Faced with increased demand for public services and strong resistance to further tax increases, state and local governments across the country have been forced to reexamine the way they provide city services in an attempt to save money and find ways to do more with less.
With federal state and local budget deficits skyrocketing, the trend towards outsourcing of government services will accelerate over the next 3-5 years. The move to privatize automated speed enforcement (ASE) system, red-light camera and speed camera enforcement is part of a larger wave of outsourcing of government services.
Automated speed enforcement (ASE) systems employ one or more vehicle sensors to produce recorded images of motor vehicles which are traveling at speeds above a defined threshold or posted speed limit. Images captured by the ASE system can then be processed and reviewed in an office environment at any time, with resulting violation notices mailed to the registered owner of the identified vehicle.
On a yearly basis, speeding and red-light running is estimated to cause more than 180,000 crashes, resulting in approximately 1,000 deaths and 90,000 injuries. The cost to U.S. municipalities from speed-related crashes, as reported by the National Highway Safety Administration, is over $40 billion annually. Having these systems in place provides significant benefits – most importantly the reduction of deaths and injury.
At this time, nearly 400 communities across the US operate red light (in 25 states) or speed (14 states) camera enforcement programs, with more communities and states passing legislation each year. (Source: Insurance Institute for Highway Safety report October 2010)
Currently, only fourteen states (including Arizona, Colorado, Illinois, Iowa, Louisiana, Maryland, Oregon, Tennessee, Utah, and Washington) and the District of Columbia have passed legislation allowing the use of speed camera enforcement systems by local communities within their states, although additional states are considering similar legislation.
Competitors in this industry include, ACS a division of Xerox Corporation (NYSE: XRX), Redflex Holdings (ASX: RDF, RFLXF.PK), American Traffic Solutions (ATS), and smaller competitors that are privately held like, Gatso USA located in Massachusetts, RedSpeed Headquartered in UK with a sub office in Illinois, Optotraffic only doing Speed Enforcement Program in Maryland and Sensys America located in Florida.
Historically, in the red light segment, ATS and Redflex accounted for 80% of the revenues, with the smaller competitors accounting for the remaining 20%. According to the Insurance Institute for Highway Safety, within the current market for red light cameras in the US of 20,000-30,000, only 18% have been installed to date.
The speed camera enforcement market has a much more recent history of adoption, and is much more wide open. Industry sources (Insurance Institute for Highway Safety) estimate that only 2% of the potential of 35,000-50,000 speed cameras have been deployed to date.
According to Robert M. Wasserman , Director of Research, Dawson James Securities, automated speed enforcement is a ground floor opportunity, and shares of Bekford Corporation (OTCBB: BFDI), is a pure play and one of the only ways currently for investors to participate directly in this booming market segment.
Over the past year, Brekford Corp (BFDI.OB), an upstart rival, headquarter in Maryland moved into automated traffic safety enforcement arena in a significant way by landing over nine contracts in 2011.
Dawson recently initiated coverage on Brekford with a Buy rating, and believes that they are currently well positioned in this rapidly expanding technological field to generate ongoing revenue via the outsourcing of Automotive Traffic Enforcement services. Including issuing citations, collecting of fines and retaining a percentage of the amount collected on a revenue sharing basis.
In addition, the Company operates as the only one-stop 360 degree complete end to end traffic safety solutions provider. Bekford leverages its ten years of established relationships with state and local governments and provides a full suite of homeland security services including, vehicle upfitting solutions, rugged mobile computers and video solutions, electronic ticketing systems, and automated traffic safety technology solutions.
Revenues from Brekford’s Automotive Traffic Enforcement Group (ATEG) were less than $100,000 in 2010, the first year of operation of this group. Dawson James anticipates that the Company will exceed $8.6 million in 2011 and approach $15 million in 2012. The Company plans to continue its growth at its ATEG group initially within the State of Maryland but later expand into additional states down the Eastern US corridor from Maryland to Florida.
For the nine months ended September 30, 2011, total net sales equaled $14.3 million compared to $9.53 million for the nine months of 2010, an increase of $ 4.77 million, or 50%. Net income for the nine months of 2011 totaled $938,961 compared to $70,644 for the nine months of 2010, or an increase of 1,229%.
On December 21, 2011, the Company announced that it had closed out the year with its largest multi-year contract to date to provide the City of Hagerstown, Maryland with School Zone Speed Cameras and related program support services.
Company CEO, C.B. Brechin commented, “This contract really underscores to our shareholders our enormous growth potential. Brekford continues to grow and edge out the competition by providing the most innovative, cutting edge traffic safety solutions in the industry.”
Maurice Nelson, Managing Director of Brekford stated, “The Company reached an important milestone today which we believe will equate to similar additional wide scope multi-year contracts as municipalities continue to understand the long-term impact of a successful automated traffic safety program.”
Terms of the contract state two (2) years of service with three (3) additional years renewable upon mutual accord, and include the installation of both portable and mobile cameras in designated school zones.
Under the contract, Brekford will provide up to 16 portable speed cameras in the city and the personnel to man the technology five days a week at a rate of 39 percent of the monthly program payments, according to city documents.
If the Company were to continue producing satisfactory results, they could be a candidate for a NASDAQ listing in the next 18-24 months, which would potentially increase visibility, liquidity, market support, and institutional sponsorship. NASDAQ listing requires a $5 stock price and a number of quantitative criteria that the Company is close to meeting: