ARGYLE SECURITY 
By Third Quarter 2008 Adjusted Pro Forma Financial Highlights vs. Third Quarter
2007
- Revenues increased by 13% to $31.7 million.
- Gross profit declined by 27% to $4.7 million.
- $16.9 million Goodwill Impairment Charge.
- EBITDA at
- Diluted EPS of
Business Highlights
- ISI Detention Received over
- Closes
Revenues and gross profit for the third quarter of 2008 were
Revenues and gross profit for the nine months ended
Adjusted Pro Forma Results
For the three months ended
Adjusted pro forma gross profit decreased by 27% to
Third-quarter gross margins in Argyle Corrections were negatively impacted
by significant cost overruns on several very large correctional jobs within
its detention contracting and security electronics businesses, as well as
material cost increases at its prison furniture business. The cost overruns
are primarily attributable to the Company's failure to adequately scale its
project management infrastructure and management, as necessary, due to the
significant revenue growth in 2008. The additional costs were primarily
incurred because of our need to provide unanticipated additional training to a
large number of new employees, as well as training to expand the skills of our
existing employees, and the unexpected overtime required on certain jobs.
These issues first became apparent in the first quarter of 2008, and were
thought to largely to have been corrected in the second quarter of 2008.
Adjusted pro forma operating expenses were
Pro forma adjusted EBITDA was
For the nine months ended
EBITDA decreased 397% to
Backlog
As of
Beginning in 2008,
Argyle Reports Material Weakness and Impairment to Goodwill
Management announced that it has identified several internal control
deficiencies that resulted in a material weakness in its revenue recognition
processes. The deficiency consists of inadequate levels of review of complex
and judgmental accounting issues. To address the deficiency, among other
things,
It was also reported that, based on a combination of factors, including
the current economic environment,
Accordingly,
Management Overview
Ron Chaimovski, Vice-Chairman and Co-CEO of
Argyle Updates Provides Final Guidance for 2008
Conference Call Information
Argyle Security will host an investor conference call at
www.argylesecurity.com
For those who are unavailable to listen to the live broadcast, a replay
will be available through
About Argyle Security, Inc.
Formed in 2005 and headquartered in
Argyle Corrections is the controlling entity for business units consisting of ISI, PDI, Com-Tec and MCS and is one of the nation's largest providers of detention equipment products and service solutions, as well as turnkey, electronic security systems. These systems include unique engineering competencies and proprietary software products. Currently, MCS-Commercial Fire & Security is the only business unit comprising Argyle Commercial Security. Argyle Commercial Security focuses on the commercial security sector and provides turnkey, electronic security systems to the commercial market.
Please visit http://www.argylesecurity.com or
http://www.argylesecurityusa.com for additional information on
Disclosure Regarding Non-GAAP Financial Measures
Since
Adjusted pro forma net income is an alternative view of performance used by management, and we believe that investors' understanding of our performance is enhanced by disclosing this performance measure. We report adjusted pro forma net income in order to present the results of our major operations -- the construction, installation, marketing and sale of various electronic security systems for commercial accounts and detention hardware (including security doors and frames, jail furniture, security glazing, and other security-based systems) and electronic control systems for correctional facilities -- prior to considering certain income statement elements, principally amortization of intangible assets. We have defined adjusted pro forma net income as net income before the impact of purchase accounting for acquisitions, acquisition-related costs, discontinued operations and one-time expenses associated with stock appreciation rights. The adjusted pro forma net income measure is not, and should not be viewed as, a substitute for U.S. GAAP net income.
EBITDA (earnings before interest, taxes, depreciation and amortization) is
used by management as a performance measure for benchmarking against the
Company's peers and competitors. The Company believes EBITDA is useful to
investors, because it is frequently used by securities analysts, investors and
other interested parties to evaluate companies in the security industry.
EBITDA is not a recognized term under GAAP.
The presentation of Adjusted Pro Forma Results and EBITDA is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with GAAP.
Safe Harbor
Certain statements in this press release constitute forward-looking
statements within the meaning of the Private Securities Litigation Reform Act
of 1995, as amended. When used in this press release, words such as "will,"
"believe," "expect," "anticipate," "encouraged," "foresees," "forecasts,"
"estimates" and similar expressions, as they relate to the company or its
management, as well as assumptions made by and information currently available
to the company's management identify forward-looking statements. Such forward-
looking statements include statements regarding
Company Contacts: Investor Relations:
Bob Marbut, Chairman & Co-CEO Kevin McGrath
Roni Chaimovski, Vice-Chairman & Co-CEO Cameron Associates
Don Neville, EVP and CFO Phone: (212) 245-8800
Argyle Security, Inc. kevin@cameronassoc.com
Phone: (212) 245-2700 (NY)
Phone: (210) 828-1700 (TX)
Phone: 001-972-545-212-911 (Tel Aviv)
Media Relations:
Deanne Eagle
Cameron Associates
Phone: (212) 554-5463
deanne@cameronassoc.com
Argyle Security, Inc
Reconciliation of GAAP Net Income to Adjusted Net Income
(in thousands)
Three Months Ended Nine Months Ended
September September September September
30, 30, 30, 30,
2008 2007 2008 2007
GAAP net income (loss) $(18,367) $(116) $(20,121) $(15)
Pro forma adjustments -
addbacks (reductions)
Argyle salary expense
(increase) for management
team in 2007 - (74) - (518)
SARS expense reduction for
2007 - 1,363 - 1,363
Non-cash compensation expense
(increase) for 2007 - (141) - (424)
Depreciation expense (increase)
on revalued assets in 2007 - (56) - (214)
Amortization of intangible
expense (increase) in cost
of goods sold for 2008 and 2007 - (721) (37) (3,285)
Amortization of intangible
expense (increase) in
operating expenses for 2008
and 2007 - (211) (20) (1,079)
Reduction in rent expense for
2008 and 2007 - 34 6 104
Interest income increase /
(reduction) for 2008 and
2007 - (109) - (763)
Interest expense (increase) /
reduction for 2008 and 2007 - 56 (39) 1,454
Income / (loss) from
predecessor - Argyle
Security USA for 2007 - 946 - 450
Income / (loss) from
predecessor - Firequest for
2007 - 79 - 239
Income / (loss) from
predecessor - PDI for 2007 - 112 - 425
Income / (loss) from
predecessor - Com-Tec for
January 2008 and 2007 - 136 44 288
Provision (benefit) for
income taxes on pro forma
adjustments for 2008 and
2007 - (430) 33 902
Pro forma net income (loss) $(18,367) $868 $(20,134) $(1,073)
Amortization of intangible
expense in cost of goods
sold for 2008 and 2007 1,218 1,282 3,784 3,846
Amortization of intangible
expense in operating
expenses for 2008 and 2007 434 434 1,301 1,301
Provision (benefit) for
income taxes on pro forma
adjustments for 2008 and
2007 (628) (354) (1,933) (1,658)
Adjusted pro forma net income
(loss) $(17,343) $2,230 $(16,982) $2,416
Interest, net 939 419 2,559 2,064
Depreciation expense 543 384 1,659 1,064
Taxes, net (2,260) (936) (1,867) (610)
Pro forma EBITDA $(18,121) $2,097 $(14,631) $4,934
GAAP weighted average common
shares outstanding - basic 5,799,342 5,436,200 5,796,605 5,002,003
Restricted stock - 30,000 - -
Pro forma and adjusted pro
forma weighted average common
shares outstanding - basic 5,799,342 5,466,200 5,796,605 5,002,003
GAAP weighted average common
shares outstanding - diluted 5,799,342 5,436,200 5,796,605 5,002,003
Restricted stock - 125,000 - 95,000
Stock warrants - 1,089,946 - 1,068,504
Convertible debt - 192,500 - 192,500
Pro forma and adjusted pro
forma weighted average common
shares outstanding - diluted 5,799,342 6,843,646 5,796,605 6,358,007
Argyle Security, Inc
Adjusted Pro Forma Consolidated Statements of Operations
(unaudited)
(in thousands except share data)
Three Months Ended
September September
30, 30, $ %
2008 2007 Change Change
Revenues:
Contract revenues $22,583 $15,383 $7,200 47%
Contract revenues - related
party 2,906 8,132 (5,226) -64%
Service and other revenues 6,211 4,520 1,691 37%
Total revenues 31,700 28,035 3,665 13%
Cost of revenues:
Contract costs 21,951 18,311 3,640 20%
Service and other costs,
excluding amortization of
intangibles 5,013 3,219 1,794 56%
Total cost of revenues 26,964 21,530 5,434 25%
Gross profit 4,736 6,505 (1,769) -27%
Operating expenses:
Salaries and related expense,
including stock-based
compensation of $226 in 2008
and $142 in 2007 3,068 2,185 883 40%
Consulting fees and outside
services 916 445 471 106%
Depreciation 523 340 183 54%
Other general and
administrative expenses 1,965 1,822 143 8%
Goodwill impairment 16,928 - 16,928 0%
Amortization of intangible
assets - - - 0%
Total operating expenses 23,400 4,792 18,608 388%
Operating income (18,664) 1,713 (20,377) -1190%
Other income (expense):
Interest income 58 60 (2) -3%
Interest expense (997) (479) (518) 108%
Total other income (expense) (939) (419) (520) 124%
Income (loss) before provision
for income taxes (19,603) 1,294 (20,897) -1615%
Provision (benefit) for income
taxes (2,260) (936) (1,324) 141%
Net income (loss) $(17,343) $2,230 $(19,573) -878%
Deferred interest, net of taxes,
subject to possible redemption - - - 0%
Dividends on convertible
preferred stockholders 115 - - 0%
Net income (loss) allocable to
holders of non-redeemable
common stock $(17,458) $2,230 $(19,573) -878%
EBITDA Calculation:
Interest, net $939 $419 $520 124%
Depreciation 543 384 159 41%
Taxes, net (2,260) (936) (1,324) 141%
EBITDA $(18,121) $2,097 $(20,218) -964%
Weighted-average number of
shares of common stock
outstanding exclusive of
shares subject to possible
redemption:
Basic 5,799,342 5,466,200 333,142 6%
Diluted 5,799,342 6,843,646 (1,044,304) -15%
Net income (loss) per share
allocable to holders of
non-redeemable common stock:
Basic $(3.01) $0.41 $(3.42) -834%
Diluted $(3.01) $0.33 $(3.34) -1012%
Argyle Security, Inc
Adjusted Pro Forma Consolidated Statements of Operations
(unaudited)
(in thousands except share data)
Nine Months Ended
September September
30, 30, $ %
2008 2007 Change Change
Revenues:
Contract revenues $74,200 $37,919 $36,281 96%
Contract revenues - related party 15,131 21,299 (6,168) -29%
Service and other revenues 18,191 13,923 4,268 31%
Total revenues 107,522 73,141 34,381 47%
Cost of revenues:
Contract costs 73,415 45,589 27,826 61%
Service and other costs,
excluding amortization of
intangibles 14,025 10,162 3,863 38%
Total cost of revenues 87,440 55,751 31,689 57%
Gross profit 20,082 17,390 2,692 15%
Operating expenses:
Salaries and related expense,
including stock-based
compensation of $975 in 2008 and
$425 in 2007 10,056 6,968 3,088 44%
Consulting fees and outside
services 2,501 1,052 1,449 138%
Depreciation 1,583 932 651 70%
Other general and administrative
expenses 5,304 4,568 736 16%
Goodwill impairment 16,928 - 16,928 0%
Amortization of intangible assets - - - 0%
Total operating expenses 36,372 13,520 22,852 169%
Operating income (16,290) 3,870 (20,160) -521%
Other income (expense):
Interest income 136 171 (35) -20%
Interest expense (2,695) (2,235) (460) 21%
Total other income (expense) (2,559) (2,064) (495) 24%
Income (loss) before provision for
income taxes (18,849) 1,806 (20,655) -1144%
Provision (benefit) for income
taxes (1,867) (610) (1,257) 206%
Net income (loss) $(16,982) $2,416 $(19,398) -803%
Deferred interest, net of taxes,
subject to possible redemption - - - 0%
Dividends on convertible preferred
stockholders 201 - - 0%
Net income (loss) allocable to
holders of non-redeemable common
stock $(17,183) $2,416 $- 0%
EBITDA Calculation:
Interest, net $2,559 $2,064 $495 24%
Depreciation 1,659 1,064 595 56%
Taxes, net (1,867) (610) (1,257) 206%
EBITDA $(14,631) $4,934 $(19,565) -397%
Weighted-average number of shares
of common stock outstanding
exclusive of shares subject to
possible redemption:
Basic 5,796,605 5,002,003 794,602 16%
Diluted 5,796,605 6,358,007 (561,402) -9%
Net income (loss) per share
allocable to holders of
non-redeemable common stock:
Basic $(2.96) $0.48 $(3.44) -718%
Diluted $(2.96) $0.38 $(3.34) -880%
SOURCE Argyle Security, Inc.
