Exhibit 99.1
MEDIA CONTACT
Robin J. Lampe
Phone: 785.856.9350
INVESTOR CONTACT
Darius G. Nevin
Phone: 785.856.9368
PROTECTION ONE ANNOUNCES THIRD QUARTER 2008 RESULTS
Commercial RMR additions increased 6%
Conference call scheduled for 10 a.m. Eastern time today to review results
LAWRENCE, Kan., Nov. 7, 2008 — Protection One, Inc. (Nasdaq:PONE), one of the leading providers of security monitoring services in the United States, today reported financial results for the third quarter ended September 30, 2008. All comparisons below are to the quarter ended September 30, 2007 unless otherwise indicated.
Richard Ginsburg, Protection One’s president and chief executive officer, said, “Despite the difficult economic environment, our results this quarter indicate progress in the key areas we’ve previously identified. Internal commercial RMR additions increased 6% this quarter. Internal residential additions outside the Southeast also increased 3%. Commercial and residential average revenue per unit increased year over year and on a sequential quarter basis. Sales of e-Secure, our web-based interactive monitoring service, continued to grow in units and as a percentage of total sales. We’ve also made significant process improvements in our Retail business, which we expect will help monitoring margin in coming quarters. Finally, attrition on the acquired IASG portfolio was lower than last year.”
Ginsburg closed, “We are pleased to have ample liquidity and are not anticipating a need to access the capital markets any time soon to refinance debt. We believe we have more than adequate financial resources to execute our plans.”
Consolidated third quarter revenue increased slightly to $94.1 million. Consolidated RMR increased to $26.9 million as of September 30, 2008 from $26.7 million as of September 30, 2007. The
Company’s net loss for the quarter ended September 30, 2008 increased to $(11.1) million, or $(0.44) per share, from $(8.7) million, or $(0.34) per share in 2007 and adjusted EBITDA declined to $27.1 million from $30.2 million. The decline in EBITDA is due to the Company spending more on brand awareness and lead generation activities to create RMR additions; experiencing higher costs to service its Retail account base, which it is addressing with process improvements; incurring higher health benefit costs; and realizing less contribution from Multifamily due to attrition.
Adjusted EBITDA, Recurring Monthly Revenue (“RMR”) and net debt, as described in this release, are all non-GAAP financial measures and are described in greater detail in the attached schedules. For a reconciliation of these non-GAAP measures, see the attached schedules.
Segment Results
Retail
The Company’s Retail segment directly sells, installs, monitors and maintains electronic security and life safety systems for residential and commercial customers. As of September 30, 2008, the Company served approximately 582,000 retail customers, generating approximately $20.6 million RMR.
Total Retail segment revenue of $73.6 million in the third quarter of 2008 was slightly higher than revenue reported in the same period last year. Retail installation revenue increased from higher levels of amortization on previously deferred revenue. Monitoring and service revenue decreased by less than one percent to $64.0 million in the third quarter of 2008 as a result of slightly lower RMR during the period. The Retail segment’s operating income was in a break even position compared to operating income of $1.2 million in the third quarter of 2007, due to increased spending on brand awareness and lead generation activities and higher costs to service its customer base, as mentioned above, as well as higher amortization of previously deferred customer acquisition costs. Retail is presently centralizing certain customer care functions to improve efficiency and reduce costs, the benefits of which are expected to be realized in 2009.
Retail RMR decreased by only 0.2%, or $40,000, from the year ago period. RMR additions of $617,000, including account purchases, were 1.0% higher than in the third quarter of 2007. Protection One increased internal residential
2
RMR additions outside the Southeast region by 3% despite a difficult housing market, and increased internal commercial additions by 6%, both of which indicate that the Company’s marketing initiatives are gaining traction. RMR additions decreased in the Southeast region as the Company wound down its relationship with BellSouth this quarter. Average revenue per new residential and commercial customer continued to increase as the Company’s distinctive e-Secure offering represented an increasing percentage of sales.
Retail gross attrition in the third quarter of 2008 increased from the prior year period to 14.6% in 2008 from 14.4% in 2007. Attrition on the non-IASG Retail base increased slightly due primarily to higher incidence of non-payment and other financial cancelations. Attrition on the IASG base improved compared to one year ago since peaking in the fourth quarter of 2007.
Wholesale
The Company’s Wholesale business, CMS, contracts with independent security alarm dealers nationwide to provide alarm system monitoring services to residential and business customers. As of September 30, 2008, this unit served approximately 4,600 dealers by monitoring over 1.0 million homes and businesses on their behalf.
Wholesale monitoring and service revenue increased 7.6% to $12.6 million in the third quarter of 2008 as a result of growth by its largest dealer customer. RMR additions more than doubled from $149,000 one year ago to $337,000 in the third quarter of 2008.
Wholesale monitoring and service margin decreased slightly to $5.4 million in the third quarter of 2008 from $5.5 million one year ago, although the business unit recorded sequential quarter improvement that exceeded $0.6 million. Operating income was $0.5 million in 2008 compared to $1.4 million in the same period in 2007. Excluding the impact of an increase in Wholesale’s portion of corporate shared service costs, Wholesale operating income would have increased from the prior year.
Multifamily
The Company’s Multifamily business unit provides monitoring and maintenance of electronic security systems for tenants of multifamily residences under long-term contracts with building owners and managers. As of September 30, 2008, Multifamily had $2.3 million of RMR arising from approximately 250,000 units in more than 1,500 rental properties.
3
Multifamily total revenue decreased 3.5% in the third quarter of 2008 compared to 2007. Monitoring and related services revenue also declined by 4.7% to $7.6 million due to a decrease in RMR of 7.6% from the third quarter of 2007. Multifamily RMR was $2.3 million versus $2.5 million in the year ago period. Multifamily operating income decreased to $0.4 million compared to $1.6 million in the third quarter of 2007 principally from lower revenues, increased monitoring and general and administrative costs as well as a $0.5 million trade name impairment recorded in the third quarter of 2008. Multifamily is scaling its operations to keep future costs in alignment with revenue levels.
Multifamily experienced elevated attrition from the uncertain collection status of a few large customers. The Company’s policy is to consider these at-risk customers as attrition which caused Multifamily’s annualized gross attrition rate to increase to 21.2% in 2008 from 9.6% in 2007. As of September 30, 2008, Multifamily’s backlog of sold but uninstalled units and installed units not yet billed was nearly 6,500 units.
Balance Sheet
The Company is not expected to require any refinancing of its existing debt until November 15, 2011, the date on which its Senior Secured Notes mature. The Company ended the third quarter of 2008 with $40.5 million cash on hand, with excess cash and cash equivalents conservatively invested in United States treasury portfolios. As of November 5, 2008, the Company also had a minimum of $19.7 million available for borrowing under its revolving credit facility.
The Company’s net debt decreased to $483.2 million at September 30, 2008 from $485.0 million at December 31, 2007, as free cash flow offset fees and expenses associated with the first quarter refinancing. With the execution of hedge transactions during 2008, $365.3 million, or approximately 70%, of the Company’s debt effectively carries a fixed interest rate. Interest costs on approximately 8%, or $42.5 million, of the Company’s debt is variable corresponding to changes in LIBOR. Interest costs on the remaining 22%, or $110.3 million, is variable with the prime rate. The recent reductions in the prime rate lowered the Company’s annualized cash interest expense by $1.1 million.
The senior secured credit facility is the only instrument that requires periodic principal payments, which are $750,000 per quarter as well as annual excess cash flow prepayments commencing with the
4
year ending December 31, 2008. Based on projections of excess cash flow through the end of 2008, the Company expects to make a prepayment of approximately $10 million under the senior secured credit facility during the first quarter of 2009.
See “Non-GAAP Reconciliations” in the attached schedules for a reconciliation of net debt to reported debt and cash and equivalents.
Conference Call and Webcast
Protection One will host a conference call and audio webcast today at 10:00 a.m. Eastern time to review these results. The call may be accessed by dialing (877) 681-3377 (inside the United States and Canada) or via a webcast at www.ProtectionOne.com. The reference code associated with the call is 6479194.
A webcast replay will be available shortly after the call at www.ProtectionOne.com. A telephonic replay of the call also will be available until Nov.14, 2008. To listen to the telephonic replay, dial (719) 457-0820 or (888) 203-1112 and enter the following passcode: 6479194.
Forward-looking Statements: Certain matters discussed in this news release are “forward-looking statements.” The Private Securities Litigation Reform Act of 1995 has established that these statements qualify for safe harbors from liability. Forward-looking statements may include words or phrases such as “we believe,” “we anticipate,” “we expect” or words of similar meaning. Forward-looking statements may describe our future plans, objectives, expectations or goals, including, but not limited to, with respect to our earnings and financial condition, customer account acquisition strategy and attrition, liquidity and sources of funding and capital expenditures and debt service capacity. Our actual results may differ materially from those discussed here as a result of numerous factors, including, but not limited to, our significant debt obligations, net losses and competition. See our Quarterly Report on Form 10-Q for the period ended September 30, 2008, which is expected to be filed with the SEC on November 10, 2008 and our Annual Report on Form 10-K for the year ended December 31, 2007, which was filed with the SEC on March 17, 2008, for a further discussion of factors affecting our performance. Protection One disclaims any obligation to update any forward-looking statements as a result of developments occurring after the date of this news release.
Protection One is one of the largest vertically integrated national providers of sales, installation, monitoring, and maintenance of electronic security systems to homes and businesses and has been recognized as one of “America’s Most Trustworthy Companies” by Forbes.com. Network Multifamily, Protection One’s wholly owned subsidiary, is the largest security provider to the multifamily housing market. The company also owns the nation’s largest provider of wholesale monitoring services, the combined operations of CMS and Criticom International. For more information about Protection One, visit www.ProtectionOne.com. (PONENR)
5
PROTECTION ONE, INC.
and Subsidiaries
Condensed Consolidated Statements of Operations and Comprehensive Loss
(unaudited)
|
| Three Months |
| Nine Months |
| ||||||||
|
| Ended September 30, |
| Ended September 30, |
| ||||||||
(in thousands, except per share amounts) |
| 2008 |
| 2007 |
| 2008 |
| 2007 |
| ||||
Revenue |
|
|
|
|
|
|
|
|
| ||||
Monitoring & related services |
| $ | 84,192 |
| $ | 84,253 |
| $ | 250,020 |
| $ | 230,034 |
|
Installation and other |
| 9,864 |
| 9,270 |
| 28,014 |
| 25,294 |
| ||||
Total revenue |
| 94,056 |
| 93,523 |
| 278,034 |
| 255,328 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Cost of revenue (exclusive of amortization and depreciation shown below): |
|
|
|
|
|
|
|
|
| ||||
Monitoring & related services |
| 27,948 |
| 26,656 |
| 83,766 |
| 71,650 |
| ||||
Installation and other |
| 13,194 |
| 11,173 |
| 36,166 |
| 30,215 |
| ||||
Total cost of revenue (exclusive of amortization and depreciation shown below) |
| 41,142 |
| 37,829 |
| 119,932 |
| 101,865 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Selling expenses |
| 14,647 |
| 12,308 |
| 42,133 |
| 35,080 |
| ||||
General & administrative |
| 20,442 |
| 20,178 |
| 59,551 |
| 57,433 |
| ||||
Merger related severance |
| — |
| 1,185 |
| — |
| 3,603 |
| ||||
Amortization and depreciation |
| 16,431 |
| 17,829 |
| 50,065 |
| 44,387 |
| ||||
Impairment of trade name |
| 475 |
| — |
| 475 |
| — |
| ||||
Total operating expenses |
| 51,995 |
| 51,500 |
| 152,224 |
| 140,503 |
| ||||
Operating income |
| 919 |
| 4,194 |
| 5,878 |
| 12,960 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Other expense (income) |
|
|
|
|
|
|
|
|
| ||||
Interest expense |
| 12,219 |
| 13,262 |
| 36,876 |
| 36,409 |
| ||||
Interest income |
| (175 | ) | (474 | ) | (752 | ) | (1,940 | ) | ||||
Loss on retirement of debt |
| — |
| — |
| 12,788 |
| — |
| ||||
Other |
| (31 | ) | (22 | ) | (77 | ) | (67 | ) | ||||
Total other expense |
| 12,013 |
| 12,766 |
| 48,835 |
| 34,402 |
| ||||
Loss before income taxes |
| (11,094 | ) | (8,572 | ) | (42,957 | ) | (21,442 | ) | ||||
|
|
|
|
|
|
|
|
|
| ||||
Income tax expense |
| 50 |
| 112 |
| 354 |
| 602 |
| ||||
Net loss |
| $ | (11,144 | ) | $ | (8,684 | ) | $ | (43,311 | ) | $ | (22,044 | ) |
|
|
|
|
|
|
|
|
|
| ||||
Other comprehensive income net of tax |
|
|
|
|
|
|
|
|
| ||||
Unrealized gain on cash flow hedging instruments |
| (1,120 | ) | (133 | ) | 1,004 |
| (124 | ) | ||||
Comprehensive loss |
| $ | (12,264 | ) | $ | (8,817 | ) | $ | (42,307 | ) | $ | (22,168 | ) |
|
|
|
|
|
|
|
|
|
| ||||
Basic and diluted net loss per common share (a) |
| $ | (0.44 | ) | $ | (0.34 | ) | $ | (1.71 | ) | $ | (0.96 | ) |
|
|
|
|
|
|
|
|
|
| ||||
Weighted average common shares outstanding |
| 25,311 |
| 25,307 |
| 25,308 |
| 22,925 |
|
(a) - Options are not included in the computation of diluted earnings per share because to do so would have been antidilutive for each of the periods presented.
6
PROTECTION ONE, INC.
and Subsidiaries
Supplemental Financial Information
(unaudited)
|
| Three Months |
| Nine Months |
| ||||||||
|
| Ended September 30, |
| Ended September 30, |
| ||||||||
(in thousands) |
| 2008 |
| 2007 |
| 2008 |
| 2007 |
| ||||
Segment Information |
|
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Retail |
|
|
|
|
|
|
|
|
| ||||
Revenue |
|
|
|
|
|
|
|
|
| ||||
Monitoring & related services |
| $ | 64,013 |
| $ | 64,584 |
| $ | 191,262 |
| $ | 180,250 |
|
Installation and other |
| 9,546 |
| 8,934 |
| 27,039 |
| 24,577 |
| ||||
Total revenue |
| 73,559 |
| 73,518 |
| 218,301 |
| 204,827 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Cost of revenue (exclusive of amortization and depreciation shown below): |
|
|
|
|
|
|
|
|
| ||||
Monitoring & related services |
| 18,737 |
| 18,628 |
| 57,027 |
| 53,202 |
| ||||
Installation and other |
| 12,535 |
| 10,485 |
| 34,306 |
| 28,306 |
| ||||
Total cost of revenue (exclusive of amortization and depreciation shown below) |
| 31,272 |
| 29,113 |
| 91,333 |
| 81,508 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Selling expenses |
| 13,836 |
| 11,436 |
| 39,121 |
| 33,070 |
| ||||
General & administrative expense |
| 15,514 |
| 16,514 |
| 45,938 |
| 46,405 |
| ||||
Merger related severance |
| — |
| 1,185 |
| — |
| 3,603 |
| ||||
Amortization of intangibles and depreciation expense |
| 12,968 |
| 14,022 |
| 39,546 |
| 35,413 |
| ||||
Total operating expenses |
| 42,318 |
| 43,157 |
| 124,605 |
| 118,491 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Operating income |
| $ | (31 | ) | $ | 1,248 |
| $ | 2,363 |
| $ | 4,828 |
|
Operating margin |
| 0.0 | % | 1.7 | % | 1.1 | % | 2.3 | % | ||||
|
|
|
|
|
|
|
|
|
| ||||
Wholesale |
|
|
|
|
|
|
|
|
| ||||
Revenue |
|
|
|
|
|
|
|
|
| ||||
Monitoring & related services |
| $ | 12,574 |
| $ | 11,687 |
| $ | 35,761 |
| $ | 25,722 |
|
Other |
| 184 |
| 301 |
| 646 |
| 301 |
| ||||
Total revenue |
| 12,758 |
| 11,988 |
| 36,407 |
| 26,023 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Cost of revenue (exclusive of amortization and depreciation shown below): |
|
|
|
|
|
|
|
|
| ||||
Monitoring & related services |
| 7,189 |
| 6,147 |
| 20,928 |
| 12,714 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Selling expenses |
| 466 |
| 539 |
| 1,800 |
| 962 |
| ||||
General & administrative expense |
| 2,655 |
| 1,718 |
| 7,289 |
| 5,157 |
| ||||
Amortization of intangibles and depreciation expense |
| 1,925 |
| 2,229 |
| 5,913 |
| 4,230 |
| ||||
Total operating expenses |
| 5,046 |
| 4,486 |
| 15,002 |
| 10,349 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Operating income |
| $ | 523 |
| $ | 1,355 |
| $ | 477 |
| $ | 2,960 |
|
Operating margin |
| 4.1 | % | 11.3 | % | 1.3 | % | 11.4 | % | ||||
|
|
|
|
|
|
|
|
|
| ||||
Multifamily |
|
|
|
|
|
|
|
|
| ||||
Revenue |
|
|
|
|
|
|
|
|
| ||||
Monitoring & related services |
| $ | 7,605 |
| $ | 7,982 |
| $ | 22,997 |
| $ | 24,062 |
|
Installation and other |
| 134 |
| 35 |
| 329 |
| 416 |
| ||||
Total revenue |
| 7,739 |
| 8,017 |
| 23,326 |
| 24,478 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Cost of revenue (exclusive of amortization and depreciation shown below): |
|
|
|
|
|
|
|
|
| ||||
Monitoring & related services |
| 2,022 |
| 1,881 |
| 5,811 |
| 5,734 |
| ||||
Installation and other |
| 659 |
| 688 |
| 1,860 |
| 1,909 |
| ||||
Total cost of revenue (exclusive of amortization and depreciation shown below) |
| 2,681 |
| 2,569 |
| 7,671 |
| 7,643 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Selling expenses |
| 345 |
| 333 |
| 1,212 |
| 1,048 |
| ||||
General & administrative expense |
| 2,273 |
| 1,946 |
| 6,324 |
| 5,871 |
| ||||
Amortization of intangibles and depreciation expense |
| 1,538 |
| 1,578 |
| 4,606 |
| 4,744 |
| ||||
Impairment of trade name |
| 475 |
| — |
| 475 |
| — |
| ||||
Total operating expenses |
| 4,631 |
| 3,857 |
| 12,617 |
| 11,663 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Operating income |
| $ | 427 |
| $ | 1,591 |
| $ | 3,038 |
| $ | 5,172 |
|
Operating margin |
| 5.5 | % | 19.8 | % | 13.0 | % | 21.1 | % |
7
PROTECTION ONE, INC.
and Subsidiaries
Supplemental Financial Information (cont.)
(unaudited)
|
| Three Months |
| Nine Months |
| ||||||||
|
| Ended September 30, |
| Ended September 30, |
| ||||||||
(in thousands) |
| 2008 |
| 2007 |
| 2008 |
| 2007 |
| ||||
Supplemental Financial Information |
|
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
| ||||
FAS 123(R) Expense in G&A |
|
|
|
|
|
|
|
|
| ||||
Retail |
| $ | 376 |
| $ | 385 |
| $ | 1,090 |
| $ | 1,128 |
|
Wholesale |
| — |
| — |
| — |
| — |
| ||||
Multifamily |
| — |
| — |
| — |
| — |
| ||||
FAS 123(R) expense in G&A |
| 376 |
| 385 |
| 1,090 |
| 1,128 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Amortization of Deferred Costs in Excess of Amort. of Deferred Rev. |
|
|
|
|
|
|
|
|
| ||||
Retail |
| $ | 7,994 |
| $ | 5,969 |
| $ | 21,316 |
| $ | 16,472 |
|
Wholesale |
| — |
| — |
| — |
| — |
| ||||
Multifamily |
| 521 |
| 656 |
| 1,499 |
| 1,398 |
| ||||
Amort. of deferred costs in excess of amort. of deferred rev. |
| 8,515 |
| 6,625 |
| 22,815 |
| 17,870 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Investment in New Accounts and Rental Equipment, Net |
|
|
|
|
|
|
|
|
| ||||
Retail |
| $ | 9,409 |
| $ | 8,318 |
| $ | 29,248 |
| $ | 23,690 |
|
Wholesale |
| — |
| — |
| — |
| — |
| ||||
Multifamily |
| 1,316 |
| 1,019 |
| 3,012 |
| 2,475 |
| ||||
Investment in new accounts and rental equipment, net |
| 10,725 |
| 9,337 |
| 32,260 |
| 26,165 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Property Additions, Exclusive of Rental Equipment |
|
|
|
|
|
|
|
|
| ||||
Retail |
| $ | 1,223 |
| $ | 3,638 |
| $ | 4,343 |
| $ | 6,166 |
|
Wholesale |
| 819 |
| 317 |
| 1,407 |
| 545 |
| ||||
Multifamily |
| 315 |
| 19 |
| 433 |
| 266 |
| ||||
Property additions, exclusive of rental equipment |
| 2,357 |
| 3,974 |
| 6,183 |
| 6,977 |
|
8
PROTECTION ONE, INC.
and Subsidiaries
Supplemental Financial Information (cont.)
(unaudited)
|
| Three Months Ended September 30, |
| Nine Months Ended September 30, |
| ||||||||
(in thousands) |
| 2008 |
| 2007 |
| 2008 |
| 2007 |
| ||||
Supplemental Financial Information (Non-GAAP) |
|
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Recurring Monthly Revenue (RMR) |
| $ | 26,883 |
| $ | 26,651 |
| $ | 26,883 |
| $ | 26,651 |
|
|
|
|
|
|
|
|
|
|
| ||||
RMR Rollforward - Retail |
|
|
|
|
|
|
|
|
| ||||
Beginning RMR |
| $ | 20,572 |
| $ | 20,661 |
| $ | 20,628 |
| $ | 16,429 |
|
RMR additions from direct sales |
| 594 |
| 600 |
| 1,784 |
| 1,732 |
| ||||
Additions from the Merger |
| — |
| — |
| — |
| 4,133 |
| ||||
RMR additions from account purchases |
| 23 |
| 11 |
| 29 |
| 30 |
| ||||
RMR losses |
| (749 | ) | (744 | ) | (2,111 | ) | (1,896 | ) | ||||
Price increases and other |
| 111 |
| 63 |
| 221 |
| 163 |
| ||||
Ending RMR |
| $ | 20,551 |
| $ | 20,591 |
| $ | 20,551 |
| $ | 20,591 |
|
|
|
|
|
|
|
|
|
|
| ||||
RMR Rollforward - Wholesale |
|
|
|
|
|
|
|
|
| ||||
Beginning RMR |
| $ | 3,965 |
| $ | 3,679 |
| $ | 3,615 |
| $ | 963 |
|
RMR additions from direct sales |
| 337 |
| 149 |
| 1,107 |
| 571 |
| ||||
Additions from the Merger |
| — |
| — |
| — |
| 2,549 |
| ||||
RMR losses |
| (264 | ) | (211 | ) | (694 | ) | (465 | ) | ||||
Price increases and other |
| — |
| (39 | ) | 10 |
| (40 | ) | ||||
Ending RMR |
| $ | 4,038 |
| $ | 3,578 |
| $ | 4,038 |
| $ | 3,578 |
|
|
|
|
|
|
|
|
|
|
| ||||
RMR Rollforward - Multifamily |
|
|
|
|
|
|
|
|
| ||||
Beginning RMR |
| $ | 2,378 |
| $ | 2,505 |
| $ | 2,463 |
| $ | 2,596 |
|
RMR additions from direct sales |
| 24 |
| 26 |
| 86 |
| 61 |
| ||||
RMR losses |
| (124 | ) | (61 | ) | (308 | ) | (213 | ) | ||||
Price increases and other |
| 16 |
| 12 |
| 53 |
| 38 |
| ||||
Ending RMR |
| $ | 2,294 |
| $ | 2,482 |
| $ | 2,294 |
| $ | 2,482 |
|
|
|
|
|
|
|
|
|
|
| ||||
RMR Rollforward - Consolidated |
|
|
|
|
|
|
|
|
| ||||
Beginning RMR |
| $ | 26,915 |
| $ | 26,845 |
| $ | 26,706 |
| $ | 19,988 |
|
RMR additions from direct sales |
| 955 |
| 775 |
| 2,977 |
| 2,364 |
| ||||
Additions from the Merger |
| — |
| — |
| — |
| 6,682 |
| ||||
RMR additions from account purchases |
| 23 |
| 11 |
| 29 |
| 30 |
| ||||
RMR losses |
| (1,137 | ) | (1,016 | ) | (3,113 | ) | (2,574 | ) | ||||
Price increases and other |
| 127 |
| 36 |
| 284 |
| 161 |
| ||||
Ending RMR |
| $ | 26,883 |
| $ | 26,651 |
| $ | 26,883 |
| $ | 26,651 |
|
|
| Annualized Three Months Ended September 30, |
| Twelve Months Ended September 30, |
| ||||
RMR Attrition |
| 2008 |
| 2007 |
| 2008 |
| 2007 |
|
RMR Attrition - Gross |
|
|
|
|
|
|
|
|
|
Retail |
| 14.6 | % | 14.4 | % | 13.6 | % | 12.8 | % |
Wholesale |
| 26.4 | % | 23.3 | % | 23.4 | % | 22.3 | % |
Multifamily |
| 21.2 | % | 9.6 | % | 15.2 | % | 13.7 | % |
|
|
|
|
|
|
|
|
|
|
RMR Attrition - Net of New Owners |
|
|
|
|
|
|
|
|
|
Retail |
| 12.7 | % | 12.5 | % | 11.8 | % | 10.8 | % |
Monitored Sites |
| September 30, |
| September 30, |
|
|
|
|
|
Retail Monitored Sites |
| 582,293 |
| 608,752 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wholesale Monitored Sites |
| 1,004,947 |
| 839,571 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multifamily Monitored Sites |
| 254,840 |
| 281,265 |
|
|
|
|
|
9
PROTECTION ONE, INC.
and Subsidiaries
Non-GAAP Reconciliations
(unaudited)
Recurring Monthly Revenues (RMR)
RMR is the sum of all the monthly revenue we are entitled to receive under contracts with customers in effect at the end of a period.
A reconciliation of RMR to Protection One, Inc.’s reported total revenue follows:
|
| Three Months |
| Nine Months |
| ||||||||
(in millions) |
| 2008 |
| 2007 |
| 2008 |
| 2007 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
RMR at September 30 |
| $ | 26,883 |
| $ | 26,651 |
| $ | 26,883 |
| $ | 26,651 |
|
Amounts excluded from RMR: |
|
|
|
|
|
|
|
|
| ||||
Amortization of deferred revenue |
| 1,211 |
| 941 |
| 1,211 |
| 941 |
| ||||
Installation and other revenue (a) |
| 3,232 |
| 3,414 |
| 3,232 |
| 3,414 |
| ||||
Revenue (GAAP basis) |
|
|
|
|
|
|
|
|
| ||||
September |
| $ | 31,326 |
| $ | 31,006 |
| $ | 31,326 |
| $ | 31,006 |
|
July - August |
| 62,730 |
| 62,517 |
| — |
| — |
| ||||
January - August |
| — |
| — |
| 246,708 |
| 224,322 |
| ||||
Total period revenue |
| $ | 94,056 |
| $ | 93,523 |
| $ | 278,034 |
| $ | 255,328 |
|
(a) Revenue that is not pursuant to periodic contractual billings
The Company believes the presentation of RMR is useful to investors because the measure is often used by investors and lenders to evaluate companies such as Protection One with recurring revenue streams. Management monitors RMR, among other things, to evaluate the Company’s ongoing performance.
Adjusted EBITDA
A reconciliation of Adjusted EBITDA to Protection One, Inc.’s reported loss before income taxes follows:
|
| Three Months |
| Nine Months |
| ||||||||
(in thousands) |
| 2008 |
| 2007 |
| 2008 |
| 2007 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Loss before income taxes |
| $ | (11,094 | ) | $ | (8,572 | ) | $ | (42,957 | ) | $ | (21,442 | ) |
Plus: |
|
|
|
|
|
|
|
|
| ||||
Interest expense, net |
| 12,044 |
| 12,788 |
| 36,124 |
| 34,469 |
| ||||
Amortization and depreciation expense |
| 16,431 |
| 17,829 |
| 50,065 |
| 44,387 |
| ||||
Amort. of deferred costs in excess of amort. of deferred revenue |
| 8,515 |
| 6,625 |
| 22,815 |
| 17,870 |
| ||||
Stock based compensation expense |
| 376 |
| 385 |
| 1,090 |
| 1,128 |
| ||||
Other costs including merger-related items |
| 374 |
| 1,185 |
| 685 |
| 3,603 |
| ||||
Loss on retirement of debt |
| — |
| — |
| 12,788 |
| — |
| ||||
Impairment of trade name |
| 475 |
| — |
| 475 |
| — |
| ||||
Less: |
|
|
|
|
|
|
|
|
| ||||
Other income |
| (31 | ) | (22 | ) | (77 | ) | (67 | ) | ||||
Adjusted EBITDA |
| $ | 27,090 |
| $ | 30,218 |
| $ | 81,008 |
| $ | 79,948 |
|
Adjusted EBITDA is used by management in evaluating segment performance and allocating resources, and management believes it is used by many analysts following the security industry. This information should not be considered as an alternative to any measure of performance as promulgated under accounting principles generally accepted in the United States of America, such as loss before income taxes or cash flow from operations. Items excluded from Adjusted EBITDA are significant components in understanding and assessing the consolidated financial performance of the Company. See the table above for the reconciliation of Adjusted EBITDA to consolidated loss before income taxes. The Company’s calculation of Adjusted EBITDA may be different from the calculation used by other companies and comparability may be limited. Management believes the presentation of non-GAAP financial measures such as Adjusted EBITDA is useful because it allows investors and management to evaluate and compare the Company’s operating results from period to period in a meaningful and consistent manner in addition to standard GAAP financial measures.
Net Debt reconciled to GAAP measures
(in thousands) |
| September 30, 2008 |
| December 31, 2007 |
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
| ||
Senior credit facility, maturing March 31, 2012, variable |
| $ | 292,500 |
| $ | 294,750 |
|
|
|
|
|
Senior secured notes, maturing November 2011, fixed 12.00%, face value |
| 115,345 |
| 115,345 |
|
|
|
|
| ||
Unsecured term loan, maturing March 14, 2013, variable |
| 110,340 |
| — |
|
|
|
|
| ||
Senior subordinated notes, maturing January 2009, fixed 8.125%, face value |
|
|
| 110,340 |
|
|
|
|
| ||
Capital leases |
| 5,519 |
| 5,599 |
|
|
|
|
| ||
|
| $ | 523,704 |
| $ | 526,034 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Less cash and cash equivalents |
| (40,478 | ) | (40,999 | ) |
|
|
|
| ||
Net Debt |
| $ | 483,226 |
| $ | 485,035 |
|
|
|
|
|
Net Debt is utilized by management as a measure of the Company’s financial leverage and the Company believes that investors also may find Net Debt to be helpful in evaluating the Company’s financial leverage. This supplemental non-GAAP information should be viewed in conjunction with the Company’s consolidated balance sheets in the Company’s report on Form 10-Q for the period ended September 30, 2008. While not included in net debt, the Company also had notes receivable due from its Wholesale dealers of approximately $3.6 million and $5.9 million as of September 30, 2008 and December 31, 2007, respectively.
10