Camp4 Therapeutics Corp Q1 FY2023 earnings call

• Progress on converting customers to recurring subscription contracts: Software and subscription services revenue grew 13% YOY to $39.6 million, representing 61% of total revenue. Converted 10% of eligible customers cumulatively, aiming to complete conversions by fiscal year end.
• Impact of supply chain constraints: Consolidated revenue affected by COVID-related lockdowns in China; anticipation of gradual supply improvements as transportation resumes.
• New partnerships and contracts: Secured orders from BMW and Volkswagen Leasing; partnerships with Bristlecone and assured Techmatics to enhance supply chain visibility and transport compliance solutions.
• Leadership changes: Appointed Brennen Carson as Chief Revenue Officer and Henry Maier as Independent Chairman; added Wes Cummins to the Board.

Total revenue in the first quarter was $64.7 million, down 5% from the prior quarter and 19% from the same quarter a year ago. Software and subscription services revenue was $39.6 million, up 13% year-over-year, representing approximately 61% of total revenue. Telematics products revenue was $25.2 million, a 7% decrease sequentially and 44% decrease year-over-year.

• Maintains no quarterly guidance but expects mid to high single-digit sequential revenue growth in Q2 2023.
• Medium to long-term goal is to achieve a 50% gross margin, driven by revenue mix shift to software and subscription services.

• Supply chain constraints, particularly COVID-related lockdowns in China, exacerbating component supply and logistics issues, impacting revenue and gross margin.

Q: Talk about drivers behind sequential growth and split of growth between hardware and software/subscription?

A: Supply chain improving, with better visibility in supply chain; software revenue growth driven by continuing customer conversion to subscription model and all new sales involving subscriptions going forward.

Q: Intermediate term gross margin goals?

A: Medium to long-term goal is 50% gross margin, affected by short-term supply chain pressures but expecting progression as revenue mix shifts to subscriptions.

Q: Pushback from customers on subscription transition, percentage of customers migrated?

A: Customers excited about technology, no pushback; converted ~33% of ~60-65 eligible telematics device customers, with a good mix of customer sizes.

Q: Sequential decline in software and subscription services revenue?

A: Combination of focusing on converting hardware customers to subscriptions (revenue in product category initially) and vehicle finance revenue declining as prepaid contracts expire.

Q: OEM sales number and gross margin progression?

A: OEM products revenue in quarter was ~$10.5 million; gross margin impacted by supply chain costs but expecting improvement with revenue growth and PPV passing through to customers.

Q: Path to 50% gross margin?

A: Driven by revenue mix shift to software/subscription (margins in low to mid 50s), optimizing cost structure, and monetizing installed base from customer conversions.

Q: Underlying revenue metric for recurring growth?

A: Remaining performance obligations (RPO) growth and subscriber base growth provide forward-looking insight, with RPO increasing from $202 million to $216 million showing healthy trends.