IASG plots the future
ALBANY, N.Y. - In an effort to reduce attrition and grow its portfolio, publicly traded Integrated Alarm Services Group will focus on commercial monitoring accounts, acquisition of existing companies and customer retention programs in 2004.
In a conference call to discuss the companyÃ¢â‚¬â„¢s third-quarter 2003 results (see related story), Chairman and Chief Executive Officer Timothy McGinn said the company is pursuing a number of acquisitions in the near term.
Ã¢â‚¬Å“WeÃ¢â‚¬â„¢ve identified several opportunities to acquire operating alarm companies with several million dollars of contract recurring monthly revenue,Ã¢â‚¬Â McGinn said. Because negotiations were ongoing at press time, he declined to identify any of those companies or discuss potential purchase prices.
Since its founding in 1985, IASG has relied almost exclusively on residential contracts to build its portfolio, McGinn said, but the company has begun branching out into the commercial sector for a number of reasons.
Ã¢â‚¬Å“We believe that a prudent approach would be to gradually migrate from total reliance on the residential portfolio to introduce some mix of commercial business,Ã¢â‚¬Â he said. Ã¢â‚¬Å“The typical commercial contract that we would acquire represents higher RMR, more service intensity and with it a higher level of sophistication, a lower level of attrition and better overall returns.Ã¢â‚¬Â
As part of this strategy, IASG has set a three-year goal of a 70/30 percent mix of commercial and residential account equivalents. At present, the mix is about 95/5 percent, McGinn said. The company uses account equivalents, which are based on industry and company averages of $30 per month recurring monthly revenues, when discussing accounts rather than raw numbers of accounts. For example, at press time, IASG had $2.245 million in contract business under letters of intent. Based on the $30 RMR contract equivalent, that represented approximately 75,000 accounts. Because of the commercial and high-end residential nature of those contracts, McGinn said the actual number was about 52,000 accounts.
IASG is on target for year-end as far as account acquisition and attrition is concerned, McGinn said. Prior to its initial public offering in July, IASG said it planned to add 80,000 new contracts and reduce attrition to 14 percent by Dec. 31. For example, IASG recently acquired 4,000 high-end residential accounts in Aspen, Colo., that bring in a combined $180,000 in RMR.
Those assurances, however, may not have assuaged investors initially. Sven Monborg of Superstock Investor said in his Nov. 14 update that IASGÃ¢â‚¬â„¢s shares closed down 10 percent the day after its earnings were announced based mainly on fears that the company would not hit those goals. Monborg said the company is in high gear toward making acquisitions and that timing deals is always difficult. He said the company still has the prospect to become a national player based on the depth of its management expertise and its cash on hand.
As for potential high-profile acquisitions, McGinn said that if components of Protection One should become available, IASG would certainly look at those components as potential acquisitions. The same cannot be said for HoneywellÃ¢â‚¬â„¢s portfolio, which is rumored to be for sale.
Ã¢â‚¬Å“It is a huge portfolio and is very likely to go as a package,Ã¢â‚¬Â McGinn said. Ã¢â‚¬Å“ItÃ¢â‚¬â„¢s a lot too big for us.Ã¢â‚¬Â
McGinn said that in December, the company should put into place a number of customer-retention programs aimed at reducing attrition on the residential side of the business.
Ã¢â‚¬Å“We are looking at extended customer warranties going forward. These would extend beyond the security alarm system into other appliances for the home,Ã¢â‚¬Â he said. Ã¢â‚¬Å“ThatÃ¢â‚¬â„¢s one of the key parts of our attrition abatement program.Ã¢â‚¬Â