Argyle Security, Inc. Announces Third Quarter 2008 Financial Results

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...


It was also reported that, based on a combination of factors, including the current economic environment, Argyle's operating results and a sustained decline in Argyle's market capitalization, management has concluded that there were sufficient indicators which required us to perform a goodwill impairment analysis as of September 30, 2008 . We have not completed this analysis due to the complexities involved in determining the implied fair value of the goodwill of each of Argyle Security USA's business units. However, based on the work performed to date, we have concluded that an impairment loss is probable and can be reasonably estimated.

Accordingly, Argyle has taken a $16.9 million non-cash goodwill impairment charge during the third quarter of fiscal 2008, representing our best estimate of the impairment loss. Management expects to finalize our goodwill impairment analysis during the fourth quarter of fiscal 2008. It is possible that adjustments to the goodwill impairment charge would need to be made when the goodwill impairment test is completed. Any adjustments to the preliminary estimates as a result of completing this evaluation will be recorded in Argyle's financial statements for the quarter and fiscal year ended December 31, 2008 , which are expected to be included in its Annual Report on Form 10-K to be filed with the SEC on or about March 31, 2009 .

Management Overview

Bob Marbut , Chairman and Co-CEO of Argyle , stated, "In light of the unpredictable and uncertain economic times facing us, we are very pleased with our continued revenue growth during the quarter, with overall revenues increasing 13% and revenues in the Argyle Corrections Group up 15%. However, we've also continued to encounter some substantial internal challenges in the quarter, resulting in project cost overruns and an EBITDA margin that was well below our expectations. Over the past two months, we've taken a number of steps to strengthen our infrastructure in order to deal with both operational- management and financial-control issues that have been identified as causes of the problems. Management has put a heavy emphasis on the development of people, systems and structure. In conjunction with these endeavors, our top three priorities are 1) the generation of profitable sales, 2) the conversion of revenues into cash and 3) the prudent management of cash. We believe that these efforts, combined with our healthy cash condition, will position us well to take advantage of market opportunities when the economy improves."

Sam Youngblood , President of Argyle Security USA, said, "We believe that we are now in position to improve our EBITDA because of the phase-out or elimination of three significant factors which have contributed to margin erosion. First, the task of hiring and training our workers to meeting the changing demands of our customers was greater and more costly than expected; however, we believe that such investment will benefit us and our customers going forward. Second, we are still seeing the lasting negative cost effects resulting from a new venture which was ultimately more costly and riskier than anticipated. Finally, during the last six months, PDI was dramatically affected by the rising cost of raw materials from a single-source supplier, and such costs were not able to be passed on to its customers. We now purchase our raw materials from multiple vendors and have been able to implement new pricing procedures to allow greater flexibility for dealing with the volatility in the commodities market." he stated.

Ron Chaimovski, Vice-Chairman and Co-CEO of Argyle , added, "These are uncertain economic times, and Argyle's team is working to navigate through this downturn while remaining focused on maintaining and further strengthening our business model. We are very aware of the challenges ahead, but are cautiously optimistic that our plan will allow us to continue our growth. There has been continued growth in the corrections market and we believe that this trend will continue despite greater attention by local, state and federal governments on spending commitments. The amount of new bookings received in October is encouraging. We also believe that a slower pace of acquisitive growth during 2009 will enable us to concentrate on fixing the operational issues discovered during the past six months."

Argyle Updates Provides Final Guidance for 2008