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Tri-S Security Announces Results for the Fourth Quarter and Year Ended December 31, 2008

Posted on: Wednesday, 25 March 2009, 16:00 CDT

Revenue for 2009 Forecasted at $145-$150 Million

ATLANTA, March 25 /PRNewswire-FirstCall/ -- Tri-S Security Corp. (Nasdaq: TRIS), a provider of security services for government and private entities, today announced its results of operations for the fourth quarter and year ended December 31, 2008. Tri-S provides security services through its two wholly-owned subsidiaries, Paragon Systems, Inc. ("Paragon") and The Cornwall Group ("Cornwall").

Fourth Quarter and Year Ended December 31, 2008

• Revenues increased 52% for the quarter and 59% for the year, to $35.8 million and $141 million, respectively, from $23.5 million and $88.9 million, respectively, a year ago.
• Gross profit increased for the quarter and for the year, to $2.2 million and $11.2 million, respectively, from $0.8 million and $5.5 million, respectively, a year ago, primarily due to the impact of the significant contracts awarded to Paragon.
• The operating loss for the year 2008 was $9.3 million compared to $6.8 million for the year 2007. The operating loss for the year 2008 includes a goodwill impairment charge of $6.2 million. Without this goodwill impairment charge, the operating loss for the year 2008 would have been reduced to $3.1 million, an improvement of $3.7 million over the year 2007.
• Net loss for the year was $14.1 million compared to a net loss of $4.3 million a year ago. Net loss per share for the year was $3.36 per share compared to $1.21 per share a year ago.
• EBITDA, as adjusted, for the year was a positive $1.1 million compared to a negative $2.9 million a year ago, an improvement of $4.0 million (see "EBITDA, as adjusted" definition below).

Recent Highlights

• As part of Tri-S's strategic review of its results and operations, Tri-S decided to explore the sale of the Cornwall business in order to focus on the government business conducted by Paragon and to reduce the overall debt load. After reviewing a number of potential offers, Tri-S has entered into a non-binding Letter of Intent to sell the Cornwall business and anticipates closing such sale within forty-five days, subject to the execution of definitive transaction documents and the satisfaction of customary closing conditions.

• Expect 2009 revenue to range from $140-$145 million for Paragon only, which is an increase year over year for Paragon of 35-40%.

• Signed a non-binding term sheet, subject to certain closing conditions with Wells Fargo Business Credit, for a new $25 million asset-based lending facility which will reduce our fees and interest charges by approximately $2.0 million on a full-year basis.

• Paragon awarded two new contracts to provide armed guard services in Los Angeles and San Diego, California. Both contracts are with the Department of Homeland Security and include security for the counties surrounding Los Angeles and San Diego. The Los Angeles contract and the San Diego contract are valued at approximately $94 and $47 million, respectively, for a combined total of $141 million in revenue over five years.

• Paragon awarded a contract to provide armed and unarmed guard services in Southern Virginia, scheduled to start April 1, 2009. The contract is with the Department of Homeland Security and is valued at approximately $42.5 million in revenue over five years.

• Total contract pipeline of approximately $531 million, including approximately $507 million of contracts under bid and approximately $24 million of contracts for which bids have been solicited and are in preparation.

• Settlement reached with respect to the litigation regarding Tri-S's initial public offering, subject to approval by the court.

• Agreement in principle reached regarding the investigation by Miami Dade County.

"The objective we set last year for top line growth in 2008 has been achieved with a 59% increase in revenue and total contract awards of $360 million," said Ronald Farrell, Chairman and CEO, Tri-S Security Corp. "The focus remains on continuing this growth and improving our margins in the government business. We expect Paragon to grow between 35 % and 40 % in 2009.

"I am pleased that we are exploring the sale of our Cornwall business in order to concentrate on the government business and to substantially reduce our debt load. So far in 2009, we have continued to maintain our operating costs flat and expect this trend to continue. Overall, we are focused on continuing to grow our government business and are excited about our opportunities during the coming year as evidenced by our current pipeline and the anticipated reduction to our debt costs."

Financial Discussion for Fourth Quarter and Year Ended December 31, 2008

During the fourth quarter of 2008, revenue for Tri-S grew 52% to $35.8 million from $23.5 million in the fourth quarter of 2007. The revenue increase was the result of new contracts awarded to Paragon. For the year 2008, revenue grew $52.4 million, or 59%, to $141.3 million as a result of new contract awards to Paragon.

During the year 2008, Paragon was awarded five new contracts which were transitioned into operations during the latter part of the second quarter and the beginning of the third and fourth quarters.

The gross profit for the fourth quarter of 2008 increased $1.4 million to $2.2 million from the $0.8 million gross profit for the fourth quarter of 2007. Gross profit for the year 2008 increased to $11.2 million from $5.5 million for the year 2007, an increase of $5.7 million. Both of these increases were primarily due to the new contracts awarded to Paragon.

Selling, general and administrative costs were $3.7 million for the fourth quarter of 2008 compared to $3.0 million for the fourth quarter of 2007, an increase of 23%, while revenue rose in the fourth quarter of 2008 by 53% compared to the fourth quarter of 2007. These costs increased to $13.6 million for the year 2008 compared to $11.4 million for the year 2007, an increase of 19%, while revenue increased for the same period by 59%. These costs represented 10.3% of revenue for the fourth quarter of 2008 down from 12.7% of revenue for the fourth quarter of 2007. For the year 2008, these same costs represented 9.6% of revenue down from 12.8% for the year 2007.

The operating loss for the fourth quarter of 2008 was $3.8 million compared to an operating loss for the fourth quarter of 2007 of $2.4 million, resulting primarily from the need to record additional goodwill impairment with respect to Cornwall of $2.2 million as a result of the impending sale under current market conditions. Without this goodwill impairment charge, the operating loss for the fourth quarter of 2008 would have been reduced to $1.6 million, an improvement of $0.8 million over the fourth quarter of 2007. The operating loss for the year 2008 was $9.3 million compared to $6.8 million for the year 2007. The operating loss for the year 2008 includes a goodwill impairment charge of $6.2 million. Without this goodwill impairment charge, the operating loss for the year 2008 would have been reduced to $3.1 million, an improvement of $3.7 million over the year 2007.

Net interest expense increased to $1.3 million for the fourth quarter of 2008 compared to $570,000 for the fourth quarter of 2007. For the year 2008, interest expense increased from $2.4 million for the year 2007 to $5.0 million for the year 2008, mainly due to increased borrowings on incremental revenue and over advance interest.

Income taxes increased by $2.6 million for the year 2008 due to management's decision to record a valuation allowance of the same amount against deferred tax assets.

For the fourth quarter 2008, Tri-S's net loss was $5.0 million, compared to $2.2 million for the fourth quarter 2007. Net loss per share for the fourth quarter 2008 was $1.20 compared to $0.60 for the fourth quarter 2007. For the year 2008, Tri-S's net loss was $14.1 million, compared to $4.3 for the year 2007. Net loss per share for the year 2008 was $3.36 compared to $1.21 for the year 2007.

EBITDA, as adjusted, was a loss of approximately $0.8 million for the fourth quarter of 2008 compared to a loss of $1.4 million for the fourth quarter of quarter of 2007. For the year 2008, EBITDA, as adjusted, was a positive $1.1 million compared to a loss of $2.9 million for the year 2007, an improvement of $4.0 million.

In this release, we use the non-GAAP financial measure, EBITDA, as adjusted. EBITDA, as adjusted, is calculated as earnings before interest; taxes; depreciation and amortization; income from joint venture, net; non-cash stock-based compensation; start-up costs; and other income/expense. A reconciliation of EBITDA, as adjusted, to net loss for the quarters and years ended December 31, 2007 and 2008, is attached to this press release.

Tri-S will host a conference call at 10:00 a.m. EDT on Thursday, March 26, 2009. The conference call may be accessed by dialing 877-879-6201. Participants should ask for the Tri-S 2008 Financial Results conference call.

This call is being webcast by Thomson Financial and can be accessed at Tri-S Security's website at http://trissecurity.com. The website may also be accessed at Thomson's website at http://earnings.com. The webcast can be accessed through May 29, 2009 on either site. To access the webcast, you will need to have the Windows Media Player on your desktop. For the free download of the Media Player, please visit:

http://www.microsoft.com/windows/windowsmedia/en/download/default.asp. (Due to its length, this URL may need to be copied/pasted into your Internet browser's address field. Remove the extra space if one exists.)

About Tri-S Security Corp.

Based in Atlanta, GA, Tri-S Security Corp. (Nasdaq: TRIS) is a provider of security services for government and private entities. Security services include uniformed guards, personnel protection, access control, crowd control and the prevention of sabotage, terrorist and criminal activities. As a leading aggregator of elite security companies, Tri-S Security is designed to build a strong enterprise in which to service a unique customer base that ensures America's safety at home and work. Tri-S Security assumes responsibility for the marketing, infrastructure and overall operational performance for its subsidiaries. Tri-S Security's management leverages highly trained government officers, experienced industry leaders, proven financial executives and infrastructure experts to consolidate the fragmented security industry into one efficient and effective security force.

Forward-Looking Statements

This press release includes "forward-looking statements" within the meaning of the Federal securities laws. Forward-looking statements are commonly identified by such terms and phrases as "should", "expects", "plans", "anticipates", "believes", "estimates", "projects" and other terms with similar meaning indicating potential impact on our business. Although we believe that the assumptions upon which such forward looking statements are based are reasonable, we can give no assurance that these assumptions will prove to be correct. Important factors that could cause actual results to differ materially from our projections and expectations are disclosed in our filings with the Securities and Exchange Commission, including the "Risk Factors" section set forth in our Annual Report on Form 10-K for the year ended December 31, 2007, and our Quarterly Reports on Form 10-Q filed subsequent thereto. All forward-looking statements in this press release are expressly qualified by such cautionary statements and by reference to their underlying assumptions. We do not undertake to publicly update the forward-looking statements contained herein to conform to actual results or changes in our expectations, whether as a result of new information, future events or otherwise. You may obtain and review our filings with the Securities and Exchange Commissions by visiting http://www.sec.gov.

Tri-S Security Corporation and Subsidiaries Statements of Operations Unaudited (In thousands, except per share data) Three Three Twelve Twelve Months Months Months Months Ended Ended Ended Ended Dec. 31, Dec. 31, Dec. 31, Dec. 31, 2008 2007 2008 2007 Revenues $35,824 $23,507 $141,332 $88,943 Cost of revenues: Direct labor 22,912 15,006 89,938 56,681 Indirect labor and other contract support costs 10,325 7,271 38,594 25,173 Amortization of customer contracts 405 404 1,619 1,617 33,642 22,681 130,151 83,471 Gross profit 2,182 826 11,181 5,472 6.1% 3.5% 7.9% 6.2% Selling, general and administrative 3,679 2,981 13,590 11,370 Goodwill impairment loss 2,213 - 6,253 - Amortization of intangible assets 110 251 626 927 6,002 3,232 20,469 12,297 Operating income (loss) (3,820) (2,406) (9,288) (6,825) Other income (expense): Interest expense, net (1,267) (570) (4,966) (2,454) Interest on series C Redeemable preferred stock - - - (211) Other income 1 98 49 2,549 (1,266) (472) (4,917) (116) Loss before income taxes (5,086) (2,878) (14,205) (6,941) Income tax benefit (55) (691) (87) (2,638) Net loss $(5,031) $(2,187) $(14,118) $(4,303) Basic and diluted net income (loss) per common share $(1.20) $(0.60) $(3.36) $(1.21) Basic and diluted weighted average number of common shares 4,203 3,661 4,203 3,561 Tri-S Security Corporation and Subsidiaries Balance Sheets (In thousands, except per share data) Draft Audited Dec. 31, Dec. 31, 2008 2007 Assets Current assets: Cash and cash equivalents $1,246 $465 Restricted cash 75 348 Trade accounts receivable, net 16,610 13,993 Prepaid expenses and other assets 903 353 Total current assets 18,834 15,159 Property and equipment, less accumulated depreciation 611 476 Goodwill 9,825 16,078 Intangibles Customer contracts 1,028 2,647 Deferred loan costs 797 515 Other 665 769 Total assets $31,760 $35,644 Liabilities and Stockholders' Equity Current liabilities: Trade accounts payable $1,885 $1,983 Other accrued expenses 1,949 903 Accrued salary and benefits 4,055 3,940 Asset based lending facility 19,641 11,625 Accrued interest 534 - Income taxes payable 67 586 10% convertible notes 1,025 7,473 Total current liabilities 29,156 26,510 Other liabilities: 14% convertible notes 6,470 - Term loan 2,500 2,500 Accrued interest expense - long term 277 353 Series D preferred stock subject to mandatory redemption 1,500 1,500 10,747 4,353 Total liabilities 39,903 30,863 Stockholders' equity: Common stock, $0.001 par value, 25,000,000 4 4 shares authorized, 4,203,280 shares issued and outstanding at September 30, 2008 and December 31, 2007. Treasury stock (105) (105) Additional paid-in capital 17,562 16,368 Retained deficit (25,604) (11,486) Total stockholders' equity (8,143) 4,781 Total liabilities and stockholders' equity $31,760 $35,644 Tri-S Security Corporation and Subsidiaries Statements of Cash Flows Unaudited (In thousands) Three Three Twelve Twelve Months Months Months Months Ended Ended Ended Ended Dec. 31, Dec. 31, Dec. 31, Dec. 31, 2008 2007 2008 2007 Cash flow from operating activities: Net income (loss) $(5,031) $(2,187) $(14,118) $(4,303) Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities: Gain on Paragon settlement - - (1,888) Gain on Cornwall settlement - - (250) Bad debt expense 292 188 777 488 Depreciation and amortization 667 763 2,725 2,920 Goodwill impairment loss 2,213 6,253 - Deferred income tax benefits - (749) (1,974) Common shares, options and warrants in exchange for services and interest 158 74 831 238 Non-cash interest expense (155) 264 22 837 Changes in operating assets and liabilities: Unbilled revenues and trade accounts receivable 9,096 (1,889) (3,394) (1,168) Prepaid expenses and other assets 450 238 (550) (52) Trade accounts payable 685 227 (98) 878 Accrued liabilities (2,291) (702) 1,619 319 Income taxes payable (56) 54 (519) (683) Net cash provided (used) by operating activities 6,028 (3,719) (6,452) (4,638) Cash flow from investing activities: Restricted cash - - 273 - Purchase of property and Equipment (39) (78) (615) (254) Net cash provided (used) by investing activities (39) (78) (342) (254) Cash flow from financing activities: Payment on Paragon settlement - - (1,250) Proceeds from (payments on) asset based lending facility, net (5,412) 4,172 8,016 4,119 10% convertible notes tendered - - 14% convertible notes issued - - Proceeds of (repayments on) of term loans - - - 2,500 Deferred financing costs (296) (13) (441) (78) Net cash provided (used) by financing activities (5,708) 4,159 7,575 5,291 Net increase (decrease) in cash and cash equivalents 281 362 781 399 Cash and cash equivalents at beginning of period 465 66 465 66 Cash and cash equivalents at end of period $746 $428 $1,246 $465 Supplemental disclosures of cash flow information: Interest paid $1,178 $540 $4,377 $1,850 Income taxes paid $0 $- $432 $15 Tender of 10% convertible notes for 14% convertible notes $- $- $6,460 Payment of deferred financing costs through issuance of warrants 363 Tri-S Security Corporation and Subsidiaries EBITDA, as adjusted Three Three Twelve Twelve Months Months Months Months Ended Ended Ended Ended Dec. 31, Dec. 31, Dec. 31, Dec. 31, 2008 2007 2008 2007 Net Loss ($5,031) ($2,187) $(14,118) $(4,303) Adjustments: Income tax benefit (55) (691) (87) (2,638) Interest expense, net 1,267 570 4,966 2,454 Interest on preferred stock subject to mandatory redemption 0 - 211 Gain on sale of assets 0 0 0 (1,888) Other income (1) (98) (49) (661) Amortization of intangible assets 110 251 626 928 Goodwill impairment loss 2,213 - 6,253 - Amortization of customer contracts 405 405 1,619 1,617 Depreciation 152 107 480 375 Non-cash stock based Compensation 158 72 831 236 Start Up Costs 0 198 549 757 EBITDA, as adjusted $ (782) $(1,373) $1,070 $(2,912)

SOURCE Tri-S Security Corp.

Source: PR Newswire

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