Securus Technologies :: 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.

											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

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.

							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.

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:

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.

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.

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.

	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	)

	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

	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		$	-