Numerex Corp. (NASDAQ:NMRX)
Q2 2016 Earnings Conference Call
August 4, 2016 16:30 ET
Marc Zionts - CEO
Ken Gayron - CFO
Richard Valera - Needham & Company
Josh Nichols - B. Riley
Michael Walkley - Canaccord Genuity
Howard Smith - First Analysis
Good day, everyone and welcome to Numerex First Quarter 2016 Financial Results Conference Call with your host Marc Zionts, Chief Executive Officer of Numerex Corp. Today's conference will begin with a 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 Marc Zionts. Please go ahead sir.
Good afternoon and welcome to the Numerex Second Quarter 2016 Earnings Call. Ken Gayron and I will comment on the Company's quarterly performance and then we'll open the call to your questions in the Q&A session 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 the Company's SEC filings.
Prior to addressing the quarterly financial and operating results, I would first like to say thank you to our customers, our team, our partners, and our shareholders. We truly value and appreciate the confidence that our customers place in Numerex and we're working hard to continually improve our service and help our customers to be successful in their businesses. As a management team and as a company, every decision and action we take is centered on our customers.
Next, I would like to thank our team. Changing cultures is not easy and making the number of changes we've made in a few short quarters including moving offices, reorganizing the company, pushing hard on new product releases, and bringing new partners aboard requires a team of people that are resilient, hardworking, determined and focused. The Numerex team in Dallas, Atlanta, and in our remote locations along with our key development partners in India that we consider a part of the Numerex family have all shown these characteristics.
Our carrier and vendor partners also deserve thanks since they have been open to working aggressively with Numerex through our transformation to grow our businesses together and we're very appreciate of their support. Finally, our shareholders have shown great patience and understanding to support the company as we transform to a new Numerex.
In just few short quarters we made great strides in changing our cost model and Ken would detail what we've accomplished in Project Green, our action plan to remove $4 million of annual cost out of the business. We've also demonstrated a fundamental change in the business model to focus on recurring revenues by providing managed solutions. The recurring revenues as a percentage of total sales has grown from the mid to high 60% range to over 84%. And our gross margin has grown from the low 40% range to over 51%.
Changing our culture, changing our business model, and changing our cost structure are all fundamental pillars to the transformation of the company. The final pillar will be the restart sustainable organic growth.
As we've previously stated, we anticipate starting to grow on a sequential basis in Q4 this year and then expect continued growth going forward in 2017. While we've accomplished a lot this year, I would still say that we are approximately half way through our transformation. So we still need to be done in Q3 and Q4 to position us well for a strong, growing and profitable 2017.
Like last quarter, we have been visible to the industry and trade shows and conferences, and we continue to receive some very positive press including recently being selected the best enterprise or industrial platform by IoT evolution.
In summary, we remain a work in progress. The threshold changes we have implemented along with our business model shift to a higher percentage of managed services and higher targeted ARPU continue to have a positive impact on the business results. Our tank monitoring solution, iTank, grew very significantly in Q1, and in Q2 and increased in ARPU as well.
Our asset monitoring and tracking products are starting to grow again, and are also improving in ARPU. While our horizontal solutions and security revenue is slightly down. Certain areas such as monitoring has started to grow again. As our mix of new sales continues to increase, the overall trend should be positive for ARPU.
As Ken will detail, we made a progress in increasing revenues and gross margin -- excuse me, increasing recurring revenues and gross margin, and while EBITDA is down from Q1 2016, this is as anticipated as we continue to make the necessary investments in sales, marketing, and retooling our team to enable future growth.
While Q3 and Q4 will continue to be transitional quarters, with some anticipated revenue challenges due to historical situations, specifically 2G transition issues, and enhanced customer support management issues, we believe that we will continue to demonstrate progress. We continue to believe that the business should turn to the corner in Q4 as we resume growth. Furthermore, we believe that exiting Q4 in this manner will position us for a very solid 2017 that will put us on target to have sustained, organic growth and dramatically improved EBITDA and cash flow.
Thank you for your continued interest and support in Numerex. I look forward to our Q&A later in the call, but for now I'll turn over the call to Ken Gayron, our CFO.
Thank you, Marc, and good afternoon. As Marc has reiterated on our call today, Numerex is a business in transition, and we believe the transition will continue through the third quarter of this year before returning to sequential growth in the fourth quarter of 2016.
We see positive signs in our commercial pipeline and progress in the development of new products which is why we believe sequential growth will return in the fourth quarter of 2016. However, in the second quarter of 2016, we experienced a 2.5% sequential decline in revenue due to a $299,000 decline in service revenue from our network only segment, primarily from 2G migrations, and a $269,000 decline in low margin hardware revenue.
Although we experienced a sequential decline in total revenue, our higher margin and higher ARPU product families, which consists of our security, asset tracking and asset optimization grew $124,000 in aggregate quarter-over-quarter. This reflects a positive sign that the higher-quality revenue streams are beginning to turn and poised for growth with the improving pipeline. Additionally, we saw improvement in recurring revenue as a percentage of total revenue to 84.1% in the second quarter of 2016 from 83% in the first quarter of 2016, and we should expect to see this trend moving forward with our focus on driving higher-quality recurring revenue streams.
Our gross margin for the second quarter of 2016 was 48.7% but when you exclude the non-cash impairment of $460,000 for 2G inventory, gross margin was 51.3%, up from 51.1% in the first quarter of 2015. Gross margin for subscription and support revenue was 61.4% in the second quarter of 2016 compared to 62% in the first quarter of 2016. There was a small decline in gross margin from $90,000 of unplanned carrier expenses and cost of sales in the second quarter. We expect improvements in gross margin moving forward, as the pipeline of higher margin, higher ARPU managed service offerings are deployed in the second half of 2016.
Cash, operating expensing excluding D&A in the non-cash impairment charges and restructuring amounted to $9.6 million the second quarter of 2016, up slightly from $9.3 million in the first quarter of 2016. The small increase in cash operating expenses reflects higher engineering and development costs associated with the knowledge transfer to our team of 30 India-based consultants. The knowledge transfer is completed and we expect to see 200% improvement in our engineering and development throughput as we move forward. This transition will allow Numerex to bring new products and features in the marketplace sooner which will strengthen our competitive position and augment our growth.
Additionally, during the second quarter of 2016 we completed $1.4 million or the $4 million in targeted cost savings. The completed cost savings are in the areas of rent savings amounting to $800,000 for the sub-lease of our former headquarters, and reduction in professional fees. Numerex will start realizing cash savings from these actions in Q3 of 2016. Also in July and August of 2016, we have taken actions to reduce cost, another $1 million in the areas of billing automation and insurance remain confident in achieving our targeted cost savings of $4 million by Q1 2017.
Other one-time cost in the quarter included $1.2 million of restructuring expense consisting of $800,000 from the sub-lease of our Atlanta headquarters and $400,000 per severance costs related to our engineering and development group areas. Additionally, during the second quarter of 2016 we had an impairment related to goodwill and other intangibles amounting to $4.2 million consisting of a $3 million impairment in Omnilink business and $300,000 impairment in our DIY reporting unit. We remain confident that Omnilink will be an important piece of our business moving forward by two of the reduction in forecast for Omnilink we incurred this impairment. At this time we do not envision any material further impairments moving forward.
Including the $4.2 million non-cash impairment for goodwill intangibles, $460,000 non-cash provision for inventory reserves and $1.2 million of restructuring expenses, Numerex reported a GAAP net loss of $8.3 million for the second quarter of 2016 compared to a net loss of $2.3 million in the first quarter of 2016. The $6 million difference in net income is attributable to these one-time items which are predominantly non-cash.
Adjusted EBITDA was $627,000 in the second quarter of 2016, down from $859,000 in the first quarter of 2016. The decline in adjusted EBITDA is related to the $400,000 decline in revenue and the associated loss margin with those sales coupled with higher END cost related to the previously mentioned knowledge sharing efforts that occurred in the second quarter of 2016.
When evaluating the income statement against the comparable quarter ended June 30, 2015, you can see a similar theme with the $8 million decline in revenue related to $6.1 million decline in hardware and the balances in subscription and support services, primarily from lost network revenue from 2G migrations. However, our recurring revenue in gross margins continue to show favorable improvement over the second quarter ended June 30, 2015. Our recurring revenue as a percentage of total revenue improved to 84.1% in the first quarter of 2016 from 65.2% in the second quarter of 2015, and our gross margin increased to 51.3% excluding the non-cash inventory impairment from 43.4% in the second quarter of 2015, an improvement of 790 basis points.
Now turning to our balance sheet; Numerex's cash balances declined from $11.4 million at March 31, 2015 to $10.1 million at June 30, 2016. The Company's cash burn which was $1.8 million in the first quarter of 2016, excluding the effects of the refinancing, improved to $1.3 million cash burn in the second quarter of 2016. The improvement in cash burn is a result of our focused effort to reduce inventory levels which declined from $8 million at March 31, 2016 to $6.5 million at June 30, 2016. We will continue our efforts to reduce inventory in the third and fourth quarters to help our cash flow.
Accounts receivable increased to $9.9 million at June 30, 2016 from $8.8 million at March 31, 2016 due to more sales activity in June that should lead to higher cash collections in the third quarter. The other major change on the asset side of the balance sheet was a reduction in goodwill and other intangibles associated with the $4.2 million impairment and a $1.3 million increase in PP&E [ph] for networking equipment. On the liability side of the balance sheet, the main change was $1 million increase in capital leases provided by Cisco for our network deployment.
Turning to the cash flow statement, you will see that elements representing the decline in cash balances from December 31, 2015. Numerex had negative operating cash flow after capital expenditures of $3.2 million for the six month period ended June 30, 2016. However, Numerex are improving cash flow in the second quarter of 2016 versus the first quarter of 2016 as cash burn improved to a deficit $1.3 million in the second quarter of 2016 from a deficit of $1.8 million in the first quarter of 2016. We expect to see improving cash flow resulting from cost reduction activities, planned reduction inventory levels and finally sales growth returning in the fourth quarter of fiscal 2016.
At this time, this concludes my prepared remarks. I will turn the call back to the operator for any questions that Marc and I will address.
Thank you. [Operator Instructions] Our first question comes from the line of Rich Valera with Needham & Company. Please go ahead.
Thank you. Marc, I was wondering if you could shed any more light on your progress in sort of defining the verticals that you wanted to pursue and developing solutions for them. I think you mentioned three kind of high margin verticals in the prepared remarks, security asset tracking, I think something about authorization, just wanted to understand what those were. So if you could talk about any other verticals you're looking at and how you're progressing on those solutions? Thanks.
Thank you, Rich. So the key areas that we focus on today are really asset optimization, asset monitoring and interacting, security solutions within three areas of vertical solutions. The fourth area that we have business in is horizontal solutions which is more middle ware, that could be network-only but the focus has been moving to solutions or it will provide a network to make sure we're providing our value added and ARPU increasing platform services. As you go to the three big areas of vertical solutions, in the asset optimization the primary solution area is the tank monitoring for bulk fluid and gas, and that business has been growing very well, it's one that we focused on initially, we've talked about growing very significantly and we're very excited about that business. Each quarter continue to be a record and has very healthy ARPU.
Secondly, the asset monitoring or tracking area, that's a variety of products; there is a new product in -- the newer product scenarios, the product code on iManage which does supply chain logistics tracking. There is a number of other products in there, and within security that would be our traditional enablement of alarm systems. However, there is a new product that was introduced in June at the Fire Show, and it's just going to be shipping for the first time commercially at the end of this quarter for the first industry and that's exciting too because it's an expanded TAM and those are both under the good -- the brand Uplink which has very strong brand identity. There is -- we also include in that sector both personal security, the emperors [ph] products, as well as the offender monitoring. And as I mentioned in my remarks, we have the offender monitoring starting to grow.
So Rich, we haven't added another category, what we really have been doing is refined a product that address these markets. Get those worked out, get those -- get everybody growing that we think will, we've kind of identified now what we believe are stars versus cows or dogs, kind of put the resources in the right place. And then I think if we start looking at further adjacencies, that would be more of 2017 activity, the goal this year is get everything moving in the right direction and we have a number of them now starting to grow. So that's pretty exciting for us.
That's very helpful, Marc, thank you. And then just if I could get a little color perhaps on your thoughts on the income statement as we move into Q3 relative to Q2. One, the hardware gross margins seem slightly negative even as the charge you took, so wonder what's going on there. Should we expect sort of positive -- sort of single low double-digit gross margins on hardware anymore? Then just want to get a sense of how we should think about the OpEx trajectory there? And then finally, should we expect to see improving EBITDA as we move into Q3 and Q4? Thank you.
This is Ken, let me take that, hardware margins. Hardware is an area that we're not emphasizing at this point but it's an area that has been -- an area that's contributed very little margin historically. I think in general, we expect to see a little bit of improvement in the hardware margin but that will not be a strong provider of cash for us. It really is needed in our security business as we drive the service revenue. So in terms of your model, I would assume slight pickup in hardware margin as we drive more hardware sales in the fourth quarter specifically.
With respect to OpEx; OpEx was up on the cash side in the second quarter versus the first quarter, really related to engineering and development. We had about $200,000 of additional expense related to the restructuring where we are putting -- we added 30 India-based consultants and there was a knowledge transfer and a restructuring of that area. That is now behind us so we expect that expense to move down additionally and the SG&A side, there was a large trade show that occurred in the second quarter which was about $200,000 of additional expense, so that is now behind us.
I think overall you're going to see improvement in OpEx on a cash basis as we have looked at the Project Green initiatives and completed $1.4 million. The main component of that is the real estate which we moved out of our Atlanta headquarters and we will see roughly $200,000 of savings in OpEx in real estate in Q3 and we should also see some savings in the professional fees in Q3. So that has been complete, so I think you'll see a downward trend in OpEx in Q3 and that will continue through Q4 as well.
In terms of EBITDA, at this point we're not providing guidance but we're in a transition through the third quarter but we should expect improvement in EBITDA as we return to growth in the fourth quarter.
Got it, that's very helpful. Thank you.
Thank you. And our next question comes from the line of Josh Nichols with B. Riley. Please go ahead.
Hi, I know it's little bit early on a transition but could you talk a little bit about some of the newer managed services, offerings that the company has been selling and progress and/or wins the company has had in those areas?
Thank you, Josh. I think it's really that data before, there is nothing -- you don't invent something in a quarter, so there is not something that was started last quarter and sold last quarter. So the ones that have been -- say we referenced with traction, where iTank -- the solution for optimizing your route planning for the bulk fluid and in gas space, that has very good traction, there is many enhancements in the road map that have many well released last quarter and it will continue to be releasing. The part of our EMD transformation has been moving from waterfall basis to agile, so there is a two week sprint. So every two weeks something new is coming out and there is not just one sprint going out for the entire company, there is multiple sprints and multiple product lines.
So there is just huge effort to enhance within that category, the same thing would hold true within the other solutions. The one product that was announced last quarter was a fire product, that's a bit different than our wireless enablement product for the burglar alarm industry, and that it's actually a self-contained panel whereas our other products here are essentially an adjunct that takes a wired panel and makes it wireless. In the case of the fire alarm panels, actually a fully contained unit designed for the SMB marketplace, we believe that it has a more attractive price point, equally important -- it's easier to install. So the installer is out there for shorter amount of time before its active.
This is important because the fire industry has lagged behind the burglar industry and that wireless was not considered an appropriate transport for primary communications and now it is in most places in the U.S. It's attractive because it's has solid ARPUs and unlike burglar, it's not nice to have or mandated by insurance, it's required legally for any enterprise -- in the U.S. it has to have a fire alarm. So this we think opens up an additional TAM for us and again this is all sold under the Uplink brank within our security vertical. So that would be like a key new product.
So there is a tremendous amount going on, so from platform enhancements to Uplink enhancements, to the asset monitoring, to the asset optimization, there have been many, many enhancements in Q2 and that continues through the rest of the year but we haven't announced an entirely new product. We also haven't gone out there and said, here is a customer or here is a win, we have built up a backlog and so that's why part of that is as you install more units, even if you sell them and they are not installed [ph] -- the monthly recurring revenue continues to grow.
And outside of Uplink, most of these areas tend to be managed solution, so you're talking about higher ARPUs. So it's not a sub-dollar or $1 or $2 ARPU, typically its north of $10, could in $10 to $20 a month range and it's typically on a multi-year contract. So that's where the energy has been focused.
And about -- well, part of the hardware revenue in Q2 was related to Uplink and the security vertical in general?
I don't think we're breaking those out at this point. One comment I will have one that market is that, within Uplink it is different than our other businesses in that, it does go through distribution. So the model there has always been kind of B2D2B. And the distribution resells to the dealer network, the recurring revenues with the dealer but the hardware sold through the distributor sell, it's hard to bundle the hardware with the service in that case, it is always going to be a certain amount of hardware revenue but we're not breaking things out at this point between the different areas.
Okay, last question for me is, as far as the legacy low revenue 2G network migration; are you seeing the pace of that steady, increasing, decelerating -- what's the overall trend?
Well, it's a continual effort, we've moved -- we have -- there is a couple of issues going on, one is that you have Verizon 2G, Sprint 2G remains up for the next several years, Timo remains uptil 2020, AT&T is shutting down at the end of the year. So the focus has been to move GSM customers, either up -- to upgrade them to a 3G solution or to move them over to 2G on Timo. We've moved a tremendous amount to Timo because we have very significant portion of our 2G customers they are on our own SIM, within our own MZ range and so we've been -- we have our own HLR, we're never different than other company so we've been able to re-steer those, re-SIM those if you will and point those two at Timo instead of an AT&T. So OTA or over the year conversions have been taking place, there are some that you can't do that with and maybe coverage issues or other issues, so then you work a program. We've got the majority done, there is still a significant amount to do in Q3 and Q4 and that will continue.
Thank you. And our next question comes from Michael Walkley with Canaccord Genuity. Please go ahead.
Thank you. Just building off that last question, on the 2G subs, have you shared what percent of your recurring revenue is still on that 2G revenue base? And then also for your subscription and support revenue, will that start to grow again in Q4 or is that more just because there is uptick in hardware I thought I heard Ken say, and because of this 2G sub, you see recurring revenue maybe returning to growth more in 2017 on a sequential basis? Thank you.
Yes, thank you. We haven't broken out the percentage on 2G versus other things. Again, 2G is safe towards 2020 with the exception of one-network. And the strategy is if somebody isn't ready to go to 3G, then we'll probably keep them on 2G for the next year or two and then we'll just move him straight to LTE rather than having interim step of moving to 3G. So if you haven't moved to 3G now, my advice to our customers is let's move here over to another network and then we'll upgrade you to LTE because that's probably a better move. So that's really been the strategy there.
And in terms of the recurring -- we've given the comment that hardware will certainly grow in Q4. We see sequential growth, I think the bottoming out kind of at the recurring revenues is pretty much a Q3 and then at some point in Q4 the recurring starts to grow, whether that's for the entire quarter or not, isn't totally clear yet, certainly we see it growing in Q1. But the turn is coming within the next few months and that's -- a part of that is stopping fly [ph] where you have the decline, stopping it and starting it back. So the rate of decline slowed but you have to bring it to a complete halt and then the start of the growth.
So at some point in Q4 that occurs, whether it's for the entire quarter or not, I think we're still getting a handle on -- is it enough for the quarter that gives absolute growth or part of the quarter and then the full growth in Q1, set right in that timeframe. So that's why I kind of say halfway through the transition we've done the cost piece, we've done the model piece, and on the revenue side pretty much halfway there, we think we get -- the rest of the way through the year and we're excited about 2017 by all means.
Okay, thanks Marc, that's helpful. And just for my follow-up question, with the India engineers are there certain verticals or growth areas that they are really focused on, that you're excited about some of your growth initiatives or they just kind of more need it just to help you overall engineering base on the entire platform? Thank you.
We're saying about a whole lot of things but we're still -- but we're excited about what we're working on now. So I think the number of projects that they are working on within platform, within the three sets of verticals, it's pretty extensive. But included in there are some big projects that are for 2017 that -- the work has to occur now for 2017 and there is some major redesigns within -- or even entirely new products within Uplink. We think that's a great business, we have a great brand and we're very excited about introducing some new products there. You can imagine that if we're designing anything for 2017, it's going to be LTE. There is no design of a new product that will be introduced next year that's not going to be an LTE product. So whether that's on the offender monitoring side, on the Uplink side, on the solution side, all of them are in that direction.
Another area that we're very excited about and we haven't formally announced per say but we're getting into hybrid solutions. Hybrid solutions are when you have both, cellular and satellite capability on a single device. There is many used cases requiring that. If you think about supply chain logistics, you're -- we like to think cellular is ubiquitous but it's only ubiquitous on about 9% of the planet. There is many other places where you have no cellular coverage, both on a land mass basis as well as the course of your crossing an ocean. So we've heard a lot of demand, we actually already have some products there, not formally announced but that's another area that we think makes a lot of sense for a lot of used cases because if it's a high value asset that you need to optimize or track, you may need to do that whether there is cellular coverage or not. So the hybrid area we think is another area that's pretty exciting.
So look, I purposely think first our customers because I've said repeatedly that's the most important -- our business exists because of our customers but the next group I think was our team. We've got a great group of people and they've been working really hard because there was just so much new initiatives going on that they've been keeping fully oversubscribed and we appreciate it very much.
Great, thanks Marc. That puts a down [ph] in transformation look forward to seeing you in Boston next week.
We look forward to that, thank you.
Thank you. And our next question comes from the line of Howard Smith, First Analysis. Please go ahead.
Thank you for taking my question. First, and you've talked a little bit this but I want to approach a slightly different way. As you think about the return to growth, you've got the decline which you're stilling and then growth in new areas. Do you have more visibility into the timing and pace of stemming the decline and part of the variability is just -- how fast or how vigorously some of the growth kicks in, I'm just curious kind of relatively at a high level how you're thinking about those?
Ken, why don't you start-off? I can try and mend if there is anything else to add.
So I think in terms of the growth, we had some major initiatives to improve our go-to-market strategy and in sales in terms of adding some new sales people and looking at different channels. That has resulted in a significant increase in our commercial pipeline. Our pipeline is up 30% versus last quarter and that's a strong testament of that group. And the pipeline is in the neighborhood of $100 million. Obviously, as we've looked at that pipeline, those are -- that's contract value and our contracts are based in the managed service platform of five years. So we can do the math on a $100 million pipeline over five-years with that annual revenue could translate to. Some of that pipeline is still -- is being qualified but there is enormous opportunities to return to growth here, to offset the flattening that we've had over the last couple of quarters. So we're very optimistic that 2017 will be a year of growth given the improvements that we've seen in the sales force and in the pipeline that continues to be very attractive.
Okay. And just a follow-up in terms of the -- not the growth side but the decline side, I mean is that something at this point you've got to talk to other customers, you know the plans as far as 2G and stuff or probably most of them, you're pretty good visibility and something can come out of the blue but pretty good visibility on the timing and extent of kind of the declining side and when that end?
I'll try on this; I think however we do have a pretty good hand on at this point. It was hard -- when we first came in I think it was harder because we had engaged with all the customers. I think our customers now know us, they know that we care. We've taken customers that were declining and now they are not declining, we've had other customers that were declining and now they started to grow. We had some that were declining and they said they will keep declining, so we kind of I think have a much better handle on that at this point certainly than we did -- when we first came in at the end of last year and as we started off last quarter. So it's -- so I think there is a much better understanding and that helps give us more comfort around the pivot back to growth, understanding what's going on in these accounts.
And when I started off my comments about thinking customers are working to improve our share, we care deeply that we will try to -- I think we are always doing a better job that we can do a better job but that's essential too. You've got to serve people well. And once you do, it's a great business model because you have a solid base, you can be model up base with known customers, then you could model out growth with new logos that you're winning as well. So that plan we talked about I think in Q4 last year and Q1 was they sell tactical plan and was stabilized that they grow the base, win their logos and I think that's been executed on well and we'll continue to do so under the leadership of our Chief Revenue Officer then and the team that he's built, he's just -- there are some great people here and then we added to that with some really wonderful hires. So we're excited about what they are creating in the pipeline that Ken referenced.
Great. Just real quick, I'll sneak one more in here for Ken, accounting question. Amortization of intangibles outside of the impairment, do you know what that was in the quarter and based on the impairment, do you know how that's going to be kind of run rate going forward?
Yes, it's roughly $300,000 for the quarter.
Okay. Thank you.
Thank you. And our next question comes from the line of Harvey Patel with Partech LP [ph]. Please go ahead.
Thank you very much. Can you give us a handle, I know you're not breaking this thing down finally for us because when you talk about horizontal versus vertical, is the preponderance of business today a vertical or horizontal and which of those two extremes if you will are -- is growing faster?
Hi Harvey, it's Marc. We don't break out the percentages but the focus has been on vertical solutions, the reason for that is -- it is -- we believe that that is the highest value for both, us, as a company and our shareholders as well, as for our customers because there is a whole solution. It's a device, its network, its platform, its application and overtime it adds in more analytics as well. And I think we've seen that really confirmed in the marketplace, I mean Harvey I'm sure you've paid attention to Verizon by fleet metric [ph], you see when you have an end-to-end solution, there is a lot of value there. It's very sticky because you're providing a lot of ROI to the customer. So it's a compelling business case. So we're -- that's our greatest concentration and focus and that's where the growth is right now in the business.
In the horizontal segment, the challenge there is, you are reselling that work, we don't obviously own an RF network, we try to add value, and we think we have a great platform and that platform does things like, it manages devices, it manages network connections, its pre-integrated into numerous carriers, it does billing, it does applications enablement, it not truly what it does, it's very complex. We've also seen that people think those platforms are valuable, that's what the Cisco-Jasper deal was all about. So we think we create value there but in terms of growth right now is in the vertical. We think we'll be growing in the horizontal but that comes a bit later in terms of the development of the business. But that's a little color for -- you're not giving here the breakdown you want.
Our plan here is get through the transformation, and then at some point start providing some guidance and some metrics, and then do that on a consistent basis. That's still the plan but we want to get through the transformation first.
Okay, very good. In the security area, there is tremendous proliferation out there of extremely low cost, almost self-installed types of security and video monitoring systems. Does that have any impact on your business, either positively or negatively?
Well, I think -- first of all, I think the market for security is growing and there are certain, there is a certain demographic that do it yourself, internet monitored or self-monitored solution may be attractive too. That may more likely be a millennial, starting off. So I think in the overall macro trend you have to be sensitive to that. I think what people -- there is still that market for the central station alarm monitored center, in many cases insurance companies run that if it's a higher value home or the consumer runs that for peace of mind.
So that market is still continuing to grow, so I think what's happened is that securities in growth area -- the do it yourself market is probably a market expansion with much more of a B2C place, not our traditional market. We're very focused on enterprise solutions, B2B to B2D2B, not B2C. So for us we're not focused on that piece, we're focused on that higher value customer which is expanding still. And we've also added in that enterprise customer with the new fire solution. So I'm sure it has some long-term impact at a point but you never know, I mean a millennial may age and say now it's time for it to be monitored something by 24 by a central station alarm monitoring company.
The final question I have -- I may have missed, I missed the couple of minutes at the opening remark. On Omnilink and the impairment charge, what's the situation with the products and services that you acquired, your company acquired from Omnilink and their utility till you going forward?
We like that market, we think that the demographics are favorable with the offender monitoring, that business has started to grow again for us. We have both platform and hardware enhancements planned. Software is really in -- throughout this year and hardware into next year. So we'll invest there, we think it's a good growing market, it's a strong asset tracking type solution of a very important asset. So we like to add business, I think that the impairment relates more to where were the original forecast versus the -- the experience, doesn't mean it's not growing but it may not be in line with people originally thought. Ken can comment more on that.
Absolutely correct, Marc. It's really relating to the original forecast back in '14 had significant growth and we still believe this is a nice market for us, it's core of the Company, and just with the growth rates are more conservative than what was originally thought in 2014 which were very, very aggressive growth rates, hyper growth.
Okay. Thank you very much.
[Operator Instructions] And I'm showing no further questions in the queue.
Great. Well, I'd like to just say thank everybody for your interest, your continued support. If there are investors that are attending either Oppenheimer or Canaccord next week in Boston, Ken and I will be speaking at both of those. We look forward to seeing you there. And we will look forward to talking with you otherwise later in the year when we report on Q3. Have a wonderful afternoon. Thank you.
Ladies and gentlemen, that concludes our program. You may now disconnect.
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