3rd Quarter 2014 Comparisons to 3rd Quarter 2013
- Total Net Revenues up 16.9% to $25.7 million
- Subscription and Support revenues up 29.3% to $17.4 million
- Gross Margin on subscriptions and support revenues was 59.8% compared to 58.3%
- GAAP income from continuing operations, net of income taxes was $0.3 million
- Adjusted EBITDA increased 32.3% to $3.3 million, reflecting a margin of 13.0%
ATLANTA, Nov. 5, 2014 (GLOBE NEWSWIRE) -- Numerex Corp (Nasdaq:NMRX), a leading provider of interactive and on-demand machine-to-machine (M2M) solutions enabling the Internet of Things (IoT), today announced financial results for its third quarter and nine-month period ended September 30, 2014.
"The Company posted another solid quarterly performance reflecting the strength of its position in industrial IoT and certain key M2M market segments," stated Stratton Nicolaides, CEO and chairman of Numerex. "While the Company has continued to grow across a broad array of markets, its product strategy is centered on marketing and selling pre-engineered, pre-configured (high value) solutions used in supply chain, alarm security and home automation, offender monitoring, and an array of asset tracking markets. As a result of our focus on these key markets, we have made significant strides in transitioning to a high value solution-as-a-service business. Importantly, these solutions command significantly higher average revenue per unit or ARPU. Consequently, ARPU has increased year over year as have our overall subscription and service margins. High value subscriptions now constitute over 30% of our total subscription base and generate over 60% of our subscription and service revenues."
9 month Year-to-Date 2014 Compared to 9 month Year-to-Date in 2013
- Total Net Revenues up 24% to $69 million
- Subscription and Support revenues up 25.3% to $47.5 million
- Gross Margin on subscriptions and support revenues was 60.8% compared to 56.4%
- GAAP income from continuing operations, net of income taxes was $1.6 million, up 61.9%
- Adjusted EBITDA increased 64.4% to $9.1 million, reflecting a margin of 13.2%
Mr. Nicolaides continued, "We are pleased to report that our operating leverage improved in the third quarter as a result of strong recurring revenue growth, improved gross margins, and cost controls. Third quarter revenues generated from our recurring subscription and service base grew at nearly 30% year over year, while hardware revenues declined slightly. Total net revenues generated in the third quarter reached a milestone of nearly $26 million, an all-time high water mark for the Company. Consequently, we expect the Company is on track to generate between $93 and $95 million in total net revenue for the full year. While the revenue mix between service and hardware was different than we originally forecast, our focus on solutions-based subscriptions and revenues resulted in a substantial improvement in gross margins over the course of the year. As a result, the Company is on track to meet its guidance and grow Adjusted EBITDA between 40% and 45% for the full year."
Financial Metrics
|
Three Months Ended September 30, |
Nine Months Ended September 30, |
|||
| Non-GAAP Measures* | 2014 | 2013 | 2014 | 2013 |
| Adjusted EBITDA ($ in millions) | $ 3.3 | $ 2.5 | $ 9.1 | $ 5.5 |
| Adjusted EBITDA as a percent of total revenue | 13.0% | 11.5% | 13.2% | 9.9% |
| Adjusted EBITDA per diluted share | $ 0.17 | $ 0.13 | $ 0.47 | $ 0.29 |
| Net new subscriptions (units) | 31,000 | 135,000 | 207,000 | 422,000 |
| Total subscriptions (units) | 2,416,000 | 2,146,000 | 2,416,000 | 2,146,000 |
| ______________ | ||||
| * Refer to the section of this press release entitled "Non-GAAP (Adjusted) Financial Measures" for a discussion of these non-GAAP items and a reconciliation to the most comparable GAAP measure. | ||||
| GAAP Measures | ||||
| Subscription and support revenues ($ in millions) | $ 17.4 | $ 13.5 | $ 47.5 | $ 37.9 |
| Gross margin --- subscription and support revenues | 59.7% | 58.3% | 60.8% | 56.4% |
| Income from continuing operations, net of income taxes ($ in millions) | $ 0.3 | $ 0.6 | $ 1.6 | $ 1.0 |
| Diluted EPS from continuing operations | $ 0.01 | $ 0.03 | $ 0.09 | $ 0.05 |
Additional Q3 Financial Information and Year-over-year comparisons to Q3 of 2013
Total GAAP operating expenses were $10.5 million compared to $8.3 million:
- Sales and marketing expenses were $3.0 million compared to $2.6 million. The increase was due to our recent acquisition and the addition of sales and marketing personnel to drive and support growth.
- General and administrative expenses were $3.4 million as compared to $3.2 million. The increase was primarily personnel related.
- Engineering and development costs increased to $2.4 million from $1.3 million due to our recent merger with Omnilink and new product and project initiatives.
- Operating expenses include depreciation and amortization charges of $1.6 million compared to $1.2 million.
Quarterly Conference Call
Numerex will discuss its quarterly results via teleconference today at 4:30 p.m. Eastern Time. Please dial (877) 303-9240 or, if outside the U.S. and Canada, (760) 666-3571 to access the conference call at least five minutes prior to 4:30 p.m. Eastern Time start time. A live webcast of the call will also be available at www.numerex.com under the Investor Relations section. The audio replay will be posted two hours after the end of the call on the Company's website or by dialing (855) 859-2056 or (404) 537-3406 if outside the US and Canada and entering the conference ID 26571509. The replay will be available for the next 10 days.
About Numerex
Numerex Corp. (NMRX) is a leading provider of interactive and on-demand machine-to-machine (M2M) enterprise solutions enabling the Internet of Things (IoT). The Company provides its technology and services through its integrated M2M horizontal platforms, which are generally sold on a subscription basis. The Company offers Numerex DNA® that may include hardware and smart Devices, cellular and satellite Network services, and software Applications that are delivered through Numerex FAST® (Foundation Application Software Technology). The Company also provides business services to enable the development of efficient, reliable, and secure solutions while accelerating deployment. Numerex is ISO 27001 information security-certified, highlighting the Company's focus on M2M data security, service reliability and around-the-clock support of its customers' M2M solutions. For additional information, please visit www.numerex.com.
This press release contains, and other statements may contain, forward-looking statements with respect to Numerex future financial or business performance, conditions or strategies and other financial and business matters, including expectations regarding growth trends and activities. Forward-looking statements are typically identified by words or phrases such as "believe," "expect," "anticipate," "intend," "estimate," "assume," "strategy," "plan," "outlook," "outcome," "continue," "remain," "trend," and variations of such words and similar expressions, or future or conditional verbs such as "will," "would," "should," "could," "may," or similar expressions. Numerex cautions that these forward-looking statements are subject to numerous assumptions, risks and uncertainties, which change over time. These forward-looking statements speak only as of the date of this press release, and Numerex assumes no duty to update forward-looking statements. Actual results could differ materially from those anticipated in these forward-looking statements and future results could differ materially from historical performance.
The following factors, among others, could cause actual results to differ materially from forward-looking statements or historical performance: the risks and uncertainties related to our ability to successfully integrate the operations, products and employees of Omnilink; the effect of the merger on relationships with customers, vendors and lenders; our inability to capture greater recurring subscription revenues; our ability to efficiently utilize cloud computing to expand our services; the risks that a substantial portion of revenues derived from contracts may be terminated at any time; the risks that our strategic suppliers and/ or wireless network operators materially change or disrupt the flow of products or services; variations in quarterly operating results; delays in the development, introduction, integration and marketing of new products and services; customer acceptance of services; economic conditions resulting in decreased demand for our products and services; the risk that our strategic alliances, partnerships and/or wireless network operators will not yield substantial revenues; changes in financial and capital markets and the inability to raise growth capital on favorable terms, if at all; the inability to attain revenue and earnings growth; changes in interest rates; inflation; the introduction, withdrawal, success and timing of business initiatives and strategies; competitive conditions; the inability to realize revenue enhancements; disruption in key supplier relationships and/or related services; and extent and timing of technological changes.
© 2014 Numerex Corp. All rights reserved. Numerex, the Numerex logo and all other marks contained herein are trademarks of Numerex Corp. and/or Numerex-affiliated companies. All other marks contained herein are the property of their respective owners.
| NUMEREX CORP. AND SUBSIDIARIES | ||||
| UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS | ||||
| (In thousands, except per share data) | ||||
|
Three Months Ended September 30, |
Nine Months Ended September 30, |
|||
| 2014 | 2013 | 2014 | 2013 | |
| Net sales: | ||||
| Subscription and support revenues | $ 17,429 | $ 13,482 | $ 47,530 | $ 37,932 |
| Embedded devices and hardware | 8,234 | 8,469 | 21,483 | 17,727 |
| Total net sales | 25,663 | 21,951 | 69,013 | 55,659 |
| Cost of sales, exclusive of a portion of depreciation and amortization shown below: | ||||
| Subscription and support revenues | 7,011 | 5,622 | 18,647 | 16,531 |
| Embedded devices and hardware | 7,365 | 7,348 | 18,517 | 16,575 |
| Gross profit | 11,287 | 8,981 | 31,849 | 22,553 |
| Gross margin | 44.0% | 40.9% | 46.1% | 40.5% |
| Operating expenses: | ||||
| Sales and marketing | 3,029 | 2,636 | 9,066 | 6,907 |
| General and administrative | 3,429 | 3,174 | 11,207 | 9,828 |
| Engineering and development | 2,430 | 1,317 | 5,794 | 3,626 |
| Depreciation and amortization | 1,597 | 1,209 | 4,570 | 3,485 |
| Operating (loss) income | 802 | 645 | 1,212 | (1,293) |
| Interest expense | 278 | 75 | 564 | 220 |
| Other (income) expense, net | (97) | 30 | (1,272) | 25 |
| Income (loss) from continuing operations before income taxes | 621 | 540 | 1,920 | (1,538) |
| Income tax expense (benefit) | 358 | (35) | 283 | (2,549) |
| Income from continuing operations, net of income taxes | 263 | 575 | 1,637 | 1,011 |
| Loss from discontinued operations, net of income taxes | -- | -- | (492) | (1,437) |
| Net income (loss) | $ 263 | $ 583 | $ 1,145 | $ (426) |
| Basic earnings per share: | ||||
| Income from continuing operations | $ 0.01 | $ 0.03 | $ 0.09 | $ 0.06 |
| Loss from discontinued operations | 0.00 | 0.00 | (0.03) | (0.08) |
| Net income (loss) | $ 0.01 | $ 0.03 | $ 0.06 | $ (0.02) |
| Diluted earnings per share: | ||||
| Income from continuing operations | $ 0.01 | $ 0.03 | $ 0.09 | $ 0.05 |
| Loss from discontinued operations | 0.00 | 0.00 | (0.03) | (0.07) |
| Net income (loss) | $ 0.01 | $ 0.03 | $ 0.05 | $ (0.02) |
| Weighted average shares outstanding used in computing earnings per share: | ||||
| Basic | 18,956 | 18,565 | 18,900 | 18,193 |
| Diluted | 19,263 | 19,014 | 19,253 | 18,746 |
| NUMEREX CORP. AND SUBSIDIARIES | ||
| UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS | ||
| (In thousands) | ||
|
September 30, 2014 |
December 31, 2013 |
|
| ASSETS | ||
| CURRENT ASSETS | ||
| Cash and cash equivalents | $ 16,357 | $ 25,603 |
| Accounts receivable, less allowance for doubtful accounts of $1,495 and $674 | 13,018 | 9,385 |
| Financing receivables, current | 1,568 | 1,223 |
| Inventory, net of reserve for obsolescence | 8,250 | 8,315 |
| Prepaid expenses and other current assets | 1,704 | 1,833 |
| Deferred tax assets, current | 2,742 | 2,742 |
| Assets of discontinued operations | -- | 840 |
| TOTAL CURRENT ASSETS | 43,639 | 49,941 |
| Financing receivables, less current portion | 3,133 | 3,029 |
| Property and equipment, net of accumulated depreciation and amortization of $3,257 and $1,879 | 4,503 | 3,125 |
| Software, net of accumulated amortization of $5,696 and $3,706 | 6,255 | 6,381 |
| Other intangibles, net of accumulated amortization of $14,623 and $13,189 | 19,518 | 5,617 |
| Goodwill | 48,340 | 26,941 |
| Deferred tax assets, less current portion | 2,596 | 3,958 |
| Other assets | 2,210 | 2,298 |
| TOTAL ASSETS | $ 130,194 | $ 101,290 |
| LIABILITIES AND SHAREHOLDERS' EQUITY | ||
| CURRENT LIABILITIES | ||
| Accounts payable | $ 11,531 | $ 9,953 |
| Accrued expenses and other current liabilities | 2,872 | 2,004 |
| Deferred revenues | 1,993 | 1,894 |
| Current portion of long-term debt | 3,758 | 633 |
| Obligations under capital leases | 233 | 306 |
| Liabilities of discontinued operations | -- | 207 |
| TOTAL CURRENT LIABILITIES | 20,387 | 14,997 |
| Long-term debt, less current portion | 20,625 | 475 |
| Obligations under capital lease, less current portion | -- | 148 |
| Other liabilities | 1,590 | 1,693 |
| TOTAL LIABILITIES | 42,602 | 17,313 |
| COMMITMENTS AND CONTINGENCIES | ||
| SHAREHOLDERS' EQUITY | ||
| Preferred stock, no par value; authorized 3,000; none issued | -- | -- |
| Class A common stock, no par value; 30,000 authorized; 20,269 and 20,069 issued; 18,969 and 18,828 outstanding | -- | -- |
| Class B common stock, no par value; authorized 5,000; none issued | -- | -- |
| Additional paid-in capital | 98,371 | 95,777 |
| Treasury stock, at cost, 1,300 and 1,241 shares | (5,352) | (5,238) |
| Accumulated other comprehensive loss | (34) | (24) |
| Accumulated deficit | (5,393) | (6,538) |
| TOTAL SHAREHOLDERS' EQUITY | 87,592 | 83,977 |
| TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | $ 130,194 | $ 101,290 |
NUMEREX CORP AND SUBSIDIARIES
NON-GAAP (ADJUSTED) FINANCIAL MEASURES
In addition to providing financial measurements based on accounting principles generally accepted in the United States of America (GAAP), we have provided EBITDA, Adjusted EBITDA and Adjusted EBITDA per diluted share, financial measures that are not prepared in accordance with GAAP (non-GAAP). The most directly comparable GAAP equivalent to EBITDA and Adjusted EBITDA is income from continuing operations, net of income taxes. The most directly comparable GAAP equivalent to EBITDA and Adjusted EBITDA per diluted share is diluted earnings per share from continuing operations.
- EBITDA is income from continuing operations, net of income taxes, plus depreciation and amortization, interest and other non-operating expenses and income tax expense. Any other non-operating income, net of income taxes is subtracted from income from continuing operations, net of income taxes.
- Adjusted EBITDA is EBITDA less non-cash equity-based compensation and infrequent or unusual items further described below.
- EBITDA and Adjusted EBITDA per diluted share is EBITDA and Adjusted EBITDA divided by weighted average diluted shares outstanding.
Reconciliations of our non-GAAP financial measures to the most directly comparable financial measure are provided below. We believe that presentation of these non-GAAP financial measures provides useful information to investors regarding our results of operations.
We believe that excluding depreciation and amortization of property, equipment and intangible assets to calculate EBITDA and Adjusted EBITDA provides supplemental information and an alternative presentation that is useful to investors' understanding of our core operating results and trends. Not only are depreciation and amortization expenses based on historical costs of assets that may have little bearing on present or future replacement costs, but also they are based on our estimates of remaining useful lives.
Similarly, we believe that excluding the effects of equity-based compensation from non-GAAP financial measures provides supplemental information and an alternative presentation useful to investors' understanding of our core operating results and trends. Investors have indicated that they consider financial measures of our results of operations excluding equity-based compensation as important supplemental information useful to their understanding of our historical results and estimating our future results.
We also believe that, in excluding the effects of equity-based compensation, our non-GAAP financial measures provide investors with transparency into what management uses to measure and forecast our results of operations, to compare on a consistent basis our results of operations for the current period to that of prior periods and to compare our results of operations on a more consistent basis against that of other companies, in making financial and operating decisions and to establish certain management compensation.
Equity-based compensation is an important part of total compensation, especially from the perspective of employees. We believe, however, that supplementing GAAP income from continuing operations by providing income from continuing operations, excluding the effect of equity-based compensation in all periods, is useful to investors because it enables additional and more meaningful period-to-period comparisons.
Adjusted EBITDA also excludes infrequent or unusual items. For the three and nine month periods ended September 30, 2014, infrequent or unusual items include acquisition related costs while the three and nine months ended September 30, 2013 include temporarily higher carrier fees and acquisition-related costs. We believe that these are costs that we will not incur on a regular basis, and consequently, we do not consider these charges as a component of ongoing operations.
EBITDA and Adjusted EBITDA are not measures of liquidity calculated in accordance with GAAP, and should be viewed as a supplement to – not a substitute for – results of operations presented on the basis of GAAP. EBITDA and Adjusted EBITDA do not purport to represent cash flow provided by operating activities as defined by GAAP. Furthermore, EBITDA and Adjusted EBITDA are not necessarily comparable to similarly-titled measures reported by other companies.
We believe EBITDA, Adjusted EBITDA and Adjusted EBITDA per diluted share are useful to and used by investors and other users of the financial statements in evaluating our operating performance because it provides them with an additional tool to compare business performance across periods.
We believe that:
- EBITDA is widely used by investors to measure a company's operating performance without regard to items such as interest expense, income taxes, depreciation and amortization, which can vary substantially from company-to-company depending upon accounting methods and book value of assets, capital structure and the method by which assets were acquired; and
- Investors commonly adjust EBITDA information to eliminate the effect of equity-based compensation and other unusual or infrequently occurring items which vary widely from company-to-company and impair comparability.
We use EBITDA, Adjusted EBITDA and Adjusted EBITDA per diluted share:
- as a measure of operating performance to assist in comparing performance from period-to-period on a consistent basis
- as a measure for planning and forecasting overall expectations and for evaluating actual results against such expectations; and
- in communications with the board of directors, analysts and investors concerning our financial performance.
Adjusted EBITDA is also a component of our loan covenant calculations. Although we believe, for the foregoing reasons, that the presentation of non-GAAP financial measures provides useful supplemental information to investors regarding our results of operations, the non-GAAP financial measures should only be considered in addition to, and not as a substitute for, or superior to, any measure of financial performance prepared in accordance with GAAP.
Use of non-GAAP financial measures is subject to inherent limitations because they do not include all the expenses that must be included under GAAP and because they involve the exercise of judgment of which charges should properly be excluded from the non-GAAP financial measure. Management accounts for these limitations by not relying exclusively on non-GAAP financial measures, but only using such information to supplement GAAP financial measures. The non-GAAP financial measures may not be the same non-GAAP measures, and may not be calculated in the same manner, as those used by other companies.
NUMEREX CORP. AND SUBSIDIARIES
RECONCILIATION OF INCOME FROM CONTINUING OPERATIONS, NET OF INCOME
TAXES, TO EBITDA AND ADJUSTED EBITDA, INCLUDING PER SHARE AMOUNTS
The following table reconciles the specific items excluded from GAAP in the calculation of EBITDA and Adjusted EBITDA for the periods indicated below (in thousands, except per share amounts):
|
Three Months Ended September 30, |
Nine Months Ended September 30, |
|||
| 2014 | 2013 | 2014 | 2013 | |
| Income from continuing operations, net of income taxes (GAAP) | $ 263 | $ 575 | $ 1,637 | $ 1,011 |
| Depreciation and amortization expense | 1,789 | 1,280 | 4,969 | 3,716 |
| Interest expense and other non-operating (income) expense, net | 181 | 105 | (708) | 245 |
| Income tax expense (benefit) | 358 | (35) | 283 | (2,549) |
| EBITDA (non-GAAP) | 2,591 | 1,925 | 6,181 | 2,423 |
| Equity-based compensation expense | 694 | 589 | 1,833 | 1,323 |
| Infrequent or unusual items | 41 | -- | 1,064 | 1,775 |
| Adjusted EBITDA (non-GAAP) | $ 3,326 | $ 2,514 | $ 9,078 | $ 5,521 |
| Income from continuing operations, net of income taxes, per diluted share (GAAP) | $ 0.01 | $ 0.03 | $ 0.09 | $ 0.05 |
| EBITDA per diluted share (non-GAAP) | 0.13 | 0.10 | 0.32 | 0.13 |
| Adjusted EBITDA per diluted share (non-GAAP) | 0.17 | 0.13 | 0.47 | 0.29 |
| Weighted average shares outstanding used in computing diluted earnings per share | 19,263 | 19,014 | 19,253 | 18,746 |
For the three and nine month periods ended September 30, 2014, infrequent or unusual items include merger related costs while the nine months ended September 30, 2013 include temporarily higher carrier fees, professional services fees incurred in response to and in remediation of internal control weaknesses, merger-related expenses, costs related to the realignment of our executive team and asset write-downs.