Below is CalAmp Corp. (NASDAQ:CAMP)’s fiscal year 2015 Q3 earnings call transcript. Lyon Street Capital, Prescott Group, and Marshall Wace are among the hedge funds with large positions in CalAmp Corp. (NASDAQ:CAMP) at the end of the third quarter of 2014.
Host
Lasse Glassen – Investor Relations, Addo Communications
Company Representatives
Michael Burdiek – President and CEO, CalAmp
Rick Vitelle – Chief Financial Officer, CalAmp
Analysts
Mike Walkley – CanaccordGenuity
Mike Crawford – B. Riley & Co.
Mike Latimore – Northland Capital Markets
Tim Quillin – Stephens, Inc.
Rajesh Ghai – Macquarie Research
Greg Burns – Sidoti& Company
Operator
Greetings and welcome to the CalAmp Third Quarter Fiscal 2015 Results Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation.
I now will turn the conference over to your host, Lasse Glassen, from Addo Communications. Thank you. You may now begin.
Lasse Glassen, Investor Relations, Addo Communications
Thank you, operator. Good afternoon and welcome to CalAmp Corp. (NASDAQ:CAMP)’s fiscal 2015 third quarter results conference call. With us today are CalAmp’s President and Chief Executive Officer, Michael Burdiek, and Chief Financial Officer, Rick Vitelle.
Before I turn the call over to management, please remember that our prepared remarks and responses to questions may contain forward-looking statements. Words such as may, will, expect, intend, plan, believe, seek, could, estimates, judgment, targeting, should, anticipate, goal and variations of these words and similar expressions are intended to identify forward-looking statements. Actual results could differ materially from those implied by such forward-looking statements due to a variety of factors including, competitive pressures and pricing declines on the company’s Wireless DataCom and satellite segments, delays in the rampup in production shipments to a key OEM customer in the heavy equipment industry, and other risks and uncertainties that are described in the company’s Annual Report on Form 10-K for fiscal 2014 as filed on April 24, 2014 with the Securities and Exchange Commission.
Although the company believes the expectations reflected in such forward-looking statements are based upon reasonable assumptions, it can give no assurance that its expectations will be attained. The company undertakes no obligation to update any forward-looking statement, whether as a result of new information, future events or otherwise.
Michael Burdiek will begin today’s call with a review of the company’s financial and operational highlights. Rick Vitelle will then provide additional details about the company’s financial results and Mike will then wrap up with CalAmp’s business outlook and guidance for the fiscal 2015 fourth quarter. This will be followed by a question-and-answer session.
With that, it’s now my pleasure to turn the call over to CalAmp Corp. (NASDAQ:CAMP)’s President and CEO, Michael Burdiek.
Michael Burdiek, President and CEO, CalAmp
Thank you, Lasse. We saw strong sequential growth in both revenue and earnings in our fiscal third quarter with consolidated gross margin expansion driven by strength in our Wireless DataCom segment.
Specialized telematics device shipments to a key OEM customer in the heavy equipment industry boosted our third quarter results and are expected to be a significant growth catalyst for CalAmp over the next several quarters.
In addition, important wins for fleet management SaaS solutions as well as robust demand for fleet management and asset tracking products are expected to drive near-term growth. In our satellite segment, revenues were in line with expectations with meaningful contribution to our bottom line profitability and operating cash flow.
Looking at our third quarter results in more detail, consolidated revenue was $63.2 million with Wireless DataCom revenue up 10% to $54.6 million which represents a single quarter record for that segment while satellite revenue in the quarter was $8.6 million; down 37% year-over-year.
At the bottom-line, we achieved GAAP-basis earnings of $0.11 per diluted share in the third quarter with non-GAAP earnings of $0.25 per diluted share. Strong operating cash flow of $5.1 million helped push our cash, cash equivalents and marketable securities balance upto $40 million at quarter end with zero bank debt.
Now, I would like to review our operational highlights for the third quarter.
Our Wireless DataCom segment posted another record quarter as we continue to gain traction from some of our newer strategic initiatives along with healthy customer demand for our core products and services.
In our transportation vertical, the third quarter highlight was the commencement of volume production shipments of our telematics products to Caterpillar for both our OEM factory install and dealer retrofit programs. Overall product demand from Caterpillar has exceeded our earlier expectations with revenues in excess of $5 million in the third quarter.
The revenue ramp of this customer is expected to continue into the fourth quarter and into fiscal 2016. We remain optimistic with this and other opportunities within the heavy equipment industry could become significant growth drivers for CalAmp Corp. (NASDAQ:CAMP) over the coming quarters and years.
In the energy vertical, we saw robust activity from both domestic and international customers along with sustained demand from our solar power OEM customer. Based on our current backlog, we anticipate strong demand from this customer continuing into our next fiscal year.
Elsewhere in our wireless networks business, we enjoyed ongoing healthy demand for automotive after-market vehicle recovery solutions as well as consistent subscriber growth for municipal government mobile workforce management software services.
Overall recurring revenues from our fleet management, automotive aftermarket, vehicle finance applications, and communication services comprised 16% of consolidated revenue for our third quarter.
At the end of our latest quarter, we had approximately 495,000 unique software application subscriptions; up from 485,000 subscribers at the end of the previous quarter.Highlights in the quarter included two significant contract wins with large enterprise customers for our Software-as-a-Service solutions. These new customer applications include the field service fleet of a large US investor owned utility as well as a major US automotive OEM vehicle testing operation.
Upon full deployment, which is expected early next year, these two new customers together could add over 5,000 unique software application subscriptions to drive growth and high margin recurring revenues.
Within our MRM products business, we continue to see strong demand for our products from fleet management, asset tracking and stolen vehicle recovery customers, both domestically and with key customers outside the US.
As the case in point, we recently signed a strategic supply agreement with one of Brazil’s largest fleet management and freight security companies. Under the agreement, CalAmp is supplying this customer with innovative telematics products that are integrated with applications for use in trucks, trailers, and passenger vehicles. With the agreement in place, CalAmp has commenced shipments of the LMU-4200 communications gateway and the MDT-7 Android based mobile data terminal, both of which have been tightly integrated into our customers’ core telematics offering.
In addition to this opportunity, we are seeing broad demand for the MDT-7 and are hopeful that this new product category will drive incremental revenue growth over the coming quarters.
To support the commercial rollout of the MDT-7, we are on-track for the launch of the CalAmp Corp. (NASDAQ:CAMP) private Appstore later in our fourth quarter. We believe that the Appstore along with embedded core applications on the MDT-7 will enable us to layer on additional value elements resulting in higher margins than our traditional fleet management hardware products.
In the auto insurance telematics market, third quarter demand for hardware devices rebounded moderately after a slow second quarter. We expect demand will continue to improve in the fourth quarter and into next fiscal year for existing programs as well as through expanding basis of business with international customers.
We continue to believe that usage based insurance can be a major growth driver for CalAmp over the longer term particularly as we explore various options to add value beyond hardware devices.
We also believe that we are well positioned to play a larger, more direct role in the market evolution by leveraging our unique combination of hardware, software and service assets as well as our global channels and partnerships.
Moving on to our satellite segment, revenue in the third quarter was $8.6 million which was within the expected range but lower on both a year-over-year and sequential quarter basis. We continue to be pleased with the satellite segment’s operational performance which achieved gross margin of 23.4% in the third quarter reflecting an improvement of nearly 3 percentage points year-over-year and providing solid contribution to our cash flow and profitability.
With that, I will now turn the call over to Rick Vitelle, our Chief Financial Officer, for a closer look at our third quarter financial results.
Rick Vitelle, Chief Financial Officer, CalAmp
Thank you, Michael. I will provide a summary of our gross profit performance, income tax position, working capital management, and cash flow results for the fiscal 2015 third quarter.
Consolidated revenue for the fiscal 2015 third quarter was $63.2 million which was essentially flat compared to the third quarter last year. Consolidated gross profit for the third quarter was $22.1 million, an increase of $1.1 million over the same quarter last year.
The gross profit increase is the result of higher revenue in the Wireless DataCom segment partially offset by the profit impact of lower satellite segment revenues.
Consolidated gross margin was approximately 2 percentage points higher at 35.0% in the latest quarter compared to 33.1% in the third quarter last year.
Looking more closely at gross profit performance by reporting segment, Wireless DataCom gross profit was $20.1 million in the third quarter with a gross margin of 36.8%.
Year-over-year Wireless DataCom gross profit was up by approximately $2 million while gross margin increased slightly.On a sequential quarter basis, Wireless DataCom gross margin in the third quarter was up by almost 1 percentage point compared to the previous quarter primarily due to a favorable product mix.
Our satellite business had a gross profit of $2.0 million in the third quarter with a gross margin of 23.4%.This compares to gross profit of $2.8 million and a gross margin of 20.6% in the third quarter of last year. The year-over-year gross margin improvement in our satellite business is primarily due to a shift in product mix in the latest quarter that reflected a greater proportion of higher margin home networking products.
GAAP-basis net income in the fiscal 2015 third quarter was $4.0 million or $0.11 per diluted share compared to net income of $4.2 million or $0.12 per diluted share in the third quarter of last year.
While the company’s GAAP-basis effective tax rate approximates the combined US federal and state statutory tax rate, the company’s pretax income is still largely sheltered from taxation by NOL and research and development tax credit carry-forwards and is expected to remain so for the next several years.
Our non-GAAP net income for the fiscal 2015 third quarter was $9.2 million or $0.25 per diluted share compared to non-GAAP net income of $8.2 million or $0.23 per diluted share for the same quarter last year. Non-GAAP earnings excludes the impact of intangible asset amortization, stock-based compensation expense and acquisition-related expenses and includes an income tax provision for cash taxes paid or payable for the period. For a reconciliation of the GAAP and non-GAAP financial results, please see our third quarter earnings press release that was issued today which is available on our website.
Now, moving onto the balance sheet. At the end of the fiscal 2015 third quarter, the company had total cash, cash equivalents, and marketable securities of $40 million with no bank debt outstanding. The consolidated accounts receivable balance was $45.4 million at the end of the third quarter. This represents an average collection period of 57 days compared to the receivables collection period of 51 days at the end of the preceding quarter.
The increase in the average collection period in the third quarter is primarily attributable to the fact that a significant portion of third quarter sales were made in the latter part of the quarter which had the effect of skewing the collection period upward as a result of the formula used to calculate this metric.
Our total inventory at the end of the third quarter was $19.6 million, a decrease of $0.6 million compared to the previous quarter representing annualized inventory turns of approximately eight times.
Our GAAP-basis effective income tax rate was 37.4% in both the third quarter and the current nine-month year-to-date period. However as a result of the recent congressional action to extend the federal R&D tax credit program by one year through the end of calendar 2014, our GAAP-basis effective income tax rate in the fiscal 2015 fourth quarter is expected to be approximately 26% due to R&D tax credits of approximately $900,000 that will be realizable in the fourth quarter.
With that, I will now turn the call back over to Michael for our guidance and some final comments.
Michael Burdiek
Thank you, Rick. Now let’s turn to our outlook, including our financial guidance for the fourth quarter.
Looking at our fiscal 2015 fourth quarter, we expect to achieve consolidated revenue in the range of $66 million to $70 million. We anticipate Wireless DataCom revenue in the fourth quarter will be higher on both a year-over-year and sequential quarter basis while satellite segment revenue is expected to be down modestly on a sequential quarter basis to approximately $8 million.
At the bottom line, we expect fourth quarter GAAP-basis net income in the range of $0.12 to $0.16 per diluted share and non-GAAP net income in the range of $0.26 to $0.30 per diluted share.
We are pleased with our near-term prospects and anticipate the continued execution and investments in key strategic initiatives and geographic expansion will drive profitable growth into fiscal 2016 and beyond.
In closing, I’d like to recap some key points. First, emerging opportunities in the heavy equipment sector, most notably increasing shipments to Caterpillar, are expected to be strong growth catalysts for CalAmp in the coming quarters.
Second, our MRM products business is performing well and I am pleased with the opportunities we are seeing within several of our core applications and the expanding base of key customers around the world. And third, we are encouraged by our growing pipeline of Software-as-a-Service and Platform-as-a-Service opportunities as well as the traction we are experiencing with large enterprise customers.
In closing, we firmly believe our unique hardware, software and service solutions, supported by established channel partnerships with global reach; give us the leverage to win a disproportionate share of opportunities and to drive broader adoption of emerging M2M applications. We are working to take CalAmp to new heights by continuing to focus on execution in the near-term, while strategically positioning the company to capitalize on very favorable market growth trends over the longer term.
That concludes our prepared remarks. Thank you for your attention, and at this time, I would like to open up the call to questions. Operator?
QuestionandAnswer Session
Operator
Thank you. (Operator Instructions). Our first question comes from Mike Walkley from Canaccord Genuity.
Mike Walkley,CanaccordGenuity
Hi, great. Thank you. Michael, just on your overall key for guidance, it’s a little bit towards the low end of your previous guidance for the full year for fiscal ’14. It sounds like the Caterpillar and heavy equipment market is going quite well. Are there certain other end markets that were a little lighter than you expected in exiting the year here?
Michael Burdiek
Well, as it relates to insurance, I think that’s the key point that we made in the remarks, that that’s really the main delta to our previous guidance. Now, we saw moderate improvement in business activity in Q3 versus Q2. But we don’t think we are going to get to that 2 times year-over-year growth rate that we earlier expected. It’s probably something in the neighborhood of 50% year-over-year which is still pretty healthy but given the state of the existing insurance programs that we are shipping products into, we just don’t think we are going to be able to get up to that sort of previous $15 million run rate for this fiscal year. So that really accounts for the bulk of the change from our previous guidance.
Mike Walkley,CanaccordGenuity
Okay, great, that’s helpful. And then on the caterpillar, it sounds like things are going really well there, even maybe ahead of expectations. Is it too early to get a feel for it, maybe an annual opportunity could be with them?
Michael Burdiek
Well, we talked earlier in the year about Q4 potentially being indicative of the quarterly run rate going into next fiscal year. I think we still feel pretty much the same. We do expect some solid growth with Caterpillar going into Q4; certainly expect more than we saw in Q3. And as it relates to the run rates for next fiscal year, there is still some upside potential depending on the demand on the retrofit side of the program. But as it relates to the run rates for the factory install program, I think Q4 will be the key indicator.
Mike Walkley,CanaccordGenuity
Okay. And then just on the housekeeping or just a mix within Wireless DataCom?
Michael Burdiek
It was approximately 55% MRM products and 45% wireless networks products and services.
Mike Walkley,CanaccordGenuity
Great. One more for me and I will pass it on. Last time, you talked a little bit about growing pipeline geography and overall, the FirstNet responder infrastructure side is — that’s still an area that could come back to growth next year?
Michael Burdiek
Come back alive, perhaps, in a way. There are some interesting opportunities in our pipeline as it relates to public safety product demand driven by FirstNetinfrastructure rollouts. This year has obviously been a very dormant year in that regard. But I think we are increasingly optimistic that FirstNet will actually be a demand driver for high-end mobile router products and potentially some services as we enter the new fiscal year.
Mike Walkley,CanaccordGenuity
Okay, great.Happy holidays and look forward to seeing you at your Analyst Day in January.
Michael Burdiek
Thank you so much.
Operator
Thank you. Our next question comes from Mike Crawford from B. Riley & Company.
Mike Crawford,B. Riley & Co.
Thank you. Could you talk about the status of your CalAmpConnect platform and when we might see integration of the old platforms?
Michael Burdiek
Well, the platform development is going quite well. I think we talked last call about the fact that we are launching some or we plan to launch some new Hardware-as-a-Service opportunities that will rely on the Connect platform and its scalability and security and sort of multi-application support kind of capability. And we think some of those opportunities will begin to be realized in Q4.
We plan on continuing to support sort of our legacy platforms so long as there is a vibrant amount of commercial activity on those platforms. At some point in the future, I mean merely everything whether it’s a vehicle finance application all the way up through high-end fleet will migrate over to the Connect platform simply because of its scalability and its architecture that’s more application agnostic than any of our other bespoke platforms today.
Mike Crawford,B. Riley & Co.
Okay, thank you. And then why is the Appstore not — what’s keeping the Appstore from being open today?
Michael Burdiek
It’s ongoing testing and validation. The program’s generally on track. We had talked earlier in the year about a potential late calendar year release. That’s still possible because the calendar year’s not over. But I think we will be able to talk in more detail about that and the release date and some of the content ecosystem partners at our Analyst Day in early January.
Mike Crawford,B. Riley & Co.
Great, thank you very much.
Michael Burdiek
You are welcome.
Operator
Thank you. Our next question comes from Mike Latimore from Northland Capital Markets.
Mike Latimore,Northland Capital Markets
Great, thanks a lot, nice quarter there.
Michael Burdiek
Thank you.
Mike Latimore,Northland Capital Markets
On the fleet management business, on the product side, roughly what kind of growth rate are you seeing in that segment?
Michael Burdiek
It’s a good question. I think obviously strong growth. A lot of the growth driven by some of our international customer opportunities. That being said, we had about as good a quarter as we’ve ever had domestically with our fleet products business. And so we are quite pleased with the ongoing growth even in what is considered to be more of a mature market here in the US.
Mike Latimore,Northland Capital Markets
Yes, okay.
Michael Burdiek
All of that said, our international business is a lot lumpier than sort of the steady demand we experience domestically.
Mike Latimore,Northland Capital Markets
Right.
Michael Burdiek
But we think that the market is growing at least as it relates to our serviceable market, 15% to 20% on a global basis. A little less so here in the States and certainly probably towards the upper end of that range outside the US.
Mike Latimore,Northland Capital Markets
Got it. And then you mentioned I think a few more fleet management SaaS opportunities. I mean can you talk a little bit about just that pipeline, maybe annual contract values reflected in that pipeline, some more detail on kind of what you are seeing on the fleet management SaaS opportunity?
Michael Burdiek,
Well, we noted two key enterprise customer wins in our prepared remarks. If you take sort of roughly 5000 incremental subscribers at the typical fleet management monthly recurring revenue rates, those are in excess of $1 million of annual contract value combined.
Mike Latimore,Northland Capital Markets
Right.
Michael Burdiek
So certainly significant and meaningful in terms of customer wins there. And I would say our pipeline is quite healthy. I think we are very, very optimistic about the prospect for growing our fleet management SaaS business in what may be considered to be non-traditional sort of mobile work force management applications, and I think the US automotive OEM vehicle testing opportunity is indicative of that.
Mike Latimore,Northland Capital Markets
All right.And then just on the gross margin,do you feel like kind of on the Wireless DataCom, you had fairly good gross margins in the quarter? Is that a sustainable rate, move up-move down a little bit from here, where do you think that might go?
Michael Burdiek
Well, Wireless DataCom margins in the quarter were inching close to the 37%. We’ve been higher than that in the past and we’ve seen relatively steady improvement over the last three quarters in gross margin. We think there’s probably some opportunity for continued expansion there, and driven largely by wireless networks products and services becoming a larger part of the mix. That being said, I think the quality of the MRM product revenue is improving even in the insurance market where we experienced relatively low gross margin product sales earlier on. The quality of that revenue is definitely improving by means of firmer pricing in the market as well as ongoing cost reductions.
Mike Latimore,Northland Capital Markets
Yes, that’s it. Thanks a lot.
Michael Burdiek
Thank you.
Operator
Thank you. Our next question comes from Tim Quillin from Stephens, Inc.
Tim Quillin,Stephens, Inc.
Hey, good afternoon. I just wanted to circle back to the UVI market, and so coming in a little bit lower than you expected and maybe little bit lower than you even thought three months ago and you discussed some of the factors that are limiting the growth in that market at that time. Just wondered if there’s anything additional or if you can kind of run down where you – what the status of that market is, what the barriers are to adoption? Certainly in the press lately there have been some discussion of your phone-based approach versus a dedicated device approach. What are you seeing in that market and how do you think about that as you head into fiscal ’16?
Michael Burdiek
Well, as really was inferred in your question, the market is very immature. A year ago, we were characterizing the market in sort of baseball terminology. And at that time, we talked about sort of being in batting practice before the first game of the season even began. I would say today we are in the first game, maybe even the second game of the first series of the season. I mean it’s very, very early days. There are various business models being tried and tested in the market, some have failed, some have seen marginal success. So you are talking about a very interesting market with very early stage market dynamics.
All of that being said, I pointed out a little bit earlier that the quality of the opportunities we are seeing are higher than let’s say a quarter or two ago because we think we are in a stronger position technologically. We think some of the stumbles that others have experienced in the market as it relates to customer adoption or on-boarding challenges, we think that’s been generally resolved or at least are better understood. And we think that as this market evolves, we are in a very, very good position to be one of the winners whether it’s on the device side only or if it involves other capabilities where we would leverage our software and services kind of core competencies.
Tim Quillin,Stephens, Inc.
Right, and I know you have addressed this before but do you think the market trends towards a phone-based approach or what do you think the pluses and minuses are of phone-based versus a dedicated hardware device on the car?
Michael Burdiek
Well, the phone obviously is – doesn’t involve – probably doesn’t involve much if it involves any incremental capital expenditure on the part of the insurance companies trying to roll out a UBI program. So in that sense, it’s very attractive. However, phone-based solutions are extraordinarily unreliable for any number of reasons. One, if you are trying to assess driver behavior with the phone, the phone could be oriented in any position and in fact, when someone is driving the car, it’s very, very hard to determine whether the person who has got the UBI app running on their phone is really the one in the driver seat or they are a passenger in the vehicle. So certainly using a cell phone or a cell phone app as part of the UBI program probably facilitates customer adoption.
However,it’s extraordinarily unreliable in terms of really assessing the sort of characteristics of risk that insurance companies really ultimately are trying to get to in order to properly price insurance policies to its client base.
Tim Quillin,Stephens, Inc.
Right, yes, that makes sense. And then in terms of Caterpillar, it sounds like it’s ramping up nicely. Can you give us any sense of your expectations for fourth quarter revenue?
Michael Burdiek
Up from Q3? Probably up in the 40% to 50% range as compared to where we were in Q3.
Tim Quillin,Stephens, Inc.
Okay. That’s helpful, thank you. And then how much should we think about the heavy equipment pipeline right now? So you have a great reference customer that’s ramping up. I am sure you are talking to all the other heavy equipment manufacturers. I think it’s a lengthy sales cycle, but where are you in that process?
Michael Burdiek
We are in the lengthy sales cycle. We have multiple business development initiatives in play with various heavy equipment and heavy equipment sub-niche players around the world. We’ve got a number of pilots underway and we even have one project that’s hopefully going to launch here over the next quarter or two that involves a construction equipment sub-niche where we are going to be providing more than just a hardware device. We are actually going to be providing sort of a bundled platform solution integrated with their proprietary construction equipment mobile monitoring app.
Tim Quillin,Stephens, Inc.
Right, very good.And then just lastly, you haven’t made an acquisition for a year at least I think with RSI. What are the types of acquisitions that you are evaluating right now in terms of sizes, in terms of services versus hardware where you have a nice $40 million in cash burning a hole in your pocket, what are you going to do about it?
Michael Burdiek
Well, you said it was burning a hole in my pocket. I didn’t say that. Yes, Garo (ph), we had some discussions with Garo. We were even thinking about directing him to some therapy because he’s quite unnerved by the fact that we haven’t done a deal in a year. But of course I am joking, it is the holidays. So we’ve talked pretty explicitly about some of our key acquisition criteria and they are pretty stringent.
One, vertical market alignment; obviously margin accretion which suggests probably something more along the lines of software and service as opposed to pure hardware, earnings accretion which is key, and of course ease of integration and that’s hard to quantify. It’smore of a qualitative key acquisition criteria but it’s really hard to satisfy those key and what we believe are fundamental criteria, and given some of the valuation expectations out there, often times more so in the private enterprises than in the public players, it’s really hard to achieve the earnings accretion which is really fundamental.
Tim Quillin,Stephens, Inc.
Right. Very good. Happy holidays to you.
Michael Burdiek
Thank you.
Operator
Thank you. Our next question comes from Rajesh Ghai from Macquarie Research.
Rajesh Ghai,Macquarie Research
Yes, thanks, good afternoon. I have a couple of questions on the enterprise wins that you had in the SaaS vertical. Are these new customers or where they existing hardware customers who decided to adopt your SaaS platform? Also what helped you win and against whom?
Michael Burdiek
Okay, as it relates to SaaS enterprise wins, one was an existing customer. However, we were only – we were one of two incumbents in that account and what happened in Q3 is we end up assuming all of the mobile resource management or mobile workforce management application subscriptions. So we took some business away from one of the other incumbents. Andthe other case is a brand new customer. Not brand, brand new because we have done some trials and some pilots with the automotive OEM in the past, but this is, as a program, this is essentially brand new project and a brand new win.
And each opportunity sort of has a different competitive landscape. In the utility market, there are certain companies – fleet management companies that are strong in the automotive OEM market. There really aren’t a lot of fleet management opportunities outside of sort of the trucking and heavy equipment component. And so that in some ways is a green field opportunity and obviously a vehicle testing operation is somewhat of a mobile asset – management asset tracking niche and I think the reason we were successful there is we were willing to customize our platform and our software suite to accommodate their special needs.
Rajesh Ghai,Macquarie Research
That’s helpful. And the second question is related to the Caterpillar ramp, seems to be going really well. Could you provide an idea of the mix between factory install versus retrofit and also give us a sense of how do you expect the retrofit market to grow, especially given that there is a lot of opportunity out there, let’s say?
Michael Burdiek
In Q3, substantially all of the revenue was factory install in nature. So the retrofit opportunity I think is still pretty much in front of us, and that’s a little bit difficult to quantify because we don’t have quite as firm of a forecast on that front as we do some of the factory demand.
Rajesh Ghai,Macquarie Research
Okay. And my last question is related to the gross margin strength in the Wireless DataCom side. You mentioned it was up almost 100 basis point Q-on-Q. What drove that strength, was that more just a shift in mix to MRM within that segment or was that something related to the new customer that you have ramping on the heavy equipment side?
Michael Burdiek
Two key factors, one, there was a shift towards wireless networks as being a larger percentage of the Wireless DataCom mix. That’s one factor. Another factor was improved margins on the MRM product side.
Rajesh Ghai,Macquarie Research
Okay, great. Happy holidays, thank you.
Michael Burdiek
Thank you.
Operator
Thank you. (Operator Instructions) Our next question comes from Greg Burns from Sidoti& Company.
Greg Burns,Sidoti& Company
Good afternoon. Just a question about the Brazilian fleet management when you announced, was that a new customer or an extension like or an expansion like you had with Masternaut earlier this year? And could you give us a sense of the timing of maybe the ramp of that new relationship?
Michael Burdiek
That customer was a new customer this fiscal year and we’ve seen steady progress and additional opportunities come to us from them. Really following the customer acquisition model that you described with Masternaut, our strategy as part of our global expansion is to focus on the market leaders in each of the major regions around the world including Europe, the UK, South Africa, Brazil and some of the other large countries in Latin America and the one we alluded to in the prepared remarks is certainly a market leader in fleet management, asset tracking, and stolen vehicle recovery in Brazil.
Greg Burns,Sidoti& Company
Okay, and then on the – for the satellite business, you are operating kind of above the mid-point of the range of revenue you gave for last year. This year you are tracking below. What drives revenue there and will a pendulum be expected to kind of swing back next year?
Michael Burdiek
Well, for the last few years, we’ve tried to describe the satellite business as a $40 million a year business. But not quite that predictable. But that 40 million a year really broken down by $10 million dollar a quarter plus or minus $2 million. We’ve been running below 10 million for two sequential quarters and we’ve obviously guided to that into Q4. We had an exceptional year in the satellite business last year and just as a point of reference last year Q3, we had more than $13 million of satellite product revenue. This latest quarter, we had something in the neighborhood of 8.6 million, so down 5 million year-over-year.
But last year was an exceptional year. And we think the run rates we’ve experienced last two quarters, three quarters are probably more indicative of the business on a go-forward basis.
Greg Burns,Sidoti& Company
Okay, thank you.
Operator
Thank you. At this time, I will turn the call back over to Michael Burdiek, our CEO, for closing comments.
Michael Burdiek
Well, thanks again for joining us today, and we look forward to speaking with you again at the end of the fourth quarter. Happy holidays.
Operator
Thank you. This does conclude today’s teleconference. You may disconnect your lines at this time. Thank you for your participation.
