China Security & Surveillance Technology Reports Third Quarter 2007 Financial Results

SHENZHEN, China , Nov. 12 /Xinhua-PRNewswire/ -- China Security & Surveillance Technology, Inc. (" China Security" or the "Company") (NYSE: CSR), a leading provider of digital surveillance technology in China , today reported its financial...


SHENZHEN, China , Nov. 12 /Xinhua-PRNewswire/ -- China Security & Surveillance Technology, Inc. (" China Security" or the "Company") (NYSE: CSR), a leading provider of digital surveillance technology in China , today reported its financial results for the third quarter ending September 30, 2007 .

The Company reported GAAP earnings per diluted share of $0.29 for the third quarter of 2007 compared to $0.36 in third quarter of 2006. Results for the third quarter of 2007 include: (1) approximately $4.4 million, or $0.11 per diluted share, of non-cash expense related to the accrual of amounts payable under outstanding convertible notes in the event that such notes are redeemed (as described below under the caption "Explanation of Redemption Accrual"); (2) approximately $1.4 million, or $0.04 per diluted share, of non- cash expense related to the amortization of intangible assets and (3) approximately $1.0 million, or $0.02 per diluted share, of non-cash expense related to the accrual of employee compensation. Additionally, the Company realized a one-time gain of $5.5 million, or $0.14 per share, related to the disposal of property and land use rights. Excluding non-cash expenses and one- time gains for the third quarter 2007 versus the prior year period, diluted earnings per share was $0.32, compared to $0.37 per diluted share in the third quarter of 2006 (see "About Non-GAAP Financial Measures" toward the end of this release). Diluted share count increased 43% in the third quarter of 2007 to 40.5 million from 28.4 million in the third quarter of 2006.

Revenue increased 50.6% to $65.4 million compared to $43.4 million in the third quarter of 2006. Revenue growth was modestly slower than expected as a result of an increase in the size of the contracts signed, which resulted in a longer installation time. Historically, average contract size was $1-1.5 million. Recent contracts have ranged from $5-8 million. Consequently, the time duration to fulfill some of these newer contracts has increased from 6-12 weeks historically to 15-20 weeks presently.

Mr. Guo Shen Tu , Chief Executive Officer of China Security, commented, "We are pleased with the traction we are beginning to see not only in our organic business, but also with the integration of recent acquisitions and the launch of new business divisions such as operating services. During the third quarter, we secured forty-nine new contracts across a wide array of private businesses as well as local and city governments. We are seeing significant demand from government Safe-City contracts, and importantly, the size, duration, and potential margins of the contracts we are signing are increasing."

Third quarter gross profits increased $6.9 million, or 53.5%, to $19.7 million from $12.8 million for the same period last year. Gross margin for the third quarter was 30.2%, as compared to 29.6% for the same period of 2006. The increase in gross margin reflected the recognition of sales of some higher- margin Safe City projects. The sequential increase in margin from 28.6% in the second quarter reflects the Company's ongoing improvement in economies for scale and improved pricing strength.

Income from operations in the third quarter increased 20.7% to $13.0 million from $10.8 million in the prior year's third quarter. Operating margin decreased to 19.9% from 24.8% in the third quarter last year which is primarily due to the increase of the Company's selling and marketing expenses and the general and administrative expenses. However, recent higher margin business led to higher sequential margins from 18.4% in the second quarter of this year.

Net income in the third quarter of 2007 increased 14% to $11.7 million, up from $10.3 million in the same quarter last year. GAAP net income per share was $0.29, versus $0.36 in the third quarter 2006. Net income per share takes into account approximately $6.8 million non-cash expense, or $0.17 per share on a diluted basis. Excluding these non-cash charges, and a one-time gain of $0.14 on the disposal of property and land use rights, diluted EPS for the third quarter would have been $0.32.

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