In this day and age, security has become a very important part of every day life. The fear of attacks on our homeland from those abroad has become something we’ve almost become accustomed. But just as dangerous is an act of aggression from a disgruntled citizen. The lengths that the government and companies go to just for peace of mind is something they don’t mind paying a premium for – from longer lines in airports due to physical searches, to biometric security devices for entry into information sensitive buildings. The U.S. has tried to become the most secure nation in the world.
One company helping lead the way is Tri-S Security Corporation (Nasdaq: TRIS). Companies involved in the security industry seem to be a dime a dozen. From taser manufacturers, to iris scanning producers and medical detector makers, the list can go on for days. But TRIS isn’t involved in that. They make a niche in the “old school” security guard business and seem to be doing somewhat of a good job.
The year 2005 was a very busy one for TRIS. The company went public early in the year and generated around $11 million in proceeds from the transaction. Later on, the company announced the acquisition of The Cornwall Group for $13.75 million in cash. The Cornwall Group is based in Miami, Fla. and provides security and investigative services in Dade, Broward and Palm Beach Counties, Fla. and is one of the largest security companies in the state of Florida with over 1,500 employees. Cornwall was recently awarded a contract by the U.S. Department of Interior worth $17 million over five years.
During the first quarter of 2007, revenue for TRSS Security grew 16.3 percent to $20.2 million from $17.4 million in the first quarter of 2006. The revenue increase was the result of internal growth at both of the company’s wholly-owned subsidiaries, Cornwall and Paragon.
Paragon Systems is also a security provider. The subsidiary recently announced approval by the U.S. Department of Commerce for NATO international competitive bidding and was awarded a contract by the U.S. Department of Homeland Security for the state of Washington worth $30 million over five years.
Add to the fact that the company has hired some experienced management in Leslie Kaciban, president of Paragon Systems (former 18-year veteran of the FBI) and Robert Mills, CFO of TRIS (former CFO of Knology, Inc) … and investors may see that the company is positioning itself for some explosive growth.
But every company has some set of problems. Federal government contracts have low profit margins because the competitive bidding process pursuant to which such contracts are awarded forces bidders for such contracts to compete primarily on price. Generally, larger contracts have even lower profit margins because they attract a greater number of bidders which, in turn, increases the price-based competition. This fact makes bottom line growth much more difficult to achieve than top line.
In any event, the company has some qualified managers, has guidance for higher revenue in 2007, and is in an industry in which the market is almost unlimited. The continuation of the growth strategy could become a hindrance to current holders because of the dilutive aspects, though, if bottom line growth ensues, the dilutive aspect may be forgotten. With some increasing volume, and a report of earnings displaying some sort of EPS growth along with tremendous top line, this company could easily become a major player in the security industry.