IASG Announces Third Quarter 2006 Financial Results
Albany, N.Y. - November 9, 2006 - Integrated Alarm Services Group, Inc. (NASDAQ: IASG) a total solution provider to independent security alarm dealers located throughout the United States announced results for the third quarter of fiscal 2006 ending September 30, 2006.
Operating Results
Revenue for the third quarter of 2006 was $23.1 million down 6 percent over the same period in 2005 and essentially unchanged from the second quarter of 2006. The net loss for the third quarter ending September 30, 2006 was $69.3 million, or $2.85 per share, compared to a net loss of $5.4 million, or $0.22 per share, when compared to the same period in 2005, and a net loss of $6.4 million, or $0.26 per share, in the second quarter of 2006.
During the third quarter as it has in past years the Company performed its annual impairment test under Statement of Financial Accounting Standards No. 142 Goodwill and Other Intangible Assets (“SFAS 142”). After evaluating financial forecasts, operating trends and comparison of IASG’s recent common share price to the Company’s book value per share, the Company determined that goodwill was impaired at September 30, 2006. As a result, a non-cash goodwill charge of $65 million was recorded in the third quarter of 2006.
Revenue for the first nine months of fiscal 2006 ending September 30, 2006 was $70.3 million down 5 percent from the same period in 2005. The net loss including the non-cash impairment charge for the first nine months of 2006 was $79.2 million, or $3.25 per share, compared to a net loss of $14.4 million, or $0.58 per share, for the first nine months of fiscal 2005.
In announcing the financial results, Charles May, President and Chief Executive Officer, said “The impairment charge on our goodwill is significant but we must remember this is a non-cash charge associated with numerous acquisitions made over several years. Third quarter attrition increased as a result of alarm contract pricing increases and reduced recovery of over 90-day accounts receivable balances relative to recent quarterly periods. Changes in over 90-day accounts receivable balances can have a dramatic effect on attrition as a result of the formula used to calculate attrition. I would also note that the third quarter has typically been IASG’s highest quarter of attrition.”
Balance Sheet
At September 30, 2006, IASG had $16.2 million in cash, $13.3 million of collateralized notes receivable from dealers and stockholders’ equity of $41.2 million. The Company had $125.7 million of debt and capital leases at September 30, 2006. IASG had no outstanding balance on the $30 million senior credit facility at September 30, 2006.
Review of Strategic Alternatives
During 2006, IASG has conducted an extensive review of its strategic alternatives and in the second and third quarters the Company received inquiries and offers regarding certain of its assets. The Company’s Board of Directors has hired and independent investment banker and counsel to assist with this review. IASG has had discussions with certain parties regarding their interests in the Company and these discussions are continuing as is the review of strategic alternatives. The Company does not expect to make any further updates regarding its strategic review and the discussions unless required by federal securities laws.
IASG Portfolio Data
Annualized Attrition Rate:
3rd Qtr 2005 | 4th Qtr 2005 | 1st Qtr 2006 | 2nd Qtr 2006 | 3rd Qtr 2006 | Annualized 4 Quarters to 9/30/06 | |
IASG Owned Portfolio | ||||||
| Legacy Portfolio | 20.0% | 18.3% | 12.1% | 11.8% | 16.3% | 13.9% |
| New Residential | 22.4% | 17.5% | 12.1% | 11.9% | 21.0% | 14.8% |
| New Commercial | 2.6% | 6.2% | 5.3% | 12.5% | 11.1% | 8.5% |
| Aggregate Owned Portfolio | 17.8% | 15.3% | 10.6% | 12.0% | 17.6% | 13.2% |
Annualized Growth Rate - excluding acquisitions
3rd Qtr 2005 | 4th Qtr 2005 | 1st Qtr 2006 | 2nd Qtr 2006 | 3rd Qtr 2006 | Annualized 4 Quarters to 6/30/06 | |
| Wholesale Monitoring Accounts | (16.6%) | (9.6%) | (4.8%) | 14.7% | 5.6% | 1.4% |
IASG ended the third quarter of fiscal 2006 with an owned portfolio of approximately 148,000 contract equivalents generating RMR of approximately $4.4 million and wholesale monitoring of over 746,000 alarms generating approximately $2.9 million in RMR (including IASG’s owned portfolio accounts). Revenue from the owned portfolio is split 78 percent residential and 22 percent commercial.
The Company had 730 employees at September 30, 2006 down from 837 at December 31, 2005.
See the attached financial highlights for the third quarter of 2006 and comparative periods.
Conference Call
IASG will hold a conference call at 8:30 AM EDT on Friday November 10, 2006 to discuss third quarter financial results. Investors may participate in the conference call by dialing 800-510-0178 and entering the access code of 39945421 or by logging onto the investor relations section of the IASG website at www.iasg.us. The international dial in number is 617-614-3450 with the same access code. A replay of the conference call will be available through November 30, 2006 by dialing 888-286-8010 (international dial in - 617 801-6888) and entering the access code of 75955043 or by visiting the investor relations section of the IASG website.
About IASG
Integrated Alarm Services Group provides total integrated solutions to independent security alarm dealers located throughout the United States to assist them in serving the residential and commercial security alarm market. IASG’s services include alarm contract financing including the purchase of dealer alarm contracts for its own portfolio and providing loans to dealers collateralized by alarm contracts. IASG, with approximately 5,000 independent dealer relationships, is also the largest wholesale provider of alarm contract monitoring and servicing. For more information about IASG please visit our web site at http://www.iasg.us.
This press release may contain statements, which are not historical facts and are considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements contain projections of IASG’s future results of operations, financial position or state other forward-looking information. In some cases you can identify these statements by forward looking words such as “anticipate”, “believe”, “could”, “estimate”, “expect”, “intend”, “may”, “should”, “will”, and “would” or similar words. You should not rely on forward-looking statements because IASG’s actual results may differ materially from those indicated by these forward looking statements as a result of a number of important factors. These factors include, but are not limited to: general economic and business conditions; our business strategy and strategic alternatives; anticipated trends in our financial condition and results of operation; the impact of competition and technology change; existing and regulations effecting our company and business, and other risks and uncertainties discussed under the heading “Risks Related to our Business” in IASG’s Form 10-K report for the period ending December 31, 2005 as filed with the Securities and Exchange Commission on March 16, 2006, and other reports IASG files from time to time with the Securities and Exchange Commission. IASG does not intend to and undertakes no duty to update the information contained in this press release.
CONTACT:
Integrated Alarm Services Group, Inc.
Investor Relations:
Joseph L. Reinhart
518 426-1515
INTEGRATED ALARM SERVICES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
As of | |||||||
December 31, | September 30, | ||||||
2005 | 2006 | ||||||
| (UNAUDITED) | |||||||
(in thousands, except for share data) | |||||||
Assets | |||||||
| Current assets: | |||||||
| Cash and cash equivalents | $ | 16,239 | $ | 16,181 | |||
| Current portion of notes receivable | 6,108 | 3,748 | |||||
| Accounts receivable less allowance for doubtful accounts | 5,158 | 4,933 | |||||
| Inventories | 1,477 | 1,453 | |||||
| Prepaid expenses | 1,084 | 1,913 | |||||
| Due from related parties | 87 | 103 | |||||
| Total current assets | 30,153 | 28,331 | |||||
| Property and equipment, net | 7,843 | 7,749 | |||||
| Notes receivable net of current portion and allowance | |||||||
| for doubtful accounts | 10,085 | 9,564 | |||||
| Dealer relationships, net | 33,000 | 29,606 | |||||
| Customer contracts, net | 80,532 | 72,822 | |||||
| Deferred customer acquisition costs, net | 7,874 | 8,670 | |||||
| Goodwill | 94,919 | 26,203 | |||||
| Debt issuance costs, net | 4,596 | 3,931 | |||||
| Assets of business transferred | - | 8,196 | |||||
| Other identifiable intangibles, net | 2,790 | 2,313 | |||||
| Restricted cash | 758 | 287 | |||||
| Other assets | 524 | 285 | |||||
| Total assets | $ | 273,074 | $ | 197,957 | |||
Liabilities and Stockholders' Equity | |||||||
| Current liabilities: | |||||||
| Current portion of capital lease obligations | $ | 350 | $ | 263 | |||
| Accounts payable | 2,306 | 1,580 | |||||
| Accrued expenses | 9,256 | 13,099 | |||||
| Current portion of deferred revenue | 8,724 | 7,723 | |||||
| Other liabilities | 390 | 436 | |||||
| Total current liabilities | 21,026 | 23,101 | |||||
| Long-term debt | 125,000 | 125,000 | |||||
| Capital lease obligations, net of current portion | 461 | 422 | |||||
| Deferred revenue, net of current portion | 4,830 | 5,645 | |||||
| Liabilities of business transferred | - | 1,043 | |||||
| Advance payment | - | 762 | |||||
| Deferred income taxes | 1,582 | 675 | |||||
| Due to related parties | 61 | 81 | |||||
| Total liabilities | 152,960 | 156,729 | |||||
| Committments and Contingencies | |||||||
| Stockholders' equity: | |||||||
| Preferred stock, $0.001 par value, authorized | |||||||
| 3,000,000 shares, none issued and outstanding | - | - | |||||
| Common stock, $0.001 par value, authorized | |||||||
| 100,000,000 shares, 24,681,462 shares issued | 25 | 25 | |||||
| Paid-in capital | 207,162 | 207,477 | |||||
| Accumulated deficit | (86,073 | ) | (165,274 | ) | |||
| Treasury stock - common, at cost, 312,626 shares | (1,000 | ) | (1,000 | ) | |||
| Total stockholders' equity | 120,114 | 41,228 | |||||
| Total liabilities and stockholders' equity | $ | 273,074 | $ | 197,957 | |||
INTEGRATED ALARM SERVICES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
For the Three Months Ended September 30, | For the Nine Months Ended September 30, | ||||||||||||
2005 | 2006 | 2005 | 2006 | ||||||||||
(in thousands, except share and per share data) | |||||||||||||
| Revenue: | |||||||||||||
| Monitoring fees | $ | 7,848 | $ | 8,389 | $ | 23,420 | $ | 23,796 | |||||
| Revenue from customer accounts | 14,123 | 12,395 | 43,237 | 39,023 | |||||||||
| Related party monitoring fees | 30 | 25 | 97 | 75 | |||||||||
| Service, installation and other revenue | 2,500 | 2,242 | 6,893 | 7,375 | |||||||||
| Total revenue | 24,501 | 23,051 | 73,647 | 70,269 | |||||||||
| Expenses: | |||||||||||||
| Cost of revenue (excluding depreciation and amortization) | 10,781 | 9,226 | 31,529 | 28,428 | |||||||||
| Selling and marketing | 1,223 | 1,266 | 3,742 | 3,943 | |||||||||
| Depreciation and amortization | 7,614 | 7,060 | 20,870 | 20,854 | |||||||||
| (Gain) loss on sale or disposal of assets | 333 | (76 | ) | 775 | (105 | ) | |||||||
| Loss on business transferred | - | - | - | 500 | |||||||||
| General and administrative | 6,433 | 7,792 | 20,594 | 21,699 | |||||||||
| Impairment of goodwill | - | 65,000 | - | 65,000 | |||||||||
| Total expenses | 26,384 | 90,268 | 77,510 | 140,319 | |||||||||
| Income (loss) from operations | (1,883 | ) | (67,217 | ) | (3,863 | ) | (70,050 | ) | |||||
| Other income (expense): | |||||||||||||
| Amortization of debt issuance costs | (282 | ) | (244 | ) | (838 | ) | (728 | ) | |||||
| Interest expense | (4,314 | ) | (4,211 | ) | (12,801 | ) | (12,488 | ) | |||||
| Interest income | 1,146 | 1,238 | 3,524 | 3,308 | |||||||||
| Income (loss) before income taxes | (5,333 | ) | (70,434 | ) | (13,978 | ) | (79,958 | ) | |||||
| Income tax expense (benefit) | 95 | (1,094 | ) | 376 | (757 | ) | |||||||
| Net income (loss) | $ | (5,428 | ) | $ | (69,340 | ) | $ | (14,354 | ) | $ | (79,201 | ) | |
| Basic and diluted income (loss) per share | $ | (0.22 | ) | $ | (2.85 | ) | $ | (0.58 | ) | $ | (3.25 | ) | |
| Weighted average number of common shares outstanding | 24,681,462 | 24,368,836 | 24,681,462 | 24,368,836 | |||||||||