Full Year 2008
Revenue increased 77.9% to $427.4 million, from $240 million in 2007. The
strong revenue growth was driven by continued demand for surveillance and
safety products in China , and increased government deployment of surveillance
and safety systems in public places. During 2008, government customers
account for 49.0% of total revenue, while corporate customers account for
51.0%. Organic revenue for 2008 was approximately $361.5 million, or 84.6% or
total revenue. Non-organic revenue, or revenue of acquired companies, was
approximately $65.9 million or 15.4% of total revenue. As a result, organic
revenues grew during the year by $170.8 million, or 89.6%, from $190.7 million
in 2007.
Full year 2008 gross profits increased 73.3% to $120.5 million, from $69.5
million for 2007. Gross margin for the year was 28.2%, a slight decrease from
28.9% for 2007. Income from operations in 2008 increased 34.7% to $57.5
million, from $42.7 million in the prior year; however, operating margin
decreased to 13.4% from 17.8%, primarily due to higher selling, general and
administrative (SG&A) expenses and non-cash expenses.
Accordingly, GAAP net income in 2008 decreased 7.7% to $32.6 million, from
$35.3 million in 2007; and, GAAP earnings per diluted share decreased to $0.72
from $0.91 in 2007. GAAP results for the full year of 2008 include: (1)
approximately $19.6 million, or $0.43 per diluted share, of non-cash expense
related to the redemption accretion on convertible notes (as described below
under the caption ''Explanation of Redemption Accretion''); (2) approximately
$9.5 million, or $0.21 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 $13.8 million, or $0.31 per diluted share,
of non-cash expense related to employee stock compensation recognized pursuant
to SFAS 123 (R).
Excluding these non-cash expenses, adjusted net income increased 62.1% to
$75.6 million, versus $46.6 million in 2007. Adjusted earnings per diluted
share grew 39.2% to $1.67, from $1.20 per diluted share in 2007 (see the
''Reconciliation of GAAP to non-GAAP Measures" toward the end of this
release).
Financial Outlook
For the full year 2009, the Company reaffirms its revenue projection of
$600 to $630 million. The Company also reaffirms adjusted net income of
$108-$113 million and adjusted diluted earnings per share of $2.16-$2.26. The
company estimates that non-cash interest expense on redemption accrual,
employee stock compensation expense, and depreciation and amortization will be
approximately $22.7 million, $18.5 million, and $12 million, respectively.
Mr. Tu concluded, ''We remain confident about the business and the growth
of the security industry. Our strategy has always been to be the market
leader, and we have executed on our strategy successfully. We have built our
industry's leading brand, distribution, product and services breadth, and
manufacturing capabilities, and we have begun to realize the benefits of our
self-reinforcing foundation, as we continue to see higher revenues, and a
greater number of larger Safe City contracts.
In the coming year, we aim to expand our market leadership in China
through greater integration of our corporate strengths and assets. We believe
that our strategic consolidation efforts during the previous two years provide
us with the strongest and most complete capabilities in offering turnkey
security solutions demanded by our large corporate and government customers.
We also aim to expand our international business through strategic
partnerships and targeted market developments. Even taking into account the
current global economic situation, we believe this is a great time to leverage
our expertise and increase our brand awareness on a more global scale. As
such, we continue to evaluate additional strategic partnerships with leading
vendors of security technology and services that seek to leverage our leading
brand, distribution, and manufacturing capabilities in the Chinese market.''
