Second Quarter 2008 Adjusted Pro Forma Financial Highlights vs. Second Quarter 2007 SAN ANTONIO, Aug. 14 /PRNewswire-FirstCall/ -- Argyle Security, Inc. (OTC:ARGL) (BULLETIN BOARD: ARGL) , ("Argyle") a service and solutions provider in the physical electronic security industry, today announced financial results for the three and six months ended June 30, 2008. Adjusted Pro Forma Results(1) For the three months ended June 30, 2008, Argyle's pro forma revenues increased by 66%, to $36.5 million, compared to $21.9 million for the same period last year. Pro forma revenues in Argyle Corrections Group rose by 94% to $28.8 million, driven largely by favorable industry trends, retention and expansion of business with existing customers, as well as new customers. Pro forma revenues in Argyle Commercial Security Group increased by 9%. Argyle Commercial Security has continued to make investments in its sales force, which are expected to drive both contract and service revenues in the commercial market. Based on favorable conditions in Argyle Commercial Security's target markets of petrochemical, energy infrastructure and healthcare, Argyle Commercial Security believes it is well-positioned for a strong second half of 2008. Adjusted pro forma gross profit increased by 25% to $7.3 million, or 20.1% of sales, compared to $5.9 million, or 26.7% of sales, in the comparable period of 2007. Similar to the first quarter of 2008, the gross margin percentage in the second quarter of 2008 was adversely impacted by the inclusion of Com-Tec's revenues and expenses into Argyle Corrections, as Com-Tec is currently engaged in a significant project that has margins well below Argyle Security's corporate average. Second quarter margins in Argyle Corrections were also impacted by certain operational inefficiencies in its security electronics business. These issues first became apparent in the first quarter of 2008, and have largely been corrected. Argyle believes it should see margins improve during the balance of the year, primarily due to the operational improvements that have been made within its security electronics business, as well as the expected benefit from lower-cost technology integration. Adjusted pro forma operating expenses were $6.3 million, up 41% from $4.5 million in the second quarter of 2007. In the second quarter of 2008, Argyle incurred higher than expected legal and accounting fees related to being a public company. Adjusted operating income in the second quarter of 2008 was $1.0 million, or 2.8% of sales, compared to $1.4 million, or 6.3% of sales, in the second quarter of 2007. Pro forma adjusted EBITDA of $1.7 million, or 4.5% of adjusted pro forma revenues, was essentially flat with second quarter 2007 pro forma adjusted EBITDA of $1.7 million, or 7.8% of revenues. In the second quarter of 2008, adjusted pro forma net income was $36,000, or ($0.01) per diluted share, compared to adjusted pro forma net income of $122,000, or $0.02 per diluted share, in the prior-year period. For the six months ended June 30, 2008, Argyle's pro forma revenues increased by 68% to $75.8 million, compared to $45.1 million in the same period of 2007. Gross profit increased by 41% to $15.3 million, or 20.2% of sales, compared to $10.9 million, or 24.1% of sales, in the first six months of 2007. 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." Argyle Updates Guidance for 2008 Based on its strong first-half performance and robust market conditions in the corrections industry, Argyle expects full-year 2008 revenues to be at the top end of the previously forecasted range of $128 to $142 million. Argyle now expects EBITDA margins of approximately 7% for the full-year 2008, which is below previous expectations for 9 to 10%, and due to 1) margin erosion in the security electronics business, 2) higher than expected legal and accounting fees and 3) non-cash compensation expense. However, as the previously listed items were primarily concentrated in the first half of the year, Argyle does expect to achieve an EBITDA margin run rate of approximately 9% in the second half of 2008. Conference Call Information Argyle Security will host an investor conference call at 10:00 a.m. ET, today, August 14, 2008 to discuss its results. Interested parties should call 888-713-4213 (domestic) or 617-213-4865 (international) at least five minutes before the scheduled start time; the passcode is 89962604. This call may also be accessed via the Internet at: http://www.argylesecurity.com/ For those who are unavailable to listen to the live broadcast, a replay will be available through August 28, 2008 and can be accessed by dialing 888-286-8010 (domestic), and 617-801-6888 (international). The pass code is 84546898. Disclosure Regarding Non-GAAP Financial Measures 1 Adjusted Pro Forma Results Since Argyle Security acquired ISI Security Group (which is now a part of Argyle Security USA) in July 2007 and FireQuest, Peterson and Com-Tec in January 2008, the Company does not believe a comparison of the results of operations and cash flows for the three months ended June 30, 2008 versus June 30, 2007 is beneficial to stockholders. In order to assist investors in better understanding the changes in its business between the three months ended June 30, 2007 and June 30, 2008, Argyle Security has provided adjusted pro forma results as if the acquisitions occurred on January 1, 2008 and January 1, 2007, respectively. Argyle Security derived the adjusted pro forma results of operations from (i) the unaudited consolidated financial statements of Com-Tec for the three months ended June 30, 2007, (ii) the unaudited financial statements of Peterson for the three months ended June 30, 2007, (iii) the unaudited financial statements of FireQuest for the three months ended June 30, 2007 and (iv) the unaudited consolidated financial statements of the Company for the three months ended June 30, 2008 and 2007. Adjusted pro forma net income is an alternative view of performance used by management, and we believe that investors' understanding of our performance is enhanced by disclosing this performance measure. We report adjusted pro forma net income in order to present the results of our major operations -- the construction, installation, marketing and sale of various electronic security systems for commercial accounts and detention hardware (including security doors and frames, jail furniture, security glazing, and other security-based systems) and electronic control systems for correctional facilities -- prior to considering certain income statement elements, principally amortization of intangible assets. We have defined adjusted pro forma net income as net income before the impact of purchase accounting for acquisitions, acquisition-related costs, discontinued operations and one-time expenses associated with stock appreciation rights. The adjusted pro forma net income measure is not, and should not be viewed as, a substitute for U.S. GAAP net income. EBITDA (earnings before interest, taxes, depreciation and amortization) is used by management as a performance measure for benchmarking against the Company's peers and competitors. The Company believes EBITDA is useful to investors, because it is frequently used by securities analysts, investors and other interested parties to evaluate companies in the security industry. EBITDA is not a recognized term under GAAP. Argyle and ISI compute EBITDA using the same consistent method from quarter to quarter. Following the attached financial statements is a reconciliation of EBITDA to net loss. The presentation of Adjusted Pro Forma Results and EBITDA is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with GAAP. About Argyle Security, Inc. Formed in 2005 and headquartered in San Antonio, TX, Argyle Security's goal is to become a leading global provider of services and solutions in the physical electronic security industry through an integrated buildup strategy. Argyle's channel focus is Video Surveillance, Access Control, Perimeter Protection, Intrusion Protection, Fire Detection and Threat Analysis, serving selected commercial, governmental and residential markets. In July 2007, Argyle acquired ISI Security Group. In February 2008, Argyle formed Argyle Security USA, which encompasses the former ISI Security Group's operations in both the corrections and commercial sectors, plus the PDI, Com-Tec and FireQuest acquisitions. Argyle Security, Inc. currently has two reporting segments: Argyle Corrections Group and Argyle Commercial Security Group. Argyle Corrections Group is the controlling entity for ISI, PDI, Com-Tec and MCS. Argyle Corrections Group is one of the nation's largest providers of detention equipment products and service solutions, as well as turnkey, electronic security systems. These systems include unique engineering competencies and proprietary software products. Argyle Commercial Security Group focuses on the commercial security sector and provides turnkey, electronic security systems to the commercial market. Currently, MCS-Commercial Fire & Security is the only member in Argyle Commercial Security Group. Please visit http://www.argylesecurity.com/ or http://www.argylesecurityusa.com/ for additional information on Argyle Security and Argyle Security USA. Safe Harbor Certain statements in this press release constitute "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995, as amended. When used in this press release, words such as "will," "believe," "expect," "anticipate," "encouraged," "estimate," "intend," "plan," "project," "target," "can," "could," "may," "should," "would," and similar expressions, as they relate to the company or its management, as well as assumptions made by and information currently available to the company's management identify forward-looking statements. You are cautioned not to place undue reliance on these forward-looking statements. Any forward-looking statements are not guarantees of future performance and actual results of operations, financial condition and liquidity, and developments in the industry may differ materially from those made in or suggested by the forward-looking statements contained herein. These forward-looking statements are subject to numerous risks, uncertainties and assumptions. The forward-looking statements herein speak only as of the date stated herein and might not occur in light of these risks, uncertainties, and assumptions. The company undertakes no obligation and disclaims any obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. Additional information concerning forward-looking statements is contained under the heading of risk factors listed from time to time in the company's filings with the U.S. Securities and Exchange Commission. Argyle Security, Inc Reconciliation of GAAP Net Income to Adjusted Net Income (in thousands) Three Months Six Months Ended Ended June 30, June 30, June 30, June 30, 2008 2007 2008 2007 GAAP net income (loss) $(1,020) $50 $(1,754) $101 Pro forma adjustments - addbacks (reductions) Argyle salary expense (increase) for management team in 2007 - (222) - (444) Non-cash compensation expense (increase) for 2007 - (141) - (283) Depreciation expense (increase) on revalued assets in 2007 - (80) - (158) Amortization of intangible expense (increase) in cost of goods sold for 2008 and 2007 - (1,274) (37) (2,564) Amortization of intangible expense (increase) in operating expenses for 2008 and 2007 - (426) (21) (868) Reduction in rent expense - 53 6 70 Interest income increase / (reduction) for 2008 and 2007 - (330) - (654) Interest expense (increase) / reduction for 2008 and 2007 - 1,151 (39) 1,398 Income / (loss) from predecessor - Argyle Security USA for 2007 - (619) - (496) Income / (loss) from predecessor - FireQuest for 2007 - 80 - 160 Income / (loss) from predecessor - PDI for 2007 - 157 - 313 Income / (loss) from predecessor - Com-Tec for January 2008 and 2007 - 190 44 152 Provision (benefit) for income taxes on pro forma adjustments for 2008 and 2007 - 480 32 1,331 Pro forma net income (loss) $(1,020) $(931) $(1,769) $(1,942) Amortization of intangible expense in cost of goods sold for 2008 and 2007 1,276 1,274 2,565 2,564 Amortization of intangible expense in operating expenses for 2008 and 2007 427 426 868 868 Provision (benefit) for income taxes on pro forma adjustments for 2008 and 2007 (647) (647) (1,305) (1,304) Adjusted pro forma net income (loss) $36 $122 $359 $186 Interest, net 802 865 1,620 1,646 Depreciation expense 626 334 1,116 680 Taxes, net 186 393 393 326 Pro forma EBITDA $1,650 $1,714 $3,488 $2,838 Argyle Security, Inc Pro Forma Consolidated Statements of Operations (unaudited) (in thousands except share data) Three Months Ended June 30, June 30, $ % 2008 2007 Change Change Revenues: Contract revenues $24,711 $10,730 $13,981 130% Contract revenues - related party 5,282 7,365 (2,083) -28% Service and other revenues 6,513 3,836 2,677 70% Total revenues 36,506 21,931 14,575 66% Cost of revenues: Contract costs 24,424 13,465 10,959 81% Service and other costs, including amortization of intangibles ($1,276 for 2008 and $1,274 for 2007) 6,018 3,885 2,133 55% Total cost of revenues 30,442 17,350 13,092 75% Gross profit 6,064 4,581 1,483 32% Operating expenses: Salaries and related expense, including stock-based compensation of $191 in 2008 and $142 in 2007 3,410 2,294 1,116 49% Consulting fees and outside services 637 311 326 105% Depreciation 598 289 309 107% Other general and administrative expenses 1,671 1,581 90 6% Amortization of intangible assets 427 426 1 0% Total operating expenses 6,743 4,901 1,842 38% Operating loss (679) (320) (359) 112% Other income (expense): Interest income 52 51 1 2% Interest expense (854) (916) 62 -7% Total other income (expense) (802) (865) 63 -7% Income (loss) before provision for income taxes (1,481) (1,185) (296) 25% Provision (benefit) for income taxes (461) (254) (207) 81% Net income (loss) $(1,020) $(931) $(89) 10% Deferred interest, net of taxes, subject to possible redemption - - - 0% Dividends on convertible preferred stockholders 86 - - 0% Net income (loss) allocable to holders of non-redeemable common stock $(1,106) $(931) $(89) 10% Weighted-average number of shares of common stock outstanding exclusive of shares subject to possible redemption: Basic 5,799,342 5,799,342 0 0% Diluted 5,799,342 5,799,342 0 0% Net income (loss) per share allocable to holders of non-redeemable common stock: Basic $(0.19) $(0.16) $(0.03) 19% Diluted $(0.19) $(0.16) $(0.03) 19% Argyle Security, Inc. Pro Forma Consolidated Statements of Operations (unaudited) (in thousands except share data) Six Months Ended June 30, June 30, $ % 2008 2007 Change Change Revenues: Contract revenues $51,617 $22,536 $29,081 129% Contract revenues - related party 12,225 13,166 (941) -7% Service and other revenues 11,979 9,402 2,577 27% Total revenues 75,821 45,104 30,717 68% Cost of revenues: Contract costs 51,464 27,278 24,186 89% Service and other costs, including amortization of intangibles ($2,565 for 2008 and $2,564 for 2007) 11,577 9,506 2,071 22% Total cost of revenues 63,041 36,784 26,257 71% Gross profit 12,780 8,320 4,460 54% Operating expenses: Salaries and related expense, including stock-based compensation of $749 in 2008 and $283 in 2007 6,987 4,783 2,204 46% Consulting fees and outside services 1,586 606 980 162% Depreciation 1,060 591 469 79% Other general and administrative expenses 3,340 2,746 594 22% Amortization of intangible assets 868 868 - 0% Total operating expenses 13,841 9,594 4,247 44% Operating loss (1,061) (1,274) 213 -17% Other income (expense): Interest income 78 111 (33) -30% Interest expense (1,698) (1,757) 59 -3% Total other income (expense) (1,620) (1,646) 26 -2% Income (loss) before provision for income taxes (2,681) (2,920) 239 -8% Provision (benefit) for income taxes (912) (978) 66 -7% Net income (loss) $(1,769) $(1,942) $173 -9% Deferred interest, net of taxes, subject to possible redemption - - - 0% Dividends on convertible preferred stockholders 86 - - 0% Net income (loss) allocable to holders of non-redeemable common stock $(1,855) $(1,942) $173 -9% Weighted-average number of shares of common stock outstanding exclusive of shares subject to possible redemption: Basic 5,795,221 5,799,342 (4,121) 0% Diluted 5,795,221 5,799,342 (4,121) 0% Net income (loss) per share allocable to holders of non-redeemable common stock: Basic $(0.32) $(0.33) $ 0.01 -4% Diluted $(0.32) $(0.33) $ 0.01 -4% Argyle Security, Inc Adjusted Pro Forma Consolidated Statements of Operations (unaudited) (in thousands except share data) Three Months Ended June 30, % of June 30, % of $ % 2008 Revenue 2007 Revenue Change Change Revenues: Contract revenues $24,711 68% $10,730 49% $13,981 130% Contract revenues - related party 5,282 14% 7,365 34% (2,083) -28% Service and other revenues 6,513 18% 3,836 17% 2,677 70% Total revenues 36,506 100% 21,931 100% 14,575 66% Cost of revenues: Contract costs 24,424 67% 13,465 61% 10,959 81% Service and other costs, excluding amortization of intangibles 4,742 13% 2,611 12% 2,131 82% Total cost of revenues 29,166 80% 16,076 73% 13,090 81% Gross profit 7,340 20% 5,855 27% 1,485 25% Operating expenses: Salaries and related expense, including stock-based compensation of $191 in 2008 and $142 in 2007 3,410 9% 2,294 10% 1,116 49% Consulting fees and outside services 637 2% 311 1% 326 105% Depreciation 598 2% 289 1% 309 107% Other general and administrative expenses 1,671 5% 1,581 7% 90 6% Amortization of intangible assets - 0% - 0% - 0% Total operating expenses 6,316 17% 4,475 20% 1,841 41% Operating income 1,024 3% 1,380 6% (356) -26% Other income (expense): Interest income 52 0% 51 0% 1 2% Interest expense (854) -2% (916) -4% 62 -7% Total other income (expense) (802) -2% (865) -4% 63 -7% Income (loss) before provision for income taxes 222 1% 515 2% (293) -57% Provision (benefit) for income taxes 186 1% 393 2% (207) -53% Net income (loss) $36 0% $122 1% $(86) -70% Deferred interest, net of taxes, subject to possible redemption - 0% - 0% - 0% Dividends on convertible preferred stockholders 86 0% - 0% - 0% Net income (loss) allocable to holders of non-redeemable common stock $(50) 0% $122 1% $(86) -70% EBITDA Calculation: Interest, net $802 $865 (63) -7% Depreciation 626 334 292 87% Taxes, net 186 393 (207) -53% EBITDA $1,650 $1,714 $(64) -4% Weighted-average number of shares of common stock outstanding exclusive of shares subject to possible redemption: Basic 5,799,342 5,799,342 0 0% Diluted 5,799,342 7,061,764 (1,262,422) -18% Net income (loss) per share allocable to holders of non-redeemable common stock: Basic $(0.01) $0.02 $(0.03) -141% Diluted $(0.01) $0.02 $(0.03) -150% Argyle Security, Inc Adjusted Pro Forma Consolidated Statements of Operations (unaudited) (in thousands except share data) Six Months Ended June 30, % of June 30, % of $ % 2008 Revenue 2007 Revenue Change Change Revenues: Contract revenues $51,617 68% $22,536 50% $29,081 129% Contract revenues - related party 12,225 16% 13,166 29% (941) -7% Service and other revenues 11,979 16% 9,402 21% 2,577 27% Total revenues 75,821 100% 45,104 100% 30,717 68% Cost of revenues: Contract costs 51,464 68% 27,278 60% 24,186 89% Service and other costs, excluding amortization of intangibles 9,012 12% 6,942 15% 2,070 30% Total cost of revenues 60,476 80% 34,220 76% 26,256 77% Gross profit 15,345 20% 10,884 24% 4,461 41% Operating expenses: Salaries and related expense, including stock-based compensation of $749 in 2008 and $283 in 2007 6,987 9% 4,783 11% 2,204 46% Consulting fees and outside services 1,586 2% 606 1% 980 162% Depreciation 1,060 1% 591 1% 469 79% Other general and administrative expenses 3,340 4% 2,746 6% 594 22% Amortization of intangible assets - 0% - 0% - 0% Total operating expenses 12,973 17% 8,726 19% 4,247 49% Operating income 2,372 3% 2,158 5% 214 10% Other income (expense): Interest income 78 0% 111 0% (33) -30% Interest expense (1,698) -2% (1,757) -4% 59 -3% Total other income (expense) (1,620) -2% (1,646) -4% 26 -2% Income (loss) before provision for income taxes 752 1% 512 1% 240 47% Provision (benefit) for income taxes 393 1% 326 1% 67 21% Net income (loss) $359 0% $186 0% $173 93% Deferred interest, net of taxes, subject to possible redemption - 0% - 0% - 0% Dividends on convertible preferred stockholders 86 0% - 0% - 0% Net income (loss) allocable to holders of non-redeemable common stock $273 0% $186 0% $- 0% EBITDA Calculation: Interest, net $1,620 $1,646 (26) -2% Depreciation 1,116 680 436 64% Taxes, net 393 326 67 21% EBITDA $3,488 $2,838 $650 23% Weighted-average number of shares of common stock outstanding exclusive of shares subject to possible redemption: Basic 5,795,221 5,799,342 (4,121) 0% Diluted 6,641,411 7,021,839 (380,428) -5% Net income (loss) per share allocable to holders of non-redeemable common stock: Basic $0.04 $0.03 $0.01 33% Diluted $0.04 $0.03 $0.01 55% Company Contacts: Investor Relations: Bob Marbut, Chairman & Co-CEO Amy Glynn, CFA Roni Chaimovski, Vice-Chairman & Co-CEO Cameron Associates Don Neville, CFO Phone: (212) 554-5464 Argyle Security, Inc. Phone: (212) 245-2700 (NY) Phone: (210) 828-1700 (TX) Phone: 001-972-545-212-911 (Tel Aviv) Media Relations: Deanne Eagle Cameron Associates Phone: (212) 554-5463 DATASOURCE: Argyle Security, Inc. CONTACT: Company, Bob Marbut, Chairman & Co-CEO, Roni Chaimovski, Vice- Chairman & Co-CEO, or Don Neville, CFO, all of Argyle Security, Inc., +1-212-245-2700 (NY), +1-210-828-1700 (TX), or +001-972-545-212-911 (Tel Aviv); or Investor Relations, Amy Glynn, CFA, +1-212-554-5464, , or Media, Deanne Eagle, +1-212-554-5463, , both of Cameron Associates Web site: http://www.argylesecurity.com/ http://www.argylesecurityusa.com/

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