Operating Income Improves $10.7 Million
Adjusted EBITDA Increases 17.6%
Conference call scheduled for 10 a.m. Eastern time today to review results
LAWRENCE, Kan., Nov. 6, 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 third quarter ended September 30, 2009. All comparisons below are to the third quarter ended September 30, 2008, unless otherwise indicated.
Commenting on the results, Richard Ginsburg, Protection One's president and chief executive officer, said, "Our more efficient cost structure and improved operations enabled us again to deliver significant improvements in operating income and adjusted EBITDA in the third quarter of 2009 while further reducing net debt. With the catalyst of more profitable monitoring and service delivery, lower general and administrative costs, improved Retail attrition, and less investment creating new customers, operating income increased $10.7 million and adjusted EBITDA increased 17.6% over the third quarter of last year. After several quarters of decreasing net losses, we operated at close to breakeven on a net income basis. We also generated cash during the quarter, reducing net debt by $11.0 million.
"In this economic environment, the resiliency of our business model, based on high margin recurring revenues and investment flexibility, is evident in our results. We plan to continue investing selectively in new residential customers while enhancing our commercial sales force in anticipation of expanding opportunities in commercial markets as the economy improves. This emphasis on markets where we have a competitive advantage is consistent with our plan to maximize our strong and sustainable cash flows to provide meaningful deleveraging and shareholder value creation."
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.
Third Quarter Results
In the third quarter of 2009, consolidated revenue decreased by 1.6% to $92.6 million. An increase in Wholesale monitoring revenue was exceeded slightly by a decline in Retail and Multifamily monitoring and service revenue.
Operating income increased to $11.7 million from $0.9 million in the third quarter of 2009 primarily due to a reduction in net costs incurred in Retail customer acquisition activities and lower amortization and depreciation expense. General and administrative expenses also declined due to lower labor and related benefit costs.
Principally because of higher operating income, the Company's net loss in the third quarter improved to ($0.1) million, or less than $(0.01) per share, from a net loss of $(11.1) million, or $(0.44) per share, during the same period in 2008.
Non-GAAP Results
Adjusted EBITDA
Adjusted EBITDA improved 17.6% to $31.9 million from $27.1 million in the third quarter of 2008. Lower net costs incurred in Retail customer acquisition activities and reductions in general and administrative costs were the principal drivers. In addition, we were able to more than offset the decline in monitoring and related services revenue with reductions in monitoring and related services costs. Monitoring and related services margin has improved to 72.9% from 70.7% in our Retail segment due to the centralization of customer care and field technical support functions completed at the end of 2008. On the Wholesale side, the margin has improved to 46.2% from 42.8% due to a more efficient operating structure from the consolidation earlier this year of its monitoring centers onto a common monitoring and billing platform.
Net Debt
During the third quarter of 2009, the Company's Net Debt decreased $11.0 million to $442.5 million for a total decrease in Net Debt of $41.2 million since December 31, 2008. The Company's total debt and capital leases, excluding debt premiums, was $519.1 million as of September 30, 2009, compared to $522.6 million as of December 31, 2008, but its cash and cash equivalents have increased to $76.6 million at September 30, 2009 from $38.9 million at December 31, 2008.
The Company is in discussions with existing lenders under its credit facility to extend the maturity date and amend certain other terms of the facility. The Company is also discussing with its existing lenders and potential new lenders the possibility of increasing the size of the term loan facility by up to $75 million (for aggregate term loans of $364.5 million). The additional proceeds, together with available cash, would be used to redeem the $115.3 million of Senior Secured Notes due November 15, 2011. The Company can give no assurance that it will be successful in completing this refinancing on terms acceptable to the Company or at all and the Company does not intend to provide updates or make any further comment until the outcome of the process is determined.
Recurring Monthly Revenue and Attrition
The Company's Retail reporting unit ended the third quarter of 2009 with RMR of $20.2 million, or 1.8% lower than one year earlier. Annualized net Retail attrition in the third quarter of 2009 improved to 10.6% from 11.2% in the third quarter of 2008. In the third quarter of this year, the Retail reporting unit added $464,000 of RMR compared to $617,000 in the same quarter a year ago. As previously reported, the Company expects total RMR additions in 2009 to be lower than additions in 2008 due to fewer opportunities in the current economic environment. As a result, net costs incurred related to Retail RMR additions were $13.4 million in the third quarter of 2009 compared to $18.2 million for the same period in 2008.
The Wholesale reporting unit ended the third quarter of 2009 with $4.1 million of RMR, up from $4.0 million one year earlier. Annualized Wholesale attrition in the third quarter was 27.9% compared to 26.4% in the third quarter of 2008. Effective November 1, 2009, the Wholesale reporting unit entered into an agreement pursuant to which its largest customer, APX, assumed operational control of the Company's wholesale monitoring center in St. Paul, Minnesota, and the Wholesale unit agreed to license intellectual property and to provide technical support and disaster recovery services through December 31, 2010 to APX for a monthly fee. Although Wholesale revenue is expected to decline as a result of this arrangement, the change in the relationship will also result in a reduction in cost of revenue and is not expected to cause consolidated operating income and net cash flows to decrease materially through December 31, 2010.
RMR as of September 30, 2009 at the Company's Multifamily reporting unit was $2.0 million compared to $2.3 million one year earlier as a result of this reporting unit's strategy of enhancing cash flow by focusing 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. EST to review these results. The call may be accessed by dialing (888) 298-3442 or (719) 325-2389 (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 8156495.
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 Nov. 13, 2009. To listen to the telephonic replay, dial (888) 203-1112 and enter the following passcode: 8156495.
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, liquidity and our plans to amend our credit facility and redeem our Senior Secured Notes. 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 September 30, 2009, which is expected to be filed with the SEC on November 9, 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 Income (Loss)
(unaudited)
Three Months Nine Months
Ended September 30, Ended September 30,
(in thousands, except per ------------------ ------------------
share amounts) 2009 2008 2009 2008
------------------------- -------- -------- -------- --------
Revenue
Monitoring and related
services $ 82,433 $ 84,192 $248,647 $250,020
Installation and other 10,127 9,864 29,061 28,014
-------- -------- -------- --------
Total revenue 92,560 94,056 277,708 278,034
Cost of revenue (exclusive
of amortization and
depreciation shown
below):
Monitoring and related
services 25,875 27,948 76,943 83,766
Installation and other 12,393 13,194 36,412 36,166
-------- -------- -------- --------
Total cost of revenue
(exclusive of amortization
and depreciation shown
below) 38,268 41,142 113,355 119,932
Selling 12,903 14,647 38,440 42,133
General and administrative 17,155 20,442 59,396 59,551
Amortization and depreciation 12,580 16,431 37,529 50,065
Impairment of Tradename -- 475 -- 475
-------- -------- -------- --------
Total operating expenses 42,638 51,995 135,365 152,224
-------- -------- -------- --------
Operating income 11,654 919 28,988 5,878
Other expense (income)
Interest expense 11,529 12,219 33,846 36,876
Interest income (13) (175) (41) (752)
Loss on retirement of debt -- -- -- 12,788
Other -- (31) -- (77)
-------- -------- -------- --------
Total other expense 11,516 12,013 33,805 48,835
-------- -------- -------- --------
Income (loss) before
income taxes 138 (11,094) (4,817) (42,957)
Income tax expense 260 50 641 354
-------- -------- -------- --------
Net loss $ (122) $(11,144) $ (5,458) $(43,311)
Other comprehensive income
(loss), net of tax
Unrealized gain (loss) on cash
flow hedging instruments 517 (1,120) 2,011 1,004
-------- -------- -------- --------
Comprehensive income (loss) $ 395 $(12,264) $ (3,447) $(42,307)
======== ======== ======== ========
Basic and diluted net loss per
common share (a) $ (0.00) $ (0.44) $ (0.22) $ (1.71)
Weighted average common shares
outstanding 25,329 25,311 25,321 25,308
(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 Nine Months
Ended September 30, Ended September 30,
------------------ ------------------
(in thousands) 2009 2008 2009 2008
Segment Information
Retail
Revenue
Monitoring and related
services $ 62,464 $ 64,013 $189,234 $191,262
Installation and other 9,755 9,546 27,665 27,039
-------- -------- -------- --------
Total revenue 72,219 73,559 216,899 218,301
Cost of revenue (exclusive of
amortization and depreciation
shown below):
Monitoring and related
services 16,923 18,737 50,823 57,027
Installation and other 11,637 12,535 34,017 34,306
-------- -------- -------- --------
Total cost of revenue
(exclusive of amortization
and depreciation shown
below) 28,560 31,272 84,840 91,333
Selling 12,395 13,836 36,535 39,121
General and administrative 13,458 15,514 47,606 45,938
Amortization and depreciation 10,520 12,968 31,332 39,546
-------- -------- --------- --------
Total operating expenses 36,373 42,318 115,473 124,605
Operating income (loss) $ 7,286 $ (31) $ 16,586 $ 2,363
Operating margin 10.1% 0.0% 7.7% 1.1%
Wholesale
Revenue
Monitoring and related
services $ 13,180 $ 12,574 $ 38,491 $ 35,761
Other 187 184 515 646
-------- -------- -------- --------
Total revenue 13,367 12,758 39,006 36,407
Cost of revenue (exclusive of
amortization and depreciation
shown below):
Monitoring and related
services 7,096 7,189 20,724 20,928
Selling 304 466 1,320 1,800
General and administrative 2,255 2,655 7,139 7,289
Amortization and depreciation 1,201 1,925 3,605 5,913
-------- -------- -------- --------
Total operating expenses 3,760 5,046 12,064 15,002
Operating income $ 2,511 $ 523 $ 6,218 $ 477
Operating margin 18.8% 4.1% 16.0% 1.3%
Multifamily
Revenue
Monitoring and related
services $ 6,789 $ 7,605 $ 20,922 $ 22,997
Installation and other 185 134 881 329
-------- -------- -------- --------
Total revenue 6,974 7,739 21,803 23,326
Cost of revenue (exclusive of
amortization and depreciation
shown below):
Monitoring and related
services 1,856 2,022 5,396 5,811
Installation and other 756 659 2,395 1,860
-------- -------- -------- --------
Total cost of revenue
(exclusive of amortization
and depreciation shown
below) 2,612 2,681 7,791 7,671
Selling 204 345 585 1,212
General and administrative 1,442 2,273 4,651 6,324
Amortization and depreciation 859 1,538 2,592 4,606
Impairment of Tradename -- 475 -- 475
-------- -------- -------- --------
Total operating expenses 2,505 4,631 7,828 12,617
Operating income $ 1,857 $ 427 $ 6,184 $ 3,038
Operating margin 26.7% 5.5% 28.4% 13.0%
PROTECTION ONE, INC.
and Subsidiaries
Supplemental Financial Information (cont.)
(unaudited)
Three Months Nine Months
Ended September 30, Ended September 30,
------------------ ------------------
(in thousands) 2009 2008 2009 2008
Supplemental Financial -------- -------- -------- --------
Information
FAS 123(R) Expense in G&A
Retail $ 71 $ 376 $ 424 $ 1,090
Wholesale -- -- -- --
Multifamily -- -- -- --
-------- -------- -------- --------
FAS 123(R) expense in G&A 71 376 424 1,090
Amortization of Deferred Costs
in Excess of Amort. of
Deferred Rev.
Retail $ 6,984 $ 7,994 $ 21,437 $ 21,316
Wholesale -- -- -- --
Multifamily 561 521 1,771 1,499
-------- -------- -------- --------
Amortization of deferred
costs in excess of amort. of
deferred rev. 7,545 8,515 23,208 22,815
Investment in New Accounts and
Rental Equipment, Net
Retail $ 6,059 $ 9,409 $ 17,296 $ 29,248
Wholesale -- -- -- --
Multifamily 237 1,316 1,516 3,012
--------- --------- -------- --------
Investment in new accounts
and rental equipment, net 6,296 10,725 18,812 32,260
Property Additions, Exclusive
of Rental Equipment, Net
Retail $ 652 $ 1,223 $ 3,030 $ 4,343
Wholesale 216 819 620 1,407
Multifamily -- 315 -- 433
-------- -------- -------- --------
Property additions, exclusive
of rental equipment, net 868 2,357 3,650 6,183
PROTECTION ONE, INC.
and Subsidiaries
Supplemental Financial Information (cont.)
(unaudited)
Three Months Nine Months
Ended September 30, Ended September 30,
------------------ ------------------
(in thousands) 2009 2008 2009 2008
Supplemental Financial -------- -------- -------- --------
Information (Non-GAAP)
Recurring Monthly Revenue
(RMR) $ 26,327 $ 26,883 $ 26,327 $ 26,883
======== ======== ======== ========
RMR Rollforward - Retail
Beginning RMR $ 20,297 $ 20,572 $ 20,543 $ 20,628
RMR additions from direct
sales 454 594 1,335 1,784
RMR additions from account
purchases 10 23 35 29
RMR losses (705) (749) (2,070) (2,111)
Price increases and other 127 111 340 221
-------- -------- -------- --------
Ending RMR $ 20,183 $ 20,551 $ 20,183 $ 20,551
RMR Rollforward - Wholesale
Beginning RMR $ 4,143 $ 3,965 $ 3,998 $ 3,615
RMR additions from direct
sales 275 337 883 1,107
RMR losses (289) (264) (752) (694)
Price increases and other -- -- -- 10
-------- -------- -------- --------
Ending RMR $ 4,129 $ 4,038 $ 4,129 $ 4,038
RMR Rollforward - Multifamily
Beginning RMR $ 2,044 $ 2,378 $ 2,205 $ 2,463
RMR additions from direct
sales 39 24 87 86
RMR losses (70) (124) (288) (308)
Price increases and other 2 16 11 53
-------- -------- -------- --------
Ending RMR $ 2,015 $ 2,294 $ 2,015 $ 2,294
RMR Rollforward - Consolidated
Beginning RMR $ 26,484 $ 26,915 $ 26,746 $ 26,706
RMR additions from direct
sales 768 955 2,305 2,977
RMR additions from account
purchases 10 23 35 29
RMR losses (1,064) (1,137) (3,110) (3,113)
Price increases and other 129 127 351 284
-------- -------- -------- --------
Ending RMR $ 26,327 $ 26,883 $ 26,327 $ 26,883
Annualized
Three Months Twelve Months
RMR Attrition Ended September 30, Ended September 30,
------------------ ------------------
2009 2008 2009 2008
-------- -------- -------- --------
RMR Attrition - Gross
Retail 13.9% 14.6% 13.7% 13.6%
Wholesale 27.9% 26.4% 24.2% 23.4%
Multifamily 13.8% 21.2% 19.0% 15.2%
RMR Attrition - Net (a)
Retail 10.6% 11.2% 10.6% 10.3%
(a) Attrition excluding price decreases and net of new owners and
relocation accounts
Sept. 30, Sept. 30,
Monitored Sites 2009 2008
--------- ---------
Retail Monitored Sites 548,444 582,293
Wholesale Monitored Sites 1,054,302 1,004,947
Multifamily Monitored Sites 216,679 254,840
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
Ended September 30, Ended September 30,
------------------ ------------------
(in thousands) 2009 2008 2009 2008
-------- -------- -------- --------
RMR at September 30 $ 26,327 $ 26,883 $ 26,327 $ 26,883
Amounts excluded from RMR:
Amortization of deferred
revenue 1,285 1,211 1,285 1,211
Installation and other
revenue (a) 3,267 3,232 3,267 3,232
-------- -------- -------- --------
Revenue (GAAP basis)
September $ 30,879 $ 31,326 $ 30,879 $ 31,326
July - August (QTD) 61,681 62,730 -- --
January - August (YTD) -- -- 246,829 246,708
-------- -------- -------- --------
Total period revenue $ 92,560 $ 94,056 $277,708 $278,034
(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 Nine Months
Ended September 30, Ended September 30,
------------------ ------------------
(in thousands) 2009 2008 2009 2008
-------- -------- -------- --------
Income (loss) before income
taxes $ 138 $(11,094) $ (4,817) $(42,957)
Plus:
Interest expense, net 11,516 12,044 33,805 36,124
Amortization and depreciation
expense 12,580 16,431 37,529 50,065
Amortization of deferred costs
in excess of amort. of
deferred revenue 7,545 8,515 23,208 22,815
Stock based compensation
expense 71 376 424 1,090
Other costs 20 374 801 685
Loss on retirement of debt -- -- -- 12,788
Impairment of Tradename -- 475 -- 475
Less:
Other income -- (31) -- (77)
-------- -------- -------- --------
Adjusted EBITDA $ 31,870 $ 27,090 $ 90,950 $ 81,008
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 income (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
income (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
Sept. 30, Dec. 31,
(in thousands) 2009 2008
-------- --------
Senior Credit Agreement, maturing March 31, 2012,
variable $289,500 $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 3,919 5,140
-------- --------
$519,104 $522,575
Less cash and cash equivalents (76,608) (38,883)
-------- --------
Net Debt $442,496 $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
September 30, 2009. While not included in Net Debt, the Company also
had notes receivable due from its Wholesale dealers of approximately
$3.6 million and $4.2 million as of September 30, 2009 and
December 31, 2008, respectively.