CALAMP: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND OPERATING RESULTS (Form 10-Q)


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 and 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).



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Recent Developments

COVID-19 Impact


In March 2020, the World Health Organization declared COVID-19 as a public health pandemic of international concern, which has resulted in travel restrictions and, in some cases, bans on non-essential activities, business disruptions and closures, and greater uncertainty over global financial markets.



Through fiscal 2021, our revenues were negatively impacted by COVID-19 as
various small-to-medium customers postponed their capital expenditures due to
the pandemic and related macro-economic uncertainties. The COVID-19 pandemic has
also created certain global supply imbalances resulting in supply shortages in
certain components that we use. It is difficult to predict the extent to which
the 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 the
actions taken or to be taken in connection with reopening efforts as containment
of the COVID-19 pandemic is achieved. 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 six months ended and as of August 31, 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 material asset impairments and charges for
uncollectible accounts receivable in future periods.



Sale of LoJack operations in North America



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. We recognized a gain on the sale of the LoJack North
America business of $5.0 million, which is subject to change in a future period
based on the finalization of the purchase price with Spireon.



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 six months ended August 31,
2020 and for the six months ended August 31, 2021. For the six months ended
August 31, 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 August 31, 2021 compared to the three months ended August 31, 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 August 31,
                              2021                             2020
(In thousands)        $          % of Revenue          $          % of Revenue       $ Change        % Change
Segment
Software &
Subscription
Services          $   41,434              52.4 %   $   33,440              44.9 %   $     7,994            23.9 %
Telematics
Products              37,577              47.6 %       40,957              55.1 %        (3,380 )          (8.3 %)
Total             $   79,011             100.0 %   $   74,397             100.0 %   $     4,614             6.2 %




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
negatively impacted by the COVID-19 pandemic in the first half of fiscal 2021,
we resumed device installation and activation services soon thereafter thereby
driving revenue growth in subsequent periods including the three months ended
August 31, 2021.



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As of August 31, 2021, our remaining contractual performance obligations were
approximately $141 million, compared to $130 million as of August 31, 2020. The
majority of our growth in contractual performance obligations was driven by new
customer acquisitions within the government and municipality markets as well as
connected car markets.



Software & Subscription Services revenue increased by $8.0 million or 23.9% for
the three months ended August 31, 2021 compared to the same period last year.
This increase was primarily due to a $7.6 million increase in transportation and
logistics revenues, driven in large part by 3G to 4G equipment upgrades,
especially with our larger customers, as well as a $1.2 million increase in
connected car services revenues, primarily as a result of increased revenues in
the EMEA and LATAM regions. These increases were partially offset by a decrease
of $0.6 million in government and municipalities revenues, which was primarily
attributable to timing of device installations and activation of services caused
by the onset of the COVID-19 pandemic. Recurring revenue was $24.0 million and
$25.8 million for the three months ended August 31, 2021 and 2020, respectively,
and active subscribers increased by 4% in the three months ended August 31, 2021
when compared to the prior year period.



Telematics Products revenue, comprised primarily of mobile resource management
("MRM") telematics and OEM/network products, decreased by $3.4 million or 8.3%
for the three months ended August 31, 2021 compared to the same period last
year. This decrease was attributable to global supply imbalances driven by the
global pandemic which has created supply shortages of silicon wafers and other
components used in our products, thereby limiting our ability to fulfill
customer orders during the three months ended August 31, 2021. We expect these
supply shortages to continue for the foreseeable future as suppliers strive to
create additional production capacity.

Gross Profit by Segment



                                   Three Months Ended August 31,
                              2021                              2020
(In thousands)        $           % of Revenue          $           % of Revenue       $ Change        % Change
Segment
Software &
Subscription
Services          $   21,332               51.5 %   $   16,639               49.8 %   $     4,693            28.2 %

Telematics

Products              12,038               32.0 %       10,823               26.4 %         1,215            11.2 %
Gross profit      $   33,370               42.2 %   $   27,462               36.9 %   $     5,908            21.5 %




Consolidated gross profit increased by $5.9 million or 21.5% for the three
months ended August 31, 2021 compared to the same period last year largely due
to increased revenues in our Software & Subscription Services business.
Consolidated gross margin increased by 530 basis points for the three months
ended August 31, 2021 compared to the same period last year due to the increased
proportion of overall revenues attributable to Software & Subscription Services
as well as increased gross margins across both segments.



Software & Subscription Services: Gross profit increased by $4.7 million or
28.2% for the three months ended August 31, 2021 compared to the same period
last year, primarily as a result of the $8.0 million increase in revenues
described above. Gross margin increased by 170 basis points primarily due to
higher than average gross margins on certain 4G equipment upgrades to support
our subscription services .



Telematics Products: Gross profit increased by $1.2 million or 11.2% for the
three months ended August 31, 2021 compared to the same period last year largely
due to the 560 basis point increase in gross margin. The improvement in gross
margin was primarily due to a $1.4 million one-time charge in the prior year
period related to the resolution of a product performance matter with a
customer. 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 next couple 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 August 31,
                              2021                              2020
(In thousands)        $           % of Revenue          $           % of Revenue       $ Change        % Change
Research and
development       $    7,729                9.8 %   $    6,573                8.8 %   $     1,156            17.6 %
Selling and
marketing             12,047               15.2 %       11,476               15.4 %           571             5.0 %
General and
administrative        13,198               16.7 %       12,177               16.4 %         1,021             8.4 %
Intangible asset
amortization           1,394                1.8 %        1,190                1.6 %           204            17.1 %
Restructuring              -                0.0 %          144                0.2 %          (144 )        (100.0 %)
Impairment loss            -                0.0 %          286                0.4 %          (286 )        (100.0 %)
Total             $   34,368               43.5 %   $   31,846               42.8 %   $     2,522             7.9 %


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Consolidated research and development expense increased by $1.2 million or 17.6%
for the three months ended August 31, 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 9.8% for the three
months ended August 31, 2021 compared to 8.8% 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 $0.6 million or 5.0% for
the three months ended August 31, 2021 compared to the same period last year
primarily due to a $0.3 million increase in compensation costs related to
additions to our salesforce to drive sales of our telematics subscription
services, as well as a $0.3 million increase in outside professional services
costs related to our global marketing and branding efforts.

Consolidated general and administrative expenses increased by $1.0 million or
8.4% for the three months ended August 31, 2021 compared to the same period last
year primarily driven by cost containment measures initiated in the prior year
in response to the COVID-19 pandemic.

Amortization of intangible assets increased by $ 0.2 million or 17.1% for the three months ended August 31, 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. In connection with this initiative, we incurred
adjustments to restructuring charges of $0.1 million during the three months
ended August 31, 2020, which were primarily personnel related.

Non-operating income (expenses)

Investment income decreased to $ 0.4 million for the three months ended August 31, 2021 of $ 0.7 million for the three months ended August 31, 2020. The decrease is mainly attributable to lower investment returns on invested funds.

Interest expense decreased to $ 3.8 million for the three months ended August 31, 2021 of $ 3.9 million for the three months ended August 31, 2020 due to a slightly lower borrowing level during the current year period.

Other non-operating expense was $0.7 million for the three months ended August
31, 2021 compared to $0.2 million of other income for the three months ended
August 31, 2020. The increase in other non-operating expense was primarily due
to costs incurred related to the wind down and transition of the LoJack North
America business during the three months ended August 31, 2021. In connection
with the sale of the LoJack North America business, we entered into a transition
services agreement that, as amended, extends through October 15, 2021 under
which we will continue to provide certain services to Spireon, most of the cost
of which will be reimbursed by Spireon.

Net profit (loss) from discontinued operations, net of tax

The sale of the LoJack North America business was completed on March 15, 2021.
There was no income or loss from discontinued operations during the three months
ended August 31, 2021, but we incurred a net loss from discontinued operations,
net of tax of $1.9 million during the three months ended August 31, 2020.

See Note 2, Discontinued operations, to the accompanying condensed consolidated financial statements for further details.

Overall profitability measures

Net loss:

GAAP-basis net loss for the three months ended August 31, 2021 was $5.4 million
compared to a net loss of $9.5 million in the three months ended August 31,
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 August 31,
(In thousands)                      2021            2020         $ Change       % Change
Segment
Software & Subscription Services $    9,638       $   7,695     $    1,943           25.3 %
Telematics Products                    (378 )        (1,726 )        1,348           78.1 %
Corporate Expenses                     (959 )          (921 )          (38 )          4.1 %
Total Adjusted EBITDA            $    8,301       $   5,048     $    3,253           64.4 %




Adjusted EBITDA for Software & Subscription Services increased by $1.9 million
compared to the same period last year primarily due to increased revenues and
improved gross margins. Adjusted EBITDA for Telematics Products increased $1.3
million compared to the same period

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last year thanks to improved gross margins which more than offset lower revenues. Business expenses have remained constant year over year.

See note 15, Segment information and geographic data, to the accompanying condensed consolidated financial statements for information on Adjusted EBITDA by segment to be presented and a reconciliation to net income (loss) under GAAP.

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 $ 0.3 million for the three months ended August 31, 2021
and 2020.

Six months ended August 31, 2021 compared to six months ended August 31, 2020:

Revenue by Segment



                                   Six Months Ended August 31,
                              2021                             2020
(In thousands)        $          % of Revenue          $          % of Revenue       $ Change        % Change
Segment
Software &
Subscription
Services          $   76,477              48.2 %   $   61,213              41.3 %   $    15,264            24.9 %
Telematics
Products              82,208              51.8 %       86,915              58.7 %        (4,707 )          (5.4 %)
Total             $  158,685             100.0 %   $  148,128             100.0 %   $    10,557             7.1 %






Software & Subscription Services revenue increased by $15.3 million or 24.9% for
the six months ended August 31, 2021 compared to the same period last year. The
increase was largely driven by a $10.5 million increase in transportation and
logistics revenues and a $1.7 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 $3.3 million increase in connected car
services revenues, primarily as a result of increased revenues in the EMEA and
LATAM regions. Recurring revenue was $48.1 million and $49.6 million for the six
months ended August 31, 2021 and 2020, respectively, and active subscribers
increased by 4% in the six months ended August 31, 2021 when compared to the
prior year period.



Telematics Products revenue decreased by $4.7 million or 5.4% for the six months
ended August 31, 2021 compared to the same period last year. This decrease was
attributable to global supply imbalances driven by the global pandemic which has
created supply shortages of silicon wafers and other components used in our
products, thereby limiting our ability to fulfill customer orders during the six
months ended August 31, 2021. We expect these supply shortages to continue for
the foreseeable future as suppliers strive to create additional production
capacity.

Gross Profit by Segment



                                    Six Months Ended August 31,
                              2021                              2020
(In thousands)        $           % of Revenue          $           % of Revenue       $ Change        % Change
Segment
Software &
Subscription
Services          $   38,154               49.9 %   $   30,347               49.6 %   $     7,807            25.7 %
Telematics
Products              27,663               33.7 %       26,220               30.2 %         1,443             5.5 %
Gross profit      $   65,817               41.5 %   $   56,567               38.2 %   $     9,250            16.4 %




Consolidated gross profit increased by $9.3 million or 16.4% for the six months
ended August 31, 2021 compared to the same period last year largely due to
increased revenues in our Software & Subscription Services business.
Consolidated gross margin increased by 330 basis points for the six months ended
August 31, 2021 compared to the same period last year 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 $7.8 million or
25.7% for the six months ended August 31, 2021 compared to the same period last
year, primarily as a result of the $15.3 million increase in revenues described
above. Gross margin increased by 30 basis points primarily due to higher than
average gross margin on certain 4G equipment upgrades to support our
subscription services.

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Telematics Products: Gross profit increased by $1.4 million or 5.5% for the six
months ended August 31, 2021 compared to the same period last year largely due
to the 350 basis point increase in gross margin. The improvement in gross margin
was primarily due to a $1.4 million one-time charge in the prior year period
related to the resolution of a product performance matter with a customer. 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 next
couple quarters we may experience lower gross margins if we are unable to
effectively offset the impacts of these cost increases.

Operating Expenses



                                    Six Months Ended August 31,
                              2021                              2020
(In thousands)        $           % of Revenue          $           % of Revenue       $ Change        % Change
Research and
development       $   14,669                9.2 %   $   12,509                8.4 %   $     2,160            17.3 %
Selling and
marketing             24,509               15.4 %       21,913               14.8 %         2,596            11.8 %
General and
administrative        25,884               16.3 %       23,941               16.2 %         1,943             8.1 %
Intangible asset
amortization           2,647                1.7 %        2,366                1.6 %           281            11.9 %
Restructuring            336                0.2 %        2,017                1.4 %        (1,681 )         (83.3 %)
Impairment loss            -                0.0 %          286                0.2 %          (286 )        (100.0 %)
Total             $   68,045               42.9 %   $   63,032               42.6 %   $     5,013             8.0 %




Consolidated research and development expense increased by $2.2 million or 17.3%
for the six months ended August 31, 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 9.2% for the six
months ended August 31, 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 $2.6 million or 11.8%
for the six months ended August 31, 2021 compared to the same period last year
primarily due to a $1.7 million increase in compensation costs related to
additions to our salesforce to drive sales of our telematics subscription
services, as well as a $0.9 million increase in outside professional services
costs related to our global marketing and branding efforts.

Consolidated general and administrative expenses increased by $1.9 million or
8.1% for the six months ended August 31, 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.

Amortization of intangibles increased slightly by $ 0.3 million or 11.9% for the closed semester August 31, 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 $2.0 million for this initiative during the six
months ended August 31, 2021 and 2020, respectively, which were primarily
personnel related.

Non-operating income (expenses)

Investment income increased to $1.1 million for the six months ended August 31,
2021 from $0.7 million for the six months ended August 31, 2020. The increase
was primarily driven by improved investment returns on invested funds.

Interest expense decreased to $7.7 million for the six months ended August 31,
2021 from $7.9 million for the six months ended August 31, 2020 due to a lower
level of borrowings in the current year period.

Other non-operating expense was $2.0 million for the six months ended August 31,
2021, compared to other non-operating income of $9 thousand for the six months
ended August 31, 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 six months ended August 31, 2021.
In connection with the sale of the LoJack North America business, we entered
into a transition services agreement that extends through October 15, 2021 under
which we will continue to provide certain services to Spireon, most of the cost
of which will be reimbursed to us by Spireon.

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Net profit (loss) from discontinued operations, net of tax

Net income from discontinued operations, net of tax was $4.1 million for the six
months ended August 31, 2021 compared to a net loss from discontinued
operations, net of tax of $9.7 million during the six months ended August 31,
2020. The net income from discontinued operations for the six months ended
August 31, 2021 was primarily driven by the $5.0 million gain on sale of
discontinued operations, which was completed on March 15, 2021. The net loss
from discontinued operations for the six months ended August 31, 2020 included
impairment losses of $4.3 million.

See Note 2, Discontinued operations, to the accompanying condensed consolidated financial statements for further details.

Overall profitability measures

Net loss:

GAAP-basis net loss for the six months ended August 31, 2021 was $7.4 million,
compared to a net loss of $23.9 million in the six months ended August 31, 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," increased revenues and higher gross
margins, partially offset by increased operating expenses.

Adjusted EBITDA:



                                       Six Months Ended August 31,
(In thousands)                      2021           2020        $ Change       % Change
Segment
Software & Subscription Services $   15,532      $ 14,168     $    1,364            9.6 %
Telematics Products                   3,254         1,489          1,765          118.5 %
Corporate Expenses                   (2,100 )      (2,318 )          218           (9.4 %)
Total Adjusted EBITDA            $   16,686      $ 13,339     $    3,347           25.1 %




Adjusted EBITDA for Software & Subscription Services increased by $1.4 million
compared to the same period last year primarily due to higher revenues, largely
offset by increased operating expenses as a result of investments we are making
to develop, market and sell our telematics solutions. Adjusted EBITDA for
Telematics Products increased by $1.8 million compared to the same period last
year primarily due to increased gross profit. Corporate Expenses increased
slightly year-over-year.



See note 15, Segment information and geographic data, to the accompanying condensed consolidated financial statements for information on Adjusted EBITDA by segment to be presented and a reconciliation to net income (loss) under GAAP.

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 $0.6 million for the six months ended August 31, 2021,
compared to $0.5 million in the same period last year. The $0.1 million increase
in tax expense was primarily driven by an increase in pre-tax income
attributable to one of our foreign subsidiaries in the current period.

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 August 31, 2021, we have
$101.1 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.

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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 August 31, 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 the unaudited condensed consolidated financial statements for more information on legal proceedings.

Sale of LoJack operations in North America

On March 14, 2021, we entered into a purchase 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. 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 October 15, 2021. 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 date of
the SA, 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 treasury obligations

During the second 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 flow 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 collection 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

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the purchase of inventory and our payment terms on our accounts receivable are generally within 45 days, we have historically generated positive cash flow from operating activities.



For the six months ended August 31, 2021, net cash provided by operating
activities was $10.5 million and net loss was $7.4 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 $23.9 million. These non-cash expenses were
partially offset by non-cash revenues of $2.6 million related to acquired
revenue assignment arrangements. Changes in operating assets and liabilities
from continuing operations provided $1.0 million of cash, primarily driven by
the impact of lower inventory levels, partly offset by a net decrease in
accounts payable. Net cash used in discontinued operations was $0.4 million.



For the six months ended August 31, 2020, net cash provided by operating
activities was $14.1 million and net loss was $23.9 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 $23.7 million. These non-cash expenses were
partially offset by non-cash revenues of $3.3 million related to acquired
revenue assignment arrangements. Changes in operating assets and liabilities
from continuing operations provided $9.4 million of cash, primarily driven by a
reduction in accounts receivable balances as a result of the impacts of the
COVID-19 pandemic that began during such period, as well as the timing of
accounts payable disbursements. Net cash used in discontinued operations was
$1.4 million.

Cash flow from investing activities



For the six months ended August 31, 2021 and 2020, our net cash used in
investing activities of continuing operations was $6.6 million and $5.7 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 $6.6
million for the six months ended August 31, 2021 compared to net cash used in
investing activities of discontinued operations of $1.8 million during the six
months ended August 31, 2020. The net cash provided by investing activities of
discontinued operations during the six months ended August 31, 2021 is comprised
of cash proceeds received from the sale of the LoJack North America business.

Cash flow from financing activities



For the six months ended August 31, 2021 and 2020, our net cash used in
financing activities was $3.1 million and $8.2 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 six months ended
August 31, 2020, we repaid our 2020 Convertible Notes of $27.6 million, as well
as borrowed $20.0 million from our revolving credit facility.



We continue to monitor the impact of COVID-19 on our operating results and cash flow as the pandemic has adversely impacted our financial condition and operating results and we believe the pandemic may continue to have an unfavorable impact in the future.

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, 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.

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