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 second quarter of fiscal 2006 ending June 30, 2006. Revenue for the second quarter of 2006 was $23.0 million down 7 percent over the same period in 2005 and down 5 percent from the first quarter of 2006. The net loss for the second quarter ending June 30, 2006 was $6.4 million, or $0.26 per share, compared to a net loss of $6.3 million, or $0.26 per share, in the second quarter of 2005, and a net loss of $3.4 million, or $0.14 per share, in the first quarter of 2006. Revenue for the first half of fiscal 2006 ending June 30, 2006 was $47.2 million down 4 percent from the same period in 2005. The net loss for the first half of 2006 was $9.9 million, or $0.40 per share, compared to a loss of $8.9 million, also $0.36 per share, for the first half of fiscal 2005. In announcing the financial results, Charles May, acting President and Chief Executive Officer, said, "The second quarter of 2006 witnessed a major transition for our Company. During the quarter new executive leadership was put in place and significant change occurred at the Board of Director level. John Mabry was elected Chairman of the Board of Directors, Jason Mudrick, portfolio manager of Contrarian Capital; joined our Board and two founders of IASG resigned from the Board. It is the objective of the Board and the management team to effectively serve our customers, efficiently manage our business activities and build shareholder value." May continued, "We made operating progress in the second quarter, however results continue to be unacceptable. Second quarter 2006 aggregate attrition was 12 percent, up from the first quarter but down significantly from second half of 2005. Second quarter 2006 operating expenses declined five percent, or $1.4 million, from the year earlier period. Earnings before interest, taxes, depreciation and amortization, EBITDA, for in the second quarter was the same in both 2006 and 2005 at $5.5 million. Finally, as the second quarter drew to a close we sold alarm contract assets generating recurring monthly revenue, RMR, of approximately $210,000 in the mountain states of Colorado, Idaho and Utah. The sale of these non-strategic assets generated consideration of $7.3 million." At June 30, 2006, IASG had $17.6 million in cash, $16.3 million of secured notes receivable from dealers and stockholders' equity of $110.4 million. The Company had $125.5 million of debt and capital leases at June 30, 2006 and ended the second quarter of 2006 with a net debt (debt less cash) to equity ratio of 0.97 to 1. IASG had no outstanding balance on the $30 million senior credit facility at June 30, 2006. -0- *T IASG Portfolio Data: Annualized Attrition Rate Annualized 2nd Qtr 3rd Qtr 4th Qtr 1st Qtr 2nd Qtr 4 Quarters 2005 2005 2005 2006 2006 to 6/30/06 ---- ---- ---- ---- ---- ---------- IASG Owned Portfolio Legacy Portfolio 17.8% 20.0% 18.3% 12.1% 11.8% 14.7% New Residential 12.9% 22.4% 17.5% 12.1% 11.9% 15.1% New Commercial 12.3% 2.6% 6.2% 5.3% 12.5% 6.5% Aggregate Owned Portfolio 13.8% 17.8% 15.3% 10.6% 12.0% 13.2% Annualized Growth Rate - excluding acquisitions Annualized 2nd Qtr 3rd Qtr 4th Qtr 1st Qtr 2nd Qtr 4 Quarters 2005 2005 2005 2006 2006 to 6/30/06 ---- ---- ---- ---- ---- ---------- Wholesale Monitoring Accounts (4.9%) (16.6%) (9.6%) (4.8%) 14.7% (4.4%) *T IASG ended the second quarter of fiscal 2006 with an owned portfolio of approximately 142,000 contract equivalents generating RMR of approximately $4.3 million and wholesale monitoring of over 745,000 alarms generating approximately $3.0 million in RMR (including IASG's owned portfolio accounts). Revenue from the owned portfolio is split 76 percent residential and 24 percent commercial. The Company had 762 employees at June 30, 2006 down from 837 at December 31, 2005. See the attached financial highlights for the second quarter of 2006 and comparative periods. Conference Call IASG will hold a conference call at 8:30 AM EDT on Thursday August, 10 2006 to discuss second quarter financial results. Investors may participate in the conference call by dialing 800-291-9234 and entering the access code of 75011864 or by logging onto the investor relations section of the IASG website at www.iasg.us. The international dial in number is 617-614-3923 with the same access code. A replay of the conference call will be available through August 31, 2006 by dialing 888-286-8010 (international dial in - 617 801-6888) and entering the access code of 56201403 or by visiting the investor relations section of the IASG website. 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 SHEETS As of --------------------- December 31, June 30, 2005 2006 --------- -------- (UNAUDITED) (in thousands, except for share data) Assets Current assets: Cash and cash equivalents $ 16,239 $ 17,627 Current portion of notes receivable 6,108 6,207 Accounts receivable less allowance for doubtful accounts 5,158 4,133 Inventories 1,477 1,331 Prepaid expenses 1,084 1,492 Due from related parties 87 73 ---------- --------- Total current assets 30,153 30,863 Property and equipment, net 7,843 7,643 Notes receivable net of current portion and allowance for doubtful accounts 10,085 10,140 Dealer relationships, net 33,000 30,737 Customer contracts, net 80,532 68,584 Deferred customer acquisition costs, net 7,874 8,396 Goodwill 94,919 91,265 Debt issuance costs, net 4,596 4,161 Assets of business transferred - 8,178 Other identifiable intangibles, net 2,790 2,472 Restricted cash 758 287 Other assets 524 326 ---------- --------- Total assets $ 273,074 $263,052 ========== ========= Liabilities and Stockholders' Equity Current liabilities: Current portion of capital lease obligations $ 350 $ 216 Accounts payable 2,306 1,423 Accrued expenses 9,256 8,601 Current portion of deferred revenue 8,724 7,701 Other liabilities 390 418 ---------- --------- Total current liabilities 21,026 18,359 Long-term debt, net of current portion 125,000 125,000 Capital lease obligations, net of current portion 461 274 Deferred revenue, net of current portion 4,830 5,274 Liabilities of business transferred - 1,050 Advance payment 827 Deferred income taxes 1,582 1,776 Other liabilities - Due to related parties 61 76 ---------- --------- Total liabilities 152,960 152,636 ---------- --------- Committments 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 207,162 207,325 Accumulated deficit (86,073) (95,934) Treasury stock - common, at cost, 312,626 shares (1,000) (1,000) ---------- --------- Total stockholders' equity 120,114 110,416 ---------- --------- Total liabilities and stockholders' equity $ 273,074 $263,052 ========== ========= INTEGRATED ALARM SERVICES GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) For the Three Months For the Six Months Ended June 30, Ended June 30, ----------------------- -------------------------- 2005 2006 2005 2006 ----------- ----------- ----------- ----------- (in thousands, except share and per share data) Revenue: Monitoring fees $ 7,750 $ 7,574 $ 15,572 $ 15,407 Revenue from customer accounts 15,419 12,952 29,701 26,628 Related party monitoring fees 34 24 67 50 Service, installation and other revenue 1,485 2,520 3,806 5,133 ------------ ------------ ------------ ------------ Total revenue 24,688 23,070 49,146 47,218 ------------ ------------ ------------ ------------ Expenses: Cost of revenue (excluding depreciation and amortization) 10,429 9,751 20,748 19,202 Selling and marketing 1,360 1,404 2,519 2,677 Depreciation and amortization 7,142 7,416 13,256 13,794 (Gain) loss on sale or disposal of assets 442 (19) 442 (29) Loss on business transferred - 500 - 500 General and administrative 8,054 6,953 14,161 13,907 ------------ ------------ ------------ ------------ Total expenses 27,427 26,005 51,126 50,051 ------------ ------------ ------------ ------------ Income (loss) from operations (2,739) (2,935) (1,980) (2,833) Other income (expense): Amortization of debt issuance costs (282) (242) (556) (484) Interest expense (4,301) (4,160) (8,487) (8,277) Interest income 1,123 1,035 2,378 2,070 ------------ ------------ ------------ ------------ Income (loss) before income taxes (6,199) (6,302) (8,645) (9,524) Income tax expense 141 145 281 337 ------------ ------------ ------------ ------------ Net income (loss) $ (6,340) $ (6,447) $ (8,926) $ (9,861) ============ ============ ============ ============ Basic and diluted income (loss) per share $ (0.26) $ (0.26) $ (0.36) $ (0.40) ============ ============ ============ ============ Weighted average number of common shares outstanding 24,681,462 24,368,836 24,681,462 24,368,836 ============ ============ ============ ============ INTEGRATED ALARM SERVICES GROUP, INC. AND SUBSIDIARIES RECONCILIATION OF GAAP TO NON-GAAP MEASURES (UNAUDITED) Three Months Ended June 30, 2005 June 30, 2006 ------------- ------------- Net income (loss) $(6,340) $(6,447) Adjust for: Income tax expense 141 145 Interest expense 4,301 4,160 Amortization of debt issuance costs 282 242 Depreciation and amortization 7,142 7,416 -------- -------- EBITDA $ 5,526 $ 5,516 ======== ======== Six Months Ended June 30, 2005 June 30, 2006 ------------- ------------- Net income (loss) $(8,926) $(9,861) Adjust for: Income tax expense 281 337 Interest expense 8,487 8,277 Amortization of debt issuance costs 556 484 Depreciation and amortization 13,256 13,794 -------- -------- EBITDA $13,654 $13,031 ======== ======== *T