Numerex Reports Fourth Quarter and Full Year 2008 Results
leading provider of full service, highly secure Machine-to-Machine (M2M)
network services and solutions announces its financial results for the fourth
quarter and full year ended
Key highlights of Numerex's financial performance are as follows:
-- Revenues: For the full year of 2008, revenues grew to $72.3 million
from $68 million in 2007. Wireless service revenues grew by 23%, more
than offsetting the decline in hardware revenues of 3.5%.
-- The anticipated lower hardware sales were due to the completion of
the analog to digital transition in the commercial and residential
security market coupled with reduced demand for wireless modules
from M2M customers adjusting to the macroeconomic slowdown and lack
of liquidity.
-- Gross Margin: Fourth quarter and full year margins of 2008 were 39.8%
and 35.1% respectively compared to 35.1% and 34.4% for the same periods
in 2007.
-- The increase in wireless service revenues drove an overall margin
improvement since service revenues have a significantly higher
gross margin than the ones achieved through the sale of hardware.
-- Operating expense: Excluding impairments, operating expenses were $7.7
million for the fourth quarter of 2008 and $26.5 million for the full
year 2008. This compares with $6.2 million and $20.9 million for the
same periods in 2007.
-- The reason for this increase includes the continued investment in
the Company's sales and marketing functions, legal fees associated
with litigation, increased bad debt allowance, additional research
and development expenses as well as higher amortization charges
incurred primarily as the result of the acquisitions of both Orbit
One and Ublip.
-- The Company is tightly controlling costs and in the last several
months has reduced administrative and support expenses. As a result
of this and other cost control actions, general and administrative
expenses, excluding legal litigation fees, were lower in 2008 than
in 2007.
-- In accordance with Financial Accounting Standard No. 123(R) the
Company recorded non-cash stock option compensation costs of
$301,000 and $1,158,000 in the fourth quarter and full year 2008
respectively.
Commenting on these results and the strategic direction of the Company,
fundamentals of our M2M business remain strong and centered on the capture of
long-term recurring service revenue despite these difficult economic times. In
part, as a result of the economic climate and uncertainty in the capital
markets, which we believe will continue into 2009, and after consideration of
other relevant factors, we bolstered our reserves and recorded non-cash
goodwill and intangible write-offs in the fourth quarter. We continue to take
measures that will strengthen our balance sheet and build our cash balances.
We expect that our service revenue and connection base will continue to
reflect solid growth in 2009, building upon our 2008 accomplishments.”
In 2008, we:
-- Strengthened our balance sheet by increasing cash position to $8.9
million, improving Days Sales Outstanding to 50 days, and reducing
accounts receivable and inventory.
-- Transitioned our analog customer base to digital during the year, while
increasing the number of connections on our M2M networks. The total
number of digital connections grew to 701,000 at the end of 2008 from a
base of 285,000 at the beginning of the year, excluding analog
connections.
-- Increased the share of high margin service revenue as a result of our
strategy to de-emphasize hardware only sales. Wireless service revenues
in 2008 were 39.2% of total wireless revenue compared to 33.7% in 2007.
In the fourth quarter of 2008, service revenues were actually slightly
greater than hardware revenues compared to the same period in 2007 when
they were less than 38% of the total revenue.
-- Introduced "Numerex Foundation Application Software Technology" or
Numerex FAST(TM) as a result of the Ublip acquisition. Numerex
customers are now able to take advantage of a resilient and scalable
hosting environment for the rapid creation and support of web-based M2M
applications.
-- Shaped our product and service delivery around Numerex DNA(TM), which
captures our capabilities to provide complete M2M solutions,
efficiently integrating a Device, a Network , and an Application.
-- Reinforced our wireless security product suite through the introduction
of two new products, the FD-1000 module and the ETL certified Uplink
2550, aimed at providing full data communications and reporting
capabilities for both the commercial and residential security sectors.
-- Introduced GPRSXpress(TM), a GSM data transport service that is
optimized for subscribers seeking a simple and efficient data plan for
M2M communications.
-- Launched the NumereXpress(TM) portal, which gives direct web-access to
Numerex's customer support and backend M2M services. This portal
facilitates the device management and network provisioning for our
SMSXpress(TM) and GPRSXpress customers.
-- Received Hazards of Electromagnetic Radiation to Ordnance (HERO)
certification, which, together with successful environmental testing,
clears the way for military procurement of the SX1 satellite tracking
tags.
Including non-cash charges of
for deferred taxes, the Company reported a net loss of
fourth quarter of 2008 and a net loss of
2008. These results compare to net income of
fourth quarter and full year 2007, respectively. Net income for 2008,
excluding stock based compensation expenses, legal fees associated with
litigation, impairment charges and the deferred tax valuation allowance
reversal (“non-GAAP income”) was
million
information is reconciled in the Non-GAAP Condensed Consolidated Statement of
Operations table attached.
The Company conducted its goodwill and long lived asset analysis and
assessment in accordance with the provisions of Statement of Financial
Accounting Standards (SFAS) 142 and Statement of Financial Accounting
Standards (SFAS) 144. In the fourth quarter 2008, the Company recorded an
estimated total pre-tax, non-cash charge of
goodwill and long lived assets primarily attributable to the satellite
division. A smaller portion of the impairment was attributable to the
Company’s broadband solutions business. This non-cash charge has no impact on
the Company’s liquidity or on its future operating performance. After this
impairment, the Company’s goodwill balance will be approximately
million
As a result of the current year’s net loss and its impact on the Company’s
deferred tax asset related to net operating losses (NOL’s), management has
decided that it would be prudent to re-establish a valuation allowance against
the Company’s deferred tax assets. The resulting deferred tax expense is a
non-cash charge and has no impact on the Company’s liquidity or future
operating performance. In subsequent periods income generated by the Company
will contain only minimal tax charges related to certain state taxes until
such time as the valuation allowance related to the deferred tax asset is
released. In addition, until the Company has utilized
carry forwards, cash payments for federal income taxes will also be minimal.
Key balance sheet metrics at December 31, 2008, include:
-- Total cash of $8.9 million compared to $7.4 million at December 31,
2007. This increase was generated organically and achieved despite the
payment of over $4.1 million principal and interest on the Company's
debt.
-- An improvement in Days Sales Outstanding (DSO), which are calculated by
reference to monthly sales, to 50 days from 60 days at the end of 2007.
-- Continued inventory management that yielded a second straight quarterly
decline in total inventory levels. Despite this decrease, inventory
remains elevated and it is believed that there are additional
opportunities for prospective reductions.
Mr. Nicolaides concluded, “Our mission is to bring our customers’ M2M
‘projects to life’, efficiently and reliably. In other words, we enable M2M
projects by providing the appropriate device, wireless network, and software
application, or Numerex DNA, and strip out the complexity associated with an
M2M product launch. In our view, Numerex provides the ideal solution in an
economic environment where customers seek productivity enhancement,
operational efficiencies, and security. In 2009, we will maintain our focus on
key strategic relationships in commercial and residential security, government
and transportation, healthcare, energy and utilities, and financial services.”
Conference Call and Web Cast Information
Numerex will conduct a conference call on
Time
(904) 596-2360 for international. A live web cast of the call will also via
the Numerex web site at http://www.numerex.com, under the Investor Relations
section. A replay of the conference call will also be available via the
Numerex web site beginning two hours after the call.
About Numerex
Numerex Corp. (NASDAQ: NMRX) provides a broad choice of secure machine-to-
machine (M2M) network services and solutions. Numerex delivers a depth of
expertise and excellence through its M2M service platforms that leading
companies choose to power their M2M solutions. Numerex is the first M2M
Company in
information security benchmark that ensures data confidentiality, integrity
and availability. The Company offers its M2M products and services through a
variety of brands including Uplink, Orbit One, and Ublip. Numerex is
headquartered in
http://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 in the
wireless data business. 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: our
inability to reposition our platform to capture greater recurring service
revenues, difficulties associated with integrating Orbit One’s business, the
risks that a substantial portion of Orbit One’s revenues are derived from
government contracts that may be terminated by the government at any time,
variations in quarterly operating results, delays in the development,
introduction, integration and marketing of new wireless services; customer
acceptance of services; economic conditions; changes in financial and capital
markets; the inability to attain revenue and earnings growth in our wireless
data business; changes in interest rates; inflation; the introduction,
withdrawal, success and timing of business initiatives and strategies;
competitive conditions; the inability to realize revenue enhancements; and
extent and timing of technological changes. Numerex SEC reports identify
additional factors that can affect forward-looking statements.
Numerex Corp. Contact:
Alan Catherall
770 485-2527
Investor Relations Contact:
Brett Maas
646 536-7331
Numerex Corp.
Condensed Consolidated Statement of Operations
(In thousands, except per share data)
(Unaudited)
Three Months Ended
December 31,
%
2008 2007 Change Change
Net sales:
Hardware $7,303 $13,835 $ (6,532) -47%
Service 8,159 8,829 (670) -8%
Total net sales 15,462 22,664 (7,202) -32%
Cost of hardware sales 6,631 12,617 (5,986) -47%
37,469 38,491 (1,022) -3%
Cost of services 2,675 2,085 590 28%
Gross Profit 6,156 7,962 (1,806) -23%
39.8% 35.1%
Sales and marketing expenses 2,132 2,247 (115) -5%
General, administrative
and legal expenses 3,361 2,516 845 34%
Research and development expenses 710 455 255 56%
Bad Debt Expense 630 222 408 184%
Depreciation and amortization 818 777 41 5%
Goodwill & long-lived asset
impairment 5,289 - 5,289 nm
Operating earnings (loss) (6,784) 1,745 (8,529) nm
Interest expense (389) (416) 27 nm
Other income (10) 53 (63) nm
Earnings (loss) before tax (7,183) 1,382 (8,565) nm
Provision (benefit) for
income tax 3,468 828 2,640 nm
Net earnings (loss) $(10,651) $554 $(11,205) nm
Basic earnings (loss) per
common share $ (0.75) $0.04
Diluted earnings (loss) per
common share $ (0.75) $0.04
Number of shares used in
per share calculation
Basic 14,160 13,197
Diluted 14,160 13,575
Twelve Months Ended
December 31,
%
2008 2007 Change Change
Net sales:
Hardware $43,048 $43,408 $(360) -1%
Service 29,271 24,596 4,675 19%
Total net sales 72,319 68,004 4,315 6%
Cost of hardware sales 37,469 38,491 (1,022) -3%
Cost of services 9,430 6,106 3,324 54%
Gross Profit 25,420 23,407 2,013 9%
35.1% 34.4%
Sales and marketing
expenses 9,077 7,115 1,962 28%
General, administrative
and legal expenses 11,037 9,205 1,832 20%
Research and development
expenses 2,198 1,459 739 51%
Bad Debt Expense 1,102 635 467 74%
Depreciation and
amortization 3,107 2,493 614 25%
Goodwill & long-lived
asset impairment 5,289 - 5,289 nm
Operating earnings (loss) (6,390) 2,500 (8,890) nm
Interest expense (1,530) (1,365) (165) nm
Other income (8) 33 (41) nm
Earnings (loss) before tax (7,928) 1,168 (9,096) nm
Provision (benefit)
for income tax 3,047 728 2,319 nm
Net earnings (loss) $(10,975) $ 440 $(11,415) nm
Basic earnings (loss)
per common share $(0.78) $ 0.03
Diluted earnings (loss)
per common share $(0.78) $ 0.03
Number of shares used in
per share calculation
Basic 14,144 13,137
Diluted 14,144 13,700
Numerex Corp.
Supplemental Sales Information
(in thousands)
(unaudited)
Three Twelve
Months Ended Months Ended
December 31, December 31,
Net Sales: 2008 2007 Change 2008 2007 Change
Wireless Data
Communications
Hardware $7,099 $13,213 $ (6,114) $40,196 $41,661 $(1,465)
Service 7,121 8,068 (947) 25,952 21,164 4,788
Subtotal 14,220 21,281 (7,061) 66,148 62,825 3,323
Digital Multimedia,
Networking and
Wireline Security
Hardware 203 622 (419) 2,852 1,747 1,105
Service 1,038 761 277 3,319 3,432 (113)
Subtotal 1,241 1,383 (142) 6,171 5,179 991
Total
Hardware 7,302 13,835 (6,533) 43,048 43,408 (360)
Service 8,159 8,829 (670) 29,271 24,596 4,675
Total net sales 15,461 22,664 (7,203) 72,319 68,004 4,315
Numerex Corp.
Condensed Consolidated Statement of Operations
(In thousands, except per share data)
(Unaudited)
Three Months Ended Twelve Months Ended
December 31, 2008 December 31, 2008
GAAP Adjust- Non-GAAP GAAP Adjust- Non-GAAP
Results ments Results Results ments Results
Net sales:
Hardware $7,303 $7,303 $43,048 $43,048
Service 8,159 8,159 29,271 29,271
Total net sales 15,462 15,462 72,319 72,319
Cost of hardware
sales 6,631 6,631 37,469 37,469
Cost of services 2,675 2,675 9,430 9,430
Gross Profit 6,156 - 6,156 25,420 - 25,420
39.8% 39.8% 35.1% 35.1%
Sales and marketing
expenses 2,132 2,132 9,077 9,077
General,
administrative and
legal expenses 3,361 (1,454) 1,907 11,037 (3,170) 7,867
Research and
development expenses 710 710 2,198 2,198
Bad debt expense 630 630 1,102 1,102
Earnings before
interest, depreciation
and amortization (677) 1,454 777 2,006 3,170 5,176
Depreciation and
amortization 818 - 818 3,107 - 3,107
Goodwill & long-lived
asset impairment 5,289 (5,289) - 5,289 (5,289) -
Operating earnings
(loss) (6,784) 6,743 (41) (6,390) 8,459 2,069
Interest expense (389) (389) (1,530) (1,530)
Other income (10) (10) (8) (8)
Earnings (loss)
before tax (7,183) 6,743 (440) (7,928) 8,459 531
Provision (benefit)
for income tax 3,468 (3,468) - 3,047 (3,047) -
Net earnings
(loss) $(10,651) $10,211 $ (440)$ (10,975) $11,506 $531
Basic earnings
(loss) per common
share $(0.75) $(0.03) $(0.78) $ 0.04
Diluted earnings
(loss) per common
share $(0.75) $(0.03) $(0.78) $ 0.04
Number of shares
used in per share
calculation
Basic 14,160 14,160 14,144 14,144
Diluted 14,160 14,160 14,144 14,144
(a) These Unaudited non-GAAP Consolidated Statements of Operations are for
informational purposes only and are not presented in accordance with
GAAP. The adjustments necessary to provide a direct reconciliation of
the non-GAAP to the GAAP basis consolidated Statement of Operations
exclude stock option expense, legal fees associated with litigation,
goodwill and long-lived asset impairment expense as well as the re-
establishment of the full valuation allowance against deferred tax
assets.
Numerex Corp.
Condensed Consolidated Statement of Operations
(In thousands, except per share data)
(Unaudited)
Three Months Ended Twelve Months Ended
December 31, 2007 December 31, 2007
GAAP Adjust- Non-GAAP GAAP Adjust- Non-GAAP
Results ments Results Results ments Results
Net sales:
Hardware $13,835 $13,835 $43,408 $43,408
Service 8,829 8,829 24,596 24,596
Total net sales 22,664 22,664 68,004 68,004
Cost of hardware
sales 12,617 12,617 38,491 38,491
Cost of services 2,085 2,085 6,106 6,106
Gross Profit 7,962 - 7,962 23,407 - 23,407
35.1% 35.1% 34.4% 34.4%
Sales and marketing
expenses 2,247 2,247 7,115 7,115
General,
administrative and
legal expenses 2,516 (286) 2,230 9,205 (941) 8,264
Research and
development expenses 455 455 1,459 1,459
Bad debt expense 222 222 635 635
Earnings before
interest,
depreciation and
amortization 2,522 286 2,808 4,993 941 5,934
Depreciation and
amortization 777 - 777 2,493 - 2,493
Goodwill & long-lived
asset impairment - - - - - -
Operating earnings 1,745 286 2,031 2,500 941 3,441
Interest expense (416) (416) (1,365) (1,365)
Other income 53 53 33 33
Earnings (loss) before
tax 1,382 286 1,668 1,168 941 2,109
Provision (benefit)
for income tax 828 - 828 728 728
Net earnings (loss) $ 554 $286 $ 840 $440 $941 $1,381
Basic earnings (loss)
per common share $0.04 $0.06 $0.03 $0.11
Diluted earnings
(loss) per common
share $0.04 $0.06 $0.03 $0.10
Number of shares used
in per share
calculation
Basic 13,197 13,197 13,137 13,137
Diluted 13,575 13,575 13,700 13,700
(a) These Unaudited non-GAAP Consolidated Statements of Operations are for
informational purposes only and are not presented in accordance with
GAAP. The adjustments necessary to provide a direct reconciliation of
the non-GAAP to the GAAP basis consolidated Statement of Operations
excludes stock option expense.
NUMEREX CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
December 31, December 31,
2008 2007
ASSETS
CURRENT ASSETS
Cash and cash equivalents $8,917 $7,425
Accounts receivable, less allowance for
doubtful accounts of $1,010 at December 31,
2008 and $1,009 at December 31, 2007: 9,159 16,396
Inventory 8,506 10,059
Prepaid expenses and other current assets 1,508 1,885
Deferred tax asset - 770
TOTAL CURRENT ASSETS 28,090 36,535
Property and equipment, net 1,765 2,003
Goodwill, net 23,771 22,603
Other intangibles, net 5,796 6,940
Software, net 2,796 3,486
Other assets - long-term 288 526
Deferred tax asset - long-term - 2,005
TOTAL ASSETS $62,506 $74,098
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $7,291 $10,299
Other current liabilities 2,943 2,311
Note payable 2,568 2,568
Deferred revenues 1,134 1,328
Obligations under capital leases 29 44
TOTAL CURRENT LIABILITIES 13,965 16,550
LONG TERM LIABILITIES
Note payable - net of current portion 7,629 10,197
Obligations under capital leases and other
long-term liabilities 520 486
TOTAL LONG TERM LIABILITIES 8,149 10,683
COMMITMENTS AND CONTINGENCIES - -
SHAREHOLDERS' EQUITY
Preferred stock - no par value; authorized
3,000,000; none issued - -
Class A common stock - no par value,
authorized 30,000,000, issued 15,349,327
shares at December 31, 2008 and 14,706,101
shares at December 31, 2007 50,800 47,455
Class B common stock - no par value;
authorized 5,000,000; none issued - -
Additional paid-in-capital 4,587 3,427
Treasury stock, at cost, 1,185,809 shares on
December 31, 2008 and December 31, 2007 (5,053) (5,053)
Accumulated other comprehensive earnings
(loss) (9) (6)
Retained earnings (deficit) (9,933) 1,042
TOTAL SHAREHOLDERS' EQUITY 40,392 46,865
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $62,506 $74,098
SOURCE Numerex Corp.