| [July 30, 2004] |
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CompuDyne Reports $0.01 Per Share Earnings for Second Quarter; Backlogs Increased During the Second Quarter; Outlook for Balance of 2004, 2005, is Improving
HANOVER, Md. --(Business Wire)-- July 30, 2004 -- CompuDyne Corp. (Nasdaq:CDCY) an industry leader in sophisticated security products, integration and technology for the public security markets, today reported a profit of $0.01 per share in the second quarter of 2004, an improvement over the ($0.04) loss in the first quarter of 2004 but a decline from the $0.13 per share profit reported in the second quarter of 2003. Revenues for the quarter were $37.8 million, down from the record $47.5 million in the second quarter of 2003 and down slightly from the $39.0 million reported in the first quarter of 2004. EBITDA for the second quarter was $1.7 million, down from $2.7 million in the second quarter of 2003. Backlog was $136.9 million at the end of the second quarter, up $5.2 million from the end of the first quarter of 2004.
New business activity increased in the second quarter, but actual results suffered due to the prior six quarters of declining backlog, a trend which appears to have reversed during the second quarter. Early indications are that new business activity will continue to improve over the coming quarters, especially in the Attack Protection and Public Safety & Justice segments. Due to the nature of CompuDyne's business, revenue generation from current awards often begins a number of months after the award is made.
Institutional Security Systems ("ISS") has suffered the largest decline in backlogs over the past two years but saw the largest improvement in the second quarter. A large number of prison and jail projects were deferred or even canceled during the past two years due to difficult state and local budgets. While improvement in award activity is expected to continue, it is not expected to return to the levels experienced during the pre-9/11 period. Awards and indications of awards year to date already equal full year awards for 2003. ISS had a small loss in the second quarter, with residual challenges in the West Coast Regional Office offsetting some favorable project results in other areas. Revenues at ISS of $14.0 million for the quarter were down 46% from the second quarter of 2003, while the pre-tax loss of ($84 thousand) was far behind the $835 thousand pre-tax profit in the second quarter of 2003. Backlog increased $10.6 million to $62.8 million in the second quarter of 2004 as compared to the first quarter backlog.
Attack Protection ("AP") had a significant loss in the second quarter of 2004 due to operational issues on one project for which the Company believes it has an adequate reserve. Revenues remained at low levels due to recent declines in backlogs. AP has experienced a sharp increase in contracting activity and the outlook for further awards for embassy security door and window products is improving, as recently reported. During the second quarter the Company decided to replace the President of the Attack Protection segment and a search process is underway. AP revenue of $6.7 million was up 3% from the second quarter of 2003 while the pre-tax loss for AP was ($456 thousand) in the second quarter of 2004 compared to a pre-tax loss of ($52 thousand) in the second quarter of 2003. Backlog increased by $4.9 million to $17.8 million in the second quarter as compared to the first quarter.
Public Safety & Justice ("PS&J") had a strong quarter on a modest increase in revenues. Revenues increased 15% over the second quarter of 2003 while pre-tax profit of $960 thousand represented a 99% increase over the second quarter of 2003. The second quarter of 2004 benefited by the settlement of the previously announced complaint filed against the Company during the fourth quarter of 2003. As a result of this settlement the Company recorded a $292 thousand reduction in cost of sales. This $292 thousand positive adjustment was offset by legal and related costs of $234 thousand incurred during the quarter to settle this matter. While new awards were slow in the second quarter, there has been a recent increase in bidding activity. Backlog declined by $7.3 million to $50.1 million in the second quarter of 2004 as compared to the first quarter.
Federal Security Systems ("FSS") pre-tax earnings declined 28% to $214 thousand on flat revenues, as compared to the second quarter of 2003. New awards were slow in the second quarter, with backlog declined 32% to $6.3 million. FSS expects to announce a significant award shortly.
Gross margins company-wide increased to 29.5% from 24.8% year-over-year despite the significant decrease in revenues, however sharply higher SG&A expenses were incurred due to costs incurred by the Company related to legal fees incurred in connection with responding to the complaint filed by the Public Safety and Justice segment customer, expenses incurred in connection with evaluating potential acquisitions, recruiting fees incurred to fill the recently appointed COO position and other senior management positions and to comply with new requirements mandated by the Sarbanes Oxley Act and the SEC. Interest expense, net of interest income, increased $168 thousand, due to the issuance of the Convertible Notes in the first quarter.
The outlook for both the near term and the intermediate term is improving. The Company is estimating that revenues for fiscal year 2004 will be in the range of $150 million to $155 million and that earnings per share for fiscal year 2004 will be in the $0.08 -$0.10 range. Most of the improvement is expected to come in the fourth quarter due to the cost of PS&J's large User's Conference falling in the third quarter, and turnaround time to begin revenue producing work on new orders. Revenues and earnings in 2005 are expected to be higher than 2004 due to the nascent rebound in activity across all of the Company's businesses, strengthened management and controls, and the elimination of operating problems that have plagued 2002, 2003 and 2004. Due to pending contract activity and the prospects for completing one or more acquisitions this year, the Company will not be giving guidance on 2005 until the time of the third quarter earnings conference call.
Certain statements made in this press release constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, including those statements concerning the Company's expectations with respect to future operating results and other events. Although the Company believes it has a reasonable basis for these forward-looking statements, these statements involve risks and uncertainties that cannot be predicted or quantified and consequently, actual results may differ materially from those expressed or implied by such forward-looking statements. Factors which could cause actual results to differ from expectations include, among others, capital spending patterns of the security market, the Company's ability to secure new contracts and the risks inherent in CompuDyne's business and future uncertainties which are further described in its filings with the Securities and Exchange Commission, such as the Company's Form 10-K, Form 10-Q, and Form 8-K reports.
About CompuDyne
CompuDyne operates within four business segments; each with prominent positions in physical and electronic security and technology-based solutions for the public security market. The Institutional Security Systems segment is one of the largest suppliers of physical and electronic security products, as well as integration and maintenance services, to the corrections and courthouse markets. The Attack Protection segment is one of the largest providers of bullet, blast and attack resistant products to U.S. embassies, banks, courthouses and other highly secured facilities in the U.S. and around the world. The segment also designs and manufactures fiber-optic sensors and related systems using optical fiber, proprietary optics and digital signal processing. The Federal Security Systems segment is a supplier of security and specialty engineering services and telecommunications products to the military, intelligence and commercial markets. The Public Safety & Justice segment develops, implements, and supports automated information solutions for public safety and justice agencies worldwide. This division serves government agencies throughout the United States, and is one of the largest companies dedicated to the public safety and justice software market. Public Safety and Justice also provides large-scale inmate management and institutional medical software systems. -0- *T COMPUDYNE CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (unaudited) June 30, December 31, 2004 2003 ---------- ---------- (in thousands) ASSETS Current Assets Cash and cash equivalents $ 3,729 $ 1,869 Marketable securities 20,312 - Accounts receivable, net 40,150 41,780 Contract costs in excess of billings 15,447 17,568 Inventories 6,174 6,704 Deferred tax assets 1,509 1,371 Prepaid expenses and other 2,784 2,322 ---------- ---------- Total Current Assets 90,105 71,614 Property, plant and equipment, net 9,227 10,079 Goodwill 21,280 21,280 Other intangible assets, net 9,585 9,785 Other 779 904 ---------- ---------- Total Assets $ 130,976 $ 113,662 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Accounts payable and accrued liabilities $ 17,238 $ 21,078 Billings in excess of contract costs incurred 10,369 13,551 Deferred revenue 4,482 6,036 Current portion of notes payable 440 2,103 ---------- ---------- Total Current Liabilities 32,529 42,768 Notes payable 3,705 15,555 Convertible subordinated notes payable 39,025 - Deferred tax liabilities 1,654 1,592 Other 575 820 ---------- ---------- Total Liabilities 77,488 60,735 Commitments and Contingencies Shareholders' Equity 53,488 52,927 ---------- ---------- Total Liabilities and Shareholders' Equity $ 130,976 $ 113,662 ========== ========== COMPUDYNE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) Three Months Ended Six Months Ended June 30, June 30, 2004 2003 2004 2003 ------- ------- ------- ------- (in thousands, except per share data) Revenues $37,783 $47,538 $76,810 $94,305 Cost of sales 26,636 35,751 55,465 70,735 ------- ------- ------- ------- Gross profit 11,147 11,787 21,345 23,570 Selling, general and administrative expenses 8,677 7,696 16,831 15,654 Research and development 1,874 2,032 3,629 3,913 ------- ------- ------- ------- Income from operations 596 2,059 885 4,003 ------- ------- ------- ------- Total other expense 443 332 1,243 704 ------- ------- ------- ------- Income (loss) before income taxes 153 1,727 (358) 3,299 Income taxes expense (benefit) 63 690 (141) 1,320 ------- ------- ------- ------- Net income (loss) $ 90 $ 1,037 $ (217) $ 1,979 ======= ======= ======= ======= Earnings (loss) per share: -------------------------- Basic earnings (loss) per common share $ .01 $ .13 $ (.03) $ .25 ======= ======= ======= ======= Weighted average number of common shares outstanding 8,075 7,898 8,042 7,860 ======= ======= ======= ======= Diluted earnings (loss) per common share $ .01 $ .13 $ (.03) $ .24 ======= ======= ======= ======= Weighted average number of common shares and equivalents 8,376 8,139 8,042 8,106 ======= ======= ======= ======= COMPUDYNE CORPORATION AND SUBSIDIARIES CONSOLIDATED FINANCIAL DATA (in thousands, unaudited) Three Months Ended Six Months Ended June 30, June 30, 2004 2003 2004 2003 -------- -------- -------- -------- Revenues Public Safety and Justice $ 12,717 $ 11,052 $ 25,159 $ 22,539 Institutional Security Systems 13,954 25,692 30,011 49,140 Attack Protection 6,741 6,533 13,694 14,876 Federal Security Systems 4,371 4,261 7,946 7,750 -------- -------- -------- -------- $ 37,783 $ 47,538 $ 76,810 $ 94,305 ======== ======== ======== ======== Three Months Ended Six Months Ended June 30, June 30, 2004 2003 2004 2003 -------- -------- -------- -------- Pre-tax income (loss) Public Safety and Justice $ 960 $ 482 $ 1,395 $ 550 Institutional Security Systems (84) 835 123 1,572 Attack Protection (456) (52) (1,135) 510 Federal Security Systems 214 296 414 503 Corporate (481) 166 (1,155) 164 -------- -------- -------- -------- $ 153 $ 1,727 $ (358) $ 3,299 ======== ======== ======== ======== June 30, Dec. 31, 2004 2003 -------- -------- Backlog Public Safety and Justice $ 50,065 $ 63,727 Institutional Security Systems 62,765 57,258 Attack Protection 17,761 10,043 Federal Security Systems 6,296 8,326 -------- -------- $136,887 $139,354 ======== ======== RECONCILIATION OF NON-GAAP FINANCIAL MEASURES Three Months Ended Six Months Ended June 30, June 30, 2004 2003 2004 2003 ------ ------ ------ ------ Net income $ 90 $1,037 $ (217) $1,979 Interest expense 845 334 1,594 712 Tax expense 63 690 (141) 1,320 Depreciation and amortization 663 625 1,367 1,376 ------ ------ ------ ------ EBITDA $1,661 $2,686 $2,603 $5,387 ====== ====== ====== ====== This press release contains unaudited financial information that is not prepared in accordance with generally accepted accounting principals (GAAP). Investors are cautioned that the non-GAAP financial measures are not to be construed as an alternative to GAAP. The Company's management uses earnings before interest, taxes, depreciation and amortization, (EBITDA) in its internal analysis of net income and monitors it to ensure compliance with certain covenants under the Company's credit facility. Management believes that EBITDA provides useful information to investors for meaningful comparison to prior periods and analysis of the critical components of its results of its operations. Management also believes that EBITDA is a valuable financial measure to investors because it allows them to monitor the Company's compliance with certain covenants under its credit facility. *T
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