Numerex's (NMRX) CEO Stratton Nicolaides on Q1 2014 Results - Earnings Call Transcript

May. 7.14 | About: Numerex Corp. (NMRX)

Numerex Corp. (NASDAQ:NMRX)

Q1 2014 Results Earnings Conference Call

May 7, 2014 4:30 PM ET

Executives

Stratton Nicolaides - Chairman and CEO

Rick Flynt - Chief Financial Officer

Analysts

Mike Walkley - Canaccord

Rich Valera - Needham & Company

Mike Malouf - Craig-Hallum

Don McKiernan -Landolt Securities

Robert Bregman - Morgan Stanley

Operator

Good day, everyone. And welcome to the Numerex First Quarter 2014 Financial Results Conference Call with your host Stratton Nicolaides, Chairman and CEO of Numerex Corporation. Today’s conference will begin with the presentation, followed by a question-and-answer session. Instructions on that feature will follow later in the program.

I would now like to turn the call over to Mr. Nicolaides. Please go ahead, sir.

Stratton Nicolaides

Well, thank you, [Tanya] (ph). Ladies and gentlemen, good afternoon, and welcome to Numerex's first quarter conference call. Rick Flynt, our CFO, and I will comment on the company's quarterly operations and financial performance, after which we will open up the call to your comments and questions in the Q&A that follows.

Please keep in mind that to the extent our statements are not historical fact, they should be considered as forward-looking and may involve certain risks, as detailed in this afternoon’s press release and in the company's SEC filings.

Well, we got off to a very good start this year with the strong financial performance and also significantly advancing our strategic plan with the acquisition of Omnilink. I am sure you will have questions, plenty of questions and I will provide what we believe are some of the compelling reasons for the transaction.

Well, first of all, we enhanced our horizontal platform capabilities and significantly added to our product lines and key verticals of security and asset tracking and can apply this newly acquired technology to our supply chain and other product lines.

Expansion of the security products and services to include the fast growing of offender monitoring and mobile personal emergency response or mPERS fits very well within our long-term distribution and channels strategy.

This opens new market for existing products with little of any product overlap or redundancy rather to say we have very few horizontal application and network services customers who are currently operating in the offender monitoring space or compete with our channel partners mPERS product.

In addition, we believe there are adjacent market opportunities created by the acquisition, especially in the areas of lone worker safety, child tracking and the host of additional people tracking applications.

The same Omnilink proprietary technology used in these monitoring applications has been adapted for us in fleet and asset tracking with unique and highly accurate mapping and positioning services.

We believe Omnilink has done a great job cultivating relations with the number of strategic partners, as well, specifically major wireless network operators such Verizon and Sprint, and it open channels to market to collaborative ventures in the mPERS and child tracking segment.

Audio locks in Omnilink co-develop the car connect program that is distributed through wireless network operators and other major distributors of cellular-based product.

We expect to leverage this new channel by introducing existing products and services and by developing new programs in concert with our channel partners, distributors and enterprise customers.

As we mentioned in the past, we believe that our M2M operating system, which includes our gateway services is the most robust fully integrated M2M ecosystem in the marketplace.

By adding FocalPoint, Omnilink’s award winning platform to our portfolio we have significantly enhanced our mobile tracking and monitoring capabilities in both enterprise and consumer markets.

Our vertical strategy builds on these platforms allowing us to move into underserved niche market with versatility and speed, leveraging our platforms broad capabilities and scale. Omnilink’s technology has even further elevated our platform capabilities allowing us to serve new market like people tracking and mPERS and many other markets.

Also, while Numerex has been focused on developing specific customer opportunities for the most part like John Deere and United Technologies amongst others and on developing light box solutions used in supply chain and security, Omnilink’s focus has been primarily on developing and building channels to market through strategic partnering and key distribution relationship. As we bring together the focus competencies of these two companies, we find the combination very complementary and compelling.

We believe we acquired the business on fair terms, in fact that we securing over $11 million of high margin recurring service revenues, adding an excellent product portfolio of application to our existing markets and our strategic in channel alliances, expanding our market reach into new verticals, adding distributors and channel partners, strengthening our wireless network relationships and adding a portfolio of patents and intellectual property that underpin Omnilink’s business and a very relevant to our existing product line and technology.

In addition, we have added approximately 30,000 new subscriptions with significantly higher average revenue per unit within our current subscription base, which align well with our strategic focus.

As we mentioned previously, we expect the transaction to be accretive to earnings on a non-GAAP basis this year and beyond. Also importantly, we significantly strengthened our management and technical ranks with the addition of Kelly Gay and other seasoned end-to-end professionals who bring both market facing experience and technical know-how.

Turning to our pre-merger business and Q1 results, as we mentioned in this afternoon’s press release, we are very pleased with company’s strong first quarter performance. Revenues increased year-over-year to solid 25% plus pace yielding improved gross margins that were driven by adding higher value subscriptions and solutions on for the most part and embedded device and hardware margins improved dramatically year-over-year and sequentially from the fourth quarter.

Adjusted EBITDA increased 50% year-over-year was up sequentially, albeit slightly, but keeping in mind first quarter is typically our strongest quarter and first is typically our weakest. This improvement was achieved even though we have significantly increased our product management sales and marketing expenditure and our engineering and development spend in the year-over-year comparison.

We are encouraged by the solid growth in our existing product portfolio. The addition of the Omnilink product portfolio and new development initiatives underway, this includes the products and services we offer in conjunction with solutions, development in our managed services program on behalf of enterprise customers and strategic and channel partners.

Over the next two quarters, our integration work is expected to be complete and the benefits of Omnilink/Numerex merger will become readily apparent. Currently, we are -- we expect our new product portfolio will grow at or above our current growth rates.

Outside of one-time charge of acquisition-related expenses that we will incur primarily in the second quarter, we expect a continued strong financial performance for the full year 2014.

Now, overall, our Q1’s performance was favorably impacted by generally strong demand for our device network and gateway enabled products, total which was sold in conjunction with the launch of solutions developed on behalf of certain customers.

Our build on behalf of programs continue to attract high-quality enterprise customers across a number of vertical markets, specifically tank and bin monitoring solutions destined for the supply chain market, broadband monitoring solutions designed for voice over IP security systems and the next-generation satellite-based monitoring and identification products designed for the emergency response in government markets.

These development initiatives have broader application and are not limited to the market that I just mentioned. Also our home automation and advanced security systems marketed and sold by our customers continues to grow along with our traditional security products marketed and sold through Uplink service brand.

Our broadband or voice over IP security products also continued to expand beyond the DIY markets or do-it-yourself markets into new enterprise and consumer markets in addition to retail. Also, we are running multiple field trials with the supply chain channel partner in the waste management segment as we mentioned before. And we added 54,000 new subscriptions during the quarter, while slightly increasing our ARPU as expected.

Our cumulative base grew 21% over the levels reached at the end of Q1 2013. We continued to focus our resources on high-value solutions that are expected to generate significantly higher ARPU with high contribution margins. The ramp up of our high-value solution initiatives continues, significantly bolstered by the Omnilink merger. That said, we continue to expect solid subscription growth for the full year of 2014.

In light of the new products and services just acquired, we will reassess our expected growth in subscriptions and its continued significance as a growth predictor of recurring revenue, albeit still very important to us. Of course with high-value products and solutions expected to favorably impact our growth during 2014, we anticipate an increase in our ARPU.

And in particular ARPU associated with several product lines put in service late in Q4 ’13 and Q1 of this past -- the quarter we are discussing. And these product lines have ARPU several times our current average and will be impacted by the addition -- favorably impacted by the addition of high ARPU people tracking solutions introduced by Omnilink.

Our total subscription and support revenue grew 17% year-over-year, a solid growth rate considering our transition to high-value subs. We are encouraged by the growth in a high-value solutions business and the accompanying higher-margins. We anticipate growth to accelerate significantly in the second half of the year with the addition of high value solutions and the commercialization of certain managed services initiatives.

Also, we expect to continue to ramp of supply chain and security solutions by midyear to favorably impact growth. When we combine these with new turnkey product launches and service revenue derived from Omnilink, we expect our subscription and service revenues to range between $68 million and $70 million for the full year, compared to the $52 million the company reported for the full year 2013. If we just do the math, it’s about 30% to 35% of growth year-over-year.

Our embedded devices and hardware revenue continued to grow at a faster pace than expected, reporting -- I think we posted 52% growth year-over-year and significantly contributed to our improving gross margins. We continue to anticipate sequential swings and quarterly swings in revenue from embedded device and hardware.

As we noted, when we issued our full year guidance for the first time on hardware, also we anticipate year-over-year full year growth. However, in light of the acquisition, we are reassessing our hardware growth guidance range until after we complete our integration plan.

Before I turn the call over to Rick, I want to reiterate our position that the significant investment made in our M2M platforms and several vertical product development initiatives, is consistent with our mission to provide as a single source management and solutions hosted through our integrated platforms that incorporates the key elements of device, network and application or DNA primarily on a subscription basis. The acquisition of Omnilink and its robust platform and products suite fits well within our strategic vision.

Thank you very much. And now Rick, I will turn the call over to you.

Rick Flynt

Thanks, Stratton and good afternoon, everyone. First, let me say that I am pleased with our performance during the first quarter as we continue to generate revenue growth, improved gross margins and at substantially higher adjusted EBITDA. Our 2014 first quarter results reflect significant improvement over the comparable period in 2013. During the first quarter total revenue was $20.8 million, an increase of 26.4% or $4.3 million, compared to revenue of $16.4 million in the same period last year.

Subscription and support revenue increased 17% year-over-year, growing to $13.9 million in the first quarter of 21014. We also had a good quarter with respect to embedded devices and hardware. Hardware revenue increased to $6.9 million in Q1, compared to $4.5 million during the same quarter of 2013.

Subscription and support revenue gross margin was 61.4% in Q1, compared to 56.2% in the first quarter of 2013. The improvement was primarily due to lower operating cost and higher value subscription mix. Hardware gross margin in the first quarter of 2014 was 19.1%, compared to 4.7% in the same period last year.

Due to our strong service and hardware gross margins, total gross margin improved to 47.4% in Q1 compared to 42% in the same period last year. Adjusted EBITDA from continuing operations, which is a non-GAAP measure and exclude certain non-cash and infrequent and unusual items, totaled $2.8 million in Q1 2014, as compared with $1.8 million in the prior year first quarter. The increase in quarter-over-quarter adjusted EBITDA is primarily attributable to improved operating results, including increased revenue and higher gross profit, partially offset by higher operating expenses that Stratton has described previously.

With respect to expenses, sales and marketing expense in Q1 increased $1 million to $3 million as compared to Q1 2013, primarily due to an increase in sales and product development headcount and other personnel-related costs to support demand and future growth. During the first quarter, general and administrative expenses were $3.6 million compared to $2.9 million during the same period last year. The increase is primarily due to higher personnel cost, non-cash compensation expense and facility expenses.

With the acquisition and merger of Omnilink, our goal is to reduce the combined general and administrative expenses as a percentage of total revenues by eliminating redundant expense and integrating functional back-office processes to support the combined entity.

Engineering and development cost in Q1 increased $0.2 million year-over-year, primarily attributable to projects undertaken to enhance our managed service capabilities. Going forward, we expect engineering and development cost as a percentage of revenue to increase moderately as a result of our acquisition due to the historical profile of Omnilink E&D requirements to support their business and future growth opportunities.

Depreciation and amortization expense in Q1 increased by $0.3 million, compared to the same quarter in 2013, largely due to amortization related to additional internally developed software. We expect depreciation and amortization to increase going forward for two primary reasons.

First, from an operational perspective, Omnilink generally provides managed services arrangements to its customer, which means the cost of hardware is capitalized and depreciated over its estimated useful life with the depreciation reflected in cost of sales.

Second, we will revalue all of Omnilink’s tangible and intangible assets as part of our purchase price allocation, which we expect will result in increased amortizable, long-lived, intangible assets.

With respect to income taxes, we recorded tax expense of $595,000 related to continuing operations in Q1 2014, compared to a tax benefit of approximately $65,000 in the same quarter of 2013. The net impact of this change is a swing of more than $600,000 in income from continuing operations net of income taxes.

On a GAAP basis, income from continuing operations net of income taxes for the three months ended March 2014, totaled $1.1 million or $0.06 per diluted share, as compared to $28,000 or $0 per diluted share during the same period last year. The other income in the current year including an after-tax gain of approximately $700,000 recognized on the sale of a cost basis equity investment.

Now moving to the balance sheet. We had cash balances of $25.4 million at March 31, 2014, as compared to $25.6 million at the end of 2013. As result of the acquisition, we expect our cash balance to approximate $12 million, not including cash provided by or used in operations. That being said, we believe our cash on hand and our lines of credit will be sufficient to fund our operations.

During the first quarter of 2014, we invested in our business, including outlays of $0.9 million for software, intangibles, and other assets and $0.8 million for the purchase of property and equipment. We also received proceeds of $1.3 million from the sale of our cost basis investment. Accounts receivable net of the allowance for doubtful accounts at March 31, 2014, totaled $10.7 million compared to $9.4 million at the end of 2013.

Based on a rolling 12 months of revenue, our DSOs were 47 days at March 31, 2014, compared to 44 days at December 31, 2013, and 47 days at March 31, 2013. Going forward, we expect our DSOs to increase modestly post closing, due to the integration of Omnilink’s accounts receivable and related customer churns and collection profiles.

Inventory at the end of Q1 was $8.6 million, compared to $8.3 million at December 31, 2013. The increase generally relates to the purchase of new generation technology. Because there is no immediate overlap of our historical products with those of Omnilink, we expect inventory balances to increase modestly post closing and for those levels to continue through the remainder of 2014.

At the end of March 2014, working capital was $37 million compared to $34.9 million at December 31, 2013. Obviously, the cash used to fund the Omnilink acquisition will impact levels of working capital. Otherwise, working capital maybe modestly impacted by the integration of the acquisition, with higher accounts receivable, inventory accounts payable and accrued expenses in addition to the short-term portion of our term loan.

That concludes my remarks. Now we will open up the session to Q&A. Please limit your questions to one with one follow-up before we join in queue. Thank you.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question is from Mike Walkley of Canaccord. Your line is open.

Mike Walkley - Canaccord

Great. Thank you. Congratulations on the Omnilink acquisition. Can you just help us with some metrics for their business, I guess, do they make their own hardware and what might have been their growth the past year or two and any gross margin, operating margins, you can share with us that would be very helpful? Thank you.

Stratton Nicolaides

Sure, Mike, thanks. Yeah. The Omnilink is -- we -- the information we put out into the market on the, I think, when we announced the signing was about $13 million in total revenues, $11 million in service revenues, maybe a little higher than that. But that was -- full year 2013 numbers. We haven't provided any other numbers and we will -- most likely go through the throws of integration and consolidation and we will come up with some clear range over the course of the year.

But suffice to say that we expect it to be accretive to earnings this year and obviously, next. The company is making money, generating EBITDA, of course and bottom line. So we're very pleased with the acquisition.

The growth rates on the product lines as we mentioned in, I think, in our comment and in also in the, maybe in the press release was that it's growing at or above the growth rates we're experiencing in our business in our product lines.

Mike Walkley - Canaccord

Okay. Great. Thank you. And then just for the current quarter the much better embedded module, margins and you talked about some big deals with higher ARPU closing in the quarter? Can you provide any color on how we should think about embedded modules going forward and what about some of those bigger deals? And then, secondly, how that should impact ARPU going forward? It sounds like ARPU should be going up as these deals close throughout the quarter? Thank you.

Stratton Nicolaides

Yeah. You're right. ARPU, we do expect ARPU decline, decline slightly and quarter-over-quarter sequentially, so that's I think a couple of quarters where we saw some very slight increase. That's a result of the mix of higher ARPU, high-value solutions that we're putting into service.

Obviously, the Omnilink with 30,000 distributor division, we see that the average revenue per unit with Omnilink product line is about $25 plus per month per device. So that’s obviously the kind of stuff, the kind of margin, the kind of ARPU we want and that's what we've dedicated our resources.

And so far as the embedded device and hardware, at the beginning of year, we put our guidance out, first when we put guidance on our hardware for a good reason and so, it's volatile, it's sporadic the way it comes in lumpy. So, obviously, and it's also for the most part non-strategic.

Having said that, we are -- we expect growth over the last year, we're reassessing it, reassessing our product lines and particularly the hardware and the components in light of the acquisition and when we complete our integration, consolidation plans, then we will be in a position to comment further on the expected growth in the hardware and embedded device side.

In the combination is certain elements of the products that you'll see going forward are manufactured by Omnilink. Obviously, the overwhelming majority of their revenue -- service revenue, I mean, it's really, at least about $2 million for hardware and some other services that are -- that provide -- that bridges the gap between $11 million and $13 million, last year's performance. But the, I think, the majority, Rick can correct me if I'm wrong here, the majority of their product is actually put out as a managed services product.

Rick Flynt

That is correct, yes.

Stratton Nicolaides

So what you'll see on the hardware side is basically the amortization portion of the hardware as its place and service and I think the useful life is, I am sure -- I am sure the useful life three to five years.

Rick Flynt

Five years, three to five years.

Stratton Nicolaides

Three to five years average in terms of amortization of the hardware component. So I think I answered all your questions, Mike.

Mike Walkley - Canaccord

Yes. You did. Thank you.

Stratton Nicolaides

Yeah.

Operator

(Operator Instructions) And our next question is from Rich Valera of Needham & Company. Go ahead, Rich.

Rich Valera - Needham & Company

Thank you. Just want to understand what your expectations are on net sub adds, when you're at 54K, I guess, this quarter which was down sequentially from the fourth quarter, which was down sharply from the prior three quarters, none of which have been less than 135,000. So just trying to understand what you're expecting in terms of net add per quarter going forward, maybe what's baked in the service revenue guidance that you gave for the years up $68 million to $70 million in that respect?

Stratton Nicolaides

Yeah. Well, this -- the $68 million to $70 million is the hard numbers instead of percentages. We had, so that's the range we’ve provided you with kind of new information includes a contribution from Omnilink. So $68 million to $70 million, last year we posted, I think, $52 million in total service and support revenue.

So you did the math, just raw numbers year-over-year it’s 30%. Our guidance hasn’t changed, having said that, because -- the long-term guidance hasn’t changed. We haven’t put any long-term guidance for 2014, having said that.

But the Omnilink business is we expected to grow at or above the pace that we have set for ourselves. And overall, the mix in terms of the subscriptions, we should start seeing a significantly higher mix of these high-value solution subscriptions, 30,000 of that will be, we will report in this coming quarter, result of Omnilink and we haven’t -- we've given the general guidance of 20% for the full year over full-year. We came in about 21% I think first quarter over first quarter, when you look at the high watermark at the end of Q1 last year and the end of Q1 this year.

So we haven’t changed, we haven’t really altered our position there in terms of subs. With having said that, some of our customers are still, they are starting to ramp up again and we'll see what happens on the low value of subscription. So this could change but we have given our, what we are expected range of 20% year-over-year.

Rich Valera - Needham & Company

So presumably that anticipates some acceleration in terms of sub adds for quarter and the remaining quarters of the year? Is that fair assumption?

Stratton Nicolaides

Well, it does and also in, second quarter as well, but the overall, I think what we do expect is the subs. We will have a lower number of subs with much higher ARPU going forward. So at the end of day the contribution, by way of example of the one offender monitoring product will generate, let say 25 bucks as opposed to our average of 2 bucks.

So, its worth of several times, obviously, the value of a sub in the along the horizontal. We are pleased to have those subs and we are adding, obviously, net subscriptions quarter and we expect to add net subscriptions going forward. But we are clearly focused on these high-value solutions.

Rich Valera - Needham & Company

Okay. And I don’t want to believe at the point, but it would seem to get the kind of that 20% number for the year, you need to start seeing sub adds in kind of 100,000 per quarter range quite quickly? I just want to clarify that that sort of is your expectations in the next at least couple of quarters.

Stratton Nicolaides

Well, we are, obviously, the -- we have number of opportunities that are including once we acquired from Omnilink with the ViGo product that's generated by Sprint and also Verizon show response product that could rapidly add subscriptions. That and in addition to some of these low value subscriptions. So, yes, we do anticipate an acceleration in subscription obviously to keep that 20% growth rate.

Rich Valera - Needham & Company

Very good. Thank you.

Stratton Nicolaides

Sure.

Operator

And our next question comes from Mike Malouf of Craig-Hallum. Mike, your line is open.

Mike Malouf - Craig-Hallum

Great. Thanks for taking my questions.

Stratton Nicolaides

Hey, Mike. How are you?

Rick Flynt

Hi, Mike.

Mike Malouf - Craig-Hallum

Good. Hey, Stratton, on the Omnilink business, given the high ARPU and certainly, the high mix of service revenue. Are they run into the higher EBITDA margin they need as, is it accretive to your margins?

Rick Flynt

It’s -- the answer is the margin -- their margins are higher than our -- their service margins are higher than our margins.

But, Mike, what we have to do is, we’re going through integration process. So this is the only information that we provided so far is 2013’s numbers just varies top line numbers. So we are going through integration, we are going through a number of consolidation exercises as we speak. And through that, we will go to determine the contribution margin from each product line.

But yes, the stated margins, the gross margins are higher, their hardware margins, Rick, I think are also…

Rick Flynt

Remember they are mixed in with the managed services.

Stratton Nicolaides

And they are mixed in with managed services. So when we start, it’s a slightly -- the number of managed services subscriptions that we have to-date are not enough to build, to determine what the hardware margins will be, for example if they were to be sold as a CapEx model rather than an OpEx model. So just give us a little time, we will figure that, but stated margins are higher.

Mike Malouf - Craig-Hallum

Okay, all right. So it is what seem that you will get a bigger impact on EBITDA from this acquisition on the adjusted side than you’ve guided to, because if I did the math, you basically are adding $13 million of 2013 revenues, presumably growing at a rate faster than what you guys are growing at, and then only increasing your EBITDA by roughly $150,000 for this year on your guidance. So I am little -- can you help me with that math?

Stratton Nicolaides

Well, you could draw the conclusion that we are conservative in our guidance numbers. But having said that, we are saying that over the $8.3 million that we generated in 2013 in adjusted EBITDA, we expect -- in regards with 35% and 37%, we bumped it up slightly with 36% to 40%. So we are expecting a contribution from the Omnilink obviously.

Mike Malouf - Craig-Hallum

But if you expected a contribution of more than a $150,000 that would imply that you’re lowering guidance on EBITDA. Is that the right way to think about?

Stratton Nicolaides

I don’t think that’s the right way to think about it. We actually increased our guidance in terms of the EBITDA, adjusted EBITDA for the full year. We have Omnilink for eight months.

Mike Malouf - Craig-Hallum

Right, okay. All right. Thanks.

Stratton Nicolaides

Thank you.

Operator

(Operator Instructions) And our next question comes from Don McKiernan of Landolt Securities. Your line is open, Don.

Don McKiernan -Landolt Securities

Yes, thank you.

Stratton Nicolaides

Hey, Don, how are you?

Don McKiernan -Landolt Securities

Hey, good. Congrats on a nice quarter.

Stratton Nicolaides

Thanks.

Don McKiernan -Landolt Securities

Couple of questions. One, about how long did it take from start to finish the Omnilink transaction in terms of when you first talked about and pursue them, heard about them being for sale…

Stratton Nicolaides

Right.

Don McKiernan -Landolt Securities

… close?

Stratton Nicolaides

Sure, Don. We know about Omnilink for many, many years. It was just either not a right time for us to bid on it or it was growing. I think Kelly Gay did a great job in transitioning the business from its early days to where it is versus profitable growing business. But from the time we signed the letter of intents which was I think the end of February, February 28, and we do due diligence quickly. We are obviously familiar with the models, the structure, the platform. They are right directly in our space so to speak with the platforms and products lines that they built on this platform. So it took us about little less than 60 days to sign and then we had about a week to just got eyes and cross (indiscernible) closing.

Don McKiernan -Landolt Securities

All right, okay. Good. And then the other question was on the multiple service operators, the cable guys, can you give us update on how things are going in that space for broadband security?

Stratton Nicolaides

The overall market of broadband security is very robust. We are working on a number of projects outside the hospice of the -- of the hospices of the MSOs or even the wise operators. So we are very excited about the broadband space on a number of fronts. The MSOs continue to grow. They are growing at a nice cliff and as are others in this space. So we are expanding our share there in terms of the customer base beyond just the MSOs.

Don McKiernan -Landolt Securities

Okay. So it seem to me a 54,000 subscriber add, should be higher with the opportunity in the MSOs space?

Stratton Nicolaides

That’s next subs. So we report on next subs. Obviously, our gross connections and disconnections are not -- we report on neither one of those, so that’s the net number. Part of the throws in volumes from transitioning technology, transitioning product lines is as you could expect, there will be some churn in there. But it is not customer churn. It’s simply subscription churn within our customers’ base but for the most part.

So we are very pleased with the net growth in subscriptions considering all the changes in our planning, if you will and also the shutting of some of these are very low average revenue per unit subscriptions as we did last quarter. And as those continue to churn out, I think you are going to see some uncharacteristically volatile or lumpy activity in the subscription side.

Don McKiernan -Landolt Securities

Okay. All right. Thank. Good luck.

Stratton Nicolaides

Sure.

Operator

And our next question comes from Robert Bregman of Morgan Stanley. Your line is open.

Robert Bregman - Morgan Stanley

Stratton, hi.

Stratton Nicolaides

Hey, Bob. How are you?

Robert Bregman - Morgan Stanley

How you are doing, Rick, too? Just as -- before I just ask a couple of quick questions. Looks to me just from my experience, long experience owning shares in Numerex, this is one of the cleanest and best quarters that I have seen in a long time. So congratulations on that.

And then leading the Omnilink transaction last week and getting to understand a little bit today is they are securing. You talk about it, just seems like a really good opportunity to expand the business in many directions, so good to have. I want to make sure, is non-GAAP up about $0.15 a share, Rick? Am I about right on that?

Rick Flynt

Above that, it’s about $0.14 I think.

Robert Bregman - Morgan Stanley

Okay. I just wondered just due to quick calculation, so just wanted to make sure. And last question, the waste area and the services waste there. What’s the size of the opportunity at this point and what are the growth rates in that business?

Stratton Nicolaides

On the supply chain side in particularly waste management?

Robert Bregman - Morgan Stanley

Yeah.

Stratton Nicolaides

All right. It’s a huge opportunity for us. We think the space is large. It’s growing at a nice pace. It lends itself very nicely to our product suite because we have both of the bit monitoring and of course our tank monitoring solution in combination in tandem. They service the supply chain market very nicely. Furthermore, the new acquisition, Omnilink has a technology that we can apply in that space very nicely in a very complimentary way. So we are very excited by the supply chain markets. Security markets are growing at a very nice pace. Now we are in people tracking, which is something that I’m particularly very excited about and the application into these other programs.

And also our ability to drive some of these product into the very excellent carrier challenge which is exciting. So, overall, we are very pleased with the acquisition and also particularly keen on the supply chain in the supply chain markets.

Robert Bregman - Morgan Stanley

Good. And I presume and the people will notice as time goes by, just what this acquisition needs but time will tell. Thanks, Stratt.

Stratton Nicolaides

That’s right. Thanks Rob.

Operator

I’m showing no further questions. I would now like to turn the conference back over to our CEO for closing remarks.

Stratton Nicolaides

Well, thanks Tanya. We remain very encouraged by the continuous strong demand for our products and services overall. The robust opportunity funnel, the addition of managed services opportunities, expected new product launches and expected favorable impact of the Omnilink acquisition positions us very well for a continued strong performance in 2014.

Ladies and gentlemen, thank you very much for your continued support. And we look forward to speaking with you on our next earnings call. Thank again, Tanya.

Operator

You are welcome. Ladies and gentlemen, this concludes today's conference. Thank you for your participation and have a wonderful day.

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