CDCY Compudyne Corp (MM)

CompuDyne Corporation (Nasdaq:CDCY), an industry leader in sophisticated security products, integration and technology for the public security markets, today reported a net loss of $0.28 per share for the first quarter of 2007, compared to a profit of $0.10 per share reported in the first quarter of 2006. Revenues in the first quarter of 2007 were $31.1 million, down from $40.5 million in the first quarter of 2006. EBITDAS for the first quarter of 2007 was negative $0.4 million, down from a positive $2.5 million in the first quarter of 2006. First quarter 2007 results were negatively impacted by low backlogs entering 2007, and a delay in the award of new projects, resulting in flat backlogs rather than the increasing backlogs that had been anticipated. While results in the first quarter were somewhat worse than we had anticipated, we continue to believe that these are temporal impacts and that high levels of new business activity should eventually translate into increasing backlogs and increasing revenues in the coming quarters. Institutional Security Systems (�ISS�) revenue was $11.2 million in the first quarter of 2007 compared with $13.4 million in the first quarter of 2006. Pre-tax loss was $1.3 million in the first quarter of 2007 compared to a $0.1 million pre-tax income in the first quarter of 2006. ISS revenues and earnings were negatively impacted by low backlogs, and delays in planned project starts already in backlog. Recent increases in new business activity, as evidenced by strong award levels in March, and a significant amount of business that is pending formal award, suggests that backlogs will improve throughout the year. Pipeline activity is the strongest it has ever been, reflecting strong latent demand for additional jail and prison capacity at all levels of the market � local, state and federal. Especially encouraging is the increasing acceptance of ISS� �MaxWall� modular steel jail cell product, which has the potential of significantly expanding ISS� market. ISS backlog declined by $0.8 million to $63.9 million during the quarter. Attack Protection (�AP�) revenue was $4.4 million in the first quarter of 2007, down significantly from $11.7 million in the first quarter of 2006. Pre-tax loss was $0.9 million in the first quarter of 2007, compared to pre-tax income of $1.2 million in the first quarter of 2006. AP�s Norshield business, which produces bullet, blast and attack resistant doors and windows and vehicle barrier systems, completed a very large embassy order in 2006. Norshield continues to work to replace this volume, however backlogs declined sharply during 2006 while working on this project and have only recently started to recover, presaging continuing low volumes in this business in the coming months of 2007. The delayed receipt of a substantial change order request materially impacted results. Norshield has undergone significant �right-sizing� efforts during 2007 resulting in cost reductions of $1.2 million on an annual basis, and has adopted a strategy of offering to install its products for customers rather than just sell the products. This new strategy, combined with a closer integration with ISS, is expected to expand Norshield�s market potential while improving its efficiency. AP�s Fiber SenSys (�FSI�) brand business, which is one of the world�s largest supplier of fiber optic based perimeter alarm systems, almost doubled its revenues in the first quarter of 2007 compared to the first quarter of 2006. FSI is expected to continue to improve revenues throughout the year and produce significant earnings in 2007. AP backlogs increased by $3.6 million to $9.3 million during the quarter, reflecting some success in generating new business both in the traditional embassy market and in other markets where high levels of protection are required. Public Safety & Justice (�PS&J�) revenues declined to $10.6 million in the first quarter of 2007 compared to $11.8 million in the first quarter of 2006. PS&J had a pre-tax loss of $0.2 million in the first quarter of 2007 compared to break-even in the first quarter of 2006. Spending by PS&J�s Tiburon business on its �Next Generation� suite of .NET based software products, which is being fully expensed, continues to impact current results and will impact future results. During the first quarter PS&J very successfully took live one of the largest installations they have ever undertaken. PS&J backlogs declined slightly during the quarter, from $39.1 million at the beginning of the quarter to $37.7 million at the end of the quarter. Integrated Electronic Systems (�IES�) revenue was $5.0 million in the first quarter of 2007 compared to $3.6 million in the first quarter of 2006 and resulted in a doubling of pre-tax income to $0.4 million for the first quarter of 2007 compared to $0.2 million for the first quarter of 2006. We have been advised that the Bureau of Engraving and Printing (�BEP�) will put its contract out to bid again as a result of internal reorganizations. Results of this planned re-bid are expected to become known late this year. We are optimistic that it will be re-awarded to IES due to our outstanding performance. IES� Quanta subsidiary continues to perform this BEP contract. IES� newly combined Signami DCS business, made up of our Signami acquisition and our DCS signals intelligence business, contributed $1.8 million to IES� first quarter 2007 revenues. Signami DCS continues to spend heavily on the refinement of its existing signals intelligence product and on the new integrated platform of Signami and DCS technologies � with the introduction of the new product later this year we expect both revenues and margins in this business to improve substantially. In the first quarter of 2007, corporate had a pre-tax loss of $0.3 million, compared to a pre-tax loss of $0.9 million in the first quarter of 2006. This included $0.4 million of net interest cost in the first quarter of 2007, down from $0.5 million in the first quarter of 2006. Corporate expense was reduced despite incurring $0.2 million on legal matters and $0.2 million on Audit/SOX (down from $0.4 million in the first quarter of 2006) related costs in the first quarter of 2007. We ended the quarter with cash and marketable securities of $24.2 million, working capital of $29.7 million, and only $1.5 million of debt maturities prior to 2011. Company-wide backlogs were essentially flat during the first quarter of 2007, ending the quarter at $117.1 million, down $0.2 million. This remains an unacceptably low level, however pipeline, quoting, and bidding activity levels continue to be much higher than in recent years. 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 and the demand for the Company�s products, competitive factors and pricing pressures, changes in legislation, regulatory requirements, government budget problems, the Company�s ability to secure new contracts, the ability to remain in compliance with its bank covenants, delays in government procurement processes, inability to obtain bid, payment and performance bonds on various of the Company�s projects, technological change or difficulties, the ability to refinance debt when it becomes due, product development risks, commercialization difficulties, adverse results in litigation, the level of product returns, the amount of remedial work needed to be performed, costs of compliance with Sarbanes-Oxley requirements and the impact of the failure to comply with such requirements, risks associated with internal control weaknesses identified in complying with Section 404 of Sarbanes-Oxley, the Company�s ability to realize anticipated cost savings, the Company�s ability to simplify its structure and modify its strategic objectives, and general economic conditions. Risks inherent in the Company�s business and with respect to future uncertainties are further described in its other filings with the Securities Exchange Commission, such as the Company�s Form 10-K, Form 10-Q, and Form 8-K reports. COMPUDYNE CORPORATION AND SUBSIDIARIES �CONSOLIDATED BALANCE SHEETS �(unaudited) � March 31, December 31, ASSETS � 2007� � 2006� (dollars in thousands) Current Assets Cash and cash equivalents $ 10,694� $ 7,740� Marketable securities 6,001� 8,687� Accounts receivable, net 25,584� 25,534� Contract costs in excess of billings 12,231� 12,031� Inventories 6,152� 5,577� Prepaid expenses and other � 2,031� � 4,595� Total Current Assets 62,693� 64,164� � Cash equivalents pledged 7,500� 7,500� Property, plant and equipment, net 9,281� 9,630� Goodwill 13,275� 13,274� Other intangible assets, net 7,282� 7,428� Other � 1,841� � 1,954� Total Assets $ 101,872� $ 103,950� � LIABILITIES AND SHAREHOLDERS� EQUITY � Current Liabilities Accounts payable and accrued liabilities $ 12,933� $ 14,155� Billings in excess of contract costs incurred 9,444� 9,221� Deferred revenue 10,145� 9,305� Current portion of notes payable � 440� � 440� Total Current Liabilities 32,962� 33,121� � Notes payable 2,685� 2,685� Convertible subordinated notes payable, net 39,539� 39,492� Deferred tax liabilities 1,425� 1,425� Other � 392� � 388� Total Liabilities � 77,003� � 77,111� � Commitments and Contingencies � Shareholders� Equity � 24,869� � 26,839� Total Liabilities and Shareholders� Equity $ 101,872� $ 103,950� COMPUDYNE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) � Three Months Ended March 31, � 2007� � 2006� (in thousands, except per share data) � Revenues $ 31,132� $ 40,470� � Cost of sales � 21,354� � 27,961� � Gross profit 9,778� 12,509� � Selling, general and administrative expenses 9,299� 9,736� Research and development � 2,371� � 1,767� (Loss) income from operations (1,892) 1,006� � Total other expense, net � 442� � 383� � (Loss) income before taxes on income (2,334) 623� Income tax benefit � -� � (184) Net (loss) income $ (2,334) $ 807� � Earnings (loss) per share: Basic (loss) income per common share $ (.28) $ .10� � Weighted average number of common shares outstanding � 8,436� � 8,119� � Diluted (loss) income per common share $ (.28) $ .10� � Weighted average number of common shares and equivalents � 8,436� � 8,159� COMPUDYNE CORPORATION AND SUBSIDIARIES CONSOLIDATED FINANCIAL DATA (in thousands, unaudited) � Three Months Ended March 31, 2007� 2006� Revenues Institutional Security Systems $ 11,155� $ 13,355� Attack Protection 4,437� 11,684� Public Safety and Justice 10,583� 11,844� Integrated Electronic Systems � 4,957� � 3,587� $ 31,132� $ 40,470� � � Three Months Ended March 31, 2007� 2006� Gross Profit Institutional Security Systems $ 986� $ 2,173� Attack Protection 967� 3,292� Public Safety and Justice 6,517� 6,538� Integrated Electronic Systems � 1,308� � 506� $ 9,778� $ 12,509� � � Three Months Ended March 31, 2007� 2006� Pre-tax income (loss) Institutional Security Systems $ (1,275) $ 136� Attack Protection (926) 1,205� Public Safety and Justice (200) 7� Integrated Electronic Systems 413� 184� Corporate � (346) � (909) $ (2,334) $ 623� March 31, 2007 December 31, 2006 March 31, 2006 Backlog Institutional Security Systems $ 63,868� $ 64,687� $ 57,030� Attack Protection 9,299� 5,686� 20,961� Public Safety and Justice 37,707� 39,067� 43,874� Integrated Electronic Systems � 6,208� � 7,902� � 6,590� $ 117,082� $ 117,342� $ 128,455� RECONCILIATION OF NON-GAAP FINANCIAL MEASURES EBITDAS (in thousands, except per share data; unaudited) � Three Months Ended March 31, 2007� 2006� � Net loss $ (2,334) $ 807� Interest expense 792� 815� Income tax (benefit) -� (184) Depreciation and amortization 841� 795� Non-cash stock option expense � 263� � 255� EBITDA adjusted for non-cash stock option expense (EBITDAS) $ (438) $ 2,488� � This press release contains unaudited financial information that is not prepared in accordance with generally accepted accounting principles (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, as adjusted for non-cash stock option expense (EBITDAS), in its internal analysis of results of operations and monitors EBITDAS to evaluate the Company�s compliance with its bank covenant for a fixed charge coverage ratio. Management believes that EBITDAS and Income (Loss) Before Non-Cash Stock Option Expense is useful to investors as a meaningful comparison between periods and as an analysis of the critical components of the Company�s results of operations. Management also believes that EBITDAS is useful to investors because it allows them to evaluate the Company�s compliance with its bank covenant for a fixed charge coverage ratio.