IASGE Integrated Alarm Services Grp. (MM)

Integrated Alarm Services Group, Inc. (NASDAQ: IASGE) a total solution provider to independent security alarm dealers located throughout the United States announced results for the fourth quarter and fiscal 2004 ended December 31, 2004. Revenue for the fourth quarter was $20.7 million up 64 percent over fiscal 2003 fourth quarter revenue of $12.6 million. The net loss for the fourth quarter ending December 31, 2004 was $8.1 million, or $0.33 per share, compared to a net loss of $1.5 million, or $0.06 per share, in the fourth quarter of 2003. During the fourth quarter of 2004 the Company recorded approximately $1.6 million of accelerated debt amortization costs and facility closure costs. The aggregate owned portfolio annualized attrition rate for the fourth quarter of 2004 declined to 11.3 percent from 12.5 percent in 2003. IASG completed several significant transactions in the fourth quarter of 2004. On November 16, 2004, the Company completed the sale of $125 million of 12% Senior Secured Notes due 2011 in a private placement. Concurrent with the sale of these Notes the Company entered into a $30 million senior secured credit facility with LaSalle Bank, N.A. The Company also completed the purchase of certain National Alarm Computer Center (NACC) assets on November 19 from a subsidiary of Tyco International for $50.6 million in cash. The assets acquired include: a state-of-the-art electronic security alarm center in Irvine, California; $800,000 of third party alarm monitoring recurring monthly revenues (RMR); collateralized loans to alarm dealers totaling approximately $25 million. The Company also sold $154,000 of RMR from its owned portfolio at a favorable sales price multiple of 34 times RMR. In announcing the results, Timothy M. McGinn, Chairman and CEO, said, "We are pleased to have filed our Form 10-K for 2004 earlier this week. This milestone puts us well along the process of being in good standing with the SEC, NASDAQ and the Senior Note Holders. We look forward to fulfilling our final requirement on this path with the filing of our Form 10-Q for March 31, 2005 by June 27." McGinn in commenting on the 2004 results added, "Good progress was made at IASG in 2004. Revenue approximately doubled to $80 million, EBITDA increased to over $22 million from less than $11 million in 2003 and we achieved our 2004 year-end attrition goal with our owned portfolio annualized attrition at 11.3 percent for the fourth quarter. This operating performance at the end of 2004 positions IASG well for 2005 and our attrition goal of eleven percent. The addition of the NACC central station operating assets from Tyco permits IASG to embark on a top to bottom review of operations, and where appropriate, restructure our business. This will enable us to more efficiently and effectively serve our alarm customers. When we completed the NACC transaction we announced expected annualized operating savings of approximately $2.8 million by the end of the third quarter of 2005. We are well on our way to achieve this goal. Also, during the fourth quarter of 2004 we secured $155 million of capital and banking commitments. This capital along with operating cash flow is sufficient to fund the Company's 2005 account addition plans of 80,000 to 100,000 contract equivalents." McGinn concluded by stating, "Since going public in July 2003 we have acquired the equivalent of 133,000 contracts at an average acquisition multiple of 28 times RMR. This is below the target acquisition multiple of 30 times we discussed on the road show and has resulted in acquisition savings versus the target of $8 million. During 2004, we saw several new parties enter the alarm market and several existing parties increase their activities relative to acquiring new accounts. In 2004, the alarm industry experienced a modest increase in the average contract purchase price to 32.5 times RMR. At December 31, 2004, IASG had $31.6 million in cash, $31.4 million of collateralized notes receivable from dealers and stockholders' equity of $142.8 million. The Company had $131.3 million of debt and capital leases at December 31, 2004 and ended fiscal 2004 with a net debt (debt less cash) to equity ratio of 0.7 to 1. In the fourth quarter the Company used approximately $52 million of the proceeds from the Senior Note sale to retire debt and approximately $51 million to acquire the NACC assets. IASG had no outstanding balance on the $30 million senior credit facility at the end of 2004. -0- *T IASG Portfolio Data: Annualized Attrition Rate 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr Full-year 2004 2004 2004 2004 2004 ------- ------- ------- ------- ---------- IASG Owned Portfolio Legacy Portfolio 17.7% 10.8% 15.2% 14.6% 13.8% New Residential 13.5% 9.9% 12.5% 11.3% 11.3% New Commercial 9.1% 13.4% 10.4% 8.6% 10.0% Aggregate Owned Portfolio 13.4% 11.2% 12.6% 11.3% 11.6% Annualized Growth Rate - excluding acquisitions Wholesale Monitoring Accts 4.0% (17.9%) (9.1%) 0.5% (5.7%) *T IASG ended fiscal 2004 with an owned portfolio of approximately 149,000 contract equivalents generating RMR of approximately $4.5 million and wholesale monitoring of approximately 720,000 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 wholesale monitoring portfolio experienced a 31.7 percent growth in accounts in 2004. See the attached financial highlights for the fourth quarter 2004 and the year end December 31, 2004. 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, December 31, 2003 2004 ------------- ------------- Assets Current assets: Cash and cash equivalents $ 35,435,817 $ 31,554,609 Current portion of notes receivable 735,149 5,186,965 Accounts receivable, net 4,312,990 6,289,787 Inventories 1,107,899 1,233,785 Prepaid expenses 1,548,105 1,127,581 Due from related parties 232,300 70,655 ------------ ------------ Total current assets 43,372,260 45,463,382 Property and equipment, net 5,762,586 7,926,324 Notes receivable, net of current portion and allowance 4,525,973 22,211,283 Dealer relationships, net 23,113,617 34,529,962 Customer contracts, net 73,571,131 85,169,085 Goodwill, net 85,515,985 91,434,524 Debt issuance costs, net 1,768,281 5,322,089 Other identifiable intangibles, net 2,187,464 3,054,247 Restricted cash and cash equivalents 1,100,000 757,104 Deferred installation costs - 5,946,059 Other assets 119,033 270,122 ------------ ------------ Total assets $241,036,330 $302,084,181 ============ ============ Liabilities and Stockholders' Equity Current liabilities: Current portion of long-term debt $ 18,765,000 $ 5,225,000 Current portion of capital lease obligations 431,555 459,987 Accounts payable 2,873,707 3,720,197 Accrued expenses 8,816,766 9,185,263 Current portion of deferred revenue 7,576,993 9,756,134 Other liabilities 139,066 160,809 ------------ ------------ Total current liabilities 38,603,087 28,507,390 Long-term debt, net of current portion 46,977,612 125,000,000 Capital lease obligations, net of current portion 453,811 575,502 Deferred revenue, net of current portion 312,343 4,034,675 Deferred income taxes 759,425 1,112,778 Other liabilities 374,119 - Due to related parties 153,203 4,009 ------------ ------------ Total liabilities 87,633,600 159,234,354 ------------ ------------ Commitments and Contingencies Stockholders' equity Preferred stock, $0.001 par value; authorized 3,000,000 shares and none issued and outstanding - - Common stock, $0.001 par value; authorized 100,000,000 shares; issued and outstanding 24,607,731 shares at December 31, 2003 and 24,681,462 at December 31, 2004 24,608 24,682 Common stock subscribed 315,342 - Paid-in capital 205,086,659 206,566,067 Accumulated deficit (52,023,879) (63,740,922) ------------ ------------ Total stockholders' equity 153,402,730 142,849,827 ------------ ------------ Total liabilities and stockholders' equity $241,036,330 $302,084,181 ============ ============ INTEGRATED ALARM SERVICES GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF OPERATIONS for the Three Months and Year Ended December 31, 2003 and 2004 Three months ended Year ended December 31, December 31, 2003 2004 2003 2004 ------------ ------------ ------------- ------------- (unaudited) Revenue: Monitoring fees $6,227,011 $6,736,612 $24,099,653 $24,103,270 Revenue from customer accounts 6,107,432 13,653,528 15,854,509 50,758,967 Billing fees 24,366 - 112,127 - Related party monitoring fees 10,718 33,029 292,968 170,876 Related party placement fees - - 90,437 - Service and installation revenue 249,403 318,432 417,904 5,336,047 ------------ ------------ ------------- ------------- Total revenue 12,618,930 20,741,601 40,867,598 80,369,160 Cost of revenue (excluding depreciation and amortization) 4,392,348 9,810,535 16,393,439 32,748,642 ------------ ------------ ------------- ------------- 8,226,582 10,931,066 24,474,159 47,620,518 ------------ ------------ ------------- ------------- Operating expenses: Selling and marketing 424,090 1,110,920 1,108,621 4,357,046 Depreciation and amortization 3,713,132 6,766,694 12,322,558 23,012,590 Loss (gain) on sale of assets - (184,076) - (184,076) General and administrative 3,896,941 7,630,836 11,167,460 22,561,726 General and administrative - related party - - 3,525,000 - ------------ ------------ ------------- ------------- Total operating expenses 8,034,163 15,324,374 28,123,639 49,747,286 ------------ ------------ ------------- ------------- Income (loss) from operations 192,419 (4,393,308) (3,649,480) (2,126,768) Other income (expense): Other income, net 90,489 13,412 295,984 10,332 Amortization of debt issuance costs (275,522) (1,008,844) (3,168,315) (1,750,151) Related party interest expense - - (914,229) - Interest expense (1,835,001) (3,384,387) (12,655,617) (8,885,904) Interest income 500,084 741,799 1,613,669 1,453,227 ------------ ------------ ------------- ------------- Income (loss) before income taxes (1,327,531) (8,031,328) (18,477,988) (11,299,264) Income tax expense (benefit) 195,227 99,752 3,526,572 417,779 ------------ ------------ ------------- ------------- Net income (loss) $(1,522,758) $(8,131,080) $(22,004,560) $(11,717,043) ============ ============ ============= ============ Basic and diluted income (loss) per share $(0.06) $(0.33) $(1.95) $(0.47) ============ ============ ============= ============= Weighted average number of common shares outstanding 24,584,386 24,681,462 11,263,455 24,667,960 ============ ============ ============= ============= Unaudited: Pro Forma income tax to give effect to the conversion from S to C Corporation status: Income (loss) before benefit from income taxes $(1,327,531) $(8,031,328) $(18,477,988) $(11,299,264) Income tax expense (benefit) 195,227 99,752 (89,916) 417,779 ------------ ------------ ------------- ------------- Net income (loss) $(1,522,758) $(8,131,080) $(18,388,072) $(11,717,043) ============ ============ ============= ============= Basic and diluted income (loss) per share $(0.06) $(0.33) $(1.63) $(0.47) ============ ============ ============= ============= INTEGRATED ALARM SERVICES GROUP, INC. AND SUBSIDIARIES RECONCILIATION OF GAAP TO NON-GAAP MEASURES (unaudited) Three months ended Year ended December 31, December 31, ------------------------- --------------------------- 2003 2004 2003 2004 ------------ ------------ ------------- ------------- Net income (loss) $(1,522,758) $(8,131,080) $(22,004,560) $(11,717,043) Adjust for: Income tax expense (benefit) 195,227 99,752 3,526,572 417,779 Interest expense 1,835,001 3,384,387 13,569,846 8,885,904 Amortization of debt issuance costs 275,522 1,008,844 3,168,315 1,750,151 Depreciation and amortization 3,713,132 6,766,694 12,322,558 23,012,590 ------------ ------------ ------------- ------------- EBITDA $4,496,124 $3,128,597 $10,582,731 $22,349,381 ============ ============ ============= ============= The Company believes EBITDA is an appropriate metric of operating performance as it presents results that management has direct control over period to period. *T