Numerex results hit by managed-services investments

M2M player Numerex swung to a net loss of for the three months ending June, owing mainly to impairment charges on discontinued operations, but said it will continue to focus on developing managed services for the asset tracking and security markets, with revenues and subscriptions growing at a healthy clip.

Like various M2M hardware rivals, Numerex (Atlanta, GA, USA) is aiming to grow subscription-based revenues from the sale of managed services – a move that has prompted the company to close some of its legacy operations.

M2M player Numerex swung to a net loss of for the three months ending June, owing mainly to impairment charges on discontinued operations, but said it will continue to focus on developing managed services for the asset tracking and security markets, with revenues and subscriptions growing at a healthy clip.

Like various M2M hardware rivals, Numerex (Atlanta, GA, USA) is aiming to grow subscription-based revenues from the sale of managed services – a move that has prompted the company to close some of its legacy operations.

Booking a $900,000 impairment charge for the second quarter, and a $600,000 asset write-down, it swung to a net loss of $1.01 million from a profit of $697,000 in the same period last year.

Nevertheless, the company reported a net profit from continuing operations of $412,000, compared with one of 572,000 in 2012, due largely to strategic investments aimed at bolstering its portfolio of network services and data analytics offerings.

“This dramatic increase in activity, combined with upfront costs of ramping up our managed services programs, impacted margins and increased our expenses by approximately $700,000 year-to-date, most of which was incurred during the second quarter,” said Stratton Nicolaides, the chief executive of Numerex. “Additionally, during the year we capitalized an incremental $900,000 associated with these initiatives.”

Investments appear to be feeding into top-line growth, with revenues up by 9.4%, to $17.27 million.

Sales development also reflects the reorientation of the business, with subscription revenues up by 20.4%, to $12.54 million, but revenues from the embedded devices and hardware units falling by 11.9%, to $4.73 million.

However, Numerex blamed the hardware shortfall on delays to the launch of new products and said the decline would “reverse significantly” in the subsequent quarter.

Numerex also said that subscriptions had grown by 33%, to 2.2 million, between June 2012 and June 2013, in line with full-year subscription growth guidance of between 30% and 35%.

It also confirmed subscription revenue growth rate guidance for the full year of between 18% and 23% but said the margin on adjusted earnings before interest, taxation, depreciation and amortization would fall to between 10% and 12%, compared with a previous forecast of between 13% and 15%.

“The change is primarily attributable to higher-than-anticipated ramp-up costs associated with product launches expected to happen in the second half of the year,” said chief financial officer Richard Flynt.

Asked during a conference call with analysts when Numerex would start to show significant operating cash flow and profitability, Nicolaides said the investments in managed services programs would start to have a meaningful impact as early as the first quarter of 2014.