Numerex Corp, a leading single source provider of solutions and network services for machine- to-machine (M2M) applications, announced financial results for the third quarter of 2007, reporting a net loss of $217,000 compared to net earnings of $940,000 for the comparable period of 2006. Basic and fully diluted losses per share were $0.02 for the third quarter of 2007 that compares to basic and fully diluted earnings per share of $0.08 and $0.07 respectively for the third quarter of 2006. The net loss for the third quarter of 2007 includes approximately $300,000 related to operating losses and internal charges associated with the recent acquisition of a satellite-based business. For the third quarter of 2007, the Company had net earnings of $29,000 on a non-GAAP basis that excludes the impact of stock-based compensation compared to net earnings of $1,167,000 on a non-GAAP basis for the comparable quarter in 2006.
Net revenues in the third quarter of 2007 were $16.0 million compared to $13.3 million reported for the same quarter last year, representing a 20% year-over-year growth and increased 5% from $15.2 million in the second quarter of 2007. Core wireless M2M revenues, which are now almost 93% of total revenues, were $14.8 million compared to $11.3 million for the third quarter of 2006 and $13.8 million for the second quarter of 2007 which represent relative growth rates of 32% and 7% respectively. M2M revenues include sales generated from the Company’s recently acquired satellite-based asset tracking business for August and September. The bulk of satellite-based revenues, as estimated by management for the period August through December, will be recognized in the fourth quarter and will be substantially greater than what was recorded in the third quarter.
Revenue generating highlights since the release of the Company’s second quarter results:
– The commercial release of the Orbit One SX-1 satellite tracking
solution, which operates on Globalstar’s simplex data network and
provides GPS visibility, event monitoring as well as asset tracking and
management. The SX-1 is easy to install, has an extended battery life
with near-global coverage and is expected to operate under the harshest
environmental conditions.
– The immediate availability of FastTrack(TM), a hosted, turn-key, remote
monitoring solution for integrators, enterprise and end users.
FastTrack(TM) brings all the benefits of wireless M2M to virtually any
industry with remote monitoring and control needs such as
transportation, utilities, security, SCADA and agriculture.
FastTrack(TM) provides an alternative to lengthy application and device
development time allowing customers rapid deployment.
During the third quarter of 2007, the Company continued executing its strategy of driving connections to the Numerex M2M networks expecting to increase its long-term recurring service revenues. As a result, the Company altered its pricing model that prioritized long-term service revenue margins over short-term, hardware unit or product sales margins. Gross margins for the third quarter of 2007 were 33.5% compared to 37.3% for the same period in 2006. Record unit sales in the second quarter of 2007 turned the third quarter into a record period for gross network activations. The improvement in this year’s third quarter gross margin, over the 31% recorded in the second quarter, is a result of both unit cost reductions and a greater percentage of network service revenues generated in the quarter that generally yield higher margins. Hardware unit sales improved substantially as a result of marketing and selling strategies deployed last year and earlier this year. In total, across all M2M product lines, sales on a unit basis increased 69% in the third quarter and 68% through nine months over the first nine months of last year. Year-to-date through September, we have sold over 322,000 units compared to 192,000 units for the first nine months of 2006. Also, third quarter wireless M2M network revenue grew 41% over the same period last year and is expected to accelerate in the fourth quarter as the record number of hardware units sold in second and third quarters are connected to our network, in addition to strong satellite-based network service activity. Our strategy of focusing our resources on our M2M network and technology has yielded positive results, as we continue to add customers and network connections.
Operating expenses were $5.3 million for the third quarter of 2007 compared to $3.8 million for the same quarter in 2006 and $4.9 million for the prior sequential quarter. The increase compared to the prior quarter is primarily due to internal acquisition expenses and depreciation and amortization directly attributable to the acquisition of the satellite-based asset tracking business. Without these items, operating expenses would have been slightly lower than those incurred in the second quarter of 2007. Third quarter 2007 non-cash stock option expenses were $246,000 compared to $161,000 in the same period in 2006.
"As we mentioned last quarter, our M2M business continues to evolve with an increasing emphasis on the provision of network services, both cellular and, now, satellite," said Stratton Nicolaides, chairman and CEO of Numerex. "We have invested heavily in our network infrastructure, systems and processes during the year in order to better position the Company to serve the M2M markets globally. We are pleased with the progress this quarter as can be seen by our total M2M revenues that grew by $1 million, compared to the second quarter, with approximately $800,000 of this derived from an increase in network service revenues."
Inventory levels increased from $5.6 million at June 30, 2007 to $8.4 million at the end of September. This increase was largely confined to inventories of satellite tracking and wireless security units in anticipation of future demand. The total accounts receivable balance at September 30, 2007 declined slightly compared to the end of the prior quarter despite the additional customers secured through the acquisition of the Company’s satellite-based asset tracking business. The aggregate dollar amount as well as the percentage of aged receivables over 90 days has declined and the Company believes that it has adequate reserves against doubtful accounts.
Mr. Nicolaides concluded, "We expect a very robust final quarter of the year and, as a result, estimate full year 2007 revenues to range between $66 million to $67 million with annual M2M growth for 2007 exceeding 30%. Our opportunity funnel remains very strong with activity across the board at record levels that we believe bodes well for continued future growth."
