Track Group Reports Fiscal 2016 Financial Results
Key wins, new products and strategic appointments contribute to revenue increase of 31% and full-year positive cash from operations
● Revenue increased 31%
● Gross Profit increased 33%, to 61% of revenue
● Significantly reduced loss from operations by 31% through growing topline
revenue and tight operating expenses management
● Adjusted EBITDA margin improved to 7.3%, up from 5.9%
● Considerably improved cash generated from operations by 201% and is
now positive
ROMEOVILLE – Dec. 22, 2016 – Track Group, Inc. (OTCQX: TRCK) (“Track Group” or the “Company”), a global leader in location tracking and monitoring services, reported its earnings results for the fiscal year ended September 30, 2016.
“Track Group’s progress on the operational front is further complemented with a solid trajectory of growth to our top line,” said Guy Dubois, Chairman and CEO of Track Group. “Our revenues have consistently improved from $12.3M in 2014, $20.8M in 2015 and now I’m pleased to report $27.2M this past year. Track Group has now operated cash flow positive for a full year and expects further growth as we continue to develop the executive team and sales force.”
FINANCIAL RESULTS
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Revenue increased 31% - The increase in revenue is attributed to the expansion and growth of offender monitoring in Chile and in Track Group’s North American monitoring operations, especially in Indiana and Virginia, as well as increased adoption of the Company’s analytics service offerings.
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Gross profit increased 33% to 61% of revenue - The increase in absolute gross profit and percentage of gross profit is due to higher overall revenue and a continuous drive to reduce manufacturing and monitoring expense.
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Operating expense reduced by 18% - The reduction as a percentage of revenue is the result of a substantial revenue increase and continuous cost management that help offset a 68% increase in research and development expense as the Company continues to invest in its product and application platforms.
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Loss from operations decreased 31% - Increases in topline revenue and in operating expense contributed to the decrease in loss from operations. Although operating expense increased overall, as a percentage of revenue they decreased.
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Net loss of $8.5M – Track Group’s net loss increased by $2.8M. This increase is largely due to non-recurring disgorgement of short swing profit received by the Company in 2015; an increase in research and development expense; and an increase in bad debt in 2016.
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Positive cash from operations - Net cash provided by operations improved 201% from a loss of $0.9M in the fiscal year ended September 30, 2015 to $0.9M in the same period in 2016.
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Adjusted EBITDA increased to $2.0M – Adjusted EBITDA for the fiscal year 2016 increased to $2.0M, or 7.3% of revenue, from $1.2M, or 5.9% of revenue compared to the same period in 2015.
KEY HIGHLIGHTS
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Guy Dubois Appointed as Chief Executive Officer – On September 13, 2016, Track Group announced that Guy Dubois, Chairman of its Board of Directors, was appointed Chief Executive Officer while remaining Chairman of the Board of Directors.
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Board of Directors Strengthened with Strategic Appointments – On September 13, 2016, Track Group also announced appointments to its Board of Directors. Dr. Ray Johnson, former Senior Vice President and Chief Technology Officer of Lockheed Martin Corporation, and Eric Rosenblum, an Executive at Palantir Technologies, Inc.
●
Virginia Department of Corrections to Implement Analytics – On September 28, 2016, Track Group began implementing its predictive analytics software and service offering with over 120 supervising officers across the Commonwealth in all 43 districts. The goal is to transform location-data to intelligent action and improve their efficiency and processes.
BUSINESS OUTLOOK
| | | |
| | | | |
| | | | |
| Revenue: | $20.72M | $27.19M | $33-35M |
| | | | |
| Adjusted EBITDA Margin: | 5.90% | 7.3% | 15-20% |
Non-GAAP Financial Measures
This release includes financial measures defined as “non-GAAP financial measures” by the Securities and Exchange Commission including non-GAAP EBITDA. These measures may be different from non-GAAP financial measures used by other companies. The presentation of this financial information, which is not prepared under any comprehensive set of accounting rules or principles, is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with generally accepted accounting principles. Reconciliations of these non-GAAP financial measures are based on the financial figures for the respective period.
Non-GAAP Adjusted EBITDA excludes items included but not limited to interest, taxes, depreciation, amortization, impairment charges, gains and losses, currency effects, one time charges or benefits that are not indicative of operations, charges to consolidate, integrate or consider recently acquired businesses, costs of closing facilities, stock based or other non-cash compensation or other stated cash and non-cash charges (the “Adjustments”).
The Company believes the non-GAAP measures provide useful information to both management and investors when factoring in the Adjustments. Specific disclosure regarding the Company’s financial results, including management’s analysis of results from operations and financial condition, are contained in the Company’s annual report on Form 10-K for the fiscal year ended September 30, 2016, and other reports filed with the Securities and Exchange Commission. Investors are encouraged to carefully read and consider such disclosure and analysis contained in the Company’s Form 10-K and other reports, including the risk factors contained in such Form 10-K.
TRACK GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 2016 AND 2015
| Assets | | |
| Current assets: | | |
| Cash | $1,769,921 | $4,903,045 |
| Accounts receivable, net of allowance for doubtful accounts of $2,335,508 and $4,150,000, respectively | 6,894,095 | 6,044,931 |
| Note receivable, current portion | 334,733 | 306,434 |
| Prepaid expenses and other | 816,708 | 1,266,277 |
| Inventory, net of reserves of $98,150 and $225,900, respectively | 521,851 | 741,514 |
| Total current assets | 10,337,308 | 13,262,201 |
| Property and equipment, net of accumulated depreciation of $1,421,389 and $2,822,166, respectively | 1,226,461 | 1,697,630 |
| Monitoring equipment, net of accumulated amortization of $3,438,074 and $2,225,480, respectively | 4,358,117 | 2,784,595 |
| Intangible assets, net of accumulated amortization of $8,233,659 and $5,628,308, respectively | 25,540,650 | 25,884,087 |
| Other assets | 2,900,911 | 2,619,035 |
| Goodwill | 7,955,876 | 7,782,903 |
| Total assets | $52,319,323 | $54,030,451 |
| | | |
| Liabilities and Stockholders’ Equity | | |
| Current liabilities: | | |
| Accounts payable | 2,771,101 | 2,363,441 |
| Accrued liabilities | 3,976,192 | 2,705,403 |
| Current portion of long-term debt, net of discount of $222,973 and $222,973, respectively | 3,245,732 | 796,225 |
| Total current liabilities | 9,993,025 | 5,865,069 |
| Stock payable - related party | 3,289,879 | 3,501,410 |
| Long-term debt, net of current portion and discount of $185,811 and $408,784, respectively | 30,345,803 | 30,189,188 |
| Other long-term liabilities | - | 106,671 |
| Total liabilities | 43,628,707 | 39,662,338 |
| | | |
| Stockholders’ equity: | | |
| Common stock, $0.0001 par value: 30,000,000 shares authorized; 10,333,516 and 10,261,288 shares outstanding, respectively | 1,034 | 1,026 |
| Additional paid-in capital | 298,876,399 | 297,591,034 |
| Accumulated deficit | (289,341,503) | (280,845,882) |
| Accumulated other comprehensive loss | (845,314) | (2,378,065) |
| Total equity | 8,690,616 | 14,368,113 |
| Total liabilities and stockholders’ equity | $52,319,323 | $54,030,451 |
TRACK GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
FOR THE FISCAL YEARS ENDED SEPTEMBER 30, 2016 AND 2015
| | | |
| Revenues: | | |
| Products | $378,493 | $666,536 |
| Monitoring services | 25,684,097 | 20,067,966 |
| Other | 1,131,217 | 58,213 |
| Total revenues | 27,193,807 | 20,792,715 |
| | | |
| Cost of revenues: | | |
| Products | 559,887 | 518,155 |
| Monitoring and other related services | 7,883,905 | 6,071,018 |
| Depreciation and amortization included in cost of revenues | 2,009,437 | 1,467,410 |
| Impairment of monitoring equipment and parts | 80,000 | 225,523 |
| Total cost of revenues | 10,533,229 | 8,282,106 |
| | | |
| Gross profit | 16,660,578 | 12,510,609 |
| | | |
| Operating expenses: | | |
| General & administrative | 14,712,650 | 14,057,657 |
| Sales & marketing | 2,269,233 | 2,183,688 |
| Research & development | 2,627,228 | 1,562,566 |
| Depreciation & amortization | 2,709,918 | 2,932,172 |
| Loss from operations | (5,658,451) | (8,225,474) |
| | | |
| Other income (expense): | | |
| Gain/loss on disposal of equipment | 15,655 | 339,858 |
| Interest income | 114,235 | 148,795 |
| Interest expense | (2,829,003) | (2,690,404) |
| Currency exchange rate loss | (151,258) | (214,402) |
| Disgorgement funds received | - | 4,915,236 |
| Other income/expense, net | 13,201 | 78,046 |
| Net loss before tax | (8,495,621) | (5,648,345) |
| Income Tax | - | (20,356) |
| Net loss attributable to common shareholders | (8,495,621) | (5,668,701) |
| Foreign currency translation adjustments | 1,532,751 | (2,106,111) |
| Comprehensive loss | $(6,962,870) | $(7,774,812) |
| Net loss per common share, basic and diluted | $(0.83) | $(0.56) |
| Weighted average common shares outstanding, basic and diluted | 10,285,947 | 10,159,000 |
TRACK GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE FISCAL YEARS ENDED SEPTEMBER 30, 2016 AND 2015
| | | |
| Cash flows from operating activities: | | |
| Net Loss | $(8,495,621) | $(5,668,701) |
| Adjustments to reconcile net loss to net cash used in operating activities: | | |
| Depreciation and amortization | 4,719,355 | 4,399,582 |
| Impairment of monitoring equipment and parts | 80,000 | 225,523 |
| Bad debt expense | 1,996,348 | 504,451 |
| Accretion of debt discount | 222,973 | 346,257 |
| Stock based compensation | 1,353,295 | 1,662,883 |
| Vesting and re-pricing of stock options | - | 39,929 |
| Gain/Loss on disposal of property and equipment | 39,290 | (339,858) |
| Gain/Loss on disposal of monitoring equipment included on cost of sales | 90,838 | 112,177 |
| Change in assets and liabilities: | | |
| Accounts receivable, net | (2,718,115) | (2,751,598) |
| Notes receivable | (28,299) | (32,470) |
| Inventories | 258,519 | (300,865) |
| Prepaid expenses and other assets | 190,951 | 170,094 |
| Accounts payable, accrued expenses and other | 3,198,029 | 717,371 |
| Net cash provided by (used in) operating activities | 907,563 | (915,225) |
| | | |
| Cash flow from investing activities: | | |
| Purchase of property and equipment | (105,121) | (265,065) |
| Capitalized software | (2,090,962) | (567,287) |
| Purchase of monitoring equipment and parts | (2,861,100) | (1,201,200) |
| Leasehold improvements | - | (422,544) |
| Payment related to acquisition | - | (1,782,849) |
| Net cash used in investing activities | (5,057,183) | (4,238,945) |
| | | |
| Cash flow from financing activities: | | |
| Principal payments on related-party notes payable | - | (2,700,000) |
| Proceeds from notes payable | 2,000,000 | 4,077,778 |
| Principal payments on notes payable | (1,021,832) | (2,353,989) |
| Repurchase of Series D Convertible preferred stock and options | - | (10,500) |
| Net cash provided by (used in) financing activities | 978,168 | (986,711) |
| | | |
| Effect of exchange rate changes on cash | 38,328 | (57,896) |
| | | |
| Net decrease in cash | (3,133,124) | (6,198,777) |
| Cash, beginning of year | 4,903,045 | 11,101,822 |
| Cash, end of year | $1,769,921 | $4,903,045 |
TRACK GROUP, INC. AND SUBSIDIARIES
Reconciliation of GAAP and Non-GAAP Financial Measures
For the Fiscal Years Ended September 30, 2016 and 2015
| Non-GAAP Adjusted Operating EBITDA (in $000’s USD) | | |
| Net loss attributable to common shareholders: | $(8,496) | $(5,669) |
| Interest expense, net | 2,715 | 2,541 |
Income taxes (5) | - | 20 |
| Depreciation and amortization | 4,799 | 4,625 |
| Stock-based compensation | 1,353 | 1,702 |
M&A costs (1) | - | 434 |
Other non-cash charges (2) | 1,516 | 423 |
Non-recurring one-time charges (3) | 110 | 1,849 |
Non-recurring one-time (benefits) (4) | - | (4,700) |
| Non-GAAP Adjusted EBITDA | 1,997 | 1,225 |
| Non-GAAP Adjusted EBITDA, percent of revenue | 7.3% | 5.9% |
| | | |
| Non-GAAP EPS (In $000’s, except per share) | 2016 | 2015 |
| Net loss applicable to common shareholders | (8,496) | (5,669) |
| Interest expense, net | 2,715 | 2,541 |
Income taxes (5) | - | 20 |
| Depreciation and amortization | 4,799 | 4,625 |
| Stock-based compensation | 1,353 | 1,702 |
M&A costs (1) | - | 434 |
Other non-cash charges (2) | 1,516 | 423 |
Non-recurring one-time charges (3) | 110 | 1,849 |
Non-recurring one-time (benefits) (4) | - | (4,700) |
| Non-GAAP net income to common shareholders | 1,997 | 1,225 |
| Weighted average common shares outstanding | 10,286 | 10,159 |
| Non-GAAP earnings per share | $0.19 | $0.12 |
(1) The Company completed one acquisition in 2015. M&A costs in prior periods include severance, settlement costs, travel, advisory and legal fees that were not included in the purchase price allocation. Those costs were expensed in accordance with U.S. GAAP.
(2) Other non-cash charges may include reserves for inventory obsolescence, gains or losses, non-cash currency impacts, and reserves associated with contracts in Mexico and Bahamas.
(3) Non-recurring one-time charges include but are not limited to: the pro-forma effect of EBITDA of acquired companies, settlement costs associated with a prior period lawsuit, integration and impairment of certain acquisition assets and consolidation of facilities.
(4) Non-recurring one-time benefits include disgorgement funds received by a shareholder net of related costs.
(5) Currently, the Company has significant U.S. tax loss carryforwards that may be used to offset future taxable income, subject to IRS limitations. However, the Company is still subject to certain state, commonwealth, and other foreign based taxes.
About Track Group, Inc.
Track Group designs, manufactures, and markets location tracking devices and develops and sells a variety of related software, services, accessories, networking solutions, and monitoring applications. The Company’s products and services are designed to empower professionals in security, law enforcement, corrections and rehabilitation organizations worldwide with single-sourced offender management solutions that integrate reliable intervention technologies to support re-socialization and monitoring initiatives.
For more information, visit www.trackgrp.com.
Forward-Looking Statements
Any statements contained in this document that are not historical facts are forward-looking statements as defined in the U.S. Private Securities Litigation Reform Act of 1995. Words such as “anticipate,” “believe,” “estimate,” “expect,” “forecast,” “intend,” “may,” “plan,” “project,” “predict,” “if”, “should” and “will” and similar expressions as they relate to Track Group, Inc. & subsidiaries (“Track Group”) are intended to identify such forward-looking statements. These statements are only predictions and reflect Track Group’s current beliefs and expectations with respect to future events and are based on assumptions and subject to risks and uncertainties and subject to change at any time. Track Group may from time to time update these publicly announced projections, but it is not obligated to do so. Any projections of future results of operations should not be construed in any manner as a guarantee that such results will in fact occur. These projections are subject to change and could differ materially from final reported results. For a discussion of such risks and uncertainties, see “Risk Factors” in Track Group’s annual report on Form 10-K, its quarterly report on Form 10-Q, and its other reports filed with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended. New risks emerge from time to time. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the dates on which they are made.
Contacts
Steve Hamilton
Chief Marketing Officer
steve.hamilton@trackgrp.com
(877) 260-2010 x4004
Tirth Patel
Edison Advisors (investors)
tpatel@edisongroup.com
(646) 653-7035
