FOR IMMEDIATE RELEASE
 
May 11th, 2018
 
 
Peter Poli
Chief Financial Officer 877-260-2010
peter.poli@trackgrp.com
 
Track Group Reports 2nd Quarter Fiscal 2018 Financial Results
 
Adjusted EBITDA Up 96%, Operating Expenses Drop 6% and Operating Loss Improves 29%
 
NAPERVILLE, ILLINOIS – Track Group, Inc. (OTCQX: TRCK), a global leader in offender tracking and monitoring services, today announced financial results for its second quarter ended March 31, 2018 (the “Second Quarter”). The Company posted gross profit of $4.0M, on total revenue of $7.3M, for a gross margin of 55%. In addition, the Second Quarter adjusted EBITDA came in at $1.3M, up 96% compared to the Second Quarter of FY2017 and total Operating Expenses were $4.7M, down 6%, both of which contributed to the second lowest operating loss ($0.7M) in over three years.
 
“We’re delighted to follow our fiscal year 2018 record First Quarter results with another strong Quarter” said Derek Cassell, Track Group’s CEO. “We have begun implementing a number of new customer opportunities from our pipeline and expect to see the results of our hard work in our upcoming Third and Fourth Quarters.”
 
BUSINESS AND FINANCIAL HIGHLIGHTS

Revenue for the Second Quarter ($7.3M) is up nominally compared to the same period last year.
 
Gross Profit for the Second Quarter remained flat as compared to last year ($4.0M vs. $4.1M) which led to Gross Profit in the first half of FY2018 being up 12% compared to the prior year ($8.5M vs $7.6M).
 
Total operating expenses for the Second Quarter ($4.7M) are down 6% vs. last year ($5.1M) and has led to a 9% reduction in the first half of FY2018 Operating Expenses compared to the prior year ($9.5M vs $10.5M).
 
The quarterly operating loss of ($0.7M) is the second lowest loss in over three years and allowed the company to improve the first half FY2018 operating loss of ($1.0M) by 64% compared to the same period last year ($2.9M), due to a combination of a strong Gross Profit results and lower Operating Expenses.
 
Adjusted EBITDA in the Second Quarter finished up 96% ($1.3M) compared to last year ($0.6M) and represented the third highest Adjusted EBITDA in over 3 years. The Adjusted EBITDA for the first half of FY2018 is up 170% ($2.8M) compared to the first half of FY2017 ($1.0M).
 
Net loss, attributable to shareholders, for the Second Quarter was ($1.7M) compared to a loss of ($1.6M) for the same quarter last year due to foreign exchange movement.
 
Net Cash Provided by Operating Activities remained strong in the first half of FY2018 ($1.8M) compared to the first half of FY2017 ($2.0M) and ($0.8M) two years ago.
 
Discussions are ongoing regarding the proposed extension of the maturity of the Amended and Restated Unsecured Facility Agreement dated June 30, 2015 between the Company and Conrent Invest S.A.

 
 
-1-
 
 
 
BUSINESS OUTLOOK
 
 
 
Actual
 
 
Outlook
 
 
 
FY 2016
 
 
FY 2017
 
 
FY 2018
 
 
 
 
 
 
 
 
 
 
 
Revenue:
 $27.2M 
 $29.7M 
 $32-35M 
 
    
    
    
Adjusted EBITDA Margin:
  7.3%
  12.2%
  18-22%
 
The revenue outlook for FY2018 has been adjusted downward from $35-$40 million to $32-$35 million; however, management believes that the annualized run rate based on the revenue estimated for the Quarter ended 30 September 2018 will range from $35-$40 million. The Adjusted EBITDA margin has been adjusted upward from 15-20% to 18-22% to reflect the results in the first half of the fiscal year and the outlook for the remainder of the fiscal year.
 
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.
 
The company currently trades under the ticker symbol "TRCK" on the OTCQX exchange. For more information, visit www.trackgrp.com.
 
 
-2-
 
 
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. and 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.
 
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, 2017, 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.
 
[The rest of this page is intentionally blank]
 
 
-3-
 
 
 
TRACK GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
 
Assets
 
March 31,
2018
(unaudited)
 
 
September 30,
2017
 
Current assets:
 
 
 
 
 
 
Cash
 $2,661,829 
 $2,027,321 
Accounts receivable, net of allowance for doubtful accounts of $3,532,609 and $3,268,095, respectively
  4,926,116 
  5,438,564 
Note receivable, current portion
  234,733 
  234,733 
Prepaid expense and other
  5,143,501 
  854,122 
Inventory, net of reserves of $26,934, respectively
  269,924 
  261,810 
Total current assets
  13,236,103 
  8,816,550 
Property and equipment, net of accumulated depreciation of $1,950,847 and $1,778,634, respectively
  913,232 
  903,100 
Monitoring equipment, net of accumulated depreciation of $5,045,835 and $4,906,925, respectively
  3,149,664 
  3,493,012 
Intangible assets, net of accumulated amortization of $10,984,263 and $9,839,032, respectively
  23,902,278 
  24,718,655 
Goodwill
  8,207,990 
  8,226,714 
Other assets
  202,581 
  2,989,101 
Total assets
 $49,611,848 
 $49,147,132 
 
    
    
Liabilities and Stockholders’ Equity
    
    
Current liabilities:
    
    
Accounts payable
  2,731,842 
  2,769,835 
Accrued liabilities
  9,109,373 
  6,650,291 
Current portion of long-term debt, net of discount of $74,324 and $185,811, respectively
  30,370,943 
  30,270,531 
Total current liabilities
  42,212,158 
  39,690,657 
Long-term debt, net of current portion
  3,451,588 
  3,480,717 
Total liabilities
  45,663,746 
  43,171,374 
 
    
    
Stockholders’ equity:
    
    
Common stock, $0.0001 par value: 30,000,000 shares authorized; 10,462,433 and 10,480,984 shares outstanding, respectively
  1,046 
  1,048 
Additional paid-in capital
  301,038,832 
  300,717,861 
Accumulated deficit
  (296,846,405)
  (294,067,329)
Accumulated other comprehensive loss
  (245,371)
  (675,822)
Total equity
  3,948,102 
  5,975,758 
Total liabilities and stockholders’ equity
 $49,611,848 
 $49,147,132 
 
 
 
-4-

 

TRACK GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Unaudited)
 
 
 
Three Months Ended
 
 
Six Months Ended
 
 
 
March 31,
 
 
March 31,
 
 
March 31,
 
 
March 31,
 
 
 
2018
 
 
2017
 
 
2018
 
 
2017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
     Monitoring services
 $7,162,205 
 $6,986,612 
 $14,513,010 
 $14,419,889 
     Other
  153,971 
  233,431 
  293,860 
  471,644 
    Total revenue
  7,316,176 
  7,220,043 
  14,806,870 
  14,891,533 
 
    
    
    
    
Cost of revenue:
    
    
    
    
     Monitoring, products & other related services
  2,827,842 
  2,654,305 
  5,369,849 
  6,336,368 
     Depreciation & amortization
  467,666 
  515,574 
  944,808 
  961,067 
Total cost of revenue
  3,295,508 
  3,169,879 
  6,314,657 
  7,297,435 
 
    
    
    
    
 Gross profit
  4,020,668 
  4,050,164 
  8,492,213 
  7,594,098 
 
    
    
    
    
 Operating expenses:
    
    
    
    
General & administrative
  3,495,343 
  2,355,156 
  7,153,081 
  5,530,210 
Loss on sale of asset
  - 
  766,031 
  - 
  766,031 
Restructuring costs
  - 
  4,070 
  - 
  570,400 
     Selling & marketing
  518,993 
  624,210 
  928,730 
  1,213,978 
     Research & development
  182,808 
  679,238 
  346,754 
  1,167,416 
     Depreciation & amortization
  539,537 
  633,273 
  1,104,277 
  1,208,384 
Total operating expenses
  4,736,681 
  5,061,978 
  9,532,842 
  10,456,419 
Loss from operations
  (716,013)
  (1,011,814)
  (1,040,629)
  (2,862,321)
 
    
    
    
    
Other income (expense):
    
    
    
    
 
    
    
    
    
     Interest expense, net
  (805,966)
  (797,333)
  (1,479,793)
  (1,444,436)
     Currency exchange rate gain (loss)
  (221,048)
  10,335 
  (276,120)
  (106,107)
     Other income, net
  6,542 
  222,414 
  17,466 
  222,707 
Total other income (expense)
  (1,020,472)
  (564,584)
  (1,738,447)
  (1,327,836)
Loss before income taxes
  (1,736,485)
  (1,576,398)
  (2,779,076)
  (4,190,157)
Income tax expense
  - 
  9,099 
  - 
  9,099 
Net loss attributable to common shareholders
  (1,736,485)
  (1,585,497)
  (2,779,076)
  (4,199,256)
     Foreign currency translation adjustments
  241,726 
  (15,615)
  430,451 
  (509,187)
Comprehensive loss
 $(1,494,759)
 $(1,601,112)
 $(2,348,625)
 $(4,708,443)
     Basic and diluted loss per common share
 $(0.17)
 $(0.15)
 $(0.27)
 $(0.41)
    Weighted average common shares outstanding, basic and diluted
  10,462,433 
  10,352,485 
  10,469,466 
  10,342,948 
 
 
 
-5-
 
 
 
    
 
Three Months Ended
March 31,
 
 
 
Six Months Ended
March 31,
 
 
 
    2018   
 
 
    2017   
 
 
    2018   
 
 
    2017   
 
 
Non-GAAP Adjusted EBITDA
 
       
 
 
       
 
 
       
 
 
       
 
 
Net loss attributable to common shareholders
 
 $(1,736)
 $(1,585)
 $(2,779)
 $(4,199)
 
Interest expense, net
 
  806 
  798 
  1,480 
  1,445 
 
Income taxes (1)
 
  - 
  9 
  - 
  9 
 
Depreciation, amortization and impairment
 
  1,008 
  1,209 
  2,050 
  2,304 
 
Stock based compensation
 
  557 
  (348)
  1,345 
  (123)
 
Restructuring charges (2)
 
  - 
  4 
  - 
  570 
 
Loss on sale of assets
 
  - 
  766 
  - 
  766 
 
Other charges, net (3)
 
  626 
  (210)
  732 
  277 
 
Non GAAP Adjusted EBITDA
 
 $1,261 
 $643 
 $2,828 
 $1,049 
 
Non GAAP Adjusted EBITDA, percent of revenue
 
  17.2%
  8.9%
  19.1%
  7.0%
    
 
Three Months Ended
March 31,
 
 
 
Six Months Ended
March 31,
 
 
 
 
 
    2018   
 
 
    2017   
 
 
    2018   
 
 
    2017   
 
 Non-GAAP EPS (in $000’s, except share data)
 
       
 
 
       
 
 
       
 
 
       
 
 
Net loss attributable to common shareholders
 
 $(1,736)
 $(1,585)
 $(2,779)
 $(4,199)
 
Interest expense, net
 
  806 
  798 
  1,480 
  1,445 
 
Income taxes (1)
 
  - 
  9 
  - 
  9 
 
Depreciation, amortization and impairment
 
  1,008 
  1,209 
  2,050 
  2,304 
 
Stock based compensation
 
  557 
  (348)
  1,345 
  (123)
 
Restructuring charges (2)
 
  - 
  4 
  - 
  570 
 
Loss on sale of assets
 
  - 
  766 
  - 
  766 
 
Other charges, net (3)
 
  626 
  (210)
  732 
  277 
 
Non GAAP net income to common shareholders
 
 $1,261 
 $643 
 $2,828 
 $1,049 
 
Weighted average common shares outstanding
 
  10,462,433 
  10,352,486 
  10,469,466 
  10,342,949 
 
Non-GAAP earnings per share
 
 $0.12 
 $0.06 
 $0.27 
 $0.10 
 
(1) 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.
 
(2) Includes restructuring charges associated with outsourcing one of our monitoring centers and moving our headquarters to the Chicagoland area.
 
(3) Other charges may include gains or losses, non-cash currency impacts and non-recurring accrual adjustments.
 
 
 
-6-

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