NUMEREX CORP -CL A NMRX
September 07, 2015 - 10:54am EST by
coalone
2015 2016
Price: 8.82 EPS 0 0
Shares Out. (in M): 19 P/E 0 0
Market Cap (in $M): 168 P/FCF 0 0
Net Debt (in $M): 7 EBIT 0 0
TEV ($): 175 TEV/EBIT 0 0

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Description

 
Overview
 
Numerex (NRMX) was founded in 1992 and through a series of acquisitions, divestitures and foresight
has morphed into a leading provider of on-demand and interactive machine-to-machine enterprise
solutions, referred to as “M2M”. An M2M solution is generally viewed as a combination of devices,
software and services that operate with little or no human interaction. It consists of using a device (D)
(e.g., sensor, meter etc.) to capture “event” data (e.g., inventory level, location, environmental status,
etc.) relaying the data through a network (N) (e.g., wireless, wired or hybrid) to an application (A)
(software program), which translates the captured data into actionable information (e.g., there is a
breach, vending machine needs to be restocked, pipe is corroded, lost vehicle is located, tank level is too
low, etc.). This combination is referred to as Numerex DNA.
 
Numerex’s business model is based upon a subscription-based platform of services that generate stream
of long-term, high-margin recurring revenues. In a rapidly changing business environment visibility and
real-time access to information with the ability to manage networks, devices and applications from a
single source can have a significant impact on business processes and contribute to improved
operational efficiencies. Numerex’s broad horizontal platform was designed with this is mind. Gartner
estimates Numerex’s total-addressable-market to be ~$26B by 2020 a mere five years from now. And
with significant barriers to entry, Numerex has a head-start to participate in this growth.
 
+8,000 commercial customers; +2MM subscriptions
108 patents issued and 87 patents pending
Over 50 verticals served
+20 years of sector experience
+200 countries supported
$4MM in cost cuts
Managed services with higher ARPU’s
Potential for bigger deals in 2015 which will lead to increased visibility in 2016
 
Industries and Customers
 
Transportation and telematics…Audiovox
Manufacturing and distribution…John Deere
Energy and utilities…British Petroleum
Home Automation…United Technologies
Public Safety & Emergency Response…FEMA
Healthcare…Reliant Heart
 
 
 
 
 
 
Catalyst
 
On August 11, 2015 Numerex announced they hired Marc Zionts as CEO succeeding the much and
rightfully so maligned Stratton J. Nicolaides. Thankfully, Zionts’ resume reads like a classic “fix and sell”
novel.
 
Led six companies since 1987, five of which were acquired and one IPO
Most recently, Marc was the President and CEO of Aicent (owned by TA Associates) that was
acquired by Syniverse
Prior to Aicent, Marc was VP at Allot Communications, he joined Allot after they acquired Ortiva
Wireless, where he was President and CEO from January 2008
 
Please note this change did not come willingly or through the board’s own wisdom (average tenure on
the Numerex board is 7.3 years). Vertex Capital, a well-respected small-cap activist and 6.4%
shareholder publicly demanded a strategic review, to retain a financial adviser and to “be mindful of
strategic opportunities to maximize shareholder value, particularly in light of the significant
consolidation occurring in the industry in which Numerex operates.” Hopefully, Zionts’ stints as CEO at
multiple companies that were ultimately acquired will mitigate the disappointment of an outright sales
process.
 
In the short term, Zionts won’t be able to pull off a miracle, but a Hail Mary is not needed for Numerex
to succeed. His leadership and experience are what a lost growth company needs.
 
Valuation
 
Coincidentally, with the announcement of the CEO change, Numerex pulled their guidance and has
promised to update investors in the near future. That being said, given the anemic results in C1H15, the
annual guidance will more than likely be lowered from the previous of $100MM and $0.75 in EPS.
 
NMRX 2014A
 
Revenue
93.9
Growth
20.2%
Operating margin
4.2%
EPS: Q1
0.14
EPS: Q2
0.16
EPS: Q3
0.17
EPS: Q4
0.19
EPS: Year
0.66
Growth
43.2%
 
Overall, NMRX will eventually return to a run rate of +$125MM of high margin, recurring revenue with
EPS power north of $1.00 which should warrant a +15 EPS multiple and a valuation well north of $15 a
share and/or an equity valuation of +$300MM.
 

 

I do not hold a position with the issuer such as employment, directorship, or consultancy.
I and/or others I advise do not hold a material investment in the issuer's securities.

Catalyst

New CEO who brings fixing and selling experience

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