Numerex Reports Fourth Quarter and Full Year 2016 Financial Results

ATLANTA, March 16, 2017 (GLOBE NEWSWIRE) — Numerex Corp (NASDAQ:NMRX), a leading provider of managed enterprise solutions enabling the Internet of Things (IoT), today announced financial results for its fourth quarter and year ended December 31, 2016.

“As the new senior management team at Numerex, we moved rapidly in the fourth quarter of 2016 to execute a plan to create a more focused IoT company – delivering on both near-term profitability goals and investments in future growth drivers.  To achieve both objectives, we have and will continue to cut costs to make targeted investments in engineering and sales that will deliver-value added, differentiated products in key verticals.  A more focused, ROI-driven approach to serving the needs of our top customers should position Numerex for industry leading profitability and growth,” commented Ken Gayron, Numerex’s Interim Chief Executive Officer and Chief Financial Officer.   

Q4 of 2016 Comparisons to Q3 of 2016

  • Net revenues in Q4 of 2016 were $17.6 million compared to $17.4 million in Q3 of 2016 with the increase due to a $0.7 million increase in hardware revenues offset by $0.5 million decrease in subscription and support revenue.
  • Subscription and Support revenues were $13.8 million in Q4 of 2016, compared to $14.4 million in Q3 of 2016.
  • Recurring Revenue as a percentage of Total Revenue of 78.7% in Q4 of 2016 compared to 82.6% in Q3 2016.
  • Gross Margin of 58.5% on Subscription and Support Revenue in Q4 2016, compared to 59.5% in Q3 of 2016.
  • Loss from operations, net of income taxes, was $11.2 million in Q4 2016, including $7.8 million of goodwill and other intangible assets impairment, compared to net loss of $2.5 million in Q3 of 2016.
  • Adjusted EBITDA (a non-GAAP measure) in Q4 of 2016 was ($0.1) million compared to $0.9 million in Q3 of 2016. See reconciliation of Adjusted EBITDA and EBITDA to Net Loss below.

Q4 of 2016 Comparisons to Q4 of 2015

  • Net revenues in Q4 of 2016 were $17.6 million compared to $18.8 million in Q4 of 2015 with the decline mainly due to a decrease in Subscription and Support Revenues.
  • Subscription and Support revenues were $13.8 million in Q4 of 2016, compared to $15.5 million in Q4 of 2015.
  • Recurring Revenue as a percentage of Total Revenue of 78.7% in Q4 of 2016 compared to 82.5% in Q4 2015.
  • Gross Margin of 58.5% on Subscription and Support Revenue in Q4 2016, compared to 63.3% in Q4 of 2015.
  • Loss from operations, net of income taxes, was $11.2 million in Q4 2016, including $7.8 million of goodwill and other intangible assets impairment, compared to loss from continuing operations of $2.4 million in Q4 of 2015.
  • Adjusted EBITDA (a non-GAAP measure) in Q4 of 2016 was ($0.1) million compared to $2.0 million in Q4 of 2015.

Fiscal Year 2016 Comparison to Fiscal Year 2015

  • Net revenues in Fiscal Year 2016 were $70.6 million compared to $89.5 million in 2015 with the decline mainly due to a $12.4 million decrease in Hardware revenue.
  • Subscription and Support revenues were $58.0 million in Fiscal Year 2016, compared to $64.4 million in 2015.
  • Recurring Revenue as a percentage of Total Revenue of 82.1% in Fiscal Year 2016 compared to 72.0% in 2015.
  • Gross Margin of 60.4% on Subscription and Support Revenue in Fiscal Year 2016, compared to 60.5% in 2015.
  • Loss from operations, net of income taxes, was $24.3 million in Fiscal Year 2016, including the restructuring charges of $1.8 million and $12.0 million in asset impairments, compared to a net loss of $19.2 million in 2015.
  • Adjusted EBITDA (a non-GAAP measure) was $2.3 million in Fiscal Year 2016 compared to $9.3 million in 2015.

Financial Metrics

                   
   Three  Months Ended     Year Ended 
 GAAP Measures   December 31,     September 30,     December 31,     December 31, 
     2016         2016         2015         2016         2015   
   (Unaudited)     (Unaudited)     (Unaudited)     (Unaudited)     (Unaudited) 
 Subscription and support revenues ($ in millions)  $   13.8     $   14.4     $   15.5     $   58.0     $   64.4  
 Recurring revenue – Subscription and support                   
 revenues as a percentage of total revenue    78.7 %     82.6 %     82.5 %     82.1 %     72.0 %
 Gross margin — subscription and support revenues    58.5 %     59.5 %     63.3 %     60.4 %     60.5 %
 Loss from operations, net of                   
 income taxes  ($ in millions)  $   (11.2 )   $   (2.5 )   $   (2.4 )   $   (24.3 )   $   (19.2 )
 Diluted EPS  $   (0.57 )   $   (0.13 )   $   (0.13 )   $   (1.25 )   $   (1.00 )
                   
 Non-GAAP Measures* (Unaudited)                   
                   
 Adjusted EBITDA ($ in millions)  $   (0.1 )   $   0.9     $   2.0     $   2.3     $   9.3  
 Adjusted EBITDA as a percent of total revenue    -0.4 %     4.9 %     10.5 %     3.2 %     10.4 %
 ______________                   
 * 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.         
                   

Delay in Filing

Numerex Corp. (the “Company”) is unable to file its Annual Report on Form 10-K in a timely manner. The delay is principally due to the need to devote additional time and resources to renegotiating or refinancing the Company’s outstanding senior indebtedness.  Since early February 2017, management had been in active negotiations to refinance the Company’s senior indebtedness.  On March 14, 2017, despite its commitment, the potential lender informed management that it would not fund the loan. 

As of March 17, 2017, the Company will not be in compliance with certain covenants in its current loan agreement, as amended, with Crystal Financial, LLC or as of December 31, 2016, as those covenants currently exist, absent a waiver, amendment or refinancing of such indebtedness. The Company’s management is in discussions with existing and potential financing sources to restructure its senior indebtedness, obtain alternative financing or an additional equity infusion or some combination of these measures.

Absent a waiver, amendment or refinancing of its senior indebtedness prior to filing the Form 10-K, the Company will be required to reclassify its long-term debt as a current liability as of December 31, 2016.

Quarterly Conference Call

Numerex will discuss its quarterly and annual 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 8652 8844. The replay will be available for the next 10 days. 

About Numerex

Numerex Corp. (NASDAQ:NMRX) is a leading provider of managed enterprise solutions enabling the Internet of Things (IoT). The Company’s solutions produce new revenue streams or create operating efficiencies for its customers. Numerex provides its technology and services through its integrated platforms, which are generally sold on a subscription basis. The Company offers a portfolio of managed end-to-end IoT solutions including smart devices, network connectivity and service applications capable of addressing the needs of a wide spectrum of vertical markets and industrial customers. The Company’s mission is to empower enterprise operations with world-class, managed IoT solutions that are simple, innovative, scalable, and secure. 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: 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; our ability to meet financial and operating covenants in or otherwise service our debt, and the extent and timing of technological changes.

© 2017 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
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
                       
    Three Months Ended   Year Ended  
    December 31,   September 30,     December 31,   December 31,  
      2016       2016       2015       2016       2015    
    (Unaudited)   (Unaudited)   (Unaudited)   (Unaudited)   (Unaudited)  
Net revenues:                      
Subscription and support revenues   $   13,836     $   14,388     $   15,497     $   58,019     $   64,371    
Embedded devices and hardware       3,741         3,024         3,288         12,626         25,079    
Total net revenues       17,577         17,412         18,785         70,645         89,450    
Cost of sales, exclusive of a portion of                       
depreciation and amortization shown below:                      
Subscription and support revenues       5,744         5,828         5,682         22,986         25,410    
Embedded devices and hardware       3,977         3,082         3,148         13,004         22,981    
Inventory reserves       27         27         46         541         1,343    
Impairment of other asset       –         –         –         –         1,275    
Gross profit       7,829         8,475         9,909         34,114         38,441    
Operating expenses:                      
Sales and marketing       3,873         3,229         3,310         13,318         12,446    
General and administrative       2,729         3,280         3,690         13,998         15,798    
Engineering and development       2,304         2,229         2,257         9,224         8,952    
Depreciation and amortization       1,549         1,658         1,703         6,540         7,116    
Impairment of goodwill and other intangible assets       7,833         –         1,462         12,005         2,712    
Restructuring charges       312         276         –         1,831         –    
 Operating loss        (10,771 )       (2,197 )       (2,513 )       (22,802 )       (8,583 )  
 Interest expense        502         469         203         1,698         806    
 Loss on extinguishment of debt        –         –         –         290         –    
 Other income, net        (32 )       (33 )       (33 )       (130 )       (134 )  
 Loss from operations before income taxes        (11,241 )       (2,633 )       (2,683 )       (24,660 )       (9,255 )  
 Income tax expense        (83 )       (87 )       (257 )       (340 )       9,902    
 Net loss    $   (11,158 )   $   (2,546 )   $   (2,426 )   $   (24,320 )   $   (19,157 )  
                       
 Basic earnings per share:                       
 Net loss    $   (0.57 )   $   (0.13 )   $   (0.13 )   $   (1.25 )   $   (1.00 )  
                       
 Diluted earnings per share:                       
 Net loss    $   (0.57 )   $   (0.13 )   $   (0.13 )   $   (1.25 )   $   (1.00 )  
                       
 Weighted average shares outstanding used                       
 in computing earnings per share:                       
 Basic        19,601         19,542         19,305         19,493         19,117    
 Diluted        19,601         19,542         19,305         19,493         19,117    
                       

NUMEREX CORP. AND SUBSIDIARIES  
CONSOLIDATED BALANCE SHEETS  
(In thousands)  
(Unaudited)  
  December 31,   December 31,  
    2016       2015    
  (Unaudited)   (Unaudited)  
ASSETS        
CURRENT ASSETS        
Cash and cash equivalents $   9,285     $   16,237    
Restricted cash     221         –     
Accounts receivable, less allowance for doubtful accounts of $767 and $618     9,436         9,237    
Financing receivables, current     1,778         1,780    
Inventory, net of reserve for obsolescence of $2,446 and $2,706     9,011         7,617    
Prepaid expenses and other current assets     1,421         1,887    
Deferred tax assets, current     –          603    
TOTAL CURRENT ASSETS     31,152         37,361    
         
Financing receivables, less current portion     2,227         2,330    
Property and equipment, net of accumulated depreciation         
and amortization of $9,225 and $6,632     6,022         4,795    
Software, net of accumulated amortization of $12,807 and $9,503     6,530         7,146    
Other intangible assets, net of accumulated amortization of $19,185 and $17,184     11,519         15,722    
Goodwill     33,554         43,424    
Deferred tax assets, less current portion     –          –     
Other assets     474         409    
TOTAL ASSETS $   91,478     $   111,187    
         
LIABILITIES AND SHAREHOLDERS’ EQUITY        
CURRENT LIABILITIES        
Accounts payable $   15,894     $   11,390    
Accrued expenses and other current liabilities     3,209         2,864    
Deferred revenues     1,882         1,942    
Current portion of long-term debt     1,275         3,600    
Obligations under capital lease     291         –     
TOTAL CURRENT LIABILITIES     22,551         19,796    
         
Long-term debt, less current portion     14,885         15,309    
Capital lease     797         –     
Deferred tax liabilities, noncurrent     468         1,595    
Other liabilities     1,512         1,891    
TOTAL LIABILITIES     40,213         38,591    
         
COMMITMENTS AND CONTINGENCIES        
         
SHAREHOLDERS’ EQUITY        
Preferred stock, no par value; 3,000 authorized; none issued     –          –     
Class A common stock, no par value; 30,000 authorized;        
20,935 and 20,652 issued; 19,608 and 19,177 outstanding     –          –     
Class B common stock, no par value; 5,000 authorized; none issued     –          –     
Additional paid-in capital     105,112         102,108    
Treasury stock, at cost; 1,327 and 1,316 shares     (5,466 )       (5,444 )  
Accumulated other comprehensive loss     (110 )       (117 )  
Accumulated deficit     (48,271 )       (23,951 )  
TOTAL SHAREHOLDERS’ EQUITY     51,265         72,596    
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $   91,478     $   111,187    
         
* Absent a waiver, amendment or refinancing of its senior indebtedness prior to filing the Form 10-K, the Company will   
 be required to reclassify its long-term debt as a current liability as of December 31, 2016.  
   


NUMEREX CORP AND SUBSIDIARIES
NON-GAAP (ADJUSTED) FINANCIAL MEASURES

Earnings before interest, taxes, depreciation, and amortization expenses (EBITDA) and Adjusted EBITDA, which are presented below, are non-GAAP measures and do not purport to be alternatives to operating income as a measure of operating performance. 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, income tax, and depreciation and amortization expenses, 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.        

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.

Adjusted EBITDA is calculated by excluding the effect of equity-based compensation and non-operational items from the calculation of EBITDA. Management believes that this measure provides additional relevant and useful information to investors and other users of our financial data in evaluating the effectiveness of our operations and underlying business trends in a manner that is consistent with management’s evaluation of business performance.

We believe that excluding depreciation and amortization expenses 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 they are also based on our estimates of remaining useful lives.

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 excludes non-cash and other items including reserve for inventory, restructuring, recruiting fees, costs related to an internal ERP systems integration upgrade, a network systems evaluation study and acquisition related costs. We believe that these costs are unusual costs that we do not expect to recur 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.

NUMEREX CORP. AND SUBSIDIARIES
RECONCILIATION OF NET LOSS 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   Year Ended
  December 31,   September 30,   December 31,   December 31,
    2016       2016       2015       2016       2015  
  (Unaudited)   (Unaudited)   (Unaudited)   (Unaudited)   (Unaudited)
EBITDA and Adjusted EBITDA (non-GAAP) (Unaudited)                  
Net Loss (GAAP) $   (11,158 )   $   (2,546 )   $   (2,426 )   $   (24,320 )   $   (19,157 )
Depreciation and amortization expense     1,960         2,029         2,054         7,958         8,217  
Impairment of goodwill and other assets     7,833         –          1,462         12,005         3,987  
Interest expense and loss on extinguishment of debt, net     470         436         170         1,858         672  
Income tax (benefit) expense     (83 )       (87 )       (257 )       (340 )       9,902  
EBITDA (non-GAAP)     (978 )       (168 )       1,003         (2,840 )       3,621  
Equity-based compensation expense     522         751         354         2,725         2,673  
Non-cash and other items     423         276         608         2,425         3,027  
Adjusted EBITDA (non-GAAP) $   (33 )   $   859     $   1,965     $   2,310     $   9,321  
                   
Loss from operations, net of income                   
taxes, per diluted share (GAAP) $   (0.57 )   $   (0.13 )   $   (0.13 )   $   (1.25 )   $   (1.00 )
                   
Weighted average shares outstanding used in                   
computing diluted per share amounts     19,601         19,542         19,305         19,493         19,117  
             

Adjusted EBITDA excludes non-cash and other items including reserve for inventory, restructuring, recruiting fees, costs related to an internal ERP systems integration upgrade, a network systems evaluation study and acquisition related costs. We believe that these costs are unusual costs that we do not expect to recur on a regular basis, and consequently, we do not consider these charges as a component of ongoing operations.

CONTACT: Numerex Corp. Contact: 
Ken Gayron
770 615-1410

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