INTERFACE SECURITY SYSTEMS HOLDINGS, INC. |
(Exact name of registrant as specified in its charter) |
Delaware |
(State or Other Jurisdiction of Incorporation) |
333-197319 | 04-3583955 | |
(Commission File Number) | (I.R.S. Employer Identification No.) | |
3773 Corporate Center Drive Earth City, Missouri | 63045 | |
(Address of principal executive offices) | (Zip Code) |
(314) 595-0100 |
(Registrant’s telephone number, including area code) |
Not Applicable | ||||
(Former name or former address, if changed since last report.) |
Exhibit | Description | ||
99.1 | Press Release dated November 10, 2016. |
INTERFACE SECURITY SYSTEMS HOLDINGS, INC. | ||
By: /s/ Kenneth Obermeyer | ||
Kenneth Obermeyer | ||
Date: November 10, 2016 | Chief Financial Officer | |
Exhibit | Description | ||
99.1 | Press Release dated November 10, 2016. |
• | Total Recurring Monthly Revenue (“RMR”) at September 30, 2016 of $11.5 million, a 13.7% increase compared to total RMR of $10.1 million at September 30, 2015. |
• | Average revenue per user (“ARPU”) of $145.56 in the third quarter of 2016, up from $124.70, an increase of 16.7%, for the same quarter last year. |
• | Total revenue of $42.8 million for the third quarter of 2016, an increase of 15.4%, compared to $37.1 million for the same period in 2015. |
• | Net loss decreased to $6.3 million for the third quarter ended September 30, 2016 compared to $11.0 million the same quarter last year. |
• | Pre-SAC EBITDA1 of $14.4 million for the three months ended September 30, 2016, an increase of 27.0%, compared to $11.4 million in the same period last year. |
Three Months Ended September 30, | Percent Change | ||||||||
2016 | 2015 | ||||||||
Revenue | |||||||||
Services | $ | 39,047 | $ | 33,135 | 17.8% | ||||
Products | 3,783 | 3,971 | (4.7)% | ||||||
Total revenue | 42,830 | 37,106 | 15.4% | ||||||
Costs and Expenses | |||||||||
Cost of services | 28,116 | 27,472 | 2.3% | ||||||
Cost of products | 2,979 | 3,207 | (7.1)% | ||||||
General and administrative expenses | 5,910 | 5,878 | 0.5% | ||||||
Depreciation | 4,770 | 3,548 | 34.4% | ||||||
Amortization | 814 | 1,370 | (40.6)% | ||||||
Loss on sale of long-lived assets | 225 | 296 | (24.0)% | ||||||
Total costs and expenses | 42,814 | 41,771 | 2.5% | ||||||
Income (loss) from operations | 16 | (4,665 | ) | (100.3)% | |||||
Interest expense | (6,302 | ) | (6,233 | ) | 1.1% | ||||
Interest income | 2 | — | * | ||||||
Loss before provision for income taxes | (6,284 | ) | (10,898 | ) | (42.3)% | ||||
Provision for income taxes | 30 | (136 | ) | (122.1)% | |||||
Net loss | $ | (6,254 | ) | $ | (11,034 | ) | (43.3)% |
• | they do not reflect our cash expenditures, or future requirements, for capital expenditures or contractual commitments; |
• | they do not reflect changes in, or cash requirements for, our working capital needs; |
• | they do not reflect the significant interest expense, or the cash requirements necessary to service interest or principal payments, on our debt; |
• | although depreciation is a non-cash charge, the assets being depreciated will often have to be replaced in the future, and EBITDA and Pre-SAC EBITDA do not reflect any cash requirements for such replacements; |
• | they are not adjusted for all non-cash income or expense items that are reflected in our statements of cash flows; and |
• | other companies in our industry may calculate these measures differently than we do, limiting their usefulness as comparative measures. |
• | our ability to maintain compliance with various covenants under the Revolving Credit Facility (as defined below); |
• | our ability to comply with restrictions in the indentures governing the 15.00% Cash Pay / 2.00% PIK Senior Notes due 2019 issued by Grand Master Holdings, Inc. ("Grand Master"), our indirect parent company, the 12.50% / 14.50% Senior Contingent Cash Pay Notes issued by Interface Master Holdings, Inc. (“Master Holdings”), our direct parent company, and our 9 1/4% Senior Secured Notes due 2018 (the “Notes”); |
• | our ability to generate sufficient cash to make payments on our debt; |
• | our ability to incur additional indebtedness or refinance existing indebtedness; |
• | our ability to compete effectively in a highly‑competitive industry; |
• | catastrophic events that may disrupt our business; |
• | our ability to retain customers; |
• | concentration of customer recurring monthly revenue and concentration of our business in certain markets; |
• | our ability to manage relationships with third‑party providers, including telecommunication providers and broadband service providers; |
• | our reliance on third-party component providers and the risk associated with any failure, supply chain disruption or interruption in products or services provided by these third parties; |
• | our reliance on third-party software and service providers; |
• | our inability to protect our intellectual property rights; |
• | our ability to obtain or maintain necessary governmental licenses and comply with applicable laws and regulations; |
• | changes in governmental regulation of communication monitoring; |
• | our reliance on network and information systems and other technologies and our ability to manage disruptions caused by cyber-attacks, failure or destruction of our networks, systems, technologies or properties; |
• | macroeconomic factors; |
• | economic, credit, financial or other risks affecting our customers and their ability to pay us; |
• | the uncertainty of our future operating results; |
• | our ability to attract, train and retain an effective sales force; and |
• | the loss of our senior management. |
Three Months Ended September 30, | |||||||
2016 | 2015 | ||||||
Revenue | |||||||
Services | $ | 39,047 | $ | 33,135 | |||
Products | 3,783 | 3,971 | |||||
Total revenue | 42,830 | 37,106 | |||||
Cost and Expenses | |||||||
Cost of services | 28,116 | 27,472 | |||||
Cost of products | 2,979 | 3,207 | |||||
General and administrative expenses | 5,910 | 5,878 | |||||
Depreciation | 4,770 | 3,548 | |||||
Amortization | 814 | 1,370 | |||||
Loss on sale of long-lived assets | 225 | 296 | |||||
Total costs and expenses | 42,814 | 41,771 | |||||
Income (loss) from operations | 16 | (4,665 | ) | ||||
Interest expense | (6,302 | ) | (6,233 | ) | |||
Interest income | 2 | — | |||||
Loss before provision for income taxes | (6,284 | ) | (10,898 | ) | |||
Provision for income taxes | 30 | (136 | ) | ||||
Net loss | $ | (6,254 | ) | $ | (11,034 | ) |
September 30, 2016 | December 31, 2015 | |||||||
(Unaudited) | ||||||||
Assets | ||||||||
Current assets | ||||||||
Cash and cash equivalents | $ | 476 | $ | 12,096 | ||||
Accounts receivable, less allowance for doubtful accounts of $1,451 and $1,441 | 12,649 | 16,002 | ||||||
Inventories | 12,164 | 14,333 | ||||||
Prepaid expenses and other assets | 3,763 | 4,513 | ||||||
Total current assets | 29,052 | 46,944 | ||||||
Property and equipment, net | 55,890 | 49,636 | ||||||
Intangible assets, net | 15,300 | 18,512 | ||||||
Goodwill | 40,463 | 40,463 | ||||||
Deferred charges | 649 | 1,025 | ||||||
Other assets | 4,635 | 6,380 | ||||||
Total assets | $ | 145,989 | $ | 162,960 | ||||
Liabilities and Stockholders' Deficit | ||||||||
Current liabilities | ||||||||
Current portion of capital leases and other obligations | $ | 816 | $ | 2,808 | ||||
Accounts payable | 13,221 | 14,528 | ||||||
Accrued expenses | 11,266 | 18,288 | ||||||
Customer deposits | 1,592 | 1,671 | ||||||
Deferred revenue | 3,309 | 3,344 | ||||||
Total current liabilities | 30,204 | 40,639 | ||||||
Long-term deferred revenue | 3,807 | 3,110 | ||||||
Deferred income tax | 7,915 | 7,497 | ||||||
Other obligations | 1,186 | 979 | ||||||
Long-term debt | 272,285 | 262,505 | ||||||
Total liabilities | 315,397 | 314,730 | ||||||
Mezzanine equity | ||||||||
Redeemable Class A Preferred Stock, $1.00 par value, 70,000 shares authorized, 39,398 shares outstanding at September 30, 2016 and December 31, 2015 | 110,284 | 110,284 | ||||||
Redeemable Class C Preferred Stock, $1.00 par value, 60,000 shares authorized, 16,094 shares outstanding at September 30, 2016 and December 31, 2015 | 41,154 | 41,154 | ||||||
Convertible and redeemable Class E Preferred Stock, $1.00 par value, 50,000 shares authorized, 10,467 shares outstanding at September 30, 2016 and December 31, 2015 | 11,961 | 11,961 | ||||||
Total mezzanine equity | 163,399 | 163,399 | ||||||
Stockholders' deficit | ||||||||
Class A Common Stock, $0.01 par value, 3,000,000 shares authorized, 2,632,840 shares outstanding at September 30, 2016 and December 31, 2015 | 26 | 26 | ||||||
Class B Common Stock, $0.01 par value, 1,500,000 shares authorized, 976,880 shares outstanding at September 30, 2016 and December 31, 2015 | 10 | 10 | ||||||
Additional paid-in-capital | 128,234 | 121,364 | ||||||
Accumulated deficit | (461,077 | ) | (436,569 | ) | ||||
Total stockholders' deficit | (332,807 | ) | (315,169 | ) | ||||
Total liabilities and stockholders' deficit | $ | 145,989 | $ | 162,960 |
Nine Months Ended September 30, | |||||||
2016 | 2015 | ||||||
Cash flows from operating activities | |||||||
Net loss | $ | (24,508 | ) | $ | (40,762 | ) | |
Adjustments to reconcile net loss to net cash used in operating activities | |||||||
Depreciation | 13,881 | 9,960 | |||||
Amortization | 3,212 | 4,406 | |||||
Amortization of deferred charges | 1,656 | 1,651 | |||||
Deferred income tax | 418 | 403 | |||||
Loss on sale of long-lived assets | 970 | 844 | |||||
Change in operating assets and liabilities | |||||||
Accounts receivable | 3,353 | 2,307 | |||||
Inventories | 2,169 | 4,499 | |||||
Prepaid expenses and other assets | 2,495 | (984 | ) | ||||
Accounts payable | (1,295 | ) | (3,223 | ) | |||
Accrued expenses | (6,702 | ) | (3,320 | ) | |||
Customer deposits | (79 | ) | (744 | ) | |||
Deferred revenue | 662 | (44 | ) | ||||
Net cash used in operating activities | (3,768 | ) | (25,007 | ) | |||
Cash flows from investing activities | |||||||
Capital expenditures, subscriber system assets | (20,325 | ) | (22,167 | ) | |||
Capital expenditures, other | (619 | ) | (912 | ) | |||
Proceeds from sale of property and equipment | — | 30 | |||||
Net cash used in investing activities | (20,944 | ) | (23,049 | ) | |||
Cash flows from financing activities | |||||||
Capital contribution | 6,870 | 49,800 | |||||
Proceeds from Revolving Credit Facility | 8,500 | 4,000 | |||||
Payments on capital leases and other obligations | (2,278 | ) | (1,585 | ) | |||
Deferred charges | — | (68 | ) | ||||
Net cash provided by financing activities | 13,092 | 52,147 | |||||
Net (decrease) increase in cash | (11,620 | ) | 4,091 | ||||
Cash and cash equivalents | |||||||
Beginning of period | 12,096 | 25,833 | |||||
End of period | $ | 476 | $ | 29,924 | |||
Supplemental Disclosures | |||||||
Cash paid for interest | $ | 22,457 | $ | 22,267 | |||
Cash (refunded) paid for taxes | $ | (176 | ) | $ | 380 | ||
Noncash items | |||||||
Capital expenditures in accounts payable and accounts payable | $ | 392 | $ | 492 | |||
Acquisition of inventory through financing arrangements | $ | — | $ | 938 |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2016 | 2015 | 2016 | 2015 | ||||||||||||
Net loss | $ | (6,254 | ) | $ | (11,034 | ) | $ | (24,508 | ) | $ | (40,762 | ) | |||
Provision for income taxes | (30 | ) | 136 | 369 | 525 | ||||||||||
Interest expense | 6,302 | 6,233 | 18,771 | 18,604 | |||||||||||
Interest income | (2 | ) | — | (4 | ) | (1 | ) | ||||||||
Depreciation | 4,770 | 3,548 | 13,881 | 9,960 | |||||||||||
Amortization | 814 | 1,370 | 3,212 | 4,406 | |||||||||||
EBITDA | 5,600 | 253 | 11,721 | (7,268 | ) | ||||||||||
Loss on sale of long-lived assets | 225 | 296 | 970 | 844 | |||||||||||
Accrued management fees (a) | 125 | 125 | 375 | 667 | |||||||||||
Sales and installation expense (b) | 15,274 | 17,148 | 52,841 | 68,944 | |||||||||||
50% of overhead expenses (c) | 2,893 | 2,877 | 8,991 | 8,858 | |||||||||||
Capitalized expenditures, subscriber system assets (d) | (4,156 | ) | (3,880 | ) | (20,486 | ) | (22,450 | ) | |||||||
Sales and installation revenue (e) | (5,544 | ) | (5,465 | ) | (12,869 | ) | (15,144 | ) | |||||||
Pre-SAC EBITDA | $ | 14,417 | $ | 11,354 | $ | 41,543 | $ | 34,451 |
(a) | Reflects fees under the Management Services Agreement with SunTx Capital Management Corp., the general partner of SunTx Capital Partners that are accrued but not currently payable. |
(b) | Reflects sales and installation costs related to organic RMR growth. |
(c) | Reflects 50% of the corporate and service center administrative costs related to organic RMR growth and is not capitalized. Corporate and service center administrative costs include expenses and the related overhead to support the RMR and installation growth. Industry participants customarily allocate 50% of their overhead cost to RMR and sales growth. |
(d) | Reflects sales and installation costs related to organic RMR growth, including those costs that are capitalized as subscriber systems assets. Since the full amount of sales and installation expense is added as an adjustment in (b) above, the capitalized portion of the sales and installation cost is deducted from the Pre-SAC EBITDA calculation. |
(e) | Reflects revenue received for the installation of subscriber systems related to organic RMR growth to match certain costs incurred in connection with the installations as described in (b) above. |
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