IASG Integrated Alarm Services Grp (MM)

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 ended September 30, 2005. Revenue for the third quarter of fiscal year 2005 was $24.5 million up 12 percent over the fiscal 2004 third quarter revenue of $21.9 million. The net loss for the third quarter ended September 30, 2005 was $5.4 million, or $0.22 per share, compared to a net loss of $2.1 million, or $0.09 per share in the third quarter of 2004 and a net loss of $6.3 million, or $0.26 per share, for the second quarter of 2005. In announcing the results, Timothy M. McGinn, Chairman and CEO, said, "Third quarter residential attrition was very disappointing. The causes for this performance were several and include unacceptable levels of customer service caused in part by excess personnel turnover in our Las Vegas customer retention call center. We are aggressively addressing the deficiencies. Tom Few, Vice Chairman and President, has assumed temporary responsibility for the Las Vegas customer service operation and he is working with line management to improve customer satisfaction and attrition." McGinn continued, "Attrition performance overshadowed progress made on other fronts at IASG. Third quarter general and administrative expenses decreased by approximately $1.6 million from the second quarter as Sarbanes-Oxley expenses declined as expected, and the Company gained the financial benefits of restructuring and consolidation activities in our alarm central station operations. EBITDA increased by $1.4 million to $6.9 million in the third quarter from the second quarter. From a transactional point-of-view, on October 1 we acquired the operating assets of Financial Security Services including their $17 million loan portfolio and financial services infrastructure serving the financing and operational needs of small to medium alarm dealers across the country. FSS's product and services complement our central station activities and dealer relationships." The aggregate owned portfolio annualized attrition rate for the third quarter of 2005 was 17.8 percent, up from 12.6 percent in the same period in 2004 and 13.8 percent in the second quarter of 2005. During the third quarter of 2005 the Company added 3,700 contract equivalents to its owned portfolio. Approximately 700 contracts were acquired during the quarter at a gross purchase price multiple of 30 and 2,100 contract equivalents were added through internal sales and marketing activities. In the third quarter, IASG used approximately $900,000 of cash to acquire accounts. At September 30, 2005, IASG had $9.1 million in cash, $21.8 million of collateralized notes receivable from dealers and stockholders' equity of $129.1 million. The Company had $133.0 million of debt and capital leases at September 30, 2005 and ended the third quarter of fiscal 2005 with a net debt (debt less cash) to equity ratio of 0.96 to 1. Included in this amount, the Company had a $3.0 million outstanding balance on its $30 million senior credit facility at the end of the third quarter of 2005. -0- *T IASG Owned Portfolio Data: Annualized Attrition Rate 3rd 4th 1st 2nd 3rd Annualized Qtr Qtr Qtr Qtr Qtr 4 Qtr 2004 2004 2005 2005 2005 Attrition -------------------------------------- IASG Owned Portfolio Legacy Portfolio 15.2% 14.6% 13.7% 17.8% 20.0% 15.5% New Residential 12.5% 11.3% 11.7% 12.9% 22.4% 13.8% New Commercial 10.4% 8.6% 5.2% 12.3% 2.6% 7.0% Aggregate Owned Portfolio 12.6% 11.3% 10.9% 13.8% 17.8% 12.8% Annualized Growth Rate - excluding acquisitions 3rd 4th 1st 2nd 3rd Qtr Qtr Qtr Qtr Qtr 2004 2004 2005 2005 2005 ------------------------------ Wholesale Monitoring Accounts (9.1%) 0.5% 2.3% (4.9%)(16.6%) *T IASG ended the third quarter 2005 with an owned portfolio of approximately 162,000 contract equivalents generating RMR of approximately $4.9 million and wholesale monitoring of approximately 690,000 alarms (including IASG's owned portfolio accounts) generating approximately $2.9 million in RMR. Revenue from the owned portfolio is split 80 percent residential and 20 percent commercial. See the attached financial highlights for the third quarter ended 2005. A management conference call and simultaneous webcast to discuss third quarter results will be held Monday, November 14, 2005 at 4:45 p.m. EST. Investors may participate in the conference call by dialing 866 700-0161 and entering the access code of 25373592 or by logging onto the investor relations section of the IASG website at www.iasg.us. The international dial in number is 617 213-8832 with the same access code. A replay of the conference call will be available through December 5, 2005 by dialing 888 286-8010 (international dial in - 617 801-6888) and entering the access code of 25699017 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 5,600 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 for expanding our presence in our industry; 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, 2004 as filed with the Securities and Exchange Commission on June 13, 2005, 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. -0- *T INTEGRATED ALARM SERVICES GROUP, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS As of --------------------------- December 31, September 30, 2004 2005 ------------- ------------- (unaudited) Assets Current assets: Cash and cash equivalents $31,554,609 $9,125,459 Current portion of notes receivable 5,186,965 18,558,399 Accounts receivable, net 6,289,787 5,090,801 Inventories 1,233,785 972,249 Prepaid expenses 1,127,581 1,559,597 Due from related parties 70,655 177,716 ------------- ------------- Total current assets 45,463,382 35,484,221 Property and equipment, net 7,926,324 6,821,060 Notes receivable, net 22,211,283 1,438,470 Dealer relationships, net 34,529,962 31,130,758 Customer contracts, net 85,169,085 85,045,547 Deferred installation costs, net 5,946,059 9,024,975 Goodwill 91,434,524 90,997,206 Debt issuance costs, net 5,322,089 4,838,057 Other identifiable intangibles, net 3,054,247 2,619,282 Restricted cash 757,104 757,907 Deposits on acquisition - 22,683,192 Other assets 270,122 301,564 ------------- ------------- Total assets $302,084,181 $291,142,239 ============= ============= Liabilities and Stockholders' Equity Current liabilities: Borrowing on line of credit $ - $ 3,000,000 Current portion of long-term debt 5,225,000 4,275,000 Current portion of capital lease obligations 459,987 364,955 Accounts payable 3,720,197 1,356,934 Accrued expenses 9,185,263 11,138,018 Current portion of deferred revenue 9,756,134 9,119,104 Other liabilities 160,809 200,525 ------------- ------------- Total current liabilities 28,507,390 29,454,536 Long-term debt, net of current portion 125,000,000 125,000,000 Capital lease obligations, net of current portion 575,502 389,815 Deferred revenue, net of current portion 4,034,675 5,748,723 Deferred income taxes 1,112,778 1,399,255 Due to related parties 4,009 58,611 ------------- ------------- Total liabilities 159,234,354 162,050,940 ------------- ------------- Commitments and Contingencies (note 8) 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; issued and outstanding 24,681,462 at December 31, 2004 and September 30, 2005 24,682 24,682 Paid-in capital 206,566,067 207,161,926 Accumulated deficit (63,740,922) (78,095,309) ------------- ------------- Total stockholders' equity 142,849,827 129,091,299 ------------- ------------- Total liabilities and stockholders' equity $302,084,181 $291,142,239 ============= ============= INTEGRATED ALARM SERVICES GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) For the Three Months Ended For the Nine Months Ended September 30, September 30, ---------------------------------------------------- 2004 2005 2004 2005 ------------ ------------ ------------ ------------- Revenue: Monitoring fees $5,529,322 $7,848,836 $17,366,658 $23,420,473 Revenue from customer accounts 14,027,362 14,501,801 37,072,113 44,203,132 Related party monitoring fees 36,036 29,851 137,847 96,538 Service, installation and other revenue 2,308,319 2,120,739 5,050,941 5,926,464 ------------ ------------ ------------ ------------- Total revenue 21,901,039 24,501,227 59,627,559 73,646,607 ------------ ------------ ------------ ------------- Expenses: Cost of revenue (excluding depreciation and amortization) 8,828,605 10,782,006 22,938,107 31,529,212 Selling and marketing 1,001,200 1,223,844 3,246,126 3,742,317 Depreciation and amortization 5,802,323 7,613,628 16,245,896 20,869,768 (Gain) loss on sale or disposal of assets (48,578) 332,414 (45,336) 774,664 General and administrative 5,414,401 6,432,993 14,976,226 20,594,272 ------------ ------------ ------------ ------------- Total expenses 20,997,951 26,384,885 57,361,019 77,510,233 ------------ ------------ ------------ ------------- Income (loss) from operations 903,088 (1,883,658) 2,266,540 (3,863,626) Other income (expense): Other expense, net - - (3,080) - Amortization of debt issuance costs (234,273) (282,066) (741,307) (838,147) Interest expense (1,851,475) (4,314,105) (5,501,517) (12,800,712) Interest income 180,880 1,145,898 711,428 3,524,330 ------------ ------------ ------------ ------------- Income (loss) before income taxes (1,001,780) (5,333,931) (3,267,936) (13,978,155) Income tax expense (benefit) 1,145,431 94,715 318,027 376,232 ------------ ------------ ------------ ------------- Net income (loss) $(2,147,211) $(5,428,646) $(3,585,963) $(14,354,387) ============ ============ ============ ============= Basic and diluted income (loss) per share $(0.09) $(0.22) $(0.15) $(0.58) ============ ============ ============ ============= Weighted average number of common shares outstanding 24,681,462 24,681,462 24,663,426 24,681,462 ============ ============ ============ ============= INTEGRATED ALARM SERVICES GROUP, INC. AND SUBSIDIARIES RECONCILIATION OF GAAP TO NON-GAAP MEASURES (UNAUDITED) Three Months Ended September 30, 2004 2005 ------------ ------------- Net income (loss) $(2,147,211) $(5,428,646) Adjust for: Income tax expense (benefit) 1,145,431 94,715 Interest expense 1,851,475 4,314,105 Amortization of debt issuance costs 234,273 282,066 Depreciation and amortization 5,802,323 7,613,628 ------------ ------------- EBITDA $6,886,291 $6,875,868 ============ ============= Nine Months Ended September 30, 2004 2005 ------------ ------------- Net income (loss) $(3,585,963) $(14,354,387) Adjust for: Income tax expense (benefit) 318,027 376,232 Interest expense 5,501,517 12,800,712 Amortization of debt issuance costs 741,307 838,147 Depreciation and amortization 16,245,896 20,869,768 ------------ ------------- EBITDA $19,220,784 $20,530,472 ============ ============= *T