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Numerex Reports 2007 Results With Fourth Quarter Pre-Tax Income of $1.4 Million and Record Revenues for the Quarter and Full YearCompany further cements leadership position; sets new standard for data integrity
ATLANTA, Feb. 28 /PRNewswire-FirstCall/ -- Numerex Corp. NASDAQ: NMRX, a leading single source provider of solutions and services for machine-to- machine (M2M) applications, today announced pre-tax income of $1.4 million for the fourth quarter of 2007 and pre-tax income of $1.2 million for the full year of 2007. These results compare to a pre-tax loss of $1.2 million for the fourth quarter of 2006 and pre-tax income of $1.2 million for the full year of 2006. After recording a non-cash tax charge of $828,000 in the fourth quarter of 2007 and a non-cash tax charge of $728,000 for the full year of 2007, net income was $553,000 and $440,000 for the same periods in 2007. The tax benefit recorded in the fourth quarter of 2006 and the full year of 2006 was $3 million and resulted in net income of $1.8 million and $4.1 million for these comparable periods in 2006. The factors resulting in an effective 2007 tax rate of 62% are explained in detail below. Basic and diluted earnings per share for the fourth quarter of 2007 were $0.04. This compares to basic and diluted earnings per share of $0.14 and $0.13 for the fourth quarter of 2006. Basic and diluted earnings per share for 2007 in total were $0.03. This compares to basic and diluted earnings per share of $0.33 and $0.32 respectively for 2006. Net income for the fourth quarter of 2007, excluding stock based compensation expenses and outstanding warrants, ("non-GAAP income") was $836,000 compared to $1.2 million for the same quarter in 2006 using the same non-GAAP income measurement as well as excluding both a goodwill impairment charge and the partial release of the Company's deferred tax valuation allowance. Basic and diluted earnings per share using non-GAAP income would have been $0.06 for the fourth quarter of 2007. All non-GAAP information is reconciled in the Non-GAAP Condensed Consolidated Statement of Operations table attached. Key financial results for the fourth quarter and the full year 2007 compared to the same periods in 2006:
Three Months Ended Twelve Months Ended
December 31, December 31,
2007 2006 2007 2006
Revenues (millions) $22.7 $14.8 $68.0 $52.8
Pre-tax income/(loss)
(millions) $1.4 $(1.2) $1.2 $1.2
Non-GAAP earnings (millions) $0.8 $1.2 $1.4 $4.0
Non-GAAP EPS $0.06 $0.09 $.11 $0.32
Net earnings (millions) $0.55 $1.8 $0.44 $4.1
Net EPS $0.04 $0.14 $0.03 $0.33
"2007 activities emphasized our commitment to the M2M industry and to our customers, whereby we took extraordinary steps to position Numerex for the next phase of its growth and to meet our customers' demands and industry's expectations," said Stratton Nicolaides, chairman and CEO of Numerex. "We are particularly pleased that we met growth expectations and were profitable for the year while we significantly expanded our infrastructure and resources, successfully met the challenges of a major technology transition, introduced innovative new products and services, and worked towards Sarbanes-Oxley compliance and an ISO certification. We believe the challenges we faced in 2007 only served to cement our position as a market leader and partner of choice in the M2M industry. We have highlighted some of the key achievements in 2007:"
-- Posted record revenues for the quarter of $22.7 million, reflecting
year-over-year growth of 53% and sequential growth over third quarter
of 42%.
-- Exceeded full year revenue estimates of $66 to $67 million for the full
year, posting $68 million reflecting 29% top line growth in a full
year-over-year comparison.
-- Increased service revenues by 35% for the full year and 82% for the
fourth quarter year-over-year.
-- Met annual M2M growth targets for 2007, posting an increase for full
year 2007 of 35%.
-- Record hardware sales of over 520,000 wireless units in 2007, which was
an 85% increase over the total shipped in the prior year.
-- In addition at the end of 2007, there were over 450,000 network
connections compared to 320,000 at the end of 2006, reflecting a
connection growth rate of 41%.
-- Launched a successful strategic collaboration with an industry leader
to provide nationwide wireless M2M network and technology services in
support of an innovative solution for the real estate industry.
-- Expanded the Company's suite of M2M products and services with the
acquisition of the assets of Orbit One Communications, Inc, a provider
of satellite M2M hardware and services, primarily to government and the
emergency management services industry.
-- Launched several new products, including;
- FastTrack, a turn key remote monitoring solution that enables
integrators, enterprises and end users that have previously viewed
M2M as too costly or complex for rapid deployment.
- The SX1, a new satellite tracking tag that will provide alert
monitoring and GPS based tracking information to customers around
the globe without the need for cellular networks, external power or
close proximity to an RFID reader.
-- Completed ISO 27001 certification requirements, becoming the first M2M
company in North America to do so, which was announced earlier this
year.
-- Won a number of awards including:
- Being named as one of Georgia's fastest growing technology companies
by Deloitte & Touche
- Two Gold 2007 M2M Value Chain Awards in the Location Based Services
and retail/hospitality categories.
Mr. Nicolaides continued, "We have once again raised the competitive bar in expected performance by an M2M company by significantly improving our network and technology service platforms, particularly our gateway infrastructure and data security. And, along those lines, we are pleased to note that Numerex was granted the prestigious ISO 27001 certification for our M2M infrastructure and network. We are the first North American M2M industry participant to receive this designation which clearly indicates to both our current customers and future prospects that our network services meet or beat industry wide data security standards." Financial Results Net revenues in the fourth quarter of 2007 were $22.7 million compared to $14.8 million reported for same quarter last year, representing 53% year over year growth. For the full year of 2007, revenues grew from $52.8 million to $68 million, exceeding the 2007 revenue guidance which ranged from $66 to $67 million. Revenues increased 42% sequentially from $16 million in the third quarter of 2007 and were partly driven by strong hardware sales and satellite messaging revenues recorded at the end of the calendar year in accordance with generally accepted accounting principals that require recognition of revenue as customer contracts expire. Wireless M2M revenues were $21.3 million compared to $13.4 million for the fourth quarter of 2006 and $14.8 million for the third quarter of 2007. This increase in revenues compared to the same quarter last year is attributable to strong performances across many of the Company's wireless business units. In particular, the wireless modules shipped to an industry leader for their door entry control product used by real estate agents and brokers. These modules were a significant revenue contributor in the fourth quarter of 2007 and will generate recurring network service revenues in successive quarters once the finished product is activated on the Numerex network. In addition, the wireless category also includes the Company's satellite based asset tracking business acquired in July earlier this year which generated revenues of $2.7 million in the fourth quarter of 2007. For the full year, total M2M revenues increased over 35% compared to 2006. Numerex' wireless M2M business comprised 96% of total revenues in the fourth quarter of 2007 as that segment of our business continues to grow strongly. The legacy business units contributed less than 8% of total revenue in 2007 and are managed for cash flow contribution. Gross margins for the fourth quarter and full year of 2007 were 35.1% and 34.4% respectively. These are contrasted with 34.8% and 36.1% for the comparable periods in 2006. Gross margins in the third quarter of 2007 were 33.5%. As previously reported, the relative mix of hardware compared to service revenues drives overall gross margins since these two categories yield distinctly different gross margins. In the fourth quarter of 2007 both categories showed strong growth compared to the prior sequential quarter but the hardware growth rate of 36% was eclipsed by the service growth rate of 52% which led to improved overall gross margins. For the full year of 2007, gross margins slightly declined mainly as a result of changing the pricing model in the wireless security segment to secure network connections and long-term recurring revenues at the expense of short-term hardware margins. This decline is expected to be transitory since hardware cost reductions have already largely mitigated any pricing actions. Operating expenses were $6.2 million for the current quarter compared to $4.2 million during the fourth quarter of 2006 excluding a goodwill impairment charge of $2.1 million. Operating expenses for the current year were $20.9 million compared to $15.3 million in 2006. Several factors led to an increase in annual operating expenses including additional headcount for the core wireless units, overheads as a result of the acquisition of Orbit One, over $1 million of internal and external costs incurred with regard to the first year of Sarbanes-Oxley compliance and additional amortization charges. In addition, in accordance with Financial Accounting Standard No. 123(R) the Company recorded non-cash stock option compensation costs of $283,000 in the fourth quarter of 2007 compared to $159,000 in the same quarter in 2006 and $942,000 for 2007 in total compared to $464,000 for the prior year. As previously reported, in 2006, the Company recorded an income tax benefit as a result of its reversal of a portion of its tax valuation allowance. The Company recorded a tax provision in 2007 that approximated to 62% of pre-tax income. This provision reflects the Company's historic use of incentive stock options (which are expensed for financial reporting purposes, but are generally not tax deductible) and the application of FIN 48 for state income taxes. The effective tax rate excluding these two items would be 35%. To the extent that any of the incentive stock options are exercised after being expensed for financial reporting purposes, there will be a tax benefit in subsequent periods. The Company also anticipates that it generally will stop granting incentive stock options in future periods. In addition, a state income tax audit or settlement may be less than estimates made in accordance with FIN 48 resulting in a reduction of future overall tax charges. The Company does not expect to have to make significant cash payments for income taxes until all net operating loss carry forwards are utilized. Key balance sheet metrics at December 31, 2007 include:
-- Total cash of $7.4 million compared to $10 million at the end of
September 2007 and $20.4 million at December 31, 2006. As anticipated,
cash was used for the acquisition of the satellite tracking unit, the
purchase of additional inventory as well as increased accounts
receivable.
-- Inventory increased substantially during 2007 driven primarily by two
factors. The first is the higher hold levels of wireless security
hardware in preparation for the analog network sunset date in February
2008. Year to date sales in 2008 have already exceeded these hold
levels and additional hardware has been received to meet strong ongoing
demand.
-- Days Sales Outstanding (DSO), which are calculated by reference to
monthly sales, were 60 days, the same as at the end of December 2006.
The Company believes that it has adequate reserves against doubtful
accounts.
Mr. Nicolaides concluded, "As a result of continued strength in our M2M solutions and network services, another strong year is expected and we anticipate M2M revenues will again grow in the range of 30% to 40%, with net revenues in the $84 to $90 million range." Conference Call and Web cast Information - Numerex will conduct a conference call on February 28, 2008 at 11:00 A.M., Eastern Time, accessible by dialing (866) 548-2699 from the U.S. and Canada or (904) 596-2360 for international callers. A live web cast of the call will also be available via the Numerex web site at http://www.nmrx.com under the Investor Relations section. A replay of the conference call will be available via the Numerex web site beginning two hours after the call or by dialing (888) 284-7564 U.S. and Canada or (904) 596-3174 for international. Pass code for the replay is 229980. About Numerex Numerex Corp. NASDAQ: NMRX is a leading single source provider of solutions and network services for machine-to-machine (M2M) applications. Numerex's platforms for asset tracking, intelligent monitoring and security include a portfolio of monitoring devices and technologies, on-demand cellular and satellite networks, and a full suite of back-office support services. Numerex enables customers to bring M2M solutions to market faster and with greater flexibility. The company is headquartered in Atlanta, Georgia. For additional information, visit http://www.nmrx.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.
Investor Relations Contact:
Alan B. Catherall 770 485-2527
Numerex Corp.
Condensed Consolidated Statement of Operations
(In thousands, except per share data)
(Unaudited)
Three Months Ended
December 31,
2007 2006 Change %Change
Net sales:
Hardware $13,835 $9,902 $3,933 40%
Service 8,829 4,858 3,970 82%
Total net sales 22,664 14,761 7,903 54%
Cost of hardware sales 12,617 8,336 4,281 51%
Cost of services 2,085 1,295 790 61%
Gross Profit 7,962 5,130 2,832 55%
35.1% 34.8%
Selling, general, and administrative
expenses 4,763 3,272 1,491 46%
Research and development expenses 455 241 214 89%
Bad Debt Expense 222 37 185 495%
Depreciation and amortization 777 2,646 (1,869) -71%
Operating earnings 1,745 (1,066) 2,811 nm
Interest expense (416) (121) (296) nm
Other income 53 2 51 nm
Earnings (loss) before taxes 1,381 (1,185) 2,566 nm
Provision for income taxes 828 (2,995) 3,823 nm
Net earnings $553 $1,810 ($1,257) -69%
Basic earnings per common share $0.04 $0.14
Diluted earnings per common share $0.04 $0.13
Number of shares used in per share
calculation
Basic 13,197 12,958
Diluted 13,575 13,883
Twelve Months Ended
December 31,
2007 2006 Change %Change
Net sales:
Hardware $43,408 $34,524 $8,884 26%
Service 24,596 18,264 6,332 35%
Total net sales 68,004 52,788 15,216 29%
Cost of hardware sales 38,491 27,967 10,523 38%
Cost of services 6,106 5,750 356 6%
Gross Profit 23,408 19,071 4,337 23%
34.4% 36.1%
Selling, general, and administrative
expenses 16,320 12,089 4,232 35%
Research and development expenses 1,459 1,067 392 37%
Bad Debt Expense 635 198 438 221%
Depreciation and amortization 2,493 4,044 (1,551) -38%
Operating earnings 2,500 1,674 826 49%
Interest expense (1,365) (532) (833) nm
Other income 32 11 22 nm
Earnings (loss) before taxes 1,167 1,153 15 nm
Provision for income taxes 728 (2,950) 3,677 nm
Net earnings $440 $4,103 ($3,663) -89%
Basic earnings per common share $0.03 $0.33
Diluted earnings per common share $0.03 $0.32
Number of shares used in per share
calculation
Basic 13,137 12,502
Diluted 13,700 12,985
Numerex Corp.
Supplemental Sales Information
(in thousands)
Three Months Ended Twelve Months Ended
December 31, December 31,
Net Sales: 2007 2006 Change 2007 2006 Change
Wireless Data
Communications
Hardware $13,213 $9,540 $3,673 $41,661 $32,383 $9,278
Service 8,068 3,896 4,172 21,164 13,938 7,226
Sub-total 21,281 13,436 7,845 62,825 46,321 16,504
Digital Multimedia,
Networking and
Wireline Security
Hardware 623 363 260 1,747 2,141 (394)
Service 761 962 (201) 3,432 4,326 (894)
Sub-total 1,383 1,324 59 5,179 6,467 (1,288)
Total
Hardware 13,835 9,903 3,932 43,408 34,524 8,884
Service 8,829 4,858 3,971 24,596 18,264 6,332
Total net sales 22,664 14,761 7,903 68,004 52,788 15,216
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 23,408 - 23,408
35.1% 35.1% 34.4% 34.4%
Selling, general, and
administrative expenses 4,763 (283) 4,480 16,320 (942) 15,378
Research and development
expenses 455 455 1,459 1,459
Bad debt expense 222 222 635 635
Earnings before income
taxes, depreciation and
amortization 2,521 283 2,804 4,993 942 5,935
Depreciation and
amortization 777 777 2,493 2,493
Operating earnings 1,745 283 2,028 2,500 942 3,442
Interest expense (416) (416) (1,365) (1,365)
Other income 53 53 32 32
Earnings before income
taxes 1,381 283 1,664 1,167 942 2,109
Provision for income
taxes 828 828 728 728
Net earnings $553 $283 $836 $440 $942 $1,382
Basic earnings per common
share $0.04 $0.06 $0.03 $0.11
Diluted earnings 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 exclude stock option
expense.
Numerex Corp.
Condensed Consolidated Statement of Operations
(In thousands, except per share data)
(Unaudited)
Three Months Ended Twelve Months Ended
December 31, 2006 December 31, 2006
GAAP Adjust- Non-GAAP GAAP Adjust- Non-GAAP
Results ments Results Results ments Results
Net sales:
Hardware $9,903 $9,903 $34,524 $34,524
Service 4,858 4,858 18,264 18,264
Total net sales 14,761 14,761 52,788 52,788
Cost of hardware sales 8,336 8,336 27,967 27,967
Cost of services 1,322 1,322 5,899 5,899
Gross Profit 5,103 - 5,103 18,922 - 18,922
34.6% 34.6% 35.8% 35.8%
Selling, general, and
administrative
expenses 3,272 (159) 3,113 12,088 (464) 11,624
Research and
development expenses 241 241 1,067 1,067
Bad debt expense 37 37 198 198
Earnings before income
taxes, depreciation
and amortization 1,553 159 1,712 5,569 464 6,033
Depreciation and
amortization 479 479 1,755 1,755
Goodwill impairment 2,140 (2,140) - 2,140 (2,140) -
Operating earnings
(loss) (1,066) 2,299 1,233 1,674 2,604 4,278
Interest expense (143) 52 (91) (552) 261 (291)
Other expense 24 24 31 31
Earnings (loss) before
income taxes (1,185) 2,351 1,166 1,153 2,865 4,018
Provision for income
taxes (2,995) 2,995 - (2,950) 2,950 -
Net earnings $1,810 ($644) $1,166 $4,103 ($85) $4,018
Basic earnings per
common share $0.14 $0.09 $0.33 $0.32
Diluted earnings per
common share $0.13 $0.08 $0.32 $0.31
Number of shares used
in per share
calculation
Basic 12,958 12,958 12,502 12,502
Diluted 13,883 13,883 12,985 12,985
(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 statements of operations exclude stock option expense, goodwill impairment, the conversion feature associated with debt convert to equity and the provision for income taxes.
NUMEREX CORP.
CONDENSED CONSOLIDATED BALANCE SHEET
(In thousands, except share information)
December 31, December 31,
2007 2006
(unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $7,382 $20,384
Short-term investments 43 -
Accounts receivable, less allowance
for doubtful accounts of $1,282 at
December 31, 2007 and $933 at
December 31, 2006: 16,396 11,844
Inventory 10,059 2,755
Prepaid expenses and other current
assets 1,886 1,677
Deferred tax asset - current 300 1,113
TOTAL CURRENT ASSETS 36,066 37,773
Property and Equipment, Net 2,003 1,287
Goodwill, Net 22,603 15,967
Other Intangibles, Net 6,940 6,734
Software, Net 3,486 1,815
Other Assets 525 747
Deferred tax asset - LT 2,475 2,070
TOTAL ASSETS $74,098 $66,393
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $10,299 $7,651
Other current liabilities 2,367 2,270
Note payable, current 2,568 1,139
Deferred revenues 1,328 715
Obligations under capital leases,
current portion 44 96
TOTAL CURRENT LIABILITIES 16,606 11,871
LONG TERM LIABILITIES
Obligations under capital leases and
other long term liabilities 430 339
Note Payable 10,197 12,763
TOTAL LONG TERM LIABILITIES 10,627 13,102
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
14,706,101 shares at December 31,
2007 and 14,445,234 shares at
December 31, 2006 47,454 43,133
Additional paid-in-capital 3,428 2,486
Treasury stock, at cost, 1,184,900
shares on December 31, 2007 and
December 31, 2006 (5,053) (5,053)
Class B common stock - - no par value;
authorized 5,000,000; none issued - -
Accumulated other comprehensive
income (loss) (6) 2
Accumulated earnings 1,042 852
TOTAL SHAREHOLDERS' EQUITY 46,865 41,420
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $74,098 $66,393
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