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Numerex Corp. (NMRX) Message Board

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  • Eggplant101 Eggplant101 Mar 1, 2012 5:29 PM Flag

    stock drop

    I finally finished reading the CC transcript. Frankly, Michael_in_atlanta, I was underwhelmed. The CEO has claimed these great opportunities and '50 verticals', and so on, but somehow they never seem to translate into meaningfully higher revenue and earnings. Q4 revenue was flat year over year. So they restate the revenue line labelling it 'recurring revenue' and cite it's strong growth; but 'adjusted earnings' also were flat. I don't get the sense that they are being honest about what's really going on with the company. For example, when asked about car insurance monitoring, there was a bunch of hedging and baloney, but clearly no contracts. Maybe they are just getting the industry's scraps, and that's why they can't show meaningful revenue growth.

    Further, I think the presentation of 'non-GAAP' earnigs to exclude non-cash and non-recurring items is absurd. Somehow D&A isn't a real expense? Of course it is, and the flip side of that is the comparable amount of real cash that they must invest each quarter in CapEx and 'purchase of intangibles and other assets'. On a cash basis, they are a wash. And litigation expense -- gee, they always seem to have litigation expenses. Maybe the way they run the business, litigation really is a recurring cost?

    Finally, the idea of excluding non-cash compensation is disgraceful. Somehow the grant of stock options and SARs isn't a real expense because they are giving shares to management instead of cash? GAAP reporting has it right, and mgt is trying to pull the wool over our eyes. The whole reason FASB instituted Rule #123 was because management lied to their shareholders about the true cost of equity compensation. The actual number: $436,000 in 4Q11 comes to about $0.03 per share. And that's just one quarter. Who are they kidding?

    Their GAAP eps of $0.04 in 4Q11 is their real earnings. I think NMRX has been many years of much promised, and little delivered.

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    • Thanks for your thoughts, Egg. I'm no expert in stock report analysis, so I'll have to do some research before I can reply to your GAAP vs non-GAAP comments.

      That said - you point to one of the inevitable issues with the NMRX model that involves creating a platform and service that VARs can use to develop all sorts of applications in a great variety of industries. If successful, many of these will generate substantial and ever-increasing high-margin subscriber revenue for NMRX -- however, none of these businesses are under NMRX control, so revenue growth is totally depended on how these management teams perform, and, of course, the state of economies here and abroad.

      When the NMRX business model was first changed from creating vertical markets using the Cellemetry network to developing an M2M platform model to be used by others for any application they could dream up, the VARs were mostly small entrepreneurial ventures. Now, however, with M2M catching on, NMRX is partnering with major corporations in different fields, each with large numbers of potential subscribers. However, ramping up of these applications requires lots of time (and probably investment), and even announcements of progress (which might make investors happy) are issued only at the discretion of the VAR.

      I, too, would would like to see faster progress feeding profits down to the bottom line. However, I've been in this stock since about 1997 and consider it a long-term investment that is slowly maturing behind the scenes.

      More later.

    • "Q4 revenue was flat year over year. So they restate the revenue line labelling it 'recurring revenue' and cite it's strong growth; but 'adjusted earnings' also were flat"

      The intention of the company is to focus on recurring revenue rather than hardware sales - I expect the revenues are divided up this way to reflect this focus. They have been doing it this way for a long time.

      "when asked about car insurance monitoring, there was a bunch of hedging..."

      See my comment in my first reply regarding the testing that must be done, and the control on announcements by the VARs.

      "...the presentation of 'non-GAAP' earnings to exclude non-cash and non-recurring items is absurd...."

      Non-GAAP earnings are reported by management to emphasize certain measures of business performance. I agree that these must be viewed in tandem with GAAP earnings to get a true picture of the company.

      Most litigation expenses were as a result of the Orbit One acquisition dispute that was finally settled (I believe that NMRX came out ahead) - note the big drop in legal fees from 2010 to 2011.

      "GAAP reporting has it right, and mgt is trying to pull the wool over our eyes."

      According to what I've read about this issue, Non-GAAP reporting is frequently used by management to emphasize certain aspects of company operations. That's why the SEC requires the reconciliation with GAAP to be reported. An intelligent investor must look at both sets of data to be as fully informed as one can be about what's going on. I would not characterize this as "wool-pulling".

      "Their GAAP eps of $0.04 in 4Q11 is their real earnings."

      True - and their earnings for CY11 was $0.12/share

      "....and little delivered"

      It depends on how you define "little".

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