Chinese Security and Surveillance Technology (CSR)

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China Security & Surveillance Technology, Inc. Reports Fourth-Quarter and Full-Year 2009 Results
7:59a ET March 2, 2010 (PR NewsWire)
Note: CSST's fourth-quarter and full-year 2009 earnings conference call will be broadcast live via the Internet at 8 a.m. ET on Tuesday, March 2, 2010, at http://irpage.net/csct/index.html .

China Security & Surveillance Technology, Inc. ("CSST" or the "Company") (NYSE: CSR; Nasdaq Dubai: CSR), a leading provider of digital surveillance technology in the P.R.C., today reported fourth-quarter and full-year 2009 results highlighted by encouraging earnings growth, full-year solid and positive cash flow, and robust growth in revenues from government sector in China. Full-year 2009 EPS grew 40.3%, driven by the growing demand for CSST's products and services, success of convertible notes restructuring, as well as solid execution of cost control initiatives.

Full-year 2009 revenues totaled $580.87 million; and net cash from operating activities totaled $52.60 million, versus $39.10 million net cash used in operating activities in 2008.

"Despite the economic environment, we had a solid 2009 and led the industry in many areas," said Mr. Guoshen Tu, Chairman and Chief Executive Officer of CSST. "Our system installation business in the government sector, particularly safe city and e-city projects, continues to ramp, improving our government revenue profile. We landed several major e-city projects in China, and we continued to see robust growth in the corporate sector."

"During the past year, we took major steps to improve CSST's financial position for 2010 and beyond. The success of our convertible notes restructuring has improved our capital structure and strengthened our balance sheet. We also delivered our cost initiatives which yielded positive results for our earnings," said Mr. Tu.

Fourth-Quarter Financial Results

To simplify its presentation, and in recognition of the completed restructuring of convertible notes, starting third quarter 2009, CSST no longer presents Non-GAAP results and instead presents reported results accompanied by details on key factors impacting results.

For the quarter ended December 31, 2009, CSST's revenues totaled $182.71 million, compared with $143.55 million in the year-earlier quarter and up 14.3% from the third quarter of 2009. This marked CSST's third consecutive quarter with double-digital revenue growth.

Gross profit totaled $51.48 million, up 43.8% from $35.81 million in the year-earlier period. Gross margin increased to 28.2% from 24.9% for the same period in 2008. Sequentially, gross margin increased 610 basis points as a result of expanded profitability of the installation segment. Correspondingly, income from operations increased to $28.20 million, up 68.4% from the year-earlier quarter. Operating margin increased to 15.4%, compared with 11.7% in the year-earlier quarter and 10.8% in the third quarter of 2009.

Net income attributable to CSST totaled $26.06 million, up 132.3% compared with $11.22 million in the year-earlier quarter, and diluted earnings per share totaled $0.38, compared with $0.23 in the year-earlier quarter.

Full-Year Financial Results

For the full year 2009, CSST's revenues totaled $580.87 million, up 35.9% versus $427.35 million in 2008. The growth reflected the strong demand for CSST's products and services, CSST's established brand awareness and extensive distribution network. Government customers accounted for 52% of total revenues, while corporate customers accounted for 48%. Organic revenues for 2009 totaled $543.89 million, or 93.6% of total revenues, compared to $361.5 million or 84.6% in 2008. Non-organic revenues totaled $36.98 million or 6.4% of total revenues.

Gross profit totaled $142.87 million, up 18.5% from $120.54 million in 2008. Gross margin was 24.6%, down 360 basis points from 28.2% last year. The slight drop was due to the decrease of selling prices and relatively lower margin for smaller-scale projects. It was also a result of CSST's efforts to maintain market share and expand customer base in China.

Operating income increased 14.8% to $65.96 million while operating margin decreased to 11.3%, as a result of lower gross margin.

Net income attributable to CSST totaled $56.58 million, up 73.6% from $32.60 million in 2008; and diluted earnings per share totaled $1.01 versus $0.72 in 2008.

CSST recognized a total of non-cash items at $36.36 million, down from $42.97 million in 2008. There were three components for the non-cash expenses, which were $12.74 million, or $0.23 per diluted share related to depreciation and amortization; $18.09 million, or $0.32 per diluted share related to non-cash employee compensation; and $14.85 million, or $0.26 per diluted share from redemption accretion on convertible notes prior to the restructuring. CSST also recorded a one-time non-cash gain on modification of convertible notes of $9.32 million, or $0.17 per diluted share. Weighted average diluted share count increased to 56.17 million compared with 45.28 million in 2008.

CSST's full-year net cash from operating activities totaled $52.60 million, versus $39.10 million net cash used in operating activities for 2008. As of December 31, 2009, CSST's cash balance was $154.48 million, compared with $100.98 million at the end of the third quarter.

Financial Outlook

For the full year 2010, CSST reaffirms its revenue projection of $800 to $820 million and diluted earnings per share of $1.15 to $1.20.

"Looking ahead, mainland demand for our products and services continues to be strong, and we are well positioned at the center of this growth," said Mr. Tu. "The announced acquisitions in 2009 will continue to provide us with a growth platform to expand our industry-leading capabilities in security and surveillance offerings. Our market leadership in China continues to set us apart as we roll out more products and services this year and expand security service capabilities in the years ahead."

"We will further accelerate our efforts to secure sizeable government contracts and capitalize on the growing opportunities in safe city and e-city projects. We will continue cost-improvement initiatives to maintain a healthy margin for our business. Our fundamental outlook for the business is positive," concluded Mr. Tu.