For the fourth quarter 2007, the Company reported GAAP earnings per
diluted share of $0.35 compared to $0.20 in the fourth quarter 2006. GAAP
results for the fourth quarter of 2007 include: (1) approximately $4.4 million,
or $0.09 per diluted share, of non-cash expense related to the redemption
accretion on convertible notes; (2) approximately $1.7 million, or $0.04 per
diluted share, of non-cash expense related to depreciation and amortization of
long-lived assets due to our acquisition of subsidiaries, and (3)
approximately $2.2 million, or $0.05 per diluted share, of non-cash expense
related to employee stock compensation recognized pursuant to SFAS 123 (R).
Additionally, in the fourth quarter of 2007, the Company realized a one-time
pre-tax gain of $8.11 million, or $0.16 per diluted share (after tax effect),
related to the disposal of property and land use right during the year.
Excluding these non-cash expenses and the one-time gain, diluted earnings per
share was $0.38, compared to $0.22 per diluted share in the fourth quarter
2006 (see "About Non-GAAP Financial Measures" toward the end of this release).
Diluted share count increased 28% in the fourth quarter 2007 to 42.15 million
from 33.17 million in the fourth quarter of 2006.
Fourth quarter revenue increased 106% to $84.2 million compared to $40.9
million in the fourth quarter 2006. Organic revenue during the fourth quarter
was approximately $69.3 million, or 82.3% of total revenue (which included the
fourth quarter 2007 revenue contribution from Cheng Feng). Non-organic
revenue, or revenue of acquired companies totaled approximately $14.9 million
or 17.7% of total revenue in the fourth quarter 2007. As a result, organic
revenues grew during the fourth quarter by $28.4 million, or 69.3% from $40.9
for the same period last year.
In the fourth quarter gross profits increased $14 million, or 130%, to
$24.7 million from $10.7 million for the same period last year. Gross margin
for the fourth quarter was 29.3%, as compared to 26.2% for the same period
last year. The increase in gross margin reflected the growing recognition of
sales of some higher-margin Safe City projects.
Income from operations in the fourth quarter increased 63.9% to $13.6
million from $8.3 million for the same period in 2006. Operating margin
decreased to 16.1% from 20.2% in the fourth quarter last year. Net income in
the fourth quarter of 2007 increased 124% to $14.8 million, up from $6.6
million in the same quarter last year. Net income per share was $0.35 versus
$0.20 in the fourth quarter 2006.
The Company's cash position at the end of the year was $89.1 million, up
from $79.8 million at the end of the third quarter. Total debt at the end of
2007 was $137.2 million, up from $130.5 million at the end of the third
quarter of 2007.
Mr. Guo Shen Tu , Chief Executive Officer of China Security, commented, "We
are encouraged by the integration of our 2007 acquisitions and partnerships,
which are contributing nicely to our revenue growth, while providing synergies
to our overall business. In the fourth quarter we continued to see
significant demand from government Safe-City contracts, and importantly, the
size, duration, and potential margins of the contracts we are signing are
continuing to increase. Over the next four quarters, we will continue to
focus our energies on integrating our acquisitions and generating revenue from
the manufacturing and systems integration businesses, while building our
operating services and international products divisions to prepare them to
contribute more substantially to overall revenue growth in 2009."
Financial Outlook
For the first quarter of 2008, the Company expects to achieve revenues
between $68-$70 million. Excluding the non-cash charges related to the
redemption amount payable on convertible notes, the accrual of performance
based employee compensation, and the depreciation and amortization of long
lived assets related to the Company's recent acquisitions. The Company
expects to achieve an adjusted net income of $13-$14 million and adjusted
diluted earnings per share of $0.31-$0.34 in the first quarter of 2008.
The Company estimates that non-cash interest expenses associated with the
redemption accretion on convertible notes, the employee stock compensation and
the depreciation and amortization of long lived assets related to the
Company's recent acquisitions for the first quarter of 2008, will be
approximately $4.4 million, $3.1 million and $1.9 million, respectively.
For the full year 2008, the Company expects to achieve revenues between
$350-$370 million. The Company expects to achieve an adjusted net income of
$65-$75 million and adjusted diluted earnings per share of $1.50-$1.75. The
major contributors to results should continue to be system installation and
manufacturing of security and safety products with marginal contribution
coming from operating services and international products. The Company
expects non-cash expense related to the redemption amount payable on
convertible notes will be approximately $17.6 million in 2008. Going forward,
we expect to continue to incur accrual non cash stock compensation for 2008.
We also expect higher depreciation and amortization costs related to the
intangible assets from an increasing number of acquisitions.
