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Tri-S Security has the vision and model to be a major player in
an industry that continues to grow and find itself on the front page of many newspapers
Services
Security & Protection Services
(TRIS-NASDAQ)
Tri-S Security Corp.
11675 Great Oaks Way
Royal Centre Way - Suite 120
Alpharetta, GA 30022
Phone: 678-808-1540
Ronald G. Farrell
Chairman and CEO
Interview conducted by:
Lynn Fosse, Senior Editor
CEOCFOinterviews.com
October 12, 2006
BIO:
Ronald G. Farrell
Chief Executive Officer
Ronald G. Farrell is the Company's founder and has served as Chairman/CEO since the
Company was formed in October 2001 Since 1985, Mr. Farrell has also been the sole officer,
director and shareholder of R.G.F. Investments, Inc. and R.G. Farrell, Inc., private
companies engaged in financial consulting relating to public offerings, venture capital
transactions, leveraged buy-outs and roll-up transactions. At various times from 1986
through 2001, Mr. Farrell served as Chairman/CEO of Computer Integration Corporation,
Sports Leisure, Inc., Automotive Industries, Inc. and Builders Design, Inc.
Company Profile:
Based in Atlanta, GA, Tri-S Security Corp. (NASDAQ: TRIS) is a provider of security
services and equipment for federal government and private entities. Tri-S Security
has developed an extensive network of over 2,500 security professionals via its subsidiary
companies. Guard services include uniformed armed guards for access control, personnel
protection, plant security, theft prevention, surveillance, vehicular and foot patrol,
crowd control and prevention of sabotage, terrorist and criminal activities.
Monitoring systems, security equipment and technology enhance the manned protection Tri-S
Security companies offer.
As industry experts and forecasters have reported, the future of the security industry is
in this type of consolidation. The current security market is highly fragmented and
complex. With the management team and the business model it possesses, Tri-S Security is
poised to become one of the leading security services aggregators.
CEOCFO: Mr. Farrell, what was your vision when you founded
the company and where are you today?
Mr. Farrell: “Originally and as of today, the idea and
the model of Tri-S Security was to enter into the security industry, both from the
standpoint of government security and also to corporate security. We are a large provider
of security to the federal government now through our subsidiary company Paragon Systems.
We are also a large provider of security to the corporate sector through our subsidiary
Vanguard Security. Therefore, with these two companies, we are able to handle the needs of
both sides of the security market.”
CEOCFO: You have
recently acquired Paragon Systems is that correct?
Mr. Farrell: “That is true. Paragon Systems was acquired
approximately two years ago and was originally based in Huntsville, AL. We felt that with
our customer the Federal Government being in Washington D.C., it made sense to move the
company from Huntsville to Washington, which we did and finished that transition about
this time last year. The company currently provides security to the Social Security
Administration and to NASA (National Aeronautics and Space Administration), various
federal facilities in Alabama and Kentucky and others. We also have what we consider to be
a very marquis contract in that we supply the security for the national headquarters for
the Department of Homeland Security in Washington D.C.; this is the office of Michael
Chernoff, the head of Homeland Security.”
CEOCFO: What sets your
security force apart and how do you ensure the quality and integrity of your staff?
Mr. Farrell: “First, perception of security guards has
been changing dramatically over the last few years, as a result of 9/11. Our
professionals, whether on the government side or corporate sector side, have to go through
a pretty rigorous training program in order to qualify to work either with Paragon or with
Vanguard. On the government side, there is a requirement of 40 hours of training, they
must be proficient in firing weapons, they have to go through extensive drug testing,
background checks, both by ourselves and the government, before they can work for us and
be assigned to a contract with the government. Similar training is required by Vanguard as
well.”
CEOCFO: How does the
overall business break down between the security guards and other forms of security?
Mr. Farrell: “Our original concept was to try to keep it
balanced between government and the corporate side; currently we are close to 50/50 as far
as our revenues on government versus the corporate sectors. That is by design. It can
possibly change by virtue of Paragon being awarded additional contracts with the
government, which are generally very large contracts. Paragon can grow dramatically by
virtue of being awarded contracts from various government agencies. On the other side,
Vanguard can grow organically, not at such a fast pace, but has the ability and is part of
a model that says we will grow Vanguard both organically and through acquisition, which we
are looking at and pursuing both avenues.”
CEOCFO: Is there a
general consolidation in the industry of which you are taking advantage?
Mr. Farrell: “I believe the answer is yes. Everything
that we see and read says that there are consolidations and acquisitions between larger
and smaller companies taking place. Obviously, we are also one of those consolidators in
that in our first year of operation we did $24 million of revenue; in our second year it
was around $42 million. We are currently anticipating perhaps around a $75 million revenue
run rate for the current year. It is pretty dramatic growth and we believe that with the
award of additional contracts for Paragon and potential organic and acquisition growth for
Vanguard, we can continue to grow the company in the future.”
CEOCFO: Is it easier to
get the government contracts?
Mr. Farrell: “With our model, we designed a management
structure for Paragon that is capable currently of handling probably $150 million of
revenue without changing or increasing our G&A cost or structure. We thought we had to
do this. Therefore, we have spent a considerable amount of money in order to get to that
point so that we could go to the government and say we are a company that is capable of
handling this type of business and proving it through our prior contracts. This enables us
to show them that we have done similar work of similar size and our reputation within the
government as far as our current contracts is excellent. That is a very important issue to
not only us, but also anyone trying to get into the business. The entry into this sector
is now extremely difficult. If you are starting out, the opportunity is going to be
difficult to prove yourself. Our competitive edge is that we are a proven security company
and therefore we have found ourselves being able to bid on what is called free and open
bid contracts. In addition, because of our reputation, size and past history, we are now
being invited into other contract work, which may not be afforded to someone else.”
CEOCFO: How has the
company changed since becoming a public company?
Mr. Farrell: “The company was structured to be a public
company, so the steps that we have gone through are pretty much what we expected. Our CFO
has a tremendous amount of public company experience. We have always audited our books; we
have always retained counsel that has good corporate and SEC experience. We have always
approached everything that we do to be able to satisfy any and all requirements as a
public company.”
CEOCFO: What is the
overall financial picture of the company?
Mr. Farrell: “In our 2nd Quarter, the company
was able to show a small profit in comparison to a loss in the 1st Quarter and
a substantial loss in the 4th Quarter of last year. The trend in our estimation
is that we are getting better and better. In the first six months of this year we were
able to reduce our bank debt substantially, which helps the leverage on our balance sheet
and the earning capacity of the company. I believe if anyone looked at our balance sheet
today in comparison to the beginning of the year, they would agree that financially, we
are far better than we were six months ago.”
CEOCFO: What is ahead
for the company?
Mr. Farrell: “We continue to work under the model we set
up originally. We have a good pipeline of bids with the federal government, which
currently are estimated at roughly $300 million of new work over the next five years,
which we are waiting to get the results on. We do not expect to win all the bids but hope
to get our fair share. In addition to that, we estimate that in the current Quarter we
might bid on $100 million and maybe a similar number in the 4th Quarter. From
the standpoint of putting a pipeline of potential business out in front of us, we are
executing on that and in comparison to last year, we are light years ahead in that
process. At the same time on the Vanguard side, the company is continuing to write new
business; we just had a couple of announcements the other week and we are continuing to
build our sales and marketing organization in that market to go after additional business.
We are a major competitor in that market and we believe we can grow it from its current
base, because of the fact that we went through a consolidation process in that company.
Vanguard, when we bought it last year, was divided into 7 companies and we have now
consolidated that down to 3. It is a tremendous savings on the consolidation and at the
same time, we have become more proficient in being able to run the business. Now that we
have that behind us, our goal everyday is related to increasing the sales and revenues of
that business. We believe we have the G&A costs very much under control. As a result
of increased pricing and reductions in head count, we have reduced our G&A expense. We
were able to reduce overall expenses to the extent of about $900 thousand per quarter. We
now feel good about the Vanguard side of our business.”
CEOCFO: Why is it a good
time for investors to be interested and what should people know that does not jump off the
page?
Mr. Farrell: “Tri-S went public in February of last year
(2005); it was a unit deal; $5.00 for the stock, $1.00 for the warrant and the stock is
currently roughly $3.00. We believe that from the standpoint of value, the stock is under
priced, based on the performance and the accomplishments that we have made over the last
six months. In addition, we anticipate continuing to do so over the second half of this
year. To me, it is an opportunity at this level certainly, to look at the stock and
realize that it is an undervalued stock. The easiest way to look at that is that at the
end of the 1st Quarter, we were able to sell 3 non-core assets. That included a
10% interest in a joint venture that we had that was definitely non-core, a piece of real
estate that we had but didn’t need and a subsidiary company that was not a part of
the model. Between those three entities, we were able to generate a little in excess of
$12 million cash. At that time and today the market cap on the stock is $10 million. I
believe anyone that would think that through would realize that perhaps there is more
value in Tri-S than our market cap currently shows. We literally sold off $12 million of
assets, paid our bank debt down, still have the business completely intact and the market
cap is $10 million and today at the current market price. That is why we believe that
there is real value at this point.”
CEOCFO: Any final
thoughts for our readers?
Mr. Farrell: “We are in a business that has found itself
being pushed to the front page of newspapers all over the country and 6:00 news nationwide
because of the events in the world. We believe that this is an industry that will see
tremendous growth. Because of our management capability, vision, and business model, we
should be a major player in that growth industry over the next few years.”
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