Management Presentation For RedChip Small Cap Investor Conference June 5, 2008
T Today s Presenters Bob Marbut Founder, Co-CEO and Chairman Don Neville Chief Financial Officer Page 2
Safe Harbor Statement Certain statements in this presentation constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, as amended. When used in this press release, words such as "will," "believe," "expect," "anticipate," "encouraged" and similar expressions, as they relate to the company or its management, as well as assumptions made by and information currently available to the company's management identify forward-looking statements. Additional information concerning forward looking statements is contained under the heading of risk factors listed from time to time in the company's filings with the Securities and Exchange Commission. We do not assume any obligation to update the forward-looking information. Page 3
Market Snapshot Common Stock Ticker: ARGL Unit Ticker: ARGLU Recent Common Stock Price: $6.45* Market Cap: $38.5M* 52-Week Range: $6.12 - $8.00* Shares Outstanding/Float: 6.0/3.6M Insider Ownership: 30.5% Warrant Ticker: ARGLW Warrants Outstanding: 3.9M Exercise Price: $5.50 per warrant Callable Price: $11.50 per warrant Expiration Date: January 24, 2011 *As of 5/23/08 Page 4
Overview Argyle Security is a leading provider of services and solutions in the physical electronic security industry for the Corrections and Commercial markets. In 2007, Argyle Security acquired ISI Security Group, followed by three acquisitions in early 2008. These four entities became the foundation for the creation of Argyle Security USA, a rapidly growing security service and solutions provider. Argyle Security USA has two reporting segments: Argyle Corrections Group -ISI -MCS - Com-Tec Security (acquired in January 2008) - PDI (acquired in January 2008) Argyle Commercial Security Page 5
Investment Highlights Strong security industry dynamics since 9/11, creating attractive opportunity: Growing demand in Argyle s targeted markets Highly fragmented sector ripe for strategic buildup Increasing need for total solutions providers New opportunities for IP applications with cost effective technologies Broad, highly experienced management team, with successful track record in key areas that support Argyle s vision: Core competency in successful integrated strategic buildups of public companies Significant experience and relationships in physical security industry Proven ability to integrate acquisitions and manage rapid growth Page 6
Our Vision To Become a Leading Global Company in the Physical Electronic Security Industry Page 7
Market and Channel Focus Intrusion Intrusion Outdoor/ Perimeter Video Surveillance Video () Access Access Control Targeted Markets: Opportunities in selected Commercial, Governmental and Residential sectors Targeted Channels: Opportunities in selected Video Surveillance, Access Control, Perimeter Protection, Intrusion Protection and Fire Detection sectors Page 8
Strategy for Creating A Major Global Platform Consistently grow Argyle s existing business segments organically. Acquire and effectively integrate attractive companies that strategically fit Argyle s market and channel strategy. Leverage the valuable brands and channels of those businesses that join Argyle. Continually improve and leverage Argyle s existing technology, products and skill sets. Page 9
Argyle Corrections Provides a major distribution channel for high tech security services Provides the essential low tech services and products for a total solution Acquired in January 2008 Full-service, turnkey solutions provider that manufactures high security metal barriers, observation windows, detention furniture and accessories Provides presence in California corrections market Page 10
Argyle Corrections Designs, engineers, develops and provides command and control systems that control all low voltage security systems Uses proprietary software to automatically customize command and control systems Continually upgrades software to reduce production costs to provide proprietary/complex features for the user Acquired in January 2008 Custom designs electronic security systems, with industry-leading technology Expands Argyle s national footprint Established service business with recurring corrections revenues Page 11
Electronic Locking Mechanisms Incarceration Rated Doors, Windows and Hardware Argyle Corrections ISI, PDI
Command and Control High Impact Barriers High Impact Rated Polycarbonate Glass and Windows Argyle Corrections ISI, PDI
Riot Proof Furnishings and Furniture Argyle Corrections ISI, PDI Page 14
Severe Attack Wall Systems Argyle Corrections ISI, PDI Page 15
Argyle Corrections MCS, Com-Tec
Argyle Corrections MCS, Com-Tec
Argyle Corrections MCS, Com-Tec
Correctional Market Summary Growth Drivers More juveniles (Increase in crime rate and laws) More women (Change in percentage population) Violent sexual predators requiring special facilities Aging and 24/7 usage of existing facilities Migration and relocation of population Sophisticated command and control graphics technology Growth in inmate population Aging of inmate population Increase in illegal aliens Retrofit demand continuing Approximately 1,000 new inmates per week Sources: Public Safety Performance Report, Pew Charitable Trust, 2007 Correctional News, February 2007 Page 19
Correctional Market Needs Exhibiting Significant Growth Page 20 Massachusetts New York Alaska Alabama Arkansas Arizona Colorado Connecticut Delaware Hawaii Idaho Illinois Indiana Iowa Kansas Kentucky Louisiana Maine Maryland Georgia Utah Vermont Virginia Washington West Virginia Wisconsin Wyoming Michigan Minnesota Mississippi Missouri Montana Nebraska Nevada New Hampshire New Jersey New Mexico North Carolina North Dakota Ohio Oklahoma Oregon Pennsylvania Rhode Island South Carolina South Dakota Tennessee Florida Texas California 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 (5,000) (10,000)
Correctional Market Capacity At Crisis Levels Page 21 Ohio Nebraska Massachusetts New Jersey North Dakota Illinois Colorado Wisconsin Washington Vermont Iowa Florida West Virginia Louisiana Idaho Montana New Hampshire Delaware Nevada California Alabama North Carolina Alaska Maine New York Pennsylvania Arizona Arkansas Georgia Hawaii Oregon Michigan Minnesota Missouri South Carolina Maryland Indiana Kentucky Rhode Island Kansas Oklahoma New Mexico Mississippi Tennessee South Dakota Virginia Texas Wyoming Utah 210% 200% 190% 180% 170% 160% 150% 140% 130% 120% 110% 100% 90% 80% 70% 60% 50%
Argyle Corrections Corrections/Justice Construction Trends Billions of Dollars $8 $7 $6 $5 $4 $3 $2 $1 $0 2000 2001 2002 2003 2004 2005 2006 2007 2008 Source: The Rose Report Correctional News, March/April 2008 Page 22
Argyle Commercial Security Successful strategic buildup over past five years, including five acquisitions and two Greenfields Established service revenue business with attractive margins and growth potential Growth supported by five regional offices with enterprise-level sales professionals Competes with small regional players and large national players Key vertical markets include: hotels, healthcare, education and infrastructure (utilities, refineries, chemical plants, ports and energy providers) Page 23
Argyle Commercial Security Security Systems Video Systems Intrusion Detection Systems Access Control Proximity Cards Smart Cards Biometric Technology Photo ID Printers & Supplies Page 24
Argyle Commercial Security Leading Edge Technology Wireless Video Intelligent Perimeter Security IP Video Intelligent Video Page 25
Argyle Commercial Security Fire Detection Systems EST QuickStart, EST2 & EST3 Integrated Life Support Systems Control Panels Detectors Signaling Page 26
Argyle Commercial Security Technology Partners Access Control Software House GE Security AMAG Lenel DSX Access Specialties Page 27
Argyle Commercial Security Technology Partners Video Pelco AD Intellex DVTel NICE Kalatel Sony Panasonic Bosch Cernium Verint Page 28
Argyle Commercial Security Technology Partners Fire EST Printers Fargo DataCard Evolis MagicCard Intercom & Nurse Call Aiphone Zenitel Page 29
Argyle Commercial Security Strategically Positioned Proven Strategy Based on Seven Strategic Principles: Broad range of products Strong sales relationships Stringent estimating and cost controls Best of Breed products Recurring service revenues Ready for Expansion: Strong management Proven ability for profitable growth Additional access to capital Dynamically growing industry Building customer relationships Page 30
Argyle Commercial Security Strategically Positioned ($ Billions) Total Non-Residential Security Market 16000 14000 12000 10000 8000 6000 4000 2000 0 1995 2000 2005 2010 2015 Source: Freedonia Group, Electronic Security Systems to 2010 Includes projections to 2015 Page 31
MCS Commercial Strategically Positioned ($ Billions) Security Market Revenue by Vertical Market Sector: 1995-2015 4 3.5 3 2.5 2 1.5 1 0.5 0 1995 2000 2005 Retail/Warehouses Gov't & Institutions Industrial Financial Services Air Transport Offices & Lodging Casinos/Public Assembly 2010 2015 Source: Freedonia Group, Electronic Security Systems to 2010 Includes projections to 2015 Page 32
MCS Commercial Strategically Positioned Access Control Systems 2500 2000 1500 1000 500 0 1995 2000 2005 2010 2015 Page 33 M illions Retail/Warehouses Gov't & Institutions Industrial Fina ncia l Services Air Transport Offices & Lodgings Casinos/Public Assembly Source: Freedonia Group, Electronic Security Systems to 2010 Includes projections to 2015
MCS Commercial Strategically Positioned 800 700 600 500 400 300 200 100 0 Page 34 Casinos/Public Assembly Video Systems 1995 2000 2005 2010 2015 Millions Retail/Warehouses Gov't & Institutions Industrial Financial Services Air Transport Offices & Lodgings Source: Freedonia Group, Electronic Security Systems to 2010 Includes projections to 2015
Market and Channel Focus Intrusion Intrusion Outdoor/ Perimeter Video Surveillance Video () Access Access Control Page 35
Market and Channel Focus Intrusion Intrusion Intrusion Outdoor/ Perimeter Video Surveillance Video () Video Surveillance Access Access Control Control Page 36
2008 Focus Phase I T e c h n o l o g y Existing Future Goals Complete national footprint Create four locations for corrections market Continue to expand use of existing proprietary technology (tools and features) Page 37
2009 Focus Phase II T e c h n o l o g y Existing Future Use experienced sales force with customer relationship to utilize our existing and acquired technology where beneficial to the customer. Goals Continue tuck-in on finalizing national footprint. Continue organic growth. Page 38
Q1 2008 Exhibits Strong Growth $1.8 $69.4 $72.4 $23.2 $39.3 $1.1 Pro Forma Adjusted Revenues* Total Backlog** 3/31/07 3/31/08 Pro Forma Adjusted EBITDA* *Since Argyle Security acquired ISI Security Group (which is now a part of Argyle Security USA) in July 2007 and FireQuest, Peterson and Com-Tec in January 2008, the Company does not believe a comparison of the results of operations and cash flows for the three months ended March 31, 2008 versus March 31, 2007 is beneficial to stockholders. In order to assist investors in better understanding the changes in its business between the three months ended March 31, 2007 and March 31, 2008, Argyle Security has provided adjusted pro forma results as if the acquisitions occurred on January 1, 2008 and January 1, 2007, respectively. Adjusted pro forma net income is an alternative view of performance used by management and we believe that investors' understanding of our performance is enhanced by disclosing this performance measure. Argyle has defined adjusted pro forma net income as net income before the impact of purchase accounting for acquisitions, acquisition-related costs, discontinued operations and certain significant items including one-time expenses associated with stock appreciation rights. Additionally, EBITDA (earnings before interest, taxes, depreciation and amortization) is used by management as a performance measure for benchmarking against the Company s peers and competitors. The Company believes EBITDA is useful to investors because it is frequently used by securities analysts, investors and other interested parties to evaluate companies in the security industry. The presentation of EBITDA and adjusted pro forma results is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with GAAP. **Argyle Security previously reported total Company backlog on a gross and net basis, where net backlog is defined as work that has already been contracted. As the commercial business mix changes and expands, Argyle Security believes that total Company backlog will become less relevant and less indicative of future revenues. Therefore, beginning in 2008, Argyle Security has opted to provide only net backlog, with intercompany revenues eliminated, and only for the Argyle Corrections Group. Page 39
Full Year 2007 Results $87.2 $57.8 $65.9 $75.0 $6.1 $1.8 Pro Forma Adjusted Revenues* Total Backlog** 12/31/06 12/31/07 Pro Forma Adjusted EBITDA* *ISI (now a part of Argyle Security USA) was Argyle s first acquisition (prior to which Argyle was a blank check company) and, accordingly, Argyle does not believe that a comparison of the results of operations for the quarter and year ended December 31, 2007, which only include ISI s operating results for August through December 2007, versus Argyle s December 31, 2006 results of operations for the same periods is useful to stockholders. In order to assist investors in better understanding the changes in ISI s business between the years ended December 31, 2007 and December 31, 2006, Argyle is reporting adjusted pro forma results of operations for the Company and ISI as if the acquisition of ISI occurred on January 1, 2006. Adjusted pro forma net income is an alternative view of performance used by management and we believe that investors' understanding of our performance is enhanced by disclosing this performance measure. Argyle has defined adjusted pro forma net income as net income before the impact of purchase accounting for acquisitions, acquisition-related costs, discontinued operations and certain significant items including one-time expenses associated with stock appreciation rights. Additionally, EBITDA (earnings before interest, taxes, depreciation and amortization) is used by management as a performance measure for benchmarking against the Company s peers and competitors. The Company believes EBITDA is useful to investors because it is frequently used by securities analysts, investors and other interested parties to evaluate companies in the security industry. The presentation of EBITDA and adjusted pro forma results is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with GAAP. ** Argyle Security previously reported total Company backlog on a gross and net basis, where net backlog is defined as work that has already been contracted. As the commercial business mix changes and expands, Argyle Security believes that total Company backlog will become less relevant and less indicative of future revenues. Therefore, beginning in 2008, Argyle Security has opted to provide only net backlog, with intercompany revenues eliminated, and only for the Argyle Corrections Group. Page 40
Leveraging Growth Markets Argyle Security USA Pro Forma Revenues 2000-2007 With 2008 Year-End Guidance* 135 Argyle Commercial Argyle Corrections 120 105 90 75 60 45 30 15 0 2001 2002 2003 2004 2005 2006 2007 2008 *2008 Year-End Guidance assumes midpoint of 2008 guidance for $128-$142 million in revenue. Page 42
2008 Outlook Full-Year 2008 Expected pro forma revenues in the range of $128-142 million Compares to $87.2 million of pro forma revenues in 2007 In January 2008, revised upward from the previous outlook of $105-115 million, reflecting January acquisition announcements Expected pro forma adjusted EBITDA margins in the range of 9-10% for 2008 Compares to pro forma adjusted EBITDA margins of 7.0% in 2007 Page 43
Experienced Management Team Executive Position Background Bob Marbut Chairman, Co-CEO and Co-Founder, Argyle Security 45-year career includes leading the funding, M&A and successful execution of strategic buildups for public/private companies that created Harte-Hanks Communications, Argyle Television Holding, Argyle Television, Inc. and Hearst-Argyle Television; currently Executive Chairman of Electronics Line 3000, an international physical security company that focuses in the intrusion protection sector; extensive experience from serving on 18 public/private boards. Ron Chaimovski Sam Youngblood Vice Chairman, Co-CEO and Co-Founder, Argyle Security President, Argyle Security USA Founder, ISI Security Group Currently Vice Chairman of Electronics Line 3000; 20+ year career includes roles as former Economic Minister to North America; international commercial lawyer; founder and Chairman of technology-focused investment company. 30-year tenure in security industry includes senior management positions at ISI Security Group (now Argyle USA), Adtec (also Founder) and Southern Steel, focusing on detention hardware and security electronics solutions. Don Neville Chief Financial Officer, Argyle Security 22 years of professional experience, served as CFO and CEO of private and public companies. Alan Wachtel Vice President, Argyle Security Security industry career includes 22-year tenure at Pittway Corp. (later Honeywell) and served as SVP of SecTecGLOBAL, Inc. Lloyd Campbell General Wesley Clark Walter Klein Director, Argyle Security Director, Argyle Security Director, Argyle Security Nearly three decades of capital markets experience, currently serving as Managing Director of Rothschild North America; previous experience includes Credit Suisse First Boston and TIAA. 38 years with U.S. military, including Supreme Allied Commander NATO forces, retired as a Four- Star General; currently Chairman/CEO of Wesley K. Clark & Associates and Chairman of Rodman & Renshaw. Retired in 2002 from 25-year accounting/finance career; includes more than two decades of experience at Stepan Company (NYSE) as Vice President of Finance, and several years at Arthur Andersen LLP Chip Smith Director, Argyle Security Global Director of Security for Bank of New York Mellon; 24 years in U.S. Secret Service, including heading its largest office (New York City). Page 44