10-K: AmeriGuard Security Services Reports 16.4% Revenue Decrease in 2023, Eyes Growth Through Acquisitions

AmeriGuard Security Services experienced a 16.4% decrease in operational revenue in 2023, primarily due to the end of a major contract, but is focusing on growth through strategic acquisitions.

Summary

• AmeriGuard Security Services, Inc. (AGSS) reported a 16.4% decrease in operational revenue for the fiscal year ending December 31, 2023, totaling approximately $4.8 million.
• The primary reason for the revenue decline was the conclusion of a contract with the Environmental Protection Authority (EPA) in May 2023, which resulted in a $4.6 million reduction in revenue.
• Commercial services also saw a $200,000 decline due to businesses reducing security guard hours.
• Transportation services revenue increased slightly by approximately $90,000 during 2023.
• The total cost of goods sold decreased by approximately $3.65 million, a 14% decline, reflecting the end of the EPA contract.
• Operating expenses increased by approximately $1.2 million, primarily due to administrative salaries and related payroll expenses.
• The company experienced a net loss from operations of $2.44 million for 2023, compared to a minor loss of $100,349 in 2022.
• Other income increased by over $2.8 million due to the Employee Retention Tax Credit received in June 2023.
• The company's principal sources of liquidity include cash from operations and proceeds from long-term debt financing.
• As of December 31, 2023, the company had cash on hand of $2,166,118, with total current assets of $4,142,819.
• AGSS is focusing on growth through mergers and acquisitions, particularly within the security industry, and is also considering opportunities in transportation, cyber security, and other sectors.
• The company's management team believes that the current overhead expense structure can handle two to three times the current revenue stream with minor increases to operating overhead expenses.

Sentiment

Score: 5

Explanation: The document presents a mixed picture. While the company experienced a significant revenue decrease and net loss, it also highlights growth opportunities through acquisitions and a strong management team. The sentiment is neutral to slightly negative due to the financial losses, but with a positive outlook for the future.

Positives

• The company received an Employee Retention Tax Credit of over $2.8 million, boosting other income.
• The company's management team believes that the current overhead expense structure can handle two to three times the current revenue stream.
• AGSS is actively pursuing growth through mergers and acquisitions, which could lead to significant revenue increases.
• The company has a strong management team with experience in government contracting, finance, and organizational development.
• The company has an exclusive contract with Think Equity a New York Investment Banking Firm.
• The company has a Board of Directors with Wall Street and government security experience.
• The company is positioned to grow rapidly in the governmental NEMT market and is focused on expanding its market share in southern CA.
• The company has an excellent reputation in the industry and will take advantage of this status as it bids on contracts moving forward.

Negatives

• The company experienced a 16.4% decrease in operational revenue in 2023.
• The company's net loss from operations was $2.44 million for 2023.
• The company's commercial services revenue declined by $200,000 due to reduced security guard hours.
• Operating expenses increased by approximately $1.2 million in 2023.
• The company is facing challenges in the market due to the conflict between the need to raise service fees and customers' desire to pay less.
• The company is involved in three employment-related legal issues.
• The company's direct expenses average around 91% of revenues.

Risks

• The company's reliance on a few federal contracts poses a risk if these contracts are not renewed.
• The company faces risks related to state and federal regulations, staffing shortages, and inflation.
• The company is involved in three employment-related legal issues.
• The company's ability to acquire new contracts is not guaranteed.
• The company is facing challenges in the market due to the conflict between the need to raise service fees and customers' desire to pay less.
• The company's direct expenses average around 91% of revenues.

Future Outlook

Management is positive about profitable operations for the next twelve months, citing growth in both the security and non-emergency transportation industries, the potential for acquisitions, and the company's conservative resource management.

Management Comments

• Management believes that the current overhead expense structure can handle two to three times the current revenue stream.
• Management is very positive regarding profitable operations for the next twelve months.
• Management plans to be the company acquiring others and quickly doubling our revenues with one or two key acquisitions.
• We have been and will continue to be a company that is very conservative with our resources and will use every possible dollar provide strength and good return to our investors.
• We make profits the old fashion way, hard work.

Industry Context

The security industry is experiencing consolidation, with larger companies leveraging technology and economies of scale. The non-emergency medical transportation industry is growing rapidly, presenting opportunities for AGSS. The company is positioning itself to capitalize on these trends through acquisitions and technology investments.

Comparison to Industry Standards

• The security guard industry is dominated by large national and international firms like Allied Universal, Securitas, G4S, and Prosegur Security.
• Companies with over $50 million in revenue have experienced steady growth, while those under $20 million have seen declining revenues.
• AGS revenue at approximately $20 million in annual revenue places it in a strong competitive position.
• The non-emergency medical transportation market was approximately $6.4 billion in 2022 with a compound annual growth rate of between 7.5% and 9%.
• The company's EBITDA ranges of four to six percent and higher are considered attractive for further investment consideration.

Management Changes

Corporate Governance

Legal Proceedings

• As of December 31, 2023, there are three employment issues pending.
• The issues revolve around terminated employees alleging the Company has failed to pay minimum wages, sick pay wages, meal period violations, rest period violations wage statement violations and violation of the unfair business practices act.
• A lawsuit has been filed in the Fresno County Superior Court, but it is early in the process and the attorneys cannot comment on the merits at this time.
• The Company believes the suit has no merit and intends to resolve it before a trial, if possible.

Stakeholder Impact

• Shareholders may be concerned about the decrease in revenue and net loss, but may be encouraged by the company's growth strategy.
• Employees may be affected by the company's cost-cutting measures and potential changes in operations.
• Customers may experience changes in service delivery as the company shifts its focus to technology and patrol services.
• Suppliers may be impacted by the company's financial performance and potential changes in purchasing patterns.
• Creditors may be concerned about the company's financial performance and ability to repay debts.

Next Steps

• The company plans to continue seeking out contracts that meet their sweet spot and bidding with hope of successful award.
• The company plans to pursue mergers and acquisitions to quickly double revenues.
• The company plans to adopt an Equity Incentive Plan during 2024.
• The company plans to continue to focus on providing high quality service with our excellent staff and improving the quality of our fleet.

Key Dates

Keywords

security services, guard services, non-emergency medical transportation, government contracts, mergers and acquisitions, revenue, EBITDA, financial performance, transportation services, federal contracts