Key financial results for the third quarter and first nine months of 2006 are as follows:
Three Months Nine Months Ended Ended September 30, September 30, 2006 2005 % Increase 2006 2005 Net Revenues (millions) $13.30 $8.00 66% $38.00 $21.50 Net Income (millions) $ 0.94 $0.41 129% $ 2.30 $ 0.17 Reported EPS $ 0.08 $0.04 100% $ 0.19 $ 0.02 Non-GAAP Income (millions) $ 1.17 $0.41 184% $ 2.87 $ 0.17 Non-GAAP EPS $ 0.09 $0.04 125% $ 0.20 $ 0.02
Net revenues in the third quarter of 2006 were $13.3 million compared to $8.0 million reported for same quarter last year, representing 66 percent year over year growth. Third quarter revenues increased 3.1 percent sequentially from $12.9 million in the second quarter of 2006, which included the full impact of the acquisition of Airdesk announced in January 2006. Total revenues of $13.3 million, exceeded the revenue guidance range for the third quarter of $12.7 million to $13.2 million issued in August earlier this year.
Wireless M2M revenues were $11.3 million compared to $5.6 million for the third quarter of 2005, an increase of over 100%. This growth was primarily attributable to strong contributions from both the Uplink and Airdesk units. For the nine months, recurring service revenues continue to grow and significantly contributed to the Company's performance, reflecting year over year growth of 31 percent. For purposes of calculating organic growth we include a pro-forma calculation of 2005 revenues as if Airdesk was part of Numerex on a full year basis. Consequently, pro-forma growth of our wireless M2M business for the nine-month period M2M revenues increased by 40 percent when compared to first nine months last year.
Our wireless M2M business comprised 87 percent of the Company's total revenues with the balance coming from our digital multimedia and networking business, which turned in a better than expected performance.
Gross margins for the third quarter of 2006 were 37.2 percent compared to 43.0 percent for the comparable period in 2005 and 36.2 percent for the prior sequential quarter. As previously reported, the year over year decrease in gross margins was a result of the Airdesk acquisition producing a higher mix of lower margin product revenues compared to higher margin service revenues. The margin improvement compared to the second quarter of 2006 is partly due to both a proportionally higher mix of wireless service revenues as well as product sales generated by a number of high margin video conferencing units.
Operating expenses were $3.8 million for the current quarter compared to $3.0 million during the third quarter of 2005 and $3.7 million for the second quarter of 2006. Operating expenses are increasing at a slower rate than revenue growth. Operating expenses as a percentage of revenue on a year to date basis declined to 29 percent in 2006 from 41 percent in 2005. In accordance with Financial Accounting Standard No. 123 the Company recorded non-cash stock option compensation costs of $106,000 in the third quarter of 2006.
"The combination of revenue growth, improving gross margins and prudent expense control has had the desired effect of expanding operating margins," said Stratton Nicolaides, Chairman and CEO of Numerex. "Operating margins improved to 8.5 percent in the third quarter of 2006 from 7.5 percent in the prior quarter and 6.1 percent in the comparable quarter of 2005. We were particularly pleased that the Company's M2M business is consistently showing scalability and improved operating leverage. This performance was achieved despite a period of increased investment in our digital platforms and higher marketing costs associated with our recent product launches."
Quarterly Highlights: * Announced the launch of Airdesk Mobile(TM), a complete, single source solution that supports the entire vehicle tracking market -- from personal automotive and fleet security to credit management and asset recovery. * Announced a further expansion of network capabilities and location- based services throughout the US and Canada using Sprint's nationwide network and global positioning system technology. These new capabilities provide precise, real-time tracking for mobile asset and fleet management, package and parcel tracking as well as inventory control. * Reported the voluntary conversion in September 2006 from debt to equity of $1.25 million related to the $5 million Convertible Term Note that was announced in June earlier this year. An additional $1.25 million was converted from debt to equity in October. These conversions, as well as a smaller one that took place in August, have reduced the balance on the Convertible Term Note to $2.3 million. * Reported its sixth consecutive profitable quarter with record wireless M2M revenues compared to prior periods
The Company continued to strengthen its balance sheet by reducing its total debt levels by $2.45 million in the third quarter. This was primarily the result of cash repayments of $1.2 million as well as the voluntary conversion of debt to equity, as noted above. In addition, certain acquisition-related vendor liabilities assumed at the start of the year were retired, which reduced the Company's Accounts Payable balance by $1.2 million to just over $6.5 million at the end of the quarter. The Company's current ratio stood at approximately 2.1:1 at quarter's end, an improvement over both December 31, 2005 as well as June 30, 2006.
Mr. Nicolaides concluded, "We see a strong pipeline that we expect will drive our future growth, and we anticipate a strong finish to the year. We are expecting fourth quarter revenues in the range of $14.0 million to $14.5 million resulting in full year revenues of at least $52 million. Even though our actual wireless growth on a year over year basis far outpaced our wireless growth estimates for the year, we expect that on a pro-forma basis, including Airdesk's 2005 revenues, to perform within the range of 35 to 45 percent as initially estimated."
Conference Call and Web cast Information
About Numerex
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: the failure to realize improvements on our digital multimedia and networking business; variations in quarterly operating results, delays in the development, introduction, integration and marketing of new wireless products and services; customer acceptance of products and 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 BALANCE SHEET (In thousands, except share information) September 30, December 31, 2006 2005 (Unaudited) ASSETS CURRENT ASSETS Cash and cash equivalents $11,979 $2,821 Short-term investments 61 1,538 Accounts receivable, less allowance for doubtful accounts of $824 at September 30, 2006 and $704 at December 31, 2005: 10,359 6,046 Inventory 2,730 1,694 Prepaid expenses and other current assets 1,214 517 TOTAL CURRENT ASSETS 26,343 12,616 Property and Equipment, Net 1,187 986 Goodwill, Net 18,219 15,014 Other Intangibles, Net 6,882 6,268 Software, Net 1,597 1,020 Other Assets 481 444 TOTAL ASSETS $54,709 $36,348 LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $6,530 $ 3,911 Other current liabilities 2,707 2,326 Note payable, current 1,326 490 Deferred revenues 1,808 1,056 Obligations under capital leases, current portion 95 58 TOTAL CURRENT LIABILITIES 12,465 7,841 LONG TERM LIABILITIES Obligations under capital leases and other long term liabilities 113 60 Note Payable 6,595 718 TOTAL LONG TERM LIABILITIES 6,708 778 SHAREHOLDERS' EQUITY Preferred stock - no par value; authorized 3,000,000; none issued - - Class A common stock - no par value; authorized 30,000,000; outstanding 13,980,070 shares at September 30, 2006 and 14,033,877 shares at December 31, 2005 39,274 40,050 Additional paid-in-capital 2,280 1,136 Treasury stock, at cost, 1,185,400 shares on September 30, 2006 and December 31, 2005 (5,053) (10,197) Class B common stock - no par value; authorized 5,000,000; none issued - - Accumulated other comprehensive income (loss) (15) (8) Accumulated deficit (950) (3,252) TOTAL SHAREHOLDERS' EQUITY 35,536 27,729 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $54,709 $36,348 Numerex Corp. Supplemental Sales Information (in thousands) Three Months Nine Months Ended Ended September 30, September 30, 2006 2005 2006 2005 Net sales: Wireless Data Communications Product $7,747 $3,059 $22,850 $7,842 Service 3,527 2,558 10,038 7,637 Sub-total 11,274 5,617 32,888 15,479 Digital Multimedia, Networking and Wireline Security Product 1,008 962 1,776 2,326 Service 1,009 1,430 3,362 3,744 Sub-total 2,017 2,392 5,138 6,070 Total net sales Product 8,755 4,021 24,626 10,168 Service 4,536 3,988 13,400 11,381 Total net sales 13,291 8,009 38,026 21,549 Numerex Corp. Condensed Consolidated Statement of Operations (In thousands, except per share data) (Unaudited) Three Months Nine Months Ended Ended September 30, September 30, 2006 2005 2006 2005 Net sales: Product $8,755 $4,021 $24,626 $10,168 Service 4,536 3,988 13,401 11,382 Total net sales 13,291 8,009 38,027 21,549 Cost of product sales (excluding depreciation) 6,761 2,991 19,651 7,681 Cost of services (excluding depreciation and amortization) 1,541 1,533 4,446 4,335 Depreciation and amortization 38 41 122 132 Gross Profit 4,951 3,444 13,808 9,401 37.2% 43.0% 36.3% 43.6% Selling, general, and administrative expenses 3,051 2,215 8,785 6,468 Research and development expenses 258 278 833 832 Bad debt expense 84 83 164 242 Depreciation and amortization 423 386 1,266 1,291 Operating earnings 1,135 482 2,760 568 Interest income and (expense), net (192) (59) (410) (338) Other income and (expense), net (1) (3) (2) (7) Earnings before income taxes 941 420 2,348 223 Provision for income taxes 1 9 47 52 Net earnings $940 $411 $2,301 $171 Basic earnings per common share $0.08 $0.04 $0.19 $0.02 Diluted earnings per common share $0.07 $0.03 $0.18 $0.01 Number of shares used in per share calculation Basic 12,492 11,528 12,348 11,092 Diluted 13,363 12,023 13,081 11,456 Numerex Corp. Condensed Consolidated Statement of Operations (In thousands, except per share data) (Unaudited) Three Months Ended Six Months Ended September 30, 2006 September 30, 2006 Non- Non- GAAP GAAP GAAP GAAP Results Adjustments Results Results Adjustments Results Net sales: Product $8,755 $8,755 $24,626 $24,626 Service 4,536 4,536 13,401 13,401 Total net sales 13,291 13,291 38,027 38,027 Cost of product sales (excluding depreci- ation) 6,761 6,761 19,651 19,651 Cost of services (excluding depreciation and amor- tization) 1,541 1,541 4,446 4,446 Depreciation and amor- tization 38 38 122 122 Gross Profit 4,951 4,951 13,808 13,808 37.2% 37.2% 36.3% 36.3% Selling, general, and admin- istrative expenses 3,051 (161) 2,890 8,785 (360) 8,425 Research and development expenses 258 258 833 833 Bad debt expense 84 84 164 164 Depreciation and amor- tization 423 423 1,266 1,266 Operating earnings 1,135 161 1,296 2,760 360 3,120 Interest income and (expense), net (192) 66 (126) (410) 203 (207) Other income and (expense), net (1) (1) (2) (2) Earnings before income taxes 941 227 1,168 2,348 563 2,911 Provision for income taxes 1 1 47 47 Net earnings $940 $227 $1,167 $2,301 $563 $2,864 Basic earnings per common share $0.08 $0.09 $0.19 $0.23 Diluted earnings per common share $0.07 $0.09 $0.18 $0.22 Number of shares used in per share calculation Basic 12,492 12,307 12,348 12,275 Diluted 13,363 13,021 13,081 12,944
(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 and the conversion feature associated with debt converted to equity this year.
Numerex Corp.
