On November 7, 2016, Numerex Corp. (the "Company") issued a press release announcing its financial results for the third quarter ended September 30, 2016. A copy of the press release is furnished herewith as Exhibit 99.1 and is incorporated herein by reference.
The information contained in this Current Report (including Exhibit 99.1) shall not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or otherwise subject to the liability of that section, or incorporated by reference in any filing by the Company under the Exchange Act or the Securities Act of 1933, as amended, whether made before or after the date hereof, regardless of any general incorporation language in such filing, unless expressly incorporated by reference in such filing.
(d) Exhibits
99.1 Press Release, dated November 7, 2016
Numerex Corp |
By: | /s/ Kenneth L. Gayron |
Name: Kenneth L. Gayron | |
Title: Chief Financial Officer |
Exhibit No.
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Description
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EX-99.1
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Press Release, dated November 7, 2016
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Net revenues were $17.4 million in Q3 of 2016 compared to $17.6 million in Q2 of 2016 representing a 1.1% sequential decline, which compares favorably to the 3.9% sequential decline in Q1 of 2016 and 2.5% sequential decline in Q2 of 2016.
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Subscription and Support revenues were $14.4 million in Q3 of 2016, compared to $14.8 million in Q2 of 2016 with the decrease from a decline in network only business from 2G migrations.
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Recurring Revenue as a percentage of Total Revenue of 82.6% in Q3 of 2016 compared to 84.1% in Q2 of 2016, with the small decline due to an increase in Hardware Revenue as a percentage of Total Revenue.
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Gross Margin of 59.5% on Subscription and Support Revenue in Q3 of 2016, compared to 61.4% in Q2 of 2016 due to an increase in lower margin professional services revenue and $80 thousand of one-time costs related to moving a portion of our subscriber base to a new alarm monitoring station and unusual SS7 charges. Excluding the $80 thousand of costs, Gross Margin on Subscription and Support revenue would have been 60.1% in Q3 of 2016.
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Cash operating expenses (non-GAAP), excluding Depreciation and Amortization, non-cash Impairment charges and Restructuring, amounted to $8.7 million in Q3 of 2016 versus $9.6 million in Q2 of 2016. The $0.8 million sequential improvement resulted from a $0.6 million reduction in G&A from planned cost saving initiatives in areas such as facilities and automation of manual processes from Project Green and a $0.2 million decline in R&D expenses from the elimination of one-time knowledge transfer costs that occurred in Q2 of 2016.
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Net loss, including Restructuring of $0.3 million was $2.5 million in Q3 of 2016 compared to a net loss of $8.3 million in Q2 of 2016 which included Restructuring of $1.2 million and a $4.2 million non-cash charge for Impairment of Goodwill and Other Intangibles.
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Adjusted EBITDA (non-GAAP) was $0.9 million in Q3 of 2016 compared to $0.6 million in Q2 of 2016.
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Net revenues were $17.4 million in Q3 of 2016 compared to $23.3 million in Q3 of 2015 with the decline mainly from a $4.7 million reduction in Hardware revenues.
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Subscription and Support revenues were $14.4 million in Q3 of 2016, compared to $15.6 million in Q3 of 2015 with the decline primarily from network only business from 2G migrations.
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Recurring Revenue as a percentage of Total Revenue of 82.6% in Q3 of 2016 compared to 67.0% in Q3 of 2015 with the improvement driven by a larger portion of Subscription and Support revenue in our Total Revenues.
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Gross Margin of 59.5% on Subscription and Support Revenue in Q3 of 2016, compared to 58.2% in Q3 of 2015 due to reduction in lower margin network only service revenues.
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Cash operating expenses (non-GAAP), excluding Depreciation and Amortization, non-cash Impairment charges and Restructuring, amounted to $8.7 million in Q3 of 2016 versus $9.8 million in Q3 of 2015. The $1.1 million improvement resulted from a reduction in G&A expenses from planned cost saving initiatives in areas such as facilities and automation of manual processes from Project Green.
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Net loss, including the Restructuring of $0.3 million was $2.5 million in Q3 of 2016, compared to net loss of $16.4 million in Q3 of 2015 which included $1.3 million of non-cash expenses of Impairment of Goodwill and Other Intangibles and $10.4 million of income tax expense which was non-cash from the establishment of the Company’s valuation allowance.
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Adjusted EBITDA (non-GAAP) was $0.9 million in Q3 of 2016 compared to $1.7 million in Q3 of 2015.
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Three Months Ended
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GAAP Measures
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September 30,
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June 30,
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September 30,
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($ in millions, except per share data)
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2016
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2016
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2015
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Net revenues
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$ | 17.4 | $ | 17.6 | $ | 23.3 | ||||||
Subscription and support revenues
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$ | 14.4 | $ | 14.8 | $ | 15.6 | ||||||
Recurring revenue - subscription and support
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revenues as a percentage of total revenue
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82.6 | % | 84.1 | % | 67.0 | % | ||||||
Gross margin -- subscription and support revenues
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59.5 | % | 61.4 | % | 58.2 | % | ||||||
Net (loss) income
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$ | (2.5 | ) | $ | (8.3 | ) | $ | (16.4 | ) | |||
Basic and diluted (loss) earnings per share
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$ | (0.13 | ) | $ | (0.43 | ) | $ | (0.86 | ) | |||
Non-GAAP Measures*
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Adjusted EBITDA
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$ | 0.9 | $ | 0.6 | $ | 1.7 | ||||||
Adjusted EBITDA as a percent of total revenue
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4.9 | % | 3.6 | % | 7.1 | % | ||||||
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* Refer to the section of this press release entitled "Non-GAAP (Adjusted) Financial Measures" for
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a discussion of these non-GAAP items and a reconciliation to the most comparable GAAP measure.
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Three Months Ended
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September 30,
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June 30,
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September 30,
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2016
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2016
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2015
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Net revenues:
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Subscription and support revenues
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$ | 14,388 | $ | 14,810 | $ | 15,624 | ||||||
Embedded devices and hardware
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3,024 | 2,796 | 7,710 | |||||||||
Total net revenues
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17,412 | 17,606 | 23,334 | |||||||||
Cost of sales, exclusive of a portion of
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depreciation and amortization shown below:
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Subscription and support revenues
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5,828 | 5,713 | 6,538 | |||||||||
Embedded devices and hardware
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3,082 | 2,854 | 6,958 | |||||||||
Provision for inventory reserves
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27 | 460 | 1,277 | |||||||||
Impairment of other asset
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- | - | 1,275 | |||||||||
Gross profit
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8,475 | 8,579 | 7,286 | |||||||||
Operating expenses:
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Sales and marketing
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3,229 | 3,270 | 3,047 | |||||||||
General and administrative
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3,280 | 3,859 | 4,507 | |||||||||
Engineering and development
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2,229 | 2,444 | 2,201 | |||||||||
Depreciation and amortization
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1,658 | 1,677 | 2,100 | |||||||||
Impairment of goodwill and other intangible assets
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- | 4,172 | 1,250 | |||||||||
Restructuring charges
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276 | 1,243 | - | |||||||||
Operating loss
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(2,197 | ) | (8,086 | ) | (5,819 | ) | ||||||
Interest expense
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469 | 460 | 188 | |||||||||
Other income, net
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(33 | ) | (22 | ) | (31 | ) | ||||||
Loss before income taxes
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(2,633 | ) | (8,524 | ) | (5,976 | ) | ||||||
Income tax (benefit) expense
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(87 | ) | (234 | ) | 10,404 | |||||||
Net loss
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$ | (2,546 | ) | $ | (8,290 | ) | $ | (16,380 | ) | |||
Basic and diluted loss per share
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$ | (0.13 | ) | $ | (0.43 | ) | $ | (0.86 | ) | |||
Weighted average shares outstanding used
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in computing basic and diluted loss per share
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19,542 | 19,449 | 19,137 |
September 30,
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December 31,
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2016
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2015
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ASSETS
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CURRENT ASSETS
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Cash and cash equivalents
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$ | 9,824 | $ | 16,237 | ||||
Restricted cash
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221 | - | ||||||
Accounts receivable, less allowance for doubtful accounts of $743 and $618
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9,353 | 9,237 | ||||||
Financing receivables, current
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1,877 | 1,780 | ||||||
Inventory, net of reserve for obsolescence of $2,419 and $2,706
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6,339 | 7,617 | ||||||
Prepaid expenses and other current assets
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1,838 | 1,887 | ||||||
Deferred tax assets, current
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603 | 603 | ||||||
TOTAL CURRENT ASSETS
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30,055 | 37,361 | ||||||
Financing receivables, less current portion
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2,090 | 2,330 | ||||||
Property and equipment, net of accumulated depreciation
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and amortization of $8,476 and $6,632
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6,136 | 4,795 | ||||||
Software, net of accumulated amortization of $12,051 and $9,503
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6,118 | 7,146 | ||||||
Other intangible assets, net of accumulated amortization of $18,476 and $17,183
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12,879 | 15,722 | ||||||
Goodwill
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40,945 | 43,424 | ||||||
Other assets
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849 | 409 | ||||||
TOTAL ASSETS
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$ | 99,072 | $ | 111,187 | ||||
LIABILITIES AND SHAREHOLDERS’ EQUITY
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CURRENT LIABILITIES
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Accounts payable
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$ | 11,572 | $ | 11,390 | ||||
Accrued expenses and other current liabilities
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3,777 | 2,864 | ||||||
Deferred revenues
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1,563 | 1,942 | ||||||
Current portion of long-term debt, net of debt issuance costs
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638 | 3,600 | ||||||
Current obligations under capital lease
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257 | - | ||||||
TOTAL CURRENT LIABILITIES
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17,807 | 19,796 | ||||||
Long-term debt, net of debt issuance costs, less current portion
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15,456 | 15,309 | ||||||
Obligations under capital lease, noncurrent
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980 | - | ||||||
Deferred tax liabilities, noncurrent
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1,416 | 1,595 | ||||||
Other liabilities
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1,528 | 1,891 | ||||||
TOTAL LIABILITIES
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37,187 | 38,591 | ||||||
COMMITMENTS AND CONTINGENCIES
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SHAREHOLDERS’ EQUITY
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Preferred stock, no par value; 3,000 authorized; none issued
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- | - | ||||||
Class A common stock, no par value; 30,000 authorized;
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20,910 and 20,652 issued; 19,583 and 19,177 outstanding
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- | - | ||||||
Class B common stock, no par value; 5,000 authorized; none issued
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- | - | ||||||
Additional paid-in capital
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104,568 | 102,108 | ||||||
Treasury stock, at cost, 1,326 and 1,316 shares
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(5,466 | ) | (5,444 | ) | ||||
Accumulated other comprehensive loss
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(105 | ) | (117 | ) | ||||
Accumulated deficit
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(37,112 | ) | (23,951 | ) | ||||
TOTAL SHAREHOLDERS' EQUITY
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61,885 | 72,596 | ||||||
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
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$ | 99,072 | $ | 111,187 |
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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
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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.
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as a measure of operating performance to assist in comparing performance from period-to-period on a consistent basis
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as a measure for planning and forecasting overall expectations and for evaluating actual results against such expectations; and
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in communications with the board of directors, analysts and investors concerning our financial performance.
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Three Months Ended
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September 30,
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June 30,
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September 30,
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2016
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2016
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2015
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EBITDA and Adjusted EBITDA (non-GAAP) (Unaudited)
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Net loss
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$ | (2,546 | ) | $ | (8,290 | ) | $ | (16,380 | ) | |||
Depreciation and amortization expense
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2,029 | 2,005 | 2,381 | |||||||||
Impairment of goodwill and other intangible assets
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- | 4,172 | - | |||||||||
Interest expense and other non-operating expense, net
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436 | 438 | 157 | |||||||||
Income tax (benefit) expense
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(87 | ) | (234 | ) | 10,404 | |||||||
EBITDA (non-GAAP)
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(168 | ) | (1,909 | ) | (3,438 | ) | ||||||
Equity-based compensation expense
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751 | 830 | 738 | |||||||||
Restructuring, non-cash and other charges
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276 | 1,706 | 4,360 | |||||||||
Adjusted EBITDA (non-GAAP)
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$ | 859 | $ | 627 | $ | 1,660 |