Securus Technologies, Inc. Announces Fourth Quarter and Full Year 2009 Operating Results
DALLAS, March 11 /PRNewswire/ -- Securus Technologies, Inc., a leading provider of inmate communications services and offender and case management software design, today announced results for the fourth quarter and full year ended December 31, 2009.
Highlights for Full Year 2009:
- Highest EBITDA and Free Cash Flow in Company History;
- Exceeded high end of Guidance Range for EBITDA and Free Cash Flow;
- 2009 versus 2008 EBITDA growth of 19.9%; 3 Year CAGR (2009 vs. 2007) of 29.1%
- 2009 versus 2008 Free Cash Flow growth of 36.0%; 3 Year CAGR (2009 vs. 2007) of 96.6%
- 2009 versus 2008 inmate telecom bad debt expense reduction of 10.3%
- Prepaid revenue mix improvement from 46.4% to 55.5%; increase of 19.6%
- Reduced revolver balance to zero at EOY 2009
- Only inmate telecom provider in the industry that has achieved SAS-70 Type II Certification
- Only inmate telecom provider in the industry that has achieved Sarbanes-Oxley 404 Certification
- Preferred Vendor Agreements with software providers that provide Jail Management Software WITH inmate telecom:
- JSI
- Archonix
- Syscon
- Exclusive Agreement with 3Ci that provides mobile marketing to increase funding results
- Achieved Project Initiatives that generated +$20 million in incremental EBITDA, exceeded internal budget
- Customer Call Center In-sourcing Project On Track
- 30,000 square feet of Call Center space built out
- ACD Installed
- 90 Securus Associated hired and "on the floor"
- Improvements realized in answer performance, customer satisfaction, and account funding performance versus outsourced centers
- On schedule to complete in-sourcing by EOY 2010
- Secure Call Platform Achieves Multiple Highlights
- Converted +1,000 facilities, the most in the industry
- +$100 million investment, the largest in the sector
- +300,000 software development hours, the largest in the sector
- +500 products created, the largest in the sector
- 40 software developers assigned to create additional value added products, the largest in the sector
- +30% capital efficient than premise based systems
- +10% operating expense efficient than premise based systems
- Settled Patent Infringement Lawsuits with DSI and PCS
- Executive Team additions/replacements completed, with proven track record of achieving results.
Securus Technologies, Inc.
Consolidated Financial and Operating Data
(Dollars in thousands, except per unit amounts)
For The Twelve
Months Ended
Q4 Q3 Q4 December 31,
2009 2009 2008 2009 2008
---- ---- ---- ---- ----
Total Revenue $87,440 $87,109 $95,364 $363,436 $388,603
Revenue – Direct
Provisioning $74,408 $74,871 $82,278 $312,614 $333,564
Revenue – Syscon $6,301 $4,850 $6,095 $22,698 $25,137
EBITDA $10,648 $14,334 $10,641 $50,080 $41,768
Capital Expenditures $6,196 $3,773 $3,686 $16,453 $17,046
EBITDA less Capital
Expenditures $4,452 $10,561 $6,955 $33,627 $24,722
Billed Calls (000s) 29,151 29,184 34,003 122,898 137,903
Domestic Revenue per Call $2.78 $2.82 $2.63 $2.77 $2.64
Percent Prepaid Revenue –
Direct
Provisioning 57.8% 55.4% 48.6% 55.5% 46.4%
Percent Bad Debt
– Non-Syscon 7.8% 8.4% 8.0% 8.7% 9.1%
Total Headcount 736 713 654 736 654
Quota Carrying Field Sales
Associates 42 41 41 42 41
Richard A. Smith, Chairman and CEO of Securus Technologies said, "We continue to post good EBITDA and Free Cash Flow growth rates and hit record levels for these metrics, better than the high end of the guidance that we provided you for 2009 – and also the lowest bad debt and highest prepaid levels in our history. We have positioned Securus to continue to grow these metrics into the future by working on and improving the Executive Team, our Customer Service Platform, the Secure Call Platform, the Sales Team, and most other areas at Securus. Good management in telecommunications is equivalent to good blocking and tackling over many years – and we are starting to see the work of the new Executive Team at Securus in clearly quantifiable results. I have worked with the members of the Team now for 11 years on average – they execute well – and you can look at our performance to see the solid results achieved over a relatively short period of time."
Full Year 2009 Results
Total revenue in 2009 was $363.4 million, $25.2 million, or 6.5% lower than 2008 primarily due to (1) recessionary impacts on our inmate telephone calling volumes and on our offender management business segment; (2) a revenue recognition change made in 2009; and (3) continued attrition of our wholesale business. Total billed calls were down 11% in 2009 and calls generated from sites we served in both 2009 and 2008 (same store results) were down approximately three (3) percent for a good portion of the year caused by the poor economy. Our offender management business was also impacted by the global economic recession in 2009 as it affected government budgets causing corrections agencies to delay or defer technology spending. Additionally, in 2009, we experienced a change in revenue recognition from a partnering arrangement that reduced our revenues by approximately $8.2 million from the prior year. Our wholesale service revenues decreased $1.8 million due to the ongoing trend of wholesale customers not renewing our services as their underlying facility contracts expire.
We were able to overcome almost all of the annual revenue decline by improving the quality of the revenue we generated exhibited by the small $0.5 million or -0.4% decline in gross margin. We continued our focus of selling more profitable prepaid products last year that resulted in our prepaid product mix to grow from 46.4% in 2008 to 55.5% in 2009. This drove our bad debt lower -- 9.1% of inmate telephone revenue in 2008 to 8.7% of inmate telephone revenue in 2009. Also contributing to our gross margin growing from 30.0% of revenue in 2008 to 32.0% in 2009 were the continued improvements we made to our cost structure. We experienced significant reductions in field service costs from productivity improvements and lower telecom and validation expenditures driven primarily by cost improvement initiatives we implemented throughout the year.
Sales, general and administrative expenses for 2009 were $8.8 million, or 11.8% lower than 2008 due to better management of our expenses as well as additional expense reduction initiatives we completed. Even if we were to normalize out the one-time patent lawsuit settlements and the executive reorganization expenses we incurred in both years, our operating expenses would still have been reduced by over $9 million in 2009.
With gross margin effectively flat at 2008 levels, and with the significant improvement we made to our SG&A expenses during 2009, we were able to grow EBITDA and EBITDA margin from $41.8M, or 10.7% in 2008 to $50.1M, or 13.8% in 2009.
Capital expenditures for full year 2009 were $16.5 million, a $0.6 million decrease from full year 2008. The annual decline was due primarily to lower sales and renewal activity associated with the recession. We also experienced a reduction in our moves, adds and changes (MACs) capital spending in 2009.
Net loss for 2009 was $21.1 million, a $12.9 million improvement from 2008 due primarily to operating improvements we made to the business.
Cash and restricted cash on December 31, 2009 was $4.0 million, a $4.1 million decrease from December 31, 2008. However, the reduction in our cash balance was due entirely to the Company paying down its working capital revolver balance. With the cash we generated from operations in 2009 combined with the cash balance we held at the beginning of 2009, we were successful in paying down our revolver balance from $16.5 million at the beginning of 2009 to zero at the end of the year. As of December 31, 2009, the Company had $30.0 million of working capital availability under its revolving credit facility compared to $13.5 million available at the end of 2008.
Fourth Quarter 2009 Results
Q4 2009 revenue was $87.4 million, $0.3 million higher than Q3 2009 and $7.9 million lower than Q4 2008. The sequential increase was due to a $1.5 million increase in Syscon revenue as work began on new contracts and services awarded. Inmate telecom revenue declined in the quarter by $1.1 million, or -1.4% with $0.7 million of the decline associated with lower wholesale revenue and the remaining amount due to lower direct provisioning postpaid collect revenue. The annual decline was driven entirely by our inmate telecom segment as Syscon revenue increased by $0.2 million. The $8.1 million year-over-year decline in inmate telecom revenue was primarily due to the recession, the revenue recognition change we made in 2009 described above and wholesale attrition.
Cost of service in the fourth quarter of 2009 was 66.3% of revenue, 150 basis points lower than the third quarter and 270 basis points lower than the Q4 2008 level of 69.0%. The sequential and annual improvement is due primarily to lower bad debt expense recorded due to our focus on improving our prepaid product mix. We also improved our cost structure by completing projects that have lowered our telecom, validation and field service costs. Telecom costs were 9.0% of inmate telecom revenue in Q4 2009 versus 9.4% in Q3 2009 and 9.3% a year ago. We have put more focus on validating the rates we pay for services and continue to groom our network by disconnecting network circuits that are underutilized or not required given existing traffic volumes. Validation costs were down another 8.5% in the quarter and have dropped over 38% from a year ago due to us selling more prepaid products that don't require the Company from incurring these types of costs. In addition, our field service costs continue to run favorable to last year – down 12% from Q4 2008 levels.
Sales, general and administrative expenses for Q4 2009 were $18.8 million, $5.1 million higher than Q3 2009 but $0.1 million lower than Q4 2008. The sequential increase is due to a favorable patent lawsuit that we recorded in Q3 2009 and timing of incentive based compensation that was accrued in Q4 2009.
EBITDA for Q4 2009 was $10.6 million, $3.7 million lower than Q3 2009 and flat with Q4 2008. The sequential decrease is due primarily to the favorable patent lawsuit that we recorded in Q3 2009 and timing of incentive based compensation that was accrued in Q4 2009.
Capital expenditures in Q4 2009 were $6.2 million versus $3.8 million in Q3 2009 and $3.7 million in Q4 2008. The higher capital expenditures in the most recent quarter were entirely due to timing and are associated with our continued investment in our secured call platform.
EBITDA is a non-GAAP measure. Below is a schedule reconciling reported GAAP Net Loss to EBITDA.
Securus Technologies, Inc.
Reconciliation of Net Loss to EBITDA
(In thousands)
For The Twelve
Months Ended
Q4 Q3 Q4 December 31,
2009 2009 2008 2009 2008
---- ---- ---- ---- ----
Net Loss $(6,832) $(3,134) $(8,901) $(21,086) $(34,019)
Interest expense and
other, net 10,128 9,287 12,303 39,114 41,896
Income tax expense
(benefit) (96) 468 (1,035) 719 (509)
Depreciation and
amortization 7,448 7,713 8,274 31,333 34,400
----- ----- ----- ------ ------
$10,648 $14,334 $10,641 $50,080 $41,768
EBITDA ======= ======= ======= ======= =======
Investor Call
Management is holding an investor conference call on Friday, March 12 at 10:00 a.m. (CST) to discuss quarterly results. Investors are invited to participate. Details of the conference call are as follows:
Call Date: March 12, 2010
Call Time: 10:00 a.m. CST
US Dial in: 877-941-8610
International Dial in: +1 480-629-9819
Conference ID: 4242150
Replay details are as follows:
------------------------------
Replay Dates: March 12, 2010 – April 12, 2010
Replay available at: 1:00 p.m. CST
US Replay Dial in: 800-406-7325
International Dial in: +1 303-590-3030
Replay Passcode: 4242150
About Securus Technologies, Inc.
Securus Technologies, Inc. is one of the largest suppliers of detainee communications and information management solutions, serving approximately 2,400 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 other locations in 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 headquartered in Vancouver, British Columbia, 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 400,000 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. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share amounts)
December 31,
------------
2008 2009
---- ----
ASSETS
Cash and cash equivalents $6,576 $2,668
Restricted cash 1,599 1,366
Accounts receivable, net 45,316 40,010
Prepaid expenses 6,116 6,183
Current deferred income taxes 1,973 1,487
----- -----
Total current assets 61,580 51,714
Property and equipment, net 35,364 28,767
Intangibles and other assets, net 98,550 92,207
Goodwill 63,468 67,386
------ ------
Total assets $258,962 $240,074
======== ========
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED
STOCK AND STOCKHOLDERS' DEFICIT
Accounts payable $14,743 $19,010
Accrued liabilities 44,371 38,285
Deferred revenue and customer advances 15,069 14,755
Current deferred income taxes 817 893
--- ---
Total current liabilities 75,000 72,943
Deferred income taxes 10,893 11,306
Long-term debt 288,341 287,802
Other long-term liabilities 2,238 3,357
----- -----
Total liabilities 376,472 375,408
Commitments and contingencies
Series A redeemable convertible preferred stock,
stated value $2,253 and $2,534 at December 31,
2008 and December 31, 2009; total redemption
value $11,489 and $12,925 at December 31, 2008
and December 31, 2009; 5,100 shares authorized
and outstanding at December 31, 2008 and 2009. 11,321 12,820
Stockholders' deficit:
Common stock, $0.001 stated value; 1,355,000 and
1,675,000 shares authorized at December 31, 2008
and 2009; 161,037 and 140,792 shares issued and
outstanding at December 31, 2008 and 2009,
respectively. 8 8
Additional paid-in capital 34,304 32,806
Accumulated other comprehensive income (loss) (2,701) 560
Accumulated deficit (160,442) (181,528)
-------- --------
Total stockholders' deficit (128,831) (148,154)
-------- --------
Total liabilities, redeemable convertible
preferred stock and stockholders' deficit $258,962 $240,074
======== ========
SECURUS TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31, 2007, 2008 and 2009
(Dollars in thousands)
For the Year Ended December 31,
-------------------------------
2007 2008 2009
---- ---- ----
Revenue:
Direct call provisioning $338,703 $333,564 $312,614
Offender management software 7,933 25,137 22,698
Wholesale services 45,214 29,902 28,124
------ ------ ------
Total revenue 391,850 388,603 363,436
Cost of service (exclusive of
depreciation and amortization shown
separately below):
Direct call provisioning, exclusive
of bad debt expense 218,824 217,918 197,713
Direct call provisioning bad debt
expense 37,776 25,889 23,859
Offender management software expense 6,110 13,540 9,624
Wholesale services expense 24,104 14,543 16,032
------ ------ ------
Total cost of service 286,814 271,890 247,228
Selling, general and administrative
expenses 74,369 74,721 66,128
Restructuring costs 614 224 -
Depreciation and amortization 37,048 34,400 31,333
------ ------ ------
Total operating costs and expenses 398,845 381,235 344,689
------- ------- -------
Operating income (loss) (6,995) 7,368 18,747
Interest and other expenses, net 31,487 41,896 39,114
------ ------ ------
Loss before income taxes (38,482) (34,528) (20,367)
Income tax expense (benefit) 1,922 (509) 719
----- ---- ---
Net loss (40,404) (34,019) (21,086)
Accrued dividends on redeemable
convertible preferred stock - (1,351) (1,499)
--- ------ ------
Net loss available to common
stockholders $(40,404) $(35,370) $(22,585)
======== ======== ========
SECURUS TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2007, 2008 and 2009
(Dollars in thousands)
For the Year Ended
------------------
2007 2008 2009
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(40,404) $(34,019) $(21,086)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization 37,048 34,400 31,333
Amortization of fair value of contracts
acquired 1,360 3,489 -
Deferred income taxes 922 (2,365) 323
Conversion of interest paid "in kind" to
secured subordinated notes 10,678 12,650 14,943
Amortization of deferred financing costs
and debt discounts 2,251 3,542 4,170
Other operating activities, net 169 (25) (49)
Changes in operating assets and liabilities,
net of effects of acquisitions:
Restricted cash (74) (68) 237
Accounts receivable 20,459 3,813 5,988
Prepaid expenses and other current assets 191 (862) 4
Other assets 376 654 (2,885)
Accounts payable (11,251) (9,057) (210)
Accrued liabilities (1,266) 5,254 (6,016)
------ ----- ------
Net cash provided by operating activities $20,459 $17,406 $26,752
======= ======= =======
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment and
intangible assets $(21,356) $(17,046) $(16,453)
Cash consideration paid for acquired
business (43,717) - -
Proceeds from sale of asset - - 200
Proceeds from sale of unconsolidated
affiliate 985 - -
Property insurance proceeds 88 - -
--- --- ---
Net cash used in investing activities $(64,000) $(17,046) $(16,253)
======== ======== ========
SECURUS TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS — (Continued)
For the Years Ended December 31, 2007, 2008 and 2009
(Dollars in thousands)
For the Year Ended December 31,
-------------------------------
2007 2008 2009
---- ---- ----
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of second-
priority senior secured notes $39,060 $- $-
Cash overdraft (3,958) (4,151) 4,275
Net advances (payments) on revolving
credit facility 1,775 11,511 (16,511)
Debt issuance costs (4,853) (1,757) (77)
Proceeds (payments) related to loan
payable to related party, net 4,510 (4,510) -
Proceeds from issuance of common stock 1 1 -
Proceeds from issuance of Series A
preferred stock 10,200 - -
Series A preferred stock issuance costs (229) - -
---- --- ---
Net cash provided by (used in)
financing activities $46,506 $1,094 $(12,313)
------- ------ --------
Effect of exchange rates on cash and
cash equivalents (1,451) 3,050 (2,094)
Increase (decrease) in cash and
equivalents $1,514 $4,504 $(3,908)
Cash and cash equivalents at beginning
of year 558 2,072 6,576
--- ----- -----
Cash and cash equivalents at end of year $2,072 $6,576 $2,668
====== ====== ======
SUPPLEMENTAL DISCLOSURES:
Cash paid during the period for:
Interest $18,715 $22,207 $22,797
======= ======= =======
Income taxes $239 $846 $1,228
==== ==== ======
NONCASH FINANCING AND INVESTING
ACTIVITIES:
Non-cash consent fee $400 $- $-
==== === ===
Leasehold improvements $- $710 $155
=== ==== ====
SOURCE Securus Technologies, Inc.
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