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  • Eggplant101 Eggplant101 Aug 27, 2008 11:03 PM Flag

    Some Thoughts on NMRX

    Michael_in_Atlanta, thanks for your thoughtful response. Here's mine to yours:

    1)How are you able to label 2Q08 results "a pretty good quarterly report"? By what measure? Revenue decline? Cash deterioration? Bear in mind, the pre-tax loss for NMRX in 2Q08 was the worst performance in the last 6 quarters. Only the reported tax (benefit) rate of 67.5% allowed them to report a decline in net loss from the preceding quarter.

    2)There is no information available from any source, including the conference call, that suggests one significant customer, or one category of customer caused 50,000 lost connections for the qtr thus implying 87,000 new connections for the period. I believe M2mbeliever's message is speculation, and is not based on available data. The company has released no quantitative data that supports this conclusion. Of course, they should.

    3) Yes, on the conf call mgt indicated that there was legal expense during the qtr that they imply exceeded $400k. If so, they should disclose this information in the 10-Q.

    4) I heard a different indication on the conference call: the M2M industry is growing at 30-40%. I do not believe they stated that a specific growth rate for any of their business lines, and overall revenues for NMRX definitely are not growing at 30-40%. Indeed, 2Q08 revenue was up only 14.9% versus 2Q07, and that is inflated by the Orbit One acquisition. They should identify revenue growth realized in 2Q08 excluding Orbit One. But they do not.

    5)Cash: I don't believe that current ratio is meaningful here. They are burning cash - the bills won't get paid by mailing vendors and creditors inventory or receivables. Cash has declined during each of the last 6 consecutive quarters. That is not sustainable: either it must be reversed or the company must raise more capital. You indicated that NMRX will be cutting overhead in the coming quarters. I am not aware of any source to support this statement -- other than the possible cessation of litigation expenses.

    Finally, I think that the USTRANSCOM announcement represents an opportunity for NMRX to spend more of its precious cash trying to develop a new customer. Granted, there is real potential here, but I suspect the probability for success is not high, and, at best, it will be many years before any visible revenue appears. It would take even longer to determine whether any new revenue is even profitable.

    I think that NMRX still offers potential in an interesting and important developing market. But I think that NMRX has been very disappointing during the past year and a half, and its almost past show me time. How much longer before they start to show real, sustainable revenue growth, and cash generation?

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    • Continuing this interesting dialog, I listened again to the conference call with your comments in mind.

      1) Correct, I missed the tax credit offsetting what would have been a loss for the quarter of about $0.05.

      2) Toward the end of the call, SN said that the analog vendor who went out of business cost "substantially in excess" of 15,000 connections. I got a larger estimate from an unofficial source.

      3) Whether, according to accepted accounting guidelines, this figure should have been disclosed in the 10-Q, instead of being lumped in with the Admin Expense of Orbit One I can't say. However, in the conf call SN did say that the $450,000 loss in Orbit One was composed largely of the legal fees.

      4) From my summary of the year-end conference call (see my message of March 3):

      "PROJECTED SALES GROWTH: 30-40% for 08 - projecting $82-$88m. Service revenue is increasing faster than hardware (mainly ActiveKey). Margins will remain relatively stable. Cost of Sarbanes-Oxley should be down 40% this year.... The G&A run rate of Q4 will hold through 08. The $10m note is amortizing, so interest expense will drop."

      In the current conf call SN said that the growth rate projected at the beginning of the year included Orbit One, and that service growth so far was equal to or greater than they predicted.

      5) Certainly, even though significant cash has been used in incorporating AirDesk and Orbit One into the business, at some point cash flow must turn positive. At what dollar amount available cash-on-hand becomes a critical issue for this company I have no idea.

      If the USTRANSCOM tests are under way,the system must be pretty well developed already. Here's a clip from the USTRANSCOM web site:
      "Today, the U.S. government uses active Radio Frequency Identification Device (RFID) tags tied to a RFID interrogator infrastructure to track sustainment cargo, such as repair parts, food and water from Defense Logistics Agency depots and other supply points through air and sea ports. Once the assets leave the RFID infrastructure, the ability to locate and track the assets is lost. Numerex's SX1 uses reliable satellite technology to provide location visibility from origin to forward operating areas, giving logistics coordinators the ability to monitor and manage assets throughout the entire distribution process."

      Considering the volume of military shipments around the world, I expect tracking at least some of these with the reusable Orbit One GPS units will represent a considerable source of recurring revenue.

      Finally, growth has not been as fast as I would have liked either. However, I am still hanging in there because, considering everything and not just the bottom line, I believe we continue to move in the right direction.

      • 1 Reply to michael_in_atlanta
      • Very well said. I listened to the call and spoken with managemnent. I believe they will show increasing cash this quarter and definitely in Q4. They are managing the business now to no longer burn cash at all. They have been EBITDA positive and were consciously building inventory for the analog to digital conversion. Cheap hardware sales are behind us. Quarters should be profitable from here on out. There business (network connections) remains strong and is growing in excess of 10% sequentially and well in excess of 30% year over year. They have built a business. It took a while for sure, but now is the payoff phase. I believe they will tell a very good story in NY this week. There are a lot more eyeballs looking now due to Singular's research report.

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