Consistent Revenue Reported
Increases in Operating Income and Adjusted EBITDA Achieved
Conference Call Scheduled for 10 a.m. Eastern Time Today to Review Results
LAWRENCE, Kan., Aug. 7, 2009 (GLOBE NEWSWIRE) -- Protection One, Inc. (Nasdaq:PONE), one of the largest electronic security companies in the United States, today reported financial results for the second quarter ended June 30, 2009. All comparisons below are to the second quarter ended June 30, 2008 unless otherwise indicated.
Richard Ginsburg, Protection One's president and chief executive officer, said, "I am pleased to report that we delivered consistent revenue and improved profitability in the second quarter. In summary, more profitable monitoring and service delivery and less investment creating new customers fueled a 10.6% increase in adjusted EBITDA over the second quarter of last year, which, along with reduced working capital requirements, allowed us to reduce net debt by $16.6 million during the quarter. With nearly 90% of our revenue generated from recurring monitoring and related services, we have very predictable cash flow, which we believe will enable us to continue to reduce net debt. Partly as a result of our emphasis on disciplined investing in these challenging economic times, new installations and creation of related recurring revenue were lower than in last year's second quarter. We continued, though, to push ahead with building our commercial sales platform and now have more than 200 professionals pursuing commercial business. Given our emphasis in this area and signs that economic conditions are stabilizing, we are optimistic commercial sales in the second half of the year will improve. In future quarters, we also believe we will see increasing residential lead flow from our marketing initiatives. Lastly, our Wholesale and Multifamily business units also executed well on their respective strategies and delivered solid results with good cash flow this quarter."
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. Please also see the attached schedules for a reconciliation of these non-GAAP measures as well as a definition of net attrition.
Second Quarter Results
Consolidated revenue in the second quarter of 2009 decreased less than one half of one percent to $92.1 million. This decrease reflects an increase in Wholesale monitoring revenue that was offset by a decline in Retail and Multifamily monitoring and service revenue.
Operating income increased to $8.9 million from $2.8 million in the second quarter of 2008 primarily due to lower amortization and depreciation expense and a reduction in net costs incurred in Retail customer acquisition activities. Higher contribution from monitoring and service gross margin was offset by an increase in general and administrative expenses related to elevated bad debt and legal fees.
The Company's net loss in the second quarter improved to $(2.5) million, or $(0.10) per share, from $(9.1) million, or $(0.36) per share, during the same period in 2008. Higher operating income in the second quarter of 2009 due to the aforementioned items was the primary factor in the improvement.
Non-GAAP Results
Adjusted EBITDA
Adjusted EBITDA in the second quarter of 2009 improved 10.6% to $30.0 million from $27.2 million in the second quarter of 2008. This improvement was due to increases in Retail and Wholesale monitoring and service gross margins as well as a reduction in net costs incurred in Retail customer acquisition activities, partially offset by higher general and administrative costs. The Retail reporting unit once again lowered monitoring and service direct costs by 10% on a slightly declining revenue base, and the Wholesale reporting unit increased monitoring and service revenue by 9% while keeping costs flat.
Net Debt
On June 30, 2009, the Company had $66.8 million of cash and cash equivalents, with excess cash and cash equivalents invested primarily in short-term United States treasury portfolios. The Company also had $19.7 million available for borrowing under its revolving credit facility as of that same date.
The Company's total debt and capital leases, excluding debt premiums, was $520.3 million as of June 30, 2009, compared to $522.6 million as of December 31, 2008.
During the second quarter of 2009, the Company's Net Debt decreased $16.6 million to $453.5 million due to lower working capital requirements, higher adjusted EBITDA, and fewer opportunities to invest in new customers within our targeted range of economic returns.
Recurring Monthly Revenue and Attrition
The Company's Retail reporting unit ended the second quarter of 2009 with RMR of $20.3 million, or 1.3% lower than one year earlier. Annualized net Retail attrition in the second quarter of 2009 rose to 10.4% from 9.4% in the second quarter of 2008. Attrition on the commercial customer base was higher due to its sensitivity to the economic downturn. The Retail reporting unit added $456,000 of RMR in the second quarter of 2009 compared to $608,000 a year ago. As previously reported, the Company expects total RMR additions in 2009 to be lower than additions in 2008 in part because of reduced investment opportunities due to economic conditions as well as the Company's disciplined approach to investing in new customers. Net costs incurred related to RMR additions were $12.8 million in the second quarter of 2009 compared to $17.7 million for the same period in 2008. The Wholesale reporting unit ended the second quarter of 2009 with $4.1 million of RMR, up from $4.0 million one year earlier, attributable to growth in its largest customers. Annualized Wholesale attrition in the second quarter was 26.1% compared to 24.5% in the second quarter of 2008 due to the cancellation of a large customer. Wholesale RMR is subject to significant change depending on the decisions of its largest customers. RMR as of June 30, 2009 at the Company's Multifamily reporting unit was $2.0 million compared to $2.4 million one year earlier as several large customers have elected to cancel services due to their financial hardships. In addition, given the challenging environment for multifamily properties, the Company decided last year to focus its Multifamily reporting unit on serving and upgrading existing customers rather than on actively pursuing growth from new customers.
Conference Call and Webcast
Protection One will host a conference call and audio webcast today at 10 a.m. EDT to review these results. The call may be accessed by dialing (877) 397-0235 (inside the United States and Canada) or via a webcast in the Company's investor relations section at www.ProtectionOne.com. The reference code associated with the call is 2247532.
A webcast replay will be available shortly after the call at www.ProtectionOne.com. A telephonic replay of the call also will be available through August 14, 2009. To listen to the telephonic replay, dial (888) 203-1112 and enter the following passcode: 2247532.
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 or their negatives. 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, RMR additions, attrition, investment in acquiring new customers, debt levels and liquidity. Our actual results may differ materially from those discussed here as a result of numerous factors, including, but not limited to, our substantial debt obligations, net losses and competition. See our Quarterly Report on Form 10-Q for the period ended June 30, 2009, which is expected to be filed with the SEC on August 10, 2009, and our Annual Report on Form 10-K for the year ended December 31, 2008, which was 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.
The Protection One, Inc. logo is available at http://www.globenewswire.com/newsroom/prs/?pkgid=5001
PROTECTION ONE, INC.
and Subsidiaries
Condensed Consolidated Statements of Operations and
Comprehensive Loss
(unaudited)
Three Months Six Months
Ended June 30, Ended June 30,
------------------- -------------------
(in thousands, except 2009 2008 2009 2008
per share amounts)
-----------------------
Revenue
Monitoring and
related services $ 82,681 $ 83,003 $166,214 $165,829
Installation and other 9,465 9,398 18,934 18,149
-------- -------- -------- --------
Total revenue 92,146 92,401 185,148 183,978
Cost of revenue
(exclusive of
amortization and
depreciation shown
below):
Monitoring and related
services 25,322 27,388 51,068 55,818
Installation and other 11,977 11,762 24,018 22,972
-------- -------- -------- --------
Total cost of revenue
(exclusive of
amortization and
depreciation shown
below) 37,299 39,150 75,086 78,790
Selling 12,474 14,056 25,537 27,486
General and
administrative 20,920 19,844 42,243 39,109
Amortization and
depreciation 12,600 16,601 24,949 33,634
-------- -------- -------- --------
Total operating
expenses 45,994 50,501 92,729 100,229
-------- -------- -------- --------
Operating income 8,853 2,750 17,333 4,959
Other expense (income)
Interest expense 11,196 12,096 22,316 24,658
Interest income (11) (259) (28) (578)
Loss on retirement of
debt -- -- -- 12,788
Other -- (23) -- (45)
-------- -------- -------- --------
Total other expense 11,185 11,814 22,288 36,823
-------- -------- -------- --------
Loss before income
taxes (2,332) (9,064) (4,955) (31,864)
Income tax expense 203 26 381 304
-------- -------- -------- --------
Net loss $ (2,535) $ (9,090) $ (5,336) $(32,168)
Other comprehensive
loss, net of tax
Unrealized gain on
cash flow hedging
instruments 1,153 2,057 1,494 2,124
-------- -------- -------- --------
Comprehensive loss $ (1,382) $ (7,033) $ (3,842) $(30,044)
======== ======== ======== ========
Basic and diluted net
loss per common
share (a) $ (0.10) $ (0.36) $ (0.21) $ (1.27)
Weighted average common
shares outstanding 25,319 25,307 25,318 25,307
(a) Options are not included in the computation of diluted loss 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 Six Months
Ended June 30, Ended June 30,
------------------- -------------------
(in thousands) 2009 2008 2009 2008
Segment Information
Retail
Revenue
Monitoring and related
services $ 63,053 $ 63,732 $126,770 $127,250
Installation and other 8,961 9,139 17,911 17,492
-------- -------- -------- --------
Total revenue 72,014 72,871 144,681 144,742
Cost of revenue
(exclusive of
amortization and
depreciation shown
below):
Monitoring and related
services 16,699 18,542 33,901 38,290
Installation and other 11,170 11,206 22,378 21,771
-------- -------- -------- --------
Total cost of revenue
(exclusive of
amortization and
depreciation shown
below) 27,869 29,748 56,279 60,061
Selling 11,746 12,792 24,140 25,285
General and
administrative 16,512 15,460 34,150 30,424
Amortization and
depreciation 10,531 13,081 20,811 26,577
-------- -------- -------- --------
Total operating
expenses 38,789 41,333 79,101 82,286
Operating income $ 5,356 $ 1,790 $ 9,301 $ 2,395
Operating margin 7.4% 2.5% 6.4% 1.6%
Wholesale
Revenue
Monitoring and related
services $ 12,732 $ 11,669 $ 25,311 $ 23,187
Other 143 144 327 462
-------- -------- -------- --------
Total revenue 12,875 11,813 25,638 23,649
Cost of revenue
(exclusive of
amortization and
depreciation shown
below):
Monitoring and related
services 6,858 6,937 13,627 13,740
Selling 558 786 1,015 1,334
General and
administrative 2,569 2,354 4,885 4,634
Amortization and
depreciation 1,203 1,985 2,404 3,988
-------- -------- -------- --------
Total operating
expenses 4,330 5,125 8,304 9,956
Operating income
(loss) $ 1,687 $ (249) $ 3,707 $ (47)
Operating margin 13.1% -2.1% 14.5% -0.2%
Multifamily
Revenue
Monitoring and related
services $ 6,896 $ 7,602 $ 14,133 $ 15,392
Installation and other 361 115 696 195
-------- -------- -------- --------
Total revenue 7,257 7,717 14,829 15,587
Cost of revenue
(exclusive of
amortization and
depreciation shown
below):
Monitoring and related
services 1,765 1,909 3,540 3,788
Installation and other 807 556 1,640 1,201
-------- -------- -------- --------
Total cost of revenue
(exclusive of
amortization and
depreciation shown
below) 2,572 2,465 5,180 4,989
Selling 170 478 382 867
General and
administrative 1,839 2,030 3,208 4,051
Amortization and
depreciation 866 1,535 1,734 3,069
-------- -------- -------- --------
Total operating
expenses 2,875 4,043 5,324 7,987
Operating income $ 1,810 $ 1,209 $ 4,325 $ 2,611
Operating margin 25.0% 15.7% 29.2% 16.8%
PROTECTION ONE, INC.
and Subsidiaries
Supplemental Financial Information (cont.)
(unaudited)
Three Months Six Months
Ended June 30, Ended June 30,
------------------- -------------------
(in thousands) 2009 2008 2009 2008
Supplemental Financial
Information
FAS 123(R) Expense in G&A
Retail $ 39 $ 348 $ 353 $ 714
Wholesale -- -- -- --
Multifamily -- -- -- --
-------- -------- -------- --------
FAS 123(R) expense in
G&A 39 348 353 714
Amortization of Deferred
Costs in Excess of
Amort. of Deferred Rev.
Retail $ 7,163 $ 6,771 $ 14,452 $ 13,324
Wholesale -- -- -- --
Multifamily 667 458 1,211 976
-------- -------- -------- --------
Amortization of
deferred costs in
excess of amort. of
deferred rev. 7,830 7,229 15,663 14,300
Investment in New
Accounts and Rental
Equipment, Net
Retail $ 5,976 $ 9,576 $ 11,237 $ 19,839
Wholesale -- -- -- --
Multifamily 328 661 1,279 1,696
-------- -------- -------- --------
Investment in new
accounts and rental
equipment, net 6,304 10,237 12,516 21,535
Property Additions,
Exclusive of Rental
Equipment, Net
Retail $ 1,383 $ 2,121 $ 2,378 $ 3,120
Wholesale 211 306 404 588
Multifamily -- 84 -- 118
-------- -------- -------- --------
Property additions,
exclusive of rental
equipment, net 1,594 2,511 2,782 3,826
PROTECTION ONE, INC.
and Subsidiaries
Supplemental Financial Information (cont.)
(unaudited)
Three Months Six Months
Ended June 30, Ended June 30,
------------------- -------------------
(in thousands) 2009 2008 2009 2008
Supplemental Financial
Information (Non-GAAP)
Recurring Monthly Revenue
(RMR) $ 26,484 $ 26,915 $ 26,484 $ 26,915
======== ======== ======== ========
RMR Rollforward - Retail
Beginning RMR $ 20,433 $ 20,469 $ 20,543 $ 20,628
RMR additions from
direct sales 431 606 881 1,190
RMR additions from
account purchases 25 2 25 7
RMR losses (684) (662) (1,365) (1,362)
Price increases and
other 92 157 213 109
-------- -------- -------- --------
Ending RMR $ 20,297 $ 20,572 $ 20,297 $ 20,572
RMR Rollforward -
Wholesale
Beginning RMR $ 3,987 $ 3,741 $ 3,998 $ 3,615
RMR additions from
direct sales 422 452 608 769
RMR losses (266) (236) (463) (430)
Price increases and
other -- 8 -- 11
-------- -------- -------- --------
Ending RMR $ 4,143 $ 3,965 $ 4,143 $ 3,965
RMR Rollforward -
Multifamily
Beginning RMR $ 2,055 $ 2,412 $ 2,205 $ 2,463
RMR additions from
direct sales 21 24 48 62
RMR losses (33) (77) (218) (184)
Price increases and
other 1 19 9 37
-------- -------- -------- --------
Ending RMR $ 2,044 $ 2,378 $ 2,044 $ 2,378
RMR Rollforward -
Consolidated
Beginning RMR $ 26,475 $ 26,622 $ 26,746 $ 26,706
RMR additions from
direct sales 874 1,082 1,537 2,021
RMR additions from
account purchases 25 2 25 7
RMR losses (983) (975) (2,046) (1,976)
Price increases and
other 93 184 222 157
-------- -------- -------- --------
Ending RMR $ 26,484 $ 26,915 $ 26,484 $ 26,915
Annualized
Three Months Twelve Months
RMR Attrition Ended June 30, Ended June 30,
------------------- -------------------
2009 2008 2009 2008
RMR Attrition - Gross
Retail 13.4% 12.9% 13.8% 13.6%
Wholesale 26.1% 24.5% 23.8% 21.9%
Multifamily 6.5% 12.9% 20.9% 12.3%
RMR Attrition - Net (a)
Retail 10.4% 9.4% 10.8% 10.2%
(a) Attrition excluding price decreases and net of new owners and
relocation accounts
June 30, June 30,
Monitored Sites 2009 2008
Retail Monitored Sites 556,458 590,523
Wholesale Monitored
Sites 1,049,383 969,479
Multifamily Monitored
Sites 219,167 264,699
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 Six Months
Ended June 30, Ended June 30,
------------------- -------------------
(in thousands) 2009 2008 2009 2008
RMR at June 30 $ 26,484 $ 26,915 $ 26,484 $ 26,915
Amounts excluded from
RMR:
Amortization of
deferred revenue 1,248 1,126 1,248 1,126
Installation and other
revenue (a) 2,885 2,804 2,885 2,804
-------- -------- -------- --------
Revenue (GAAP basis)
June $ 30,617 $ 30,845 $ 30,617 $ 30,845
April - May 61,529 61,556 -- --
January - May -- -- 154,531 153,133
-------- -------- -------- --------
Total period revenue $ 92,146 $ 92,401 $185,148 $183,978
(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 widely used in the industry to assess the
amount of recurring revenues from customer fees produced by a
monitored security alarm company such as Protection One, Inc.
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 Six Months
Ended June 30, Ended June 30,
------------------- -------------------
(in thousands) 2009 2008 2009 2008
Loss before income taxes $ (2,332) $ (9,064) $ (4,955) $(31,864)
Plus:
Interest expense, net 11,185 11,837 22,288 24,080
Amortization and
depreciation expense 12,600 16,601 24,949 33,634
Amortization of deferred
costs in excess of
amort of deferred
revenue 7,830 7,229 15,663 14,300
Stock based compensation
expense 39 348 353 714
Other costs 714 239 782 311
Loss on retirement of
debt -- -- -- 12,788
Less:
Other income -- (23) -- (45)
-------- -------- -------- --------
Adjusted EBITDA $ 30,036 $ 27,167 $ 59,080 $ 53,918
Adjusted EBITDA is used by management and reviewed by the Board of
Directors in evaluating segment performance and determining how to
allocate resources across segments for investments in customer
acquisition activities, capital expenditures and spending in general.
The Company believes it is also utilized by the investor community
which follows the security monitoring industry. Adjusted EBITDA is
useful because it allows investors and management to evaluate and
compare operating results from period to period in a meaningful and
consistent manner in addition to standard GAAP financial measures.
Specifically, Adjusted EBITDA allows the chief operating decision
maker to evaluate segment results of operations, including operating
performance of monitoring and service activities, effects of
investments in creating new customer relationships, and sales and
installation of security systems, without the effects of non-cash
amortization and depreciation. This information should not be
considered an alternative to any measure of performance as
promulgated under GAAP, 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.
Net Debt Reconciliation
June 30, December 31,
(in thousands) 2009 2008
------------ ------------
Senior Credit Agreement, maturing
March 31, 2012, variable $ 290,250 $ 291,750
Senior Secured Notes, maturing
November 15, 2011, fixed 12.00%
face value 115,345 115,345
Unsecured Term Loan, maturing
March 14, 2013, variable 110,340 110,340
Capital leases 4,341 5,140
------------ ------------
$ 520,276 $ 522,575
Less cash and cash equivalents (66,793) (38,883)
------------ ------------
Net Debt $ 453,483 $ 483,692
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 June 30, 2009.
While not included in Net Debt, the Company also had notes receivable
due from its Wholesale dealers of approximately $3.5 million and $4.2
million as of June 30, 2009 and December 31, 2008, respectively.