Second Quarter 2008 Adjusted Pro Forma Financial Highlights vs. Second Quarter
2007
-- Revenues Increased by 66% to $36.5 Million
-- Gross Profit Rose by 25% to $7.3 Million
-- EBITDA Essentially Flat with Q2 2007 at $1.7 Million
-- Diluted EPS of ($0.01), Compared to $0.02
Business Highlights
-- In April, Secured $15 Million in Financing to Pursue Strategic Growth
Initiatives
-- New Management Appointees in Argyle Corrections to Support Larger Scale
and Growth
-- Com-Tec Technology Integration Completed in August
SAN ANTONIO, Aug. 14 /PRNewswire-FirstCall/ -- Argyle Security, Inc.
(OTC Bulletin Board: ARGL), ('Argyle') a service and solutions provider in the
physical electronic security industry, today announced financial results for
the three and six months ended June 30, 2008.
Adjusted Pro Forma Results(1)
For the three months ended June 30, 2008, Argyle's pro forma revenues
increased by 66%, to $36.5 million, compared to $21.9 million for the same
period last year. Pro forma revenues in Argyle Corrections Group rose by 94%
to $28.8 million, driven largely by favorable industry trends, retention and
expansion of business with existing customers, as well as new customers. Pro
forma revenues in Argyle Commercial Security Group increased by 9%. Argyle
Commercial Security has continued to make investments in its sales force,
which are expected to drive both contract and service revenues in the
commercial market. Based on favorable conditions in Argyle Commercial
Security's target markets of petrochemical, energy infrastructure and
healthcare, Argyle Commercial Security believes it is well-positioned for a
strong second half of 2008.
Adjusted pro forma gross profit increased by 25% to $7.3 million, or 20.1%
of sales, compared to $5.9 million, or 26.7% of sales, in the comparable
period of 2007. Similar to the first quarter of 2008, the gross margin
percentage in the second quarter of 2008 was adversely impacted by the
inclusion of Com-Tec's revenues and expenses into Argyle Corrections, as
Com-Tec is currently engaged in a significant project that has margins well
below Argyle Security's corporate average.
Second quarter margins in Argyle Corrections were also impacted by certain
operational inefficiencies in its security electronics business. These issues
first became apparent in the first quarter of 2008, and have largely been
corrected. Argyle believes it should see margins improve during the balance
of the year, primarily due to the operational improvements that have been made
within its security electronics business, as well as the expected benefit from
lower-cost technology integration.
Adjusted pro forma operating expenses were $6.3 million, up 41% from $4.5
million in the second quarter of 2007. In the second quarter of 2008, Argyle
incurred higher than expected legal and accounting fees related to being a
public company. Adjusted operating income in the second quarter of 2008 was
$1.0 million, or 2.8% of sales, compared to $1.4 million, or 6.3% of sales, in
the second quarter of 2007. Pro forma adjusted EBITDA of $1.7 million, or
4.5% of adjusted pro forma revenues, was essentially flat with second quarter
2007 pro forma adjusted EBITDA of $1.7 million, or 7.8% of revenues. In the
second quarter of 2008, adjusted pro forma net income was $36,000, or ($0.01)
per diluted share, compared to adjusted pro forma net income of $122,000, or
$0.02 per diluted share, in the prior-year period.
For the six months ended June 30, 2008, Argyle's pro forma revenues
increased by 68% to $75.8 million, compared to $45.1 million in the same
period of 2007. Gross profit increased by 41% to $15.3 million, or 20.2% of
sales, compared to $10.9 million, or 24.1% of sales, in the first six months
of 2007.
EBITDA rose 23% to $3.5 million, compared to $2.8 million for the same two
quarters last year. The comparable EBITDA margin was 4.6%, compared to 6.2%.
Net income for the six months ended June 30, 2008 was $359,000, or $0.04 per
diluted share, compared to net income of $186,000, or $0.03 per diluted share
in the prior-year period.
Actual Results
Revenues and gross profit for the second quarter of 2008 were $36.5
million and $6.1 million, respectively. Argyle recognized no revenues or gross
profit in the second quarter of 2007. The operating loss was $679,000 for the
three months ended June 30, 2008, compared to an operating loss of $230,000
for the three months ended June 30, 2007. Argyle's net loss for the three
months ended June 30, 2008 was $1.0 million, or ($0.19) per share (basic and
diluted), compared to net income of $50,000, or $0.00 per share (basic and
diluted), in the second quarter of 2007.
Revenues and gross profit for the six months ended June 30, 2008 were
$74.1 million and $12.5 million, respectively; Argyle recognized no revenues
or gross profit for the six months ended June 30, 2007. Argyle's operating
loss was $1.1 million for the six months ended June 30, 2008, compared to an
operating loss of $520,000 for the six months ended June 30, 2007. Argyle's
net loss for the six months ended June 30, 2008 was $1.8 million, or ($0.32)
per share (basic and diluted), compared to net income of $101,000, or $0.00
per share, for the six months ended June 30, 2007.
Backlog
As of June 30, 2008, net backlog for Argyle Corrections Group was $70.5
million, compared to pro forma net backlog of $100.1 million as of June 30,
2007. The pro forma net backlog number assumes that the acquisitions of
Com-Tec and PDI were completed on January 1, 2007.
Beginning in 2008, Argyle Security opted to disclose net backlog only for
Argyle Corrections Group (and after the elimination of intercompany revenues).
Management Overview
Bob Marbut, Chairman and Co-CEO of Argyle Security, stated, 'We are very
pleased with our revenue growth in the quarter, with overall revenues up 66%
and revenues in the Corrections Group up 94%. This level of growth largely
reflects the robust market conditions in the corrections sector, but also our
ability to deliver superior products and services to an expanding customer
base.
'However, we also had some challenges in the quarter, resulting in an
EBITDA margin that was below our expectations. We started to strengthen the
infrastructure of our security electronics business in the first quarter, but
it took more time than we had expected to develop the people, systems and
structure necessary to support our significant growth. But, as a result of the
actions that have been taken, we believe that we will be in a position to
achieve the margin run rates that we had targeted for the last half of 2008,'
he concluded.
Sam Youngblood, President of Argyle Security USA, continued, 'We believe
that with the operational issues now rectified, we have the proper
infrastructure in place to support our current and future growth. We have
committed additional management resources to ensure that we are running at
optimal efficiency. Most notably, we have appointed Mike Peterson as COO of
Argyle Corrections Group, and we are also providing more comprehensive
training to all of our supervisory personnel. With tighter management
controls and better training, we believe we can drive more profitable revenue
growth. We also expect to realize significant costsavings by integrating
Com-Tec's lower-cost technologies across Argyle USA, which was largely
completed in August of this year. We believe this will be reflected in our
margins starting in the fourth quarter of this year.'
Ron Chaimovski, Vice-Chairman and Co-CEO of Argyle Security, added, 'In
the face of challenging economic times, our primary focus for driving new
business in Argyle Commercial Security Group is on those industries where
security is not an option, but a necessity - petrochemical, infrastructure,
such as ports, utility companies, and waste and water treatment plants, and
healthcare. Our plan remains to expand our national footprint in the
commercial market, through a combination of organic growth and acquisitions.
As the market is highly fragmented and ripe for consolidation, there is an
abundance of acquisition candidates which may become available to Argyle. We
continue to evaluate opportunities that make good strategic sense for Argyle
and could be acquired for the right price.'
Argyle Updates Guidance for 2008
Based on its strong first-half performance and robust market conditions in
the corrections industry, Argyle expects full-year 2008 revenues to be at the
top end of the previously forecasted range of $128 to $142 million. Argyle
now expects EBITDA margins of approximately 7% for the full-year 2008, which
is below previous expectations for 9 to 10%, and due to 1) margin erosion in
the security electronics business, 2) higher than expected legal and
accounting fees and 3) non-cash compensation expense. However, as the
previously listed items were primarily concentrated in the first half of the
year, Argyle does expect to achieve an EBITDA margin run rate of approximately
9% in the second half of 2008.
Conference Call Information
Argyle Security will host an investor conference call at 10:00 a.m. ET,
today, August 14, 2008 to discuss its results. Interested parties should call
888-713-4213 (domestic) or 617-213-4865 (international) at least five minutes
before the scheduled start time; the passcode is 89962604. This call may also
be accessed via the Internet at:
www.argylesecurity.com
For those who are unavailable to listen to the live broadcast, a replay
will be available through August 28, 2008 and can be accessed by dialing
888-286-8010 (domestic), and 617-801-6888 (international).
