Securus Technologies :: Securus Technologies, Inc. Announces Second Quarter 2008 Operating Results
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Securus Technologies, Inc. Announces Second Quarter 2008 Operating Results
08.13.2008

 


Investor Relations:
William D. Markert
Chief Financial Officer
972-277-0690

 

 

Securus Technologies, Inc. Announces Second Quarter

2008 Operating Results

Dallas, TX — August 13, 2008 /PRNewswire/ -- Securus Technologies, Inc. , a leading provider of inmate communications services and innovative offender and case management software design, today announced results for the quarter and six months ended June 30, 2008.

Highlights for Q2 2008:

 

  

EBITDA Growth Q2 2007 to Q2 2008 of 56%

 

  

Levered and Unlevered Cash Flow Growth Q2 to Q2 greater than 100%

 

  

Syscon Sequential Revenue Growth of 77%

 

  

Lawsuits Settled with VAC and GTL

 

  

Lowest Bad Debt Rate for Classic Securus in over 3 Years

 

Securus Technologies, Inc.

Consolidated Financial and Operating Data

(Dollars in Thousands, Except Per Unit Amounts)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For The Six Months

 

 

 

Q2

 

 

 

Q1

 

 

 

Q2

 

 

 

Ended June 30,

 

 

 

2008

 

 

 

2008

 

 

 

2007

 

 

 

2008

 

 

 

2007

 

Total Revenue

$

99,773

 

 

$

97,672

 

 

$

99,164

 

 

$

197,445

 

 

$

203,376

 

Revenue – Direct Provisioning

$

84,727

 

 

$

84,898

 

 

$

87,691

 

 

$

169,625

 

 

$

178,837

 

Revenue – Syscon (1)

$

7,426

 

 

$

4,190

 

 

$

-  

 

 

$

11,615

 

 

$

-  

 

EBITDA

$

10,168

 

 

$

8,237

 

 

$

6,534

 

 

$

18,405

 

 

$

17,227

 

Capital Expenditures

$

4,667

 

 

$

4,073

 

 

$

6,516

 

 

$

8,740

 

 

$

11,588

 

EBITDA less Capital Expenditures

$

5,701

 

 

$

4,164

 

 

$

18

 

 

$

9,665

 

 

$

5,639

 

Billed Calls

 

34,426

 

 

 

35,514

 

 

 

37,008

 

 

 

69,940

 

 

 

76,133

 

Revenue per Call

$

2.68

 

 

$

2.63

 

 

$

2.68

 

 

$

2.66

 

 

$

2.67

 

Percent Prepaid Revenue – Direct Provisioning

 

45.4

%

 

 

45.1

%

 

 

33.3

%

 

 

45.2

%

 

 

33.0

%

Percent Bad Debt – Non-Syscon

 

9.6

%

 

 

10.3

%

 

 

14.7

%

 

 

10.0

%

 

 

14.5

%

Total Headcount

 

654

 

 

 

667

 

 

 

702

 

 

 

654

 

 

 

702

 

Quota Carrying Field Sales Associates

 

41

 

 

 

43

 

 

 

43

 

 

 

41

 

 

 

43

 

 

(1)

Syscon Justice Systems, Ltd. was acquired on June 29, 2007.


 


Richard A. (Rick) Smith, Securus’ Chief Executive Officer and President said, “ EBITDA, free cash flow, and levered free cash flow all showed significant growth in Q2 versus 2007 – EBITDA increased 56%, unlevered cash flow was a positive $5.5 M, and if I allocated cash interest for the year to Q2 – levered cash flow is within $1 M of breaking even – and that represents significant progress for us. Syscon revenue is up sequentially by double digits, we settled multiple long standing patent infringement lawsuits that will save us several million dollars in outside legal fees on a go forward basis, and we have taken actions that are increasing the quality of our revenue and decreasing bad debt – all very nice accomplishments for Q2. We have a lot of work to do in terms of growing EBITDA, managing capital expenditures, and growing “core”, or Direct Provisioning and Syscon, revenue streams – and we are working hard to do that.”

 

Total revenues for the second quarter of 2008 were $99.8 million, an increase of $2.1 million from the first quarter of 2008 and $0.6 million from the second quarter of 2007.  The increases were primarily due to strong revenue growth at Syscon, our offender management software subsidiary. Our direct provisioning revenues, which make up over 85% of our total revenue, was flat sequentially but fell $3.0 million from the second quarter of 2007 due to the loss of several large prime contracts in the latter part of 2007 that were not fully made up by new contracts signed and services installed in 2008. Our wholesale revenue, made up of telecom services, solutions services and equipment sales, declined $1.0 million sequentially and $3.9 million from the second quarter of 2007 due primarily to industry consolidation and the larger regional bell operating companies (RBOCs) and interexchange carriers exiting the business.

 

Cost of service in the second quarter was 73.9% of revenue, compared to 74.9% of revenue in the first quarter of 2008 and 77.8% of revenue in the second quarter of 2007. Driving this improvement was our bad debt levels. Non-Syscon bad debt as a percent of revenue dropped to 9.6% in this quarter which compares favorably to the 10.3% we incurred in Q1 2008 and 14.7% we saw in the second quarter last year. We believe this drop is due primarily to shifting our focus to selling prepaid services vs a post-paid basis. Our prepaid revenue as a percent of our direct provisioning segment increased from 33.3% in the second quarter 2007 to 45.4% in the second quarter this year.

 

Sales, general and administrative expenses for the second quarter of 2008 were $15.9 million, a reduction of $0.2 million from the first quarter of 2008 and an increase of $1.0 million from the second quarter of 2007. The sequential decline is due primarily to lower professional services fees for both legal and accounting services. The increase from 2007 is due primarily to the addition of Syscon.

 

EBITDA for the second quarter of 2008 was $10.2 million, an increase of $1.9 million from the first quarter of 2008 and an increase of $3.6 million from the second quarter of 2007.  EBITDA is a non-GAAP measure.  Below is a schedule reconciling reported GAAP net loss to EBITDA.

 

Securus Technologies, Inc.

Consolidated Net Loss to EBITDA and Adjusted EBITDA Reconciliation

(In Thousands)

 

 

 

 

 

 

 

 

For The Six Months

 

 

 

 

Q2

 

Q1

 

Q2

 

Ended June 30,

 

 

 

 

2008

 

2008

 

2007

 

2008

 

2007

 

 

Net Loss

 

$ (8,533

$ (9,947

$ (10,669

)

$ (18,479

$ (16,045

)

Interest expense and other, net

 

9,271

 

10,185

 

7,569

 

19,455

 

14,787

 

 

Income taxes

 

774

 

(599

)

528

 

175

 

894

 

 

Depreciation and amortization

 

8,656

 

8,598

 

9,106

 

17,254

 

17,591

 

 

EBITDA

 

$ 10,168

 

$ 8,237

 

$ 6,534

 

$ 18,405

 

$ 17,227

 

 

 

 


Capital expenditures for the second quarter of 2008 were $4.7, an increase of $0.6 million from the first quarter of 2008 and a decrease of $1.8 million from the second quarter of 2007.  Capital expenditures typically fluctuate by quarter depending upon timing of equipment purchases. The decline in spending from 2007 was principally due to a reduction in spending from last year’s deployment of our packet-based architecture as well as lower signing bonuses paid.

 

Net loss for the second quarter of 2008 was $8.5 million, an improvement of $1.4 million from the first quarter of 2008 and $2.1 million from the second quarter of 2007.  The improvements in net loss were primarily due to lower bad debt incurred.

 

Cash and restricted cash at June 30, 2008 were $5.9 million, an increase of $2.7 million from March 31, 2008.  The increase is primarily due to cash received related to offender management software services provided to Her Majesty’s Prison Service in the United Kingdom. As of August 13, 2008 the Company had $18.4 million of availability under its revolving credit facility.

 

Investor Call

Management is holding an investor conference call on Thursday, August 14, 2008 at 10:00 a.m. (CT) to discuss quarterly results. Investors are invited to participate by calling:

 

US Dial in:

877-879-6209

International Dial in:

719-325-4759

Passcode:

2525374

 

Replay Update: A replay of this call will be made available Friday, August 15, 2008 after 2:00 pm (CT) at http://www.securustech.net/press_default.asp.

 

About Securus Technologies, Inc.

Securus Technologies, Inc. is one of the largest suppliers of inmate communications and information management solutions, serving approximately 2,600 correctional facilities nationwide. A recognized leader in providing comprehensive, innovative technical solutions and responsive customer service, Securus’ sole focus is the specialized needs of the corrections and law enforcement communities. Securus is headquartered in Dallas, TX, with regional offices in Bedford, MA; Raleigh, NC; Carrollton and Allen, TX; and Atlanta, GA. For more information please visit the Securus website at www.securustech.net

Syscon Holdings, Ltd., our wholly-owned subsidiary, is a world leader in innovative Offender and Case Management Software design and delivery. Syscon’s Elite and Exact systems offer management functionality from booking and legal documentation through trust accounting, commissary, and medical records to the management of parole and other forms of community supervision. Syscon’s systems have been implemented in many States and large Counties across North America, in Australia and in England. Syscon solutions help manage more than 300,000 inmates and former inmates every day. For more information about Syscon, please visit www.syscon.net.

Special Note Regarding Forward-Looking Statements

The foregoing release contains statements that are forward-looking within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such forward-looking statements are only predictions and are not guarantees of future performance. Investors are cautioned that any such forward-looking statements are and will be, as the case may be, subject to many risks, uncertainties and factors relating to the operations and business environment of Securus Technologies, Inc. that may cause the actual results to be materially different from any future results expressed or implied in such forward-looking statements. Securus assumes no obligation to update the information contained in this press release.

 


SECURUS TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

For the Three and Six Months Ended June 30, 2007 and 2008

(Dollars in thousands)

 

 

 

For the Three Months Ended

 

 

For the Six Months Ended

 

 

 

June 30,

 

 

 

June 30,

 

 

 

June 30,

 

 

 

June 30,

 

 

 

2007

 

 

 

2008

 

 

 

2007

 

 

 

2008

 

 

(unaudited)

 

 

(unaudited)

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Direct call provisioning

$

87,691

 

 

$

84,727

 

 

$

178,837

 

 

$

169,625

 

Solutions services

 

9,335

 

 

 

6,216

 

 

 

19,934

 

 

 

13,193

 

Offender management software

 

-

 

 

 

7,426

 

 

 

-

 

 

 

11,615

 

Telecommunications services

 

1,999

 

 

 

1,373

 

 

 

4,365

 

 

 

2,796

 

Equipment sales and other

 

139

 

 

 

31

 

 

 

240

 

 

 

216

 

Total revenue

 

99,164

 

 

 

99,773

 

 

 

203,376

 

 

 

197,445

 

Cost of service (exclusive of depreciation and amortization shown separately below):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Direct call provisioning, exclusive of bad debt expense

 

58,773

 

 

 

57,958

 

 

 

120,065

 

 

 

115,782

 

Direct call provisioning bad debt expense

 

11,158

 

 

 

6,876

 

 

 

21,445

 

 

 

14,239

 

Solutions services expense

 

6,222

 

 

 

4,006

 

 

 

13,627

 

 

 

8,459

 

Offender management software expense

 

-

 

 

 

4,014

 

 

 

-

 

 

 

6,679

 

Telecommunications services expense

 

885

 

 

 

846

 

 

 

1,937

 

 

 

1,487

 

Cost of equipment sold and other

 

89

 

 

 

19

 

 

 

175

 

 

 

197

 

Total cost of service

 

77,127

 

 

 

73,719

 

 

 

157,249

 

 

 

146,843

 

Selling, general and administrative expense

 

14,889

 

 

 

15,886

 

 

 

28,286

 

 

 

31,973

 

Restructuring costs

 

614

 

 

 

-

 

 

 

614

 

 

 

224

 

Depreciation and amortization expense

 

9,106

 

 

 

8,656

 

 

 

17,591

 

 

 

17,254

 

Total operating costs and expenses

 

101,736

 

 

 

98,261

 

 

 

203,740

 

 

 

196,294

 

Operating income (loss)

 

(2,572

)

 

 

1,512

 

 

 

(364

)

 

 

1,151

 

Interest and other expenses, net

 

-

 

 

 

(118

)

 

 

-

 

 

 

(118

)

Loss before income taxes

 

7,569

 

 

 

9,389

 

 

 

14,787

 

 

 

19,573

 

Income tax expense (benefit)

 

(10,141

)

 

 

(7,759

)

 

 

(15,151

)

 

 

(18,304

)

Net loss

 

528 

 

 

 

774

 

 

 

894

 

 

 

175

 

Accrued dividends on redeemable convertible preferred stock

 

-

 

 

 

(335

)

 

 

-

 

 

 

(683

)

Net loss available to common stockholders

$

(10,669

)

 

$

(8,868

)

 

$

(16,045

)

 

$

(18,479

)

 

 

 


SECURUS TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except share and per share amounts)

 

 

 

December 31,

 

 

June 30,

 

 

 

2007

 

 

2008

 

 

 

 

 

 

 

(Unaudited)

 

ASSETS

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

2,072

 

 

$

4,305

 

Restricted cash

 

 

1,535

 

 

 

1,560

 

Accounts receivable, net

 

 

50,788

 

 

 

44,798

 

Prepaid expenses and other current assets

 

 

5,437

 

 

 

7,026

 

Deferred income taxes

 

 

3,034

 

 

 

3,032

 

Total current assets

 

 

62,866

 

 

 

60,721

 

Property and equipment, net

 

 

40,797

 

 

 

37,198

 

Intangibles and other assets, net

 

 

119,427

 

 

 

110,845

 

Goodwill

 

 

69,035

 

 

 

68,159

 

Total assets

 

$

292,125

 

 

$

276,923

 

 

 

 

 

 

 

 

 

 

LIABILITIES , REEDEMABLE, CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ DEFICIT

 

 

 

 

 

 

 

 

Accounts payable

 

$

28,161

 

 

$

25,120

 

Due to related party

 

 

1,000

 

 

 

3,610

 

Accrued liabilities

 

 

40,188

 

 

 

39,212

 

Deferred revenue and customer advances

 

 

16,674

 

 

 

14,690

 

Current deferred tax

 

 

1,261

 

 

 

1,223

 

Total current liabilities

 

 

87,284

 

 

 

83,855

 

Deferred income taxes

 

 

15,352

 

 

 

14,809

 

Due to related party

 

 

3,510

 

 

 

-

 

Long-term debt

 

 

263,276

 

 

 

274,669

 

Other long-term liabilities

 

 

1,593

 

 

 

1,704

 

Total liabilities

 

 

371,015

 

 

 

375,037

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Series A redeemable convertible preferred stock, $2,000 stated value, total redemption value $10,200 and $10,851 at December 31, 2007 and June 30, 2008; 5,100 shares authorized and outstanding at December 31, 2007 and June 30, 2008

 

 

9,971

 

 

 

10,653

 

 

 

 

 

 

 

 

 

 

Stockholders’ deficit:

 

 

 

 

 

 

 

 

Common stock, $0.001 par value, 1,290,000 shares authorized;

 

 

 

 

 

 

 

 

677 and 69,165 shares issued and outstanding at December 31, 2007 and June 30, 2008

 

 

7

 

 

 

7

 

Additional paid-in capital

 

 

35,620

 

 

 

34,955

 

Accumulated other comprehensive income

 

 

1,935

 

 

 

1,173

 

Accumulated deficit

 

 

(126,423

)

 

 

(144,902

)

Total stockholders’ deficit

 

 

(88,861

)

 

 

(108,767

)

Total liabilities, redeemable, convertible preferred stock and stockholders’ deficit

 

$

292,125

 

 

$

276,923

 

 

 


SECURUS TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Six Months Ended June 30, 2007 and 2008

(Dollars in thousands)

 

 

June 30,

 

 

June 30,

 

 

2007

 

 

2008

 

 

(Unaudited)

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

Net loss

$

(16,045

)

 

$

(18,479

)

Adjustment to reconcile net loss to net cash provided by operating activities:

 

 

 

 

 

 

 

Depreciation and amortization

 

17,591

 

 

 

17,254

 

Amortization of fair value of contracts acquired

 

-

 

 

 

1,829

 

Deferred income taxes

 

713

 

 

 

(294

)

Non-cash interest expense

 

5,500

 

 

 

6,063

 

Equity loss from unconsolidated affiliate

 

102

 

 

 

-

 

Stock-based compensation

 

39

 

 

 

18

 

Amortization of deferred financing costs and debt discounts

 

847

 

 

 

1,623

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

Restricted cash

 

(37

)

 

 

(25

)

Accounts receivable

 

1,205

 

 

 

5,906

 

Prepaid expenses and other current assets

 

1,179

 

 

 

(1,627

)

Intangible and other assets

 

(653

)

 

 

(64)

 

Accounts payable

 

(4,822

)

 

 

(6,256

)

Accrued liabilities and other liabilities

 

1,380

 

 

 

(2,729

)

Net cash provided by operating activities

$

6,999

 

 

$

3,219

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

Purchase of property and equipment including costs of intangibles

$

(11,588

)

 

$

(8,740

)

Cash consideration paid for acquired business

 

(43,671

)

 

 

-

 

Property insurance proceeds

 

88

 

 

 

-

 

Net cash used in investing activities

$

(55,171

)

 

$

(8,740

)

 

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

Proceeds from issuance of second-priority senior secured notes

$

39,060

 

 

$

-

 

Advances on revolving credit facility, net

 

12,533

 

 

 

4,893

 

Cash overdraft

 

868

 

 

 

3,233

 

Debt issuance costs

 

(4,920

)

 

 

-

 

Advance from or (payment to) related party

 

5,000

 

 

 

(900

)

Net cash provided by financing activities

$

52,541

 

 

$

7,226

 

Effect of exchange rates on cash and cash equivalents

 

-

 

 

 

528

 

Increase in cash and cash equivalents

$

4,369

 

 

$

2,233

 

Cash and cash equivalents at the beginning of the period

 

558

 

 

 

2,072

 

Cash and cash equivalents at the end of the period

$

4,927

 

 

$

4,305

 

 

 

 

 

 

 

 

 

SUPPLEMENTAL DISCLOSURES:

 

 

 

 

 

 

 

Cash paid during period for:

 

 

 

 

 

 

 

Interest

$

8,772

 

 

$

11,019

 

Income taxes

$

164

 

 

$

780

 

Non-cash consent fee

$

400

 

 

$

-