Delivers EBITDA Improvement in Fourth Quarter
Ongoing Cost Reductions Expected to Benefit 2009 Results
Conference Call Scheduled for 10 a.m. Eastern Time Today to Review
Results
LAWRENCE, Kan., March 13, 2009 (GLOBE NEWSWIRE) -- Protection One, Inc. (Nasdaq:PONE), one of the leading providers of security monitoring services in the United States, today reported financial results for the fourth quarter and year ended December 31, 2008.
Richard Ginsburg, Protection One's president and chief executive officer, said, "Process improvements launched earlier in 2008 paid off in the fourth quarter in the form of lower costs of monitoring. I am also pleased to report a 3% increase in EBITDA to $28.3 million on a modest increase in revenues during the fourth quarter. For 2009, we are focused on delivering growth in EBITDA and free cash flow. Though we continue to develop our commercial base and market-leading capabilities in our Wholesale segment, we recognize that changes in capital markets have raised investment hurdles for all. With almost 90% of our revenue generated from recurring revenue streams and an improved cost structure, we can afford to be even more disciplined about investing to create new recurring revenue streams. As a result, our customer acquisition costs may be lower in 2009 than in 2008."
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, please see the attached schedules.
Fourth Quarter Results
Consolidated revenue for the fourth quarter of 2008 increased 1.6% over the fourth quarter of 2007 to $94.0 million as a result of increases in Wholesale monitoring revenue and in Retail installation revenue arising from higher amortization of previously deferred revenue.
Operating income increased to $4.4 million in the fourth quarter of 2008 from $2.4 million one year earlier on higher contribution from monitoring and service revenues. Higher net installation and selling expenses were offset by lower amortization and depreciation expense.
The Company's net loss for the fourth quarter improved to $(7.2) million in 2008, or $(0.29) per share, from $(10.2) million, or $(0.40) per share, in 2007 on higher operating income and lower interest expense.
Full Year Results
Consolidated full year revenue in 2008 increased 6.9% to $372.0 million in 2007, principally because the Company's 2008 results included a full year of IASG revenue, while the 2007 results reflected only nine months of IASG activity. In addition, Wholesale revenue in 2008 increased 3.8% over 2007 excluding the impact of the merger.
Operating income fell to $10.3 million in 2008 compared to $15.4 million in the year ago period, resulting from higher installation and selling costs in excess of installation revenues, partially offset by improved monitoring and service results that included a full year of IASG revenue.
The Company's net loss for the year fell to $(50.5) million in 2008, or $(2.00) per share, from $(32.2) million, or $(1.37) per share in 2007. Most of the difference arises from a $12.8 million loss on retirement of debt in connection with the refinancing of the Company's senior subordinated notes in March 2008, of which $7.0 million was non-cash. Lower operating income, for the reasons previously noted, also contributed to the decrease.
Non-GAAP Results
Adjusted EBITDA
Adjusted EBITDA in the fourth quarter 2008 improved 3.1% to $28.3 million from $27.5 million in the fourth quarter of last year due to an increase in monitoring and service gross margin partly offset by higher installation costs incurred during the period.
Adjusted EBITDA for 2008 increased to $109.3 million from $107.4 million, or 1.8% from 2007. The benefit of including an additional quarter of revenue from IASG's operations in 2008 compared to 2007 was largely offset by higher installation costs and costs associated with brand awareness and lead generation activities incurred in 2008 compared to 2007.
Net Debt
The Company ended 2008 with $38.9 million of cash and cash equivalents, with excess cash and cash equivalents invested in United States treasury portfolios. As of March 5, 2009, the Company also had $19.7 million available for borrowing under its revolving credit facility.
The Company's total debt and capital leases, excluding debt discounts and premiums, as of December 31, 2008 was $522.6 million, compared to $526.0 million as of December 31, 2007.
The Company's net debt decreased to $483.7 million at December 31, 2008 from $485.0 million at December 31, 2007.
See "Non-GAAP Reconciliations" in the attached schedules for a reconciliation of net debt to reported debt and cash and cash equivalents.
Recurring Monthly Revenue and Attrition
The Company's Retail reporting unit ended the year with RMR of $20.5 million at December 31, 2008 compared to $20.6 million one year earlier. Net Retail attrition was 10.5% in 2008 compared to 9.5% in 2007. The increase resulted from more customers canceling for financial-related reasons. The Company's Wholesale reporting unit ended 2008 with $4.0 million RMR at December 31, 2008, up from $3.6 million at the end of 2007. Wholesale attrition in 2008 was 24.5% compared to 22.6% in 2007. The Company's Multifamily reporting unit had RMR of $2.2 million at December 31, 2008 compared to $2.5 million at the end of 2007. Multifamily attrition in 2008 was 18.3% compared to 10.6% in 2007.
See "Non-GAAP Reconciliations" in the attached schedules for a reconciliation of RMR to reported revenue and the "Supplemental Financial Information" in the attached schedules for the definition of net attrition.
Segment Descriptions
The Company's Retail segment directly sells, installs, monitors and maintains electronic security and life safety systems for residential and commercial customers. As of December 31, 2008, the Company served approximately 574,000 retail customers.
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 December 31, 2008, this unit served approximately 4,600 dealers by monitoring almost one million homes and businesses on their behalf.
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 December 31, 2008, Multifamily monitored approximately 240,000 units in more than 1,500 rental properties.
See the attached schedules for additional information regarding the financial performance of the Company's segments.
The Protection One, Inc. logo is available at http://www.globenewswire.com/newsroom/prs/?pkgid=5001
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) 604-9673 (inside the United States and Canada) or via a webcast at www.ProtectionOne.com. The reference code associated with the call is 6277412.
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 March 20, 2009. To listen to the telephonic replay, dial (888) 203-1112 and enter the following passcode: 6277412.
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, attrition, liquidity and sources of funding. 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 Annual Report on Form 10-K for the period ended December 31, 2008, which is expected to be filed with the SEC on March 16, 2009, 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)
PROTECTION ONE, INC.
and Subsidiaries
Condensed Consolidated Statements of Operations and Comprehensive Loss
(unaudited)
Three Months Twelve Months
Ended December 31, Ended December 31,
(in thousands, except per ------------------ ------------------
share amounts) 2008 2007 2008 2007
------------------------- ---- ---- ---- ----
Revenue
Monitoring & related services $ 84,104 $ 83,296 $334,125 $313,330
Installation and other 9,883 9,247 37,896 34,541
-------- -------- -------- --------
Total revenue 93,987 92,543 372,021 347,871
Cost of revenue (exclusive of
amortization and depreciation
shown below):
Monitoring & related services 27,215 28,184 110,980 99,835
Installation and other 12,583 10,655 48,750 40,870
-------- -------- -------- --------
Total cost of revenue
(exclusive of amortization
and depreciation shown
below) 39,798 38,839 159,730 140,705
Selling expenses 14,114 12,724 56,247 47,552
General & administrative 21,016 20,901 80,566 77,846
Merger related costs -- -- -- 4,344
Amortization and depreciation 14,210 17,678 64,275 62,064
Impairment of trade name 450 -- 925 --
-------- -------- -------- --------
Total operating expenses 49,790 51,303 202,013 191,806
-------- -------- -------- --------
Operating income 4,399 2,401 10,278 15,360
Other expense (income)
Interest expense 11,663 13,076 48,539 49,486
Interest income (41) (570) (794) (2,509)
Loss on retirement of debt -- -- 12,788 --
Other 23 (23) (54) (90)
-------- -------- -------- --------
Total other expense 11,645 12,483 60,479 46,887
-------- -------- -------- --------
Loss before income taxes (7,246) (10,082) (50,201) (31,527)
Income tax (benefit) expense (13) 111 341 713
-------- -------- -------- --------
Net loss $ (7,233) $(10,193) $(50,542) $(32,240)
Other comprehensive income net
of tax
Unrealized loss on cash flow
hedging instruments (9,643) (87) (8,639) (212)
-------- -------- -------- --------
Comprehensive loss $(16,876) $(10,280) $(59,181) $(32,452)
======== ======== ======== ========
Basic and diluted net loss per
common share(a) $ (0.29) $ (0.40) $ (2.00) $ (1.37)
Weighted average common shares
outstanding 25,317 25,307 25,310 23,525
(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.
PROTECTION ONE, INC.
and Subsidiaries
Supplemental Financial Information
(unaudited)
Three Months Twelve Months
Ended December 31, Ended December 31,
------------------ ------------------
(in thousands) 2008 2007 2008 2007
---- ---- ---- ----
Segment Information
Retail
Revenue
Monitoring & related services $ 63,840 $ 63,714 $255,104 $243,963
Installation and other 9,653 8,950 36,691 33,527
-------- -------- -------- --------
Total revenue 73,493 72,664 291,795 277,490
Cost of revenue (exclusive of
amortization and depreciation
shown below):
Monitoring & related services 18,127 19,324 75,154 72,526
Installation and other 11,874 10,062 46,180 38,367
-------- -------- -------- --------
Total cost of revenue
(exclusive of amortization
and depreciation shown
below) 30,001 29,386 121,334 110,893
Selling expenses 13,437 11,880 52,558 44,698
General & administrative
expense 16,140 17,442 62,077 63,359
Merger related costs -- -- -- 4,344
Amortization of intangibles and
depreciation expense 11,928 14,088 51,474 49,501
-------- -------- -------- --------
Total operating expenses 41,505 43,410 166,109 161,902
Operating income $ 1,987 $ (132) $ 4,352 $ 4,695
Operating margin 2.7% -0.2% 1.5% 1.7%
Wholesale
Revenue
Monitoring & related services $ 12,900 $ 11,709 $ 48,660 $ 37,432
Other 171 245 817 546
-------- -------- -------- --------
Total revenue 13,071 11,954 49,477 37,978
Cost of revenue (exclusive of
amortization and depreciation
shown below):
Monitoring & related services 7,180 6,885 28,108 19,599
Selling expenses 453 468 2,253 1,430
General & administrative
expense 2,396 1,417 9,685 6,574
Amortization of intangibles and
depreciation expense 1,303 2,044 7,216 6,274
-------- -------- -------- --------
Total operating expenses 4,152 3,929 19,154 14,278
Operating income $ 1,739 $ 1,140 $ 2,215 $ 4,101
Operating margin 13.3% 9.5% 4.5% 10.8%
Multifamily
Revenue
Monitoring & related services $ 7,364 $ 7,873 $ 30,361 $ 31,935
Installation and other 59 52 388 468
-------- -------- -------- --------
Total revenue 7,423 7,925 30,749 32,403
Cost of revenue (exclusive of
amortization and depreciation
shown below):
Monitoring & related services 1,908 1,975 7,718 7,710
Installation and other 710 594 2,570 2,503
-------- -------- -------- --------
Total cost of revenue
(exclusive of amortization
and depreciation shown
below) 2,618 2,569 10,288 10,213
Selling expenses 224 376 1,436 1,424
General & administrative
expense 2,480 2,042 8,804 7,913
Amortization of intangibles and
depreciation expense 978 1,545 5,585 6,289
Impairment of trade name 450 -- 925 --
-------- -------- -------- --------
Total operating expenses 4,132 3,963 16,750 15,626
Operating income $ 673 $ 1,393 $ 3,711 $ 6,564
Operating margin 9.1% 17.6% 12.0% 20.3%
PROTECTION ONE, INC.
and Subsidiaries
Supplemental Financial Information (cont.)
(unaudited)
Three Months Twelve Months
Ended December 31, Ended December 31,
------------------ ------------------
(in thousands) 2008 2007 2008 2007
---- ---- ---- ----
Supplemental Financial
Information
FAS 123(R) Expense in G&A
Retail $ 358 $ 341 $ 1,448 $ 1,469
Wholesale -- -- -- --
Multifamily -- -- -- --
-------- -------- -------- --------
FAS 123(R) expense in G&A 358 341 1,448 1,469
Amortization of Deferred Costs
in Excess of Amort. of
Deferred Rev.
Retail $ 7,240 $ 5,751 $ 28,556 $ 22,223
Wholesale -- -- -- --
Multifamily 677 554 2,176 1,952
-------- -------- -------- --------
Amort. of deferred costs in
excess of amort. of
deferred rev. 7,917 6,305 30,732 24,175
Investment in New Accounts and
Rental Equipment, Net
Retail $ 8,357 $ 8,438 $ 37,605 $ 32,128
Wholesale -- -- -- --
Multifamily 1,002 932 4,014 3,407
-------- -------- -------- --------
Investment in new accounts
and rental equipment, net 9,359 9,370 41,619 35,535
Property Additions, Exclusive
of Rental Equipment, Net
Retail $ 3,659 $ 1,577 $ 8,002 $ 7,743
Wholesale 162 3,237 1,569 3,782
Multifamily (193) 117 240 383
-------- -------- -------- --------
Property additions, exclusive
of rental equipment, net 3,628 4,931 9,811 11,908
PROTECTION ONE, INC.
and Subsidiaries
Supplemental Financial Information (cont.)
(unaudited)
Three Months Twelve Months
Ended December 31, Ended December 31,
------------------ ------------------
(in thousands) 2008 2007 2008 2007
---- ---- ---- ----
Supplemental Financial
Information (Non-GAAP)
Recurring Monthly Revenue
(RMR) $ 26,746 $ 26,706 $ 26,746 $ 26,706
======== ======== ======== ========
RMR Rollforward - Retail
Beginning RMR $ 20,551 $ 20,591 $ 20,628 $ 16,429
RMR additions from direct
sales 532 599 2,316 2,331
Additions from the Merger -- -- -- 4,133
RMR additions from account
purchases 15 2 44 32
RMR losses (712) (688) (2,823) (2,583)
Price increases and other 157 124 378 286
-------- -------- -------- --------
Ending RMR $ 20,543 $ 20,628 $ 20,543 $ 20,628
RMR Rollforward - Wholesale
Beginning RMR $ 4,038 $ 3,578 $ 3,615 $ 963
RMR additions from direct
sales 198 233 1,305 803
Additions from the Merger -- -- -- 2,549
RMR losses (238) (196) (932) (661)
Price increases and other -- -- 10 (39)
-------- -------- -------- --------
Ending RMR $ 3,998 $ 3,615 $ 3,998 $ 3,615
RMR Rollforward - Multifamily
Beginning RMR $ 2,294 $ 2,482 $ 2,463 $ 2,596
RMR additions from direct
sales 12 25 98 86
RMR losses (120) (56) (428) (269)
Price increases and other 19 12 72 50
-------- -------- -------- --------
Ending RMR $ 2,205 $ 2,463 $ 2,205 $ 2,463
RMR Rollforward - Consolidated
Beginning RMR $ 26,883 $ 26,651 $ 26,706 $ 19,988
RMR additions from direct
sales 742 857 3,719 3,220
Additions from the Merger -- -- -- 6,682
RMR additions from account
purchases 15 2 44 32
RMR losses (1,070) (940) (4,183) (3,513)
Price increases and other 176 136 460 297
-------- -------- -------- --------
Ending RMR $ 26,746 $ 26,706 $ 26,746 $ 26,706
Annualized
Three Months Twelve Months
RMR Attrition Ended December 31, Ended December 31,
------------------ ------------------
2008 2007 2008 2007
---- ---- ---- ----
RMR Attrition - Gross
Retail 13.9% 13.3% 13.7% 13.2%
Wholesale 23.7% 21.8% 24.5% 22.6%
Multifamily 21.3% 9.0% 18.3% 10.6%
RMR Attrition - Net(a)
Retail 10.9% 9.9% 10.5% 9.5%
(a) Attrition excluding price decreases and net of new owners and
moves
December 31, December 31,
Monitored Sites 2008 2007
---- ----
Retail Monitored Sites 574,001 602,519
Wholesale Monitored Sites 991,014 865,163
Multifamily Monitored Sites 240,648 277,743
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 Twelve Months
Ended December 31, Ended December 31,
------------------ ------------------
(in thousands) 2008 2007 2008 2007
---- ---- ---- ----
RMR at December 31 $ 26,746 $ 26,706 $ 26,746 $ 26,706
Amounts excluded from RMR:
Amortization of deferred
revenue 1,211 1,036 1,211 1,036
Installation and other
revenue(a) 3,303 2,974 3,303 2,974
-------- -------- -------- --------
Revenue (GAAP basis)
December $ 31,260 $ 30,716 $ 31,260 $ 30,716
October - November 62,727 61,827 -- --
January - November -- -- 340,761 317,155
-------- -------- -------- --------
Total period revenue $ 93,987 $ 92,543 $372,021 $347,871
(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 Twelve Months
Ended December 31, Ended December 31,
------------------ ------------------
(in thousands) 2008 2007 2008 2007
---- ---- ---- ----
Loss before income taxes $ (7,246) $(10,082) $(50,201) $(31,527)
Plus:
Interest expense, net 11,622 12,506 47,745 46,977
Amortization and depreciation
expense 14,210 17,678 64,275 62,064
Amort. of deferred costs in
excess of amort. of deferred
revenue 7,917 6,305 30,732 24,175
Stock based compensation
expense 358 341 1,448 1,469
Other costs including
merger-related items 970 741 1,655 4,344
Loss on retirement of debt -- -- 12,788 --
Impairment of trade name 450 -- 925 --
Less:
Other income 23 (23) (54) (90)
-------- -------- -------- --------
Adjusted EBITDA $ 28,304 $ 27,466 $109,313 $107,412
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
December 31, December 31,
(in thousands) 2008 2007
------------ ------------
Senior credit facility, maturing March 31,
2012, variable $ 291,750 $ 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 5,140 5,599
------------ ------------
$ 522,575 $ 526,034
Less cash and cash equivalents (38,883) (40,999)
------------ ------------
Net Debt $ 483,692 $ 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-K for the period ended December 31, 2008.
While not included in net debt, the Company also had notes receivable
due from its Wholesale dealers of approximately $4.2 million and
$5.9 million as of December 31, 2008 and December 31, 2007,
respectively.