camp-10q_20211130.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended November 30, 2021

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

COMMISSION FILE NUMBER: 0-12182

CALAMP CORP.

(Exact name of Registrant as specified in its Charter)

Delaware		95-3647070
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

15635 Alton Parkway, Suite 250
Irvine, California		92618
(Address of principal executive offices)		(Zip Code)

(949) 600-5600

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading symbol	Name of Each Exchange On Which Registered
Common stock, $0.01 per share	CAMP	Nasdaq Global Select Market

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 is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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	☐	Accelerated filer	☒
Non-accelerated filer	☐	Smaller reporting company	☐
		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. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The number of shares outstanding of the registrant’s common stock as of December 17, 2021 was 35,903,559.

CALAMP CORP.

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTER ENDED NOVEMBER 30, 2021

TABLE OF CONTENTS

		Page Number
	PART I – FINANCIAL INFORMATION

ITEM 1.	Financial statements	3

	Condensed consolidated balance sheets (unaudited) as of November 30, 2021 and February 28, 2021	3

	Condensed consolidated statements of comprehensive loss (unaudited) for the three and nine months ended November 30, 2021 and 2020	4

	Condensed consolidated statements of cash flows (unaudited) for the nine months ended November 30, 2021 and 2020	5

	Condensed consolidated statements of stockholders’ equity (unaudited) for the three and nine months ended November 30, 2021 and 2020	6

	Notes to unaudited condensed consolidated financial statements	7

ITEM 2.	Management’s discussion and analysis of financial condition and results of operations	26

ITEM 3.	Quantitative and qualitative disclosures about market risk	35

ITEM 4.	Controls and procedures	35


PART II – OTHER INFORMATION

ITEM 1.	Legal proceedings	36

ITEM 1A.	Risk factors	36

ITEM 5.	Other Information	37

ITEM 6.	Exhibits	38

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CALAMP CORP.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except par value)

(Unaudited)

	November 30,			February 28,
Assets	2021			2021
Current assets:
Cash and cash equivalents	$	91,114		$	94,624
Accounts receivable, net		58,589			63,325
Inventories		20,180			23,663
Prepaid expenses and other current assets		23,705			24,804
Current assets of discontinued operations		—			7,872
Total current assets		193,588			214,288
Property and equipment, net		37,962			41,081
Operating lease right-of-use assets		12,099			14,273
Deferred income tax assets		4,230			4,889
Goodwill		94,001			94,617
Other intangible assets, net		33,014			37,488
Other assets		27,397			27,169
Total assets	$	402,291		$	433,805
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of long-term debt	$	2,917		$	4,317
Accounts payable		30,780			35,767
Accrued payroll and employee benefits		10,463			12,761
Deferred revenue		29,217			32,924
Other current liabilities		21,502			17,380
Current liabilities of discontinued operations		—			4,096
Total current liabilities		94,879			107,245
Long-term debt, net of current portion		187,679			182,154
Operating lease liabilities		13,751			17,061
Other non-current liabilities		25,801			30,487
Non-current liabilities of discontinued operations		—			1,773
Total liabilities		322,110			338,720
Commitments and contingencies
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; 35,903 and 35,229 shares issued and outstanding at November 30, 2021 and February 28, 2021, respectively		359			352
Additional paid-in capital		239,043			233,692
Accumulated deficit		(156,784	)		(137,974	)
Accumulated other comprehensive loss		(2,437	)		(985	)
Total stockholders' equity		80,181			95,085
Total liabilities and stockholders' equity	$	402,291		$	433,805

See accompanying notes to condensed consolidated financial statements.

CALAMP CORP.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(In thousands, except per share amounts)

(Unaudited)

	Three Months Ended						Nine Months Ended
	November 30,						November 30,
	2021			2020			2021			2020
Revenues:
Products	$	40,376		$	50,129		$	143,902		$	141,285
Application subscriptions and other services		28,401			28,383			83,560			85,355
Total revenues		68,777			78,512			227,462			226,640
Cost of revenues:
Products		27,291			32,644			92,975			96,354
Application subscriptions and other services		13,466			14,630			40,650			42,481
Total cost of revenues		40,757			47,274			133,625			138,835
Gross profit		28,020			31,238			93,837			87,805
Operating expenses:
Research and development		7,179			6,416			21,848			18,925
Selling and marketing		13,239			11,830			37,748			33,743
General and administrative		12,775			11,962			38,659			35,903
Intangible asset amortization		1,386			1,201			4,033			3,567
Restructuring		—			(100	)		336			1,917
Impairment losses		—			—			—			286
Total operating expenses		34,579			31,309			102,624			94,341
Operating loss		(6,559	)		(71	)		(8,787	)		(6,536	)
Non-operating income (expense):
Investment income		150			584			1,218			1,282
Interest expense		(3,830	)		(3,880	)		(11,483	)		(11,814	)
Other expense, net		(98	)		(52	)		(2,084	)		(43	)
Total non-operating expenses		(3,778	)		(3,348	)		(12,349	)		(10,575	)
Loss from continuing operations before income taxes		(10,337	)		(3,419	)		(21,136	)		(17,111	)
Income tax provision from continuing operations		(205	)		(319	)		(831	)		(825	)
Net loss from continuing operations		(10,542	)		(3,738	)		(21,967	)		(17,936	)
Net income (loss) from discontinued operations, net of tax		(895	)		(19,942	)		3,157			(29,644	)
Net loss	$	(11,437	)	$	(23,680	)	$	(18,810	)	$	(47,580	)
Loss per share - continuing operations:
Basic	$	(0.30	)	$	(0.11	)	$	(0.62	)	$	(0.52	)
Diluted	$	(0.30	)	$	(0.11	)	$	(0.62	)	$	(0.52	)
Earnings (loss) per share - discontinued operations:
Basic	$	(0.03	)	$	(0.57	)	$	0.09		$	(0.87	)
Diluted	$	(0.03	)	$	(0.57	)	$	0.09		$	(0.87	)
Shares used in computing earnings (loss) per share:
Basic		35,475			34,599			35,156			34,292
Diluted		35,475			34,599			35,156			34,292
Comprehensive income (loss):
Net loss	$	(11,437	)	$	(23,680	)	$	(18,810	)	$	(47,580	)
Other comprehensive income (loss):
Foreign currency translation adjustments		(1,735	)		1,062			(1,452	)		262
Total comprehensive loss	$	(13,172	)	$	(22,618	)	$	(20,262	)	$	(47,318	)

See accompanying notes to condensed consolidated financial statements.

CALAMP CORP.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

	Nine Months Ended
	November 30,
	2021			2020
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(18,810	)	$	(47,580	)
Less: Net income (loss) from discontinued operations, net of tax		3,157			(29,644	)
Net loss from continuing operations		(21,967	)		(17,936	)
Adjustments to reconcile net loss from continuing operations to net cash provided by operating activities:
Depreciation expense		13,053			12,863
Intangible asset amortization		4,033			3,567
Stock-based compensation		8,561			8,366
Amortization of debt issuance costs and discount		7,811			7,712
Noncash operating lease cost		2,680			1,725
Revenue assigned to factors		(3,665	)		(4,864	)
Deferred tax assets, net		389			372
Other		209			682
Changes in operating assets and liabilities of continuing operations:
Accounts receivable		4,192			3,800
Inventories		3,034			2,976
Prepaid expenses and other assets		403			(4,941	)
Accounts payable		(4,862	)		11,095
Accrued liabilities		4,016			7,409
Deferred revenue		(10,544	)		(2,277	)
Operating lease liabilities		(3,635	)		(2,029	)
Net cash provided by operating activities - continuing operations		3,708			28,520
Net cash used in operating activities - discontinued operations		(395	)		(4,177	)
NET CASH PROVIDED BY OPERATING ACTIVITIES		3,313			24,343
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities and sale of marketable securities		—			6,264
Purchases of marketable securities		—			(6,264	)
Capital expenditures		(10,342	)		(8,973	)
Net cash used in investing activities - continuing operations		(10,342	)		(8,973	)
Net cash provided by (used in) investing activities - discontinued operations		5,721			(2,117	)
NET CASH USED IN INVESTING ACTIVITIES		(4,621	)		(11,090	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Paycheck Protection Program Loan		—			10,000
Repayment of Paycheck Protection Program Loan		—			(10,000	)
Proceeds from revolving credit facility, net of issuance costs		—			19,944
Repayment of 2020 Convertible Notes		—			(27,599	)
Repayment of revolving credit facility		—			(20,000	)
Taxes paid related to net share settlement of vested equity awards		(4,128	)		(1,557	)
Proceeds from exercise of stock options and contributions to employee stock purchase plan		900			909
NET CASH USED IN FINANCING ACTIVITIES		(3,228	)		(28,303	)
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS		1,026			(662	)
Net change in cash and cash equivalents		(3,510	)		(15,712	)
Cash and cash equivalents at beginning of period		94,624			107,404
Cash and cash equivalents at end of period	$	91,114		$	91,692

See accompanying notes to condensed consolidated financial statements.

CALAMP CORP.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands)

(Unaudited)

	Three Months Ended						Nine Months Ended
	November 30,						November 30,
	2021			2020			2021			2020
Total stockholders' equity, beginning balances	$	90,312		$	118,978		$	95,085		$	137,919

Common stock and additional paid-in capital:
Beginning balances		236,361			226,718			234,044			220,825
Stock-based compensation expense		3,152			3,030			8,586			9,499
Shares issued on net share settlement of equity awards		(111	)		(72	)		(4,128	)		(1,557	)
Exercise of stock options and contributions to employee stock purchase plan		—			—			900			909
Ending balances		239,402			229,676			239,402			229,676

Accumulated deficit:
Beginning balances		(145,347	)		(105,565	)		(137,974	)		(81,531	)
Cumulative effect of adoption of ASC 326		—			—			—			(134	)
Net loss		(11,437	)		(23,680	)		(18,810	)		(47,580	)
Ending balances		(156,784	)		(129,245	)		(156,784	)		(129,245	)

Accumulated other comprehensive income:
Beginning balances		(702	)		(2,175	)		(985	)		(1,375	)
Foreign currency translation adjustment		(1,735	)		1,062			(1,452	)		262
Ending balances		(2,437	)		(1,113	)		(2,437	)		(1,113	)

Total stockholders' equity, ending balances	$	80,181		$	99,318		$	80,181		$	99,318


See accompanying notes to condensed consolidated financial statements.

CALAMP CORP.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THREE AND NINE MONTHS ENDED NOVEMBER 30, 2021 AND 2020

NOTE 1 - DESCRIPTION OF BUSINESS, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Description of Business

CalAmp Corp. (referred to herein as “CalAmp”, “the Company”, “we”, “our”, or “us”) is a connected intelligence company that helps people and businesses work smarter. We partner with transportation and logistics, industrial equipment, government and automotive industries to deliver insights that enable businesses to make the right decisions. Our applications, platform and smart devices allow them to track, monitor and recover their vital assets with real-time visibility that reduces costs, maximizes productivity and improves safety. We are a global organization that is headquartered in Irvine, California.

In March 2020, the World Health Organization declared COVID-19 (“COVID-19” or the “pandemic”) 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. Through fiscal 2021, our revenues were negatively impacted by COVID-19 as various small-to-medium sized customers postponed their capital expenditures due to the pandemic and related macro-economic uncertainties. Although our business was initially negatively impacted by the COVID-19 pandemic in the first half of fiscal 2021, we resumed device installation and activation services soon thereafter. More recently we have experienced supply shortages as a result of global supply imbalances driven by the global pandemic. These global supply imbalances have negatively impacted all parts of our business during fiscal 2022, more significantly during the three months ended November 30, 2021. It is difficult to predict the extent to which the pandemic will continue to impact our future business or operating results, which are highly dependent on uncertain future developments, including the severity of the continuing pandemic, the actions taken or to be taken by governments and private businesses in relation to its containment and the resolution of supply chain issues and supply shortages. Because our business is dependent on telematics product sales, device installations and related subscription-based services, the ultimate effect of COVID-19 and the current supply shortages may not be fully reflected in our operating results until future periods.

We have considered all known and reasonably available information that existed throughout the three and nine months ended and as of November 30, 2021, in making accounting judgements, estimates and disclosures. We are monitoring the potential effects of the health care related and economic conditions of COVID-19 in assessing certain matters including (but not limited to) supply chain disruptions, decreases in customer demand for our products and services, potential longer-term effects on our customer and distribution channels particularly in the U.S. and relevant end markets as well as other developments. If the impact results in longer term closures of businesses and economic recessionary conditions, we may recognize additional material asset impairments and charges for uncollectible accounts receivable in future periods.

Certain notes and other information included in the audited financial statements in our Annual Report on Form 10-K for the fiscal year ended February 28, 2021 are condensed in or omitted from the interim financial statements presented in this Quarterly Report on Form 10-Q. Therefore, these financial statements should be read in conjunction with our 2021 Annual Report on Form 10-K as filed with the U.S. Securities and Exchange Commission (“SEC”) on April 22, 2021.

In the opinion of our management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments (consisting of normal recurring adjustments) considered necessary to present fairly our financial position at November 30, 2021 and our results of operations for the three and nine months ended November 30, 2021 and 2020. The results of operations for such periods are not necessarily indicative of results to be expected for the full fiscal year ending February 28, 2022.

All intercompany transactions and accounts have been eliminated in consolidation.

Sale of LoJack North America Operations

On January 22, 2021, we received a formal proposal from Spireon Holdings, L.P. (“Spireon”) to acquire the LoJack U.S. and Canadian SVR (“LoJack North America”) business for a purchase price of $8.0 million. Effective March 15, 2021, the Company and Spireon entered into a purchase agreement pursuant to which we sold certain assets and transferred certain liabilities of the LoJack North America business to Spireon. Operations for LoJack North America are presented as discontinued operations in the accompanying condensed consolidated financial statements for the three and nine months ended November 30, 2021 and 2020. See Note 2, Discontinued Operations, for additional information.

Unless otherwise indicated, the financial disclosures and related information provided herein relate to our continuing operations and we have recast prior period amounts to reflect discontinued operations.

Revenue Recognition

We recognize revenue as follows:

Products. We recognize revenue from product and accessories 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 are delivered to 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 our SaaS revenues and related cost of revenues in our application subscriptions and other service revenues and cost of revenues on SaaS arrangements that combine various hardware devices over a stipulated service period.

Our integrated SaaS-based solutions for our tracking, monitoring and recovery services provide 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. 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 other services revenue and cost of revenues, respectively, on a straight-line basis over the estimated average in-service lives of these devices, which is generally four to five years for our services. 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.

In certain customer arrangements, 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 relative estimated stand-alone selling prices for the devices and the monitoring services.

Professional Services. We also provide various professional services to customers. These include project management, engineering services and installation services, which are typically distinct from other performance obligations and are recognized as the related services are performed. For certain professional service contracts, we recognize revenue over time based on the proportion of total costs incurred to-date as a percentage of the total estimated cost of the contract, which is an input method.

Sales taxes. We have elected to record revenue net of taxes collected from customers that are remitted to governmental authorities, with the collected taxes recorded within the caption Other current liabilities until remitted to the relevant government authority.

Contract Balances. Timing of revenue recognition may differ from the timing on our invoicing to customers. Contract liabilities are comprised of billings to 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 condensed consolidated financial statements. During the three months ended November 30, 2021, we recognized $6.1 million in revenue from the deferred revenue balance of $52.8 million as of February 28, 2021. 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 commissions included in prepaid expenses and other current assets and other assets was $4.7 million as of November 30, 2021, of which $2.8 million was classified as other assets.

We disaggregate revenue from contracts with customers into reportable segments, geography, type of goods and services and timing of revenue recognition. See Note 15, Segment Information and Geographic Data, for our revenue by segment and geography. The disaggregation of revenue by type of goods and services and by timing of revenue recognition is as follows (in thousands):

	Three Months Ended				Nine Months Ended
	November 30,				November 30,
	2021		2020		2021		2020
Revenue by type of goods and services:
Telematics devices and accessories	$	40,376	$	50,129	$	143,902	$	141,285
Rental income and other services		3,248		5,669		10,353		13,064
Recurring application subscriptions		25,153		22,714		73,207		72,291
Total	$	68,777	$	78,512	$	227,462	$	226,640

	Three Months Ended				Nine Months Ended
	November 30,				November 30,
	2021		2020		2021		2020
Revenue by timing of revenue recognition:
Revenue recognized at a point in time	$	40,785	$	55,446	$	148,908	$	153,409
Revenue recognized over time		27,992		23,066		78,554		73,231
Total	$	68,777	$	78,512	$	227,462	$	226,640

Telematics devices and accessories revenue 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 recognition of revenue for customized devices functional only with application subscriptions.

Remaining performance obligations from continuing operations represents contracted revenue that has not yet been recognized, which includes deferred revenue on our condensed consolidated balance sheets and unbilled amounts that will be recognized as revenue in future periods. As of November 30, 2021 and February 28, 2021, we had estimated remaining performance obligations for contractually committed revenues of $149.9 million and $145.1 million, respectively. As of November 30, 2021, we expect to recognize approximately 15% in fiscal 2022 and 37% in fiscal 2023. As of February 28, 2021, we expected to recognize approximately 50% in fiscal 2022 and 22% in fiscal 2023. 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.

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. Our payment terms generally range 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. 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. Actual collections may differ from estimated amounts.

Due to the COVID-19 pandemic, there has been uncertainty and disruption in the global economy and financial markets. Except for an anticipated increase in expected credit losses, we are not aware of any specific event or circumstances that would require an update to our estimates or assumptions or a revision of the carrying value of our assets or liabilities as of the date of this Quarterly Report on Form 10-Q. These estimates and assumptions may change as new events occur and additional information is obtained. As a result, actual results could differ materially from these estimates and assumptions.

We analyzed the credit risk associated with our accounts receivables and lease receivables. Our historical loss rates have not shown any significant differences between customer industries or geographies, and upon adoption of ASU 2016-13, Financial Instruments - Credit Losses (“ASU 2016-13”), we grouped all accounts receivables and lease receivables into a single portfolio. As disclosed in Note 15, Segment Information and Geographic Data, we do not have significant international geographic concentrations of revenue, and, as a result, we do not have significant concentrations of accounts receivables or lease receivables in any single geography outside of the United States.

The allowance for doubtful accounts totaled $2.7 million and $3.7 million as of November 30, 2021 and February 28, 2021, respectively.

Goodwill and Other Long-Lived Assets

Goodwill and long-lived assets to be held and used, including identifiable intangible assets, are reviewed for impairment annually in the fourth quarter or 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 reporting unit to the estimated fair value of those assets or reporting unit determined using either an income approach, a market approach, or a combination of both. If the assets are impaired, the impairment recognized is the amount by which the carrying amount exceeds the fair value of the assets.

Fair Value Measurements

We apply fair value accounting for all financial assets and liabilities and non-financial assets and liabilities that are recognized or disclosed at fair value in our financial statements. We define fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly manner in an arm’s-length transaction between market participants at the measurement date. Fair value is estimated by using the following hierarchy:

Level 1 – Quoted prices in active markets for identical assets or liabilities.

Level 2 – Observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 – Inputs that are generally unobservable and typically reflect management’s estimate of assumptions that market participants would use in pricing the asset or liability.

Convertible Senior Notes and Capped Call Transactions

We account for our convertible senior notes as separate liability and equity components. We determine the carrying amount of the liability component based on the fair value of a similar debt instrument excluding the embedded conversion option at the issuance date. The carrying amount of the equity component representing the conversion option is calculated by deducting the carrying value of the liability component from the principal amount of the notes as a whole. This difference represents a debt discount that is amortized to interest expense over the term of the notes using the effective interest rate method. The equity component of the notes is included in stockholders’ equity and is not remeasured as long as it continues to meet the conditions for equity classification. We allocate transaction costs related to the issuance of the notes to the liability and equity components using the same proportions as the initial carrying value of the notes. Transaction costs attributable to the liability component are being amortized to interest expense using the effective interest method over the respective term of the notes, and transaction costs attributable to the equity components are netted with the equity component of the note in stockholders’ equity. We account for the cost of the capped calls as a reduction to additional paid-in capital.

Litigation and Other Contingencies

We accrue for 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 expenses in our condensed consolidated statements of comprehensive 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.

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 loss included in determining income (loss) before income taxes was ($0.1) million and ($0.1) million for the three and nine months ended November 30, 2021, respectively. The aggregate foreign currency transaction exchange rate gain (loss) included in determining income (loss) before income taxes was $0.3 million and $1.1 million for the three and nine months ended November 30, 2020.

Comprehensive Income (Loss)

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 Adopted Accounting Pronouncements

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. The adoption of this standard on March 1, 2021 did not have a material impact on our condensed consolidated financial statements.

Recently Issued Accounting Pronouncements, Not Yet Adopted

In August 2020, the FASB issued ASU 2020-06, Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40), which removes certain separation models for convertible debt instruments and convertible preferred stock that require the separation of a convertible debt instrument into a debt component and an equity or derivative component. The ASU also expands disclosure requirements for convertible instruments and simplifies areas of the guidance for diluted earnings-per-share calculations that are impacted by the amendments. The standard is effective for interim and annual periods beginning after December 15, 2021, with early adoption permitted. We are evaluating the impact of the adoption of this guidance on our condensed consolidated financial statements.

NOTE 2 – DISCONTINUED OPERATIONS

Effective March 15, 2021, a wholly owned subsidiary of the Company and Spireon entered into an agreement (“Sale Agreement”) pursuant to which we sold certain assets and transferred certain liabilities of the LoJack North America business (“LoJack Transaction”) for an upfront cash purchase price of approximately $8.0 million. We received net proceeds of $6.6 million, based on an estimate of certain adjustments to the gross purchase price as of the closing date. On November 9, 2021, the purchase price was reduced by $0.9 million, which was paid to Spireon, due to final working capital adjustments. This payment is reflected within net loss from discontinued operations, net of tax, for the three months ended November 30, 2021. No further adjustments to the purchase price are expected. We recognized a gain on the sale of the LoJack North America business of $4.1 million during the nine months ended November 30, 2021.

Concurrent with the closing of the transaction, we also entered into a Transition Services Agreement (the “TSA”) to provide support to Spireon in the transition of customers to its telematics solution and to provide recovery services to the existing installed base of LoJack North America customers, as an agent of Spireon, for a period of six months commencing March 15, 2021. Subsequently, the transition period was extended and is expected to conclude in the coming months. As consideration for these services, Spireon is reimbursing us for the direct and certain indirect costs, as well as certain overhead or administrative expenses related to operating the business. Additionally, we entered into a services agreement to commence upon the expiration of the TSA under which we will provide certain services related to the LoJack North America tower infrastructure for a period no longer than fifty-four months. As consideration for these services, Spireon will pay us a monthly service fee over the stipulated contract term. Further, we entered into a license agreement pursuant to which we license certain intellectual property rights related to the LoJack North America business in the U.S. and Canada to Spireon. In connection with the transition services provided to Spireon during the three and nine months ended November 30, 2021, respectively, we incurred a total cost of $0.5 million and $3.8 million of which $0.4 million and $1.8 million was billed to Spireon for the services under the TSA and the remaining $0.1 million and $2.0 million is included as a component of “Other expense” in the unaudited condensed consolidated statements of comprehensive loss as these costs represent non-operating expenses.

We concluded that as of February 28, 2021, the LoJack North America operations were discontinued operations as the asset group was a component of an entity, the component met the criteria of held for sale, and the disposal represented a strategic shift.

The operating results and cash flows related to the LoJack North America operations are reflected as discontinued operations in the unaudited condensed consolidated statements of comprehensive loss for the three and nine months ended November 30, 2021 and 2020, respectively, and the unaudited condensed consolidated statements of cash flows for the nine months ended November 30, 2021 and 2020, respectively. For the nine months ended November 30, 2021, we have reported the operating results and cash flows related to the LoJack North America operations through March 14, 2021:

The below table presents the amounts by balance sheet classification related to our discontinued operations (in thousands):

	February 28,
	2021
Carrying amounts of the major classes of assets included in discontinued operations:
Accounts receivable, net	$	5,050
Inventories		1,721
Prepaid expenses and other current assets		1,101
Total assets	$	7,872
Carrying amounts of the major classes of liabilities included in discontinued operations:
Accounts payable	$	1,956
Deferred revenue		1,849
Other current liabilities		291
Current liabilities of discontinued operations		4,096
Non-current liabilities		1,773
Total liabilities	$	5,869

The amounts in the statement of operations that are included in discontinued operations are summarized in the following table (in thousands):

	Three Months Ended						Nine Months Ended
	November 30,						November 30,
	2021			2020			2021			2020
Revenues	$	—		$	9,500		$	823		$	25,124
Cost of revenues		—			5,733			950			16,061
Gross profit (loss)		—			3,767			(127	)		9,063
Operating expenses:
Research and development		—			367			32			1,171
Selling and marketing		—			2,817			167			7,283
General and administrative		—			1,680			75			5,307
Intangible asset amortization		—			654			141			2,024
Restructuring		—			192			404			634
Impairment losses		—			17,999			—			22,288
Total operating expenses		—			23,709			819			38,707
Operating loss from discontinued operations		—			(19,942	)		(946	)		(29,644	)
Gain (loss) on sale of discontinued operations		(895	)		—			4,103			—
Net income (loss) from discontinued operations, net of tax	$	(895	)	$	(19,942	)	$	3,157		$	(29,644	)

The amounts in the statement of cash flow that are included in discontinued operations are summarized in the following table (in thousands):

	Nine Months Ended
	November 30,
	2021			2020
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) from discontinued operations, net of tax	$	3,157		$	(29,644	)
Adjustments to reconcile net income (loss) from discontinued operations to net cash used in operating activities:
Depreciation		—			2,145
Intangible asset amortization		141			2,024
Stock-based compensation		25			1,133
Impairment losses		—			22,288
Gain on sale of discontinued operations		(4,103	)		—
Noncash operating lease cost		—			2,218
Changes in operating assets and liabilities:
Accounts receivable		452			972
Inventories		425			1,943
Prepaid expenses and other current assets		4			514
Accounts payable		(331	)		(3,580	)
Accrued liabilities		(135	)		(1,631	)
Deferred revenue		(30	)		(46	)
Operating lease liabilities		—			(2,513	)
NET CASH USED IN OPERATING ACTIVITIES OF DISCONTINUED OPERATIONS		(395	)		(4,177	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures		—			(2,117	)
Net proceeds from sale of discontinued operations		5,721			—
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES OF DISCONTINUED OPERATIONS		5,721			(2,117	)
Net change in cash and cash equivalents	$	5,326		$	(6,294	)

NOTE 3 – CASH, CASH EQUIVALENTS AND INVESTMENTS

The following tables summarize our financial instrument assets (in thousands):

	As of November 30, 2021
							Balance Sheet Classification
							of Fair Value
			Unrealized				Cash and
	Adjusted		Gains		Fair		Cash		Other
	Cost		(Losses)		Value		Equivalents		Assets
Cash	$	35,292	$	—	$	35,292	$	35,292	$	—
Level 1:
Money market funds		12,322		—		12,322		12,322		—
Mutual funds (1)		1,177		270		1,447		—		1,447
Level 2:
Repurchase agreements		43,500		—		43,500		43,500		—
Total	$	92,291	$	270	$	92,561	$	91,114	$	1,447

	As of February 28, 2021
							Balance Sheet Classification
							of Fair Value
			Unrealized				Cash and
	Adjusted		Gains		Fair		Cash		Other
	Cost		(Losses)		Value		Equivalents		Assets
Cash	$	38,823	$	—	$	38,823	$	38,823	$	—
Level 1:
Money market funds		12,801		—		12,801		12,801		—
Mutual funds (1)		1,810		367		2,177		—		2,177
Level 2:
Repurchase agreements		43,000		—		43,000		43,000		—
Total	$	96,434	$	367	$	96,801	$	94,624	$	2,177

(1)

Amounts represent various equities, bond and money market mutual funds that are held in an irrevocable “Rabbi Trust” 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 November 30, 2021, the cash surrender value of COLI was $6.3 million.

NOTE 4 - INVENTORIES

Inventories consist of the following (in thousands):

	November 30,		February 28,
	2021		2021
Raw materials	$	8,136	$	10,480
Finished goods		12,044		13,183
	$	20,180	$	23,663

NOTE 5 – GOODWILL AND OTHER INTANGIBLE ASSETS

Other intangible assets consist of the following (in thousands):

		Gross (2)							Accumulated Amortization (2)						Net
	Useful Life	Feb. 28, 2021		Additions & Adjustments, net (1)			November 30, 2021		Feb. 28, 2021		Expense		November 30, 2021		Feb. 28, 2021		November 30, 2021
Developed technology	4-6 years	$	26,994		(47	)	$	26,947	$	24,057	$	1,060	$	25,117	$	2,937	$	1,830
Tradenames	10 years		30,257		(81	)		30,176		18,428		1,607		20,035		11,829		10,141
Dealer and customer relationships	10-15 years		35,270		(172	)		35,098		12,902		1,491		14,393		22,368		20,705
Patents	5 years		589		—			589		235		16		251		354		338
		$	93,110	$	(300	)	$	92,810	$	55,622	$	4,174	$	59,796	$	37,488	$	33,014

(1)	Amounts also include any net changes in intangible asset balances for the periods presented that resulted from foreign currency translations.

(2)	This table excludes the gross value of fully amortized intangible assets totaling $23.0 million at November 30, 2021 and February 28, 2021.

Intangible assets with finite lives are amortized on a straight-line basis over the expected period to be benefited by future cash flows. We monitor and assess these assets for impairment on a periodic basis. Our assessment includes various new product lines and services, which leverage the existing intangible assets as well as consideration of historical and projected revenues and cash flows. Amortization expense of intangible assets from continuing operations was $1.4 million and $4.0 million for the three and nine months ended November 30, 2021, respectively. Amortization expense of intangible assets from continuing operations was $1.2 million and $3.6 million for the three and nine months ended November 30, 2020.

Estimated future amortization expense as of November 30, 2021 is as follows (in thousands):

2022 (remainder)	$	1,389
2023		5,410
2024		4,566
2025		4,451
2026		4,144
Thereafter		13,054
	$	33,014

Changes in goodwill are as follows (in thousands):

	Software & Subscription Services			Telematics Products		Total
Balance as of February 28, 2021	$	55,437		$	39,180	$	94,617
Effect of exchange rate change on goodwill		(616	)		—		(616	)
Balance as of November 30, 2021	$	54,821		$	39,180	$	94,001

NOTE 6 – OTHER ASSETS

Other assets consist of the following (in thousands):

	November 30,		February 28,
	2021		2021
Deferred product cost	$	1,974	$	4,850
Deferred compensation plan assets		7,780		7,141
Lease receivables, non-current		11,803		10,403
Prepaid commissions		2,787		2,438
Other		3,053		2,337
	$	27,397	$	27,169

NOTE 7 – FINANCING ARRANGEMENTS

The following table provides a summary of our debt as of November 30, 2021 and February 28, 2021 (in thousands):

	Maturity	Effective			November 30,			February 28,
	Date	Interest Rate			2021			2021
2025 Convertible Notes, 2.00% fixed rate	August 1, 2025		7.56	%		230,000			230,000
Due to factors	2020 - 2024		4.70	%		6,715			8,081
Total term debt						236,715			238,081
Unamortized discount and issuance costs						(46,119	)		(51,610	)
Less: Current portion of long-term term debt						(2,917	)		(4,317	)
Long-term debt, net of current portion					$	187,679		$	182,154

The effective interest rates for the convertible notes include the interest on the notes and amortization of the discount. As of November 30, 2021 and February 28, 2021, the fair value of the 2025 Convertible Notes were $209 million and $212 million, respectively, based on Level 2 inputs.

2025 Convertible Notes

In July 2018, we issued debt of $230.0 million aggregate principal amount of convertible senior unsecured notes due in 2025 (“2025 Convertible Notes”). These notes require semi-annual interest payments at an annual rate of 2.00% until maturity, conversion, redemption or repurchase, which will be no later than August 1, 2025. 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 are convertible into cash, shares of our common stock or a combination of both, at our

election, based on an initial conversion price of $30.7450. Holders may convert their 2025 Convertible Notes at their option upon the occurrence of certain events, as defined in the 2025 Indenture. Approximately $51.9 million, net of tax, was allocated to additional paid-in capital upon issuance of these notes.

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 relating to 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.

2020 Convertible Notes

On May 15, 2020, we repaid the remaining principal balance of $27.6 million of the 1.625% convertible senior unsecured notes issued in May 2015.

Revolving Credit Facility

On March 30, 2018, we entered into a revolving credit facility with JP Morgan Chase Bank, N.A. that provides for borrowings up to $50.0 million. This revolving credit facility was extended on March 27, 2020 with a new maturity date of March 30, 2022. At our election, the borrowings under this revolving credit facility bear interest at (a) for base rate loans, a base rate based on the highest of (i) 0%, (ii) the rate of interest publicly announced by JP Morgan Chase Bank, N.A. (the “Agent”) as its prime rate in effect at its principal office in New York City, (iii) the overnight bank funding rate as determined by the Federal Reserve Bank of New York plus 0.50% and (iv) the LIBOR-based rate for a one-month interest period on such day plus 1%; or (b) for Eurodollar loans, the higher of (x) 1.00% and (y) the LIBOR-based rate for one, three or nine months (as selected by the Company) for Eurodollar deposits. An applicable margin is added based on the Company’s senior leverage ratio, ranging from 1.50% to 2.00% for base rate loans, and from 2.50% to 3.00% for Eurodollar loans. We will also pay a commitment fee based on our senior leverage ratio ranging from 0.40% to 0.50%, payable quarterly in arrears, on the average daily unused amount of the Credit Facility. Amounts owing under the credit agreement and related credit documents are guaranteed by the Company and certain of its subsidiaries. We have also granted security interests in substantially all of our respective assets to secure these obligations. The net proceeds available under the revolving credit facility can be used for repayment of existing debt, working capital and general corporate purposes. On November 19, 2020, we repaid the $20.0 million borrowings outstanding under the revolving credit facility and accrued interest of $0.1 million. There were no borrowings outstanding under this revolving credit facility at November 30, 2021.

The revolving credit facility contains certain negative and affirmative covenants including financial covenants that require us to maintain a minimum level of earnings before interest, income taxes, depreciation, amortization and other non-cash charges (Adjusted EBITDA) to interest ratio, a minimum senior indebtedness ratio and a total indebtedness coverage ratio, all measured on a quarterly basis. As of November 30, 2021, we were in compliance with our covenants under the revolving credit facility.

Synovia Revenue Assignments

In conjunction with the acquisition of Synovia Solutions LLC (“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 future revenues of certain subscription contracts on a non-recourse basis for credit approved accounts.

These arrangements with the Factors met the criteria in ASC 470-10-25, Sales of Future Revenues or Various Other Measures of Income, 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 particular product line, business segment, trademark, patent, or 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. 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 is being amortized under the interest method. During the three months ended November 30, 2021 and 2020, we recognized $0.1 million and $0.1 million of interest expense related to this debt, respectively. During the nine months ended November 30, 2021 and 2020, we recognized $0.2 million and $0.4 million of interest expense related to this debt, respectively. The revenues recognized from this arrangement of $3.7 million and $4.9 million were considered a non-cash activity in our condensed consolidated statements of cash flows for the nine months ended November 30, 2021 and 2020, respectively.

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 created 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.

NOTE 8 – RESTRUCTURING ACTIVITIES

Since fiscal 2019, we executed under 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 were 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 $17.9 million, comprised of $11.1 million in severance and employee related costs, and $6.8 million for vacant office and manufacturing facility space as well as terminated tower infrastructure leases. Restructuring charges related to vacant office and manufacturing facility space were attributable primarily to the vacancy in Canton, Massachusetts in the amount of $3.3 million. The anticipated rent payments for the ceased-use leased facilities will be made through December 2025. Substantially all charges related to severance and employee costs were under the Telematics Products reportable segment.

The following table summarizes the charges resulting from the implementation of the restructuring plan (in thousands):

	Three Months Ended November 30, 2020
	Personnel			Facilities		Total
Cost of revenues	$	(28	)	$	145	$	117
Research and development		—			—		—
Selling and marketing		4			—		4
General and administrative		(29	)		—		(29	)
Total	$	(53	)	$	145	$	92

	Nine Months Ended November 30, 2021						Nine Months Ended November 30, 2020
	Personnel		Facilities		Total		Personnel		Facilities		Total
Cost of revenues	$	103	$	376	$	479	$	245	$	319	$	564
Research and development		58		—		58		—		—		—
Selling and marketing		189		—		189		34		—		34
General and administrative		8		6		14		1,953		—		1,953
Total	$	358	$	382	$	740	$	2,232	$	319	$	2,551

Total restructuring charges of $0.2 million for the three months ended November 30, 2020 were included as part of discontinued operations. Total restructuring charges of $0.4 million and $0.6 million for the nine months ended November 30, 2021 and 2020 were included as part of discontinued operations, respectively.

The following table summarizes the activity resulting from the implementation of the restructuring plan within other current and non-current liabilities (in thousands):

	Personnel			Facilities			Total
Restructuring liabilities as of February 28, 2021	$	2,637		$	891		$	3,528
Charges		358			382			740
Payments		(2,755	)		(305	)		(3,060	)
Restructuring liabilities as of November 30, 2021	$	240		$	968		$	1,208

NOTE 9 – LEASES

We have various non-cancelable operating leases for our offices in California, Texas, Massachusetts, Indiana, Minnesota and Virginia in the United States, and Italy, Mexico and the United Kingdom. We also have various non-cancelable operating leases for towers and vehicles throughout the United States, Italy and Mexico. These leases expire at various times through 2031. Certain lease agreements contain renewal options, rent abatement, and escalation clauses that are factored into our determination of lease payments when appropriate.

The table below presents lease-related assets and liabilities recorded on the condensed consolidated balance sheet (in thousands):

	Classification	November 30, 2021		February 28, 2021
Assets
Operating lease right-of-use assets	Operating lease right-of-use assets	$	12,099	$	14,273

Liabilities
Operating lease liabilities (current)	Other current liabilities	$	4,821	$	4,926
Operating lease liabilities (non-current)	Operating lease liabilities		13,751		17,061
Total lease liabilities		$	18,572	$	21,987

Lease Costs

The following lease costs were included in our condensed consolidated statements of comprehensive loss as follows (in thousands):

	Three months ended November 30,				Nine Months Ended November 30,
	2021		2020		2021		2020
Operating lease cost	$	1,209	$	1,763	$	3,497	$	5,127
Short-term lease cost		15		59		46		238
Variable lease cost		121		108		324		337
Total lease cost	$	1,345	$	1,930	$	3,867	$	5,702

Supplemental Information

The table below presents supplemental information related to operating leases (in thousands, except weighted-average information):

	Nine Months Ended
	November 30,
	2021		2020
Cash paid for amounts included in the measurement of operating lease liabilities	$	4,396	$	5,682
Right-of-use assets obtained in exchange for new operating lease liabilities	$	2,014	$	5,425
Weighted average remaining lease term	4.25 years		4.71 years
Weighted average discount rate	5.18%			5.17	%

Undiscounted Cash Flows

The table below reconciles the undiscounted cash flows for each of the first five fiscal years and total of the remaining years to the operating lease liabilities recorded on the condensed consolidated balance sheet as of November 30, 2021 (in thousands):

Remainder of 2022	$	1,399
2023		5,450
2024		5,069
2025		3,413
2026		2,707
Thereafter		2,123
Total minimum lease payments		20,161
Less imputed interest		(1,589	)
Present value of future minimum lease payments		18,572
Less current obligations under leases		(4,821	)
Long-term lease obligations	$	13,751

NOTE 10 - INCOME TAXES

We use the assets and liabilities method when accounting for income taxes. Under this method, deferred income tax assets and liabilities are recognized for future tax consequences attributable to differences 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.

We evaluate our estimated annual effective tax rate (“ETR”) on a quarterly basis based on current and forecasted operating results. The relationship between our income tax provision or benefit and our pretax book income or loss can vary significantly from period to period considering, among other factors, the overall level of pretax book income or loss and changes in the blend of jurisdictional income or loss that is taxed at different rates and changes in valuation allowances. The income tax expense of $0.2 million and $0.8 million for the three and nine months ended November 30, 2021, respectively, was primarily attributable to one of our foreign subsidiaries. Any income tax benefit associated with the pre-tax loss for the quarter ended November 30, 2021, resulting primarily from the U.S. jurisdiction, is offset by a full valuation allowance.

NOTE 11 - EARNINGS PER SHARE

Basic earnings (loss) per share is computed by dividing net income (loss) for the period by the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed by dividing net income for the period 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 calculation of the basic and diluted loss per share of common stock is as follows (in thousands, except per share value):

	Three Months Ended						Nine Months Ended
	November 30,						November 30,
	2021			2020			2021			2020
Net loss from continuing operations	$	(10,542	)	$	(3,738	)		(21,967	)		(17,936	)
Net income (loss) from discontinued operations, net of tax		(895	)		(19,942	)		3,157			(29,644	)
Net loss	$	(11,437	)	$	(23,680	)	$	(18,810	)	$	(47,580	)

Basic weighted average number of common shares outstanding		35,475			34,599			35,156			34,292
Effect of stock options and restricted stock units computed on treasury stock method		—			—			—			—
Diluted weighted average number of common shares outstanding		35,475			34,599			35,156			34,292

Basic net income (loss) per common share:
Loss from continuing operations	$	(0.30	)	$	(0.11	)	$	(0.62	)	$	(0.52	)
Income (loss) from discontinued operations	$	(0.03	)	$	(0.57	)	$	0.09		$	(0.87	)
Diluted net income (loss) per common share:
Loss from continuing operations	$	(0.30	)	$	(0.11	)	$	(0.62	)	$	(0.52	)
Income (loss) from discontinued operations	$	(0.03	)	$	(0.57	)	$	0.09		$	(0.87	)

All outstanding options and restricted stock units for the three and nine months ended November 30, 2021 and 2020 were excluded from the computation of diluted loss per share because we reported a net loss for each of these periods and the effect of inclusion would be antidilutive.

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 2025 Convertible 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 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.

NOTE 12 – STOCKHOLDERS’ EQUITY

Stock-based compensation expense is included in the following captions of the condensed consolidated statements of comprehensive loss (in thousands):

	Three Months Ended					Nine Months Ended
	November 30,					November 30,
	2021			2020		2021		2020
Cost of revenues	$	66		$	172	$	82	$	480
Research and development		726			717		2,240		1,940
Selling and marketing		856			611		2,146		1,602
General and administrative		1,655			1,146		4,061		3,469
Restructuring		—			—		—		875
Other non-operating expense		(151	)		—		32		—
	$	3,152		$	2,646	$	8,561	$	8,366

Changes in our outstanding stock options during the nine months ended November 30, 2021 were as follows (options in thousands):

	Number of Options			Weighted Average Exercise Price		Weighted average remaining contractual life (years)		Aggregate intrinsic value
Outstanding at February 28, 2021		778		$	16.01		6.0
Granted		—			—
Exercised		(33	)		7.53
Forfeited or expired		(76	)		16.49
Outstanding at November 30, 2021		669		$	16.37		5.6	$	39
Exercisable at November 30, 2021		543		$	16.33		5.1	$	20

Changes in our outstanding restricted stock shares, performance stock units (“PSUs”) and restricted stock units (“RSUs”) during the nine months ended November 30, 2021 were as follows (restricted shares, PSUs and RSUs in thousands):

	Number of Restricted Shares, PSUs and RSUs			Weighted Average Grant Date Fair Value		Shares Retained to Cover Statutory Minimum Withholding Taxes
Outstanding at February 28, 2021		3,053		$	10.61
Granted		1,296			12.20
Vested		(918	)		11.81		336
Forfeited		(485	)		10.78
Outstanding at November 30, 2021		2,946		$	10.89

As of November 30, 2021, there was $24.4 million of total unrecognized stock-based compensation cost related to outstanding nonvested equity awards that is expected to be recognized as an expense over a weighted-average remaining vesting period of 2.3 years.

NOTE 13 - CONCENTRATION OF RISK

Significant Customers

We sell telematics products and services to large global enterprises in the industrial equipment, transportation and automotive market verticals. One customer in the industrial equipment industry accounted for 21% and 20% of our consolidated revenue for the three and nine months ended November 30, 2021, respectively, and 21% and 18% of our consolidated revenue for the three and nine months ended November 30, 2020, respectively. The same customer accounted for 21% and 25% of our consolidated accounts receivable at November 30, 2021 and February 28, 2021, respectively.

Significant Suppliers

We purchase a significant amount of our inventory from certain manufacturers or suppliers including components, assemblies and electronic manufacturing parts and products. These suppliers are located in Mexico and 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 manufacturer’s plant or warehouse. For the three and nine months ended November 30, 2021, four of our suppliers accounted for approximately 44% and 52% of our total inventory purchases, respectively. For the three and nine months ended November 30, 2020, four of our suppliers accounted for approximately 66% and 64% of our total inventory purchases, respectively. As identified below, two manufacturers accounted for more than 10% of our accounts payable as follows (rounded):

	November 30,			February 28,
	2021			2021
Accounts payable:
Supplier A		15	%		11	%
Supplier B		7	%		17	%

We are currently reliant upon these manufacturers and suppliers for products. Although we believe that we can obtain products from other sources, the loss of a significant manufacturer or 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 similar terms from another manufacturer or supplier.

NOTE 14 – OTHER FINANCIAL INFORMATION

Supplemental Balance Sheet Information

Other current liabilities consist of the following (in thousands):

	November 30,		February 28,
	2021		2021
Operating lease liabilities	$	4,821	$	4,926
Warranty reserves		1,891		1,257
Customer deposits		3,186		2,472
Omega litigation reserve		2,200		2,200
Other (1)		9,404		6,525
	$	21,502	$	17,380

(1)

Amount represents accruals for various operating expense such as professional fees, vendor incentives and other estimates that are expected to be paid within the next 12 months.

Other non-current liabilities consist of the following (in thousands):

	November 30,		February 28,
	2021		2021
Deferred revenue	$	14,491	$	19,893
Deferred compensation plan liability		7,806		6,992
Deferred tax liability		208		178
Other		3,296		3,424
	$	25,801	$	30,487

Supplemental Statement of Comprehensive Loss Information

Interest expense consists of the following (in thousands):

	Three Months Ended				Nine Months Ended
	November 30,				November 30,
	2021		2020		2021		2020
Interest expense on 2025 Convertible Notes:
Stated interest at 2.000% per annum	$	1,150		1,150	$	3,476		3,463
Amortization of discount and issue costs		2,557		2,374		7,585		7,014
		3,707		3,524		11,061		10,477
Interest expense on 2020 Convertible Notes:
Stated interest at 1.625% per annum		—		—		—		93
Amortization of discount and issue costs		—		—		—		289
		—		—		—		382
Other interest expense		123		356		422		955
Total interest expense	$	3,830	$	3,880	$	11,483	$	11,814

Supplemental Cash Flow Information

“Net cash provided by operating activities” includes cash payments for interest expense and income taxes as follows (in thousands):

	Nine Months Ended
	November 30,
	2021		2020

Interest expense paid	$	2,452	$	2,983
Income tax paid, net of refunds	$	400	$	653

NOTE 15 - SEGMENT INFORMATION AND GEOGRAPHIC DATA

We operate under two reportable segments: Telematics Products and Software & Subscription Services. Our organizational structure is based on a number of factors that our CEO, the Chief Operating Decision Maker (“CODM”), uses to evaluate and operate the business, which include customer base, homogeneity of products, and technology for the fiscal years presented.

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 Programing Interfaces (“APIs”) to deliver full-featured IoT solutions to a wide range of customers and markets. Our scalable proprietary SaaS offerings enable rapid and cost-effective deployment of high-value solutions for customers all around the globe. Software & Subscription Services segment revenues include SaaS, professional services, devices sold with monitoring services and amortization of revenues and costs for customized devices functional only with application subscriptions that are not sold separately.

Our Telematics Products segment offers a portfolio of wireless data communications products, which includes asset tracking units, mobile telematics devices, fixed and mobile wireless gateways and routers. These wireless networking devices underpin a wide range of our own, as well as third-party software and service solutions worldwide and are critical for applications demanding secure, reliable and business-critical communications. Telematics Product segment revenues consist primarily of stand-alone product sales.

Segment information is as follows (in thousands):

	Three Months Ended November 30, 2021												Three Months Ended November 30, 2020
	Reportable Segments												Reportable Segments
	Software & Subscription Services			Telematics Products			Corporate Expenses			Total			Software & Subscription Services			Telematics Products			Corporate Expenses			Total
Revenues	$	36,602		$	32,175					$	68,777		$	34,052		$	44,460					$	78,512
Gross profit	$	18,128		$	9,892					$	28,020		$	17,225		$	14,013					$	31,238
Gross margin		50	%		31	%					41	%		51	%		32	%					40	%
Adjusted EBITDA	$	6,699		$	(2,808	)	$	(900	)	$	2,991		$	9,004		$	869		$	(1,010	)	$	8,863

	Nine Months Ended November 30, 2021												Nine Months Ended November 30, 2020
	Reportable Segments												Reportable Segments
	Software & Subscription Services			Telematics Products			Corporate Expenses			Total			Software & Subscription Services			Telematics Products			Corporate Expenses			Total
Revenues	$	113,079		$	114,383					$	227,462		$	95,265		$	131,375					$	226,640
Gross profit	$	56,282		$	37,555					$	93,837		$	47,572		$	40,233					$	87,805
Gross margin		50	%		33	%					41	%		50	%		31	%					39	%
Adjusted EBITDA	$	22,231		$	446		$	(3,000	)	$	19,677		$	23,172		$	2,358		$	(3,328	)	$	22,202

The amount shown for each period in the “Corporate Expenses” column above consists of expenses that are not allocated to the business segments. These non-allocated 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 reportable segments. We define Adjusted EBITDA as earnings before investment income, interest expense, taxes, depreciation, amortization, stock-based compensation, impairment loss and other adjustments as identified below. The adjustments to our net income (losses) prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) to calculate Adjusted EBITDA are itemized below (in thousands):

	Three Months Ended November 30,						Nine Months Ended November 30,
	2021			2020			2021			2020
Net loss	$	(11,437	)	$	(23,680	)	$	(18,810	)	$	(47,580	)
Less: net income (loss) from discontinued operations		(895	)		(19,942	)	$	3,157		$	(29,644	)
Net loss from continuing operations	$	(10,542	)	$	(3,738	)	$	(21,967	)	$	(17,936	)

Investment income		(150	)		(584	)		(1,218	)		(1,282	)
Interest expense		3,830			3,880			11,483			11,814
Income tax provision		205			319			831			825
Depreciation		4,581			4,367			13,053			12,863
Amortization of intangible assets		1,386			1,201			4,033			3,567
Stock-based compensation		3,152			2,646			8,561			7,491
Restructuring charges		—			(100	)		336			1,917
Non-recurring legal expenses		213			205			1,332			1,168
Costs incurred in transition of LoJack North America business to acquiror		69			—			1,784			—
Other		247			667			1,449			1,775
Adjusted EBITDA	$	2,991		$	8,863		$	19,677		$	22,202

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.

Revenues by geographic area are as follows (in thousands):

	Three Months Ended				Nine Months Ended
	November 30,				November 30,
	2021		2020		2021		2020
United States	$	44,613	$	51,323	$	150,133	$	146,192
EMEA		12,097		13,772		39,450		45,214
LATAM		5,537		7,349		19,687		19,078
APAC		5,760		5,017		15,534		11,597
All other		770		1,051		2,658		4,559
	$	68,777	$	78,512	$	227,462	$	226,640

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 the three and nine months ended November 30, 2021 and 2020.

NOTE 16 – LEGAL PROCEEDINGS

Omega patent infringement claim

On April 22, 2021, we filed our Form 10-K for the fiscal year ended February 28, 2021 which disclosed the current status of the Omega Patents LLC (“Omega”) patent infringement claim. In summary, on March 20, 2020, the U.S. District Court for the Middle District of Florida (the “Trial Court”) denied our motion for judgement as a matter of law (“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 by the VPODs. On April 30, 2020, we filed a notice of appeal to the Federal Circuit. Also on April 30, 2020, Omega filed a notice of cross-appeal to the Federal Circuit. On May 6, 2021 the U.S. Court of Appeals for the Federal Circuit (the “U.S. Court of Appeals”) heard oral arguments on CalAmp’s and Omega’s appeals. On September 14, 2021 the U.S. Court of Appeals issued its decision. The U.S. Court of Appeals affirmed the judgment of infringement by CalAmp with respect to the 8,032,278 patent; however the U.S. Court of Appeal upheld CalAmp’s appeal on damages, vacated the damages award of the Trial Court and remanded the case back to the Trial Court for a new trial on damages only.

In connection with this claim, we have accrued our best estimate of the probable liability of $2.2 million as a litigation reserve related to this matter based on reasonable royalty rates for similar technologies. It is reasonably possible that the court in a new trial may award Omega damages and pre-judgment interest in excess of the amounts we have accrued.

Philips patent infringement claim

On December 17, 2020, Koninklijke Philips N.V. (“Philips”) filed four separate legal actions against us, and several other companies, accusing the companies of infringing Philips’s 3G and 4G wireless standard-essential patents: (1) first, in the U.S. District Court, District of Delaware, Philips v. Quectel Wireless Solutions Co. Ltd. (“Quectel”), CalAmp, Xirgo Technologies, LLC (“Xirgo”), and Laird Connectivity, Inc. (“Laird”), Philips alleges that our location monitoring units infringe certain claims of U.S. Patent No. 7,831,271 (“the ’271 patent”), U.S. Patent No. 8,199,711 (“the ’711 patent”), U.S. Patent No. 7,554,943 (“the ’943 patent”), and U.S. Patent No. 7,944,935 (“the ’935 patent”) (all four patents collectively, the “Patents”); (2) second, in the U.S. District Court, District of Delaware, Philips v. Telit Wireless Solutions, Inc., Telit Communications Plc, (collectively, “Telit”), and CalAmp, Philips alleges that our location monitoring units and certain modules therein infringe certain claims of the Patents; (3) third, in the U.S. District Court, District of Delaware, Philips v. Thales DIS AIS USA LLC (F/K/A Gemalto IoT LLC “Gemalto”) F/K/A Cinterion Wireless Modules NAFTA LLC (“Cinterion”), Thales DIS AIS Deutschland GmbH (F/K/A Gemalto M2M GmbH), Thales USA, Inc., Thales S.A., (collectively, “Thales”), CalAmp, Xirgo, and Laird, Philips alleges that our location monitoring units infringe certain claims of the Patents, and (4) fourth, before The International Trade Commission (“ITC”), Philips v. Quectel, CalAmp, Xirgo, Laird, Thales, Gemalto, Cinterion, and Telit, Philips alleges violations of section 337 of the U.S. Tariff Act based upon our importation into the United States, the sale for importation, and the sale within the United States after importation of certain UMTS (Universal Mobile Telecommunications System) and LTE (Long Term Evolution) cellular communication modules and products containing the same by reason of our location monitoring units that allegedly infringe on certain claims of the Patents, and seeks (a) an investigation and a hearing under the Tariff Act for unlawful importation of allegedly infringing product, (b) an exclusion order excluding entry into the U.S. of all allegedly infringing communication modules, and (c) a permanent cease and desist order barring the importation, marketing, advertising, and sale of allegedly infringing products in the U.S.

All four proceedings are currently pending. The ITC anticipates issuing an initial determination on the alleged violations by January 27, 2022, and completing the ITC investigation by May 27, 2022. All three cases pending in U.S. District Court for the District of Delaware are stayed until a final determination in the ITC.

We intend to defend ourselves vigorously in these actions, and are investigating and/or asserting defenses and positions, including non-infringement, invalidity, and the “public interest factors” that must be considered by the ITC before issuing any exclusion order. If Phillips successfully proves infringement of the Patents, we could be required to pay significant monetary damages and could be precluded from importing

into the U.S. certain products containing the allegedly infringing modules. However, we believe that we have strong defense and indemnification claims against our communication module suppliers, and are entitled to have our defense costs and any losses resulting from these proceedings paid by those suppliers, who are codefendants in these proceedings. While it is not feasible to predict with certainty the outcome of these four legal proceedings, and no specific amount of damages has been identified, we believe that a loss is reasonably possible but not reasonably estimable. Additionally, we believe the ultimate resolution of the proceedings, including indemnification and defense by our module suppliers, will not have a material adverse effect on our consolidated results of operations, financial condition, or cash flows.

Other matters

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 condensed consolidated results of operations, financial condition or cash flows.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Our discussion and analysis of financial condition and results of operations is based upon our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The preparation of these financial statements requires management to make estimates and assumptions that may affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues, costs and expenses during the reporting periods. Actual results could differ materially from these estimates. The critical accounting policies listed below involve our more significant accounting judgments and estimates that are used in the preparation of the consolidated financial statements. These policies are described in greater detail in Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) under Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended February 28, 2021, as filed with the U.S. Securities and Exchange Commission on April 22, 2021, and include the following areas:

•

Revenue recognition;

•

Patent litigation and other contingencies;

•

Goodwill and long-lived assets; and

•

Deferred income tax assets and uncertain tax positions.

OUR COMPANY

We are a connected intelligence company that helps people and businesses work smarter. We partner with transportation and logistics, industrial equipment, government and automotive industries to deliver insights that enable businesses to make the right decisions. Our applications, platforms and smart devices allow them to track, monitor and recover their vital assets with real-time visibility that reduces costs, maximizes productivity and improves safety. We are a global organization that is headquartered in Irvine, California. We have two reportable segments, Software & Subscription Services and Telematics Products. Our organizational structure is based on a number of factors that our CEO, as the Chief Operating Decision Maker (“CODM”), uses to evaluate and operate the business, which include, but are not limited to, customer base, homogeneity of products, and technology. A description of the reportable business segments is provided below.

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. Software and Subscription Services segment revenues include SaaS, professional services, devices sold with monitoring services and amortization of revenues for customized devices functional only with application subscriptions that are not sold separately.

Telematics Products

Our Telematics Products segment offers a portfolio of wireless data communications products, which includes asset tracking units, mobile telematics devices, fixed and mobile wireless gateways, and routers. These wireless networking devices underpin a wide range of our own and third party software and service solutions worldwide and are critical for applications demanding secure, reliable and business-critical communications. Telematics Products segment revenues consist primarily of stand-alone product sales.

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 GAAP 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, net income (loss) from discontinued operations, stock-based compensation, acquisition and integration expenses, non-cash costs and expenses arising from purchase accounting adjustments, litigation provisions, gain from legal settlement, impairment losses 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 rules and regulations of the SEC 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 15, Segment Information and Geographic Data, to the accompanying condensed consolidated financial statements for additional information related to Adjusted EBITDA by reportable segment and reconciliation to net income (loss).

Recent Developments

COVID-19 Impact

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.

Through fiscal 2021, our revenues were negatively impacted by COVID-19 as various small-to-medium sized customers postponed their capital expenditures due to the pandemic and related macro-economic uncertainties. The pandemic has also created certain global supply imbalances resulting in supply shortages in certain components that we use, which has negatively impacted our business and operating results, both in the form of reduced availability of devices as well as increased costs to procure available devices. It is difficult to predict the extent to which the pandemic will continue to impact our future business or operating results, which is highly dependent on uncertain future developments, including the severity of the continuing pandemic, the actions taken or to be taken by governments and private businesses in relation to its containment and resolution of supply chain issues and supply shortages. Because our business and operating results depend on telematics product sales, device installations and related subscription-based services, the ultimate effect of the pandemic may not be fully reflected in our operating results until future periods.

We have considered all known and reasonably available information that existed throughout the nine months ended and as of November 30, 2021, in making accounting judgements, estimates and disclosures. We are monitoring the potential effects of the health care related and economic conditions of COVID-19 in assessing certain matters including (but not limited to) supply chain disruptions and inflationary impacts, 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 material asset impairments and charges for uncollectible accounts receivable in future periods.

Sale of LoJack North America Operations

Effective March 15, 2021, the Company and Spireon entered into an agreement pursuant to which we sold certain assets and transferred certain liabilities of the LoJack North America business to Spireon and we received net proceeds from Spireon of $6.6 million. On November 9, 2021, the purchase price was reduced by $0.9 million, which was paid to Spireon, due to final working capital adjustments. This payment is reflected within net loss from discontinued operations, net of tax, for the three months ended November 30, 2021. No further adjustments to the purchase price are expected. We recognized a gain on the sale of the LoJack North America business of $4.1 million during the nine months ended November 30, 2021.

As further described in Note 2, Discontinued Operations, to the accompanying condensed consolidated financial statements, the LoJack North America operations are presented as discontinued operations in the accompanying condensed consolidated financial statements for the three and nine months ended November 30, 2021 and November 30, 2020. For the nine months ended November 30, 2021, we have reported the operating results and cash flows related to the LoJack North America operations through March 14, 2021.

OPERATING RESULTS

Three months ended November 30, 2021 compared to three months ended November 30, 2020:

Unless otherwise indicated, the discussion of our results of operations provided below relates to our continuing operations and we have recast prior period amounts for purposes of historical comparisons. See Note 2, Discontinued Operations, to the accompanying condensed consolidated financial statements for additional information.

Revenue by Segment

	Three Months Ended November 30,
	2021					2020
(In thousands)	$		% of Revenue			$		% of Revenue			$ Change			% Change
Segment
Software & Subscription Services	$	36,602		53.2	%	$	34,052		43.4	%	$	2,550			7.5	%
Telematics Products		32,175		46.8	%		44,460		56.6	%		(12,285	)		(27.6	%)
Total	$	68,777		100.0	%	$	78,512		100.0	%	$	(9,735	)		(12.4	%)

Our Software & Subscription Services enable customers to gather and analyze critical data used to track, monitor and recover vital mobile assets with real-time visibility and insights. Our services are focused on three principal end markets comprised of (i) transportation and logistics, (ii) government and municipalities, and (iii) connected car services. Although our business was initially negatively impacted by COVID-19 in the first half of fiscal 2021, we resumed device installation and activation services soon thereafter. More recently we have experienced supply shortages driven by global supply imbalances driven by the global pandemic, which have negatively impacted all parts of our business in the current fiscal year. These supply imbalances have created supply shortages of silicon wafers and other components used in our products and the

devices we utilize to deliver our subscription services. We expect these supply shortages to continue for the foreseeable future as suppliers strive to create additional production capacity.

As of November 30, 2021, our remaining contractual performance obligations were approximately $149.9 million, compared to $135.2 million as of November 30, 2020. The majority of our growth in remaining contractual performance obligations was driven by new customer acquisitions within the government and municipality markets and connected car markets as well as the conversion of several significant telematics products customers to multi-year subscription contracts.

Software & Subscription Services revenue increased by $2.6 million or 7.5% for the three months ended November 30, 2021 compared to the same period last year. This increase was primarily due to a $3.7 million increase in transportation and logistics revenues. Recurring revenue was $25.2 million and $22.7 million for the three months ended November 30, 2021 and 2020, respectively, and active subscribers increased by 9% in the three months ended November 30, 2021 when compared to the prior year period. As mentioned above, supply shortages have negatively impacted our ability to procure the devices we utilize to deliver our subscription services, which has constrained our ability to install our devices and initiate new subscription services.

Telematics Products revenue, comprised primarily of mobile resource management (“MRM”) telematics and OEM/network products, decreased by $12.3 million or 27.6% for the three months ended November 30, 2021 compared to the same period last year. This decrease was attributable to global supply imbalances described above, thereby limiting our ability to fulfill customer orders during the three months ended November 30, 2021.

Gross Profit by Segment

	Three Months Ended November 30,
	2021					2020
(In thousands)	$		% of Revenue			$		% of Revenue			$ Change			% Change
Segment
Software & Subscription Services	$	18,128		49.5	%	$	17,225		50.6	%	$	903			5.2	%
Telematics Products		9,892		30.7	%		14,013		31.5	%		(4,121	)		(29.4	%)
Gross profit	$	28,020		40.7	%	$	31,238		39.8	%	$	(3,218	)		(10.3	%)

Consolidated gross profit decreased by $3.2 million or 10.3% for the three months ended November 30, 2021 compared to the same period last year largely due to decreased revenues in our Telematics Products business. Consolidated gross margin increased by 90 basis points for the three months ended November 30, 2021 compared to the same period last year primarily due to the increased proportion of overall revenues attributable to Software & Subscription Services.

Software & Subscription Services: Gross profit increased by $0.9 million or 5.2% for the three months ended November 30, 2021 compared to the same period last year, primarily as a result of increased revenues. Gross margin decreased by 110 basis points primarily due to subscription mix.

Telematics Products: Gross profit decreased by $4.1 million or 29.4% for the three months ended November 30, 2021 compared to the same period last year primarily due to decreased revenues. Gross margin decreased slightly by 80 basis points primarily due to product mix. As mentioned above, we are presently experiencing adverse impacts to product sales as a result of global supply shortages of certain components, which is also leading to cost increases on many of these components. As a result, in the coming quarters we may experience lower gross margins if we are unable to effectively offset the impacts of these cost increases.

Operating Expenses

	Three Months Ended November 30,
	2021					2020
(In thousands)	$		% of Revenue			$			% of Revenue			$ Change		% Change
Research and development	$	7,179		10.4	%	$	6,416			8.2	%	$	763		11.9	%
Selling and marketing		13,239		19.2	%		11,830			15.1	%		1,409		11.9	%
General and administrative		12,775		18.6	%		11,962			15.2	%		813		6.8	%
Intangible asset amortization		1,386		2.0	%		1,201			1.5	%		185		15.4	%
Restructuring		—		0.0	%		(100	)		(0.1	%)		100		(100.0	%)
Total	$	34,579		50.2	%	$	31,309			39.9	%	$	3,270		10.4	%

Consolidated research and development expense increased by $0.8 million or 11.9% for the three months ended November 30, 2021 compared to the same period last year due to increased development efforts around expanding our telematics service offering both domestically and internationally. Consolidated research and development expense as a percentage of revenues increased to 10.4% for the three months ended November 30, 2021 compared to 8.2% in the prior year period. We plan to continue to invest in research and development of new products and technologies.

Consolidated selling and marketing expense increased by $1.4 million or 11.9% for the three months ended November 30, 2021 compared to the same period last year primarily due to a $1.1 million increase in compensation costs related to additions to our salesforce to drive sales of our telematics subscription services.

Consolidated general and administrative expenses increased by $0.8 million or 6.8% for the three months ended November 30, 2021 compared to the same period last year primarily driven by cost containment measures undertaken in the prior year in response to COVID-19.

Amortization of intangibles increased by $0.2 million or 15.4% for the three months ended November 30, 2021 compared to the same period last year.

Non-operating Income (Expense)

Investment income decreased to $0.2 million for the three months ended November 30, 2021 from $0.6 million for the three months ended November 30, 2020. The decrease was primarily driven by lower investment returns on invested funds.

Interest expense decreased to $3.8 million for the three months ended November 30, 2021 from $3.9 million for the three months ended November 30, 2020 due to a slightly lower level of borrowings in the current year period.

Other non-operating expense was approximately flat at $0.1 million for the three months ended November 30, 2021 compared to the three months ended November 30, 2020.

Net Income (Loss) from Discontinued Operations, Net of Tax

The sale of the LoJack North America business was completed on March 15, 2021. There was $0.9 million loss from discontinued operations during the three months ended November 30, 2021, but we incurred a net loss from discontinued operations, net of tax of $19.9 million during the three months ended November 30, 2020, which was largely driven by impairment losses of $18.0 million.

See Note 2, Discontinued Operations, to the accompanying condensed consolidated financial statements for additional information.

Overall Profitability Measures

Net Loss:

GAAP-basis net loss for the three months ended November 30, 2021 was $11.4 million compared to a net loss of $23.7 million in the three months ended November 30, 2020. The change in the net loss was primarily driven by higher gross margins and the sale of the LoJack North America business described above under “Net Income (Loss) from Discontinued Operations, Net of Tax,” partially offset by increased operating expenses.

Adjusted EBITDA:

	Three Months Ended November 30,
(In thousands)	2021			2020			$ Change			% Change
Segment
Software & Subscription Services	$	6,699		$	9,004		$	(2,305	)		(25.6	%)
Telematics Products		(2,808	)		869			(3,677	)		(423.1	%)
Corporate Expenses		(900	)		(1,010	)		110			10.9	%
Total Adjusted EBITDA	$	2,991		$	8,863		$	(5,872	)		(66.3	%)

Adjusted EBITDA for Software & Subscription Services decreased $2.3 million compared to the same period last year primarily due to increased operating expenses as a result of investments we are making to develop, market and sell our telematics solutions, partially offset by higher revenues. Adjusted EBITDA for Telematics Products decreased $3.7 million compared to the same period last year as a result of the decrease in revenues. Corporate Expenses remained consistent year-over-year.

See Note 15, Segment Information and Geographic Data, to the accompanying condensed consolidated financial statements for information related to Adjusted EBITDA by reportable segments and a reconciliation to GAAP-basis net income (loss).

Income Tax Provision

We evaluate our estimated annual effective tax rate (“ETR”) on a quarterly basis based on current and forecasted operating results. The relationship between our income tax provision or benefit and our pretax book income or loss can vary significantly from period to period considering, among other factors, the overall level of pretax book income or loss and changes in the blend of jurisdictional income or loss that is taxed at different rates and changes in valuation allowances. Consequently, our ETR may fluctuate significantly period to period and may make quarterly comparisons less than meaningful.

Income tax expense was $0.2 million for the three months ended November 30, 2021, compared to $0.3 million in the same period last year. The $0.1 million decrease in tax expense was primarily driven by a decrease in pre-tax income attributable to one of our foreign subsidiaries in the current period.

Nine months ended November 30, 2021 compared to nine months ended November 30, 2020:

Revenue by Segment

	Nine Months Ended November 30,
	2021					2020
(In thousands)	$		% of Revenue			$		% of Revenue			$ Change			% Change
Segment
Software & Subscription Services	$	113,079		49.7	%	$	95,265		42.0	%	$	17,814			18.7	%
Telematics Products		114,383		50.3	%		131,375		58.0	%		(16,992	)		(12.9	%)
Total	$	227,462		100.0	%	$	226,640		100.0	%	$	822			0.4	%

Software & Subscription Services revenue increased by $17.8 million or 18.7% for the nine months ended November 30, 2021 compared to the same period last year. The increase was largely driven by a $14.2 million increase in transportation and logistics revenues and a $1.5 million increase in government and municipalities revenues, both driven primarily by 3G to 4G equipment upgrades, especially with our larger customers, as well as a $5.5 million increase in connected car services revenues, primarily as a result of increased revenues in the EMEA and LATAM regions. Recurring revenue was $73.2 million and $72.3 million for the nine months ended November 30, 2021 and 2020, respectively, and active subscribers increased by 9% in the nine months ended November 30, 2021 when compared to the prior year period.

Telematics Products revenue decreased by $17.0 million or 12.9% for the nine months ended November 30, 2021 compared to the same period last year. This decrease was attributable to global supply imbalances described above, thereby limiting our ability to fulfill customer orders during the nine months ended November 30, 2021.

Gross Profit by Segment

	Nine Months Ended November 30,
	2021					2020
(In thousands)	$		% of Revenue			$		% of Revenue			$ Change			% Change
Segment
Software & Subscription Services	$	56,282		49.8	%	$	47,572		49.9	%	$	8,710			18.3	%
Telematics Products		37,555		32.8	%		40,233		30.6	%		(2,678	)		(6.7	%)
Gross profit	$	93,837		41.3	%	$	87,805		38.7	%	$	6,032			6.9	%

Consolidated gross profit increased by $6.0 million or 6.9% for the nine months ended November 30, 2021 compared to the same period last year largely due to increased revenues in our Software & Subscription Services business. Consolidated gross margin increased by 260 basis points for the nine months ended November 30, 2021 compared to the same period last year primarily due to the increased proportion of overall revenues attributable to Software & Subscription Services as well as increased gross margin in our Telematics Products business.

Software & Subscription Services: Gross profit increased by $8.7 million or 18.3% for the nine months ended November 30, 2021 compared to the same period last year, primarily as a result of the $17.8 million increase in revenues described above.

Telematics Products: Gross profit decreased by $2.7 million or 6.7% for the nine months ended November 30, 2021 compared to the same period last year primarily as a result of the $17.0 decrease in revenues described above. As mentioned above, we are presently experiencing

adverse impacts to product sales as a result of global supply shortages of certain components, which is also leading to cost increases on many of these components.

Operating Expenses

	Nine Months Ended November 30,
	2021					2020
(In thousands)	$		% of Revenue			$		% of Revenue			$ Change			% Change
Research and development	$	21,848		9.6	%	$	18,925		8.4	%	$	2,923			15.4	%
Selling and marketing		37,748		16.6	%		33,743		14.9	%		4,005			11.9	%
General and administrative		38,659		17.0	%		35,903		15.8	%		2,756			7.7	%
Intangible asset amortization		4,033		1.8	%		3,567		1.6	%		466			13.1	%
Restructuring		336		0.1	%		1,917		0.8	%		(1,581	)		(82.5	%)
Impairment loss		—		0.0	%		286		0.1	%		(286	)		(100.0	%)
Total	$	102,624		45.1	%	$	94,341		41.6	%	$	8,283			8.8	%

Consolidated research and development expense increased by $2.9 million or 15.4% for the nine months ended November 30, 2021 compared to the same period last year due to increased development efforts around expanding our telematics service offering both domestically and internationally. Consolidated research and development expense as a percentage of revenues increased to 9.6% for the nine months ended November 30, 2021 compared to 8.4% in the prior year period. We plan to continue to invest in research and development of new products and technologies.

Consolidated selling and marketing expense increased by $4.0 million or 11.9% for the nine months ended November 30, 2021 compared to the same period last year primarily due to a $2.1 million increase in compensation costs related to additions to our salesforce to drive sales of our telematics subscription services, as well as a $0.5 million increase in outside professional services costs related to our global marketing and branding efforts.

Consolidated general and administrative expenses increased by $2.8 million or 7.7% for the nine months ended November 30, 2021 compared to the same period last year primarily driven by increased compensation costs as a result of the hiring of supply chain management and operations personnel following the closure of our manufacturing facility in Oxnard, California, as well as cost containment measures undertaken in the prior year in response to the COVID-19 pandemic.

Amortization of intangibles increased by $0.5 million or 13.1% for the nine months ended November 30, 2021 compared to the same period last year.

As described in Note 8, Restructuring Activities, to the accompanying condensed 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 were vacant. We incurred restructuring charges from continuing operations of $0.3 million and $1.9 million for this initiative during the nine months ended November 30, 2021 and 2020, respectively, which were primarily personnel related.

Non-operating Income (Expense)

Investment income decreased slightly to $1.2 million for the nine months ended November 30, 2021 from $1.3 million for the nine months ended November 30, 2020.

Interest expense decreased to $11.5 million for the nine months ended November 30, 2021 from $11.8 million for the nine months ended November 30, 2020 due to a lower level of borrowings in the current year period.

Other non-operating expense was $2.1 million for the nine months ended November 30, 2021, compared to other non-operating expense of $43 thousand for the nine months ended November 30, 2020. This increase in other non-operating expense was primarily due to costs incurred related to the wind-down, sale and transition of the LoJack North America business during the nine months ended November 30, 2021. In connection with the sale of the LoJack North America business, we entered into a transition services agreement that is expected to end in the coming months under which we will continue to provide certain services to Spireon, a portion of the cost of which will be reimbursed to us by Spireon.

Net Income (Loss) from Discontinued Operations, Net of Tax

Net income from discontinued operations, net of tax was $3.2 million for the nine months ended November 30, 2021 compared to a net loss from discontinued operations, net of tax of $29.6 million during the nine months ended November 30, 2020. The net income from discontinued operations for the nine months ended November 30, 2021 was primarily driven by the $4.1 million gain on sale of discontinued operations, which was completed on March 15, 2021. The net loss from discontinued operations for the nine months ended November 30, 2020 included impairment losses of $22.3 million.

See Note 2, Discontinued Operations, to the accompanying condensed consolidated financial statements for additional information.

Overall Profitability Measures

Net Loss:

GAAP-basis net loss for the nine months ended November 30, 2021 was $18.8 million, compared to a net loss of $47.6 million in the nine months ended November 30, 2020. The decrease in the net loss was primarily driven by the sale of the LoJack North America business described above under “Net Income (Loss) from Discontinued Operations, Net of Tax” and higher gross margins, partially offset by increased operating expenses.

Adjusted EBITDA:

	Nine Months Ended November 30,
(In thousands)	2021			2020			$ Change			% Change
Segment
Software & Subscription Services	$	22,231		$	23,172		$	(941	)		(4.1	%)
Telematics Products		446			2,358			(1,912	)		(81.1	%)
Corporate Expenses		(3,000	)		(3,328	)		328			9.9	%
Total Adjusted EBITDA	$	19,677		$	22,202		$	(2,525	)		(11.4	%)

Adjusted EBITDA for Software & Subscription Services decreased $0.9 million compared to the same period last year primarily due to increased operating expenses as a result of investments we are making to develop, market and sell our telematics solutions, partially offset by higher revenues. Adjusted EBITDA for Telematics Products decreased $1.9 million compared to the same period last year primarily due to lower revenues. Corporate Expenses decreased slightly year-over-year.

Income Tax Provision

We evaluate our estimated annual effective tax rate (“ETR”) on a quarterly basis based on current and forecasted operating results. The relationship between our income tax provision or benefit and our pretax book income or loss can vary significantly from period to period considering, among other factors, the overall level of pretax book income or loss and changes in the blend of jurisdictional income or loss that is taxed at different rates and changes in valuation allowances. Consequently, our ETR may fluctuate significantly period to period and may make quarterly comparisons less than meaningful.

Income tax expense was $0.8 million for the nine months ended November 30, 2021 and 2020.

LIQUIDITY AND CAPITAL RESOURCES

Consistent with fiscal 2021, our primary recurring cash needs have been for working capital purposes and payment on debt obligations, 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 and cash equivalents, and our revolving credit facility. As of November 30, 2021, we have $91.1 million of cash and cash equivalents and $50 million available under our revolving credit facility.We expect to continue to finance our operations with cash on hand and cash generated from operations.

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 $50 million 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. As of November 30, 2021, there were no borrowings outstanding on this revolving credit facility.

We are a defendant in various legal proceedings, including the Omega and Philips patent infringement claims, involving intellectual property claims and contract disputes in which the final resolutions have not been determined at this time. In connection with these matters, we may be required to enter into license agreements or other settlement arrangements that require us to make significant payments in the future. While it is not feasible to predict with certainty the outcome of these legal proceedings, based on currently available information, we believe that the ultimate resolution of these matters will not have a material adverse effect on our condensed consolidated results of operations, financial condition and cash flows.

See Note 16, Legal Proceedings, of the Notes to Unaudited Condensed Consolidated Financial Statements for additional information on legal proceedings.

Sale of LoJack North America Operations

On March 14, 2021, we entered into an agreement with Spireon pursuant to which we sold certain assets and transferred certain liabilities of the LoJack North America business for a purchase price of $8.0 million. The transaction was completed effective March 15, 2021 and we received net proceeds of approximately $6.6 million. Subsequently, on November 9, 2021, the purchase price was reduced by $0.9 million, which was paid to Spireon, due to final working capital adjustments. This payment is reflected within net loss from discontinued operations, net of tax, for the three months ended November 30, 2021. No further adjustments to the purchase price are expected. We also entered into a Transition Service Agreement with Spireon on March 15, 2021 (“TSA”) to support Spireon in the transition of LoJack North America customers and we will continue to provide recovery services to the existing installed base of LoJack North America customers as an agent of Spireon until the termination of the TSA, which is expected to occur in the coming months. During this period, we will invoice Spireon for certain costs incurred in operating this business.

We also entered into a post-TSA Services Agreement with Spireon on March 15, 2021 (“SA”), under which we will continue to provide certain services related to the LoJack North America radio frequency tower infrastructure upon termination of the TSA for a period of no longer than fifty-four months after the termination of the TSA, as needed. As consideration for these services, Spireon will pay us a monthly service fee over the stipulated contract term.

PPP Loan

On April 16, 2020, we received proceeds from a loan in the amount of $10 million from JPMorgan Chase Bank, N.A., as lender (the “PPP Loan”), 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 created uncertainty regarding the qualification requirements for a PPP Loan. Out of 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.

Future Cash Obligations

During the third quarter of fiscal 2022, there were no significant changes to our estimates of future payments under our fixed contractual obligations and commitments as presented in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, included in our Annual Report on Form 10-K for our fiscal year ended February 28, 2021 as filed with the SEC on April 22, 2021.

Cash flows from operating activities

Cash flows from operating activities consist of net loss adjusted for certain non-cash items, including depreciation, intangible asset amortization, stock-based compensation expense, amortization of discount and debt issue costs, deferred income taxes, amortization of certain revenue assignment arrangements and the effect of changes in components of working capital.

Our cash flow from operating activities are attributable to our net loss as well as how well we manage our working capital, which is dictated by the volume of products we purchase from our manufacturers or suppliers and then sell to our customers along with the payment and collection terms that we negotiate with them. We purchase a majority of our products from significant suppliers located in Asia and Mexico that generally provide us 60-day payment terms for products purchased.

Our significant customers are located in the United States as well as certain foreign countries. We believe that our relationships with our key customers are good and that these customers are in good financial condition. We generally grant credit to our customers based on their

financial viability and our historical collections experience with them. We typically require payment from our customers within 30 to 45 days of our invoice date with a few exceptions that extend the credit terms up to 90 days. Since we are paying our suppliers at or within 60 days of inventory purchase and our payment terms on our accounts receivable are generally within 45 days, we have historically generated positive cash flows from operating activities.

For the nine months ended November 30, 2021, net cash provided by operating activities was $3.3 million and net loss was $18.8 million. Our non-cash expenses from continuing operations, comprised principally of depreciation, intangible asset amortization, stock-based compensation expense, amortization of debt discount and issuance costs, noncash operating lease costs and changes in deferred income taxes totaled $36.7 million. These non-cash expenses were partially offset by non-cash revenues of $3.7 million related to acquired revenue assignment arrangements. Changes in operating assets and liabilities from continuing operations used $7.4 million of cash, mainly as a result of the decrease in deferred revenue partially offset by the decrease in accounts receivable. The decrease in deferred revenue was driven by differences in timing of collections under new subscription arrangements such that less cash is collected at contract inception. The decrease in accounts receivable was primarily due to decreased sales levels as well as collection timing. Net cash used in discontinued operations was $0.4 million.

For the nine months ended November 30, 2020, net cash provided by operating activities was $24.3 million and net loss was $47.6 million. Our non-cash expenses from continuing operations, comprised principally of depreciation, intangible asset amortization, stock-based compensation expense, amortization of debt discount and issuance costs, noncash operating lease costs and changes in deferred income taxes totaled $35.3 million. These non-cash expenses were partially offset by non-cash revenues of $4.9 million related to acquired revenue assignment arrangements. Changes in operating assets and liabilities from continuing operations provided $16.0 million of cash, primarily driven by the timing of accounts payable disbursements as well as a reduction in accounts receivable balances as a result of the impacts of the COVID-19 pandemic that began during such period. Net cash used in discontinued operations was $4.2 million.

Cash flow from investing activities

For the nine months ended November 30, 2021 and 2020, our net cash used in investing activities of continuing operations was $10.3 million and $9.0 million, respectively. In each of these periods, our primary investing activities consisted of capital expenditures. We expect that we will make additional capital expenditures in the future, including the devices that we lease to customers under subscription agreements in order to support the future growth of our business.

Net cash provided by investing activities of discontinued operations was $5.7 million for the nine months ended November 30, 2021 compared to net cash used in investing activities of discontinued operations of $2.1 million during the nine months ended November 30, 2020. The net cash provided by investing activities of discontinued operations during the nine months ended November 30, 2021 is comprised of cash proceeds received from the sale of the LoJack North America business.

Cash flow from financing activities

For the nine months ended November 30, 2021 and 2020, our net cash used in financing activities was $3.2 million and $28.3 million, respectively. In each of these periods, we had payments for taxes related to the net share settlement of vested equity awards and the proceeds from the exercise of stock options and contributions to our employee stock purchase plan. During the nine months ended November 30, 2020, we repaid our 2020 Convertible Notes of $27.6 million, as well as borrowed and repaid $20.0 million from our revolving credit facility.

We continue to monitor the impact of the pandemic on our operating results and liquidity as it has had an unfavorable impact on our financial condition and results of operations and we believe the pandemic may continue to have an unfavorable impact going forward.

FORWARD LOOKING STATEMENTS

Forward looking statements in this Form 10-Q 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, global component supply shortages due to ongoing supply chain constraints, the phased implementation of our ERP system, the effect of tariffs on exports from China and other countries, the ongoing effects of the COVID-19 pandemic, and other risks and uncertainties that are set forth in Part I, Item 1A of the Annual Report on Form 10-K for the fiscal year ended February 28, 2021 as filed with the SEC on April 22, 2021. Such risks and uncertainties could cause actual results to differ materially 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 update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

ITEM 3. 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 $2.4 million related to our foreign subsidiaries is included in “Accumulated other comprehensive loss” in the Stockholders' Equity section of the condensed consolidated balance sheet at November 30, 2021. The aggregate foreign currency transaction exchange rate income (loss) included in determining loss before income taxes were de minimus for both the nine months ended November 30, 2021 and 2020.

As our international operations grow, our risks associated with fluctuation in foreign currency rates will become greater, and we will continue to reassess our approach to managing this risk. In addition, currency fluctuations or a weakening U.S. dollar could increase the costs of our international expansion and operations.

Interest Rate Risk

Our exposure to market rate risk for changes in interest rates relates primarily to our 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 investment 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 earning 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 we 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.

As the majority of our investment portfolio has a short-term nature, we do not believe an immediate increase or decrease in interest rate would have a material effect on the fair market value of our portfolio, and therefore, we do not expect our operating results or cash flows to be materially affected by a sudden change in market interest rates.

We do not believe our cash equivalents have significant risk of default or illiquidity. However, we cannot provide absolute assurance that in the future our investments will not be subject to adverse changes in market value. In addition, we maintain significant amounts of cash and cash equivalents at one or more financial institutions that are in excess of federally insured limits. We cannot be assured that we will not experience losses on these deposits.

Loans outstanding under our revolving credit facility bear interest at either euro currency rate plus a margin or the base rate (highest of (i) 0%, (ii) the rate of interest publicly announced by the Agent as its prime rate in effect at its principal office in New York City, (iii) the overnight bank funding rate as determined by the Federal Reserve Bank of New York plus 0.50% and (iv) the LIBOR-based rate for a one-month interest period on such day plus 1%). An applicable margin is added based on the Company’s senior leverage ratio, ranging from 1.50% to 2.00% for base rate loans, and from 2.50% to 3.00% for Eurodollar loans. Changes in interest rate would impact our variable rate borrowings. As of November 30, 2021, there was no outstanding borrowing under our revolving credit facility.

ITEM 4. CONTROLS AND PROCEDURES

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) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report, that our disclosure controls and procedures are effective 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 that such information is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC.

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 which started in fiscal 2020 and continues into fiscal 2022. 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 third quarter of fiscal 2022 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

See Note 16, Legal Proceedings, of the Notes to Unaudited Condensed Consolidated Financial Statements above for information regarding the legal proceedings in which we are involved.

ITEM 1A. RISK FACTORS

The reader is referred to Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended February 28, 2021, as filed with the SEC on April 22, 2021, for a discussion of factors that could materially affect our business, financial condition, results of operations, or future results, as well as the information contained in this Quarterly Report, including the risk factors below, and our other reports and registration statements filed with the SEC.

Our accelerated supply chain diversification program, component shortages and uncertainty in international trade relations with China have adversely impacted us and may have a material adverse effect on our business, results of operations and financial condition.

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. Although we are taking steps to address these matters, the related operational challenges and supply chain disruptions may persist for some time. Additionally, our contract manufacturers’ supply shortages as a result of the pandemic have impacted our business, customer relationships and as described in this Quarterly Report, have also impacted our results of operations.

More recently we have experienced supply shortages driven by global supply imbalances driven by the global pandemic, which negatively impacted all parts of our business. These supply imbalances have created supply shortages of silicon wafers and other components used in our products and the devices we utilize to deliver our subscription services and our telematics products. We expect these supply shortages to continue for the foreseeable future as suppliers strive to create additional production capacity.

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 has adversely affected our ability to bring products to market, may damage our reputation and has adversely affected 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. 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. Recently we have experienced a delay in product shipments and revenues and profitability have been affected. In some circumstances, we have been unable to meet our customer demand and if these supply imbalances continue, we may fail to meet our contractual obligations. Accordingly, if these interruptions continue at this severity and we are unable to meet customer demands in the future, this could result in the payment of significant damages by us to our customers, a decline in net revenue and a loss of market share as our customers could choose to purchase competing products, all of which could adversely affect our business, financial condition and results of operations. Any substantial disruption in our contract manufacturers’ supply as a result of the pandemic, any natural disaster, trade war, political unrest, economic instability, equipment failure or other cause could continue to materially harm our business, customer relationships and results of operations.

ITEM 5. OTHER INFORMATION

The following disclosure is included in this Quarterly Report on Form 10-Q in lieu of filing a Current Report on Form 8-K with respect to disclosure required under Item 5.02 thereof.

Amended and Restated Employment Agreements

On December 16, 2021, the Company entered into an Amended and Restated Employment Agreement with each of Anand Rau and Arym Diamond, on December 17, 2021, the Company entered into an Amended and Restated Employment Agreement with Kurt Binder and on December 18, 2021, the Company entered into an Amended and Restated Employment Agreement with Jeffrey Gardner (collectively, the “Amended Employment Agreements” and individually, an “Amended Employment Agreement”), in each case, effective as of November 5, 2021. Each Amended Employment Agreement amends and restates the employment agreements previously entered into between the Company and each executive.

The terms and conditions of the Amended Employment Agreements remain the same as in the original employment agreements, but were modified in the following ways:

•

Each Amended Employment Agreement is terminable “at will” with or without notice, and, unlike the prior employment agreement, is not subject to a specified term or automatic renewal term.

•

Messrs. Binder, Rau, and Diamond are entitled to receive annual base salaries of $388,500, $312,000, and $309,000, respectively, each of which was increased from $370,000, $300,000, and $300,000, respectively, under the prior employment agreements.

•

Upon a termination by us without “cause” or by the executive for “good reason” (each as defined in the Amended Employment Agreements), then the executive will be entitled to receive the same payments and benefits as in the prior employment agreements, except that:

•

The amount of the cash severance will be the sum of (i) 12 months (18 months for Mr. Gardner) of annual base salary (increased from 12 months for Mr. Gardner, 6 months for Mr. Binder and 3 months for Messrs. Diamond and Rau), (ii) any earned but unpaid bonus, and (iii) a pro-rated portion of his target bonus for year of termination. Messrs. Diamond and Rau will also be entitled to receive continued COBRA coverage for 12 months (increased from 6 months), and for Mr. Gardner 18 months (increased from 12 months).

•

Additionally, (i) any unvested equity awards granted prior to 2021 will continue to vest for 12 months following termination, and (ii) any options that are exercisable or become exercisable will remain exercisable for up to 12 months (in each case, increased from 6 months for Mr. Binder and 3 months for Messrs. Diamond and Rau) following termination. Any unvested equity awards granted during or after 2021 will be forfeited and canceled.

•

Upon a termination by us without cause or by the executive for good reason during the 3-month period preceding or the 12-month period following a change of control, then the executive will be entitled to receive the same payments and benefits as in the prior employment agreements, except that he will receive an amount equal to his target bonus (increased from a pro-rated portion of his target bonus), and for Mr. Gardner two times his target bonus. Additionally, for Messrs. Gardner and Binder, any options that are exercisable or become exercisable will remain exercisable for up to 6 months following termination (decreased from 24 months for Mr. Gardner and 12 months for Mr. Binder).

•

Each of the Amended Employment Agreements was revised to include a standard non-disparagement provision to cover the term of each named executive officer’s employment and any period following his termination of employment for any reason.

•

In addition, Mr. Rau’s Amended Employment Agreement was revised to reflect his change in position from SVP, Engineering to Chief Technology Officer.

The foregoing summary of the material changes to terms of the Amended Employment Agreements are qualified in their entirety by the full terms and conditions of the Amended Employment Agreements for each of Mr. Gardner, Mr. Binder, Mr. Rau and Mr. Diamond, copies of which are filed as Exhibits 10.3, 10.4, 10.1 and 10.2, respectively, to this Form 10-Q, and are incorporated herein by reference.

ITEM 6. EXHIBITS


Exhibit 10.1		Employment Agreement between the Company and Anand Rau dated December 16, 2021

Exhibit 10.2		Employment Agreement between the Company and Arym Diamond dated December 16, 2021

Exhibit 10.3		Employment Agreement between the Company and Jeffery Gardner dated December 18, 2021

Exhibit 10.4		Employment Agreement between the Company and Kurtis Binder dated December 17, 2021

Exhibit 31.1		Chief Executive Officer Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Exhibit 31.2		Chief Financial Officer Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Exhibit 32		Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101 .INS		Inline XBRL Instance Document

101 .SCH		Inline XBRL Taxonomy Extension Schema Document

101 .CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document

101 .DEF		Inline XBRL Taxonomy Definition Linkbase Document

101 .LAB		Inline XBRLTaxonomy Extension Label Linkbase Document

101 .PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document

104		Cover Page Interactive Data File (embedded within the Inline XBRL document)

SIGNATURE

Pursuant to the requirements 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.

		CALAMP CORP.

December 21, 2021		/s/ Kurtis Binder
Date		EVP & Chief Financial Officer
		(Principal Financial Officer and Chief Accounting Officer)