Argyle Security, Inc. Announces Second Quarter 2008 Financial Results

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...


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."