain data in the cloud. With this certification, organizations have the confidence their sensitive
data is secure, ensuring confidentiality and availability for optimized telematics deployments.
CalAmp Telematics Cloud (“CTC”). The CalAmp Telematics Cloud is the core engine that enables seamless
management of a diverse set of assets, from service vehicles to high-value equipment. CTC is an enablement platform
that connects our customers to a wide range of applications and software services, which enhances the value of our
telematics products and offers flexibility and scale for small to medium-sized businesses as well as global enterprise
corporations. Our cloud-based platform connects our SaaS-based applications, telematics services and edge computing
devices, and facilitates integration with third party applications, through open Application Programming Interfaces
(“API”s). Our partners leverage multiple APIs we’ve created to rapidly deliver full-featured IoT solutions to their
customers and markets. Our proven CTC is architected to integrate with numerous global Mobile Network Operator
(“MNO”) account management systems and leverage these carrier backend systems to provide customers access to
services that are essential for creating and managing flexible end-to-end solutions.
CalAmp Edge Computing Products. We offer a series of telematics devices and sensors that serve as the
backbone of our mobile connected ecosystem by collecting data insights from vehicles, drivers, assets and
cargo. These wireless networking devices--including asset tracking units, mobile telematics devices, fixed and mobile
wireless gateways and routers--underpin our wide range of proprietary and third-party software applications and
services for business-critical deployments demanding secure and reliable communications and controls anywhere in
the world. Our customers select our products and solutions based on optimized feature sets, configurability,
manageability, long-term support, reliability and, in particular, overall value.
Industry Recognition
In 2019, CalAmp received an Honorable Mention for Hello Tractor in the Fast Company World Changing Ideas
award and won the IoT Platform Leadership Award for our Air Freight Visibility Solution, developed jointly with
CargoSense. Here Comes The Bus and Synovia Solutions won the Mobile World Congress Barcelona Global Mobile
Award, IoT Excellence Award and IHS Markit Award.
Recent Developments
In December 2019, a strain of coronavirus entitled COVID-19 emerged in China and spread to other countries
including to the United States. In March 2020, the World Health Organization declared COVID-19 to be a public
health pandemic of international concern, which 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.
In the United States and other geographies in which we and our customers, partners and service providers
operate, the health concerns as well as political or governmental developments in response to COVID-19 could result
in economic, social or labor instability or prolonged contractions in certain end markets which could slow the sales
process, result in customers not purchasing or renewing contracts or failing to make payments. These events could
have a material adverse effect on the business and results of operations and financial condition.
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At this time, it is difficult to predict the extent to which the COVID-19 outbreak will impact our business or
operating results, which is highly dependent on uncertain future developments, including the severity of the 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
effect of the outbreak may not be fully reflected in our operating results until future periods.
We have adopted several measures in response to the COVID-19 outbreak, including instructing employees to
work from home, implementing certain cost and cash flow control measures to address potential declines in billings
and cash collections from customers, shifting the manner in which we engage with customer and restricting non-
critical business travel by our employees. As a result of the work and travel restrictions, substantially all of our sales
and installation services activities are being conducted remotely.
Manufacturing and Operations
While the vast majority of our products are designed in the U.S., we currently outsource a substantial portion of
our manufacturing to certain contract manufacturers, which are located primarily in Hong Kong, mainland China,
Malaysia and other Pacific Rim countries. Our electronic devices, components and made-to-order assemblies used in
our products can be obtained from these manufacturers, although certain components are obtained from sole source
suppliers. Although we do not have any long-term purchase contracts, we have executed product supply agreements
with these manufacturers, which provide for certain product quality requirements. We are not vertically integrated,
which provides us with flexibility and an ability to adapt to changes in the market, product supply and pricing while
keeping our fixed costs low. Our relationships with our manufacturers are critical to new product introduction and the
success of our business. We have strong relationships with our manufacturers, helping us to meet our supply and
support requirements. As we announced in fiscal year 2019, we commenced a plan to streamline our global operations
including further outsourcing of our manufacturing functions to increase supplier diversification and reduce operating
expenses. We now have full manufacturing capabilities in Taiwan, Malaysia and Mexico. Furthermore, our production
and distribution facility in Oxnard California has been closed. We are now utilizing our outsourced partner in Fort
Worth, Texas for certain US distribution.
We focus on driving alignment of our product roadmaps with all our manufacturers and determining what we
can do collectively to reduce costs across the supply chain. Our operations team based in the U.S. coordinates with
our manufacturers’ engineers and quality control personnel to develop the requisite manufacturing processes, quality
checks and testing as well as general oversight of the manufacturing activities. We believe this model has allowed us
to effectively deliver high quality and innovative products while enabling us to minimize costs, manage inventory risk
and maintain flexibility.
We are certified to the ISO (International Organization for Standardization) 9001: 2008 Quality management
systems standard.
Research and Development
We compete in markets characterized by industry disruption, rapid technological change, evolving industry
standards and new product features. We believe that our future success depends upon our ability to continue to develop
innovative new products and solutions as well as enhancements to our existing products and solutions with advanced
functionality and ease of use to drive customer demand and to further enhance our global brand and drive recurring
revenue. We will continue to focus our research and development resources primarily on developing telematics
products, services and software solutions for fleet management, heavy equipment, stolen vehicle recovery, consumer
aftermarket telematics, trailer & asset tracking, transportation & logistics, and industrial monitoring & controls
applications. We have developed technology platforms that can be leveraged across many of our vertical markets,
applications and geographic regions. These include cloud-based telematics application enablement platforms and end-
user software applications, cellular and satellite communications network-based asset tracking units, as well as 3G
and 4G LTE broadband router products primarily for mobile applications. In addition, our development resources
have been allocated to rationalizing existing product lines, reducing product costs, and improving performance through
product redesign efforts.
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Our research and development expenses in fiscal years ended February 29, 2020, February 28, 2019 and 2018
were $29.4 million, $27.7 million and $25.8 million, respectively. During this three-year period, our research and
development expenses have ranged between 7% and 8% of annual consolidated revenues.
Sales and Marketing
We market and sell our products and services through our global direct sales organization, Channel Partner
Program and sales representatives as well as our websites and digital presence. Our global direct sales organization
consists of teams of field salespeople, key account managers and business development managers, who work closely
with product and applications specialists and other internal sales support personnel based primarily at our U.S.
locations. We have organized our field sales personnel, together with internal sales and field support personnel, into
teams within each business group based on their specialized knowledge and expertise relating to specific product and
service areas, geographies and customer groups. These sales teams are closely aligned with their respective product
management, engineering and operations organizations.
We sell our products and services to large global enterprises, small to midsize companies, channel accounts and
distributors as well as industrial OEM customers. These categories of customers require very different selling
approaches and support requirements, and we have organized our sales teams to address these different requirements.
Additionally, certain customers often have unique technical requirements and manufacturing processes, and may
request specific product configurations, feature sets and designs. Sales to large enterprise customers often involve
complex program management and long sales cycles, and require close cooperation between sales, operations and
engineering personnel. As such, we have developed teams of key account managers and business development
managers to serve the unique requirements of these customers.
We also actively sell our products in certain markets through our LoJack subsidiaries, independent sales
representatives and distributors. We have entered into agreements with substantially all of our distributors. In some
cases, we have granted representatives and distributors exclusive authorization to sell certain products in a specific
geographic area. These agreements generally have terms of one year, which automatically renew on an annual basis,
and are generally terminable by either party for convenience following a specified notice period.
We expect that our reputation for providing innovative and high-quality products will continue to play a
significant role in our growth and success, and that high customer satisfaction will continue to fuel referrals of our
brand to new customers. Through our trademarked name – CalAmp – we have built a highly recognizable brand in
the global enterprise asset tracking and fleet management market verticals. Also, in connection with the acquisition of
LoJack, we acquired a highly recognizable consumer-facing brand in the global connected vehicle market.
We will continue our investment in sales and marketing programs that further build brand awareness, drive
deeper customer engagement and foster long-term relationships with our customers. Our marketing programs are now
focused on supporting multi-channel product launches in new geographic markets. With the recent acquisitions, we
will drive additional sales through our Tracker and LoJack Mexico subsidiaries, which will be a primary focus
throughout fiscal 2021.
Additionally, we are focused on maximizing our efficiency and reach of our marketing spend by investing in
public relations, social media and digital marketing programs. These programs are developed to educate our potential
customers and other industry influencers to fuel active engagement with our products and services. Our activities
around public relations, thought leadership, social media and digital marketing will be aligned with our customary
product launches, media campaigns and presence at tradeshows and high exposure venues such as Mobile World
Congress in Barcelona, Spain, Mobile World Congress Americas in Los Angeles among other high-profile industry
events. Notably, Mobile World Congress Barcelona 2020, due to be held in late February 2020, was cancelled amid
the coronavirus outbreak.
Our revenues derived from customers in the U.S. represented 73%, 74% and 73% of consolidated revenues in
fiscal years ended February 29, 2020, February 28, 2019 and 2018, respectively.
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Competition
Our markets are highly competitive. We face competition from small to large public and private competitors
some of which have greater financial, distribution, marketing and other resources as well as greater economies of scale
than we do. We believe the principal competitive factors impacting the market for our products and services are global
scale, innovation, reputation, customer service, product quality, functionality and reliability, time-to-market,
responsiveness and price. We believe that we compete favorably in all of these areas. Our continued success in our
vertical markets will depend in part upon our ability to continue to innovate, design quality products and deploy
solutions at competitive prices and with superior support services to our customers.
Some of the more established competitors for telematics systems and related connected products include
Danlaw, Mobile Devices, Orbcomm, Quake Global, Queclink, Sierra Wireless, Spireon, Teltonika, Inseego, and
Xirgo. Additionally, the market for Software and Subscription Services is also highly competitive and includes well-
established companies such as Geotab, Samsara, Octo Telematics, Omnitracs, OnStar, Trimble, Verizon Connect and
Zonar Systems as well as numerous smaller players.
BACKLOG
Total backlog for our hardware products as of February 29, 2020 and February 28, 2019 was $30.9 million and
$18.4 million, respectively. Substantially all of the backlog at February 29, 2020 is expected to be shipped in fiscal
2021. Our backlog for hardware products increased year-over-year as we experienced significant supply shortages
which were primarily attributable to significantly impaired production capacity from our one remaining Chinese
supplier resulting from the coronavirus outbreak. We also experienced other supply shortages due to supply chain
transitions, coupled with extended lead times on raw materials and components sourced from China, but used
elsewhere in our global supply chain.
INTELLECTUAL PROPERTY
Intellectual property is an important aspect of our business, and we seek protection for our intellectual property
as appropriate. We rely upon a combination of patent, trade secret, and trademark laws and contractual restrictions,
such as confidentiality agreements and licenses, to establish and protect our proprietary rights. In addition, we often
rely on inbound licenses of intellectual property for use in our business.
We own and utilize the tradenames “CalAmp” and “LoJack” as well as the related logos and trademarks on all
of our products and solutions. We believe that having distinctive marks that are registered and readily identifiable is
an important factor in identifying our brand. We own 223 active trademark applications and registrations throughout
the world, with 35 pending and registered trademarks in the U.S.
In addition to the foregoing protections, we generally control access to and the use of our proprietary and other
confidential information through the use of internal and external controls, including contractual protections with
employees, manufacturers, and others. We will continue to file and prosecute patent applications when appropriate to
attempt to protect our rights in our proprietary technologies.
As of February 29, 2020, we had 84 U.S. patents and 221 foreign patents. In addition to our awarded patents,
we have 55 patent applications in process. Although a number of these trademarks, copyrights, and patents relate to
software and products that are significant to our business and operations, we do not believe we are dependent on a
single trademark, copyright or patent.
ENVIRONMENTAL REGULATION
We are subject to a variety of U.S. and foreign laws and regulations in connection with our operations and
relating to the protection of the environment, including those governing discharges of pollutants into the air and water,
the management and disposal of hazardous substances and the clean-up of contaminated sites. Some of our operations
require environmental permits and controls to prevent and reduce air and water pollution. These permits are subject
to modification, renewal and revocation by issuing authorities. We believe that we have obtained or are in the process
of obtaining all necessary environmental permits for our operations.
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We have established environmental management systems and continually update our environmental policies
and standard operating procedures for our operations worldwide. We believe that our operations are in material
compliance with applicable environmental laws, regulations and permits. We budget for operating and capital costs
on an ongoing basis to comply with environmental laws.
CORPORATE RESPONSIBILITY AND SUSTAINABILITY
We believe responsible and sustainable business practices support our long-term success. As a company, we are
deeply committed to protecting and supporting our people, our environment, and our communities. That commitment
is reflected through sustainability-focused initiatives as well as day-to-day activities, including our adoption of
sustainability-focused policies and procedures, our publicly-recognized focus on fostering an inclusive workplace, our
constant drive toward more efficient use of materials and energy, our careful and active management of our supply
chain, our products which help reduce carbon footprints and enhance road safety, and our impactful, globally-
integrated ethics and compliance program.
•
•
•
•
We seek to protect the human rights and civil liberties of our employees through policies, procedures, and
programs that avoid risks of compulsory and child labor, both within our company and throughout our
supply chain.
We foster a workplace of dignity, respect, diversity, and inclusion through our recruiting and advancement
practices, internal communications, and employee resource groups.
We educate our employees annually on relevant ethics and compliance topics, publish accessible guidance
on ethical issues and related company resources in our global Code of Business Conduct and Ethics, and
encourage reporting of ethical concerns through any of several global and local reporting channels.
We innovate to reduce the energy used by our products, the energy used to manufacture them, and the
amount of new materials required to manufacture them.
EMPLOYEES
As of February 29, 2020, we had approximately 1,080 employees and 10 contracted workers. None of our
employees or contract workers are represented by a labor union. The contracted production workers are engaged
through independent temporary labor agencies.
EXECUTIVE OFFICERS
Our executive officers are as follows:
NAME
Jeffery Gardner
Kurtis Binder
Arym Diamond
Anand Rau
AGE
60
49
41
57
POSITION
Interim President and Chief Executive Officer
Executive Vice President and Chief Financial Officer
Senior Vice President and Chief Revenue Officer
Senior Vice President, Engineering
JEFFERY GARDNER was appointed as our Interim President and CEO on March 25, 2020, and has served as
a member of CalAmp’s Board since 2015. He most recently served as the President and CEO of Brinks Home Security
from 2015 until February 2020. Mr. Gardner also served as President and CEO of Windstream Corporation, a leading
provider of advanced network communications and technology solutions, including cloud computing and managed
services. Before joining Windstream, Mr. Gardner served as Executive Vice President and CFO of Alltel Corp. Earlier
in his career, Mr. Gardner held a variety of senior management positions at 360 Communications, which merged with
Alltel in 1998.
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KURTIS BINDER joined us in July 2017 and serves as our Executive Vice President and Chief Financial
Officer. Prior to joining our company, he served as the Chief Financial Officer at VIZIO, Inc., a television and
consumer electronics company headquartered in the United States since April 2010. Prior to joining VIZIO, Mr.
Binder served as the Chief Accounting Officer for Applied Medical Resources, Inc. since December 2009. Mr. Binder
was also employed in the assurance practice of Ernst & Young LLP from October 1997 to July 2009 and served as an
Assurance and Advisory Business Services Partner.
ARYM DIAMOND is the Senior Vice President and Chief Revenue Officer responsible for the customer
experience related to sales and support. Mr. Diamond joined CalAmp in March 2020 and brings over 20 years of
experience in the enterprise software and consulting industry. Before joining CalAmp, he was part of the sales
leadership team within Salesforce.com’s Einstein Analytics group where analytics and machine learning were re-
imagined for the front office. Prior to that, he spent over 10 years at Oracle in various sales roles, which included
being part of sales organizational alignment that came from multiple acquisitions as well as a shift from on premise
to cloud-based subscriptions.
ANAND RAU is the Senior Vice President of Engineering responsible for all software and hardware product
development and quality. Mr. Rau joined CalAmp in 2015 and brings 25 years of strategic management experience in
delivering enterprise-class, mission-critical applications and platforms across several industry verticals including
telematics, supply chain, physical resource management, industrial automation and medical products. Prior to
CalAmp, Mr. Rau was the CTO at MarginPoint, a mobile inventory management and supply chain solutions company.
Mr. Rau also led product development and quality assurance as Vice President of Engineering at Accruent Inc., a
leader in the physical resource management vertical. He was also the co-founder and Vice President of Engineering
at RiverOne (acquired by i2 technologies), where he led the team that built a supply chain solution that was adopted
by companies representing approximately 25% of the global electronics industry. Rau started his career with Hewlett
Packard Company in the Medical Products group, and has led the innovation and launch of technologically advanced
enterprise solutions serving many markets.
Our executive officers are appointed by and serve at the discretion of the Board of Directors.
AVAILABLE INFORMATION
Our primary Internet address is www.calamp.com. We make our U.S. Securities and Exchange Commission
(“SEC”) periodic reports (Forms 10-Q and Forms 10-K) and current reports (Forms 8-K) available free of charge
through our website as soon as reasonably practicable after they are filed electronically with the SEC. Within the
Investor Relations section of our website, we provide information concerning corporate governance, including our
Corporate Governance Guidelines, Board committee charters and composition, Code of Business Conduct and Ethics,
and other information. The content of our website is not incorporated by reference into this Annual Report on Form
10-K or into any other report or document we file with the SEC, and any references to our websites are intended to be
inactive textual references only.
Materials that we file with the SEC may be read and copied at the SEC's Public Reference Room at 100 F Street,
NE, Washington, D.C. 20549. Information on the operation of the Public Reference Room may be obtained by calling
the SEC at 1-800-SEC-0330. The SEC also maintains an Internet website at http://www.sec.gov that contains reports,
proxy and information statements, and other information that we file electronically with the SEC.
ITEM 1A. RISK FACTORS
We operate in a rapidly changing environment that involves a number of risks and uncertainties, some of which
are beyond our control. The following list describes several risk factors, which are applicable to our business and
speaks as of the date of this document. These and other risks could have a material adverse effect on our business,
results of operations, financial condition, and cash flows and the trading price of our common stock. The risks and
uncertainties described below are not the only ones we face. Additional risks and uncertainties that we are unaware
of, or that we currently believe are not material, may also become important factors that affect us.
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Our accelerated supply chain diversification program, component shortages and uncertainty in international trade
relations with China may adversely impact us and have a material adverse effect on our financial condition or
results of operations.
We accelerated our supply chain diversification program to transition our manufacturing to tier one global
contract manufacturers with facilities outside of China. This program was initiated against the backdrop of the
escalation of trade tensions between the U.S. and China. These factors attributed to various supply disruptions,
including component shortages, in the third and fourth quarter of fiscal 2020. Although we are taking steps to address
these matters, the related operational challenges and supply chain disruptions may persist for some time.
The Coronavirus (COVID-19) pandemic could have a material adverse impact on our business, results of
operations and financial condition.
In December 2019, a novel strain of coronavirus disease (“COVID-19”) was first reported in Wuhan, China.
Less than four months later, on March 11, 2020, the World Health Organization declared COVID-19 a pandemic—
the first pandemic caused by a coronavirus. The outbreak has reached more than 160 countries, resulting in the
implementation of significant governmental measures, including lockdowns, closures, quarantines and travel bans,
intended to control the spread of the virus. The COVID-19 outbreak has already caused severe global disruptions. In
response to the virus, China and Italy (where we have a subsidiary in Milan) placed tens of millions of people under
lockdown. Spain and France also recently implemented lockdown measures, and other countries and local
governments may enact similar policies. As of April 30, 2020, the United States has temporarily restricted travel by
foreign nationals into the country from a number of places, including China and Europe. In addition, on March 18,
2020, the U.S. and Canada agreed to restrict all nonessential travel across the border. We, and other companies, are
also taking precautions, such as requiring employees to work remotely and imposing travel restrictions. These
restrictions, and future prevention and mitigation measures, are likely to have an adverse impact on global economic
conditions and consumer confidence and spending, which could materially adversely affect the supply and demand
for our products and solutions. Uncertainties regarding the economic impact of COVID-19 is likely to result in
sustained market turmoil, which could also negatively impact our business, financial condition and cash flows. This
pandemic could negatively affect our ability to sell-through our backlog. Our ability to manage normal commercial
relationships with our suppliers, contract manufacturers, and customers may suffer. Our customers could shift
purchases to lower-priced or other perceived value offerings during the pandemic-caused economic downturn as a
result of various factors, including workforce reductions, reduced access to credit, and changes in federal economic
policy. In particular, customers may become more conservative in response to these conditions and seek to reduce
their purchases and inventories. Our results of operations depend upon, among other things, our ability to maintain
and increase sales volume with our existing customers, our ability to attract new consumers, and the financial condition
of our customers. Decreases in demand for our products and solutions without a corresponding decrease in costs would
put downward pressure on our margins and would negatively impact our financial results.
Governmental organizations, such as the U.S. Centers for Disease Control and Prevention and state and local
governments, have recommended and/or imposed increased community-based interventions, including event
cancellations, social distancing measures, and restrictions on gatherings of more than ten people. The governors of
several states have temporarily closed bars and restaurants, and others may follow suit. As of April 30, 2020, California
and New York residents were under a shelter-in-place order. On March 30, 2020, President Trump announced a
shelter-in-place extension through April 30, 2020. In the future, government authorities may impose similar and/or
additional restrictions on people’s movement, public gatherings and businesses. The extent of COVID-19’s effect on
our operational and financial performance will depend on future developments, including the duration, spread and
intensity of the outbreak, all of which are uncertain and difficult to predict considering the rapidly evolving landscape.
As a result, it is not currently possible to ascertain the overall impact of COVID-19 on our business. However, if the
pandemic continues to evolve into a severe worldwide health crisis, the disease could have a material adverse effect
on our business, results of operations, financial condition and cash flows and adversely impact the trading price of our
common stock.
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We generally do not have long-term contracts with customers and our customers may cease purchasing our
products and services at any time, which could negatively affect our business, financial condition or results of
operations.
We generally do not have long-term contracts with our customers. As a result, our agreements with our
customers generally do not provide us with any assurance of future sales. These customers can cease purchasing
products and services from us at any time without penalty, are free to purchase products and services from our
competitors, may expose us to competitive price pressure on each order and are not required to make minimum
purchases. Any of these actions taken by our customers could have a material adverse effect on our business, financial
condition or results of operations.
Because some of our components, assemblies and electronics manufacturing services are purchased from sole
source suppliers or require long lead times, our business is subject to unexpected interruptions, which could cause
our operating results to suffer.
Some of our key components are complex to manufacture and have long lead times. In the event of a reduction
or interruption of supply, or degradation in quality, it could take up to six months to begin receiving adequate supplies
from alternative suppliers, if any. As a result, product shipments could be delayed and revenues and profitability could
suffer. Furthermore, if we receive a smaller allocation of component parts than is necessary to manufacture products
in quantities sufficient to meet customer demand, customers could choose to purchase competing products and we
could lose market share. Any of these events could have a material adverse effect on our business, financial condition
or results of operations.
Because we depend on a few significant customers for a substantial portion of our revenues, the loss or significant
decline or slowdown in growth in business of any of these customers could have an adverse effect on our business,
financial condition or results of operations.
Our revenues depend on a small number of significant customers and some of them represent more than 10%
of our total revenues in fiscal year 2020, 2019 and 2018 (see Note 3 to our consolidated financial statements). They
are also expected to represent a substantial portion of our revenues in the near future. As a result, the loss of any one
of these customers, or decline or slowdown in the growth in business of these customers, could have a material adverse
effect on our business, financial condition and results of operations. In addition, because service revenue depends
either partially or entirely on the usage levels of data transmission by our customers and end users, the decline or
slowdown in the growth of usage patterns of these customers, which has and could continue to occur at any time and
with or without a reduction in the number of our subscriber basis could have a material adverse effect on our business,
financial condition and results of operations.
Dependence on a limited number of contract manufacturers and suppliers of manufacturing services and critical
components within our supply chain may adversely affect our ability to bring products to market, damage our
reputation and adversely affect our results of operations.
We operate a primarily outsourced manufacturing business model that utilizes contract manufacturers. We
depend on a limited number of contract manufacturers to allocate sufficient manufacturing capacity to meet our needs,
to produce products of acceptable quality at acceptable yields, and to deliver those products to us on a timely basis. In
such circumstances, we may be unable to meet our customer demand and may fail to meet our contractual obligations.
This could result in the payment of significant damages by us to our customers and our net revenue could decline,
which could adversely affect our business, financial condition and results of operations. Any substantial disruption in
our contract manufacturers’ supply as a result of a pandemic, natural disaster, trade wars, political unrest, economic
instability, equipment failure or other cause, could materially harm our business, customer relationships and results of
operations.
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Because the markets in which we compete are highly competitive and some of our competitors have greater
resources than us, we cannot be certain that our products and services will continue to be accepted in the
marketplace or capture increased market share.
The markets for our products and services are intensely competitive and characterized by rapid technological
change, evolving standards, short product life cycles, and price erosion. Given the highly competitive environment in
which we operate, we cannot be sure that any competitive advantages currently enjoyed by our products and services
will be sufficient to establish and sustain our products and services in the markets we serve. Any increase in price or
other competition could result in erosion of our market share, to the extent we have obtained market share, and could
have a negative impact on our financial condition and results of operations. We cannot provide assurance that we will
have the financial resources, technical expertise or marketing and support capabilities to compete successfully. We
expect competition to intensify in the future with the introduction of new technologies and market entrants and with
the possible consolidation of competitors.
Information about our competitors is included in Part I, Item 1 of this Annual Report on Form 10-K under the
heading “COMPETITION”.
If demand for our products and services fluctuates rapidly and unpredictably, it may be difficult to manage our
business efficiently, which may result in reduced gross margins and profitability.
Our cost structure is based in part on our expectations for future demand. Many costs, particularly those relating
to capital equipment and manufacturing overhead, are largely fixed. Rapid and unpredictable shifts in demand for our
products and services may make it difficult to plan production capacity and business operations efficiently. If demand
is significantly below expectations, we may be unable to rapidly reduce these fixed costs, which can diminish gross
margins and cause losses. A sudden downturn may also leave us with excess inventory, which may be rendered
obsolete if products and services evolve during the downturn and demand shifts to newer products and services. Our
ability to reduce costs and expenses may be further constrained because we must continue to invest in research and
development to maintain our competitive position and to maintain service and support for our existing customer base.
Conversely, in the event of a sudden upturn, we may incur significant costs to rapidly expedite delivery of components,
procure scarce components and outsource additional manufacturing processes. These costs could reduce our gross
margins and overall profitability. Any of these results could adversely affect our business, financial condition or results
of operations.
Any acquisitions we pursue could disrupt our business and harm our financial condition and results of operations.
As part of our business strategy, we review and intend to continue to review acquisition opportunities that we
believe would be advantageous or complementary to the development of our business. In fiscal 2017, we acquired
LoJack. In fiscal 2019, we acquired Tracker and in the first quarter of fiscal 2020, we acquired LoJack Mexico and
Synovia, and we may acquire additional businesses, assets, or technologies in the future. If we make any acquisitions,
we could take any or all of the following actions, any one of which could adversely affect our business, financial
condition, results of operations or share price:
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
use a substantial portion of our available cash;
require a significant devotion of management’s time and resources in the pursuit or consummation of any
acquisition;
incur substantial debt, which may not be available to us on favorable terms and may adversely affect our
liquidity;
issue equity or equity-based securities that would dilute existing stockholders’ ownership percentage;
assume contingent liabilities; and
take substantial charges in connection with acquired assets.
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Acquisitions also entail numerous other risks, including, without limitation: difficulties in assimilating acquired
operations, products, technologies and personnel; unanticipated costs; diversion of management’s attention from
existing operations; risks of entering markets in which we have limited or no prior experience; and potential loss of
key employees from either our existing business or the acquired organization. Acquisitions may result in substantial
accounting charges for restructuring and other expenses, amortization of purchased technology and intangible assets
and stock-based compensation expense, any of which could materially and adversely affect our operating results. We
may not be able to realize the anticipated benefits of or successfully integrate with our existing business the businesses,
products, technologies or personnel that we acquire, and our failure to do so could harm our business and operating
results.
Any acquisitions we make and industry consolidation could adversely affect our existing business relationships
with our suppliers and customers.
If we make any acquisitions, our existing business relationships with our suppliers and customers could be
adversely affected. Moreover, our industry is being affected by the trend toward consolidation and the creation of
strategic relationships. If we are unable to successfully adapt to this rapidly changing environment, we could suffer a
reduction in the volume of business with our customers and suppliers, or we could lose customers or suppliers entirely,
which could materially and adversely affect our financial condition and operating results.
Our success depends on the attraction and retention of senior management and technical personnel with relevant
expertise.
As a competitor in a highly technical market, we depend heavily upon the efforts of our existing senior
management and technical teams. The loss of the services of one or more members of these teams could slow product
and services development and commercialization objectives. Due to the specialized nature of our products and
services, we also depend upon our ability to attract and retain qualified technical personnel with substantial industry
knowledge and expertise. Competition for qualified personnel is intense, and we may not be able to continue to attract
and retain qualified personnel necessary for the development of our business.
Our business is subject to many factors that could cause our quarterly or annual operating results to fluctuate and
our stock price to be volatile.
Our quarterly and annual operating results have fluctuated in the past and may fluctuate significantly in the
future due to a variety of factors, many of which are outside of our control. A majority of our product orders are
shipped in the final month of the quarter and a significant amount in the last two weeks of the quarter. Some of the
other factors that could affect our quarterly or annual operating results include:
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the timing and amount, or cancellation or rescheduling, of orders for our products or services;
our ability to develop, introduce, ship and support new products, services and enhancements, and manage
product and services transitions;
announcements of new product and service introductions and reductions in the price of products and
services offered by our competitors;
our ability to achieve cost reductions;
our ability to obtain sufficient supplies of sole or limited source components for our products;
our ability to achieve and maintain production volumes and quality levels for our products;
our ability to maintain the volume of products and services sold and the mix of distribution channels
through which they are sold;
the loss of any one of our major customers or a significant reduction in orders from those customers;
increased competition, particularly from larger, better capitalized competitors;
fluctuations in demand for our products and services; and
changes in telecommunications and wireless market conditions specifically and economic conditions
generally, including as a result of a pandemic or other catastrophic event.
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Due in part to factors such as the timing of product release dates, purchase orders and product availability,
significant volume shipments of products could occur close to the end of a fiscal quarter. Failure to ship products by
the end of a quarter may adversely affect operating results. In the future, our customers may delay delivery schedules
or cancel their orders without notice. Due to these and other factors, our quarterly revenue, expenses and results of
operations could vary significantly in the future, and period-to-period comparisons should not be relied upon as
indications of future performance.
If we do not meet product and services introduction deadlines, our business could be adversely affected.
In the past, we have experienced design and manufacturing difficulties that have delayed the development,
introduction or marketing of new products, services and enhancements and which caused us to incur unexpected
expenses and lost revenue. In addition, some of our existing customers have conditioned their future purchases of our
products and services on the addition of new features. In the past, we have experienced delays in introducing some
new product features. Furthermore, in order to compete in some markets, we will have to develop different versions
of existing products and services that comply with diverse, new or varying governmental regulations in each market.
Our inability to develop new products, services, product features on a timely basis, or the failure of new products,
services or features to achieve market acceptance, could adversely affect our business.
If our introduction of a DaaS subscription model is not embraced by enterprise customers, our business could be
adversely affected.
We recently introduced an innovative Device-as-a-Service (“DaaS”) subscription business model for certain
products that enables enterprise customers to leverage more of our research and development investments and full
portfolio of connected car software services to lower their business costs and drive new revenue streams from
subscription services. If our enterprise customers do not broadly embrace this business model, it could adversely affect
our business, financial condition, or results of operations.
Because we currently sell, and we intend to grow the sales of, certain of our products and services in countries
other than the U.S., we are subject to different regulatory policies. We may not be able to develop products and
services that comply with the standards of different countries, which could result in our inability to sell our products
and services and further, we may be subject to political, economic, and other conditions affecting such countries,
which could result in reduced sales of our products and services and which could adversely affect our business.
If our sales are to grow in the longer term, we believe we must grow our international business. Many countries
require communications equipment used in their country to comply with unique regulations, including safety
regulations, radio frequency allocation schemes and standards. If we cannot develop products that work with different
standards, we will be unable to sell our products and services in those locations. If compliance proves to be more
expensive or time consuming than we anticipate, our business would be adversely affected. Some countries have not
completed their radio frequency allocation process and therefore we do not know the standards with which we would
be required to comply. Furthermore, standards and regulatory requirements are subject to change. If we fail to
anticipate or comply with these new standards, our business and results of operations will be adversely affected.
Sales to customers outside the U.S. accounted for 27.2%, 26.2% and 27.4% of our total sales for fiscal years
ended February 29, 2020, February 28, 2019 and 2018, respectively. Assuming that we continue to sell our products
and services to foreign customers, which is our expectation, we will be subject to the political, economic and other
conditions affecting countries or jurisdictions other than the U.S., including those in Latin America, Africa, the Middle
East, Europe and Asia. Any interruption or curtailment of trade between the countries in which we operate and our
present trading partners, changes in exchange rates, significant shift in U.S. trade policy toward these countries, or
significant downturn in the political, economic or financial condition of these countries, could cause demand for and
sales of our products and services to decrease, or subject us to increased regulation including future import and export
restrictions, any of which could adversely affect our business.
Additionally, a substantial portion of our products, components and subassemblies are currently procured from
foreign suppliers located primarily in Hong Kong, mainland China, Malaysia and other Pacific Rim countries. Any
significant shift in U.S. trade policy toward these countries or a significant downturn in the political, economic or
financial condition of these countries could cause disruption of our supply chain or otherwise disrupt operations, which
could adversely affect our business.
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Our global operations and continued international expansion expose us to risks and challenges associated with
conducting business internationally.
We face several risks inherent in conducting business internationally, including compliance with international
and U.S. laws and regulations that apply to our international operations. These laws and regulations include data
privacy requirements, labor relations laws, tax laws, competition regulations, import and trade restrictions, economic
sanctions, export requirements, U.S. laws such as the Foreign Corrupt Practices Act, the UK Bribery Act 2010 and
other local laws that prohibit payments to governmental officials or certain payments or remunerations to customers.
Given the high level of complexity of these laws there is a risk that some provisions may be breached by us, for
example through fraudulent or negligent behavior of individual employees, our failure to comply with certain formal
documentation requirements, or otherwise. Violations of these laws and regulations could result in fines, criminal
sanctions against us, our officers or our employees, requirements to obtain export licenses, cessation of business
activities in sanctioned countries, implementation of compliance programs, or prohibitions on the conduct of our
business. Any such violations could include prohibitions on our ability to offer our products or services in one or more
countries and could materially damage our reputation, our brand, our international expansion efforts, ability to attract
and retain employees, business or operating results.
Additionally, the announcement of the Referendum of the U.K.’s Membership of the European Union (referred
to as Brexit), advising for the exit of the U.K. from the European Union, could cause disruptions to and create
uncertainty surrounding our business, particularly given our recent efforts to expand our business throughout Europe
through our acquisition of Tracker UK. Brexit could affect our relationships with our existing and future customers,
suppliers and employees, which could in turn have an adverse effect on our business, financial results and operations.
Disruptions in global credit and financial markets could materially and adversely affect our business and results
of operations.
There is significant uncertainty about the stability of global credit and financial markets. Credit market
dislocations could cause interest rates and the cost of borrowing to rise or reduce the availability of credit, which could
negatively affect customer demand for our products and services if they responded to such credit market dislocations
by suspending, delaying or reducing their capital expenditures. Moreover, since we currently generate more than 25%
of our revenues outside the U.S., fluctuations in foreign currencies can have an impact on demand for our products
and services for which the sales are generally denominated in U.S. dollars.
Ongoing changes to U.S. tax, tariff and import/export regulations may have a negative effect on global economic
conditions, financial markets and our business.
We import certain products and components from suppliers in China. In 2018, the Office of the U.S. Trade
Representative (the “USTR”) enacted tariffs on imports into the U.S. from China, resulting in ongoing trade tensions.
Although some of the products and components we import are affected by the tariffs, at this time, we do not expect
these tariffs to have a material impact on our business, financial condition or results of operations. However, it is
possible that further tariffs may be imposed on imports of our products, or that our business will be impacted by
retaliatory trade measures taken by China or other countries in response to existing or future tariffs, causing us to raise
prices or make changes to our operations, any of which could have a negative impact on our revenue or operating
results.
We may not be able to adequately protect our intellectual property, and our competitors may be able to offer similar
products and services that would harm our competitive position.
Our ability to succeed in wireless data communications markets may depend, in large part, upon our intellectual
property for some of our wireless technologies. We currently rely primarily on patents, trademark and trade secret
laws, confidentiality procedures and contractual provisions to establish and protect our intellectual property. However,
these mechanisms provide us with only limited protection. We currently hold 84 U.S. patents and 221 foreign patents.
As part of our confidentiality procedures, we enter into non-disclosure and invention assignment agreements with all
employees, including officers, managers and engineers. Despite these precautions, third parties could copy or
otherwise obtain and use our technology without authorization, or develop similar technology independently.
Furthermore, effective protection of intellectual property rights is unavailable or limited in some foreign countries.
The protection of our intellectual property rights may not provide us with any legal remedy should our competitors
independently develop similar technology, duplicate our products and services, or design around any intellectual
property rights we hold.
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We rely on access to third-party patents and intellectual property, and our future results could be materially and
adversely affected if we are unable to secure such access in the future.
Many of our products and services are designed to include third-party intellectual property, and in the future,
we may need to seek or renew licenses relating to such intellectual property. Although we believe that, based on past
experience and industry practice, such licenses generally can be obtained on reasonable terms, there is no assurance
that the necessary licenses would be available on acceptable terms or at all. Some licenses we obtain may be
nonexclusive and, therefore, our competitors may have access to the same technology licensed to us. If we fail to
obtain a required license or are unable to design around a patent where we do not hold a license, we may be unable to
sell some of our hardware solutions and services, and there can be no assurance that we would be able to design and
incorporate alternative technologies, without a material adverse effect on our business, financial condition, and results
of operations.
Our competitors have or may obtain patents that could restrict our ability to offer our products, software and
services, or subject us to additional costs, which could impede our ability to offer our products, software and services
and otherwise adversely affect us. In addition, third parties may claim that we infringe their intellectual property
and proprietary rights and may prevent us from manufacturing and selling some of our products and services and
subject us to litigation over intellectual property rights or other commercial issues.
Several of our competitors have obtained and can be expected to obtain patents that cover products, software
and services directly or indirectly related to those offered by us. There can be no assurance that we are aware of all
existing patents held by our competitors or other third parties containing claims that may pose a risk of our
infringement on such claims by our products, software and services. In addition, patent applications in the U.S. may
be confidential until a patent is issued and, accordingly, we cannot evaluate the extent to which our hardware solutions,
software and services may infringe on future patent rights held by others.
Even with technology that we develop independently, a third party may claim that we are using inventions
claimed by their patents and may initiate litigation to stop us from engaging in our normal operations and activities,
such as engineering and development and the sale of any of our products, software and services. Furthermore, because
of rapid technological changes in the mobile resource management (“MRM”) and IoT marketplaces, current extensive
patent coverage, and the rapid issuance of new patents, it is possible that certain components of our products, software,
services, and business methods may unknowingly infringe the patents or other intellectual property rights of third
parties. From time to time, we have been notified that we may be infringing such rights.
In the highly competitive and technology-dependent telecommunications field in particular, litigation over
intellectual property rights is a significant business risk, and some third parties (referred to as non-practicing, or patent-
assertion, entities) are pursuing a litigation strategy with the goal of monetizing otherwise unutilized intellectual
property portfolios via licensing arrangements entered into under threat of continued litigation. These lawsuits relate
to the validity, enforceability, and infringement of patents or proprietary rights of third parties. We may have to defend
ourselves against allegations that we violated patents or proprietary rights of third parties.
Regardless of merit, responding to such litigation may be costly, unpredictable, time - consuming, and often
involves complex legal, scientific, and factual questions, and could divert the attention of our management and
technical personnel. In certain cases, we may consider the desirability of entering into such licensing agreements or
arrangements, although no assurance can be given that these licenses can be obtained on acceptable terms or that
litigation will not occur. If we are found to be infringing any intellectual property rights, we could lose our right to
develop, manufacture, or market products and services, product and services launches could be delayed, or we could
be required to pay substantial monetary damages or royalties to license proprietary rights from third parties. If a
temporary or permanent injunction is granted by a court prohibiting us from marketing or selling certain products,
software and services, or a successful claim of infringement against us requires us to pay royalties to a third party, our
financial condition and operating results could be materially and adversely affected, regardless of whether we can
develop non-infringing technology.
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We may be subject to legal proceedings that could adversely affect our business.
We may be subject to legal claims or regulatory matters involving stockholder, consumer, antitrust, intellectual
property infringement, product liability and other issues. Litigation is subject to inherent uncertainties, including
increases in demands for attention on our management team, and unfavorable rulings could occur. An unfavorable
ruling could include money damages. If an unfavorable ruling were to occur, it could have a material adverse effect
on our business, financial condition and results of operations for the period in which the ruling occurred or future
periods. See also “Item 3 – Legal Proceedings” in Part I of this Annual Report on Form 10-K.
Evolving regulation and changes in applicable laws relating to the Internet may increase our expenditures related
to compliance efforts or otherwise limit the solutions we can offer, which may harm our business and adversely
affect our financial condition.
As Internet commerce continues to evolve, increased regulation by federal, state or foreign agencies becomes
more likely. We are particularly sensitive to these risks because the Internet is a critical component of our SaaS and
DaaS business model. In addition, taxation of services provided over the Internet or other charges imposed by
government agencies or by private organizations for accessing the Internet may be imposed. Any regulation imposing
greater fees for Internet use or restricting information exchange over the Internet could result in a decline in the use
of the Internet and the viability of Internet-based services, which could harm our business.
Evolving regulation relating to data privacy may increase our expenditures related to compliance efforts or
otherwise limit the solutions we can offer, which may harm our business and adversely affect our financial
condition.
Our products and solutions enable us to collect, manage and store a wide range of data related to fleet
management such as vehicle location and fuel usage, speed and mileage and, in the case of our field service application,
includes customer information, job data, schedule, invoice and other information. A valuable component of our
solutions is our ability to analyze this data to present the user with actionable business intelligence. We obtain our
data from a variety of sources, including our customers and third-party providers. The U.S. and various state
governments (including the California Consumer Privacy Act of 2018) have adopted or proposed limitations on the
collection, distribution and use of personal information. Several foreign jurisdictions, including the European Union
and the United Kingdom, have adopted legislation (including directives or regulations) that increase or change the
requirements governing data collection and storage in these jurisdictions. Proposed or new legislation and regulations
could also significantly affect our business. There currently are a number of proposals pending before federal, state,
and foreign legislative and regulatory bodies. In addition, the new European Union General Data Protection Regulation
(“GDPR”) took effect in May 2018. The GDPR includes operational requirements for companies that receive or
process personal data of residents of the European Union. For example, we may be required to obtain consent and/or
offer new controls to existing and new users in Europe before processing data. In addition, the GDPR includes
significant penalties for non-compliance.
Violations of these laws, or allegations of such violations, could subject us to litigation, regulatory
investigations, cash and non-cash penalties for noncompliance, disrupt our operations, involve significant
management distraction and result in a material adverse effect on our business, financial condition and results of
operations. Moreover, if future laws and regulations limit our customers’ ability to use and share this data, or our
ability to store, process and share data with our customers over the Internet, demand for our solutions could decrease,
our costs could increase, and our results of operations and financial condition could be harmed.
We may be subject to breaches of our information technology systems, which could damage our reputation, vendor,
and customer relationships, and our customers’ access to our services.
Our presence in the IoT industry with offerings of telematics products and services, including vehicle telematics,
could also increase our exposure to potential costs and expenses and reputational harm in the event of cyber-attacks
impacting these products or services. Our business operations require that we use and store sensitive data, including
intellectual property, proprietary business information and personally identifiable information, in our secure data
centers and on our networks. We face a number of threats to our data centers and networks in the form of unauthorized
access, security breaches and other system disruptions. It is critical to our business strategy that our infrastructure
remains secure and is perceived by customers and partners to be secure. We require usernames and passwords in order
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to access our information technology systems. We also use encryption and authentication technologies to secure the
transmission and storage of data. Despite our security measures, our information technology systems may be
vulnerable to attacks by hackers or other disruptive problems. Any such security breach may compromise information
used or stored on our networks and may result in significant data losses or theft of our, our customers’, or our business
partners’ intellectual property, proprietary business information or personally identifiable information. A
cybersecurity breach could negatively affect our reputation by adversely affecting the market’s perception of the
security or reliability of our products or services. In addition, a cyber-attack could result in other negative
consequences, including remediation costs, disruption of internal operations, increased cybersecurity protection costs,
lost revenues or litigation, which could have a material adverse effect on our business, results of operations and
financial condition.
We depend to some extent upon wireless networks owned and controlled by others, unproven business models, and
emerging wireless carrier models to deliver existing services and to grow.
If we do not have continued access to sufficient capacity on reliable networks, we may be unable to deliver
services and our sales could decrease. Our ability to grow and achieve profitability partly depends on our ability to
buy sufficient capacity on the networks of wireless carriers and on the reliability and security of their systems. Some
of our wireless services are delivered using airtime purchased from third parties. We depend on these third parties to
provide uninterrupted service free from errors or defects and would not be able to satisfy our customers’ needs if such
third parties failed to provide the required capacity or needed level of service. In addition, our expenses would increase,
and profitability could be materially and adversely affected if wireless carriers were to significantly increase the prices
of their services. Our existing agreements with the wireless carriers generally have one- to three-year terms. Some of
these wireless carriers are, or could become, our competitors.
Our failure to predict carrier and end user customer preferences among the many evolving wireless industry
standards could hurt our ability to introduce and sell new products and services.
In our industry, it is critical to our success that we accurately anticipate evolving wireless technology standards
and that our products and services comply with these standards in relevant respects. We are currently focused on
engineering and manufacturing products and services that comply with several different wireless standards. Any
failure of our products and services to comply with any one of these or future applicable standards could prevent or
delay their introduction and require costly and time-consuming engineering changes. Additionally, if an insufficient
number of wireless operators or subscribers adopt the standards to which we engineer our products and services, then
sales of our new products and services designed to those standards could be materially harmed.
Our business could be adversely impacted by the interruption, failure or corruption of our proprietary Internet-
based systems that are used to configure and communicate with the wireless tracking and monitoring devices that
we sell.
Our telematics products and software services depend upon Internet-based systems that are proprietary to our
business. These applications, which are hosted at independent data centers and are connected via access points to
cellular networks, are used by our customers and by us to configure and communicate with wireless devices for
purposes of determining location, speed or other conditions of vehicles and other mobile or fixed assets, and to deliver
configuration code or executable commands to the devices. If these Internet-based systems failed or were otherwise
compromised in some way, it could adversely affect the proper functioning of the wireless tracking and monitoring
devices that we sell, and could result in damages being incurred by us as a result of the temporary or permanent
inability of our customers to wirelessly communicate with these devices.
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If we fail to maintain proper and effective internal controls, our ability to produce accurate and timely financial
statements could be impaired, which could harm our operating results, our ability to operate our business and
investors’ views of us.
We are subject to the rules and regulations of the SEC, including those rules and regulations mandated by the
Sarbanes-Oxley Act. Section 404 of the Sarbanes-Oxley Act requires public companies to include in their annual
report a statement of management’s responsibilities for establishing and maintaining adequate internal control over
financial reporting, together with an assessment of the effectiveness of those internal controls. Section 404 also
requires the independent auditors of certain public companies to attest to, and report on, this management assessment.
Ensuring that we have adequate internal financial and accounting controls and procedures in place so that we can
produce accurate financial statements on a timely basis is a costly and time-consuming effort that will need to be
evaluated frequently. Our failure to maintain the effectiveness of our internal controls in accordance with the
requirements of the Sarbanes-Oxley Act could have a material adverse effect on our business. We could lose investor
confidence in the accuracy and completeness of our financial reports, which could have an adverse effect on the price
of our common stock. In addition, if our efforts to comply with new or changed laws, regulations, and standards differ
from the activities intended by regulatory or governing bodies due to ambiguities related to practice, regulatory
authorities may initiate legal proceedings against us and our business may be harmed.
We rely upon Amazon Web Services to operate certain aspects of our service and any disruption of or interference
with our use of the Amazon Web Services operation would impact our operations and our business would be
materially and adversely impacted.
Amazon Web Services (“AWS”) provides a distributed computing infrastructure platform for business
operations, or what is commonly referred to as a “cloud” computing service. We have architected our software and
computer systems so as to utilize data processing, storage capabilities, and other services provided by AWS. Certain
of our SaaS platforms and applications are hosted by AWS. Given this, along with the fact that we cannot easily switch
our AWS operations to another cloud service provider, any disruption of or interference with our use of AWS would
impact our operations and our business would be materially and adversely impacted.
Some of our products are subject to mandatory regulatory approvals in the U.S. and other countries that are subject
to change, which could make compliance costly and unpredictable.
Some of our products are subject to certain mandatory regulatory approvals in the U.S. and other countries in
which it operates. In the U.S., the Federal Communications Commission (“FCC”) regulates many aspects of
communication devices, including radiation of electromagnetic energy, biological safety and rules for devices to be
connected to the telecommunication networks. Although we have obtained the required FCC and various country
approvals for all products it currently sells, there can be no assurance that such approvals can be obtained for future
products on a timely basis, or at all. In addition, such regulatory requirements may change or we may not in the future
be able to obtain all necessary approvals from countries other than the U.S. in which we currently sell our products or
in which we may sell its products in the future.
We may be subject to product liability, warranty and recall claims that may increase the costs of doing business
and adversely affect our business, financial condition and results of operations.
We are subject to a risk of product liability or warranty claims if our products or services actually or allegedly
fail to perform as expected or the use of our products or services results, or are alleged to result, in bodily injury and/or
property damage. While we maintain what we believe to be reasonable limits of insurance coverage to appropriately
respond to such liability exposures, large product liability claims, if made, could exceed our insurance coverage limits
and insurance may not continue to be available on commercially acceptable terms, if at all. There can be no assurance
that we will not incur significant costs to defend these claims or that we will not experience any product liability losses
in the future. In addition, if any of our designed products are, or are alleged to be, defective, we may be required to
participate in recalls and exchanges of such products. The future cost associated with providing product warranties
and/or bearing the cost of repair or replacement of our products could exceed our historical experience and have a
material adverse effect on our business, financial condition and results of operations.
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Our inability to identify the origin of conflict minerals in our products could have a material adverse effect our
business.
Many of our product lines include tantalum, tungsten, tin, gold and other materials that are considered to be
“conflict minerals” under the SEC’s rules. Those rules require public reporting companies to provide disclosure
regarding the use of conflict minerals sourced from the Democratic Republic of the Congo and adjoining countries in
the manufacture of products. Those rules, or similar rules that may be adopted in other jurisdictions, could adversely
affect our costs, the availability of minerals used in our products and our relationships with customers and suppliers.
We may experience significant disruptions in our operations resulting from our enterprise resource planning
system initiatives.
We depend on our information technology systems for the efficient functioning of our global business, including
accounting, billing, data storage, purchasing and inventory management. In order to integrate and enhance our global
operations, we initiated the phased implementation of an ERP system across our global operating locations to support
our operations. The implementation of this ERP system required, and will continue to require, the investment of human
and financial resources. We have incurred and expect to incur additional expenses as we continue to implement,
enhance and develop our ERP system. As a result of our ERP initiatives, we may encounter difficulties in operating
our business, which could disrupt our operations, including our ability to timely ship and track customer orders,
determine inventory requirements, manage our supply chain, manage customer billing and adequately service our
customers. If we experience significant disruptions resulting from our ERP initiatives, our business and operations
could be disrupted, including our ability to report accurate and timely financial results. Accordingly, such events may
disrupt or reduce the efficiency of our global operations and have a material adverse effect on our operating results
and cash flows.
Risks Relating to Our Convertible Notes and Indebtedness
We may not have the ability to raise the funds necessary to settle conversions of the convertible notes in cash, repay
the convertible notes at maturity or repurchase the convertible notes upon a fundamental change, and our future
debt may contain limitations on our ability to pay cash upon conversion or repurchase of the convertible notes.
We have two outstanding convertible senior unsecured notes – a $27.6 million aggregate principal amount of
1.625% convertible senior unsecured notes due in May 2020 (“2020 Convertible Notes”) and a $230.0 million
aggregate principal amount of 2.00% convertible senior unsecured notes due in 2025 (“2025 Convertible Notes”, and
collectively with the 2020 Convertible Notes, the “Notes”).
Holders of the 2020 Convertible Notes will have the right to require us to repurchase all or a portion of their
convertible notes upon the occurrence of a fundamental change at a repurchase price equal to 100% of the principal
amount of the convertible notes to be repurchased, plus accrued and unpaid interest, if any. The 2020 Convertible
Notes will be convertible into cash, shares of our common stock or a combination of cash and shares of common
stock, at our election, based on an initial conversion rate of 36.2398 shares of common stock per $1,000 principal
amount of the convertible notes, which is equivalent to an initial conversion price of $27.594 per share of common
stock, subject to customary adjustments. Holders may convert their notes at their option at any time prior to November
15, 2019 upon the occurrence of certain events in the future, as defined in the applicable indenture. During the period
from November 15, 2019 to May 13, 2020, holders may convert all or any portion of their notes regardless of the
foregoing conditions. As of February 29, 2020, none of the holders of the 2020 Convertible Notes elected to convert
since our shares have been trading under the initial conversion price.
Holders of the 2025 Convertible Notes will have the right to require us to repurchase all or a portion of their
convertible notes upon the occurrence of a fundamental change at a repurchase price equal to 100% of the principal
amount of the convertible notes to be repurchased, plus accrued and unpaid interest, if any. The 2025 Convertible
Notes will be convertible into cash, shares of our common stock or a combination of cash and shares of common
stock, at our election, based on an initial conversion rate of 32.5256 shares of common stock per $1,000 principal
amount of the convertible notes, which is equivalent to an initial conversion price of $30.7450 per share of common
stock, subject to customary adjustments. Holders may convert their notes at their option upon the occurrence of certain
events, as defined in the applicable indenture.
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Upon conversion of one or both of the Notes, unless we elect to deliver solely shares of our common stock to
settle such conversion (other than paying cash in lieu of delivering any fractional share), we will be required to make
cash payments in respect of the convertible notes being converted. However, we may not have enough available cash
or be able to obtain financing at the time we are required to make repurchases of the Notes surrendered therefor or
pay cash with respect to the convertible notes being converted or at their maturity.
In addition, our ability to repurchase or to pay cash upon conversions or at maturity of the Notes may be limited
by law, regulatory authority or agreements governing our future indebtedness. Our failure to repurchase the Notes at
a time when the repurchase is required by the applicable indenture or to pay any cash payable on future conversions
of the convertible notes as required by the applicable indenture would constitute a default under the applicable
indenture. A fundamental change under such indenture or a default under the indenture could also lead to a default
under agreements governing our future indebtedness. If the repayment of the related indebtedness were to be
accelerated after any applicable notice or grace periods, we may not have sufficient funds to repay the indebtedness
and repurchase the convertible notes or make cash payments upon conversions thereof.
The conditional conversion feature of the convertible notes, if triggered, may adversely affect our financial
condition and operating results.
In the event the conditional conversion feature of the Notes is triggered, holders of the Notes will be entitled to
convert the Notes at any time during specified periods at their option. If one or more holders elect to convert their
convertible notes, unless we elect to satisfy our conversion obligation by delivering solely shares of our common stock
(other than paying cash in lieu of delivering any fractional share), we would be required to settle a portion or all of
our conversion obligation through the payment of cash, which could adversely affect our liquidity. In addition, even
if holders do not elect to convert their convertible notes, we could be required under applicable accounting rules to
reclassify all or a portion of the outstanding principal of the Notes as a current rather than long-term liability, which
would result in a material reduction of our net working capital.
The accounting method for convertible debt securities that may be settled in cash, such as the convertible notes,
could have a material adverse effect on our reported financial results.
Accounting Standards Codification Subtopic 470-20, Debt with Conversion and Other Options (“ASC 470-
20”), requires an entity to separately account for the liability and equity components of convertible debt instruments
(such as the convertible notes) that may be settled entirely or partially in cash upon conversion in a manner that reflects
the issuer’s non-convertible debt interest rate. Accordingly, the equity component of the convertible notes is required
to be included in the additional paid-in capital section of stockholders’ equity on our consolidated balance sheet, and
the value of the equity component is treated as original issue discount for purposes of accounting for the debt
component of the convertible notes. As a result, we are required to recognize a greater amount of non-cash interest
expense in our consolidated income statements in the current and future periods presented as a result of the
amortization of the discounted carrying value of the convertible notes to their principal amount over the term of the
convertible notes. We report lower net income (or greater net losses) in our consolidated financial results because
ASC 470-20 requires interest to include both the current period’s amortization of the original issue discount and the
instrument’s non-convertible interest rate. This could adversely affect our reported or future consolidated financial
results, the trading price of our common stock and the trading price of the convertible notes.
In addition, under certain circumstances, in calculating earnings per share, convertible debt instruments (such
as the convertible notes) that may be settled entirely or partly in cash are currently accounted for utilizing a method in
which the shares of common stock issuable upon conversion of the convertible notes, if any, are not included in the
calculation of diluted earnings per share except to the extent that the conversion value of the convertible notes exceeds
their principal amount. Under this method, diluted earnings per share is calculated as if the number of shares of
common stock that would be necessary to settle such excess, if we elected to settle such excess in shares, were issued.
We cannot be sure that the accounting standards in the future will continue to permit the use of this method. If we are
unable to use this method in accounting for the shares issuable upon conversion of the convertible notes, if any, then
our diluted consolidated earnings per share could be adversely affected.
26
The capped call, convertible note hedge and warrant transactions may adversely affect the value of our notes
and our common stock.
In connection with the sale of the 2020 Convertible Notes, we entered into convertible note hedge transactions
with certain financial institutions that we refer to as the option counterparties. The convertible note hedge transactions
are expected to offset the potential dilution to our common stock upon any conversion of convertible notes and/or
offset any cash payments we are required to make in excess of the principal amount upon conversion of any convertible
notes. We also entered into warrant transactions with the option counterparties pursuant to which we sold warrants for
the purchase of our common stock. The warrant transactions could separately have a dilutive effect if and to the extent
that the market price per share of our common stock exceeds the applicable strike price of the warrants.
We have been advised that the option counterparties or their respective affiliates may modify their initial hedge
positions by entering into or unwinding various derivatives with respect to our common stock and/or purchasing or
selling our common stock or other securities of ours in secondary market transactions prior to the maturity of the
convertible notes (and are likely to do so during any observation period related to a conversion of convertible notes
or following any repurchase of convertible notes by us in connection with any fundamental change repurchase date or
otherwise). This activity could suppress or inflate the market price of our common stock.
In connection with the sale of the 2025 Convertible Notes, we entered into privately negotiated capped call
transactions with option counterparties. The capped call transactions are expected generally to reduce the potential
dilution to our common stock upon any conversion of the notes and/or offset any potential cash payments we are
required to make in excess of the principal amount of converted notes, as the case may be, with such reduction and/or
offset subject to a cap. In connection with establishing any hedges of the capped call transactions, the option
counterparties or their respective affiliates may enter into various derivative transactions with respect to our common
stock and/or purchase shares of our common stock. This activity could increase (or reduce the size of any decrease in)
the market price of our common stock or the notes at that time. In addition, the option counterparties and/or their
respective affiliates may modify their hedge positions by entering into or unwinding various derivatives with respect
to our common stock and/or purchasing or selling our common stock or other securities of ours in secondary market
transactions prior to the maturity of the notes (and are likely to do so during any observation period related to a
conversion of notes). This activity could also cause or avoid an increase or a decrease in the market price of our
common stock or the notes, which could affect your ability to convert the notes and, to the extent the activity occurs
following conversion or during any observation period related to a conversion of notes, it could affect the amount and
value of the consideration that investors will receive upon conversion of the notes.
The effect, if any, of these activities, including the direction or magnitude, on the market price of our common
stock will depend on a variety of factors, including market conditions, and cannot be ascertained at this time. Any of
these activities could, however, adversely affect the market price of our common stock and the trading price of the
convertible notes.
We are subject to counterparty risk with respect to the convertible note hedge transactions.
The option counterparties are financial institutions or affiliates of financial institutions, and we will be subject
to the risk that one or more option counterparties may default under the capped call and/or convertible note hedge
transactions. Our exposure to the credit risk of the option counterparties will not be secured by any collateral. If any
of the option counterparties becomes subject to insolvency proceedings, we will become an unsecured creditor in
those proceedings with a claim equal to our exposure at the time under those transactions. Our exposure will depend
on many factors but, generally, the increase in our exposure will be correlated to the increase in the market price of
our common stock and in the volatility of the market price of our common stock. In addition, upon a default by an
option counterparty, we may suffer adverse tax consequences and more dilution than we currently anticipate with
respect to our common stock. We can provide no assurances as to the financial stability or viability of any of the option
counterparties.
27
We may incur substantially more debt or take other actions that could diminish our ability to make payments on
the convertible notes.
We and our subsidiaries may be able to incur substantial additional debt in the future, subject to the restrictions
contained in our future debt instruments, some of which may be secured debt. We are not restricted under the terms
of the indenture governing the convertible notes from incurring additional debt, securing existing or future debt,
recapitalizing our debt or taking a number of other actions that are not limited by the terms of the indentures governing
the convertible notes that could have the effect of diminishing our ability to make payments on the convertible notes
when due.
Risks Relating to Our Common Stock and the Securities Market
The trading price of shares of our common stock may be affected by many factors and the price of shares of our
common stock could decline.
As a publicly traded company, the trading price of our common stock has fluctuated significantly in the past.
The future trading price of our common stock may be volatile and could be subject to wide price fluctuations in
response to such factors, including:
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actual or anticipated fluctuations in revenues or operating results;
the effects of the recent global coronavirus (COVID-19) pandemic;
failure to meet securities analysts’ or investors’ expectations of performance;
changes in key management personnel;
announcements of technological innovations or new products by us or our competitors;
developments in or disputes regarding patents and proprietary rights;
proposed and completed acquisitions by us or our competitors;
the mix of products and services sold;
the timing, placement and fulfillment of significant orders;
product and service pricing and discounts;
acts of war or terrorism; and
general economic conditions.
Our stock price has been highly volatile in the past and could be highly volatile in the future.
The market price of our stock can be highly volatile due to the risks and uncertainties described in this Annual
Report, as well as other factors, including substantial volatility in quarterly revenues and earnings due to comments
by securities analysts and our failure to meet market expectations.
Over the fiscal year ended February 29, 2020, the price of our common stock as reported on The Nasdaq Global
Select Market ranged from a high of $14.69 to a low of $8.99. The stock market has from time to time experienced
extreme price and volume fluctuations that were unrelated to the operating performance of particular companies. In
the past, companies that have experienced volatility have sometimes subsequently become the subject of securities
class action litigation. If litigation were instituted on this basis, it could result in substantial costs and a diversion of
management’s attention and resources.
28
Future issuances of shares of our common stock could dilute the ownership interests of our stockholders.
Any issuance of equity securities could dilute the interests of our stockholders and could substantially decrease
the trading price of our common stock. We may issue equity securities in the future for a number of reasons, including
to finance our operations and business strategy (including in connection with acquisitions, strategic collaborations or
other transactions), to adjust our ratio of debt to equity, to satisfy our obligations upon the exercise of outstanding
options or for other reasons. In May 2015 and July 2018, we issued the Notes and, to the extent we issue common
stock upon conversion of the convertible notes, that conversion would dilute the ownership interests of our
stockholders.
Anti-takeover defenses in our charter and under Delaware law could prevent us from being acquired or limit the
price that investors might be willing to pay for our common stock in an acquisition.
Section 203 of the Delaware General Corporation Law prohibits a Delaware corporation from engaging in any
business combination with any interested stockholder for a period of three years from the time the person became an
interested stockholder, unless specific conditions are met. In addition, we have in place various protections which
would make it difficult for a company or investor to buy our business without the approval of our Board of Directors,
including authorized but undesignated preferred stock and provisions requiring advance notice of board nominations
and other actions to be taken at stockholder meetings. All of the foregoing could hinder, delay or prevent a change in
control and could limit the price that investors might be willing to pay in the future for shares of our common stock.
Our amended and restated bylaws provide that the Court of Chancery of the State of Delaware and the federal
district courts of the United States of America will be the exclusive forums for substantially all disputes between us
and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes
with us or our directors, officers, or employees.
Our amended and restated bylaws provide that the Court of Chancery of the State of Delaware is the exclusive
forum for:
(cid:129)
(cid:129)
(cid:129)
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(cid:129)
any derivative action or proceeding brought on our behalf;
any action asserting a claim of breach of a fiduciary duty owed by, or other wrongdoing by, any of our
directors, officers, employees or agents to us or our stockholders;
any action asserting a claim against us arising pursuant to any provision of the Delaware General
Corporation Law, our restated certificate of incorporation, or our amended and restated bylaws;
any action to interpret, apply, enforce or determine the validity of our restated certificate of incorporation
or our amended and restated bylaws; and
any action asserting a claim against us that is governed by the internal affairs doctrine;
provided, that with respect to any derivative action or proceeding brought on our behalf to enforce any liability
or duty created by the Securities Exchange Act of 1934 or the rules and regulations thereunder, the exclusive forum
will be the federal district courts of the United States of America. Our restated and amended bylaws further provides
that the federal district courts of the United States of America will be the exclusive forum for resolving any complaint
asserting a cause of action arising under the Securities Act of 1933, as amended.
These exclusive forum provisions may limit a stockholder’s ability to bring a claim in a judicial forum that it
finds favorable for disputes with us or our directors, officers, or other employees, which may discourage lawsuits
against us and our directors, officers and other employees.
If securities or industry analysts issue an adverse or misleading opinion regarding our business or publish
unfavorable research about our business, our stock price and trading volume could decline.
29
The trading market for our common stock depends in part on the research and reports that industry or securities
analysts publish about us or our business. If one or more of the analysts who cover us ceases coverage of our Company
or fails to publish reports on us regularly, we could lose visibility in the financial markets, which in turn could cause
our stock price or trading volume to decline. Moreover, if any of the analysts who cover us downgrade our stock or
issue an adverse or misleading opinion regarding us, our business model or our stock performance, or if our operating
results fail to meet the expectations of the investor community, our stock price could decline.
Lack of expected dividends may make our stock less attractive as an investment.
We intend to retain all future earnings for use in the development of our business. We do not anticipate paying
any cash dividends on our common stock in the foreseeable future. In certain cases, stocks that pay regular dividends
command higher market trading prices, and so our stock price may be lower as a result of our dividend policy.
We may not be able to generate sufficient future taxable income to utilize our net operating loss and tax credit
carryforwards. In addition, our ability to utilize our federal net operating loss and tax credit carryforwards may be
limited under Sections 382 and 383 of the Internal Revenue Code (the “Code”).
As discussed in Note 13, as of February 29, 2020, we maintained a valuation allowance with respect to certain
of our deferred tax assets relating primarily to net operating losses and tax credits in U.S. and certain non-U.S.
jurisdictions that we believe are not likely to be realized. We considered positive and negative evidence, including
three years of cumulative losses considering forecasts of future profitability as of February 29, 2020, in assessing our
ability to realize our domestic net deferred tax assets.
Also, as of February 29, 2020, we had net operating loss carryforwards of approximately $38.9 million and
$36.8 million for federal and state tax purposes, respectively. The federal net operating loss (NOL) carryforwards are
subject to various limitations under Section 382 of the Internal Revenue Code. The ability to utilize our NOL
carryforwards to reduce taxable income in future years could become subject to significant limitations under Section
382 of the Internal Revenue Code if we undergo an ownership change.
The limitations apply if a corporation undergoes an “ownership change,” which is generally defined as a greater
than fifty (50) percentage point change (by value) in its equity ownership by stockholders who own directly or
indirectly, 5% or more of our common stock, over a three (3)-year period. Future changes in our stock ownership,
which may be outside of our control, may trigger an ownership change and, consequently, Section 382 and 383
limitations. Similar provisions of state tax law may also apply to limit our use of accumulated state tax attributes. As
a result, if we earn net taxable income, our ability to use our pre-change net operating loss carryforwards and other
tax attributes to offset such taxable income may be subject to limitations, which could potentially result in increased
future income tax liability to us. We continue to monitor stockholders who own directly or indirectly, 5% or more of
our common stock to determine if we have experienced an ownership change pursuant to Section 382.
30
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2.
PROPERTIES
We are headquartered in Irvine, California with operations principally in the U.S., U.K., Italy and Mexico. We
conduct engineering as well as research and development activities at our facilities in the United States, while our
sales and administrative functions are performed in the U.S., U.K., Italy and Mexico. We periodically evaluate our
facility requirements as necessary and believe our existing and planned facilities are sufficient for our needs for at
least the next 12 months. All of our properties are leased facilities located in the following areas:
Location
Irvine, California
Richardson, Texas
Carlsbad, California
Indianapolis, Indiana
Eden Prairie, Minnesota
Square
Footage
Location
23,000 Mexico City, Mexico
31,000 Milan, Italy
29,000 Rome, Italy
11,000 London, U.K.
7,000
Square
Footage
15,300
9,400
2,200
5,700
We vacated our Canton, Massachusetts facility as part of our plan to capture certain synergies and cost savings
related to streamlining our global operations in fiscal 2019. This facility is sublet through December 2025.
ITEM 3.
LEGAL PROCEEDINGS
From time to time, various claims and litigation may be asserted or commenced against us arising from our
ordinary course of business. In particular, we may receive claims concerning contract performance, or claims that our
products or services infringe the intellectual property of third parties. Regardless of the outcome, litigation can have
an adverse impact on us because of deferred costs, diversion of management resources and other factors. The following
contains information regarding potentially material pending litigation.
31
Omega patent infringement claim
As previously disclosed in our Form 10-Q for the third quarter ended November 30, 2019 that was filed with
the U.S. Securities and Exchange Commission on December 19, 2019, on May 22, 2017, we filed motions with the
court seeking judgment as a matter of law and for a new trial in response to the patent infringement lawsuit filed by
Omega Patents, LLC, (“Omega”) that was decided against us in 2016. The court denied our motions on November
14, 2017. We then appealed to the Court of Appeals for the Federal Circuit (the “Federal Circuit”). The appeal was
fully briefed, and the court heard oral argument on January 9, 2019. On April 8, 2019, the Federal Circuit vacated the
compensatory and enhanced damages and attorney’s fees awarded by the trial court to Omega. The Federal Circuit
also set aside the jury’s verdict that our alleged infringement was willful, and remanded the case for a new trial. As a
result, substantially all of the previously reserved legal provisions of $19.1 million as of November 30, 2018 were
reversed as of February 28, 2019. The reversal was recorded as a reduction of general and administrative expenses in
our consolidated statement of comprehensive income for the fiscal year ended February 28, 2019. The new trial began
on September 23, 2019 in the U.S. District Court for the Middle District of Florida (“Trial Court”), and on September
30, 2019, the jury determined that the Company infringed two of the four patents; however, the jury found that there
was no willful infringement. On the first patent (U.S. Pat. No. 7,671,727), the jury found only one unit infringed, and
assessed $1 in damages. On the second patent (U.S. Pat. No. 8,032,278), the jury found direct infringement and
awarded damages at a rate of $5 per unit, for total damages of approximately $4.6 million. On November 26, 2019
the Trial Court entered judgment, awarding Omega damages of $4.6 million, together with pre-judgment interest in
the amount of $0.8 million through September 30, 2019. We filed motions with the Trial Court seeking judgment as
a matter of law (“JMOL”) in our favor and, alternatively, a new trial. On March 20, 2020, the Trial Court denied our
motion for JMOL, a new trial, and remittitur of damages. The Trial Court also denied Omega’s motion for a new trial
on willfulness. On April 1, 2020, the Trial Court denied Omega’s motion to enhance the royalty rate beyond the jury’s
award of $5 per unit. Also, on April 1, 2020, the Trial Court denied Omega’s motion to conduct post-trial discovery
on CalAmp’s other OBD-II compliant LMUs. On April 3, 2020, the Trial Court denied Omega’s final motion
regarding infringement of the VPODs. On April 30, 2020, we filed a notice of appeal at the Federal Circuit. Also on
April 30, 2020, Omega filed notices of cross-appeal at the Federal Circuit.
In connection with this claim, we have accrued our best estimate of the probable liability based on reasonable
royalty rates for similar technologies. It is reasonably possible that the judgement and amounts described above could
be upheld.
We also initiated ex parte reexamination proceedings filed in the U.S. Patent and Trademark Office seeking to
invalidate a number of Omega’s patents involved in the litigation. Those proceedings currently remain pending. We
continue to believe that our products do not infringe on any of Omega’s patents. While it is not feasible to predict with
certainty the outcome of this litigation, we believe that its ultimate resolution would not have a material adverse effect
on our consolidated results of operations, financial condition and cash flows.
For further detail on the matters described above, refer to “Note 19 – Commitments and Contingencies” in the
accompanying consolidated financial statements.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
32
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Q˘(cid:204)ow”q”˘t (cid:215)oq‰(cid:128)w”A˘(cid:201) ˆ(cid:128)w (cid:151)ttoØ(cid:132)(cid:204)˘ o(cid:132)(cid:201)˘w £zo”qD (cid:211)(cid:128)(cid:136)}˘(cid:132)tØq”(cid:128)(cid:132) Z‡Ø(cid:132)t
N‰˘ ”(cid:132)ˆ(cid:128)w(cid:136)Øq”(cid:128)(cid:132) w˘zo”w˘(cid:201) ŁD q‰”t (cid:151)q˘(cid:136) L”‡‡ Ł˘ ”(cid:132)(cid:204)‡o(cid:201)˘(cid:201) ”(cid:132) (cid:128)ow (cid:201)˘ˆ”(cid:132)”q”m˘ }w(cid:128)HD tqØq˘(cid:136)˘(cid:132)q ˆ(cid:128)w q‰˘ (cid:215)(cid:132)(cid:132)o؇ (cid:141)˘˘q”(cid:132)(cid:192)
(cid:128)ˆ Qq(cid:128)(cid:204)(cid:181)‰(cid:128)‡(cid:201)˘wt q(cid:128) Ł˘ ‰˘‡(cid:201) (cid:128)(cid:132) (cid:148)o‡D X?(cid:142) X(cid:131)X(cid:131) Ø(cid:132)(cid:201) ”t ”(cid:132)(cid:204)(cid:128)w}(cid:128)wØq˘(cid:201) ‰˘w˘”(cid:132) ŁD q‰”t w˘ˆ˘w˘(cid:132)(cid:204)˘(cid:136)
UU
ITEM 6.
SELECTED FINANCIAL DATA
OPERATING DATA
Revenues
Cost of revenues
Gross profit
Operating expenses:
Research and development
Selling and marketing
General and administrative
Intangible asset amortization
Impairment loss
Restructuring
Total operating expenses
Operating income (loss)
Non-operating income (expense), net
Income (loss) before income taxes and equity in net
loss of affiliate and related impairment loss
Income tax benefit (provision)
Income (loss) before equity in net loss of affiliate
and related impairment loss
Equity in net loss of affiliate and related
impairment loss
Net income (loss)
Earnings (loss) per share:
2020
Year Ended February 29/28,
2017
2018
2019
(In thousands except per share amounts)
2016
$ 366,107 $ 363,800 $ 365,912 $ 351,102 $ 280,719
222,804 216,036 215,022 207,750 177,760
143,303 147,764 150,890 143,352 102,959
27,656
49,892
31,070
11,436
-
8,015
29,436
60,534
57,669
12,321
19,143
4,400
22,005
49,044
57,119
15,061
-
-
183,503 128,069 142,935 143,229
123
(8,306)
25,761
50,096
52,089
14,989
-
-
(40,200)
(18,120)
7,955
20,754
19,695
4,160
19,803
23,380
25,065
6,626
-
-
74,874
28,085
(5,744)
(58,320)
(20,454)
23,855
1,330
28,709
(10,681)
(8,183)
1,563
22,341
(4,572)
(78,774)
25,185
18,028
(6,620)
17,769
(530)
(1,411)
$ (79,304) $ 18,398 $ 16,617 $
(6,787)
(1,284)
(829)
(7,904) $ 16,940
Basic
Diluted
$
$
(2.36) $
(2.36) $
0.53 $
0.52 $
0.47 $
0.46 $
(0.22) $
(0.22) $
0.46
0.46
2020
February 29/28,
2017
2018
2019
(In thousands except ratio)
2016
BALANCE SHEET DATA
Current assets
Current liabilities
Working capital
Current ratio
Total assets
Long-term debt
Stockholders' equity
$ 237,866 $ 403,497 $ 275,885 $ 206,705 $ 298,767
$ 121,475 $ 83,592 $ 95,529 $ 77,841 $ 49,565
$ 116,391 $ 319,905 $ 180,356 $ 128,864 $ 249,202
6.0
$ 495,805 $ 603,626 $ 472,993 $ 408,139 $ 384,363
$ 177,088 $ 275,905 $ 154,299 $ 146,827 $ 139,800
$ 137,919 $ 205,653 $ 198,916 $ 163,242 $ 189,447
2.7
4.8
2.9
2.0
Factors affecting the comparability of our Selected Financial Data are as follows:
(cid:129)
During the year ended February 29, 2020, the provision for income taxes reflected a tax expense of $34.6
million primarily related to a valuation allowance recorded during the year on our domestic net deferred
tax assets that the Company believes are more likely than not that they will not be realized. See Note 13
to the accompanying consolidated financial statements for additional information on this matter.
34
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
During fiscal year ended February 29, 2020, we recorded impairment loss of $19.1 million, which consists
of write-offs of intangible assets for tradenames and dealer relationships associated with LoJack products,
right-of-use assets for tower infrastructure leases resulting from early terminations and property and
equipment associated with the terminated towers.
In October and November 2019, we entered into separate, privately negotiated purchase agreements to
repurchase approximately $94.9 million in aggregate principal amount of these notes for $94.7 million.
The repurchase resulted in $2.4 million of loss on extinguishment of debt See Note 10 to the
accompanying consolidated financial statements for additional information on the convertible notes.
The new trial for Omega patent infringement claim began on September 23, 2019 in the U.S. District
Court for the Middle District of Florida, and on September 30, 2019, the jury determined that the we
infringed two of the four patents; however, the jury found that there was no willful infringement. On
November 26, 2019 the U.S. District Court for the Middle District of Florida entered judgment, awarding
Omega damages of $4.6 million, together with pre-judgment interest in the amount of $0.8 million through
September 30, 2019. In connection with this claim, we have accrued our best estimate of the probable
liability based on reasonable royalty rates for similar technologies for the fiscal year ended February 29,
2020. See Note 19 to the accompanying consolidated financial statements for additional information on
this matter.
On April 12, 2019, we acquired Synovia Solutions, a North American market leader in fleet safety and
management for K-12 school bus and state and local government fleets, for a total cash purchase of $49.8
million. See Note 2 to the accompanying consolidated financial statements for additional information on
this acquisition.
On April 8, 2019, the U.S. Court of Appeals for the Federal Circuit (the “Federal Circuit”) vacated all
compensatory and enhanced damages and attorney’s fees awarded by the trial court to the plaintiff in the
Omega patent infringement lawsuit. The Federal Circuit also set aside the jury’s verdict that our alleged
infringement was willful, and remanded the case for a new trial. As a result, we reversed substantially all
of the $19.1 million of the previously accrued legal reserve during the fourth quarter of fiscal 2019. The
reversal of the loss contingency was recorded in general and administrative expense for the fiscal year
ended February 28, 2019. See Note 19 to the accompanying consolidated financial statements for
additional information on this matter.
On March 19, 2019, we completed the acquisition of LoJack Mexico, the exclusive licensee of LoJack
technology for the Mexican market, for a purchase price of $14.3 million. See Note 2 to the accompanying
consolidated financial statements for additional information on this acquisition.
As of February 28, 2019, we had made loans aggregating £5,700,000, or approximately $7.6 million to
Smart Driver Club, an equity method investee, which bear interest at an annual interest rate of 8% with
all principal and all unpaid interest due in 2021. Our equity in the net loss of Smart Driver Club amounted
$1.8 million, $1.4 million and $1.3 million for the fiscal years ended February 28, 2019, 2018 and 2017.
As of February 28, 2019, we determined that this investment is subject to other than temporary impairment
of $5.0 million, which is reported as part of impairment loss and equity in net loss of affiliate in our
consolidated statement of comprehensive income. See Note 9 to the accompanying consolidated financial
statements for additional information on this impairment.
On February 25, 2019, we completed the acquisition of Tracker Network (UK) Limited, a LoJack licensee
and a market leader in SVR telematics services across the U.K., for a cash purchase price of £10.0 million,
or approximately $13.0 million. See Note 2 to the accompanying consolidated financial statements for
additional information on this acquisition.
On July 20, 2018, we issued $230.0 million aggregate principal amount of 2.00% convertible senior
unsecured notes through a private placement. See Note 10 to the accompanying consolidated financial
statements for additional information on the convertible notes.
35
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
Beginning in the first quarter of fiscal 2019, we commenced a plan that aligns with our strategy to integrate
the global sales organization and further outsource manufacturing functions in order to drive operational
efficiency, increase supplier geographic diversity and reduce operating expenses. For the fiscal year ended
February 29, 2020, total restructuring charges were $4.4 million, comprised of $2.5 million in severance
and employee related costs, $1.9 million for manufacturing facility. For the fiscal year ended February
28, 2019, total restructuring charges were $8.0 million, comprised of $4.3 million in severance and
employee related costs, and $3.7 million for vacant office and manufacturing facility space. See Note 11
to the accompanying consolidated financial statements for additional information on this restructuring
charge.
Effective December 22, 2017, the U.S. enacted tax reform legislation that included a broad range of
changes impacting the corporate income tax provision, including the reduction of the U.S. federal
statutory corporate tax rate from 35% to 21%. In the fourth quarter of fiscal 2018, we recognized an
income tax charge of $6.6 million for the re-measurement of our deferred tax assets and liabilities based
on the rates at which they are expected to reverse in the future. We completed our accounting for the
income tax effects of the Tax Act in 2018, and no material adjustments were required to the provisional
amounts initially recorded on our existing deferred tax balances and the one-time transition tax.
In fiscal 2018, we entered into a settlement agreement with a former LoJack supplier for $46.6 million,
which amount is net of attorneys’ fees and insurance subrogation payment. We received $18.3 million
and $28.3 million in fiscal 2019 and 2018, respectively, which are reported as other non-operating income
in our consolidated statement of comprehensive income.
In fiscal 2017, we acquired LoJack Corporation.
We ceased operation of our legacy Satellite segment effective August 31, 2016. Between September 1,
2016 and August 31, 2017, our business operated under one reportable segment – Wireless DataCom. See
Note 20 to the accompanying financial statements for additional information on the business segments.
In fiscal 2016, we issued $172.5 million aggregate principal amount of 1.625% convertible senior
unsecured notes through a private placement. See Note 10 to the accompanying consolidated financial
statements for additional information on the convertible notes.
In fiscal 2016, we reduced our deferred tax assets valuation allowance by $2.5 million and recognized
federal research and development tax credits of $1.0 million, which lowered our effective tax rate to
20.5% for the year.
36
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview
CalAmp Corp. (including its subsidiaries unless the context otherwise requires, “CalAmp”, “the Company”,
“we”, “our”, or “us”) is a global technology solutions pioneer leading transformation to a mobile connected economy.
We help reinvent businesses and improve lives around the globe with technology solutions that streamline complex
mobile Internet of Things (“IoT”) deployments through wireless connectivity solutions and derived data intelligence.
Our software applications, scalable cloud services, and intelligent devices collect and assess business-critical data
anywhere in the world from industrial machines, commercial and passenger vehicles, their drivers and contents. With
our global network of LoJack licensees and a strong ecosystem of industry partnerships, we bring intelligence to the
edge in the mobile connected economy to help drive business efficiencies.
In February 2019, we acquired Tracker Network (UK) Limited, which brings us strong brand awareness across
the United Kingdom and extensive law enforcement relationships with an ability to help drive our expansion in
Europe. In March 2019, we acquired Car Track, S.A. de C.V. (“LoJack Mexico”), which will leverage our full stack
of telematics and SaaS solutions to expand product offerings to our substantial subscriber base in Mexico. Both
Tracker UK and LoJack Mexico were customers in our Telematics Systems segment prior to the acquisition.
In April 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. Synovia was a customer in our Telematics
Systems segment prior to our acquisition. Combined with the recent acquisitions of Tracker Network UK and LoJack
Mexico, the Synovia acquisition expands our fleet management and vehicle safety services portfolio while
accelerating our transformation to high-value subscription-based services. These acquisitions contributed to a shift in
revenues from our Telematics Systems segment to our Software & Subscriptions segment during fiscal 2020.
We operate under two reportable segments: Telematics Systems and Software & Subscription Services.
Telematics Systems
Our Telematics Systems segment offers a series of advanced telematics and stolen vehicle recovery (“SVR”)
products for the broader connected vehicle and emerging industrial IoT marketplace, which enable customers to
optimize their operations by collecting, monitoring and effectively reporting business-critical information and desired
intelligence from high-value remote and mobile assets. Our telematics products include asset tracking units, mobile
telematics devices, fixed and mobile wireless gateways, and routers. These wireless networking devices underpin a
wide range of solutions, and are ideal for applications demanding secure, reliable and business-critical
communications. Products and sales channels include Original Equipment Manufacturers (“OEM”), Mobile Resource
Management (“MRM”) and SVR products.
Software & Subscription Services
Our Software & Subscription Services segment offers cloud-based application enablement and telematics
service platforms that facilitate integration of our own applications, as well as those of third parties, through open
Application Programming Interfaces (“APIs”) to deliver full-featured mobile IoT solutions to a wide range of
customers and markets. Our scalable proprietary applications and other subscription services enable rapid and cost-
effective development of high-value solutions for customers all around the globe. Services include Fleet Management,
Vehicle Finance, Auto Remote Start, Supply Chain Integrity and International Vehicle Location.
Recent Developments
In December 2019, a strain of coronavirus entitled COVID-19 emerged in China and spread to other countries
including to the United States. In March 2020, the World Health Organization declared COVID-19 to be a public
health pandemic of international concern, which 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.
37
In the United States and other geographies in which we and our customers, partners and service providers
operate, the health concerns as well as political or governmental developments in response to COVID-19 could result
in economic, social or labor instability or prolonged contractions in certain end markets which could slow the sales
process, result in customers not purchasing or renewing on contracts or failing to make payments. These events could
have a material adverse effect on the business and results of operations and financial condition.
At this time, it is difficult to predict the extent to which the COVID-19 outbreak will impact our business or
operating results, which is highly dependent on uncertain future developments, including the severity of the 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
effect of the outbreak may not be fully reflected in our operating results until future periods.
We have adopted several measures in response to the COVID-19 outbreak, including instructing employees to
work from home, implementing certain cost and cash flow control measures to address potential declines in billings
and cash collections from customers, shifting the manner in which we engage with customers and restricting non-
critical business travel by our employees. As a result of the work and travel restrictions, substantially all of our sales
and installation services activities are being conducted or managed remotely.
Results of Operations and Financial Condition
Revenues
Our revenue streams are described as follows:
Products. Our products revenues consist primarily of sales of our telematics products or wireless networking
devices to large global companies as well as small and medium-sized enterprises in the United States and
internationally. Revenues from our products are reported net of sales returns and allowances, and incentives. The
prices charged for telematics products are determined through negotiation with our customers as well as prevailing
market conditions and are fixed and determinable upon shipment. The revenues are included in our Telematics
Systems segment.
Software-as-a-Service (“SaaS”) and Platform-as-a-Service (“PaaS”). Our SaaS-based and PaaS-based
solutions for our fleet management, vehicle finance 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 via our
software applications. For our fleet management, vehicle finance and certain other customers, we sell or lease highly
customized devices that only function with our proprietary SaaS technology. We consider the service and devices as
a single performance obligation. Generally, we defer the recognition of revenue for the devices that are sold with
application subscriptions. The deferred product revenue amounts are amortized on a straight-line basis over the
estimated average in-service lives of these devices, which are three years in the vehicle finance vertical and generally
four to five years in the fleet management vertical. Revenues from subscription services are recognized ratably, on a
straight-line basis, over the term of the subscription.
We also sell vehicle location monitoring solutions internationally. These solutions generally consist of the sale
of a vehicle location unit (“VLU”) together with our related monitoring services. Because we sell similar VLUs on a
stand-alone basis from time to time, we recognize revenue up front for the sale of the device and over time for the
monitoring services.
These revenues are included in our Software & Services Segment.
Professional Services. Our professional services provided to customers include project management,
engineering services, installation services and an on-going early warning automated notification service. Revenues
are typically distinct from other performance obligations and are recognized as the related services are performed.
38
Cost of Revenues
Our cost of revenues for telematics and SVR products represent the cost of finished goods sold to our customers
and are recognized at the point in time control passes to the customer. These costs include raw materials,
manufacturing overhead and labor costs, as well as customs and duties, license royalties, recycling fees, insurance and
other costs that are included in the price that we negotiate and pay to our contract manufacturers and component
suppliers for the products. The cost of revenues also includes charges related to excess and obsolete inventories and
the cost of fulfilling product warranties.
Our cost of revenues for application subscriptions and other services includes personnel costs and related
benefits, consultants, software development activities, cellular network access costs, infrastructure costs for use of
private networking services, and other costs that are required to deliver these services to our customers. Our cost of
revenues for application subscriptions and other services also includes cost of customized devices that only function
with our applications and are sold on an integrated basis with applicable subscriptions. These costs are capitalized and
are recognized ratably, on a straight-line basis, over the estimated average in-service lives of these devices. The
estimated average in-service lives are three years in the vehicle finances and generally four to five years in the fleet
management verticals. We recognize cost of revenues for VLUs concurrently with the sale of the VLU and over the
subscription period for the related monitoring services.
We continually negotiate to reduce the cost we pay to our suppliers in order to maintain consistent low prices
for our customers. We accomplish this by working with our suppliers to find alternative, less expensive sources of
raw materials and components as well as eliminating excess costs throughout our supply chain.
Gross Profit
Our gross profit and gross profit as a percentage of revenues, or gross margin, is influenced by several factors
including sales volume, product and service mix, and excess and obsolescence (“E&O”) charges and other product
costs. We expect gross margin to fluctuate over time based on how we control the mix of product and services and
manage our inventory using sales incentives granted to our customers. Additionally, although we primarily procure
and sell our products in U.S. dollars, we are susceptible to exchange rate fluctuations with other currencies. To the
extent that exchange rates move unfavorably this may have an impact on our future selling prices and unit costs. Gross
profit and gross margin may fluctuate over time based on the factors described above.
Operating Expenses
Our operating expenses consist principally of personnel related costs, including salaries and bonuses, fringe
benefits and stock-based compensation as well as the cost of professional services, information technology, facilities
and other administrative expenses. We classify our operating expenses into the following six categories:
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
Research and development expense consists of personnel related costs, professional services, certification
fees and software licenses incurred to support our existing install-base of telematics devices through our
field application engineers, software developers, program and product managers, as well as our effort to
develop new products and technologies.
Selling and marketing expense consists of personnel related costs including our incentive programs to
support our global sales organization as well as advertising and marketing promotions of our brand and
products, including media advertisement costs, merchandising and display costs, trade show and event
costs, and sponsorship costs.
General and administrative expense consists of personnel related costs to support our global enterprise as
well as outside services for legal, accounting, insurance, information technology, investor relations and
other costs associated with being a public company.
Intangible asset amortization is attributable to our acquired identifiable intangible assets from business
combinations. Our acquired intangible assets with definite lives are amortized from the date of acquisition
over periods ranging from two to ten years.
Restructuring expense consists of personnel and facility related costs resulting from our cost savings
initiative commenced in the fiscal 2019. Personnel costs represent severance and employee related costs,
and facility charges represent expenses for vacant office and manufacturing facility space under Corporate
Expenses.
39
(cid:129)
Impairment loss consists of write-offs of intangible assets for tradenames and dealer relationships
associated with LoJack products, right-of-use assets for tower infrastructure leases resulting from early
terminations and property and equipment associated with the terminated towers.
We expect our operating costs will increase in absolute dollars due to the anticipated growth of our business and
related infrastructure as well as expansion into new geographic regions. Operating expense may fluctuate as a
percentage of revenue throughout the year due to discrete quarterly events and seasonal trends.
Non-Operating Income (Expense)
Non-operating income (expense) consists of (i) investment and interest income earned on our cash balances and
investments, (ii) interest expense on our convertible senior unsecured notes including the amortization of note discount
and debt issue costs, (iii) the gain on a legal settlement, (iv) the loss from extinguishment of debt and (v) other income
(expense) that includes but is not limited to transaction gains and losses and foreign currency gains and losses. We
recognized the gain on legal settlement on a cash basis due to the lack of certainty of collection as we received the
settlement payments from a former LoJack supplier, which is further explained in “Note 19 – Commitments and
Contingencies” to the accompanying consolidated financial statements. Loss from extinguishment of debt is further
explained in “Note 10 – Financing Arrangements” to the accompanying consolidated financial statements.
Income Tax Expense (Benefit)
We are subject to income taxes in the U.S. and related states as well as foreign jurisdictions in which we do
business. These foreign jurisdictions have different statutory tax rates than the U.S., in addition to certain of our foreign
earnings may also be taxable in the U.S. Accordingly, our effective tax rate will vary from the U.S. statutory income
tax due to state income taxes, the amount of income allocable to each tax jurisdiction, tax credits, and changes in
valuation allowances which are provided against net deferred tax assets when it is determined that it is more likely
than not that the assets will not be realized.
Equity in Net Loss of Affiliate and related Impairment Loss
We had an investment in a technology and insurance startup company called Smart Driver Club Limited, which
represented a minority ownership interest that was accounted for under the equity method of accounting. As a result,
we recorded our portion of the losses incurred by this entity and impairment charges related to this investment as
equity in net loss of affiliate.
Adjusted EBITDA
In addition to our U.S. GAAP results, we present Adjusted EBITDA as a supplemental non-GAAP measure of
our performance. Our CEO, the CODM, uses Adjusted EBITDA to evaluate and monitor segment performance. A
non-GAAP financial measure is defined as a numerical measure of a company’s financial performance that excludes
or includes amounts to be different than the most directly comparable measure calculated and presented in accordance
with generally accepted accounting principles in the statements of comprehensive income (loss), balance sheets or
statements of cash flows. We define Adjusted EBITDA as Earnings Before Investment Income, Interest Expenses,
Taxes, Depreciation, Amortization, stock-based compensation, acquisition and integration expenses, non-cash costs
and expenses arising from purchase accounting adjustments, litigation provision, gain from legal settlement,
impairment loss and certain other adjustments. We believe this non-GAAP financial information provides additional
insight into our ongoing performance and have therefore chosen to provide this information to investors for a more
consistent basis of comparison to help investors evaluate our results of ongoing operations and enable more
meaningful period-to-period comparisons. Pursuant to the rule and regulations of the U.S. Securities and Exchange
Commission regarding the use of non-GAAP financial measures, we have provided a reconciliation of non-GAAP
financial measures to the most directly comparable financial measure. See Note 20 to the accompanying consolidated
financial statements for additional information related to Adjusted EBITDA by reportable segments and reconciliation
to net income (loss).
40
OPERATING RESULTS
The following table sets forth the percentage of revenues represented by items included in our consolidated
statements of income for the three most recent fiscal years:
Revenues
Cost of revenues
Gross profit
Operating expenses:
Research and development
Selling and marketing
General and administrative
Intangible asset amortization
Impairment loss
Restructuring
Operating income (loss)
Non-operating income (expense), net
Income (loss) before income taxes and equity in net
loss of affiliate and related impairment loss
Income tax benefit (provision)
Income (loss) before equity in net loss of affiliate
and related impairment loss
Equity in net loss of affiliate and related impairment
loss
Net income (loss)
Year Ended February 29/28,
2018
2019
2020
100.0%
60.9
39.1
100.0%
59.4
40.6
100.0%
58.8
41.2
8.0
16.5
15.8
3.4
5.2
1.2
(11.0)
(4.9)
(15.9)
(5.6)
(21.5)
7.6
13.7
8.5
3.1
-
2.2
5.5
1.1
6.6
0.4
7.0
(0.1)
(21.6)
(1.9)
5.1
7.0
13.7
14.2
4.1
-
-
2.2
5.7
7.9
(2.9)
5.0
(0.4)
4.6
Fiscal year ended February 29, 2020 compared to fiscal year ended February 28, 2019:
Revenue by Segment
(In thousands)
Segment
Telematics Systems
Software & Subscription Services
Total
Fiscal years ended February 29/28,
2020
2019
% of
Revenue
$
% of
Revenue
$
Change
%
Change
$
$241,212
124,895
$366,107
65.9% $287,370
34.1% 76,430
100.0% $363,800
79.0% $(46,158)
21.0% 48,465
100.0% $ 2,307
(16.1%)
63.4%
0.6%
41
Telematics Systems revenue, comprised of MRM telematics, OEM/network products and legacy LoJack SVR
products, decreased by $46.2 million or 16.1% for the fiscal year ended February 29, 2020 compared to the same
period last year. Factors affecting the decrease are as follows:
(cid:129)
(cid:129)
(cid:129)
MRM telematics products revenue decreased $25.0 million due to a reduction in sales volume to a few
larger customers, including Synovia that we acquired, during the year coupled with significant supply
shortages and softer than expected demand experienced in the fourth quarter. The supply shortages were
primarily attributable to our one remaining Chinese supplier, the production capacity of which was
significantly impaired in February due to the COVID-19 outbreak. We also experienced other supply
shortages due to supply chain transitions, coupled with extended lead times on raw materials and
components sourced from China, but used elsewhere in our global supply chain;
OEM/network products revenue decreased $11.4 million due to a reduction in sales to our largest
OEM/network products customer which is in the middle of a product line transition with the rollout of a
3G-to-4G LTE retrofit program. We expect this decline to be temporary and to be offset by incremental
product demands as the 3G network sunset becomes more imminent; and
Legacy LoJack SVR revenue decreased $9.7 million due to a technology transition from proprietary radio
frequency technology to GPS-based telematics solutions. We expect this decline to continue but to be
partially offset over time by revenues growth in our telematics solutions, such as SureDrive and LotSmart
within our Software & Subscription Services segment.
Software & Subscription Services revenue, comprised principally of fleet management services and LoJack
subscription services, increased by $48.5 million or 63.4% for the fiscal year ended February 29, 2020 compared to
the same period last year. The increase was due to the three recent acquisitions of Tracker UK, LoJack Mexico and
Synovia, coupled with growth in LoJack Italy.
Gross Profit by Segment
(In thousands)
Segment
Telematics Systems
Software & Subscription Services
Gross profit
Fiscal years ended February 29/28,
2020
2019
% of
Revenue
$
% of
Revenue
$
Change
%
Change
$
$ 86,558
56,745
$143,303
35.9% $110,542
45.4% 37,222
39.1% $147,764
38.5% $(23,984)
48.7% 19,523
40.6% $ (4,461)
(21.7%)
52.5%
(3.0%)
Consolidated gross profit for the fiscal year ended February 29, 2020 decreased by $4.5 million or 3.0% over
the prior year due to lower revenue in our Telematics Systems business and partially offset by continued growth in
Software & Subscription Services.
Consolidated gross margin decreased by 150 basis points comparing to the same period in last year. Gross
margin for Telematics Systems decreased to 35.9% for fiscal 2020 compared to 38.5% in fiscal 2019. Gross margin
was impacted principally by product mix, incremental charges for excess and obsolete inventory and unfavorable
manufacturing variances as we proceeded with the closure of our manufacturing facility in Oxnard, California which
was substantially completed in March 2020. Gross margin for Software & Subscription Services was 45.4% in fiscal
2020 compared to 48.7% in fiscal 2019. The decrease was primarily driven by the recently acquired businesses as the
gross profit was impacted by purchase price adjustments to deferred revenue.
Cost of revenues above excludes restructuring related costs, which are shown separately in the operating
expenses in our consolidated statement of comprehensive income (loss).
42
Operating Expenses
(In thousands)
Research and development
Selling and marketing
General and administrative
Intangible asset amortization
Impairment loss
Restructuring
Total
Fiscal years ended February 29/28,
2020
2019
% of
Revenue
$
$
% of
Revenue
$ 29,436
60,534
57,669
12,321
19,143
4,400
$183,503
8.0% $ 27,656
16.5% 49,892
15.8% 31,070
3.4% 11,436
-
5.2%
8,015
1.2%
50.1% $128,069
%
Change
$
Change
6.4%
7.6% $ 1,780
21.3%
13.7% 10,642
85.6%
8.5% 26,599
3.1%
7.7%
885
0.0% 19,143 100.0%
(45.1%)
(3,615)
2.2%
43.3%
35.1% $ 55,434
Consolidated research and development expense increased by $1.8 million or 6.4% for the fiscal year ended
February 29, 2020 compared to the same period last year. The increase was primarily driven by increased employee
compensation and benefits due to increased headcount. Consolidated research and development expense as a
percentage of revenues increased to 8.0% for the fiscal year ended February 29, 2020 compared to 7.6% in the same
period last year. We are investing in research and development of new products and technologies to be sold through
the U.S. and international sales channels.
Consolidated selling and marketing expense increased by $10.6 million or 21.3% for the fiscal year ended
February 29, 2020 compared to the prior year. The increase was primarily driven by additional compensation expenses
related to an increase in headcount due to the acquired businesses.
Consolidated general and administrative expense increased by $26.6 million or 85.6% for the fiscal year ended
February 29, 2020 compared to the same period last year. The increase was primarily driven by the reduction of $17.6
million in a legal reserve in the prior year (see Note 19 in the accompanying financial statements) and decreases in
professional fees related to certain non-recurring legal matters. In fiscal 2020, we incurred additional compensation
expenses related to an increase in headcount due to acquired businesses coupled with increased professional services
and service fees related to a new cloud-based ERP system that we are implementing to support the growth in our
global operations. Certain implementation costs on the new ERP system were capitalized as Property and Equipment
in our consolidated balance sheets.
Amortization of intangibles increased by $0.9 million or 7.7% for the fiscal year ended February 29, 2020
compared to the same period last year due the addition of intangible assets from the acquisitions and partially offset
by reduced amortization due to the asset impairment.
In the fourth quarter of fiscal 2020, we determined that the prolonged secular decline in revenues from our
legacy LoJack US 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 immediate unfavorable impact that the COVID-19 pandemic has had on the
automotive end markets commencing in February 2020. As a result, we initiated an assessment of the carrying amount
of goodwill and long-lived assets supporting these products including the LoJack tradename and US dealer
relationships. The total impairment loss we recorded for fiscal 2020 was $19.1 million, which was primarily
attributable to partial write-offs of intangible assets for LoJack tradenames and dealer relationships associated with
LoJack products and services, right-of-use assets for tower infrastructure leases resulting from early terminations and
property and equipment associated with the early terminated tower leases (see Note 1 in the accompanying financial
statements). Impairment losses are shown in the operating expenses in our consolidated statement of comprehensive
income (loss). There was no impairment of goodwill for fiscal 2020 and fiscal 2019. The fair value of the LoJack US
SVR reporting unit exceeds its carrying amount by approximately 8% as of February 29, 2020. Any deterioration in
future cash flows may result in impairment of goodwill. Additionally, any reduction in the revenue forecast utilized
for the impairment test of the LoJack tradename may result in additional impairment. Our stock price has declined
subsequent to year-end because of COVID-19 and other market factors. We will evaluate if this decline is more than
temporary as an impairment indicator for assessing the carrying amount of our goodwill and long-lived assets in future
periods.
43
(cid:215)t (cid:201)˘t(cid:204)w”Ł˘(cid:201) ”(cid:132) (cid:140)(cid:128)q˘ [[ q(cid:128) q‰˘ Ø(cid:204)(cid:204)(cid:128)(cid:136)}Ø(cid:132)D”(cid:132)(cid:192) (cid:204)(cid:128)(cid:132)t(cid:128)‡”(cid:201)Øq˘(cid:201) ˆ”(cid:132)Ø(cid:132)(cid:204)”؇ tqØq˘(cid:136)˘(cid:132)qt(cid:142) (cid:201)ow”(cid:132)(cid:192) ˆ”t(cid:204)؇ X(cid:131)[?(cid:142) L˘
(cid:204)(cid:128)(cid:136)(cid:136)˘(cid:132)(cid:204)˘(cid:201) Ø }‡Ø(cid:132) q(cid:128) (cid:204)Ø}qow˘ (cid:204)˘wqØ”(cid:132) tD(cid:132)˘w(cid:192)”˘t Ø(cid:132)(cid:201) (cid:204)(cid:128)tq tØm”(cid:132)(cid:192)t w˘‡Øq˘(cid:201) q(cid:128) tqw˘Ø(cid:136)‡”(cid:132)”(cid:132)(cid:192) (cid:128)ow (cid:192)‡(cid:128)ŁØ‡ (cid:128)}˘wØq”(cid:128)(cid:132)t Ø(cid:132)(cid:201) t؇˘t
(cid:128)w(cid:192)Ø(cid:132)”AØq”(cid:128)(cid:132) Øt L˘‡‡ Øt wØq”(cid:128)(cid:132)؇”A˘ (cid:204)˘wqØ”(cid:132) ‡˘Øt˘(cid:201) }w(cid:128)}˘wq”˘t q‰Øq Øw˘ }Øwq”؇‡D mØ(cid:204)Ø(cid:132)q(cid:136) G˘ ”(cid:132)(cid:204)oww˘(cid:201) Ø(cid:201)(cid:201)”q”(cid:128)(cid:132)؇ (cid:204)‰Øw(cid:192)˘t
ˆ(cid:128)w q‰”t ”(cid:132)”q”Øq”m˘ (cid:201)ow”(cid:132)(cid:192) ˆ”t(cid:204)؇ X(cid:131)X(cid:131)(cid:136) (cid:160)(cid:128)w q‰˘ ˆ”t(cid:204)؇ D˘Øw ˘(cid:132)(cid:201)˘(cid:201) (cid:160)˘ŁwoØwD X?(cid:142) X(cid:131)X(cid:131)(cid:142) L˘ w˘(cid:204)(cid:128)w(cid:201)˘(cid:201) Ø}}w(cid:128)H”(cid:136)Øq˘‡D (cid:128)ˆ "X(cid:136)M
(cid:136)”‡‡”(cid:128)(cid:132) ”(cid:132) t˘m˘wØ(cid:132)(cid:204)˘ Ø(cid:132)(cid:201) ˘(cid:136)}‡(cid:128)D˘˘ w˘‡Øq˘(cid:201) (cid:204)(cid:128)tqt Ø(cid:132)(cid:201) "[(cid:136)? (cid:136)”‡‡”(cid:128)(cid:132) ˆ(cid:128)w ˆØ(cid:204)”‡”q”˘t(cid:136) (cid:160)(cid:128)w q‰˘ ˆ”t(cid:204)؇ D˘Øw ˘(cid:132)(cid:201)˘(cid:201) (cid:160)˘ŁwoØwD XB(cid:142)
X(cid:131)[?(cid:142) q(cid:128)q؇ w˘tqwo(cid:204)qow”(cid:132)(cid:192) (cid:204)‰Øw(cid:192)˘t L˘w˘ "B(cid:136)(cid:131) (cid:136)”‡‡”(cid:128)(cid:132)(cid:142) (cid:204)(cid:128)(cid:136)}w”t˘(cid:201) (cid:128)ˆ "Q(cid:136)U (cid:136)”‡‡”(cid:128)(cid:132) ”(cid:132) t˘m˘wØ(cid:132)(cid:204)˘ Ø(cid:132)(cid:201) ˘(cid:136)}‡(cid:128)D˘˘ w˘‡Øq˘(cid:201)
(cid:204)(cid:128)tqt(cid:142) Ø(cid:132)(cid:201) "U(cid:136)E (cid:136)”‡‡”(cid:128)(cid:132) ˆ(cid:128)w mØ(cid:204)Ø(cid:132)q (cid:128)ˆˆ”(cid:204)˘ Ø(cid:132)(cid:201) (cid:136)Ø(cid:132)oˆØ(cid:204)qow”(cid:132)(cid:192) ˆØ(cid:204)”‡”qD t}Ø(cid:204)˘(cid:136) T˘tqwo(cid:204)qow”(cid:132)(cid:192) (cid:204)(cid:128)tqt Øw˘ t‰(cid:128)L(cid:132) t˘}ØwØq˘‡D ”(cid:132)
q‰˘ (cid:128)}˘wØq”(cid:132)(cid:192) ˘H}˘(cid:132)t˘t ”(cid:132) (cid:128)ow (cid:204)(cid:128)(cid:132)t(cid:128)‡”(cid:201)Øq˘(cid:201) tqØq˘(cid:136)˘(cid:132)q (cid:128)ˆ (cid:204)(cid:128)(cid:136)}w˘‰˘(cid:132)t”m˘ ”(cid:132)(cid:204)(cid:128)(cid:136)˘ (cid:153)‡(cid:128)tt(cid:151)(cid:136)
Non-operating Income (Expense), Net
(cid:151)(cid:132)m˘tq(cid:136)˘(cid:132)q ”(cid:132)(cid:204)(cid:128)(cid:136)˘ (cid:201)˘(cid:204)w˘Øt˘(cid:201) ŁD "(cid:131)(cid:136)B (cid:136)”‡‡”(cid:128)(cid:132) q(cid:128) "Q(cid:136)M (cid:136)”‡‡”(cid:128)(cid:132) ˆ(cid:128)w q‰˘ ˆ”t(cid:204)؇ D˘Øw ˘(cid:132)(cid:201)˘(cid:201) (cid:160)˘ŁwoØwD X?(cid:142) X(cid:131)X(cid:131) ˆw(cid:128)(cid:136)
"M(cid:136)U (cid:136)”‡‡”(cid:128)(cid:132) ˆ(cid:128)w q‰˘ }w”(cid:128)w D˘Øw(cid:136) N‰˘ (cid:201)˘(cid:204)w˘Øt˘ LØt (cid:201)o˘ }w”(cid:136)Øw”‡D q(cid:128) Ø (cid:201)˘(cid:204)w˘Øt˘ ”(cid:132) ”(cid:132)q˘w˘tq ”(cid:132)(cid:204)(cid:128)(cid:136)˘ w˘to‡q”(cid:132)(cid:192) ˆw(cid:128)(cid:136)
(cid:201)˘(cid:204)w˘Øt˘(cid:201) ”(cid:132)m˘tq(cid:136)˘(cid:132)qt ”(cid:132) mØw”(cid:128)ot (cid:204)Øt‰ ˘zo”m؇˘(cid:132)q Ø(cid:132)(cid:201) t‰(cid:128)wq(cid:139)q˘w(cid:136) (cid:136)Øw(cid:181)˘qØŁ‡˘ t˘(cid:204)ow”q”˘t(cid:136)
(cid:151)(cid:132)q˘w˘tq ˘H}˘(cid:132)t˘ ”(cid:132)(cid:204)w˘Øt˘(cid:201) "U(cid:136)Q (cid:136)”‡‡”(cid:128)(cid:132) q(cid:128) "X(cid:131)(cid:136)[ (cid:136)”‡‡”(cid:128)(cid:132) ˆ(cid:128)w q‰˘ ˆ”t(cid:204)؇ D˘Øw ˘(cid:132)(cid:201)˘(cid:201) (cid:160)˘ŁwoØwD X?(cid:142) X(cid:131)X(cid:131) ˆw(cid:128)(cid:136) "[I(cid:136)E
(cid:136)”‡‡”(cid:128)(cid:132) ˆ(cid:128)w q‰˘ }w”(cid:128)w D˘Øw (cid:201)o˘ q(cid:128) Ø(cid:201)(cid:201)”q”(cid:128)(cid:132)؇ ”(cid:132)q˘w˘tq ˘H}˘(cid:132)t˘ Ø(cid:132)(cid:201) (cid:201)˘Łq (cid:201)”t(cid:204)(cid:128)o(cid:132)q Ø(cid:132)(cid:201) ”tto˘ (cid:204)(cid:128)tqt w˘‡Øq”(cid:132)(cid:192) q(cid:128) q‰˘ X(cid:131)XM
(cid:211)(cid:128)(cid:132)m˘wq”Ł‡˘ (cid:140)(cid:128)q˘t ”tto˘(cid:201) ”(cid:132) (cid:148)o‡D X(cid:131)[B q‰Øq Øw˘ Ł˘”(cid:132)(cid:192) Ø(cid:136)(cid:128)wq”A˘(cid:201) (cid:128)(cid:132) q‰˘ ˘ˆˆ˘(cid:204)q”m˘ ”(cid:132)q˘w˘tq (cid:136)˘q‰(cid:128)(cid:201) Ø(cid:132)(cid:201) Ø(cid:136)(cid:128)wq”AØq”(cid:128)(cid:132) (cid:128)ˆ
q‰˘ (cid:201)”t(cid:204)(cid:128)o(cid:132)q (cid:128)ˆ (cid:210)o˘ q(cid:128) (cid:160)Ø(cid:204)q(cid:128)wt (cid:201)˘Łq w˘‡Øq˘(cid:201) q(cid:128) (cid:128)ow Ø(cid:204)zo”t”q”(cid:128)(cid:132) (cid:128)ˆ QD(cid:132)(cid:128)m”Ø(cid:136)
Q˘˘ (cid:140)(cid:128)q˘ [(cid:131) q(cid:128) q‰˘ Ø(cid:204)(cid:204)(cid:128)(cid:136)}Ø(cid:132)D”(cid:132)(cid:192) (cid:204)(cid:128)(cid:132)t(cid:128)‡”(cid:201)Øq˘(cid:201) ˆ”(cid:132)Ø(cid:132)(cid:204)”؇ tqØq˘(cid:136)˘(cid:132)qt ˆ(cid:128)w ”(cid:132)ˆ(cid:128)w(cid:136)Øq”(cid:128)(cid:132) (cid:128)(cid:132) q‰˘ "X(cid:136)Q (cid:136)”‡‡”(cid:128)(cid:132) Ø(cid:132)(cid:201) "X(cid:136)(cid:131)
(cid:136)”‡‡”(cid:128)(cid:132) ‡(cid:128)tt (cid:128)(cid:132) ˘Hq”(cid:132)(cid:192)o”t‰(cid:136)˘(cid:132)q (cid:128)ˆ (cid:201)˘Łq ˆ(cid:128)w q‰˘ ˆ”t(cid:204)؇ D˘Øwt ˘(cid:132)(cid:201)˘(cid:201) (cid:160)˘ŁwoØwD X?(cid:142) X(cid:131)X(cid:131) Ø(cid:132)(cid:201) (cid:160)˘ŁwoØwD XB(cid:142) X(cid:131)[?(cid:142)
w˘t}˘(cid:204)q”m˘‡D(cid:136)
]q‰˘w (cid:132)(cid:128)(cid:132)(cid:139)(cid:128)}˘wØq”(cid:132)(cid:192) ˘H}˘(cid:132)t˘ ˆ(cid:128)w q‰˘ ˆ”t(cid:204)؇ D˘Øw ˘(cid:132)(cid:201)˘(cid:201) (cid:160)˘ŁwoØwD X?(cid:142) X(cid:131)X(cid:131) (cid:201)˘(cid:204)w˘Øt˘(cid:201) "(cid:131)(cid:136)I (cid:136)”‡‡”(cid:128)(cid:132) ˆw(cid:128)(cid:136) q‰˘ }w”(cid:128)w
D˘Øw (cid:201)o˘ q(cid:128) ˆØm(cid:128)wØŁ‡˘ ˆ‡o(cid:204)qoØq”(cid:128)(cid:132)t ”(cid:132) ˆ(cid:128)w˘”(cid:192)(cid:132) (cid:204)oww˘(cid:132)(cid:204)D ˘H(cid:204)‰Ø(cid:132)(cid:192)˘ wØq˘t(cid:142) }w”(cid:136)Øw”‡D £ow(cid:128)t q(cid:128) K(cid:136)Q(cid:136) (cid:201)(cid:128)‡‡Øwt(cid:136)
Income Tax Expense (Benefit)
(cid:215)(cid:132) ”(cid:132)(cid:204)(cid:128)(cid:136)˘ qØH ˘H}˘(cid:132)t˘ (cid:128)ˆ "X(cid:131)(cid:136)M (cid:136)”‡‡”(cid:128)(cid:132) LØt w˘(cid:204)(cid:128)w(cid:201)˘(cid:201) ”(cid:132) ˆ”t(cid:204)؇ X(cid:131)X(cid:131)(cid:142) (cid:204)(cid:128)(cid:136)}Øw˘(cid:201) q(cid:128) Ø(cid:132) ”(cid:132)(cid:204)(cid:128)(cid:136)˘ qØH Ł˘(cid:132)˘ˆ”q (cid:128)ˆ "[(cid:136)U
(cid:136)”‡‡”(cid:128)(cid:132) ”(cid:132) ˆ”t(cid:204)؇ X(cid:131)[?(cid:136) N‰˘ ”(cid:132)(cid:204)w˘Øt˘ ”(cid:132) q‰˘ ”(cid:132)(cid:204)(cid:128)(cid:136)˘ qØH ˘H}˘(cid:132)t˘ (cid:204)(cid:128)(cid:136)}Øw˘(cid:201) q(cid:128) q‰˘ }w”(cid:128)w D˘Øw LØt }w”(cid:136)Øw”‡D (cid:201)w”m˘(cid:132) ŁD q‰˘
w˘(cid:204)(cid:128)w(cid:201)”(cid:132)(cid:192) (cid:128)ˆ Ø m؇oØq”(cid:128)(cid:132) ؇‡(cid:128)LØ(cid:132)(cid:204)˘t Ø(cid:192)Ø”(cid:132)tq (cid:201)(cid:128)(cid:136)˘tq”(cid:204) (cid:132)˘q (cid:201)˘ˆ˘ww˘(cid:201) qØH Øtt˘qt ”(cid:132) q‰˘ Ø(cid:136)(cid:128)o(cid:132)q (cid:128)ˆ "UQ(cid:136)I (cid:136)”‡‡”(cid:128)(cid:132)(cid:136) Q˘˘ (cid:140)(cid:128)q˘
[U q(cid:128) q‰˘ Ø(cid:204)(cid:204)(cid:128)(cid:136)}Ø(cid:132)D”(cid:132)(cid:192) (cid:204)(cid:128)(cid:132)t(cid:128)‡”(cid:201)Øq˘(cid:201) ˆ”(cid:132)Ø(cid:132)(cid:204)”؇ tqØq˘(cid:136)˘(cid:132)qt ˆ(cid:128)w Ø(cid:201)(cid:201)”q”(cid:128)(cid:132)؇ ”(cid:132)ˆ(cid:128)w(cid:136)Øq”(cid:128)(cid:132)(cid:136)
Profitability Measures
(cid:140)˘q (cid:151)(cid:132)(cid:204)(cid:128)(cid:136)˘ (cid:153)(cid:143)(cid:128)tt(cid:151)=
]ow (cid:132)˘q ‡(cid:128)tt ”(cid:132) q‰˘ ˆ”t(cid:204)؇ D˘Øw ˘(cid:132)(cid:201)˘(cid:201) (cid:160)˘ŁwoØwD X?(cid:142) X(cid:131)X(cid:131) LØt "E?(cid:136)U (cid:136)”‡‡”(cid:128)(cid:132) Øt (cid:204)(cid:128)(cid:136)}Øw˘(cid:201) q(cid:128) (cid:132)˘q ”(cid:132)(cid:204)(cid:128)(cid:136)˘ (cid:128)ˆ "[B(cid:136)Q
(cid:136)”‡‡”(cid:128)(cid:132) ”(cid:132) q‰˘ tØ(cid:136)˘ }˘w”(cid:128)(cid:201) ‡Øtq D˘Øw(cid:136) N‰˘ (cid:201)˘(cid:204)w˘Øt˘ ”t (cid:201)o˘ q(cid:128) Ø (cid:201)˘(cid:204)w˘Øt˘ ”(cid:132) (cid:192)w(cid:128)tt }w(cid:128)ˆ”q (cid:128)ˆ "Q(cid:136)M (cid:136)”‡‡”(cid:128)(cid:132)(cid:142) Ø(cid:132) ”(cid:132)(cid:204)w˘Øt˘ ”(cid:132)
(cid:128)}˘wØq”(cid:132)(cid:192) ˘H}˘(cid:132)t˘t (cid:128)ˆ "MM(cid:136)Q (cid:136)”‡‡”(cid:128)(cid:132)(cid:142) Ø(cid:132)(cid:201) Ø(cid:132) ”(cid:132)(cid:204)w˘Øt˘ ”(cid:132) ”(cid:132)(cid:204)(cid:128)(cid:136)˘ qØH }w(cid:128)m”t”(cid:128)(cid:132) (cid:128)ˆ "X[(cid:136)B (cid:136)”‡‡”(cid:128)(cid:132) Øt (cid:201)˘t(cid:204)w”Ł˘(cid:201) ØŁ(cid:128)m˘(cid:136)
(cid:215)(cid:201)•otq˘(cid:201) £(cid:213)(cid:151)N(cid:210)(cid:215)=
(cid:153)(cid:151)(cid:132) q‰(cid:128)otØ(cid:132)(cid:201)t(cid:151)
Q˘(cid:192)(cid:136)˘(cid:132)q
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Q(cid:128)ˆqLØw˘ (cid:254) QoŁt(cid:204)w”}q”(cid:128)(cid:132) Q˘wm”(cid:204)˘t
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N(cid:128)q؇ (cid:215)(cid:201)•otq˘(cid:201) £(cid:213)(cid:151)N(cid:210)(cid:215)
(cid:160)”t(cid:204)؇ D˘Øwt ˘(cid:132)(cid:201)˘(cid:201)
(cid:160)˘ŁwoØwD X?(cid:133)XB(cid:142)
X(cid:131)[?
X(cid:131)X(cid:131)
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"
"
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II(cid:136)[!
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(cid:153)XU(cid:136)M!(cid:151)
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(cid:204)(cid:128)(cid:136)}Øw˘(cid:201) q(cid:128) q‰˘ tØ(cid:136)˘ }˘w”(cid:128)(cid:201) ‡Øtq D˘Øw (cid:201)o˘ q(cid:128) ‡(cid:128)L˘w w˘m˘(cid:132)o˘t Øt (cid:201)˘t(cid:204)w”Ł˘(cid:201) ØŁ(cid:128)m˘ (cid:204)(cid:128)o}‡˘(cid:201) L”q‰ ‰”(cid:192)‰˘w (cid:128)}˘wØq”(cid:132)(cid:192)
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Q˘˘ (cid:140)(cid:128)q˘ X(cid:131) ˆ(cid:128)w w˘(cid:204)(cid:128)(cid:132)(cid:204)”‡”Øq”(cid:128)(cid:132) (cid:128)ˆ (cid:215)(cid:201)•otq˘(cid:201) £(cid:213)(cid:151)N(cid:210)(cid:215) ŁD w˘}(cid:128)wqØŁ‡˘ t˘(cid:192)(cid:136)˘(cid:132)qt Ø(cid:132)(cid:201) Ø w˘(cid:204)(cid:128)(cid:132)(cid:204)”‡”Øq”(cid:128)(cid:132) q(cid:128) (cid:157)(cid:215)(cid:215)Z(cid:139)ŁØt”t
(cid:132)˘q ”(cid:132)(cid:204)(cid:128)(cid:136)˘ (cid:153)‡(cid:128)tt(cid:151)(cid:136)
(cid:160)”t(cid:204)؇ D˘Øw ˘(cid:132)(cid:201)˘(cid:201) (cid:160)˘ŁwoØwD XB(cid:142) X(cid:131)[? (cid:204)(cid:128)(cid:136)}Øw˘(cid:201) q(cid:128) ˆ”t(cid:204)؇ D˘Øw ˘(cid:132)(cid:201)˘(cid:201) (cid:160)˘ŁwoØwD XB(cid:142) X(cid:131)[B=
Revenue by Segment
(cid:153)(cid:151)(cid:132) q‰(cid:128)otØ(cid:132)(cid:201)t(cid:151)
Q˘(cid:192)(cid:136)˘(cid:132)q
N˘‡˘(cid:136)Øq”(cid:204)t QDtq˘(cid:136)t
Q(cid:128)ˆqLØw˘ (cid:254) QoŁt(cid:204)w”}q”(cid:128)(cid:132) Q˘wm”(cid:204)˘t
N(cid:128)q؇
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X(cid:131)[?
! (cid:128)ˆ
T˘m˘(cid:132)o˘
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X(cid:131)[B
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T˘m˘(cid:132)o˘
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"
"XBE(cid:142)UE(cid:131)
EI(cid:142)QU(cid:131)
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IU(cid:142)EBI
X[(cid:136)(cid:131)!
[(cid:131)(cid:131)(cid:136)(cid:131)! "UIM(cid:142)?[X
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[E(cid:136)Q! [X(cid:142)IQQ
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(cid:153)Q(cid:136)?!(cid:151)
[?(cid:136)B!
(cid:153)(cid:131)(cid:136)I!(cid:151)
N˘‡˘(cid:136)Øq”(cid:204)t QDtq˘(cid:136)t w˘m˘(cid:132)o˘ (cid:201)˘(cid:204)w˘Øt˘(cid:201) ŁD "[Q(cid:136)B (cid:136)”‡‡”(cid:128)(cid:132) (cid:128)w Q(cid:136)?! ˆ(cid:128)w q‰˘ ˆ”t(cid:204)؇ D˘Øw ˘(cid:132)(cid:201)˘(cid:201) (cid:160)˘ŁwoØwD XB(cid:142) X(cid:131)[?
(cid:204)(cid:128)(cid:136)}Øw˘(cid:201) q(cid:128) q‰˘ }w”(cid:128)w D˘Øw(cid:136) N‰˘ (cid:201)˘(cid:204)w˘Øt˘ LØt }w”(cid:136)Øw”‡D Øqqw”Łoq˘(cid:201) q(cid:128) w˘(cid:201)o(cid:204)˘(cid:201) t؇˘t (cid:128)ˆ (cid:128)ow (cid:141)T(cid:141) q˘‡˘(cid:136)Øq”(cid:204)t Ø(cid:132)(cid:201) ‡˘(cid:192)Ø(cid:204)D
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(cid:136)Ø(cid:132)oˆØ(cid:204)qow˘wt L”q‰ ˆØ(cid:204)”‡”q”˘t (cid:128)oqt”(cid:201)˘ (cid:128)ˆ (cid:211)‰”(cid:132)Ø(cid:136) (cid:151)(cid:132) (cid:204)(cid:128)(cid:132)(cid:132)˘(cid:204)q”(cid:128)(cid:132) L”q‰ q‰”t }w(cid:128)(cid:192)wØ(cid:136)(cid:142) L˘ ˘H}˘w”˘(cid:132)(cid:204)˘(cid:201) mØw”(cid:128)ot (cid:128)}˘wØq”(cid:128)(cid:132)؇
(cid:204)‰Ø‡‡˘(cid:132)(cid:192)˘t Ø(cid:132)(cid:201) ˘Hq˘(cid:132)(cid:201)˘(cid:201) ‡˘Ø(cid:201) q”(cid:136)˘t (cid:128)(cid:132) (cid:204)˘wqØ”(cid:132) (cid:204)(cid:128)(cid:136)}(cid:128)(cid:132)˘(cid:132)qt q‰˘w˘ŁD ”(cid:136)}Ø(cid:204)q”(cid:132)(cid:192) (cid:128)ow ØŁ”‡”qD q(cid:128) (cid:201)˘‡”m˘wD (cid:128)(cid:132) (cid:204)otq(cid:128)(cid:136)˘w
(cid:128)w(cid:201)˘wt ˆ(cid:128)w (cid:141)T(cid:141) q˘‡˘(cid:136)Øq”(cid:204)t }w(cid:128)(cid:201)o(cid:204)qt(cid:136) (cid:215)(cid:201)(cid:201)”q”(cid:128)(cid:132)؇‡D(cid:142) (cid:128)ow ‡˘(cid:192)Ø(cid:204)D (cid:143)(cid:128)(cid:148)Ø(cid:204)(cid:181) QIT w˘m˘(cid:132)o˘ (cid:204)(cid:128)(cid:132)q”(cid:132)o˘(cid:201) ”qt t˘(cid:204)o‡Øw (cid:201)˘(cid:204)‡”(cid:132)˘ (cid:201)o˘
q(cid:128) Ø q˘(cid:204)‰(cid:132)(cid:128)‡(cid:128)(cid:192)D qwØ(cid:132)t”q”(cid:128)(cid:132) ˆw(cid:128)(cid:136) }w(cid:128)}w”˘qØwD wØ(cid:201)”(cid:128) ˆw˘zo˘(cid:132)(cid:204)D q˘(cid:204)‰(cid:132)(cid:128)‡(cid:128)(cid:192)D q(cid:128) (cid:157)ZQ(cid:139)ŁØt˘(cid:201) q˘‡˘(cid:136)Øq”(cid:204)t t(cid:128)‡oq”(cid:128)(cid:132)t(cid:136) ]£(cid:141)
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Gross Profit by Segment
(cid:153)(cid:151)(cid:132) q‰(cid:128)otØ(cid:132)(cid:201)t(cid:151)
Q˘(cid:192)(cid:136)˘(cid:132)q
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X(cid:131)[?
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T˘m˘(cid:132)o˘
"
X(cid:131)[B
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QM
Operating Expenses
(In thousands)
Research and development
Selling and marketing
General and administrative
Restructuring
Intangible asset amortization
Total
Fiscal years ended February 28,
2019
2018
% of
Revenue
$
$
% of
Revenue
$ 27,656
49,892
31,070
11,436
8,015
$128,069
7.6% $ 25,761
13.7% 50,096
8.5% 52,089
3.1%
-
2.2% 14,989
35.1% $142,935
%
Change
$
Change
7.4%
7.0% $ 1,895
(0.4%)
13.7%
(204)
(40.4%)
14.2% (21,019)
0.0% 11,436 100.0%
(46.5%)
(6,974)
4.1%
(10.4%)
39.0% $(14,866)
Consolidated research and development expense increased by $1.9 million or 7.4% for the fiscal year ended
February 28, 2019 compared to the prior year. The increase was primarily driven by increased employee compensation
and benefits due to increased headcount. Consolidated research and development expense as a percentage of revenues
increased to 7.6% for the fiscal year ended February 28, 2019 compared to 7.0% in the prior year. We are investing
in research and development of new products and technologies to be sold through the U.S. and international sales
channels.
Consolidated selling and marketing expense decreased by $0.2 million or 0.4% for the fiscal year ended
February 28, 2019 compared to the prior year. The decrease was primarily driven by a decrease in professional services
and web design costs, as we substantially completed our CalAmp and LoJack brand refresh initiatives during the prior
fiscal year. The decrease was partially offset by increases in marketing expenses to support various business
developments in international territories.
Consolidated general and administrative expense decreased by $21.0 million or 40.4% for the fiscal year ended
February 28, 2019 compared to the prior year. The decrease was primarily driven by a decline in litigation provisions
and expenses related to existing legal matters (see Note 19). The decrease was partially offset by increased professional
services coupled with service fees related to a new cloud-based ERP system that we are implementing to support the
growth in our global operations. Certain implementation costs on the new ERP system were capitalized as Property
and Equipment in our consolidated balance sheets.
As described in Note 11 to the accompanying consolidated financial statements, during fiscal 2019, we
commenced a plan to capture certain synergies and cost savings related to streamlining our global operations and sales
organization as well as rationalize certain leased properties that are partially vacant. For the fiscal year ended February
28, 2019, we recorded approximately $4.3 million in severance and employee related costs as well as $3.7 million in
rent and related costs associated with office and manufacturing plant facilities where we have ceased use.
Amortization of intangibles decreased by $3.6 million or 23.7% for the fiscal year ended February 28, 2019
compared to the prior year due to completion of amortization on certain intangible assets.
Non-operating Income (Expense), Net
Investment income increased by $3.0 million to $5.3 million for the fiscal year ended February 28, 2019 from
$2.3 million for the prior year. The increase was due primarily to an increase in interest income resulting from
increased investments in various cash equivalent and short-term marketable securities primarily as a result of the net
proceeds from our 2025 Convertible Notes and operating cash flows.
Interest expense increased $6.4 million to $16.7 million for the fiscal year ended February 28, 2019 from $10.3
million for the prior year due to additional interest expense and debt discount and issue costs relating to the 2025
Convertible Notes issued in July 2018 that are being amortized on the effective interest method.
See Note 19 to the accompanying consolidated financial statements for information concerning the $18.3 million
gain on the legal settlement with a former supplier of LoJack.
46
See Note 10 to the accompanying consolidated financial statements for information on the $2.0 million loss on
extinguishment of debt.
Other non-operating income for the fiscal year ended February 28, 2019 increased $1.1 million from net non-
operating expense for the prior year due to unfavorable fluctuations in foreign currency exchange rates, primarily
Euros to U.S. dollars.
Profitability Measures
Net income:
Our net income in the fiscal year ended February 28, 2019 was $18.4 million as compared to net income of
$16.6 million in the prior year. The increase is due to a $11.7 million increase in operating income, $3.0 million
increase in investment income and $12.0 million decrease in income tax provision. The increase in operating income
was primarily attributable to $21.0 million decrease in general and administrative expense due to reduced legal
provision and related costs as further discussed in Note 19 and partially offset by $8.0 million of restructuring expense.
Adjusted EBITDA:
Fiscal years ended
February 28,
(In thousands)
Segment
Telematics Systems
Software & Subscription Services
Corporate Expense
Total Adjusted EBITDA
2019
2018
$ Change % Change
$
$
40,821 $
13,093
(5,699)
48,215 $
48,943 $
8,233
(4,794)
52,382 $
(8,122)
4,860
(905)
(4,167)
-17%
59%
19%
-8%
Adjusted EBITDA for Telematics Systems in the fiscal year ended February 28, 2019 decreased $8.1 million
compared to the prior year due to lower revenues as described above and the impact of high margin revenue earned
on a strategic technology partnership arrangement in fiscal 2018. These factors were coupled with higher operating
expenses in Telematics Systems as a result of increased headcount and outsourced professional service fees. Adjusted
EBITDA for Software and Subscription Services increased $4.9 million compared to the prior year due primarily to
continued growth in revenues and gross profit from our Italia market and higher gross profit from our fleet
management services.
See Note 20 for a reconciliation of Adjusted EBITDA by reportable segments and a reconciliation to GAAP-
basis net income (loss).
Liquidity and Capital Resources
In fiscal 2020, our primary cash needs have been for acquisitions and related costs, working capital purposes
and, to a lesser extent, capital expenditures. We have historically funded our principal business activities through cash
flows generated from operations. As we continue to grow our customer base and increase our revenues, there will be
a need for working capital in the future. Our immediate sources of liquidity are cash, cash equivalents, marketable
securities and our revolving credit facility. As of February 29, 2020, our cash, cash equivalents and marketable
securities totaled $107.4 million.
On March 30, 2018, we entered into a revolving credit facility with JPMorgan Chase Bank, N.A. that provided
for borrowings of up to $50 million. On March 27, 2020, we entered into an amendment of the revolving credit facility
to extend the term to March 30, 2022. Borrowings under this revolving credit facility bear interest at either a Prime or
LIBOR-based variable rate as selected by us on a periodic basis. This revolving credit facility contains financial
covenants that require us to maintain a minimum level of earnings before interest, income taxes, depreciation,
amortization and other noncash charges (EBITDA) and minimum debt coverage ratios. Throughout fiscal 2020 and
as of February 29, 2020, there were no borrowings outstanding on this revolving credit facility.
47
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˘(cid:132)q˘w ”(cid:132)q(cid:128) ‡”(cid:204)˘(cid:132)t˘ Ø(cid:192)w˘˘(cid:136)˘(cid:132)qt (cid:128)w (cid:128)q‰˘w t˘qq‡˘(cid:136)˘(cid:132)q ØwwØ(cid:132)(cid:192)˘(cid:136)˘(cid:132)qt q‰Øq (cid:204)(cid:128)o‡(cid:201) w˘zo”w˘ ot q(cid:128) (cid:136)Ø(cid:181)˘ t”(cid:192)(cid:132)”ˆ”(cid:204)Ø(cid:132)q }ØD(cid:136)˘(cid:132)qt ”(cid:132)
q‰˘ ˆoqow˘(cid:136) (cid:213)Øt˘(cid:201) (cid:128)(cid:132) (cid:204)oww˘(cid:132)q ”(cid:132)ˆ(cid:128)w(cid:136)Øq”(cid:128)(cid:132) ØmØ”‡ØŁ‡˘(cid:142) L˘ (cid:201)(cid:128) (cid:132)(cid:128)q Ł˘‡”˘m˘ q‰Øq q‰˘w˘ Øw˘ Ø(cid:132)D (cid:204)‡Ø”(cid:136)t q‰Øq L(cid:128)o‡(cid:201) ‰Øm˘ Ø
(cid:136)Øq˘w”؇ Ø(cid:201)m˘wt˘ ˘ˆˆ˘(cid:204)q (cid:128)(cid:132) (cid:128)ow ˆ”(cid:132)Ø(cid:132)(cid:204)”؇ (cid:204)(cid:128)(cid:132)(cid:201)”q”(cid:128)(cid:132)(cid:142) w˘to‡qt (cid:128)ˆ (cid:128)}˘wØq”(cid:128)(cid:132)t(cid:142) (cid:128)w ‡”zo”(cid:201)”qD(cid:136) Q˘˘ (cid:140)(cid:128)q˘ [? q(cid:128) q‰˘ Ø(cid:204)(cid:204)(cid:128)(cid:136)}Ø(cid:132)D”(cid:132)(cid:192)
(cid:204)(cid:128)(cid:132)t(cid:128)‡”(cid:201)Øq˘(cid:201) ˆ”(cid:132)Ø(cid:132)(cid:204)”؇ tqØq˘(cid:136)˘(cid:132)qt ˆ(cid:128)w Ø(cid:201)(cid:201)”q”(cid:128)(cid:132)؇ ”(cid:132)ˆ(cid:128)w(cid:136)Øq”(cid:128)(cid:132) (cid:128)(cid:132) ‡˘(cid:192)؇ }w(cid:128)(cid:204)˘˘(cid:201)”(cid:132)(cid:192)t(cid:136)
Cash flows from operating activities
(cid:211)Øt‰ ˆ‡(cid:128)Lt ˆw(cid:128)(cid:136) (cid:128)}˘wØq”(cid:132)(cid:192) Ø(cid:204)q”m”q”˘t (cid:204)(cid:128)(cid:132)t”tq (cid:128)ˆ (cid:132)˘q ”(cid:132)(cid:204)(cid:128)(cid:136)˘ (cid:153)‡(cid:128)tt(cid:151) Ø(cid:201)•otq˘(cid:201) ˆ(cid:128)w (cid:204)˘wqØ”(cid:132) (cid:132)(cid:128)(cid:132)(cid:139)(cid:204)Øt‰ ”q˘(cid:136)t(cid:142) ”(cid:132)(cid:204)‡o(cid:201)”(cid:132)(cid:192)
(cid:201)˘}w˘(cid:204)”Øq”(cid:128)(cid:132)(cid:142) ”(cid:132)qØ(cid:132)(cid:192)”Ł‡˘ Øtt˘q Ø(cid:136)(cid:128)wq”AØq”(cid:128)(cid:132)(cid:142) tq(cid:128)(cid:204)(cid:181)(cid:139)ŁØt˘(cid:201) (cid:204)(cid:128)(cid:136)}˘(cid:132)tØq”(cid:128)(cid:132) ˘H}˘(cid:132)t˘(cid:142) Ø(cid:136)(cid:128)wq”AØq”(cid:128)(cid:132) (cid:128)ˆ (cid:204)(cid:128)(cid:132)m˘wq”Ł‡˘ (cid:201)˘Łq ”tto˘
(cid:204)(cid:128)tqt Ø(cid:132)(cid:201) (cid:201)”t(cid:204)(cid:128)o(cid:132)q(cid:142) (cid:201)˘ˆ˘ww˘(cid:201) ”(cid:132)(cid:204)(cid:128)(cid:136)˘ qØH˘t Ø(cid:132)(cid:201) (cid:128)q‰˘w ”(cid:132)m˘tq(cid:136)˘(cid:132)q w˘‡Øq˘(cid:201) (cid:136)Øqq˘wt Øt L˘‡‡ Øt q‰˘ ˘ˆˆ˘(cid:204)q (cid:128)ˆ (cid:204)‰Ø(cid:132)(cid:192)˘t ”(cid:132)
L(cid:128)w(cid:181)”(cid:132)(cid:192) (cid:204)Ø}”q؇ Ø(cid:132)(cid:201) (cid:128)q‰˘w Ø(cid:204)q”m”q”˘t(cid:136)
]ow (cid:204)Øt‰ ˆ‡(cid:128)L ˆw(cid:128)(cid:136) (cid:128)}˘wØq”(cid:132)(cid:192) Ø(cid:204)q”m”q”˘t Øw˘ Øqqw”ŁoqØŁ‡˘ q(cid:128) (cid:128)ow (cid:132)˘q ”(cid:132)(cid:204)(cid:128)(cid:136)˘ Øt L˘‡‡ Øt ‰(cid:128)L L˘‡‡ L˘ (cid:136)Ø(cid:132)Ø(cid:192)˘ (cid:128)ow
L(cid:128)w(cid:181)”(cid:132)(cid:192) (cid:204)Ø}”q؇(cid:142) L‰”(cid:204)‰ ”t (cid:201)”(cid:204)qØq˘(cid:201) ŁD q‰˘ m(cid:128)‡o(cid:136)˘ (cid:128)ˆ }w(cid:128)(cid:201)o(cid:204)q L˘ }ow(cid:204)‰Øt˘ ˆw(cid:128)(cid:136) (cid:128)ow (cid:136)Ø(cid:132)oˆØ(cid:204)qow˘wt (cid:128)w to}}‡”˘wt Ø(cid:132)(cid:201) q‰˘(cid:132)
t˘‡‡ q(cid:128) (cid:128)ow (cid:204)otq(cid:128)(cid:136)˘wt ؇(cid:128)(cid:132)(cid:192) L”q‰ q‰˘ }ØD(cid:136)˘(cid:132)q Ø(cid:132)(cid:201) (cid:204)(cid:128)‡‡˘(cid:204)q”(cid:128)(cid:132) q˘w(cid:136)t q‰Øq L˘ (cid:132)˘(cid:192)(cid:128)q”Øq˘ L”q‰ q‰˘(cid:136)(cid:136) G˘ }ow(cid:204)‰Øt˘ Ø (cid:136)Ø•(cid:128)w”qD
(cid:128)ˆ (cid:128)ow }w(cid:128)(cid:201)o(cid:204)q ˆw(cid:128)(cid:136) t”(cid:192)(cid:132)”ˆ”(cid:204)Ø(cid:132)q to}}‡”˘wt ‡(cid:128)(cid:204)Øq˘(cid:201) ”(cid:132) (cid:215)t”Ø Ø(cid:132)(cid:201) (cid:141)˘H”(cid:204)(cid:128) q‰Øq (cid:192)˘(cid:132)˘w؇‡D }w(cid:128)m”(cid:201)˘ ot I(cid:131)(cid:139)(cid:201)ØD }ØD(cid:136)˘(cid:132)q q˘w(cid:136)t
ˆ(cid:128)w }w(cid:128)(cid:201)o(cid:204)qt }ow(cid:204)‰Øt˘(cid:201)(cid:136) ]ow t”(cid:192)(cid:132)”ˆ”(cid:204)Ø(cid:132)q (cid:204)otq(cid:128)(cid:136)˘wt Øw˘ ‡(cid:128)(cid:204)Øq˘(cid:201) ”(cid:132) q‰˘ K(cid:136)Q(cid:136) Øt L˘‡‡ Øt (cid:204)˘wqØ”(cid:132) ”(cid:132)q˘w(cid:132)Øq”(cid:128)(cid:132)؇ ‡(cid:128)(cid:204)Øq”(cid:128)(cid:132)t(cid:136) G˘
Ł˘‡”˘m˘ q‰Øq (cid:128)ow w˘‡Øq”(cid:128)(cid:132)t‰”} L”q‰ (cid:128)ow (cid:204)otq(cid:128)(cid:136)˘wt ”t (cid:192)(cid:128)(cid:128)(cid:201) Ø(cid:132)(cid:201) q‰Øq q‰˘t˘ (cid:204)otq(cid:128)(cid:136)˘wt Øw˘ ”(cid:132) (cid:192)(cid:128)(cid:128)(cid:201) ˆ”(cid:132)Ø(cid:132)(cid:204)”؇ (cid:204)(cid:128)(cid:132)(cid:201)”q”(cid:128)(cid:132)(cid:136) G˘
(cid:192)˘(cid:132)˘w؇‡D (cid:192)wØ(cid:132)q (cid:204)w˘(cid:201)”q q(cid:128) (cid:128)ow (cid:204)otq(cid:128)(cid:136)˘wt ŁØt˘(cid:201) (cid:128)(cid:132) q‰˘”w ˆ”(cid:132)Ø(cid:132)(cid:204)”؇ m”ØŁ”‡”qD Ø(cid:132)(cid:201) (cid:128)ow ‰”tq(cid:128)w”(cid:204)؇ (cid:204)(cid:128)‡‡˘(cid:204)q”(cid:128)(cid:132) ˘H}˘w”˘(cid:132)(cid:204)˘ L”q‰
q‰˘(cid:136)(cid:136) G˘ qD}”(cid:204)؇‡D w˘zo”w˘ }ØD(cid:136)˘(cid:132)q ˆw(cid:128)(cid:136) q‰˘(cid:136) L”q‰”(cid:132) U(cid:131) q(cid:128) QM (cid:201)ØDt (cid:128)ˆ (cid:128)ow ”(cid:132)m(cid:128)”(cid:204)˘ (cid:201)Øq˘ L”q‰ Ø ˆ˘L ˘H(cid:204)˘}q”(cid:128)(cid:132)t q‰Øq
˘Hq˘(cid:132)(cid:201) q‰˘ (cid:204)w˘(cid:201)”q q˘w(cid:136)t o} q(cid:128) ?(cid:131) (cid:201)ØDt(cid:136) Q”(cid:132)(cid:204)˘ L˘ Øw˘ }ØD”(cid:132)(cid:192) (cid:128)ow to}}‡”˘wt Øq (cid:128)w L”q‰”(cid:132) I(cid:131) (cid:201)ØDt (cid:128)ˆ ”(cid:132)m˘(cid:132)q(cid:128)wD }ow(cid:204)‰Øt˘
Ø(cid:132)(cid:201) (cid:128)ow }ØD(cid:136)˘(cid:132)q q˘w(cid:136)t (cid:128)(cid:132) (cid:128)ow Ø(cid:204)(cid:204)(cid:128)o(cid:132)qt w˘(cid:204)˘”mØŁ‡˘ Øw˘ L”q‰”(cid:132) QM (cid:201)ØDt(cid:142) L˘ ‰Øm˘ ‰”tq(cid:128)w”(cid:204)؇‡D (cid:192)˘(cid:132)˘wØq˘(cid:201) }(cid:128)t”q”m˘ (cid:204)Øt‰
ˆ‡(cid:128)Lt ˆw(cid:128)(cid:136) (cid:128)}˘wØq”(cid:132)(cid:192) Ø(cid:204)q”m”q”˘t(cid:136)
(cid:160)(cid:128)w q‰˘ ˆ”t(cid:204)؇ D˘Øw ˘(cid:132)(cid:201)˘(cid:201) (cid:160)˘ŁwoØwD X?(cid:142) X(cid:131)X(cid:131)(cid:142) (cid:132)˘q (cid:204)Øt‰ }w(cid:128)m”(cid:201)˘(cid:201) ŁD (cid:128)}˘wØq”(cid:132)(cid:192) Ø(cid:204)q”m”q”˘t LØt "[[(cid:136)M (cid:136)”‡‡”(cid:128)(cid:132) L”q‰ Ø
(cid:132)˘q ‡(cid:128)tt LØt "E?(cid:136)U (cid:136)”‡‡”(cid:128)(cid:132)(cid:136) ]ow (cid:132)(cid:128)(cid:132)(cid:139)(cid:204)Øt‰ ˘H}˘(cid:132)t˘t(cid:142) (cid:204)(cid:128)(cid:136)}w”t˘(cid:201) }w”(cid:132)(cid:204)”}؇‡D (cid:128)ˆ (cid:201)˘}w˘(cid:204)”Øq”(cid:128)(cid:132)(cid:142) ”(cid:132)qØ(cid:132)(cid:192)”Ł‡˘ Øtt˘qt
Ø(cid:136)(cid:128)wq”AØq”(cid:128)(cid:132)(cid:142) tq(cid:128)(cid:204)(cid:181)(cid:139)ŁØt˘(cid:201) (cid:204)(cid:128)(cid:136)}˘(cid:132)tØq”(cid:128)(cid:132) ˘H}˘(cid:132)t˘(cid:142) Ø(cid:136)(cid:128)wq”AØq”(cid:128)(cid:132) (cid:128)ˆ (cid:204)(cid:128)(cid:132)m˘wq”Ł‡˘ (cid:201)˘Łq
”tto˘ (cid:204)(cid:128)tqt Ø(cid:132)(cid:201) (cid:201)”t(cid:204)(cid:128)o(cid:132)q(cid:142)
”(cid:136)}Ø”w(cid:136)˘(cid:132)q ‡(cid:128)tt(cid:142) m؇oØq”(cid:128)(cid:132) ؇‡(cid:128)LØ(cid:132)(cid:204)˘ (cid:128)(cid:132) (cid:201)˘ˆ˘ww˘(cid:201) ”(cid:132)(cid:204)(cid:128)(cid:136)˘ qØH Øtt˘qt Ø(cid:132)(cid:201) ˘zo”qD ”(cid:132) (cid:132)˘q ‡(cid:128)tt (cid:128)ˆ ؈ˆ”‡”Øq˘ Ø(cid:132)(cid:201) w˘‡Øq˘(cid:201)
”(cid:136)}Ø”w(cid:136)˘(cid:132)q ‡(cid:128)tt(cid:142) LØt Ø "?B(cid:136)X (cid:136)”‡‡”(cid:128)(cid:132) t(cid:128)ow(cid:204)˘ (cid:128)ˆ (cid:204)Øt‰ ”(cid:132) ˆ”t(cid:204)؇ X(cid:131)X(cid:131)(cid:136) (cid:211)‰Ø(cid:132)(cid:192)˘t ”(cid:132) (cid:128)}˘wØq”(cid:132)(cid:192) Øtt˘qt Ø(cid:132)(cid:201) ‡”ØŁ”‡”q”˘t
w˘}w˘t˘(cid:132)q˘(cid:201) Ø "E(cid:136)B (cid:136)”‡‡”(cid:128)(cid:132) otØ(cid:192)˘ (cid:128)ˆ (cid:204)Øt‰(cid:142) }w”(cid:136)Øw”‡D (cid:201)w”m˘(cid:132) ŁD (cid:204)‰Ø(cid:132)(cid:192)˘t ”(cid:132) L(cid:128)w(cid:181)”(cid:132)(cid:192) (cid:204)Ø}”q؇ ”(cid:132)(cid:204)‡o(cid:201)”(cid:132)(cid:192) Ø (cid:201)˘(cid:204)w˘Øt˘ ”(cid:132)
Ø(cid:204)(cid:204)(cid:128)o(cid:132)qt }ØDØŁ‡˘ Ø(cid:132)(cid:201) Ø(cid:132) ”(cid:132)(cid:204)w˘Øt˘ ”(cid:132) ”(cid:132)m˘(cid:132)q(cid:128)wD Łoq }Øwq”؇‡D (cid:128)ˆˆt˘q ŁD Ø (cid:201)˘(cid:204)w˘Øt˘ ”(cid:132) Ø(cid:204)(cid:204)(cid:128)o(cid:132)qt w˘(cid:204)˘”mØŁ‡˘(cid:136)
(cid:160)(cid:128)w q‰˘ D˘Øwt ˘(cid:132)(cid:201)˘(cid:201) (cid:160)˘ŁwoØwD XB(cid:142) X(cid:131)[? Ø(cid:132)(cid:201) X(cid:131)[B(cid:142) (cid:132)˘q (cid:204)Øt‰ }w(cid:128)m”(cid:201)˘(cid:201) ŁD (cid:128)}˘wØq”(cid:132)(cid:192) Ø(cid:204)q”m”q”˘t LØt "QE(cid:136)E (cid:136)”‡‡”(cid:128)(cid:132) Ø(cid:132)(cid:201)
"II(cid:136)? (cid:136)”‡‡”(cid:128)(cid:132)(cid:142) w˘t}˘(cid:204)q”m˘‡D(cid:136) ]ow (cid:204)Øt‰ ˆ‡(cid:128)Lt ˆw(cid:128)(cid:136) (cid:128)}˘wØq”(cid:128)(cid:132)t L˘w˘ ”(cid:136)}Ø(cid:204)q˘(cid:201) ŁD (cid:128)ow (cid:132)˘q ”(cid:132)(cid:204)(cid:128)(cid:136)˘ (cid:128)ˆ "[B(cid:136)Q (cid:136)”‡‡”(cid:128)(cid:132) Ø(cid:132)(cid:201)
"[I(cid:136)I (cid:136)”‡‡”(cid:128)(cid:132) Ø(cid:132)(cid:201) Ø (cid:192)Ø”(cid:132) ˆw(cid:128)(cid:136) ‡˘(cid:192)؇ t˘qq‡˘(cid:136)˘(cid:132)q L”q‰ Ø ˆ(cid:128)w(cid:136)˘w to}}‡”˘w (cid:128)ˆ (cid:143)(cid:128)(cid:148)Ø(cid:204)(cid:181) (cid:128)ˆ "[B(cid:136)U (cid:136)”‡‡”(cid:128)(cid:132) Ø(cid:132)(cid:201) "XB(cid:136)U (cid:136)”‡‡”(cid:128)(cid:132)(cid:142)
w˘t}˘(cid:204)q”m˘‡D(cid:142) Øt L˘‡‡ Øt t”(cid:136)”‡Øw Ø(cid:204)q”m”q”˘t L”q‰”(cid:132) (cid:128)q‰˘w (cid:132)(cid:128)(cid:132)(cid:139)(cid:204)Øt‰ ”q˘(cid:136)t Ø(cid:132)(cid:201) (cid:204)‰Ø(cid:132)(cid:192)˘t ”(cid:132) L(cid:128)w(cid:181)”(cid:132)(cid:192) (cid:204)Ø}”q؇ Øt (cid:132)(cid:128)q˘(cid:201) ØŁ(cid:128)m˘(cid:136)
QB
Cash flows from investing activities
For the years ended February 29, 2020, February 28, 2019 and 2018, our net cash used in investing activities
was $65.7 million, $21.8 million, and $26.5 million, respectively. In each of these periods, our primary investing
activities consisted of capital expenditures and the purchase and sale of marketable securities in accordance with our
corporate investment policy as well as strategic initiatives including certain investments in and advances to our affiliate
and acquisitions. In fiscal 2020, we completed the acquisition of LoJack Mexico and Synovia for $12.7 million and
$48.9 million, net of cash acquired, respectively. In fiscal 2019, we completed the acquisition of Tracker UK for
approximately $13.0 million, net of cash acquired.
Our capital expenditures support our increased employee headcount and overall growth in our business. We
expect that we may make additional capital expenditures in the future, all of which would be done to support the future
growth of our business.
Cash flows from financing activities
For the years ended February 29, 2020, February 28, 2019 and 2018, our net cash (used in) provided by financing
activities was $(94.8) million, $98.5 million and $(2.3) million, respectively. In each of these periods, we incurred
payments for taxes related to the net share settlement of vested equity awards and the proceeds for the exercise of
stock options. In fiscal 2020, we entered into separate, privately negotiated purchase agreements to repurchase
approximately $94.9 million in aggregate principal amount of these notes for $94.7 million. In fiscal 2019, we issued
$230.0 million of the 2025 Convertible Notes and used the net proceeds to pay the cost of the capped call transactions;
repurchase shares of our common stock for $49 million, and repurchase a portion of our outstanding 2020 Convertible
Notes as discussed above for $53.7 million. We also received proceeds of $3.1 million from the unwinding of the note
hedges and warrants related to the 2020 Convertible Notes.
We are currently monitoring the impact of COVID-19 on our operating results and liquidity as we believe the
pandemic may have an unfavorable impact on our financial condition and results of operations. We have implemented
certain cost containment and cash flow control measures especially in areas such as personnel, travel and other
discretionary spend. As of February 29, 2020, we had cash and cash equivalents of $107.4 million and $50 million
available under our existing revolving credit facility. Accordingly, we believe that our existing cash and cash
equivalents, funds anticipated to be generated from our operations and available borrowing on our revolving credit
facility will be sufficient to meet our working capital needs for at least the next 12 months. Our future capital
requirements may vary from those currently planned and will depend on many factors, including our rate of sales
growth, the timing and extent of spending on various business initiatives, our international expansion, the timing of
new product introductions, market acceptance of our products and overall economic conditions including the potential
impact of COVID-19 on the global financial markets. To the extent that current and anticipated future sources of
liquidity are insufficient to fund our future business activities and requirements, we may be required to seek additional
equity or debt financing.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of the Securities and Exchange
Commission Regulation S-K.
49
Contractual Obligations
Following is a summary of our contractual cash obligations as of February 29, 2020 (in thousands):
Contractual Obligations
Convertible senior notes principal
Convertible senior notes stated interest
Operating leases
Purchase obligations
Total contractual obligations
Less than
1 – 3
years
Future Estimated Cash Payments Due by Period
3 – 5
years
1 year
$ 27,599 $
4,824
6,087
38,761
> 5 years Total
- $ 230,000 $ 257,599
25,524
35,496
38,761
$ 77,271 $ 20,027 $ 17,830 $ 242,252 $ 357,380
- $
9,200
10,827
-
9,200
8,630
-
2,300
9,952
-
Purchase obligations consist primarily of inventory purchase commitments.
Critical Accounting Policies
We prepare our consolidated financial statements in accordance with accounting principles generally accepted
in the U.S.. The preparation of these consolidated financial statements requires us to make estimates, assumptions and
judgments that can significantly impact the amount we report as assets, liabilities, revenues, costs and expenses and
the related disclosures. We base our estimates on historical experience and other assumptions that we believe are
reasonable under the circumstances. We believe that the accounting policies discussed below are critical to
understanding our historical and future performance as these policies involve a greater degree of judgment and
complexity.
Revenue Recognition
In May 2014, the FASB issued Accounting Standards Update 2014-09, Revenue from Contracts with Customers
(“ASC 606”). The new revenue recognition standard provides a five-step analytical framework for transactions to
determine when and how revenue is recognized. The core principle is that a company should recognize revenue to
depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which
the entity expects to be entitled in exchange for those goods or services. In order to adhere to this core principle, we
apply the following five-step approach:
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
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.
The two permitted transition methods under the new standard are the full retrospective method or the modified
retrospective method. We adopted the new standard effective March 1, 2018 using the modified retrospective method,
which we applied to all contracts that were not completed on adoption date. We applied the provisions of ASC 605 to
revenue recognized during fiscal year ended February 28, 2018.
Telematics 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. Such arrangements do not involve contracts with customers for future service commitments or
performance obligations. 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.
50
Application Services, subscriptions and related devices. We recognize the following revenues (and related cost
of revenues) in our Application subscriptions and related products and service 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, vehicle finance 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 via 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 in 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. Subscription renewal fees are recognized ratably over the term of the renewal. The deferred
revenue and product 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 are three years in the vehicle finance and four to five years in the fleet management verticals.
Our deferred contract revenue under ASC 606 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. From time to time we sell these vehicle location devices and
monitoring services separately to customers and sell similar devices on a stand-alone basis to licensees. Accordingly,
we recognize revenues for the sales of these 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 the
estimated stand-alone selling prices for the devices and the monitoring services.
Deferred revenues consist primarily of the deferred amounts related to the integrated SaaS solutions and advance
payments received from customers for vehicle location monitoring and recovery services.
Professional Services. We also provide various professional services to customers. These include project
management, engineering services, installation services and an on-going early warning automated notification service,
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. These are generally short-term
projects which do not require significant judgement or estimation.
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. 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. The deferred costs of
hardware are capitalized and amortized over the estimated useful life of the device on a straight-line basis.
51
Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable consists of amounts due from sales arrangements executed in our normal business activities
and are recorded at invoiced amounts. We maintain an allowance for doubtful accounts for uncollectible receivables.
We determine the sufficiency of the accounts receivable allowance based upon historical experience and an evaluation
of current industry trends and economic conditions. The current global economic and business conditions attributable
to COVID-19 may have an unfavorable impact on our customers and impact our ability to collect on outstanding
accounts receivable. If our actual collection experience varies significantly from our estimates, we may be required to
adjust our allowance for doubtful accounts. Historical variances of these amounts from our estimates have not resulted
in material adjustments to our financial statements.
Inventories
We evaluate the carrying value of inventory on a quarterly basis to determine if the carrying value is recoverable
at estimated selling prices. To the extent that estimated selling prices do not exceed the associated carrying values,
inventory carrying amounts are written down. In addition, we generally treat inventory on hand or committed with
suppliers, that is not expected to be sold in the near term, as excess and thus appropriate write-downs of the inventory
carrying amounts are established through a charge to cost of revenues. Estimated usage in the next 12 months is based
on firm demand represented by orders in backlog at the end of the quarter and management's estimate of sales beyond
existing backlog, giving consideration to customers' forecasted demand, ordering patterns and product life cycles. A
large portion of our inventory was purchased within the last two years, which we believe mitigates our exposure to
material excess or obsolescence at this time, although ongoing changes in cellular carrier technology, supplier changes,
closure of our warehouse facilities, 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.
Patent Litigation and Other Contingencies
We operate in an industry where there may be certain claims made against us related to patent infringement and
other matters. We accrue for these claims whenever we determine that an unfavorable outcome is probable and the
liability is reasonably estimable. The amount of the accrual is estimated based on our review of each individual claim,
including the type and facts of the claim and our assessment of the merits of the claim. Since these legal matters can
be very complex and require significant judgement, we often utilize external legal counsel and other subject matter
experts to assist us in defending against such claims. 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. Although we believe that we take reasonable and considerable measures to mitigate our
exposure in these matters, the outcome of litigation is inherently unpredictable. Nonetheless, 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.
52
Income Taxes
We use the asset and liability method when accounting for income taxes. Under this method, deferred income
tax assets and liabilities are recognized for future tax consequences attributable to the difference between the financial
statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax
credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to the
taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the
enactment date. Under U.S. GAAP we are allowed to make an accounting policy choice to either: (1) treat taxes due
on future GILTI inclusions in U.S. taxable income as a current-period expense when incurred (the “period cost
method”); or (2) factor in such amounts into our measurement of our deferred taxes (the “deferred method”). We have
elected to account for GILTI as a period cost in the year the tax is incurred. Accordingly, no GILTI-related deferred
amounts were recorded. We recognize the effect of income tax positions only if those positions are more likely than
not of being sustained. Changes in recognition or measurement are reflected in the period in which the change in
judgment occurs. Valuation allowances are provided against deferred tax assets when it is determined that it is more
likely than not that the assets will not be realized. In assessing valuation allowances, we review historical and future
expected operating results and other factors, including cumulative earnings experience, expectations of future taxable
income by jurisdiction, and the carryforward periods available for income tax purposes. We make estimates,
assumptions and judgments to determine our provision for income taxes, our deferred tax assets and liabilities, and
any valuation allowances recorded against our deferred tax assets.
Business Combinations
The purchase price of an acquisition is allocated to the underlying assets acquired and liabilities assumed based
upon their estimated fair values at the date of acquisition. To the extent the purchase price exceeds the aggregate fair
value of the net identifiable tangible and intangible assets acquired and labilities 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 adjust 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. While we use our best estimates and assumptions to accurately value assets acquired
and liabilities assumed at the acquisition date, these estimates are uncertain and subject to refinement. As a result, we
may record adjustments to the fair value of the assets and liabilities with a corresponding adjustment to goodwill
during the measurement period. Upon conclusion of the measurement period, the impact of any subsequent
adjustments is included in our consolidated statement of comprehensive income (loss).
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 Other Intangible and Long-lived Assets
At February 29, 2020, we had $106.3 million in goodwill and $45.9 million in other net intangible assets,
recorded on our consolidated balance sheet.
Goodwill represents the excess of the purchase price over the fair value of the net tangible and intangible assets
acquired in a business combination and consists primarily of goodwill from the Synovia and recent LoJack related
acquisitions. Prior to the fourth quarter of fiscal 2020, our two operating segments, Telematics Systems and Software
& Subscription Services, also represent our two reporting units for goodwill impairment testing. During the fourth
quarter, we changed our reporting structure, resulting in four reporting units with two reporting units under each of
our operating segment. Our Telematics Systems segment includes $51.2 million of goodwill and our Software &
Subscription Service segment includes $55.1 million.
53
Goodwill is not amortized but we perform an annual qualitative assessment of our goodwill during the fourth
quarter of each calendar year, or at other reporting periods within the fiscal year as may be required, to determine if
any events or circumstances exist, such as decline in our stock price, significant differences in our forecasts compared
to actual results, changes in our business climate or a decline in overall industry demand, that would indicate that it is
more likely than not that the fair value of a reporting unit is below its carrying amount. In accordance with Accounting
Standards Update 2017-04, Simplifying the Test for Goodwill Impairment (“ASU 2017-04”), which we adopted in the
fourth quarter of fiscal 2020, the impairment test involves comparing the estimated fair value of a reporting unit with
its book value, including goodwill. If the estimated fair value exceeds book value, goodwill is considered not to be
impaired. If, however, the fair value of the reporting unit is less than book value, then an impairment loss is recognized
in an amount equal to the amount that the book value of the reporting unit exceeds its fair value, not to exceed the
total amount of goodwill allocated to the reporting unit. For the purpose of impairment testing, we estimated the fair
value of each of our reporting units to be higher than the book value as of February 29, 2020. As a result, we have
determined that there has been no impairment of goodwill for all periods presented.
Acquired intangible assets with definite lives consist primarily of asset acquired in the LoJack related
acquisition, including tradenames, dealer relationships and developed technology and are amortized on a straight-line
basis over the remaining estimated economic life of the underlying products, technologies or relationships. We review
our definite lived long-lived assets for impairment whenever events or changes in circumstances indicate that the
carrying amount of a long-lived asset may not be recoverable. Recoverability of an asset group is first evaluated by
comparing its carrying amount to the expected future undiscounted cash flows that the lowest level of asset group is
expected to generate. Certain of our other intangible and long-lived assets share resources and have interdependent
cash flows across our segments, product and service verticals and geographies. If we determine that an intangible or
long-lived asset or asset group is not recoverable, an impairment loss is recorded in the amount by which the carrying
amount of the asset group exceeds its estimated fair value.
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:
(cid:129)
(cid:129)
(cid:129)
future revenue and profitability projections associated with the tradename through a 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).
We estimate the fair value of goodwill and other long-lived assets other than tradenames based on discounted
cash flow techniques (Level 3 determination of fair value). Significant inputs to the valuation model include:
(cid:129)
(cid:129)
(cid:129)
estimated future cash flows;
growth assumptions for future revenues as well as future gross margin rates, expense rates, capital
expenditures and other estimates; and
rate used to discount our estimated future cash flow projections to their present value (or estimated fair
value) based on our estimated weighted average cost of capital.
54
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 our LoJack tradename and US dealer
relationships intangible assets and certain other long-lived assets were impaired in fiscal year 2020 and recorded total
impairment losses of $19.1 million. There was no impairment of goodwill for fiscal 2020 and fiscal 2019. The fair
value of the LoJack US SVR reporting unit exceeds its carrying amount by approximately 8% as of February 29, 2020.
Any deterioration in future cash flows of this reporting unit may result in impairment of its goodwill, which was
approximately $12 million as of February 29, 2020. Any reduction in the revenue forecast utilized for the impairment
test of the LoJack tradename, which had a carrying value of $10.5 million as of February 29, 2020, may result in
additional impairment. Our stock price has declined subsequent to year-end because of COVID-19 and other market
factors. We will evaluate if this decline is more than temporary as an impairment indicator for assessing the carrying
amount of our goodwill and long-lived assets in future periods.
Forward Looking Statements
Forward looking statements in this Annual Report on Form 10-K which include, without limitation, statements
relating to our plans, strategies, objectives, expectations, intentions, projections and other information regarding future
performance, are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.
The words “may”, “will”, “could”, “plans”, “intends”, “seeks”, “believes”, “anticipates”, “expects”, “estimates”,
“judgment”, “goal”, and variations of these words and similar expressions, are intended to identify forward-looking
statements. These forward-looking statements reflect our current views with respect to future events and financial
performance and are subject to certain risks and uncertainties that are difficult to predict, including, without limitation,
product demand, competitive pressures and pricing declines in our markets, the timing of customer approvals of new
product designs, intellectual property infringement claims, interruption or failure of our Internet-based systems used
to wirelessly configure and communicate with the tracking and monitoring devices that we sell, our potential needs
for additional capital, the impact of adverse and uncertain economic conditions in the U.S. and international markets,
the effects of global outbreaks of pandemics or contagious diseases or fear of such outbreaks, such as the recent
coronavirus (COVID-19) pandemic, our ability to accurately forecast demand for our products and manage our
inventory, our ability to successfully enter new geographic markets, manage our international expansion and comply
with any applicable laws and regulations, significant disruption in, or breach in security of our ERP systems and
resultant interruptions in service and any related impact on our reputation, the attraction and retention of qualified
employees and key personnel and our ability to maintain our corporate culture as we continue to grow, the sufficiency
of our cash and cash equivalents to meet our liquidity needs and service our indebtedness, and other risks and
uncertainties that are set forth under the caption in Part I, Item 1A of this Annual Report on Form 10-K (Risk Factors).
Such risks and uncertainties could cause actual results to differ materially and adversely from historical or anticipated
results. Although we believe the expectations reflected in such forward-looking statements are based upon reasonable
assumptions, we can give no assurance that our expectations will be attained. We undertake no obligation to revise or
publicly release the results of any revision to these forward-looking statements, except as required by law. Given these
risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.
55
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Foreign Currency Risk
We have international operations, giving rise to exposure to market risks from changes in currency exchange
rates. A cumulative foreign currency translation loss of $1.4 million related to our foreign subsidiaries is included in
accumulated other comprehensive loss in the stockholders' equity section of the consolidated balance sheet at
February 29, 2020. The aggregate foreign currency transaction exchange rate losses included in determining income
(loss) before income taxes and equity in net loss of affiliate were $(0.2) million, $(0.4) million and $0.5 million in
fiscal years ended February 29, 2020, February 28, 2019 and 2018, respectively.
Interest Rate Risk
Our exposure to market rate risk for changes in interest rates relates primarily to our marketable securities
investment portfolio. The primary objective of our investment activities is to preserve principal and liquidity while at
the same time maximizing yields without significantly increasing risk. To achieve this objective, we maintain our
investments portfolio in a variety of available-for-sale fixed debt securities, including both government and corporate
obligations and money market funds. Investments in fixed rate interest bearing instruments carry a degree of interest
rate risk. Fixed rate securities may have their fair market value adversely impacted due to a rise in prevailing interest
rates. Due in part to these factors, we may suffer losses in principal if we need the funds prior to maturity and choose
to sell securities that have declined in market value due to changes in interest rates or perceived credit risk related to
the securities’ issuers.
On March 30, 2018, we entered into a revolving credit facility with JPMorgan Chase Bank, N.A. that provides
for borrowings of up to $50 million. On March 27, 2020, we entered into an amendment of the revolving credit facility
with J.P. Morgan to extend the term for 24 months to March 30, 2022. Borrowings under this revolving credit facility
bear interest at a Prime or LIBOR-based variable rate as selected by us on a periodic basis. There were no borrowings
outstanding under this revolving credit facility at February 29, 2020.
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
56
Report of Independent Registered Public Accounting Firm
To the stockholders and the Board of Directors of CalAmp Corp.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of CalAmp Corp and subsidiaries (the "Company")
as of February 29, 2020 and February 28, 2019, the related consolidated statements of comprehensive income (loss),
stockholders’ equity, and cash flows, for each of the three years in the period ended February 29, 2020, and the related
notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in
all material respects, the financial position of the Company as of February 29, 2020 and February 28, 2019, and the
results of its operations and its cash flows for each of the three years in the period ended February 29, 2020, in
conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (PCAOB), the Company's internal control over financial reporting as of February 29, 2020, based on criteria
established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations
of the Treadway Commission and our report dated May 5, 2020, expressed an unqualified opinion on the Company's
internal control over financial reporting.
Adoption of New Accounting Standards
As discussed in Note 1 to the financial statements, the Company has changed its method of accounting for leases in
fiscal year 2020 due to the adoption of Accounting Standards Update ASU 2016-02, Leases, using the modified
retrospective approach.
As discussed in Note 1 to the financial statements, the Company has changed its method of accounting for revenue in
fiscal year 2019 due to the adoption of Accounting Standards Update ASU 2014-09, Revenue from Contracts with
Customers, using the modified retrospective approach.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an
opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with
the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal
securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material
misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to
those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in
the financial statements. Our audits also included evaluating the accounting principles used and significant estimates
made by management, as well as evaluating the overall presentation of the financial statements. We believe that our
audits provide a reasonable basis for our opinion.
/s/ Deloitte & Touche LLP
Costa Mesa, CA
May 5, 2020
We have served as the Company's auditor since 2018.
57
CALAMP CORP.
CONSOLIDATED BALANCE SHEETS
(In thousands, except par value)
Assets
Current assets:
Cash and cash equivalents
Short-term marketable securities
Accounts receivable, net
Inventories
Prepaid expenses and other current assets
Total current assets
Property and equipment, net
Operating lease right-of-use assets
Deferred income tax assets
Goodwill
Other intangible assets, net
Other assets
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of long-term debt
Accounts payable
Accrued payroll and employee benefits
Deferred revenue
Other current liabilities
Total current liabilities
Long-term debt, net of current portion
Operating lease liabilities
Other non-current liabilities
Total liabilities
Commitments and contingencies (see Notes 19)
Stockholders' equity:
Preferred stock, $.01 par value; 3,000 shares authorized;
no shares issued or outstanding
Common stock, $.01 par value; 80,000 shares authorized;
34,322 and 33,555 shares issued and outstanding
at February 29, 2020 and February 28, 2019, respectively
Additional paid-in capital
Accumulated deficit
Accumulated other comprehensive loss
Total stockholders' equity
$
$
$
February 29/28,
2020
2019
107,404 $
-
72,273
36,778
21,411
237,866
55,878
20,626
4,437
106,335
45,895
24,768
495,805 $
33,119 $
28,450
9,049
34,704
16,153
121,475
177,088
24,279
35,044
357,886
256,500
17,512
78,079
32,033
19,373
403,497
27,023
-
22,626
80,805
47,165
22,510
603,626
-
39,898
8,808
24,264
10,622
83,592
275,905
-
38,476
397,973
-
-
343
220,482
(81,531)
(1,375)
137,919
495,805 $
336
208,205
(2,227)
(661)
205,653
603,626
$
See accompanying notes to consolidated financial statements.
58
CALAMP CORP.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands, except per share amounts)
Revenues:
Telematics Products
$
Application subscriptions and related products and other services
Total revenues
Cost of revenues:
Telematics Products
Application subscriptions and related products and other services
Total cost of revenues
Gross profit
Operating expenses:
Research and development
Selling and marketing
General and administrative
Intangible asset amortization
Impairment loss
Restructuring
Total operating expenses
Operating income (loss)
Non-operating income (expense):
Investment income
Interest expense
Gain on legal settlement
Loss on extinguishment of debt
Other income (expense), net
Income (loss) before income taxes and equity in net loss of affiliate
and related impairment loss
Income tax benefit (provision)
Income (loss) before equity in net loss of affiliate and related
impairment loss
Equity in net loss of affiliate and related impairment loss
Net income (loss)
Earnings (loss) per share:
Basic
Diluted
Shares used in computing earnings (loss) per share:
Basic
Diluted
Comprehensive income (loss):
Net income (loss)
Other comprehensive income (loss):
$
$
$
Year Ended February 29/28,
2019
2018
2020
241,212 $
124,895
366,107
285,883 $
77,917
363,800
154,654
68,150
222,804
143,303
29,436
60,534
57,669
12,321
19,143
4,400
183,503
(40,200)
4,497
(20,096)
-
(2,408)
(113)
(18,120)
(58,320)
(20,454)
(78,774)
(530)
(79,304) $
175,009
41,027
216,036
147,764
27,656
49,892
31,070
11,436
-
8,015
128,069
19,695
5,258
(16,726)
18,333
(2,033)
(672)
4,160
23,855
1,330
25,185
(6,787)
18,398 $
301,700
64,212
365,912
181,889
33,133
215,022
150,890
25,761
50,096
52,089
14,989
-
-
142,935
7,955
2,256
(10,280)
28,333
-
445
20,754
28,709
(10,681)
18,028
(1,411)
16,617
(2.36) $
(2.36) $
0.53 $
0.52 $
0.47
0.46
33,670
33,670
34,589
35,294
35,250
36,139
$
(79,304) $
18,398 $
16,617
Foreign currency translation adjustments, net of tax
Unrealized income (loss) on available-for-sale securities, net
of tax
Total comprehensive income (loss)
(714)
(33)
(122)
-
(80,018) $
(429)
17,936 $
464
16,959
$
See accompanying notes to consolidated financial statements.
59
CALAMP CORP.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands)
Years Ended February 29/28,
2019
2018
2020
Total stockholders' equity, beginning balances
$
205,653 $
198,916 $
163,242
Common stock and additional paid-in capital:
Beginning balances
Equity component of 2025 Convertible Notes, net of tax
Purchase of capped call on 2025 Convertible Notes, net of tax
Debt issuance costs of 2025 Convertible Notes allocated to equity,
net of tax
Equity component of the repurchased 2020 Convertible Notes
Unwind of note hedges and warrants of 2020 Convertible Notes
Stock-based compensation expense
Shares issued on net share settlement of equity awards
Exercise of stock options and contributions to ESPP
Repurchases of common stock
Ending balances
Accumulated deficit:
Beginning balances
Cumulative adjustment upon adoption of ASU 2016-09, net of tax
Cumulative adjustment upon adoption of ASU 2016-01, net of tax
Cumulative adjustment upon adoption of ASC 606, net of tax
Net income (loss)
Ending balances
Accumulated other comprehensive income:
Beginning balances
Cumulative adjustment upon adoption of ASU 2016-01, net of tax
Foreign currency translation adjustments, net of tax
Ending balances
208,541
-
-
-
-
-
12,421
(2,007)
1,870
-
220,825
(2,227)
-
-
-
(79,304)
(81,531)
(661)
-
(714)
(1,375)
218,574
51,902
(15,870)
(1,649)
(6,088)
3,122
11,029
(3,603)
124
(49,000)
208,541
(19,459)
-
429
(1,595)
18,398
(2,227)
211,540
-
-
-
-
-
9,298
(2,594)
330
-
218,574
(47,757)
11,681
-
-
16,617
(19,459)
(199)
(429)
(33)
(661)
(541)
-
342
(199)
Total stockholders' equity, ending balances
$
137,919 $
205,653 $
198,916
See accompanying notes to consolidated financial statements.
60
CALAMP CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Year Ended February 29/28,
2019
2018
2020
$
(79,304) $
18,398 $
16,617
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
Depreciation
Intangible asset amortization expense
Stock-based compensation expense
Amortization of convertible debt issue costs and discount
Impairment loss
Impairment of operating lease right-of-use (ROU) assets
Noncash operating lease cost
Loss on extinguishment of debt
Revenue assigned to factors
Tax benefits on vested and exercised equity awards
Deferred tax assets, net
Unrealized foreign currency transaction gains (loss)
Equity in net loss of affiliate and related impairment loss
Changes in operating assets and liabilities, excluding effects from acquisitions:
Accounts receivable
Inventories
Prepaid expenses and other current assets
Accounts payable
Accrued liabilities
Deferred revenue
Operating lease liabilities
Other
NET CASH PROVIDED BY OPERATING ACTIVITIES
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities and sale of marketable securities
Purchases of marketable securities
Capital expenditures
Acquisitions, net of cash acquired
Equity investments in and advances to affiliate
Other
NET CASH USED IN INVESTING ACTIVITIES
CASH FLOWS FROM FINANCING ACTIVITIES:
19,666
12,321
12,421
13,764
19,143
1,210
4,894
2,408
(6,844)
-
18,552
211
530
9,602
1,017
362
(16,440)
3,975
1,905
(8,237)
388
11,544
37,055
(19,543)
(22,192)
(60,652)
(530)
164
(65,698)
8,580
11,436
11,029
11,492
-
-
-
2,033
-
758
(1,244)
404
6,787
(4,855)
5,435
(10,078)
1,876
(20,830)
6,153
-
366
47,740
56,358
(50,364)
(12,007)
(13,031)
(2,631)
(110)
(21,785)
Taxes paid related to net share settlement of vested equity awards
Proceeds from exercise of stock options
Proceeds from issuance of 2025 Convertible Notes
Payment of debt issuance costs of 2025 Convertible Notes
Purchase of capped call on 2025 Convertible Notes
Repurchase of 2020 Convertible Notes
Proceeds from unwind of note hedges and warrants on 2020 Convertible Notes
Repurchases of common stock
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
EFFECT OF EXCHANGE RATE CHANGES ON CASH
Net change in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
(2,007)
1,870
-
-
-
(94,683)
-
-
(94,820)
(122)
(149,096)
256,500
107,404 $
(3,603)
124
230,000
(7,305)
(21,160)
(53,683)
3,122
(49,000)
98,495
(553)
123,897
132,603
256,500 $
$
See accompanying notes to consolidated financial statements.
61
7,968
14,989
9,298
7,472
-
-
-
-
-
937
6,372
(524)
1,411
(6,447)
(6,516)
(4,607)
5,068
7,804
7,044
-
8
66,894
22,382
(38,077)
(8,339)
-
(2,281)
(136)
(26,451)
(2,594)
330
-
-
-
-
-
(2,264)
718
38,897
93,706
132,603
CALAMP CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 global technology
solutions pioneer leading transformation to a mobile connected economy. We help reinvent businesses and improve
lives around the globe with technology solutions that streamline complex mobile Internet of Things (“IoT”)
deployments through wireless connectivity solutions and derived data intelligence. Our software applications, scalable
cloud services, and intelligent devices collect and assess business-critical data anywhere in the world from industrial
machines, commercial and passenger vehicles, their drivers and contents. We are a global organization that is
headquartered in Irvine, California. We operate under two reportable segments: Telematics Systems and Software &
Subscription Services.
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.
Subsequent Events
We have evaluated subsequent events through May 5, 2020, which is the date our financial statements were
included in the Annual Report on Form 10-K.
In March 2020, the World Health Organization declared COVID-19 as a pandemic. The full impact of the
COVID-19 outbreak 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. We cannot predict the extent to which the COVID-19 outbreak will negatively
impact our business or operating results at this time.
We have considered all known and reasonably available information that existed as of February 29, 2020, 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.
Principles of Consolidation
Our consolidated financial statements include the accounts of CalAmp Corp. (a Delaware corporation) and all
of our wholly-owned subsidiaries. All intercompany transactions and accounts have been eliminated in consolidation.
62
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 (“ASC 606”), which provides
a five-step analytical framework for transactions to determine when and how revenue is recognized. The core principle
is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an
amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.
In order to adhere to this core principle, we apply the following five-step approach:
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
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
Application subscriptions and related products and service 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, vehicle finance 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
63
average in-service lives of these devices, which are three years in the vehicle finance and four years in the fleet
management verticals. 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 three 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 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 to licensees. 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 include project
management, engineering services, installation services and an on-going early warning automated notification service,
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 29, 2020, we recognized $23.8 million in revenue from the
deferred revenue balance of $51.4 million as of March 1, 2019. 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 Prepaid expenses and other current assets and Other
assets amounted to $2.0 million and $2.3 million, respectively, as of February 29, 2020. Prepaid sales commissions
in Prepaid expenses and other current assets are expected to be amortized within the next 12 months.
64
We disaggregate revenue from contracts with customers into reportable segments, geography, type of goods and
services and timing of revenue recognition. See Note 20 for our revenue by segment and geography. The
disaggregation of revenue by type of goods and services and by timing of revenue recognition was as follows (in
thousands):
Revenue by type of goods and services:
Telematics devices and accessories
Rental income and other services
Recurring application subscriptions
Total
Revenue by timing of revenue recognition:
Revenue recognized at a point in time
Revenue recognized over time
Total
Year Ended February 29/28,
2020
2019
$
$
$
$
258,449 $
24,415
83,243
366,107 $
279,880 $
86,227
366,107 $
295,750
13,293
54,757
363,800
300,378
63,422
363,800
Product 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.
We adopted ASC 606 under the modified retrospective method on March 1, 2018, and therefore we did not
present comparative information for the fiscal year ended February 28, 2018.
Remaining performance obligations 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 29, 2020 and February 28, 2019, we have estimated remaining performance
obligations for contractually committed revenues of $134.5 million and $51.4 million respectively. As of February
29, 2020, we expect to recognize approximately 44% in fiscal 2021 and 26% in fiscal 2022. As of February 28, 2019,
we expected to recognize approximately 48% in fiscal 2020 and 29% 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.
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.
65
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. The current global
economic and business conditions attributable to COVID-19 may have an unfavorable impact on our customers and
impact our ability to collect on outstanding accounts receivable. 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.
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, closure of our
warehouse facilities, 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 ten 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, (“ASC 350”). Goodwill is tested for impairment at least annually at the reporting unit level or whenever
events or changes in circumstances indicate that goodwill might be impaired. ASC 350 provides that an entity has the
option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a
determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If,
66
after assessing the totality of events or circumstances, an entity determines it is not more likely than not that the fair
value of a reporting unit is less than its carrying amount, then additional impairment testing is not required. However,
if an entity concludes otherwise, then it is required to perform an impairment test. Prior to the fourth quarter of fiscal
2020, our two operating segments, Telematics Systems and Software & Subscription Services, also represented our
two reporting units for goodwill impairment testing. During the fourth quarter, we changed our reporting structure,
resulting in four reporting units with two reporting units under each of our operating segments.
In accordance with Accounting Standards Update 2017-04, Simplifying the Test for Goodwill Impairment
(“ASU 2017-04”), which we adopted in the fourth quarter of fiscal 2020, the impairment test involves comparing the
estimated fair value of a reporting unit with its book value, including goodwill. If the estimated fair value exceeds
book value, goodwill is considered not to be impaired. If, however, the fair value of the reporting unit is less than book
value, then an impairment loss is recognized in an amount equal to the amount that the book value of the reporting
unit exceeds its fair value, not to exceed the total amount of goodwill allocated to the reporting unit.
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. In the fourth quarter of fiscal
2020, we determined that the prolonged secular decline in revenues from our legacy LoJack US 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 immediate
unfavorable impact that the COVID-19 pandemic has had on the automotive end markets commencing in February
2020. As a result, we initiated an assessment of the carrying amount of the related intangible and long-lived assets
supporting these products including the LoJack tradename and dealer and customer relationships.
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:
(cid:129)
(cid:129)
(cid:129)
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).
We estimate the fair value of goodwill and other long-lived assets other than tradenames based on discounted
cash flow techniques (Level 3 determination of fair value). Significant inputs to the valuation model include:
(cid:129)
(cid:129)
(cid:129)
estimated future cash flows;
growth assumptions for future revenues as well as future gross margin rates, expense rates, capital
expenditures and other estimates; and
rate used to discount our estimated future cash flow projections to their present value (or estimated fair
value) based on our estimated weighted average cost of capital.
67
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N‰˘w˘ LØt (cid:132)(cid:128) ”(cid:136)}Ø”w(cid:136)˘(cid:132)q (cid:128)ˆ (cid:192)(cid:128)(cid:128)(cid:201)L”‡‡ ˆ(cid:128)w ˆ”t(cid:204)؇ X(cid:131)X(cid:131) Ø(cid:132)(cid:201) ˆ”t(cid:204)؇ X(cid:131)[?(cid:136) N‰˘ ˆØ”w m؇o˘ (cid:128)ˆ q‰˘ (cid:143)(cid:128)(cid:148)Ø(cid:204)(cid:181) KQ QIT
w˘}(cid:128)wq”(cid:132)(cid:192) o(cid:132)”q ˘H(cid:204)˘˘(cid:201)t ”qt (cid:204)ØwwD”(cid:132)(cid:192) Ø(cid:136)(cid:128)o(cid:132)q ŁD Ø}}w(cid:128)H”(cid:136)Øq˘‡D B! Øt (cid:128)ˆ (cid:160)˘ŁwoØwD X?(cid:142) X(cid:131)X(cid:131)(cid:136) (cid:215)(cid:132)D (cid:201)˘q˘w”(cid:128)wØq”(cid:128)(cid:132) ”(cid:132) ˆoqow˘
(cid:204)Øt‰ ˆ‡(cid:128)Lt (cid:128)ˆ q‰”t w˘}(cid:128)wq”(cid:132)(cid:192) o(cid:132)”q (cid:136)ØD w˘to‡q ”(cid:132) ”(cid:136)}Ø”w(cid:136)˘(cid:132)q (cid:128)ˆ ”qt (cid:192)(cid:128)(cid:128)(cid:201)L”‡‡(cid:142) L‰”(cid:204)‰ ‰Ø(cid:201) Ø (cid:204)ØwwD”(cid:132)(cid:192) m؇o˘ (cid:128)ˆ Ø}}w(cid:128)H”(cid:136)Øq˘‡D
"[X (cid:136)”‡‡”(cid:128)(cid:132) Øt (cid:128)ˆ (cid:160)˘ŁwoØwD X?(cid:142) X(cid:131)X(cid:131)(cid:136) (cid:215)(cid:132)D w˘(cid:201)o(cid:204)q”(cid:128)(cid:132) ”(cid:132) q‰˘ w˘m˘(cid:132)o˘ ˆ(cid:128)w˘(cid:204)Øtq oq”‡”A˘(cid:201) ˆ(cid:128)w q‰˘ ”(cid:136)}Ø”w(cid:136)˘(cid:132)q q˘tq (cid:128)ˆ q‰˘
(cid:143)(cid:128)(cid:148)Ø(cid:204)(cid:181) qwØ(cid:201)˘(cid:132)Ø(cid:136)˘(cid:142) L‰”(cid:204)‰ ‰Ø(cid:201) Ø (cid:204)ØwwD”(cid:132)(cid:192) m؇o˘ (cid:128)ˆ "[(cid:131)(cid:136)M (cid:136)”‡‡”(cid:128)(cid:132) Øt (cid:128)ˆ (cid:160)˘ŁwoØwD X?(cid:142) X(cid:131)X(cid:131)(cid:142) (cid:136)ØD ؇t(cid:128) w˘to‡q ”(cid:132) Ø(cid:201)(cid:201)”q”(cid:128)(cid:132)؇
”(cid:136)}Ø”w(cid:136)˘(cid:132)q(cid:136) ]ow tq(cid:128)(cid:204)(cid:181) }w”(cid:204)˘ ‰Øt (cid:201)˘(cid:204)‡”(cid:132)˘(cid:201) toŁt˘zo˘(cid:132)q q(cid:128) D˘Øw(cid:139)˘(cid:132)(cid:201) Ł˘(cid:204)Øot˘ (cid:128)ˆ (cid:211)]I(cid:151)(cid:210)(cid:139)[? Ø(cid:132)(cid:201) (cid:128)q‰˘w (cid:136)Øw(cid:181)˘q ˆØ(cid:204)q(cid:128)wt(cid:136) G˘
L”‡‡ ˘m؇oØq˘ ”ˆ q‰”t (cid:201)˘(cid:204)‡”(cid:132)˘ ”t (cid:136)(cid:128)w˘ q‰Ø(cid:132) q˘(cid:136)}(cid:128)wØwD Øt Ø(cid:132) ”(cid:136)}Ø”w(cid:136)˘(cid:132)q ”(cid:132)(cid:201)”(cid:204)Øq(cid:128)w ˆ(cid:128)w Øtt˘tt”(cid:132)(cid:192) q‰˘ (cid:204)ØwwD”(cid:132)(cid:192) Ø(cid:136)(cid:128)o(cid:132)q (cid:128)ˆ
(cid:128)ow (cid:192)(cid:128)(cid:128)(cid:201)L”‡‡ Ø(cid:132)(cid:201) ‡(cid:128)(cid:132)(cid:192)(cid:139)‡”m˘(cid:201) Øtt˘qt ”(cid:132) ˆoqow˘ }˘w”(cid:128)(cid:201)t(cid:136)
(cid:160)Ø”w I؇o˘ (cid:141)˘Øtow˘(cid:136)˘(cid:132)qt
]ow (cid:204)Øt‰ ˘zo”m؇˘(cid:132)qt(cid:142) Ø(cid:204)(cid:204)(cid:128)o(cid:132)qt w˘(cid:204)˘”mØŁ‡˘(cid:142) Ø(cid:204)(cid:204)(cid:128)o(cid:132)qt }ØDØŁ‡˘ Ø(cid:132)(cid:201) Ø(cid:204)(cid:204)wo˘(cid:201) ˘H}˘(cid:132)t˘t Ø}}w(cid:128)H”(cid:136)Øq˘ ˆØ”w m؇o˘ (cid:201)o˘
q(cid:128) q‰˘ t‰(cid:128)wq(cid:139)q˘w(cid:136) (cid:136)Øqow”q”˘t (cid:128)ˆ q‰˘t˘ ”q˘(cid:136)t(cid:136) ]ow (cid:136)Øw(cid:181)˘qØŁ‡˘ t˘(cid:204)ow”q”˘t Øw˘ (cid:136)˘Øtow˘(cid:201) Øq ˆØ”w m؇o˘ (cid:128)(cid:132) Ø w˘(cid:204)oww”(cid:132)(cid:192) ŁØt”t(cid:136)
N‰˘ ˆwØ(cid:136)˘L(cid:128)w(cid:181) ˆ(cid:128)w (cid:136)˘Øtow”(cid:132)(cid:192) ˆØ”w m؇o˘ Ø(cid:132)(cid:201) w˘‡Øq˘(cid:201) (cid:201)”t(cid:204)‡(cid:128)tow˘ w˘zo”w˘(cid:136)˘(cid:132)qt ØŁ(cid:128)oq ˆØ”w m؇o˘ (cid:136)˘Øtow˘(cid:136)˘(cid:132)qt Øw˘
}w(cid:128)m”(cid:201)˘(cid:201) ”(cid:132) (cid:215)Q(cid:211) BX(cid:131)(cid:142) Fair Value Measurements (cid:153)(cid:215)Q(cid:211) BX(cid:131)(cid:151)(cid:136) N‰”t }w(cid:128)(cid:132)(cid:128)o(cid:132)(cid:204)˘(cid:136)˘(cid:132)q (cid:201)˘ˆ”(cid:132)˘t ˆØ”w m؇o˘ Øt q‰˘ }w”(cid:204)˘ q‰Øq
L(cid:128)o‡(cid:201) Ł˘ w˘(cid:204)˘”m˘(cid:201) q(cid:128) t˘‡‡ Ø(cid:132) Øtt˘q (cid:128)w }Ø”(cid:201) q(cid:128) qwØ(cid:132)tˆ˘w Ø ‡”ØŁ”‡”qD ”(cid:132) q‰˘ }w”(cid:132)(cid:204)”}؇ (cid:128)w (cid:136)(cid:128)tq Ø(cid:201)mØ(cid:132)qØ(cid:192)˘(cid:128)ot (cid:136)Øw(cid:181)˘q ˆ(cid:128)w q‰˘
Øtt˘q (cid:128)w ‡”ØŁ”‡”qD ”(cid:132) Ø(cid:132) (cid:128)w(cid:201)˘w‡D qwØ(cid:132)tØ(cid:204)q”(cid:128)(cid:132) Ł˘qL˘˘(cid:132) (cid:136)Øw(cid:181)˘q }Øwq”(cid:204)”}Ø(cid:132)qt (cid:128)(cid:132) q‰˘ (cid:136)˘Øtow˘(cid:136)˘(cid:132)q (cid:201)Øq˘(cid:136) N‰˘ ˆØ”w m؇o˘
‰”˘wØw(cid:204)‰D }w(cid:128)t(cid:204)w”Ł˘(cid:201) ŁD (cid:215)Q(cid:211) BX(cid:131) (cid:204)(cid:128)(cid:132)qØ”(cid:132)t q‰w˘˘ ‡˘m˘‡t Øt ˆ(cid:128)‡‡(cid:128)Lt=
Level 1 (cid:231) Wo(cid:128)q˘(cid:201) }w”(cid:204)˘t ”(cid:132) Ø(cid:204)q”m˘ (cid:136)Øw(cid:181)˘qt ˆ(cid:128)w ”(cid:201)˘(cid:132)q”(cid:204)؇ Øtt˘qt (cid:128)w ‡”ØŁ”‡”q”˘t(cid:136)
Level 2 (cid:231) ]Łt˘wmØŁ‡˘ ”(cid:132)}oqt (cid:128)q‰˘w q‰Ø(cid:132) zo(cid:128)q˘(cid:201) }w”(cid:204)˘t ”(cid:132) Ø(cid:204)q”m˘ (cid:136)Øw(cid:181)˘qt ˆ(cid:128)w ”(cid:201)˘(cid:132)q”(cid:204)؇ Øtt˘qt (cid:128)w ‡”ØŁ”‡”q”˘t(cid:142) zo(cid:128)q˘(cid:201)
}w”(cid:204)˘t ˆ(cid:128)w ”(cid:201)˘(cid:132)q”(cid:204)؇ (cid:128)w t”(cid:136)”‡Øw Øtt˘qt (cid:128)w ‡”ØŁ”‡”q”˘t ”(cid:132) ”(cid:132)Ø(cid:204)q”m˘ (cid:136)Øw(cid:181)˘qt(cid:142) (cid:128)w (cid:128)q‰˘w ”(cid:132)}oqt q‰Øq Øw˘ (cid:128)Łt˘wmØŁ‡˘ (cid:128)w (cid:204)Ø(cid:132) Ł˘
(cid:204)(cid:128)ww(cid:128)Ł(cid:128)wØq˘(cid:201) ŁD (cid:128)Łt˘wmØŁ‡˘ (cid:136)Øw(cid:181)˘q (cid:201)ØqØ ˆ(cid:128)w toŁtqØ(cid:132)q”؇‡D q‰˘ ˆo‡‡ q˘w(cid:136) (cid:128)ˆ q‰˘ Øtt˘qt (cid:128)w ‡”ØŁ”‡”q”˘t(cid:136)
Level 3 (cid:231) (cid:151)(cid:132)}oqt q‰Øq Øw˘ (cid:192)˘(cid:132)˘w؇‡D o(cid:132)(cid:128)Łt˘wmØŁ‡˘ Ø(cid:132)(cid:201) qD}”(cid:204)؇‡D w˘ˆ‡˘(cid:204)q (cid:136)Ø(cid:132)Ø(cid:192)˘(cid:136)˘(cid:132)q‚t ˘tq”(cid:136)Øq˘ (cid:128)ˆ Øtto(cid:136)}q”(cid:128)(cid:132)t
q‰Øq (cid:136)Øw(cid:181)˘q }Øwq”(cid:204)”}Ø(cid:132)qt L(cid:128)o‡(cid:201) ot˘ ”(cid:132) }w”(cid:204)”(cid:132)(cid:192) q‰˘ Øtt˘q (cid:128)w ‡”ØŁ”‡”qD(cid:136)
(cid:211)(cid:128)(cid:132)m˘wq”Ł‡˘ Q˘(cid:132)”(cid:128)w (cid:140)(cid:128)q˘t Ø(cid:132)(cid:201) (cid:211)Ø}}˘(cid:201) (cid:211)؇‡ NwØ(cid:132)tØ(cid:204)q”(cid:128)(cid:132)t
G˘ Ø(cid:204)(cid:204)(cid:128)o(cid:132)q ˆ(cid:128)w (cid:128)ow (cid:204)(cid:128)(cid:132)m˘wq”Ł‡˘ t˘(cid:132)”(cid:128)w (cid:132)(cid:128)q˘t Øt t˘}ØwØq˘ ‡”ØŁ”‡”qD Ø(cid:132)(cid:201) ˘zo”qD (cid:204)(cid:128)(cid:136)}(cid:128)(cid:132)˘(cid:132)qt(cid:136) G˘ (cid:201)˘q˘w(cid:136)”(cid:132)˘ q‰˘
(cid:204)ØwwD”(cid:132)(cid:192) Ø(cid:136)(cid:128)o(cid:132)q (cid:128)ˆ q‰˘ ‡”ØŁ”‡”qD (cid:204)(cid:128)(cid:136)}(cid:128)(cid:132)˘(cid:132)q ŁØt˘(cid:201) (cid:128)(cid:132) q‰˘ ˘tq”(cid:136)Øq˘(cid:201) ˆØ”w m؇o˘ (cid:128)ˆ Ø t”(cid:136)”‡Øw (cid:201)˘Łq ”(cid:132)tqwo(cid:136)˘(cid:132)q ˘H(cid:204)‡o(cid:201)”(cid:132)(cid:192)
q‰˘ ˘(cid:136)Ł˘(cid:201)(cid:201)˘(cid:201) (cid:204)(cid:128)(cid:132)m˘wt”(cid:128)(cid:132) (cid:128)}q”(cid:128)(cid:132) Øq q‰˘ ”ttoØ(cid:132)(cid:204)˘ (cid:201)Øq˘(cid:136) N‰˘ (cid:204)ØwwD”(cid:132)(cid:192) Ø(cid:136)(cid:128)o(cid:132)q (cid:128)ˆ q‰˘ ˘zo”qD (cid:204)(cid:128)(cid:136)}(cid:128)(cid:132)˘(cid:132)q w˘}w˘t˘(cid:132)q”(cid:132)(cid:192) q‰˘
(cid:204)(cid:128)(cid:132)m˘wt”(cid:128)(cid:132) (cid:128)}q”(cid:128)(cid:132) ”t (cid:204)؇(cid:204)o‡Øq˘(cid:201) ŁD (cid:201)˘(cid:201)o(cid:204)q”(cid:132)(cid:192) q‰˘ (cid:204)ØwwD”(cid:132)(cid:192) m؇o˘ (cid:128)ˆ q‰˘ ‡”ØŁ”‡”qD (cid:204)(cid:128)(cid:136)}(cid:128)(cid:132)˘(cid:132)q ˆw(cid:128)(cid:136) q‰˘ }w”(cid:132)(cid:204)”}؇ Ø(cid:136)(cid:128)o(cid:132)q
(cid:128)ˆ q‰˘ (cid:132)(cid:128)q˘t Øt Ø L‰(cid:128)‡˘(cid:136) N‰”t (cid:201)”ˆˆ˘w˘(cid:132)(cid:204)˘ w˘}w˘t˘(cid:132)qt Ø (cid:201)˘Łq (cid:201)”t(cid:204)(cid:128)o(cid:132)q q‰Øq ”t Ø(cid:136)(cid:128)wq”A˘(cid:201) q(cid:128) ”(cid:132)q˘w˘tq ˘H}˘(cid:132)t˘ (cid:128)m˘w q‰˘ q˘w(cid:136)
(cid:128)ˆ q‰˘ (cid:132)(cid:128)q˘t ot”(cid:132)(cid:192) q‰˘ ˘ˆˆ˘(cid:204)q”m˘ ”(cid:132)q˘w˘tq wØq˘ (cid:136)˘q‰(cid:128)(cid:201)(cid:136) N‰˘ ˘zo”qD (cid:204)(cid:128)(cid:136)}(cid:128)(cid:132)˘(cid:132)q (cid:128)ˆ q‰˘ (cid:132)(cid:128)q˘t ”t ”(cid:132)(cid:204)‡o(cid:201)˘(cid:201) ”(cid:132) tq(cid:128)(cid:204)(cid:181)‰(cid:128)‡(cid:201)˘wt‚
˘zo”qD Ø(cid:132)(cid:201) ”t (cid:132)(cid:128)q w˘(cid:136)˘Øtow˘(cid:201) Øt ‡(cid:128)(cid:132)(cid:192) Øt ”q (cid:204)(cid:128)(cid:132)q”(cid:132)o˘t q(cid:128) (cid:136)˘˘q q‰˘ (cid:204)(cid:128)(cid:132)(cid:201)”q”(cid:128)(cid:132)t ˆ(cid:128)w ˘zo”qD (cid:204)‡Øtt”ˆ”(cid:204)Øq”(cid:128)(cid:132)(cid:136) G˘ ؇‡(cid:128)(cid:204)Øq˘
qwØ(cid:132)tØ(cid:204)q”(cid:128)(cid:132) (cid:204)(cid:128)tqt w˘‡Øq˘(cid:201) q(cid:128) q‰˘ ”ttoØ(cid:132)(cid:204)˘ (cid:128)ˆ q‰˘ (cid:132)(cid:128)q˘t q(cid:128) q‰˘ ‡”ØŁ”‡”qD Ø(cid:132)(cid:201) ˘zo”qD (cid:204)(cid:128)(cid:136)}(cid:128)(cid:132)˘(cid:132)qt ot”(cid:132)(cid:192) q‰˘ tØ(cid:136)˘ }w(cid:128)}(cid:128)wq”(cid:128)(cid:132)t
Øt q‰˘ ”(cid:132)”q”؇ (cid:204)ØwwD”(cid:132)(cid:192) m؇o˘ (cid:128)ˆ q‰˘ (cid:132)(cid:128)q˘t(cid:136) NwØ(cid:132)tØ(cid:204)q”(cid:128)(cid:132) (cid:204)(cid:128)tqt Øqqw”ŁoqØŁ‡˘ q(cid:128) q‰˘ ‡”ØŁ”‡”qD (cid:204)(cid:128)(cid:136)}(cid:128)(cid:132)˘(cid:132)q Øw˘ Ł˘”(cid:132)(cid:192) Ø(cid:136)(cid:128)wq”A˘(cid:201)
q(cid:128) ”(cid:132)q˘w˘tq ˘H}˘(cid:132)t˘ ot”(cid:132)(cid:192) q‰˘ ˘ˆˆ˘(cid:204)q”m˘ ”(cid:132)q˘w˘tq (cid:136)˘q‰(cid:128)(cid:201) (cid:128)m˘w q‰˘ w˘t}˘(cid:204)q”m˘ q˘w(cid:136) (cid:128)ˆ q‰˘ (cid:132)(cid:128)q˘t(cid:142) Ø(cid:132)(cid:201) qwØ(cid:132)tØ(cid:204)q”(cid:128)(cid:132) (cid:204)(cid:128)tqt
Øqqw”ŁoqØŁ‡˘ q(cid:128) q‰˘ ˘zo”qD (cid:204)(cid:128)(cid:136)}(cid:128)(cid:132)˘(cid:132)qt Øw˘ (cid:132)˘qq˘(cid:201) L”q‰ q‰˘ ˘zo”qD (cid:204)(cid:128)(cid:136)}(cid:128)(cid:132)˘(cid:132)q (cid:128)ˆ q‰˘ (cid:132)(cid:128)q˘ ”(cid:132) tq(cid:128)(cid:204)(cid:181)‰(cid:128)‡(cid:201)˘wt‚ ˘zo”qD(cid:136) G˘
Ø(cid:204)(cid:204)(cid:128)o(cid:132)q ˆ(cid:128)w q‰˘ (cid:204)(cid:128)tq (cid:128)ˆ q‰˘ (cid:204)Ø}}˘(cid:201) (cid:204)؇‡t Øt Ø w˘(cid:201)o(cid:204)q”(cid:128)(cid:132) q(cid:128) Ø(cid:201)(cid:201)”q”(cid:128)(cid:132)؇ }Ø”(cid:201)(cid:139)”(cid:132) (cid:204)Ø}”q؇(cid:136)
IB
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 limited warranty against manufacturing defects and workmanship. We
estimate the future costs relating to product returns subject to our warranty and record a reserve upon shipment of our
products. We periodically adjust our estimates for actual warranty claims, historical claims experience as well as the
impact of known product quality issues.
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 Taxes
We use the asset and liability method when accounting for income taxes. Under this method, deferred income
tax assets and liabilities are recognized for future tax consequences attributable to difference between the financial
statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax
credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to the
taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the
enactment date. Under U.S. GAAP we are allowed to make an accounting policy choice to either: (1) treat taxes due
on future GILTI inclusions in U.S. taxable income as a current-period expense when incurred (the “period cost
method”); or (2) factor in such amounts into our measurement of our deferred taxes (the “deferred method”). We have
elected to account for GILTI as a period cost in the year the tax is incurred. Accordingly, no GILTI-related deferred
amounts were recorded. We recognize the effect of income tax positions only if those positions are more likely than
not of being sustained. Changes in recognition or measurement are reflected in the period in which the change in
judgement occurs. Valuation allowances are provided against net deferred tax assets when it is determined that it is
more likely than not that the assets will not be realized. In assessing valuation allowances, we review historical and
future expected operating results and other factors, including cumulative earnings experience, expectations of future
taxable income by jurisdiction and the carryforward periods available for reporting purposes.
In the fourth quarter of fiscal 2020, management assessed the available positive and negative evidence to
estimate whether sufficient future taxable income will be generated to permit the use of the existing net deferred tax
assets. Due to our recent decrease in profitability, three-year cumulative loss position considering forecasts of future
profitability and weighing all other positive and negative objective evidence, we determined that it is more likely than
not that our domestic net deferred tax assets will not be realized, as such a valuation allowance against our domestic
net deferred tax assets was established during the three months ended February 29, 2020. The amount of the deferred
tax assets considered realizable, however, could be adjusted in future periods in the event sufficient evidence is present
to support a conclusion that it is more likely than not that all or a portion of our domestic deferred tax assets will be
realized.
We recognize interest and/or penalties related to uncertain tax positions in income tax expense.
69
Foreign Currency Translation
We translate the assets and liabilities of our non-U.S. dollar functional currency subsidiaries into U.S. dollars
using exchange rates in effect at the end of each period. Revenue and expenses for these subsidiaries are translated
using rates that approximate those in effect during the period. Gains and losses from these translations are recognized
in foreign currency translation included in Accumulated Other Comprehensive Income (Loss) during the period. The
aggregate foreign currency transaction exchange rate gain (losses) included in determining income (loss) before
income taxes were $(0.2) million, $(0.4) million and $0.5 million in fiscal years 2020, 2019 and 2018, respectively.
Stock-Based Compensation
Our stock-based compensation expense resulting from grants of employee stock options, restricted stock and
restricted stock units is recognized in the consolidated financial statements based on the respective grant date fair
values of the awards. We use the Black-Scholes option-pricing method for valuing stock options and shares granted
under the employee stock purchase plan and recognize the expense over a requisite service (vesting) period using the
straight-line method. Restricted stock units, or RSUs, are valued based on the fair value of our common stock on the
date of grant. The measurement of stock-based compensation is based on several criteria such as the type of equity
award, the valuation model used and associated input factors including the expected term of the award, stock price
volatility, risk free interest rate and forfeiture rate. Certain of these inputs are subjective and are determined based in
part on management's judgment. We account for forfeitures as they occur, rather than estimating expected forfeitures
over the course of a vesting period.
Other Comprehensive Income (Loss)
Other comprehensive income (loss) consists of two components, net income (loss) and other comprehensive
income (loss) (“OCI”). OCI refers to revenue, expenses and gains and losses that under U.S. GAAP are recorded as
an element of stockholders’ equity and excluded from net income (loss). Our OCI consists of foreign currency
translation adjustments from those subsidiaries not using the U.S. dollar as their functional currency.
Recently Issued Accounting Standards Not Yet Adopted
In December 2019, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2019-12, Income
Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This ASU removes certain exceptions for
recognizing deferred taxes for investments, performing intraperiod allocation, and calculating income taxes in interim
periods. This ASU also adds guidance to reduce complexity in certain areas, including recognizing deferred taxes for
goodwill and allocating taxes to members of a consolidated group. The updated guidance is effective for fiscal years,
and interim periods within those fiscal years, beginning after December 15, 2020 with early adoption permitted. We
are currently assessing the impact that adopting this new standard will have on our consolidated financial statements
and footnote disclosures.
In August 2018, the FASB issued Accounting Standards Update 2018-15, Customer’s Accounting for
Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract (“ASU 2018-15”). The
amendments in ASU 2018-15 provide guidance to align the requirements for capitalizing implementation costs
incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs
incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software
license). The accounting for the service element of a hosting arrangement that is a service contract is not affected by
this update. We are required to adopt this standard on March 1, 2020, the beginning of our fiscal 2021. We do not
anticipate this pronouncement will have a significant impact on our consolidated financial statements upon adoption.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement
of Credit Losses on Financial Instruments. The new standard amends the impairment model to utilize an expected
loss methodology in place of the currently used incurred loss methodology. As a result, we will be required to use a
forward-looking expected credit loss model for trade receivables. This pronouncement is effective for fiscal years
beginning after December 15, 2019. We are required to adopt this standard on March 1, 2020, the beginning of our
fiscal 2021. We do not anticipate this pronouncement will have a significant impact on our consolidated financial
statements upon adoption.
70
Reclassifications
Certain prior year amounts in Note 1 related to disaggregated revenue for contracts have been reclassified to
conform to the fiscal 2020 presentation, with no effect on total amount.
NOTE 2 – ACQUISITIONS
We acquired Tracker UK, LoJack Mexico and Synovia in February 2019, March 2019 and April 2019,
respectively. The following are the final purchase price allocations as of February 29, 2020 for the three acquisitions
(in thousands):
Purchase price
Add debt paid at closing
Less cash acquired, net of debt assumed
Net cash paid
Less provisional amount of working capital
claim against escrowed consideration
Net consideration
Add previously held interest
Fair value of net assets and liabilities
assumed:
Tracker UK
$ 13,097
-
(65)
13,032
LoJack Mexico
$ 14,306
-
(1,586)
12,720
(973)
12,059
-
-
12,720
2,021
Synovia
$ 29,500
20,296
(889)
48,907
-
48,907
-
Current assets other than cash
Property and equipment
Customer relationships
Trade name
Developed technology
Deferred tax assets
Other non-current assets
Current liabilities
Due to factors
Deferred revenue
Deferred tax liability
Other non-current liabilities
$ 3,549
1,008
2,354
2,354
1,830
-
104
(3,130)
-
(3,162)
(874)
(270)
$ 4,537
3,652
7,000
-
-
-
1,301
(2,586)
-
(4,507)
(943)
-
Total fair value of net assets acquired
Goodwill
3,763
$ 8,296
8,454
$ 6,287
$ 9,637
24,840
16,700
1,600
3,800
2,061
177
(4,645)
(19,692)
(4,319)
-
-
30,159
$ 18,748
We paid a premium (i.e., goodwill) over the fair value of the net tangible and identified intangible assets acquired
for the three acquisitions as we believe the extensive customer relationships with these businesses will expand our
fleet management and vehicle safety services portfolio and increase our customer reach by gaining access to a base of
high-value and low-churn subscribers in those geographic regions.
We incurred approximately $1.2 million for the acquisition of these entities in fiscal 2020 and $0.9 million in
fiscal 2019. The acquisition-related costs were primarily legal expenses, which were recorded as part of our general
and administrative expenses.
Pro forma financial information for the fiscal years ended February 29, 2020 and February 28, 2019 for the
acquired companies is not disclosed as the results are not material to our consolidated financial statements.
71
Tracker Network (UK) Limited
Effective February 25, 2019, we acquired Tracker Network (UK) Limited, a LoJack licensee, for a total purchase
price of £10.0 million, or approximately $13.0 million, which was funded from our cash on hand. As a result of the
acquisition, Tracker UK became a wholly-owned subsidiary and was consolidated with our financial statements
beginning February 25, 2019 as a component of our Software and Subscription Services reportable segment.
The goodwill arising from the acquisition of Tracker UK is not deductible for income tax purposes.
LoJack Mexico
On March 19, 2019, we acquired LoJack Mexico, the exclusive licensee of LoJack technology for the Mexican
market. LoJack Mexico will leverage our telematics and software-as-a-service solutions to expand product offering to
its substantial subscriber base as well as serve auto dealers and OEMs, insurance providers and leasing companies
throughout Mexico. We purchased the remaining 87.5% of LoJack Mexico shares that we did not own for a cash
purchase price of $14.3 million. Our previously held 12.5% equity interest in LoJack Mexico was determined to have
a fair value of $2.0 million at acquisition date which resulted in a gain of $0.3 million, which was recorded as
investment income in our consolidated statements of comprehensive income (loss) for the fiscal year ended February
29, 2020. LoJack Mexico is consolidated with our financial statements effective March 19, 2019 as a component of
our Software & Subscription Services reportable segment.
The goodwill arising from the acquisition of LoJack Mexico is not deductible for income tax purposes.
Synovia
On April 12, 2019, we acquired Synovia, a North American market leader in fleet safety and management for
K-12 school bus and state and local government fleets, for a total cash purchase price of $49.8 million. The Synovia
acquisition expands our fleet management and vehicle safety services portfolio as well as accelerates our
transformation to high-value subscription based services. Synovia is consolidated with our financial statements
effective April 12, 2019 as a component of our Software & Subscription Services reportable segment.
The goodwill arising from the acquisition of Synovia is deductible for income tax purposes.
NOTE 3 – CONCENTRATION OF CUSTOMERS AND SUPPLIERS
Significant Customers
We sell telematics products to large global enterprises in the industrial equipment, telecommunications and
automotive market verticals. Some of these customers accounted for more than 10% of our revenue or accounts
receivable as follows:
Year Ended February 29/28,
2019
2018
2020
Net sales:
Customer A
14%
15%
12%
As of February 29/28,
2019
2018
2020
Accounts receivable:
Customer A
Customer B
19%
8%
14%
3%
15%
13%
Customer B represents customers that are affiliated under common control.
72
Significant Suppliers
We purchase a significant amount of our inventory from certain manufacturers or suppliers including
components, assemblies and electronic manufacturing parts. These suppliers are located in Asia, including China. The
inventory is purchased under standard supply agreements that outline the terms of the product delivery. The title and
risk of loss of the product generally pass to us upon shipment from the manufacturers’ plant or warehouse. For the
fiscal year ended February 29, 2020, four of our suppliers accounted for approximately 48% of our total inventory
purchases and for the fiscal years ended February 28, 2019 and 2018, three of our suppliers accounted for
approximately 57% and 58% of total inventory purchases, respectively. Some of these manufacturers accounted for
more than 10% of accounts payable as follows:
Accounts Payable:
Supplier A
Supplier B
Supplier C
As of February 29/28,
2019
2018
2020
0%
11%
11%
30%
18%
0%
40%
16%
0%
We are currently reliant upon these suppliers for products. Although we believe that we can obtain products
from other sources, the loss of a significant supplier could have a material impact on our financial condition and results
of operations as the products that are being purchased may not be available on the same terms from another supplier.
NOTE 4 – CASH, CASH EQUIVALENTS AND INVESTMENTS
The following tables summarize our financial instrument assets (in thousands):
As of February 29, 2020
Balance Sheet Classification of
Fair Value
Cash and Short-Term
Cash
Marketable Other
Equivalents Securities Assets
- $
-
-
-
-
- $
-
-
3,952
-
-
3,952
Cost
Unrealized
Gains
(Losses)
Fair
Value
- $
Cash
Level 1:
$
31,895 $
31,895 $
31,895 $
Money market funds
Mutual funds (1)
5,508
3,926
-
26
5,508
3,952
5,508
-
Level 2:
Repurchase
agreements
Corporate bonds
Total
60,000
10,001
111,330 $
$
-
-
26 $
60,000
10,001
111,356 $
60,000
10,001
107,404 $
73
As of February 28, 2019
Balance Sheet Classification of
Fair Value
Cash and Short-Term
Cash
Marketable Other
Equivalents Securities Assets
Cost
Unrealized
Gains
(Losses)
Fair
Value
- $
Cash
Level 1:
$
26,084 $
26,084 $
26,084 $
Money market funds
Mutual funds (1)
International equities
154,428
6,023
296
-
390
(73)
154,428
6,413
223
154,428
-
-
- $
-
-
-
Level 2:
Repurchase
agreements
Corporate bonds
Total
72,000
21,502
280,333 $
$
-
(2)
315 $
72,000
21,500
280,648 $
72,000
3,988
256,500 $
-
17,512
17,512 $
-
-
6,413
223
-
-
6,636
(1) Amounts represent various equities, bond and money market mutual funds held in a “Rabbi Trust” and are
restricted for payment obligations to non-qualified deferred compensation plan participants. In addition to
the mutual funds above, our “Rabbi Trust” also included Corporate-Owned Life Insurance (COLI) starting
in fiscal 2020. As of February 29, 2020, the cash surrender value of COLI was $2.2 million. See Note 9 for
discussion of the deferred compensation plan.
NOTE 5 – ACCOUNTS RECEIVABLE
Accounts receivable consist of the following (in thousands):
Accounts receivable
Allowance for doubtful accounts
NOTE 6 – INVENTORIES
Inventories consist of the following (in thousands):
Raw materials
Work in process
Finished goods
February 29/28,
2019
2020
$
$
75,344 $
(3,071)
72,273 $
79,835
(1,756)
78,079
February 29/28,
2019
2020
$
$
18,118 $
-
18,660
36,778 $
14,141
72
17,820
32,033
74
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(cid:41)(cid:72)(cid:69)(cid:85)(cid:88)(cid:68)(cid:85)(cid:92)(cid:3)(cid:21)(cid:27)(cid:15)(cid:3)(cid:21)(cid:19)(cid:20)(cid:28)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:21)(cid:19)(cid:20)(cid:27)(cid:15)(cid:3)(cid:85)(cid:72)(cid:86)(cid:83)(cid:72)(cid:70)(cid:87)(cid:76)(cid:89)(cid:72)(cid:79)(cid:92)(cid:17)
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(cid:71)(cid:72)(cid:89)(cid:72)(cid:79)(cid:82)(cid:83)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:72)(cid:84)(cid:88)(cid:76)(cid:83)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:68)(cid:87)(cid:87)(cid:68)(cid:70)(cid:75)(cid:72)(cid:71)(cid:3)(cid:87)(cid:82)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:87)(cid:82)(cid:90)(cid:72)(cid:85)(cid:3)(cid:76)(cid:81)(cid:73)(cid:85)(cid:68)(cid:86)(cid:87)(cid:85)(cid:88)(cid:70)(cid:87)(cid:88)(cid:85)(cid:72)(cid:17)(cid:3)(cid:39)(cid:88)(cid:85)(cid:76)(cid:81)(cid:74)(cid:3)(cid:73)(cid:76)(cid:86)(cid:70)(cid:68)(cid:79)(cid:3)(cid:92)(cid:72)(cid:68)(cid:85)(cid:3)(cid:72)(cid:81)(cid:71)(cid:72)(cid:71)(cid:3)(cid:41)(cid:72)(cid:69)(cid:85)(cid:88)(cid:68)(cid:85)(cid:92)(cid:3)(cid:21)(cid:28)(cid:15)(cid:3)(cid:21)(cid:19)(cid:21)(cid:19)(cid:15)(cid:3)(cid:90)(cid:72)(cid:3)
(cid:85)(cid:72)(cid:70)(cid:82)(cid:85)(cid:71)(cid:72)(cid:71)(cid:3)(cid:76)(cid:80)(cid:83)(cid:68)(cid:76)(cid:85)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:79)(cid:82)(cid:86)(cid:86)(cid:72)(cid:86)(cid:3)(cid:68)(cid:74)(cid:74)(cid:85)(cid:72)(cid:74)(cid:68)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:7)(cid:19)(cid:17)(cid:24)(cid:3)(cid:80)(cid:76)(cid:79)(cid:79)(cid:76)(cid:82)(cid:81)(cid:15)(cid:3)(cid:90)(cid:75)(cid:76)(cid:70)(cid:75)(cid:3)(cid:85)(cid:72)(cid:83)(cid:85)(cid:72)(cid:86)(cid:72)(cid:81)(cid:87)(cid:72)(cid:71)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:81)(cid:72)(cid:87)(cid:3)(cid:69)(cid:82)(cid:82)(cid:78)(cid:3)(cid:89)(cid:68)(cid:79)(cid:88)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:82)(cid:90)(cid:72)(cid:85)(cid:3)(cid:72)(cid:84)(cid:88)(cid:76)(cid:83)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:76)(cid:81)(cid:3)
(cid:89)(cid:68)(cid:85)(cid:76)(cid:82)(cid:88)(cid:86)(cid:3)(cid:79)(cid:72)(cid:68)(cid:86)(cid:72)(cid:86)(cid:3)(cid:87)(cid:75)(cid:68)(cid:87)(cid:3)(cid:90)(cid:72)(cid:85)(cid:72)(cid:3)(cid:87)(cid:72)(cid:85)(cid:80)(cid:76)(cid:81)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:82)(cid:85)(cid:3)(cid:83)(cid:79)(cid:68)(cid:81)(cid:81)(cid:72)(cid:71)(cid:3)(cid:87)(cid:82)(cid:3)(cid:69)(cid:72)(cid:3)(cid:87)(cid:72)(cid:85)(cid:80)(cid:76)(cid:81)(cid:68)(cid:87)(cid:72)(cid:71)(cid:17)(cid:3)(cid:55)(cid:75)(cid:76)(cid:86)(cid:3)(cid:76)(cid:80)(cid:83)(cid:68)(cid:76)(cid:85)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:79)(cid:82)(cid:86)(cid:86)(cid:3)(cid:76)(cid:86)(cid:3)(cid:76)(cid:81)(cid:70)(cid:79)(cid:88)(cid:71)(cid:72)(cid:71)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:87)(cid:82)(cid:87)(cid:68)(cid:79)(cid:3)
Impairment loss (cid:86)(cid:75)(cid:82)(cid:90)(cid:81)(cid:3)(cid:86)(cid:72)(cid:83)(cid:68)(cid:85)(cid:68)(cid:87)(cid:72)(cid:79)(cid:92)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:72)(cid:91)(cid:83)(cid:72)(cid:81)(cid:86)(cid:72)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:70)(cid:82)(cid:81)(cid:86)(cid:82)(cid:79)(cid:76)(cid:71)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:86)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:85)(cid:72)(cid:75)(cid:72)(cid:81)(cid:86)(cid:76)(cid:89)(cid:72)(cid:3)(cid:76)(cid:81)(cid:70)(cid:82)(cid:80)(cid:72)(cid:3)
(cid:11)(cid:79)(cid:82)(cid:86)(cid:86)(cid:12)(cid:17)
(cid:41)(cid:76)(cid:91)(cid:72)(cid:71)(cid:3)(cid:68)(cid:86)(cid:86)(cid:72)(cid:87)(cid:86)(cid:3)(cid:81)(cid:82)(cid:87)(cid:3)(cid:92)(cid:72)(cid:87)(cid:3)(cid:76)(cid:81)(cid:3)(cid:86)(cid:72)(cid:85)(cid:89)(cid:76)(cid:70)(cid:72)(cid:3)(cid:70)(cid:82)(cid:81)(cid:86)(cid:76)(cid:86)(cid:87)(cid:3)(cid:83)(cid:85)(cid:76)(cid:80)(cid:68)(cid:85)(cid:76)(cid:79)(cid:92)(cid:3)(cid:82)(cid:73)(cid:3)(cid:70)(cid:68)(cid:83)(cid:76)(cid:87)(cid:68)(cid:79)(cid:76)(cid:93)(cid:72)(cid:71)(cid:3)(cid:76)(cid:81)(cid:87)(cid:72)(cid:85)(cid:81)(cid:68)(cid:79)(cid:16)(cid:88)(cid:86)(cid:72)(cid:3)(cid:86)(cid:82)(cid:73)(cid:87)(cid:90)(cid:68)(cid:85)(cid:72)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:70)(cid:72)(cid:85)(cid:87)(cid:68)(cid:76)(cid:81)(cid:3)(cid:87)(cid:82)(cid:82)(cid:79)(cid:76)(cid:81)(cid:74)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:82)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)
(cid:72)(cid:84)(cid:88)(cid:76)(cid:83)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:87)(cid:75)(cid:68)(cid:87)(cid:3)(cid:75)(cid:68)(cid:89)(cid:72)(cid:3)(cid:81)(cid:82)(cid:87)(cid:3)(cid:69)(cid:72)(cid:72)(cid:81)(cid:3)(cid:83)(cid:79)(cid:68)(cid:70)(cid:72)(cid:71)(cid:3)(cid:76)(cid:81)(cid:87)(cid:82)(cid:3)(cid:86)(cid:72)(cid:85)(cid:89)(cid:76)(cid:70)(cid:72)(cid:17)
(cid:49)(cid:50)(cid:55)(cid:40)(cid:3)(cid:27)(cid:3)(cid:177)(cid:3)(cid:42)(cid:50)(cid:50)(cid:39)(cid:58)(cid:44)(cid:47)(cid:47)(cid:3)(cid:36)(cid:49)(cid:39)(cid:3)(cid:50)(cid:55)(cid:43)(cid:40)(cid:53)(cid:3)(cid:44)(cid:49)(cid:55)(cid:36)(cid:49)(cid:42)(cid:44)(cid:37)(cid:47)(cid:40)(cid:3)(cid:36)(cid:54)(cid:54)(cid:40)(cid:55)(cid:54)
(cid:38)(cid:75)(cid:68)(cid:81)(cid:74)(cid:72)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:74)(cid:82)(cid:82)(cid:71)(cid:90)(cid:76)(cid:79)(cid:79)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:68)(cid:86)(cid:3)(cid:73)(cid:82)(cid:79)(cid:79)(cid:82)(cid:90)(cid:86)(cid:3)(cid:11)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:82)(cid:88)(cid:86)(cid:68)(cid:81)(cid:71)(cid:86)(cid:12)(cid:29)
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(cid:87)(cid:75)(cid:72)(cid:3) (cid:86)(cid:68)(cid:80)(cid:72)(cid:3) (cid:83)(cid:85)(cid:82)(cid:83)(cid:82)(cid:85)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3) (cid:68)(cid:86)(cid:3) (cid:76)(cid:81)(cid:89)(cid:72)(cid:86)(cid:87)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3) (cid:72)(cid:79)(cid:72)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3) (cid:80)(cid:68)(cid:71)(cid:72)(cid:3) (cid:69)(cid:92)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:83)(cid:68)(cid:85)(cid:87)(cid:76)(cid:70)(cid:76)(cid:83)(cid:68)(cid:81)(cid:87)(cid:86)(cid:17)(cid:3) (cid:55)(cid:75)(cid:72)(cid:3) (cid:71)(cid:72)(cid:73)(cid:72)(cid:85)(cid:85)(cid:72)(cid:71)(cid:3) (cid:70)(cid:82)(cid:80)(cid:83)(cid:72)(cid:81)(cid:86)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3) (cid:83)(cid:79)(cid:68)(cid:81)(cid:3) (cid:79)(cid:76)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:3) (cid:76)(cid:86)(cid:3)
(cid:76)(cid:81)(cid:70)(cid:79)(cid:88)(cid:71)(cid:72)(cid:71)(cid:3)(cid:76)(cid:81)(cid:3)Other Non-Current Liabilities(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:68)(cid:70)(cid:70)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:76)(cid:81)(cid:74)(cid:3)(cid:70)(cid:82)(cid:81)(cid:86)(cid:82)(cid:79)(cid:76)(cid:71)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:69)(cid:68)(cid:79)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:86)(cid:75)(cid:72)(cid:72)(cid:87)(cid:86)(cid:17)
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(cid:82)(cid:88)(cid:85)(cid:3)(cid:70)(cid:82)(cid:89)(cid:72)(cid:81)(cid:68)(cid:81)(cid:87)(cid:86)(cid:3)(cid:88)(cid:81)(cid:71)(cid:72)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:85)(cid:72)(cid:89)(cid:82)(cid:79)(cid:89)(cid:76)(cid:81)(cid:74)(cid:3)(cid:70)(cid:85)(cid:72)(cid:71)(cid:76)(cid:87)(cid:3)(cid:73)(cid:68)(cid:70)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:17)
(cid:26)(cid:26)
Convertible Senior Unsecured Notes
We have two outstanding convertible senior unsecured notes – a $27.6 million aggregate principal amount of
convertible senior unsecured notes due in May 2020 (“2020 Convertible Notes”) and a $230.0 million aggregate
principal amount of convertible senior unsecured notes due in August 2025 (“2025 Convertible Notes”, and
collectively with the 2020 Convertible Notes, the “Notes”). The Notes are carried at their principal face amount, less
unamortized debt discount and issuance costs, and are not carried at fair value at each period end.
Accounting guidance requires that convertible debt that can be settled for cash be separated into the liability and
equity component at issuance and each be assigned a value. The value assigned to the liability component is the
estimated fair value, as of the issuance date, of a similar debt without the conversion feature. The difference between
the principal amount of the debt and the estimated fair value of the liability component, representing the value of the
embedded conversion option assigned to the equity component, is recorded as a debt discount on the issuance date.
The fair value of the liability component is generally determined using a discounted cash flow analysis, in which the
projected interest and principal payments are discounted back to the issuance date at a market interest rate that
represents a Level 3 fair value measurement. The debt discount is amortized to interest expense using the effective
interest method with an effective interest rate equal to the aforementioned market interest rate over the term of the
debt. The remaining gross proceeds net of the liability component represents the fair value of the embedded conversion
feature that was recorded as an increase in additional paid-in capital within the stockholders’ equity section. The
associated deferred tax effect was recorded as a reduction of additional paid-in capital. The amounts recorded in
additional paid-in capital is not to be remeasured as long as the embedded conversion option continues to meet the
conditions for equity classification. As of February 29, 2020, the Notes continue to meet the conditions for equity
classification.
Further, the issuance costs related to the debt are also allocated to the liability and equity components based on
the relative fair values. Issuance costs attributable to the liability component were recorded as a direct deduction from
the carrying value of the debt and are being amortized to expense over the term of the debt using the effective interest
method. The issuance costs attributable to the equity component were recorded as a charge to the additional paid-in
capital within stockholders’ equity. Lastly, the deferred tax effect related to the equity component of the issuance costs
was also recorded to additional paid-in capital as such costs are deductible for tax purposes.
The table below summarizes the liability and equity components of the Notes, the issuance costs and the
applicable assumptions used for the calculation (in millions except initial conversion rate and per share amounts):
Initial conversion rate (shares per $1,000 principal amount)
Initial conversion price per share
Fair value of liability component upon issuance
Fair value measurement level
Fair value of embedded equity component upon issuance
Deferred tax asset effect
Total issuance cost
Equity component
Deferred tax asset effect
2020 Convertible Notes
2020 Convertible
Notes
2025 Convertible
Notes
36.2398
27.5940
138.9
Level 3
33.6
16.0
4.3
1.0
0.4
$
$
$
$
$
$
$
32.5256
30.7450
160.8
Level 3
69.2
17.3
7.3
2.2
0.5
$
$
$
$
$
$
$
In May 2015, we issued $172.5 million aggregate principal amount of the 2020 Convertible Notes. The 2020
Convertible Notes are senior unsecured obligations and bear interest at a rate of 1.625% per year payable in cash on
May 15 and November 15 of each year. The 2020 Convertible Notes mature on May 15, 2020 and we expect to repay
the outstanding amount in cash. As of February 29, 2020, none of the holders of the 2020 Convertible Notes elected
to convert the Notes into common stock as our shares have been trading under the initial conversion price.
78
In July, 2018, we entered into separate, privately negotiated purchase agreements to repurchase approximately
$50 million in aggregate principal amount of our 2020 Convertible Notes for $53.8 million including accrued interest,
by using a portion of the net proceeds from the 2025 Convertible Notes. The repurchase was accounted for as an
extinguishment of debt, not a modification of debt. We allocated the repurchase price of $53.7 million between the
fair value of the liability of $47.6 million and the equity component of $6.1 million. The fair value of the liability
component was determined using a discounted cash flow analysis at a market interest rate for nonconvertible debt of
4.36% based on the remaining maturity of the 2020 Convertible Notes, which represented a Level 3 fair value
measurement. The carrying value of the repurchased notes was $45.6 million, resulting in a loss on extinguishment of
debt of $2.0 million. We also received proceeds of $3.1 million from the unwinding of the note hedge and warrants,
which was recorded as additional paid-in capital.
In October and November 2019, we entered into separate, privately negotiated purchase agreements to
repurchase approximately $94.9 million in aggregate principal amount of these notes for $94.7 million. The repurchase
is accounted for as an extinguishment of debt. The entire repurchase price of $94.7 million was considered as the fair
value of the liability as the equity component was de minimis. The fair value of the liability was determined using a
discounted cash flow analysis at a market interest rate for nonconvertible debt based on the remaining maturity of the
2020 Convertible Notes, which represented a Level 3 fair value measurement. The carrying value of the repurchased
notes was $92.3 million, resulting in a loss on extinguishment of debt of $2.4 million.
2025 Convertible Notes
On July 20, 2018, we issued $230.0 million aggregate principal amount of the 2025 Convertible Notes. These
notes were issued under an indenture, dated July 20, 2018 (the “2025 Indenture”) between us and The Bank of New
York Mellon Trust Company, N.A., as trustee.
The proceeds from the sale of the 2025 Convertible Notes were $222.7 million, after deducting issuance costs
of $7.3 million. We initially used approximately $90.0 million of the net proceeds from this offering to (i) pay the cost
of the capped call transactions of $21.2 million; (ii) repurchase shares of our common stock of approximately $15.0
million; and (iii) repurchase in privately negotiated transactions approximately $50 million principal of our
outstanding 2020 Convertible Notes for approximately $53.8 million.
The 2025 Indenture contains customary terms and conditions, including that upon certain events of default
occurring and continuing, either the trustee, by notice to us, or the holders of at least 25% in aggregate principal
amount of the then outstanding Notes, by notice to us and the trustee, may declare the principal amount of, and all
accrued and unpaid interest on, all of the 2025 Convertible Notes then outstanding to become due and payable
immediately. Such events of default include, without limitation, the default by us or any of our subsidiaries with
respect to indebtedness for borrowed money in excess of $10 million and the entry of judgments for the payment of
$15 million or more against us or any of our subsidiaries, which are not paid, discharged or stayed within 60 days.
The 2025 Convertible Notes bear interest at 2.00% per year payable semiannually in arrears in cash on February
1 and August 1 of each year, beginning on February 1, 2019. The 2025 Convertible Notes will mature on August 1,
2025, unless earlier converted, redeemed or repurchased by us in accordance with their terms. We may redeem the
Notes at our option at any time on or after August 6, 2022 at a cash redemption price equal to the principal amount
plus accrued interest, but only if the last reported sale price per share of our stock exceeds 130% of the conversion
price on (i) each of at least 20 trading days, whether or not consecutive, during the 30 consecutive trading days ending
on, and including, the trading day immediately before the date we send the related redemption notice; and (ii) the
trading day immediately before the date we send such notice. The 2025 Convertible Notes rank senior in right of
payment to any existing or future indebtedness which is subordinated by its terms, ranks equally in right of payment
to any indebtedness that is not so subordinated, is structurally subordinated to all indebtedness and liabilities of our
subsidiaries and is effectively junior to our secured indebtedness to the extent of the value of the assets securing such
indebtedness.
79
The 2025 Convertible Notes are convertible into cash, shares of our common stock or a combination of both, at
our election, based on an initial conversion rate and initial conversion price as noted above. Holders may convert their
2025 Convertible Notes at their option upon the occurrence of certain events, as defined in the 2025 Indenture.
Upon the occurrence of a “make-whole fundamental change”, we will in certain circumstances increase the
conversion rate for a specific period of time. Additionally, upon the occurrence of a “fundamental change”, holders
of the notes may require us to repurchase their notes at a cash repurchase price equal to the principal amount of the
notes to be repurchased, plus any accrued and unpaid interest. As of February 29, 2020, none of the conditions
allowing the holders of the 2025 Convertible Notes to convert have been met.
In July 2018, in connection with the 2025 Convertible Notes, we entered into capped call transactions with
certain option counterparties who were initial purchasers of the 2025 Convertible Notes. The capped call transactions
are expected to reduce the potential dilution of earnings per share upon conversion of the 2025 Convertible Notes.
Under the capped call transactions, we purchased options that in the aggregate relate to the total number shares of 7.48
million shares of common stock underlying the notes, with a strike price equal to the conversion price of the notes and
with a cap price equal to $41.3875. We paid $21.2 million for the note hedges and as a result, approximately $15.9
million, net of tax, was recorded as a reduction to additional paid-in capital within stockholders’ equity.
We elected to integrate the note hedges and capped call with the Notes for federal income tax purposes pursuant
to applicable U.S. Treasury Regulations. Accordingly, the cost of the note hedges and capped call will be deductible
for income tax purposes as original issue discount interest over the term of Notes.
Synovia Revenue Assignments
In conjunction with the acquisition of Synovia on April 12, 2019, we assumed the rights and obligations under
certain revenue assignment arrangements with several financial institutions (the “Factors”). Pursuant to the terms of
the arrangements, Synovia sold to the Factors rights to all future revenues of certain subscription contracts on a non-
recourse basis for credit approved accounts. The sales price paid represents a percentage of the total contract value
(generally 80%) due to Synovia at the beginning of the contract, with the total customer contract balance to be paid
by the customers to the Factors over the contract period. The cost of the transaction was recorded as a contra-liability,
and was recognized as interest expense over the term of the subscription contract using the effective interest method,
while the assigned customer obligation is amortized to subscription revenues using the straight-line method.
These arrangements with the Factors met the criteria in ASC 470-10-25, Sales of Future Revenues or Various
Other Measures of Income (“ASC 470”), which relates to cash received from an investor in exchange for a specified
percentage or amount of revenue or other measure of income of a contractual right for a defined period. Under this
guidance, the arrangement qualified as a debt instrument for accounting purposes due to Synovia’s significant
continuing involvement in the generation of cash flows due to the Factors. Further, under ASC 805, Business
Combination, we recorded the amounts due to the Factors as a debt obligation at fair value in the opening balance
sheet and the outstanding amount is presented as part of our long-term debt in our consolidated balance sheet. The fair
value of this debt of $19.7 million was determined using a pre-tax cost of debt of 4.7% at the time of our acquisition
of Synovia. The discount of $1.5 million will be amortized under the interest method. During fiscal year ended
February 29, 2020, we recognized $0.7 million of interest expense related to this debt. The non-cash revenues
recognized from this arrangement of $6.8 million are included as a non-cash activity in our consolidated statements
of cash flows for fiscal year ended February 29, 2020.
Paycheck Protection Program
On April 16, 2020, we received proceeds from a loan in the amount of $10 million (the “PPP Loan”) from
JPMorgan Chase Bank, N.A., as lender, pursuant to the Small Business Association (“SBA”) Paycheck Protection
Program (the “PPP”) of the Coronavirus Aid, Relief, and Economic Security Act. At the time we applied for the PPP
loan, we believed that we qualified to receive the funds pursuant to the PPP. On April 23, 2020, the SBA, in
consultation with the Department of Treasury, issued new guidance that creates uncertainty regarding the qualification
requirements for a PPP loan. Out of an abundance of caution and in light of the new guidance, we repaid in full the
principal and interest on the PPP Loan on April 27, 2020.
80
NOTE 11 – RESTRUCTURING CHARGES
In fiscal 2019, we commenced a plan (the “Plan”) to capture certain synergies and cost savings related to
streamlining our global operations and sales organization, as well as rationalize certain leased properties that are not
fully occupied. Our Plan is aligned with our strategy to integrate the global sales organization and further outsource
manufacturing functions in order to drive operational efficiency, increase supplier geographic diversity, and reduce
operating expenses. To date, total restructuring charges were $12.4 million, comprised primarily of $6.8 million in
severance and employee related costs, $5.6 million for vacant office and manufacturing facility. Restructuring charges
related to vacant office and manufacturing facility space were due primarily to the vacancy in Canton, Massachusetts
of $3.3 million. Substantially all charges related to severance and employee costs were under the Telematics Systems
reportable segment. As a result of the adoption of ASC 842, effective March 1, 2019, the balance of the restructuring
liability related to certain facility leases have been reclassified as a reduction of the Operating lease right-of-use assets
in our consolidated balance sheet.
For fiscal year ended February 29, 2020, total restructuring charges were $4.4 million, comprised of $2.5 million
in severance and employee related costs and $1.9 million for manufacturing facility. Substantially all charges were
recorded under the Telematics Systems reportable segment. The impairment of $1.2 million for the vacant office space
was recorded as a reduction of Operating lease right-of-use assets in our consolidated balance sheet as of February
29, 2020. The restructuring liabilities related to personnel were included in Accrued payroll and employee benefits in
our consolidated balance sheets as of February 29, 2020 and February 28, 2019.
The following table summarizes the charges resulting from the implementation of the restructuring plan for the
fiscal years ended February 29, 2020 and February 28, 2019 (in thousands):
Years ended February 29/28,
2020
Personnel Facilities Total
$
Personnel Facilities Total
2019
Cost of revenue
Research and development
Selling and marketing
General and administrative
Total
$
493 $
222
601
1,231
2,547 $
1,853 $
-
-
-
1,853 $
2,346 $
222
601
1,231
4,400 $
1,585 $
412
1,228
1,050
4,275 $
1,001 $
803
1,388
548
3,740 $
2,586
1,215
2,616
1,598
8,015
The following table summarizes the activity resulting from the implementation of the restructuring plan within
other current and non-current liabilities (in thousands):
Restructuring liabilities as of February 28, 2018
Charges
Payments
Restructuring liabilities as of February 28, 2019
Cease-use liability reclassified as reduction of Operating
$
$
lease right-of-use assets
Charges
Payments
Restructuring liabilities as of February 29, 2020
$
Personnel
Facilities
Total
— $
4,275
(1,496)
2,779 $
-
2,547
(2,943)
2,383 $
— $
3,740
(763)
2,977 $
(2,977)
644
(285)
359 $
—
8,015
(2,259)
5,756
(2,977)
3,191
(3,228)
2,742
The anticipated rent payments for the ceased-use leased facilities will be made through December 2025.
81
(cid:49)(cid:50)(cid:55)(cid:40)(cid:3)(cid:20)(cid:21)(cid:3)(cid:177)(cid:3)(cid:47)(cid:40)(cid:36)(cid:54)(cid:40)(cid:54)
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(cid:50)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:79)(cid:72)(cid:68)(cid:86)(cid:72)(cid:3)(cid:79)(cid:76)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:3)(cid:11)(cid:70)(cid:88)(cid:85)(cid:85)(cid:72)(cid:81)(cid:87)(cid:12)
(cid:50)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:79)(cid:72)(cid:68)(cid:86)(cid:72)(cid:3)(cid:79)(cid:76)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:3)(cid:11)(cid:81)(cid:82)(cid:81)(cid:70)(cid:88)(cid:85)(cid:85)(cid:72)(cid:81)(cid:87)(cid:12)
(cid:55)(cid:82)(cid:87)(cid:68)(cid:79)(cid:3)(cid:79)(cid:72)(cid:68)(cid:86)(cid:72)(cid:3)(cid:79)(cid:76)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)
(cid:3)
(cid:38)(cid:79)(cid:68)(cid:86)(cid:86)(cid:76)(cid:73)(cid:76)(cid:70)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)
(cid:3)
(cid:3) (cid:3)
(cid:3) (cid:50)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:79)(cid:72)(cid:68)(cid:86)(cid:72)(cid:3)(cid:85)(cid:76)(cid:74)(cid:75)(cid:87)(cid:16)(cid:82)(cid:73)(cid:16)(cid:88)(cid:86)(cid:72)(cid:3)(cid:68)(cid:86)(cid:86)(cid:72)(cid:87)(cid:86)
(cid:3) (cid:3)
(cid:3) (cid:3)
(cid:3) (cid:50)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:70)(cid:88)(cid:85)(cid:85)(cid:72)(cid:81)(cid:87)(cid:3)(cid:79)(cid:76)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)
(cid:3) (cid:50)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:79)(cid:72)(cid:68)(cid:86)(cid:72)(cid:3)(cid:79)(cid:76)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)
(cid:3) (cid:3)
(cid:3) (cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3) (cid:41)(cid:72)(cid:69)(cid:85)(cid:88)(cid:68)(cid:85)(cid:92)(cid:3)(cid:21)(cid:28)(cid:15)(cid:3)(cid:21)(cid:19)(cid:21)(cid:19) (cid:3)
(cid:3) (cid:3)
(cid:3)
(cid:21)(cid:19)(cid:15)(cid:25)(cid:21)(cid:25)(cid:3)
(cid:3) (cid:7)
(cid:3)
(cid:3) (cid:3)
(cid:3) (cid:3)
(cid:3)
(cid:23)(cid:15)(cid:25)(cid:25)(cid:21)(cid:3)
(cid:3) (cid:7)
(cid:21)(cid:23)(cid:15)(cid:21)(cid:26)(cid:28)(cid:3)
(cid:3) (cid:3)
(cid:3) (cid:7)
(cid:21)(cid:27)(cid:15)(cid:28)(cid:23)(cid:20)(cid:3)
(cid:3) (cid:3)
(cid:3)
(cid:3)
(cid:36)(cid:86)(cid:3)(cid:68)(cid:3)(cid:85)(cid:72)(cid:86)(cid:88)(cid:79)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:68)(cid:71)(cid:82)(cid:83)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:36)(cid:54)(cid:38)(cid:3)(cid:27)(cid:23)(cid:21)(cid:15)(cid:3)(cid:72)(cid:73)(cid:73)(cid:72)(cid:70)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:48)(cid:68)(cid:85)(cid:70)(cid:75)(cid:3)(cid:20)(cid:15)(cid:3)(cid:21)(cid:19)(cid:20)(cid:28)(cid:15)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:69)(cid:68)(cid:79)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:85)(cid:72)(cid:86)(cid:87)(cid:85)(cid:88)(cid:70)(cid:87)(cid:88)(cid:85)(cid:76)(cid:81)(cid:74)(cid:3)(cid:79)(cid:76)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:3)(cid:85)(cid:72)(cid:79)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)
(cid:87)(cid:82)(cid:3) (cid:70)(cid:72)(cid:85)(cid:87)(cid:68)(cid:76)(cid:81)(cid:3) (cid:73)(cid:68)(cid:70)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:3) (cid:79)(cid:72)(cid:68)(cid:86)(cid:72)(cid:86)(cid:3) (cid:75)(cid:68)(cid:89)(cid:72)(cid:3) (cid:69)(cid:72)(cid:72)(cid:81)(cid:3) (cid:85)(cid:72)(cid:70)(cid:79)(cid:68)(cid:86)(cid:86)(cid:76)(cid:73)(cid:76)(cid:72)(cid:71)(cid:3) (cid:68)(cid:86)(cid:3) (cid:68)(cid:3) (cid:85)(cid:72)(cid:71)(cid:88)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3) (cid:82)(cid:73)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:50)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3) (cid:79)(cid:72)(cid:68)(cid:86)(cid:72)(cid:3) (cid:85)(cid:76)(cid:74)(cid:75)(cid:87)(cid:16)(cid:82)(cid:73)(cid:16)(cid:88)(cid:86)(cid:72)(cid:3) (cid:68)(cid:86)(cid:86)(cid:72)(cid:87)(cid:86)(cid:3) (cid:76)(cid:81)(cid:3) (cid:82)(cid:88)(cid:85)(cid:3)
(cid:70)(cid:82)(cid:81)(cid:86)(cid:82)(cid:79)(cid:76)(cid:71)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:69)(cid:68)(cid:79)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:86)(cid:75)(cid:72)(cid:72)(cid:87)(cid:17)(cid:3)(cid:39)(cid:88)(cid:85)(cid:76)(cid:81)(cid:74)(cid:3)(cid:73)(cid:76)(cid:86)(cid:70)(cid:68)(cid:79)(cid:3)(cid:92)(cid:72)(cid:68)(cid:85)(cid:3)(cid:72)(cid:81)(cid:71)(cid:72)(cid:71)(cid:3)(cid:41)(cid:72)(cid:69)(cid:85)(cid:88)(cid:68)(cid:85)(cid:92)(cid:3)(cid:21)(cid:28)(cid:15)(cid:3)(cid:21)(cid:19)(cid:21)(cid:19)(cid:15)(cid:3)(cid:90)(cid:72)(cid:3)(cid:73)(cid:88)(cid:85)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:76)(cid:80)(cid:83)(cid:68)(cid:76)(cid:85)(cid:72)(cid:71)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:79)(cid:72)(cid:68)(cid:86)(cid:72)(cid:3)(cid:85)(cid:76)(cid:74)(cid:75)(cid:87)(cid:16)
(cid:82)(cid:73)(cid:16)(cid:88)(cid:86)(cid:72)(cid:3)(cid:68)(cid:86)(cid:86)(cid:72)(cid:87)(cid:86)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:68)(cid:81)(cid:87)(cid:82)(cid:81)(cid:3)(cid:73)(cid:68)(cid:70)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:3)(cid:69)(cid:92)(cid:3)(cid:7)(cid:20)(cid:17)(cid:21)(cid:3)(cid:80)(cid:76)(cid:79)(cid:79)(cid:76)(cid:82)(cid:81)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:85)(cid:72)(cid:70)(cid:82)(cid:85)(cid:71)(cid:72)(cid:71)(cid:3)(cid:68)(cid:86)(cid:3)(cid:68)(cid:3)(cid:85)(cid:72)(cid:86)(cid:87)(cid:85)(cid:88)(cid:70)(cid:87)(cid:88)(cid:85)(cid:76)(cid:81)(cid:74)(cid:3)(cid:70)(cid:82)(cid:86)(cid:87)(cid:17)
(cid:36)(cid:71)(cid:71)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:68)(cid:79)(cid:79)(cid:92)(cid:15)(cid:3)(cid:90)(cid:72)(cid:3)(cid:68)(cid:79)(cid:86)(cid:82)(cid:3)(cid:85)(cid:72)(cid:70)(cid:82)(cid:85)(cid:71)(cid:72)(cid:71)(cid:3)(cid:68)(cid:81)(cid:3)(cid:76)(cid:80)(cid:83)(cid:68)(cid:76)(cid:85)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:79)(cid:82)(cid:86)(cid:86)(cid:3)(cid:68)(cid:74)(cid:74)(cid:85)(cid:72)(cid:74)(cid:68)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:7)(cid:19)(cid:17)(cid:25)(cid:3)(cid:80)(cid:76)(cid:79)(cid:79)(cid:76)(cid:82)(cid:81)(cid:15)(cid:3)(cid:90)(cid:75)(cid:76)(cid:70)(cid:75)(cid:3)(cid:85)(cid:72)(cid:83)(cid:85)(cid:72)(cid:86)(cid:72)(cid:81)(cid:87)(cid:72)(cid:71)(cid:3)(cid:87)(cid:82)(cid:87)(cid:68)(cid:79)(cid:3)(cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)
(cid:79)(cid:72)(cid:68)(cid:86)(cid:72)(cid:3)(cid:85)(cid:76)(cid:74)(cid:75)(cid:87)(cid:16)(cid:82)(cid:73)(cid:16)(cid:88)(cid:86)(cid:72)(cid:3)(cid:68)(cid:86)(cid:86)(cid:72)(cid:87)(cid:86)(cid:3)(cid:73)(cid:85)(cid:82)(cid:80)(cid:3)(cid:89)(cid:68)(cid:85)(cid:76)(cid:82)(cid:88)(cid:86)(cid:3)(cid:87)(cid:82)(cid:90)(cid:72)(cid:85)(cid:3)(cid:79)(cid:72)(cid:68)(cid:86)(cid:72)(cid:86)(cid:3)(cid:87)(cid:75)(cid:68)(cid:87)(cid:3)(cid:90)(cid:72)(cid:85)(cid:72)(cid:3)(cid:87)(cid:72)(cid:85)(cid:80)(cid:76)(cid:81)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:82)(cid:85)(cid:3)(cid:83)(cid:79)(cid:68)(cid:81)(cid:81)(cid:72)(cid:71)(cid:3)(cid:87)(cid:82)(cid:3)(cid:69)(cid:72)(cid:3)(cid:87)(cid:72)(cid:85)(cid:80)(cid:76)(cid:81)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:68)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:41)(cid:72)(cid:69)(cid:85)(cid:88)(cid:68)(cid:85)(cid:92)(cid:3)
(cid:21)(cid:28)(cid:15)(cid:3)(cid:21)(cid:19)(cid:21)(cid:19)(cid:17)(cid:3)(cid:55)(cid:75)(cid:76)(cid:86)(cid:3)(cid:76)(cid:80)(cid:83)(cid:68)(cid:76)(cid:85)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:79)(cid:82)(cid:86)(cid:86)(cid:3)(cid:76)(cid:86)(cid:3)(cid:76)(cid:81)(cid:70)(cid:79)(cid:88)(cid:71)(cid:72)(cid:71)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:87)(cid:82)(cid:87)(cid:68)(cid:79)(cid:3)Impairment loss (cid:86)(cid:75)(cid:82)(cid:90)(cid:81)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:72)(cid:91)(cid:83)(cid:72)(cid:81)(cid:86)(cid:72)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)
(cid:70)(cid:82)(cid:81)(cid:86)(cid:82)(cid:79)(cid:76)(cid:71)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:86)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:85)(cid:72)(cid:75)(cid:72)(cid:81)(cid:86)(cid:76)(cid:89)(cid:72)(cid:3)(cid:76)(cid:81)(cid:70)(cid:82)(cid:80)(cid:72)(cid:3)(cid:11)(cid:79)(cid:82)(cid:86)(cid:86)(cid:12)(cid:17)(cid:3)
(cid:27)(cid:21)
Lease Costs
(cid:55)(cid:75)(cid:72)(cid:3) (cid:73)(cid:82)(cid:79)(cid:79)(cid:82)(cid:90)(cid:76)(cid:81)(cid:74)(cid:3) (cid:79)(cid:72)(cid:68)(cid:86)(cid:72)(cid:3) (cid:70)(cid:82)(cid:86)(cid:87)(cid:86)(cid:3) (cid:90)(cid:72)(cid:85)(cid:72)(cid:3) (cid:76)(cid:81)(cid:70)(cid:79)(cid:88)(cid:71)(cid:72)(cid:71)(cid:3) (cid:76)(cid:81)(cid:3) (cid:82)(cid:88)(cid:85)(cid:3) (cid:70)(cid:82)(cid:81)(cid:86)(cid:82)(cid:79)(cid:76)(cid:71)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3) (cid:86)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3) (cid:82)(cid:73)(cid:3) (cid:70)(cid:82)(cid:80)(cid:83)(cid:85)(cid:72)(cid:75)(cid:72)(cid:81)(cid:86)(cid:76)(cid:89)(cid:72)(cid:3) (cid:76)(cid:81)(cid:70)(cid:82)(cid:80)(cid:72)(cid:3) (cid:11)(cid:79)(cid:82)(cid:86)(cid:86)(cid:12)(cid:3) (cid:68)(cid:86)(cid:3)
(cid:73)(cid:82)(cid:79)(cid:79)(cid:82)(cid:90)(cid:86)(cid:3)(cid:11)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:82)(cid:88)(cid:86)(cid:68)(cid:81)(cid:71)(cid:86)(cid:12)(cid:29)
(cid:50)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:79)(cid:72)(cid:68)(cid:86)(cid:72)(cid:3)(cid:70)(cid:82)(cid:86)(cid:87)
(cid:54)(cid:75)(cid:82)(cid:85)(cid:87)(cid:16)(cid:87)(cid:72)(cid:85)(cid:80)(cid:3)(cid:79)(cid:72)(cid:68)(cid:86)(cid:72)(cid:3)(cid:70)(cid:82)(cid:86)(cid:87)
(cid:57)(cid:68)(cid:85)(cid:76)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3)(cid:79)(cid:72)(cid:68)(cid:86)(cid:72)(cid:3)(cid:70)(cid:82)(cid:86)(cid:87)
(cid:55)(cid:82)(cid:87)(cid:68)(cid:79)(cid:3)(cid:79)(cid:72)(cid:68)(cid:86)(cid:72)(cid:3)(cid:70)(cid:82)(cid:86)(cid:87)
(cid:3)
(cid:60)(cid:72)(cid:68)(cid:85)(cid:3)(cid:40)(cid:81)(cid:71)(cid:72)(cid:71)
(cid:41)(cid:72)(cid:69)(cid:85)(cid:88)(cid:68)(cid:85)(cid:92)(cid:3)(cid:21)(cid:28)(cid:15)(cid:3)(cid:21)(cid:19)(cid:21)(cid:19) (cid:3)
(cid:25)(cid:15)(cid:23)(cid:28)(cid:26)(cid:3)
(cid:27)(cid:23)(cid:27)(cid:3)
(cid:22)(cid:20)(cid:24)(cid:3)
(cid:26)(cid:15)(cid:25)(cid:25)(cid:19)(cid:3)
(cid:3)
(cid:3)
(cid:3) (cid:7)
(cid:3) (cid:3)
(cid:3) (cid:3)
(cid:3) (cid:7)
(cid:3) (cid:3) (cid:3)
Supplemental Information
(cid:55)(cid:75)(cid:72)(cid:3) (cid:87)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3) (cid:69)(cid:72)(cid:79)(cid:82)(cid:90)(cid:3) (cid:83)(cid:85)(cid:72)(cid:86)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3) (cid:86)(cid:88)(cid:83)(cid:83)(cid:79)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:68)(cid:79)(cid:3) (cid:76)(cid:81)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3) (cid:85)(cid:72)(cid:79)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3) (cid:87)(cid:82)(cid:3) (cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3) (cid:79)(cid:72)(cid:68)(cid:86)(cid:72)(cid:86)(cid:3) (cid:71)(cid:88)(cid:85)(cid:76)(cid:81)(cid:74)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:73)(cid:76)(cid:86)(cid:70)(cid:68)(cid:79)(cid:3) (cid:92)(cid:72)(cid:68)(cid:85)(cid:3) (cid:72)(cid:81)(cid:71)(cid:72)(cid:71)(cid:3)
(cid:41)(cid:72)(cid:69)(cid:85)(cid:88)(cid:68)(cid:85)(cid:92)(cid:3)(cid:21)(cid:28)(cid:15)(cid:3)(cid:21)(cid:19)(cid:21)(cid:19)(cid:3)(cid:11)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:82)(cid:88)(cid:86)(cid:68)(cid:81)(cid:71)(cid:86)(cid:15)(cid:3)(cid:72)(cid:91)(cid:70)(cid:72)(cid:83)(cid:87)(cid:3)(cid:90)(cid:72)(cid:76)(cid:74)(cid:75)(cid:87)(cid:72)(cid:71)(cid:16)(cid:68)(cid:89)(cid:72)(cid:85)(cid:68)(cid:74)(cid:72)(cid:3)(cid:76)(cid:81)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:12)(cid:29)
(cid:38)(cid:68)(cid:86)(cid:75)(cid:3)(cid:83)(cid:68)(cid:76)(cid:71)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:68)(cid:80)(cid:82)(cid:88)(cid:81)(cid:87)(cid:86)(cid:3)(cid:76)(cid:81)(cid:70)(cid:79)(cid:88)(cid:71)(cid:72)(cid:71)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:80)(cid:72)(cid:68)(cid:86)(cid:88)(cid:85)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)
(cid:3)(cid:3)(cid:3) (cid:82)(cid:73)(cid:3)(cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:79)(cid:72)(cid:68)(cid:86)(cid:72)(cid:3)(cid:79)(cid:76)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)
(cid:53)(cid:76)(cid:74)(cid:75)(cid:87)(cid:16)(cid:82)(cid:73)(cid:16)(cid:88)(cid:86)(cid:72)(cid:3)(cid:68)(cid:86)(cid:86)(cid:72)(cid:87)(cid:86)(cid:3)(cid:82)(cid:69)(cid:87)(cid:68)(cid:76)(cid:81)(cid:72)(cid:71)(cid:3)(cid:76)(cid:81)(cid:3)(cid:72)(cid:91)(cid:70)(cid:75)(cid:68)(cid:81)(cid:74)(cid:72)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:81)(cid:72)(cid:90)
(cid:3)(cid:3)(cid:3) (cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:79)(cid:72)(cid:68)(cid:86)(cid:72)(cid:3)(cid:79)(cid:76)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)
(cid:58)(cid:72)(cid:76)(cid:74)(cid:75)(cid:87)(cid:72)(cid:71)(cid:3)(cid:68)(cid:89)(cid:72)(cid:85)(cid:68)(cid:74)(cid:72)(cid:3)(cid:85)(cid:72)(cid:80)(cid:68)(cid:76)(cid:81)(cid:76)(cid:81)(cid:74)(cid:3)(cid:79)(cid:72)(cid:68)(cid:86)(cid:72)(cid:3)(cid:87)(cid:72)(cid:85)(cid:80)
(cid:58)(cid:72)(cid:76)(cid:74)(cid:75)(cid:87)(cid:72)(cid:71)(cid:3)(cid:68)(cid:89)(cid:72)(cid:85)(cid:68)(cid:74)(cid:72)(cid:3)(cid:71)(cid:76)(cid:86)(cid:70)(cid:82)(cid:88)(cid:81)(cid:87)(cid:3)(cid:85)(cid:68)(cid:87)(cid:72)
(cid:3)(cid:3)(cid:3)(cid:7)
(cid:3)(cid:3)(cid:3)(cid:7)
(cid:3)(cid:3)(cid:3)
(cid:3)(cid:3)(cid:3)
(cid:25)(cid:15)(cid:25)(cid:21)(cid:23)(cid:3)
(cid:23)(cid:15)(cid:19)(cid:26)(cid:20)(cid:3)
(cid:26)(cid:17)(cid:22)(cid:3)(cid:92)(cid:72)(cid:68)(cid:85)(cid:86)(cid:3)
(cid:24)(cid:17)(cid:23)(cid:24)(cid:8) (cid:3)
Undiscounted Cash Flows
(cid:55)(cid:75)(cid:72)(cid:3)(cid:87)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3)(cid:69)(cid:72)(cid:79)(cid:82)(cid:90)(cid:3)(cid:85)(cid:72)(cid:70)(cid:82)(cid:81)(cid:70)(cid:76)(cid:79)(cid:72)(cid:86)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:88)(cid:81)(cid:71)(cid:76)(cid:86)(cid:70)(cid:82)(cid:88)(cid:81)(cid:87)(cid:72)(cid:71)(cid:3)(cid:70)(cid:68)(cid:86)(cid:75)(cid:3)(cid:73)(cid:79)(cid:82)(cid:90)(cid:86)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:72)(cid:68)(cid:70)(cid:75)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:73)(cid:76)(cid:85)(cid:86)(cid:87)(cid:3)(cid:73)(cid:76)(cid:89)(cid:72)(cid:3)(cid:92)(cid:72)(cid:68)(cid:85)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:87)(cid:82)(cid:87)(cid:68)(cid:79)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:85)(cid:72)(cid:80)(cid:68)(cid:76)(cid:81)(cid:76)(cid:81)(cid:74)(cid:3)
(cid:92)(cid:72)(cid:68)(cid:85)(cid:86)(cid:3) (cid:87)(cid:82)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3) (cid:79)(cid:72)(cid:68)(cid:86)(cid:72)(cid:3) (cid:79)(cid:76)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:3) (cid:85)(cid:72)(cid:70)(cid:82)(cid:85)(cid:71)(cid:72)(cid:71)(cid:3) (cid:82)(cid:81)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:70)(cid:82)(cid:81)(cid:86)(cid:82)(cid:79)(cid:76)(cid:71)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3) (cid:69)(cid:68)(cid:79)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3) (cid:86)(cid:75)(cid:72)(cid:72)(cid:87)(cid:3) (cid:68)(cid:86)(cid:3) (cid:82)(cid:73)(cid:3) (cid:41)(cid:72)(cid:69)(cid:85)(cid:88)(cid:68)(cid:85)(cid:92)(cid:3)(cid:21)(cid:28)(cid:15)(cid:3) (cid:21)(cid:19)(cid:21)(cid:19)(cid:3) (cid:11)(cid:76)(cid:81)(cid:3)
(cid:87)(cid:75)(cid:82)(cid:88)(cid:86)(cid:68)(cid:81)(cid:71)(cid:86)(cid:12)(cid:29)
(cid:3) (cid:7)
(cid:21)(cid:19)(cid:21)(cid:20)
(cid:3) (cid:3)
(cid:21)(cid:19)(cid:21)(cid:21)
(cid:3) (cid:3)
(cid:21)(cid:19)(cid:21)(cid:22)
(cid:3) (cid:3)
(cid:21)(cid:19)(cid:21)(cid:23)
(cid:3) (cid:3)
(cid:21)(cid:19)(cid:21)(cid:24)
(cid:3) (cid:3)
(cid:55)(cid:75)(cid:72)(cid:85)(cid:72)(cid:68)(cid:73)(cid:87)(cid:72)(cid:85)
(cid:3) (cid:3)
(cid:55)(cid:82)(cid:87)(cid:68)(cid:79)(cid:3)(cid:80)(cid:76)(cid:81)(cid:76)(cid:80)(cid:88)(cid:80)(cid:3)(cid:79)(cid:72)(cid:68)(cid:86)(cid:72)(cid:3)(cid:83)(cid:68)(cid:92)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)
(cid:47)(cid:72)(cid:86)(cid:86)(cid:3)(cid:76)(cid:80)(cid:83)(cid:88)(cid:87)(cid:72)(cid:71)(cid:3)(cid:76)(cid:81)(cid:87)(cid:72)(cid:85)(cid:72)(cid:86)(cid:87)
(cid:3) (cid:3)
(cid:51)(cid:85)(cid:72)(cid:86)(cid:72)(cid:81)(cid:87)(cid:3)(cid:89)(cid:68)(cid:79)(cid:88)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:73)(cid:88)(cid:87)(cid:88)(cid:85)(cid:72)(cid:3)(cid:80)(cid:76)(cid:81)(cid:76)(cid:80)(cid:88)(cid:80)(cid:3)(cid:79)(cid:72)(cid:68)(cid:86)(cid:72)(cid:3)(cid:83)(cid:68)(cid:92)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86) (cid:3) (cid:3)
(cid:3) (cid:3)
(cid:47)(cid:72)(cid:86)(cid:86)(cid:3)(cid:70)(cid:88)(cid:85)(cid:85)(cid:72)(cid:81)(cid:87)(cid:3)(cid:82)(cid:69)(cid:79)(cid:76)(cid:74)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:88)(cid:81)(cid:71)(cid:72)(cid:85)(cid:3)(cid:79)(cid:72)(cid:68)(cid:86)(cid:72)(cid:86)
(cid:3) (cid:7)
(cid:47)(cid:82)(cid:81)(cid:74)(cid:16)(cid:87)(cid:72)(cid:85)(cid:80)(cid:3)(cid:79)(cid:72)(cid:68)(cid:86)(cid:72)(cid:3)(cid:82)(cid:69)(cid:79)(cid:76)(cid:74)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)
(cid:25)(cid:15)(cid:19)(cid:27)(cid:26)(cid:3)
(cid:24)(cid:15)(cid:23)(cid:27)(cid:24)(cid:3)
(cid:24)(cid:15)(cid:22)(cid:23)(cid:21)(cid:3)
(cid:24)(cid:15)(cid:19)(cid:26)(cid:25)(cid:3)
(cid:22)(cid:15)(cid:24)(cid:24)(cid:23)(cid:3)
(cid:28)(cid:15)(cid:28)(cid:24)(cid:21)(cid:3)
(cid:22)(cid:24)(cid:15)(cid:23)(cid:28)(cid:25)(cid:3)
(cid:11)(cid:25)(cid:15)(cid:24)(cid:24)(cid:24)(cid:12)
(cid:21)(cid:27)(cid:15)(cid:28)(cid:23)(cid:20)(cid:3)
(cid:11)(cid:23)(cid:15)(cid:25)(cid:25)(cid:21)(cid:12)
(cid:21)(cid:23)(cid:15)(cid:21)(cid:26)(cid:28) (cid:3)
(cid:27)(cid:22)
Disclosures Related to Periods Prior to Adoption of New Lease Standard
(cid:141)”(cid:132)”(cid:136)o(cid:136) ‡˘Øt˘ }ØD(cid:136)˘(cid:132)qt o(cid:132)(cid:201)˘w (cid:128)}˘wØq”(cid:132)(cid:192) ‡˘Øt˘t L”q‰ (cid:132)(cid:128)(cid:132)(cid:139)(cid:204)Ø(cid:132)(cid:204)˘‡ØŁ‡˘ q˘w(cid:136)t ”(cid:132) ˘H(cid:204)˘tt (cid:128)ˆ (cid:128)(cid:132)˘ D˘Øw Øt (cid:128)ˆ (cid:160)˘ŁwoØwD
XB(cid:142) X(cid:131)[?(cid:142) L˘w˘ Øt ˆ(cid:128)‡‡(cid:128)Lt (cid:153)”(cid:132) q‰(cid:128)otØ(cid:132)(cid:201)t(cid:151)=
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N(cid:128)q؇ (cid:136)”(cid:132)”(cid:136)o(cid:136) ‡˘Øt˘ }ØD(cid:136)˘(cid:132)qt
"
"
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]ow ”(cid:132)(cid:204)(cid:128)(cid:136)˘ (cid:153)‡(cid:128)tt(cid:151) Ł˘ˆ(cid:128)w˘ ”(cid:132)(cid:204)(cid:128)(cid:136)˘ qØH˘t Ø(cid:132)(cid:201) ˘zo”qD ”(cid:132) (cid:132)˘q ‡(cid:128)tt (cid:128)ˆ ؈ˆ”‡”Øq˘ (cid:204)(cid:128)(cid:132)t”tqt (cid:128)ˆ q‰˘ ˆ(cid:128)‡‡(cid:128)L”(cid:132)(cid:192) (cid:153)”(cid:132) q‰(cid:128)otØ(cid:132)(cid:201)t(cid:151)=
(cid:210)(cid:128)(cid:136)˘tq”(cid:204)
(cid:160)(cid:128)w˘”(cid:192)(cid:132)
N(cid:128)q؇ ”(cid:132)(cid:204)(cid:128)(cid:136)˘ (cid:153)‡(cid:128)tt(cid:151) Ł˘ˆ(cid:128)w˘ ”(cid:132)(cid:204)(cid:128)(cid:136)˘ qØH˘t Ø(cid:132)(cid:201) ˘zo”qD ”(cid:132)
!˘Øw £(cid:132)(cid:201)˘(cid:201) (cid:160)˘ŁwoØwD X?(cid:133)XB(cid:142)
X(cid:131)[B
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(cid:132)˘q ‡(cid:128)tt (cid:128)ˆ ؈ˆ”‡”Øq˘
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XB(cid:142)E(cid:131)?
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N(cid:128)q؇ (cid:201)˘ˆ˘ww˘(cid:201)
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!˘Øw £(cid:132)(cid:201)˘(cid:201) (cid:160)˘ŁwoØwD X?(cid:133)XB(cid:142)
X(cid:131)[B
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BI
(cid:153)Q[X(cid:151)
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(cid:153)U(cid:142)U[(cid:131)(cid:151)
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(cid:153)[(cid:131)(cid:142)IQM(cid:151)
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(cid:153)X(cid:142)(cid:131)[M(cid:151)
(cid:153)I(cid:142)[MI(cid:151)
(cid:153)[(cid:142)[BU(cid:151)
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BQ
The income tax benefit (provision) differs from the amount obtained by applying the statutory rate as follows
(in thousands):
Year Ended February 29/28,
2018
2020
2019
Income tax benefit (provision) at U.S. statutory
federal rate
$
12,248 $
(5,010) $
(9,400)
State income tax benefit (provision), net of federal
income tax effect
Foreign taxes benefit (provision)
Impact of tax reform
U.S. taxes on foreign income
Valuation allowance reductions (increases)
Research and other tax credits
Tax benefits on vested and exercised equity awards
Other, net
Total income tax benefit (provision)
1,218
(50)
-
(571)
(34,631)
2,594
(606)
(656)
$ (20,454) $
(1,300)
(31)
-
(574)
2,923
(8,955)
5,915
1,658
-
98
3,046
1,034
937
308
1,330 $ (10,681)
The components of net deferred income tax assets for income tax purposes are as follows (in thousands):
Net operating loss carryforwards
Depreciation, amortization and impairments
Research and development credits
Stock-based compensation
Other tax credits
Capitalized research costs
Lease liabilities
Payroll and employee benefit accruals
Allowance for doubtful accounts
Other accrued liabilities
Convertible debt
Other, net
Gross deferred tax assets
Valuation allowance
Net deferred tax assets
Reported as:
Deferred tax assets
Deferred tax liabilities
Net deferred tax assets
February 29/28,
2020
2019
22,500 $
(10,528)
20,603
2,556
2,172
3,389
7,455
2,077
965
4,887
(9,477)
3,276
49,875
(45,560)
4,315 $
19,269
(11,945)
19,189
2,783
1,018
-
-
2,220
454
6,208
(10,822)
4,218
32,592
(10,929)
21,663
4,437 $
(122)
4,315 $
22,626
(963)
21,663
$
$
$
$
85
As of February 29, 2020, we maintained a valuation allowance with respect to certain of our deferred tax assets
relating primarily to net operating losses and tax credits in U.S. and certain non-U.S. jurisdictions for which we cannot
assert that they are more likely than not going to be realized. For the fiscal year ended February 29, 2020, we
considered positive and negative evidence, in assessing our ability to realize our domestic net deferred tax assets and
concluded that it is more likely than not that our domestic net deferred tax assets will not be realized. As such, we
increased the valuation allowance against our domestic net deferred tax asset by approximately $33.0 million. For the
fiscal year ended February 29, 2020, we increased the non-US valuation allowance against our net deferred tax assets
related to net operating loss carryforwards by approximately $1.6 million. The amount of the net deferred tax assets
considered realizable, however, could be adjusted in future periods in the event sufficient evidence is present to support
a conclusion that it is more likely than not that all or a portion of our domestic deferred tax assets will be realized.
At February 29, 2020, we had net operating loss carryforwards of approximately $38.9 million, $36.8 million
and $35.4 million for federal, state and foreign purposes, respectively, expiring at various dates through fiscal 2039.
Approximately $18.5 million of foreign net operating loss carryforwards do not expire. The federal net operating loss
carryforwards are subject to various limitations under Section 382 of the Internal Revenue Code. If substantial changes
in our ownership were to occur, there may be certain annual limitations on the amount of the NOL carryforwards that
can be utilized.
As of February 29, 2020, we had R&D tax credit carryforwards of $9.8 million and $9.8 million for federal and
state income tax purposes, respectively. The federal R&D tax credits expire at various dates through 2039. A
substantial portion of the state R&D tax credits have no expiration date. As of February 29, 2020, we had foreign tax
credit carryforwards of $1.9 million for federal income tax purposes which expire beginning in fiscal 2022 through
fiscal 2030.
We accounted for stock-based compensation pursuant to ASU 2016-09 and we have tax deductions on exercised
stock options and vested restricted stock awards that did not exceed stock compensation expense amounts recognized
for financial reporting purposes in fiscal 2020. The gross shortfall was $2.4 million in fiscal year 2020. In fiscal 2019
and 2018, there were excess tax deductions of $2.9 million and $2.6 in fiscal years 2019 and 2018, respectively. Under
ASU 2016-09, all excess tax benefits and tax deficiencies are recognized in the income statement as they occur. We
follow ASC Topic 740, “Income Taxes,” which clarifies the accounting for income taxes by prescribing a minimum
recognition threshold that a tax position is required to meet before being recognized in the financial statements.
Management determined based on our evaluation of our income tax positions that we have uncertain tax benefit of
$2.2 million, $3.2 million and $1.0 million at February 29, 2020, February 28, 2019 and 2018, respectively, for which
we have not yet recognized an income tax benefit for financial reporting purposes.
At February 29, 2020, we decreased the uncertain tax benefits related to certain foreign net operating loss
carryforwards and domestic tax credits by $0.9 million and $0.1 million, respectively. At February 28, 2019, we
increased the uncertain tax benefits related to certain foreign net operating loss carryforwards. Such deferred tax assets
were previously offset by a valuation allowance so that the increase in the unrecognized tax benefit coupled with the
reduction of the valuation allowance on such net operating losses did not result in an income tax expense during the
current fiscal year. If total uncertain tax benefits were realized in a future period, it would result in a tax benefit of
$2.2 million. As of February 29, 2020, our liabilities for uncertain tax benefits were netted against our deferred tax
assets on our consolidated balance sheet. It is reasonably possible the amount of unrecognized tax benefits could be
reduced within the next 12 months by at least $0.5 million.
86
We recognize interest and/or penalties related to uncertain tax positions in income tax expense. No amounts of
interest and/or penalties have been accrued as of February 29, 2020.
Year Ended February 28/29,
2019
2018
2020
Gross amounts of unrecognized tax benefits as of the beginning of
the period
Increases related to prior period tax positions
Decreases related to prior period tax positions
Increases related to current period tax positions
Settlements
Gross amounts of unrecognized tax benefits as of the end of the
period
$
$
3,201
-
(1,029)
-
-
$
1,029
2,241
(69)
-
-
1,029
-
-
-
-
$
2,172
$
3,201
$
1,029
We file income tax returns in the U.S. federal jurisdiction, various U.S. states and Puerto Rico, Canada, Ireland,
Italy, United Kingdom, the Netherlands, Brazil, Mexico, Japan, Hong Kong and New Zealand. Certain income tax
returns for the years 2015 through 2018 remain open to examination by U.S. federal and state tax authorities. To the
extent allowed by law, the tax authorities may have the right to examine prior periods in which net operating losses
or tax credits were generated and carried forward, and to make adjustments up to the net operating loss or tax credit
carryforward amount. Our tax returns in the foreign jurisdictions remain open for examination for varying years by
jurisdiction with certain jurisdictions being open for examination from 2014 to the present.
In fiscal 2019, we considered the earnings of our Irish subsidiary not to be indefinitely reinvested and we
recorded a state income tax expense of approximately $0.3 million related to outside basis differences. We continue
to assert our intention to indefinitely reinvest foreign earnings in all other remaining non-U.S. subsidiaries and
accordingly, recorded no deferred income taxes on outside basis differences.
NOTE 14 – STOCKHOLDERS' EQUITY
Stock Repurchase
We repurchased our common stock under share repurchase programs approved by our Board of Directors. The
following table contains information with respect to these repurchases:
Fiscal Year
Fiscal 2019
Total Number
of Shares
Purchased
2,496,422
Average Price
Paid per Share
$
19.63
Total
Purchased
$
49,000,000
There were no repurchases for the fiscal years ended February 28, 2018 and February 29, 2020.
Employee Stock Purchase Plan
On June 7, 2018, our Board of Directors adopted the CalAmp Corp. 2018 Employee Stock Purchase Plan (the
“ESPP”), which was approved by our stockholders on July 25, 2018. The ESPP provides for the issuance of 1,750,000
shares of our common stock. The first enrollment under the ESPP Plan commenced in February 2019. There are two
enrollment periods each year that commence on February 1st and August 1st and lasts for six months. Stock-based
compensation expense related to the ESPP Plan for the year ended February 29, 2020 was $0.5 million and de minimis
for the year ended February 28, 2019.
87
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(cid:40)(cid:91)(cid:72)(cid:85)(cid:70)(cid:76)(cid:86)(cid:72)(cid:71)
(cid:41)(cid:82)(cid:85)(cid:73)(cid:72)(cid:76)(cid:87)(cid:72)(cid:71)(cid:3)(cid:82)(cid:85)(cid:3)(cid:72)(cid:91)(cid:83)(cid:76)(cid:85)(cid:72)(cid:71)
(cid:50)(cid:88)(cid:87)(cid:86)(cid:87)(cid:68)(cid:81)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:68)(cid:87)(cid:3)(cid:41)(cid:72)(cid:69)(cid:85)(cid:88)(cid:68)(cid:85)(cid:92)(cid:3)(cid:21)(cid:27)(cid:15)(cid:3)(cid:21)(cid:19)(cid:20)(cid:27)
(cid:42)(cid:85)(cid:68)(cid:81)(cid:87)(cid:72)(cid:71)
(cid:40)(cid:91)(cid:72)(cid:85)(cid:70)(cid:76)(cid:86)(cid:72)(cid:71)
(cid:41)(cid:82)(cid:85)(cid:73)(cid:72)(cid:76)(cid:87)(cid:72)(cid:71)(cid:3)(cid:82)(cid:85)(cid:3)(cid:72)(cid:91)(cid:83)(cid:76)(cid:85)(cid:72)(cid:71)
(cid:50)(cid:88)(cid:87)(cid:86)(cid:87)(cid:68)(cid:81)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:68)(cid:87)(cid:3)(cid:41)(cid:72)(cid:69)(cid:85)(cid:88)(cid:68)(cid:85)(cid:92)(cid:3)(cid:21)(cid:27)(cid:15)(cid:3)(cid:21)(cid:19)(cid:20)(cid:28)
(cid:42)(cid:85)(cid:68)(cid:81)(cid:87)(cid:72)(cid:71)
(cid:40)(cid:91)(cid:72)(cid:85)(cid:70)(cid:76)(cid:86)(cid:72)(cid:71)
(cid:41)(cid:82)(cid:85)(cid:73)(cid:72)(cid:76)(cid:87)(cid:72)(cid:71)(cid:3)(cid:82)(cid:85)(cid:3)(cid:72)(cid:91)(cid:83)(cid:76)(cid:85)(cid:72)(cid:71)
(cid:50)(cid:88)(cid:87)(cid:86)(cid:87)(cid:68)(cid:81)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:68)(cid:87)(cid:3)(cid:41)(cid:72)(cid:69)(cid:85)(cid:88)(cid:68)(cid:85)(cid:92)(cid:3)(cid:21)(cid:28)(cid:15)(cid:3)(cid:21)(cid:19)(cid:21)(cid:19)
(cid:3)
(cid:40)(cid:91)(cid:72)(cid:85)(cid:70)(cid:76)(cid:86)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3)(cid:68)(cid:87)(cid:29)
(cid:41)(cid:72)(cid:69)(cid:85)(cid:88)(cid:68)(cid:85)(cid:92)(cid:3)(cid:21)(cid:27)(cid:15)(cid:3)(cid:21)(cid:19)(cid:20)(cid:27)
(cid:41)(cid:72)(cid:69)(cid:85)(cid:88)(cid:68)(cid:85)(cid:92)(cid:3)(cid:21)(cid:27)(cid:15)(cid:3)(cid:21)(cid:19)(cid:20)(cid:28)
(cid:41)(cid:72)(cid:69)(cid:85)(cid:88)(cid:68)(cid:85)(cid:92)(cid:3)(cid:21)(cid:28)(cid:15)(cid:3)(cid:21)(cid:19)(cid:21)(cid:19)
(cid:3)
(cid:3) (cid:3)
(cid:3) (cid:3)
(cid:3) (cid:3)
(cid:3) (cid:3)
(cid:3) (cid:3)
(cid:3) (cid:3)
(cid:3) (cid:3)
(cid:3) (cid:3)
(cid:3) (cid:3)
(cid:3) (cid:3)
(cid:3) (cid:3)
(cid:3) (cid:3)
(cid:3) (cid:3)
(cid:3) (cid:3) (cid:3)
(cid:3) (cid:3) (cid:3)
(cid:3) (cid:3)
(cid:3) (cid:3)
(cid:3) (cid:3)
(cid:3) (cid:3)
(cid:28)(cid:24)(cid:24)(cid:3) (cid:3) (cid:7)
(cid:20)(cid:25)(cid:24)(cid:3) (cid:3) (cid:3)
(cid:11)(cid:20)(cid:23)(cid:19)(cid:12)(cid:3) (cid:3)
(cid:16)(cid:3) (cid:3) (cid:3)
(cid:28)(cid:27)(cid:19)(cid:3) (cid:3) (cid:7)
(cid:20)(cid:23)(cid:19)(cid:3) (cid:3) (cid:3)
(cid:11)(cid:25)(cid:25)(cid:12)(cid:3) (cid:3)
(cid:16)(cid:3) (cid:3) (cid:3)
(cid:20)(cid:15)(cid:19)(cid:24)(cid:23)(cid:3) (cid:3) (cid:7)
(cid:20)(cid:26)(cid:20)(cid:3) (cid:3) (cid:3)
(cid:11)(cid:20)(cid:24)(cid:23)(cid:12)(cid:3) (cid:3)
(cid:16)(cid:3) (cid:3) (cid:3)
(cid:20)(cid:15)(cid:19)(cid:26)(cid:20)(cid:3) (cid:3) (cid:7)
(cid:3) (cid:3) (cid:3) (cid:3)
(cid:3) (cid:3) (cid:3) (cid:3)
(cid:24)(cid:28)(cid:19)(cid:3) (cid:3) (cid:7)
(cid:25)(cid:28)(cid:27)(cid:3) (cid:3) (cid:7)
(cid:25)(cid:22)(cid:22)(cid:3) (cid:3) (cid:7)
(cid:49)(cid:88)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3)(cid:82)(cid:73)
(cid:50)(cid:83)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)
(cid:58)(cid:72)(cid:76)(cid:74)(cid:75)(cid:87)(cid:72)(cid:71)
(cid:36)(cid:89)(cid:72)(cid:85)(cid:68)(cid:74)(cid:72)
(cid:40)(cid:91)(cid:72)(cid:85)(cid:70)(cid:76)(cid:86)(cid:72)
(cid:51)(cid:85)(cid:76)(cid:70)(cid:72)
(cid:36)(cid:74)(cid:74)(cid:85)(cid:72)(cid:74)(cid:68)(cid:87)(cid:72)
(cid:76)(cid:81)(cid:87)(cid:85)(cid:76)(cid:81)(cid:86)(cid:76)(cid:70)
(cid:89)(cid:68)(cid:79)(cid:88)(cid:72)
(cid:58)(cid:72)(cid:76)(cid:74)(cid:75)(cid:87)(cid:72)(cid:71)
(cid:68)(cid:89)(cid:72)(cid:85)(cid:68)(cid:74)(cid:72)
(cid:85)(cid:72)(cid:80)(cid:68)(cid:76)(cid:81)(cid:76)(cid:81)(cid:74)
(cid:70)(cid:82)(cid:81)(cid:87)(cid:85)(cid:68)(cid:70)(cid:87)(cid:88)(cid:68)(cid:79)
(cid:79)(cid:76)(cid:73)(cid:72)(cid:3)(cid:11)(cid:92)(cid:72)(cid:68)(cid:85)(cid:86)(cid:12) (cid:3) (cid:3)
(cid:24)(cid:17)(cid:24)(cid:3) (cid:3) (cid:3)
(cid:3)(cid:3) (cid:3) (cid:3)
(cid:3)(cid:3) (cid:3) (cid:3)
(cid:3)(cid:3) (cid:3) (cid:3)
(cid:24)(cid:17)(cid:28)(cid:3) (cid:3) (cid:3)
(cid:3)(cid:3) (cid:3) (cid:3)
(cid:3)(cid:3) (cid:3) (cid:3)
(cid:3)(cid:3) (cid:3) (cid:3)
(cid:24)(cid:17)(cid:27)(cid:3) (cid:3) (cid:3)
(cid:3)(cid:3) (cid:3) (cid:3)
(cid:3)(cid:3) (cid:3) (cid:3)
(cid:3)(cid:3) (cid:3) (cid:3)
(cid:25)(cid:17)(cid:21)(cid:3) (cid:3) (cid:7)
(cid:3) (cid:3) (cid:3) (cid:3)
(cid:3) (cid:3) (cid:3) (cid:3)
(cid:23)(cid:17)(cid:20)(cid:3) (cid:3) (cid:7)
(cid:23)(cid:17)(cid:23)(cid:3) (cid:3) (cid:7)
(cid:23)(cid:17)(cid:26)(cid:3) (cid:3) (cid:7)
(cid:3) (cid:3)
(cid:27)(cid:17)(cid:25)(cid:19)(cid:3) (cid:3) (cid:3)
(cid:20)(cid:28)(cid:17)(cid:22)(cid:20)(cid:3) (cid:3) (cid:3)
(cid:21)(cid:17)(cid:22)(cid:25)(cid:3) (cid:3) (cid:3)
(cid:16)(cid:3) (cid:3) (cid:3)
(cid:20)(cid:20)(cid:17)(cid:21)(cid:28)(cid:3) (cid:3) (cid:3)
(cid:21)(cid:22)(cid:17)(cid:19)(cid:27)(cid:3) (cid:3) (cid:3)
(cid:20)(cid:17)(cid:27)(cid:26)(cid:3) (cid:3) (cid:3)
(cid:16)(cid:3) (cid:3) (cid:3)
(cid:20)(cid:22)(cid:17)(cid:23)(cid:23)(cid:3) (cid:3) (cid:3)
(cid:20)(cid:20)(cid:17)(cid:20)(cid:20)(cid:3) (cid:3) (cid:3)
(cid:21)(cid:17)(cid:23)(cid:23)(cid:3) (cid:3) (cid:3)
(cid:16)(cid:3) (cid:3) (cid:3)
(cid:20)(cid:23)(cid:17)(cid:25)(cid:24)(cid:3) (cid:3) (cid:3)
(cid:3) (cid:3) (cid:3) (cid:3)
(cid:3) (cid:3) (cid:3) (cid:3)
(cid:26)(cid:17)(cid:24)(cid:23)(cid:3) (cid:3) (cid:3)
(cid:20)(cid:19)(cid:17)(cid:21)(cid:21)(cid:3) (cid:3) (cid:3)
(cid:20)(cid:22)(cid:17)(cid:21)(cid:20)(cid:3) (cid:3) (cid:3)
(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:27)(cid:24)(cid:19)(cid:3)
(cid:3)
(cid:3)
(cid:28)(cid:15)(cid:22)(cid:23)(cid:28)(cid:3)
(cid:22)(cid:15)(cid:22)(cid:25)(cid:19)(cid:3)
(cid:27)(cid:24)(cid:19) (cid:3)
(cid:3) (cid:60)(cid:72)(cid:68)(cid:85)(cid:3)(cid:72)(cid:81)(cid:71)(cid:72)(cid:71)(cid:3)(cid:41)(cid:72)(cid:69)(cid:85)(cid:88)(cid:68)(cid:85)(cid:92)(cid:3)(cid:21)(cid:27)(cid:18)(cid:21)(cid:28)(cid:15)
(cid:21)(cid:19)(cid:20)(cid:27)
(cid:3)
(cid:3) (cid:21)(cid:19)(cid:20)(cid:28) (cid:3) (cid:3)
(cid:21)(cid:19)(cid:21)(cid:19)
(cid:3)
(cid:3)
(cid:3)
(cid:3) (cid:7)
(cid:23)(cid:17)(cid:27)(cid:21)(cid:3) (cid:3) (cid:7) (cid:20)(cid:20)(cid:17)(cid:28)(cid:23)(cid:3) (cid:3) (cid:7)
(cid:20)(cid:19)(cid:17)(cid:21)(cid:19) (cid:3)
(cid:3)
(cid:58)(cid:72)(cid:76)(cid:74)(cid:75)(cid:87)(cid:72)(cid:71)(cid:3)(cid:68)(cid:89)(cid:72)(cid:85)(cid:68)(cid:74)(cid:72)(cid:3)(cid:74)(cid:85)(cid:68)(cid:81)(cid:87)(cid:3)(cid:71)(cid:68)(cid:87)(cid:72)(cid:3)(cid:73)(cid:68)(cid:76)(cid:85)(cid:3)(cid:89)(cid:68)(cid:79)(cid:88)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:86)(cid:87)(cid:82)(cid:70)(cid:78)(cid:3)(cid:82)(cid:83)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)
(cid:74)(cid:85)(cid:68)(cid:81)(cid:87)(cid:72)(cid:71)(cid:3)(cid:71)(cid:88)(cid:85)(cid:76)(cid:81)(cid:74)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:92)(cid:72)(cid:68)(cid:85)
(cid:27)(cid:27)
We use the Black-Scholes-Merton option pricing model for valuation of stock option awards. Calculating the
fair value of stock option awards requires the input of subjective assumptions. Other reasonable assumptions could
provide differing results. The fair value of stock options at the grant date was determined using the following
assumptions:
Black-Scholes Valuation
Assumptions
Expected life (years)
Expected volatility
Risk-free interest rates
Expected dividend yield
Year Ended February 29/28,
2020
6
43%
1.9%
0%
2019
2 - 6
36% - 43%
2.5% - 2.9%
0%
2018
6
46%
2.0%
0%
For the years ended February 29, 2020, February 28, 2019 and 2018, the expected life of options was determined
using historical experience of our stock option grants and forfeiture activities. The expected volatility is based on the
historical volatility of our stock price. The risk-free interest rate is based on the implied yield currently available on
U.S. Treasuries with terms which approximate the expected life of the stock options.
Changes in our outstanding restricted stock shares, PSUs and RSUs for the fiscal years ended February 29, 2020,
February 28, 2019 and 2018 were as follows (shares in thousands):
Shares
Retained to
Cover
Statutory
Minimum
Withholding
Taxes
133
162
177
Number of
Restricted
Shares, PSUs
and RSUs
1,239 $
770
(399)
(176)
1,434 $
787
(478)
(236)
1,507 $
1,597
(521)
(368)
2,215 $
Weighted
Average
Grant Date
Fair Value
15.94
19.55
15.92
17.34
17.72
22.05
17.32
19.59
19.77
11.28
18.67
16.27
14.47
Outstanding at February 28, 2017
Granted
Vested
Forfeited
Outstanding at February 28, 2018
Granted
Vested
Forfeited
Outstanding at February 28, 2019
Granted
Vested
Forfeited
Outstanding at February 29, 2020
Stock-based compensation expense is included in the following captions of the consolidated statements of
comprehensive income (loss) (in thousands):
Cost of revenues
Research and development
Selling and marketing
General and administrative
Year Ended February 29/28,
2019
2018
2020
$
$
675 $
2,458
3,255
6,033
12,421 $
723 $
2,061
2,863
5,382
11,029 $
653
1,471
2,314
4,860
9,298
89
As of February 29, 2020, there was $26.3 million of unrecognized stock-based compensation cost related to
non-vested equity awards, which is expected to be recognized over a weighted-average remaining vesting period of
3.4 years.
Tax Benefits from Exercise of Stock Options and Vesting of Restricted Stock and RSU Awards
The aggregate fair value of stock options exercised and vested restricted stock and RSU awards as of the exercise
date or vesting date was $9.6 million, $8.6 million and $6.9 million for fiscal years ended February 29, 2020, February
28, 2019 and 2018, respectively. In connection with these equity awards, the excess stock compensation tax deductions
were $0, $2.9 and $2.6 million for fiscal years ended February 29, 2020, February 28, 2019 and 2018, respectively.
NOTE 15 – EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per share is computed by dividing net income (loss) by the weighted average number of
common shares outstanding during the period. Diluted earnings per share is computed by dividing net income by the
weighted average number of common shares outstanding during the period plus the dilutive effect of outstanding stock
options and restricted stock-based awards using the treasury stock method. The following table sets forth the
computation of basic and diluted earnings (loss) per share (in thousands, except per share amounts):
Net income (loss)
Basic weighted average number of common shares
outstanding
Effect of stock options and restricted stock units
computed on treasury stock method
Diluted weighted average number of common shares
outstanding
Earnings (loss) per share:
Basic
Diluted
Year Ended February 29/28,
2018
2019
2020
$ (79,304) $ 18,398 $ 16,617
33,670
34,589
35,250
-
705
889
33,670
35,294
36,139
$
$
(2.36) $
(2.36) $
0.53 $
0.52 $
0.47
0.46
All outstanding stock options and restricted stock-based awards in the amount of 0.9 million and 0.7 million,
respectively, were excluded from the computation of diluted earnings per share for the fiscal year ended February 29,
2020 because the effect of inclusion would be antidilutive. Shares subject to anti-dilutive stock options and restricted
stock-based awards of 1.9 million and 0.2 million for the fiscal years ended February 28, 2019 and 2018, respectively,
were excluded from the calculations of diluted earnings per share for the years then ended.
We have the option to pay cash, issue shares of common stock or any combination thereof for the aggregate
amount due upon conversion of the convertible senior notes. It is our intent to settle the principal amount of these
notes with cash, and therefore, we use the treasury stock method for calculating any potential dilutive effect of the
conversion option on diluted earnings (loss) per share. From the time of the issuance of the notes, the average market
price of our common stock has been less than the initial conversion price of the notes, and consequently no shares
have been included in diluted earnings per share for the conversion value of the notes.
90
NOTE 16 – COMPREHENSIVE INCOME (LOSS)
The following table shows the changes in our accumulated other comprehensive income (loss) for the fiscal
years ended February 29, 2020, February 28, 2019 and 2018 (in thousands):
Cumulative
Foreign
Currency
Translation
(506)
Unrealized
Gains/Losses
on Marketable
Securities
(35)
464
429
(429)
-
Total
(541)
342
(199)
(462)
(661)
-
- $
(714)
(1,375)
(122)
(628)
(33)
(661) $
(714)
(1,375) $
Balances at February 28, 2017
Other comprehensive income (loss),
net of tax
Balances at February 28, 2018
Other comprehensive income (loss),
net of tax
Balances at February 28, 2019
Other comprehensive income (loss),
net of tax
Balances at February 29, 2020
$
NOTE 17 – EMPLOYEE RETIREMENT PLAN
We maintain a 401(k) defined-contribution plan allowing eligible U.S.-based employees to contribute up to an
annual maximum amount as set periodically by the Internal Revenue Service. The current matching contribution to
the plan is equal to 100% of the first 3% of participants’ compensation contribution plus 50% of the next 2%
contributed by the participant. We recorded expense for the matching contributions of $2.1 million, $2.1 million and
$2.0 million in fiscal years ended February 29, 2020, February 28, 2019 and 2018, respectively.
NOTE 18 – OTHER FINANCIAL INFORMATION
Supplemental Balance Sheet Information
Other current liabilities consist of the following (in thousands):
Operating lease liabilities
Litigation reserve
Customer deposits
Warranty reserves
Other
February 29/28,
2020
2019
$
$
4,662 $
1,500
1,377
987
7,627
16,153 $
-
1,500
546
1,398
7,178
10,622
91
Other non-current liabilities consist of the following (in thousands):
Deferred revenue
Deferred compensation plan liability
Accrued restructuring costs
Deferred tax liability
Deferred rent
Other
February 29/28,
2019
2020
27,452 $
5,919
-
122
-
1,551
35,044 $
27,106
6,409
2,175
963
365
1,458
38,476
$
$
Supplemental Income Statement Information
Interest expense consists of the following (in thousands):
Interest expense on 2020 Convertible Notes:
Stated interest at 1.625% per annum
Amortization of discount and issuance costs
Interest expense on 2025 Convertible Notes:
Stated interest at 2.00% per annum
Amortization of discount and issuance costs
Other interest expense
Total interest expense
Year Ended February 29/28,
2018
2019
2020
$
1,464 $
4,336
5,800
2,308 $
6,484
8,792
2,806
7,472
10,278
4,613
8,750
13,363
933
20,096 $
2,811
4,980
7,791
143
16,726 $
-
-
-
2
10,280
$
Supplemental Cash Flow Information
“Net cash provided by operating activities” in the consolidated statements of cash flows includes cash payments
for interest and income taxes. The following is our supplemental schedule of cash payments for interest and income
taxes and non-cash investing and financing activities (in thousands):
Year Ended February 29/28,
2019
2018
2020
Cash payments for interest and income taxes:
Interest expense paid
Income tax paid, net of refunds
Non-cash investing and financing activities:
Accrued liability for capital expenditures
Conversion of receivables to equity investment
$
$
$
$
6,762 $
220 $
5,057 $
964 $
(283) $
- $
881 $
300 $
2,844
3,498
-
2,674
92
Valuation and Qualifying Accounts
Following is our schedule of valuation and qualifying accounts for the last three years (in thousands):
Allowance for doubtful accounts:
Fiscal 2018
Fiscal 2019
Fiscal 2020
Warranty reserve:
Fiscal 2018
Fiscal 2019
Fiscal 2020
Deferred tax assets valuation allowance:
Fiscal 2018
Fiscal 2019
Fiscal 2020
Balance
at
beginning
Charged
(credited)
to costs
and
of year
expenses Deductions Other
Balance
at
end of
year
962
1,186
1,756
6,518
5,734
1,398
685
1,230
2,989
1,331
1,126
729
(461)
(660)
(1,674)
(2,115)
(5,462)
(1,140)
-
-
-
-
-
1,186
1,756
3,071
5,734
1,398
987
6,587
16,844
10,929
-
799
34,631
(4,835)
(6,714)
-
15,092
-
-
16,844
10,929
45,560
NOTE 19 – COMMITMENTS AND CONTINGENCIES
Legal Proceedings
Omega patent infringement claim
On May 22, 2017, we filed motions with the court seeking judgment as a matter of law and for a new trial in
response to the patent infringement lawsuit filed by Omega Patents, LLC (“Omega”) that was decided against us in
2016. The court denied our motions on November 14, 2017. We then appealed to the Court of Appeals for the Federal
Circuit (the “Federal Circuit”). The appeal was fully briefed, and the court heard oral argument on January 9, 2019.
On April 8, 2019, the Federal Circuit vacated the compensatory and enhanced damages and attorney’s fees awarded
by the trial court to Omega. The Federal Circuit also set aside the jury’s verdict that our alleged infringement was
willful, and remanded the case for a new trial. As a result, substantially all of the previously reserved legal provisions
of $19.1 million as of November 30, 2018 was reversed as of our fiscal year-end. The reversal was recorded as a
reduction of general and administrative expenses in our consolidated statement of comprehensive income (loss) for
the fiscal year ended February 28, 2019.
The new trial began on September 23, 2019 in the U.S. District Court for the Middle District of Florida (“Trial
Court”), and on September 30, 2019, the jury determined that the Company infringed two of the four patents; however,
the jury found that there was no willful infringement. On the first patent (U.S. Pat. No. 7,671,727), the jury found only
one unit infringed, and assessed $1 in damages. On the second patent (U.S. Pat. No. 8,032,278), the jury found direct
infringement and awarded damages at a rate of $5 per unit, for total damages of approximately $4.6 million. On
November 26, 2019 the Trial Court entered judgment, awarding Omega damages of $4.6 million, together with pre-
judgment interest in the amount of $0.8 million through September 30, 2019. We filed motions with the Trial Court
seeking judgment as a matter of law (“JMOL”) in our favor and, alternatively, a new trial. On March 20, 2020, the
Trial Court denied our motion for JMOL, a new trial, and remittitur of damages. Also, on March 20, 2020, the Trial
Court denied Omega’s motion for a new trial on willfulness. On April 1, 2020, the Trial Court denied Omega’s motion
to enhance the royalty rate beyond the jury’s award of $5 per unit and motion to conduct post-trial discovery on
CalAmp’s other OBD-II compliant LMUs. On April 3, 2020, the Trial Court denied Omega’s final motion regarding
infringement of the VPODs. On April 30, 2020, we filed a notice of appeal at the Federal Circuit. Also on April 30,
2020, Omega filed notices of cross-appeal at the Federal Circuit.
93
We also initiated ex parte reexamination proceedings filed in the U.S. Patent and Trademark Office seeking to
invalidate a number of Omega’s patents involved in the litigation. Those proceedings currently remain pending. We
continue to believe that our products do not infringe on any of Omega’s patents. While it is not feasible to predict with
certainty the outcome of this litigation, we believe that its ultimate resolution would not have a material adverse effect
on our consolidated results of operations, financial condition and cash flows.
In connection with this claim, we have accrued our best estimate of the probable liability based on reasonable
royalty rates for similar technologies. It is reasonably possible that the judgement and amounts described above could
be upheld, which would exceed the amounts we have accrued.
EVE battery claim
On October 27, 2014, LoJack and LoJack Equipment Ireland DAC (“LJEI”), a wholly-owned subsidiary of
LoJack, commenced arbitration proceedings against EVE Energy Co., Ltd. (“EVE”) by filing a notice of arbitration
with a tribunal (the “Tribunal”) before the Hong Kong International Arbitration Centre (the “HKIAC”). LoJack and
LJEI alleged that EVE breached representations and warranties made in supply agreements relating to the quality and
performance of battery packs supplied by EVE. On June 2, 2017, we were notified that the Tribunal rendered a decision
and awarded damages to us (the “Damage Award”) for EVE’s breach of contract. On June 9, 2017, we entered into a
settlement agreement with EVE and its controlling shareholder EVE Holdings Limited to resolve the Damage Award
by having EVE Holdings Limited, the parent company of EVE, make payments to us in the aggregate amount of $46.6
million, which amount is net of attorneys’ fees and insurance subrogation payment (the “Settlement”). As of February
28, 2019, we had received the entire Settlement, of which $18.3 million was received in fiscal 2019 and $28.3 million
was received in fiscal 2018. The Settlement amounts were reported and disclosed as other non-operating income in
our consolidated statement of comprehensive income for the fiscal years ended February 28, 2019 and 2018.
Tracker South Africa claim
On December 9, 2016, Tracker Connect (Pty) LTD (“Tracker”), an international licensee of LoJack located in
South Africa, commenced arbitration proceedings against LoJack Ireland by filing a notice of arbitration with the
International Centre for Dispute Resolution. The filing alleged breaches of the license agreement as well as
misrepresentations and violation of Massachusetts General Laws chapter 93A. Tracker was seeking various relief,
including monetary damages and recovery of attorneys’ fees. On March 3, 2017, LoJack Ireland filed its response to
Tracker’s notice, denying their allegations and filing counterclaims against Tracker for material breaches of the
parties’ license agreement and bad faith conduct. The arbitral tribunal was selected and the arbitration was conducted
in March 2018 with closing arguments heard on June 25, 2018. On December 6, 2018, the arbitral tribunal issued its
confidential final ruling by awarding $6.2 million to Tracker, which was paid on December 18, 2018. In connection
with this legal matter, we accrued a contingent liability of $4.0 million and therefore the net effect of the final award
is recorded in General & Administrative expenses in our consolidated statements of comprehensive income (loss) for
the fiscal year ended February 28, 2019.
At this time, we believe that all outstanding legal matters related to the EVE and Tracker matters are complete.
In addition to the foregoing matters, from time to time as a normal consequence of doing business, various
claims and litigation may be asserted or commenced against us. In particular, we may receive claims concerning
contract performance or claims that our products or services infringe the intellectual property of third parties which
are in the ordinary course of business. While the outcome of any such claims or litigation cannot be predicted with
certainty, management does not believe that the outcome of such matters existing at the present time would have a
material adverse effect on our consolidated results of operations, financial condition or cash flows.
94
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The amount shown for each period in the “Corporate Expenses” column above consists of expenses that are not
allocated to the business segments. These unallocated corporate expenses include salaries and benefits of certain
corporate staff and expenses such as audit fees, investor relations, stock listing fees, director and officer liability
insurance, and director fees and expenses.
Our CODM evaluates each segment based primarily on revenue and Adjusted Earnings Before Interest, Taxes,
Depreciation and Amortization (“Adjusted EBITDA”), and we therefore consider Adjusted EBITDA to be a primary
measure of operating performance of our operating segments. We define Adjusted EBITDA as earnings before
investment income, interest expense, taxes, depreciation, amortization and stock-based compensation, impairment loss
and other adjustments as identified below. The adjustments to our financial results prepared in accordance with U.S.
generally accepted accounting principles (“GAAP”) to calculate Adjusted EBITDA are itemized below (in thousands):
Net income (loss)
Investment income
Interest expense
Income tax provision (benefits)
Depreciation and amortization
Stock-based compensation
Impairment loss and equity in net loss of affiliate
Loss on extinguishment of debt
Acquisition and integration related expenses
Non-recurring legal expenses, net of reversal of
litigation provision
Gain on LoJack battery performance legal
Settlement
Restructuring
Impairment loss
Other
Adjusted EBITDA
Year Ended February 29/28,
2018
2019
2020
16,617
18,398 $
$ (79,304) $
(2,256)
(4,497)
(5,258)
10,280
16,726
20,096
10,681
(1,330)
20,454
22,957
20,016
31,987
9,298
11,029
12,421
1,411
6,787
530
-
2,033
2,408
-
935
2,210
6,213
(11,020)
10,738
-
4,400
19,143
840
36,901 $
(18,333)
8,015
-
217
48,215 $
(28,333)
-
-
989
52,382
$
Our CODM does not obtain identifiable assets by segment because our businesses share resources, functions
and facilities.
We do not have significant long-lived assets outside the United States.
Revenue by geographic area are as follows (in thousands):
United States
Europe, Middle East and Africa
South America
Asia and Pacific Rim
All other
Year Ended February 29/28,
2018
2019
2020
$ 266,413 $ 268,453 $ 265,613
45,830
20,699
12,873
20,897
$ 366,107 $ 363,800 $ 365,912
55,185
21,235
9,166
14,108
49,496
15,134
13,958
16,759
Revenues by geographic area are based upon the country of billing. The geographic location of distributors and
OEM customers may be different from the geographic location of the ultimate end users of the products and services
provided by us. No single non-U.S. country accounted for more than 10% of our revenue in fiscal years ended
February 29, 2020, February 28, 2019 and 2018.
96
NOTE 21 – QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following summarizes certain quarterly statement of operations data for each of the quarters in fiscal years
2020 and 2019 (in thousands, except percentages and per share data). The operating results in any quarter are not
necessarily indicative of the results that may be expected for any future period. We derived this data from the unaudited
consolidated interim financial statements that, in our opinion, have been prepared on substantially the same basis as
the audited financial statements contained elsewhere in this report and include all normal recurring adjustments
necessary for a fair presentation of the financial information for the periods presented. These unaudited quarterly
results should be read in conjunction with the financial statements and notes thereto included elsewhere in this report.
Revenues
Gross profit
Gross margin
Net income (loss)
Earnings (loss) per diluted share
Revenues
Gross profit
Gross margin
Net income (loss)
Earnings (loss) per diluted share
First
$
Quarter
89,070
35,411
$
Second
Quarter
93,236
37,670
Fiscal 2020
Third
Quarter
96,597
36,884
$
Fourth
Quarter
87,204
33,338
$
$
Total
366,107
143,303
39.8%
(8,693)
(0.26) $
40.4%
(7,369)
(0.22)
$
38.2%
(7,415)
(0.22)
$
38.2%
(55,827)
(1.65)
$
39.1%
(79,304)
(2.36)
$
First
$
Quarter
94,888
38,091
$
Second
Quarter
96,037
39,821
Fiscal 2019
Third
Quarter
88,495
36,381
$
Fourth
Quarter
84,380
33,471
$
$
Total
363,800
147,764
40.1%
8,511
0.23
$
41.5%
(854)
(0.02)
$
41.1%
(522)
(0.02)
$
39.7%
11,263
0.33
$
40.6%
18,398
0.52
$
The net loss in fiscal 2020 fourth quarter included a $19.1 million impairment loss from long-lived assets and
ROU assets and a $34.6 million increase of the valuation allowance against our net deferred tax assets. The impairment
loss is described in Note 1 – Description of Business and Summary of Significant Accounting Policies. The increase
of the valuation allowance is described in Note 13 – Income Taxes.
The net loss in fiscal 2020 third quarter included a loss of $2.4 million from extinguishment of debt. The loss
was described in Note 10 – Financing Arrangements.
The net income (loss) in the fiscal 2019 first, third and fourth quarter included a gain from legal settlement of
$13.3 million, $2.5 million and $2.5 million, respectively. Substantially all of the previously reserved legal provision
of $19.1 million as of November 30, 2018 relating to an alleged patent infringement was reversed in the fourth quarter
of fiscal 2019. These matters are described in Note 19 – Commitments and Contingencies. The net loss in fiscal 2019
second quarter included a loss of $2.0 million from extinguishment of debt. The loss on extinguishment is described
in Note 10 – Financing Arrangements. As of February 28, 2019, we determined that our investment in Smart Driver
Club was subject to other than temporary impairment of $5.0 million, which is reported as part of equity in net loss of
affiliate and related impairment loss in our consolidated statement of comprehensive income (loss). The impairment
is described in Note 9 – Other Assets.
97
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our principal executive officer and principal financial officer have concluded, based on their evaluation of
disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) as of February
29, 2020, that our disclosure controls and procedures are effective, at the reasonable assurance level, to ensure that
the information required to be disclosed in reports that are filed or submitted under the Exchange Act is accumulated
and communicated to management, including the principal executive officer and principal financial officer, as
appropriate, to allow timely decisions regarding required disclosure and to allow such information to be recorded,
processed, summarized and reported within the time periods specified in the rules and forms of the Securities
Exchange Commission.
Management's Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial
reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act.
Our management has assessed the effectiveness of our internal control over financial reporting as of February
29, 2020. In making this assessment, management used criteria set forth in Internal Control – Integrated Framework
(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our assessment,
we have concluded that as of February 29, 2020 our internal control over financial reporting is effective based on
those criteria.
In March and April 2019, we acquired Car Track, S.A. de C.V. (“LoJack Mexico”) and Synovia Solutions
(“Synovia”), respectively, whose financial statements constitute 9% and 2% of total assets, respectively, 9% and 3%
of revenues, respectively, of the consolidated financial statements of the Company as of and for the year ended
February 29, 2020. As permitted by the guidance issued by the Office of the Chief Accountant of the Securities and
Exchange Commission, management excluded both LoJack Mexico and Synovia from our assessment of the
effectiveness of our internal control over financial reporting for the fiscal year ended February 29, 2020.
The effectiveness of our internal control over financial reporting as of February 29, 2020 has been audited by
Deloitte & Touche, LLP, an independent registered public accounting firm, as stated in their report, which is included
below.
Changes in Internal Control over Financial Reporting
In connection with our initiative to integrate and enhance our global information technology systems and
business processes, we initiated the phased implementation of a new ERP system. The ERP system is being
implemented in phases throughout fiscal 2020 and continuing into fiscal 2021. The first phase was completed during
the second quarter of fiscal 2020. As a result of this implementation, we modified certain existing internal controls
over financial reporting as well as implemented new controls and procedures related to the new ERP system. Other
than the continued implementation of our ERP system, there were no changes in our internal controls over financial
reporting (as defined in Rules 13a-15(f) and 15d 15(f) under the Exchange Act) that occurred during the fourth quarter
of fiscal 2020 that have materially affected, or are reasonably likely to materially affect, our internal controls over
financial reporting.
98
Report of Independent Registered Public Accounting Firm
To the stockholders and the Board of Directors of CalAmp Corp.
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of CalAmp Corp. and subsidiaries (the “Company”) as
of February 29, 2020, based on criteria established in Internal Control — Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company
maintained, in all material respects, effective internal control over financial reporting as of February 29, 2020, based
on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (PCAOB), the consolidated financial statements as of and for the fiscal year ended February 29, 2020, of the
Company and our report dated May 5, 2020 expressed an unqualified opinion on those financial and included
explanatory paragraphs regarding the Company’s adoption of Accounting Standards Update 2016-02, Leases, in the
fiscal year ended February 29, 2020 and the Company’s adoption of Accounting Standards Update 2014-09, Revenue
from Contracts with Customers, in the fiscal year ended February 28, 2019.
As described in Management’s Report on Internal Control over Financial Reporting, management excluded from its
assessment the internal control over financial reporting at Synovia Solutions (“Synovia”) and Car Track, S.A. de C.V.
(“LoJack Mexico”), which were acquired in March 2019 and April 2019, respectively, and whose financial statements
constitute 9% and 2% of total assets, respectively, 9% and 3% of revenues, respectively, of the consolidated financial
statements of the Company as of and for the year ended February 29, 2020. Accordingly, our audit did not include the
internal control over financial reporting for Synovia and LoJack Mexico.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for
its assessment of the effectiveness of internal control over financial reporting, included in the accompanying
Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the
Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered
with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal
securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit included obtaining an understanding of internal control over financial
reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
99
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance
with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have
a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
/s/ Deloitte & Touche LLP
Costa Mesa, CA
May 5, 2020
100
ITEM 9B.
OTHER INFORMATION
Compensatory Arrangements of Executive Officers
On April 21, 2020, our Board of Directors, upon the recommendation of the Compensation Committee,
established the target bonuses and performance goals under the fiscal 2021 executive officer incentive compensation
plan. The individuals covered by the fiscal 2021 executive officer incentive compensation plan are:
(cid:31) Kurtis Binder
(cid:31) Arym Diamond
(cid:31) Anand Rau
Executive Vice President, Chief Financial Officer
Senior Vice President, Chief Revenue Officer
Senior Vice President, Engineering
Messrs. Binder, Diamond and Rau are eligible for target bonuses of up to 75%, 100% and 50%, respectively, of
their annual salaries. The target bonus amounts for all executive officers are based on us attaining certain levels of
consolidated revenue, consolidated earnings before interest, taxes, depreciation, amortization and certain other
adjustments (Adjusted EBITDA) and their individual performance targets for the first six months of fiscal 2021. The
performance targets for the second half of fiscal 2021 have not been determined.
101
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by this Item will be included in our 2020 Proxy Statement, which will be filed with
the SEC and is incorporated herein by reference.
ITEM 11.
EXECUTIVE COMPENSATION
The information required by this Item will be included in our 2020 Proxy Statement, which will be filed with
the SEC and is incorporated herein by this reference.
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS
The information required by this Item will be included in our 2020 Proxy Statement, which will be filed with
the SEC and is incorporated herein by this reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
The information required by this Item will be included in our 2020 Proxy Statement, which will be filed with
the SEC and is incorporated herein by this reference.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required by this Item will be included in our 2020 Proxy Statement, which will be filed with
the SEC and is incorporated herein by this reference.
102
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a) The following documents are filed as part of this Report:
PART IV
1.
The following consolidated financial statements of CalAmp Corp. and subsidiaries are filed as part of this
report under Item 8 – Financial Statements and Supplementary Data:
Reports of Independent Registered Public Accounting Firm.........................................................................
Consolidated Balance Sheets .........................................................................................................................
Consolidated Statements of Comprehensive Income (Loss) .........................................................................
Consolidated Statements of Stockholders' Equity .........................................................................................
Consolidated Statements of Cash Flows .......................................................................................................
Notes to Consolidated Financial Statements ..................................................................................................
Form 10-K
Page No.
57
58
59
60
61
62
2.
Financial Statements Schedules:
Schedule II – Valuation and Qualifying Accounts information is included in Note 18 to the consolidated
financial statements which are filed as part of this report under Item 8 – Financial Statements and Supplementary Data.
All other financial statement schedules for which provision is made in the applicable accounting regulations of
the Securities and Exchange Commission are not required under the related instructions or are inapplicable and,
therefore, have been omitted.
3.
Exhibits
Exhibits required to be filed as part of this report are:
Exhibit
Number
Description
2.1
3.1
3.2
4.1
Agreement and Plan of Merger, dated as of February 1, 2016, by and among LoJack Corporation, CalAmp
Corp. and Lexus Acquisition Sub, Inc. (incorporated by reference to Exhibit 2.1 on Form 8-8 dated
February 2, 2016).
Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 of the
Company's Report on Form 10-Q for the period ended August 31, 2014).
Amended and restated bylaws of the Company.
Indenture, dated May 6, 2015, between CalAmp Corp. and The Bank of New York Mellon Trust Company,
N.A. (incorporated by reference to Exhibit 4.1 of the Company's Report on Form 10-Q for the period ended
May 31, 2015).
4.2
Form of 1.625% Convertible Senior Notes due May 15, 2020 (incorporated by reference to Exhibit 4.2 of
the Company's Report on Form 10-Q for the period ended May 31, 2015).
4.3
4.4
Indenture, dated July 20, 2018 between CalAmp Corp. and The Bank of New York Mellon Trust Company,
N.A. (incorporated by reference to Exhibit 4.1 of the Company's Report on Form 8-K filed on July 20,
2018).
Form of 2.00% Convertible Senior Notes due August 1, 2025 (incorporated by reference as Exhibit A to
Exhibit 4.1 of the Company's Report on Form 8-K filed on July 20, 2018).
103
Exhibit
Number
Description
4.5
10.
Description of Registrant’s Securities Registered Pursuant to Section 12 of The Securities Exchange Act
of 1934.
Material Contracts:
(i) Other than Compensatory Plans or Arrangements:
10.1
Form of Directors and Officers Indemnity Agreement (incorporated by reference to Exhibit 10.4 of the
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
10.13
Company's Report on Form 10-K for the year ended February 28, 2018).
Credit Agreement, dated as of March 30, 2018, among the Company, the lenders from time to time party
thereto, and JPMorgan, N.A. as Agent (incorporated by reference to Exhibit 10.1 of the Company’s Current
Report on Form 8-K dated April 5, 2018).
Second Amendment to Credit Agreement, dated as of March 27, 2020, among the Company, the lenders
from time to time party thereto, and JPMorgan, N.A. as Agent (incorporated by reference to Exhibit 10.1
of the Company’s Current Report on Form 8-K dated March 27, 2020).
Confirmation of Base Call Option Transaction, dated April 30, 2015, between CalAmp Corp. and Jefferies
International Limited (incorporated by reference to Exhibit 10.1 of the Company's Report on Form 10-Q
for the period ended May 31, 2015).
Confirmation of Base Call Option Transaction, dated April 30, 2015, between CalAmp Corp. and
JPMorgan Chase Bank, National Association, London Branch (incorporated by reference to Exhibit 10.2
of the Company's Report on Form 10-Q for the period ended May 31, 2015).
Confirmation of Base Call Option Transaction, dated April 30, 2015, between CalAmp Corp. and Barclays
Bank PLC (incorporated by reference to Exhibit 10.3 of the Company's Report on Form 10-Q for the period
ended May 31, 2015).
Confirmation of Base Call Option Transaction, dated April 30, 2015, between CalAmp Corp. and Nomura
Global Financial Products Inc. (incorporated by reference to Exhibit 10.4 of the Company's Report on
Form 10-Q for the period ended May 31, 2015).
Confirmation of Warrant Transaction, dated April 30, 2015, between CalAmp Corp. and Jefferies
International Limited (incorporated by reference to Exhibit 10.5 of the Company's Report on Form 10-Q
for the period ended May 31, 2015).
Confirmation of Warrant Transaction, dated April 30, 2015, between CalAmp Corp. and JPMorgan Chase
Bank, National Association, London Branch (incorporated by reference to Exhibit 10.6 of the Company's
Report on Form 10-Q for the period ended May 31, 2015).
Confirmation of Warrant Transaction, dated April 30, 2015, between CalAmp Corp. and Barclays Bank
PLC (incorporated by reference to Exhibit 10.7 of the Company's Report on Form 10-Q for the period
ended May 31, 2015).
Confirmation of Warrant Transaction, dated April 30, 2015, between CalAmp Corp. and Nomura Global
Financial Products Inc. (incorporated by reference to Exhibit 10.8 of the Company's Report on Form 10-
Q for the period ended May 31, 2015).
Confirmation of Additional Call Option Transaction, dated May 21, 2015, between CalAmp Corp. and
Jefferies International Limited (incorporated by reference to Exhibit 10.9 of the Company's Report on
Form 10-Q for the period ended May 31, 2015).
Confirmation of Additional Call Option Transaction, dated May 21, 2015, between CalAmp Corp. and
JPMorgan Chase Bank, National Association, London Branch (incorporated by reference to Exhibit 10.10
of the Company's Report on Form 10-Q for the period ended May 31, 2015).
104
Exhibit
Number
Description
10.14
10.15
10.16
10.17
10.18
10.19
10.20
10.21
10.22
10.23
10.24
10.25
10.26
Confirmation of Additional Call Option Transaction, dated May 21, 2015, between CalAmp Corp. and
Barclays Bank PLC (incorporated by reference to Exhibit 10.11 of the Company's Report on Form 10-Q
for the period ended May 31, 2015).
Confirmation of Additional Call Option Transaction, dated May 21, 2015, between CalAmp Corp. and
Nomura Global Financial Products Inc. (incorporated by reference to Exhibit 10.12 of the Company's
Report on Form 10-Q for the period ended May 31, 2015).
Confirmation of Additional Warrant Transaction, dated May 21, 2015, between CalAmp Corp. and
Jefferies International Limited (incorporated by reference to Exhibit 10.13 of the Company's Report on
Form 10-Q for the period ended May 31, 2015).
Confirmation of Additional Warrant Transaction, dated May 21, 2015, between CalAmp Corp. and
JPMorgan Chase Bank, National Association, London Branch (incorporated by reference to Exhibit 10.14
of the Company's Report on Form 10-Q for the period ended May 31, 2015).
Confirmation of Additional Warrant Transaction, dated May 21, 2015, between CalAmp Corp. and
Barclays Bank PLC (incorporated by reference to Exhibit 10.15 of the Company's Report on Form 10-Q
for the period ended May 31, 2015).
Confirmation of Additional Warrant Transaction, dated May 21, 2015, between CalAmp Corp. and
Nomura Global Financial Products Inc. (incorporated by reference to Exhibit 10.16 of the Company's
Report on Form 10-Q for the period ended May 31, 2015).
Confirmation of Base Call Option Transaction, dated July 17, 2018, between CalAmp Corp. and Nomura
Global Financial Products Inc. (incorporated by reference to Exhibit 10.1 of the Company's Report on
Form 8-K filed on July 20, 2018).
Confirmation of Base Call Option Transaction, dated July 17, 2018, between CalAmp Corp. and Jefferies
International Limited. (incorporated by reference to Exhibit 10.2 of the Company's Report on Form 8-K
filed on July 20, 2018).
Confirmation of Base Call Option Transaction, dated July 17, 2018, between CalAmp Corp. and Deutsche
Bank AG, London Branch. (incorporated by reference to Exhibit 10.3 of the Company's Report on Form
8-K filed on July 20, 2018).
Confirmation of Base Call Option Transaction, dated July 17, 2018, between CalAmp Corp. and Goldman
Sachs & Co, LLC. (incorporated by reference to Exhibit 10.4 of the Company's Report on Form 8-K filed
on July 20, 2018).
Confirmation of Additional Call Option Transaction, dated July 17, 2018, between CalAmp Corp. and
Nomura Global Financial Products, Inc. (incorporated by reference to Exhibit 10.5 of the Company's
Report on Form 8-K filed on July 20, 2018.
Confirmation of Additional Call Option Transaction, dated July 17, 2018, between CalAmp Corp. and
Jefferies International Limited. (incorporated by reference to Exhibit 10.6 of the Company's Report on
Form 8-K filed on July 20, 2018).
Confirmation of Additional Call Option Transaction, dated July 17, 2018, between CalAmp Corp. and
Deutsche Bank AG, London Branch. (incorporated by reference to Exhibit 10.7 of the Company's Report
on Form 8-K filed on July 20, 2018).
105
Exhibit
Number
Description
10.27
Confirmation of Additional Call Option Transaction, dated July 17, 2018, between CalAmp Corp. and
Goldman Sachs & Co, LLC. (incorporated by reference to Exhibit 10.8 of the Company's Report on Form
8-K filed on July 20, 2018).
(ii) Compensatory Plans or Arrangements required to be filed as Exhibits to this Report pursuant to Item
15 (b) of this Report:
10.28
CalAmp Corp. 2004 Incentive Stock Plan as amended and Restated (incorporated by reference to Exhibit
A of the Company's Definitive Proxy Statement filed on June 30, 2017).
10.29
CalAmp Corp. 2018 Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.9 of the
Company’s Quarterly Report on Form 10-Q for the period ended August 31, 2018).
10.30
Employment Agreement between the Company and Michael Burdiek effective June 1, 2011 (incorporated
by reference to Exhibit 10.1 of the Company's Current Report on Form 8-K dated May 27, 2011).
10.31
Form of amendment to all executive officer employment agreements entered into by the Company and
each of its executives dated December 19, 2008 (incorporated by reference to Exhibit 10.1 of the
Company's Report on Form 10-Q for the period ended November 29, 2008).
10.32
Amendments to executive officer employment agreements dated June 12, 2013 (incorporated by reference
to Exhibits 10.1, 10.2 and 10.3 of the Company's Report on Form 8-K filed on June 14, 2013).
10.33
10.34
10.35
10.36
10.37
10.38
10.39
10.40
10.41
Amendment No. 2 to Employment Agreement between the Company and Michael Burdiek dated May 30,
2014 (incorporated by reference to Exhibit 10.2 of the Company’s Report on Form 10-Q for the period
ended May 31, 2014).
Amendment No. 3 to Employment Agreement between the Company and Michael Burdiek dated May 30,
2016 (incorporated by reference to Exhibit 10.1 of the Company’s Report on Form 10-Q for the period
ended May 31, 2016).
Amendment No. 4 to Employment Agreement between the Company and Michael Burdiek dated May 31,
2017 (incorporated by reference to Exhibit 10.1 of the Company’s Report on Form 10-Q for the period
ended May 31, 2017).
Separation Agreement and General Release between CalAmp Corp. and Michael Burdiek dated March 20,
2020 (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed on
March 25, 2020).
Employment Agreement between the Company and Kurtis Binder dated July 17, 2017 (incorporated by
reference to Exhibit 10.2 of the Company’s Report on Form 10-Q for the period ended August 31, 2017).
Amendment No. 1 to Employment Agreement between the Company and Kurtis Binder dated May 31,
2018.
Amendment No. 2 to Employment Agreement between the Company and Kurtis Binder dated October 23,
2019 (incorporated by reference to Exhibit 10.1 of the Company’s Report on Form 10-Q for the period
ended November 30, 2019).
Letter Agreement between CalAmp Corp. and Jeffery Gardner dated March 23, 2020 (incorporated by
reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K filed on March 25, 2020).
Amendment No. 1, dated May 1, 2020, to Letter Agreement between CalAmp Corp. and Jeffery Gardner
dated March 23, 2020 (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on
Form 8-K/A filed on May 4, 2020).
21
Subsidiaries of the Registrant.
106
Exhibit
Number
Description
23.1
31.1
31.2
32
101
Consent of Deloitte & Touche LLP.
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
Interactive Data Files Pursuant to Rule 405 of Regulation S-T: (i) Consolidated Balance Sheets as of
February 29, 2020 and 2019, (ii) Consolidated Statements of Comprehensive Income for the years ended
February 29, 2020, 2019 and 2018, (iii) Consolidated Statement of Stockholders’ Equity for the years
ended February 29, 2020, February 28, 2019 and 2018, (iv) Consolidated Statements of Cash Flows for
the years ended February 29, 2020, February 28, 2019 and 2018, and (v) Notes to Consolidated Financial
Statements.
ITEM 16. FORM 10-K SUMMARY
None.
107
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on May 5, 2020.
SIGNATURES
CALAMP CORP.
By:
/s/ Jeffery Gardner
Jeffery Gardner
Interim President and Chief Executive
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature
/s/ A.J. Moyer
A.J. Moyer
/s/ Scott Arnold
Scott Arnold
/s/ Jason Cohenour
Jason Cohenour
/s/ Amal Johnson
Amal Johnson
/s/ Roxanne Oulman
Roxanne Oulman
/s/ Jorge Titinger
Jorge Titinger
/s/ Larry Wolfe
Larry Wolfe
Title
Chairman of the Board of Directors
Director
Director
Director
Director
Director
Director
/s/ Jeffery Gardner
Jeffery Gardner
Interim President, Chief Executive Officer and
Director (principal executive officer)
/s/ Kurtis Binder
Kurtis Binder
Executive Vice President, Chief Financial Officer
(principal accounting and financial officer)
Date
May 5, 2020
May 5, 2020
May 5, 2020
May 5, 2020
May 5, 2020
May 5, 2020
May 5, 2020
May 5, 2020
May 5, 2020
108
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Corporate Information
Board of Directors
A.J. “Bert” Moyer
Leadership
Jeff Gardner*
Chairman of the Board, CalAmp Corp.
Business Consultant and Private Investor
Interim President and Chief Executive Officer, and Director of
CalAmp
Scott Arnold
Kurt Binder*
Former President, Shutterfly Enterprise
Executive Vice President and Chief Financial Officer
Jason Cohenour
Arym Diamond*
Former President, CEO and Director, Sierra Wireless, Inc.
Senior Vice President and Chief Revenue Officer
Amal Johnson
Steve Moran
Former Director and Executive Chairman of the Board, Author-it
Software Corporation
Senior Vice President, General Counsel and Secretary
Roxanne Oulman
Chief Financial Officer, Medallia, Inc.
Jorge Titinger
Strategic Advisor To Hewlett Packard Enterprises And Former
President, CEO and Director, Silicon Graphics International Corporation
Larry Wolfe
Business Consultant and Private Investor
Jeff Gardner
Interim President, Chief Executive Officer and Director, CalAmp Corp.
Investor Information
CalAmp (Nasdaq: CAMP) is a technology solutions pioneer
leading transformation in a global connected economy. We
help reinvent businesses and improve lives around the globe
with technology solutions that streamline complex
IoT
deployments and bring intelligence to the edge. Our software
applications, scalable cloud services, and intelligent devices
collect and assess business-critical data from mobile assets,
cargo, companies, cities and people. We call this The New How,
powering autonomous
interaction, facilitating efficient
decision making, optimizing resource utilization, and improving
road safety. CalAmp is headquartered in Irvine, California and
has been publicly traded since 1983. LoJack is a brand of CalAmp.
For more information, visit calamp.com, or LinkedIn, Facebook,
Twitter, YouTube or CalAmp Blog.
IoT
Primary IR Contact
Leanne K. Sievers
sheltongroup
949.224.3874
lsievers@sheltongroup.com
Jeff Clark
Senior Vice President of Product Management
Justin Schmid
Senior Vice President and General Manager of LoJack Global
Operations
Anand Rau*
Senior Vice President of Engineering
Nadine Traboulsi
Senior Vice President of Corporate Marketing
Monica Van Berkel
Senior Vice President of Human Resources
Scott Tripp
Vice President of Operations
Auditors
Deloitte & Touche LLP
Legal Counsel
Latham & Watkins LLP
Transfer Agent and Register
American Stock Transfer & Trust Co.
*Corporate Officer
CalAmp
15635 Alton Parkway, Suite 250
Irvine, CA 92618
888.3CALAMP
calamp.com