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 fourth quarter and fiscal year 2005 ended December 31, 2005. Revenue for the fourth quarter was $25.6 million up 23 percent over fiscal 2004 fourth quarter revenue of $20.7 million. The net loss for the fourth quarter ending December 31, 2005 was $8.0 million, or $0.32 per share, compared to a net loss of $8.1 million, or $0.33 per share, in the fourth quarter of 2004. Revenue for fiscal year 2005 was $99.2 million up 23 percent over fiscal year 2004 revenue of $80.4 million. The net loss for fiscal year 2005 was $22.3 million, or $0.91 per share compared to a net loss of $11.7 million, or $0.47 per share for fiscal year 2004. For the full year 2005 the aggregate owned portfolio annualized attrition rate was 13.7 percent versus 11.6 percent for fiscal 2004. Fourth quarter achievements and activities included: -- The acquisition of the assets of Financial Security Services, Inc. (FSS) for $23 million cash. The acquired assets included: a portfolio of dealer loans with a par value of $17 million, a central station in South St. Paul, Minnesota, a wholesale monitoring business generating $220,000 of recurring monthly revenue (RMR), and an owned portfolio of alarm contracts generating $11,000 of RMR. -- The payment of an $18 million dealer note receivable. -- The purchase of 312,626 shares of IASG stock into treasury. -- A 14.0 percent reduction in fourth quarter annualized Owned Portfolio attrition from the third quarter level to 15.3 percent. -- The initiation of a strategic review of operations to improve profitability and growth prospects. In announcing the year-end results, Timothy M. McGinn, Chairman and CEO, said, "2005 was a challenging year for our Company. 2005 revenues increased by 23 percent and EBITDA increased by 11 percent. We are not at all satisfied with these results." McGinn continued, "We began the year with numerous regulatory and compliance issues. These issues were widely discussed in our SEC filings and conference calls. While further work is required, our Form 10-K documents good progress on several fronts including Sarbanes-Oxley Section 404 compliance and we are, and have been since the second quarter, timely in our SEC filings. Mid-year we encountered attrition difficulties with our owned portfolio of alarm contracts. At the time, I indicated the attrition challenge would not be solved in one quarter. We are not at goal; however we have made significant retention progress in the fourth quarter and attrition is once again moving in the right direction. We concluded 2005 with the engagement of Allen & Co. to perform a strategic options analysis to improve shareholder value." McGinn concluded, "IASG was considerably less active in the marketplace in 2005 compared to recent years. This is in part because of the challenges faced by the Company in 2005 and also the rising price environment for portfolio acquisitions and alarm business activities. We did, however make an important strategic acquisition with the October purchase of FSS. FSS adds to our portfolio of products that we bring to alarm dealers and further augments our infrastructure." At December 31, 2005, IASG had $16.2 million in cash, $16.2 million of secured notes receivable from dealers and stockholders' equity of $120.1 million. The Company had $125.8 million of debt and capital leases at December 31, 2005 and ended fiscal 2005 with a net debt (debt less cash) to equity ratio of .91 to 1. IASG had no outstanding balance on the $30 million senior credit facility at the end of 2005. -0- *T IASG Portfolio Data: Annualized Attrition Rate 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr Full-year 2005 2005 2005 2005 2005 ---- ---- ---- ---- ---- IASG Owned Portfolio Legacy Portfolio 13.7% 17.8% 20.0% 18.3% 16.3% New Residential 11.7% 12.9% 22.4% 17.5% 15.2% New Commercial 5.2% 12.3% 2.6% 6.2% 6.4% Aggregate Owned Portfolio 10.9% 13.8% 17.8% 15.3% 13.7% Annualized Growth Rate - excluding acquisitions 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr Full-year 2005 2005 2005 2005 2005 ---- ---- ---- ---- ---- Wholesale Monitoring 2.3% (4.9%) (16.6%) (9.6%) (7.4%) *T IASG ended fiscal 2005 with an owned portfolio of approximately 159,000 contract equivalents generating RMR of approximately $4.8 million and wholesale monitoring of approximately 728,000 alarms (including IASG's owned portfolio accounts) generating approximately $3.1 million in RMR. Revenue from the owned portfolio is split 80 percent residential and 20 percent commercial. The Company employed 837 employees at December 31, 2005 down from 874 a year earlier. See the attached financial information for the fourth quarter of 2005 and the year ended December 31, 2005. 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 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, 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. -0- *T INTEGRATED ALARM SERVICES GROUP, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET As of December 31, --------------------- 2004 2005 ---------- ---------- (in thousands, except for share data) Assets Current assets: Cash and cash equivalents $ 31,555 $ 16,239 Current portion of notes receivable 5,187 6,108 Accounts receivable less allowance for doubtful accounts of $986 in 2004 and $847 in 2005 6,290 5,158 Inventories 1,234 1,477 Prepaid expenses 1,127 1,084 Due from related parties 70 87 ---------- ---------- Total current assets 45,463 30,153 Property and equipment, net 7,927 7,843 Notes receivable net of current portion and allowance for doubtful accounts of $246 in 2004 and 2005 22,211 10,085 Dealer relationships, net 34,530 33,000 Customer contracts, net 85,169 80,532 Deferred customer acquisition costs, net 5,946 7,874 Goodwill 91,435 94,919 Debt issuance costs, net 5,322 4,596 Other identifiable intangibles, net 3,054 2,790 Restricted cash 757 758 Other assets 270 524 ---------- ---------- Total assets $ 302,084 $ 273,074 ========== ========== Liabilities and Stockholders' Equity Current liabilities: Current portion of long-term debt $ 5,225 $ - Current portion of capital lease obligations 460 350 Accounts payable 3,720 2,306 Accrued expenses 9,185 9,256 Current portion of deferred revenue 9,756 8,724 Other liabilities 161 390 ---------- ---------- Total current liabilities 28,507 21,026 Long-term debt, net of current portion 125,000 125,000 Capital lease obligations, net of current portion 575 461 Deferred revenue, net of current portion 4,035 4,830 Deferred income taxes 1,113 1,582 Due to related parties 4 61 ---------- ---------- Total liabilities 159,234 152,960 ---------- ---------- Commitments 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 206,566 207,162 Accumulated deficit (63,741) (86,073) Treasury stock - common, at cost, none in 2004; 312,626 shares in 2005 - (1,000) ---------- ---------- Total stockholders' equity 142,850 120,114 ---------- ---------- Total liabilities and stockholders' equity $ 302,084 $ 273,074 ========== ========== INTEGRATED ALARM SERVICES GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS For the three months Years ended ended December 31, December 31, ----------------------- ----------------------- 2004 2005 2004 2005 ----------- ----------- ----------- ----------- (in thousands, except share and per share data) (unaudited) Revenue: Monitoring fees $ 6,736 $ 8,020 $ 24,103 $ 31,441 Revenue from customer accounts 13,687 13,718 50,759 57,921 Related party monitoring fees 33 25 171 122 Service, installation and other revenue 285 3,824 5,336 9,750 ----------- ----------- ----------- ----------- Total revenue 20,741 25,587 80,369 99,234 ----------- ----------- ----------- ----------- Expenses: Cost of revenue (excluding depreciation and amortization) 9,810 11,852 32,748 43,381 Selling and marketing 1,111 1,235 4,357 4,977 Depreciation and amortization 6,767 7,702 23,013 28,572 (Gain) loss on sale or disposal of assets (139) 257 (184) 1,032 General and administrative 7,586 9,196 22,562 29,790 ----------- ----------- ----------- ----------- Total expenses 25,135 30,242 82,496 107,752 ----------- ----------- ----------- ----------- Income (loss) from operations (4,394) (4,655) (2,127) (8,518) Other income (expense): Other expense, net 14 - 11 - Amortization of debt issuance costs (1,009) (242) (1,750) (1,080) Interest expense (3,384) (4,208) (8,886) (17,009) Interest income 742 1,314 1,453 4,838 ----------- ----------- ----------- ----------- Income (loss) before income taxes (8,031) (7,791) (11,299) (21,769) Income tax expense 100 187 418 563 ----------- ----------- ----------- ----------- Net income (loss) $ (8,131) $ (7,978) $ (11,717) $ (22,332) =========== =========== =========== =========== Basic and diluted income (loss) per share $ (0.33) $ (0.32) $ (0.47) $ (0.91) =========== =========== =========== =========== Weighted average number of common shares outstanding 24,681,462 24,605,035 24,667,960 24,662,198 =========== =========== =========== =========== INTEGRATED ALARM SERVICES GROUP, INC. AND SUBSIDIARIES RECONCILIATION OF GAAP TO NON-GAAP MEASURES (UNAUDITED) Three Months Ended Year Ended December 31, December 31, 2004 2005 2004 2005 ---------- ---------- ---------- ---------- Net income (loss) $ (8,131) $ (7,978) $ (11,717) $ (22,332) Adjust for: Income tax expense (benefit) 100 187 418 563 Interest expense 3,384 4,208 8,886 17,009 Amortization of debt issuance costs 1,009 242 1,750 1,080 Depreciation and amortization 6,767 7,702 23,013 28,572 ---------- ---------- ---------- ---------- EBITDA $ 3,129 $ 4,361 $ 22,350 $ 24,892 ========== ========== ========== ========== *T