By Maureen Flanagan
T-NETIX, Inc. keeps prison phone lines secure by providing security-enhanced call processing, call validation, and specialized billing services. Founded in 1986 and headquartered in Carrollton, TX, T-NETIX went public in 1999 (Nasdaq: TNTX). Today it serves hundreds of local, county, and state correctional departments in the United States and Canada. T-NETIX operates in 35 states.
In an $84.4 million transaction completed March 3, 2004, H.I.G. Capital took the company private. H.I.G., based in Miami, FL, is a private equity investment firm with over $1 billion of equity capital under management.
In support of the transaction, American Capital Strategies, Ltd. (Nasdaq: ACAS) provided $27 million of subordinated debt and equity. Since 1997, American Capital has invested more than $2.2 billion in middle-market financings and manages a portfolio that currently includes more than 80 companies. For more information about American Capital's portfolio click here.
"Inmate calling requires advanced technological capabilities which T-NETIX can provide," said Richard E. Cree, the company's CEO. "T-NETIX's patented technologies and strong market position will stand the company in good stead as the prison population grows and demand for enhanced security continues to increase."
T-NETIX provides telecom services either directly to prison facilities or through contracts with local and long-distance providers such as Verizon, AT&T, SBC Communications, Qwest, and Sprint. The company also sells related prison telecommunications equipment and software through a subsidiary, Telequip Labs, and provides access to line information databases for credit verification of customers through a subsidiary, Accudata, Inc.
Due to security concerns, inmates must call from a secure phone from inside the prison. Among the capabilities and technologies required in correctional facilities are such features as automated voice-processing systems to prevent inmate conversations with a live operator, blocking mechanisms to prevent inmates from making unauthorized calls, listening and recording capabilities, specialized billing systems, and the ability to detect schemes to evade calling restrictions through call forwarding and three-way calling.
T-NETIX designs several different types of Inmate Calling Systems (ICS), which serve as the platforms from which the company's products and services operate. The ICS provides technological capabilities by which a call is put through the security features required by the facility and then validated and authorized. The ICS supports a range of enhanced security capabilities such as a digital recording system, 3-way conference call detection systems, speaker verification systems, and inmate management and commissary management systems. The company has also developed custom billing systems that identify and control high-credit-risk users and a system that enables a paperless, prepaid calling solution for both the called parties and the inmates. T-NETIX currently holds 30 patents related to its inmate call processing technology.
Recently T-NETIX introduced its SecureVoice service, an enhanced voice validation service that prevents inmates from switching or stealing other inmates' PIN numbers for outgoing calls. Another new service is Xtreme Validation, which blocks calls to unbillable numbers or third party high-credit risks. This service has begun to attract major customers and is expected to prove exceptionally profitable.
The company's customers control and manage approximately 1,200 correctional facilities, most of which are under long term contracts, with the company enjoying a high renewal rate.
In the March 2004 going-private transaction led by H.I.G., Dymas Capital provided a revolving credit facility and senior term loans alongside American Capital's $27 million financing.
"American Capital is backing an exciting company with a strong and experienced management team," said American Capital Managing Director Darin Winn. "The T-NETIX client base is significantly comprised of long term relationships who value stability, resulting in a recurring revenue stream. The company's products and services are patented and copyrighted, providing a strong market position."
In 2002, more than 2 million inmates were incarcerated in 4,000 correctional facilities in the U.S. In recent years, the inmate population has been growing between 2% and 6% annually and analysts estimate that a similar growth rate is probable for the foreseeable future. Prisoners are served by some 200,000 phone lines linked to correctional facilities, and the retail market for correctional facility telecommunications is an estimated $2.2 billion.
Providing the necessary technology and capabilities for correctional facilities throughout the country, T-NETIX continues its mission to keep the lines of prison communications open and secure.
