Imperial Capital Security Investor Conference Company ... Interface - Imperial Capital... ·...
Transcript of Imperial Capital Security Investor Conference Company ... Interface - Imperial Capital... ·...
Interface Security Systems Holdings, Inc.
December 11, 2014
Imperial Capital
Security Investor Conference
Company Presentation
2 Interface Security Systems ® 2014
Interface at a Glance
• Founded in 1995
• Recognized leader and pioneer in the Bundled
Managed Security Services Provider industry in the U.S.
helping primarily large multi-site customers SIMPLIFY
TO THE POWER OF ONE by combining managed IP
physical and network security solutions into one highly
efficient integrated bundle over a Private managed PCI
Compliant Nationwide Secure Broadband Network
• Real time monitoring of these cloud-based security
services
• Headquarters in St. Louis, MO
~700 employees and ~76,300 customer sites
• SunTx Capital Partners owns ~88% of the voting power
of the Company
• $7.8 million RMR as of September 2014; $2.5 million of installable RMR in contracted backlog
• $88.6 million total revenue for the nine months ended September 30, 2014 and $126.7 million
for the year ended December 2013
• Ranked #12 in 2014 SDM 100 rankings that provide electronic security systems and services
(includes both commercial and residential revenue)
#7 in 2014 SDM 100 companies for most commercial installation revenue
3 Interface Security Systems ® 2014
Michael Shaw: CEO
40+ years building and operating subscriber based service companies
Founder and CEO – Sonitrol Security Systems 1973-1986
Co-Founder and COO – SecurityLink Corporation 1986-1991
Founder and CEO – Interface since 1995
Michael McLeod: COO
30+ years of senior operations management experience in security industry
General Manager – API Security 1985-1993
VP Operations – Sonitrol Corporation 1993-1998
National VP of Operations – Security Technologies Group 1998-2000
COO of Interface since 2000
Ken Obermeyer: CFO
20+ years of senior financial management experience in security industry
Various accounting positions in Ohio-based security businesses
VP of Finance – Centennial Security Systems 1995-1997
CFO of Interface since 1997
Chuck Moeling: Executive Vice President – Sales
20+ years of strategy, sales, operations and IP technology experience
12 years consulting with Bain & Company and Accenture/Andersen Consulting
Vice President of Retail at Radiant Systems (now NCR)
Executive Vice President and Chief Marketing Officer with Westec Intelligent Surveillance
Executive Vice President of Sales at Interface since 2012
Experienced Senior Management Team
4 Interface Security Systems ®
Company Overview
This presentation contains forward-looking statements that are based on our management’s current
expectations, estimates and projections about our business and operations and are subject to a number
of risks and uncertainties. Our actual results may differ from the results referred to in the forward-looking
statements, and such differences may be material. See “Cautionary Statement Regarding
Forward-Looking Statements” and “Risk Factors” in our registration statement on Form S-4 declared
effective by the Securities and Exchange Commission on July 30, 2014.
5 Interface Security Systems ® 2014
Company Profile
Secure Managed
Broadband
PCI
Compliance
Managed
Digital Voice
Physical Security Secured Network
Managed
Wireless Networks
Fire/Life
Safety Systems
Interactive Video
Surveillance
Alarm/Event
Monitoring
Managed
Access Control
• Real time monitoring of physical and logical cloud-based security services
• Most comprehensive technology-enabled managed security solution in the market
• First to market with IP enabled managed bundled service offerings
• 70% of revenue is contracted RMR
• ARPU of $102.08 – up over 28% year over year
• Industry leading attrition rates
Interface is a leading national provider of physical security and secured network
services to primarily large, commercial multi-site customers
6 Interface Security Systems ® 2014
2001 2007 2008 2010 2011 2006 2009 2012 2013
SunTx
acquisition
Acquired Loss
Prevention
Management:
resulted in the
integration of
Secure Managed
Broadband
platform and ISS
Monitoring Center
Raised $115
million in
Senior
Contingent
Cash Pay
Notes in
private
markets
Completed
installation
of 10,000+
Dollar
General
Stores
Created first to
market IP
Managed Service
Provider in
convergence of
physical security
and secured
network services
Expanded
to CA, TX
and upper/
lower MI
with key
acquisitions
Added
$2.5MM of
net new
RMR
Added
Michael’s
Stores and
Dollar General
to Customer
Base
Certification as
Cisco Managed
Service Channel
Partner
Acquired Westec
the leading
provider of remote
interactive video
monitoring
Raised $230
million in
Senior
Secured Notes
in public
markets
2014
Company History
Focus on continuing to scale the business
8 Interface Security Systems ® 2014
Alarm and Event Monitoring
State-of-the-art IP system serves as upgrade over
traditional land-line phone systems
Faster & more reliable over a secure network
Less expensive
Faster response times
Managed 24 hours a day
Monitor and report events such as intrusion, fire / smoke,
sprinkler and carbon monoxide levels
Scheduled and random event monitoring lowers employee
and customer theft, and raises overall security
Ability to connect to system from any location (via
smartphone, tablet or PC) with real-time updates and
remote-control
GSM wireless transmission as both primary means of
communication and back-up
Alarm verification using two-way voice and live video
reduces false alarm rates and improves response times
IP alarm and event monitoring offers leading value over traditional land-line alarm systems
9 Interface Security Systems ® 2014
Secure Managed Broadband “SMB”
Interface has adopted its life safety / emergency response culture and has applied the same
quality of service and level of urgency in monitoring SMB
Private, closed-loop secured network infrastructure
Custom configured on a store level and national scale
All physical and network security services are safely and easily connected through one
broadband connection
Protect sales transactions and reduce the risk of fines, penalties and loss of payment card
privileges
Secure Operations Center (“SOC”) / Network Operations Center (“NOC”) monitors and manages the
network 24/7/365
Ensures 99+% up-time
Customers receive immediate alerts regarding the health of their network and can monitor
events from any web-based device in real time
Eliminates time and cost of managing a network for customers
Large multi-site customers can retrieve point-of-sale and other store operations data from the Data
Center to their back-of-house headquarters
Commercial / Retail Location Data Center SOC / NOC
10 Interface Security Systems ® 2014
Digital Witness Interactive Video
Proprietary video surveillance technology - allows for
remote event-based monitoring
Offered through Westec acquisition (now re-branded
as Digital Witness) in March 2012
~4,400 active monitoring sites in the luxury
retail, dining, QSR and hospitality vertical
sectors
Interactive services include:
Video tours
Video verification
Rapid response
Video escorts
Snapshot audits
Largest, most sophisticated interactive video
monitoring Central Command Center (“C3”) in the U.S.
located in Plano, Texas handling over 2.0 million
events per year
Only Dual Certified Video Monitoring Center in U.S.
Proprietary technology enables best-in-class video surveillance service offering that is
unrivaled in the industry
11 Interface Security Systems ® 2014
Top National Vertical Penetration Rate
Interface
monitors over
one million
devices across
North America
and responds to
more than three
million events
every year.
Retail
Jewelry
Quick Service
Restaurant
Casual
Dining
Lodging/
Hospitality
5 of the Top 10 Jewelry Retailers
5 of the Top 15 Largest Retailers
8 of the Top 10 QSRs
7 of the Top 10 Dine-In Restaurants
6 of the Top 10 Lodging/Hospitality
* Ranking based on site count. Note: Sources include Chain Store Guide (Feb 2014), National Jeweler (12/14), Nations Restaurant News (12/14), and Hospitality Crossing. (12/14)
12 Interface Security Systems ® 2014
Nationwide coverage through regional service centers, field technicians and partner
networks allows Interface to serve over 76,000 customer sites
St. Louis, MO
Data Center Regional Service Center Field Technicians SOC/NOC
Dallas, TX
Salt Lake City, UT
Sales and Service Coverage
Atlanta, GA
13 Interface Security Systems ® 2014
Bundled service offering leads to higher than industry ARPU and low attrition rates
Historical Average Net Attrition
ARPU of $102.08
$139.27 for commercial customers
$30.66 for residential customers
Average net attrition rate of 9.1%
Lower residential attrition due to 1Q14 Hawk
Sale
Reduce exposure to attrition
National account customers with IP Managed
Services at 7.0% attrition rate for 3Q14
ARPU
RMR – Commercial vs. Residential
($ in millions)
ARPU and RMR
$0.0
$20.0
$40.0
$60.0
$80.0
$100.0
$120.0
$140.0
$160.0
2009 2010 2011 2012 2013 3Q14
Commercial Accounts Residential Accounts
$2.3 $2.9
$4.1
$6.1 $6.7 $7.0
$1.6 $1.6
$1.7
$1.7 $1.7 $0.8
59.3% 63.5%70.3%
77.8% 79.8%89.7%
10.0%
100.0%
$0.0
$2.0
$4.0
$6.0
$8.0
$10.0
2009 2010 2011 2012 2013 3Q14
Commercial Accounts Residential Accounts % of RMR - Commercial
8.5%9.4%
8.2% 8.4%10.0%
9.1%
0.0%
4.0%
8.0%
12.0%
2009 2010 2011 2012 2013 3Q14
14 Interface Security Systems ®
Industry Overview
15 Interface Security Systems ® 2014
Highly Competitive and Fragmented Security Monitoring Market
Rank
RMR
12/31/13 Avg. RMR
Gross
Revenue 2013
2013 Company Location ($ mm) Subscribers per Sub FTEs ($ mm)
1 ADT Boca Raton, FL $253.4 6,428,266 39.42$ 16,000 $3,378.4
2 Tyco Integrated Security Boca Raton, FL 63 500,000 125.00 10,000 3,891.0
3 Stanley Convergent Security Indianapolic, IN 54.2 550,000 98.55 8,300 1,260.0
4 Monitronics International Dallas, TX 42.8 1,046,155 40.91 1,100 451.0
5 Vivint Inc. Provo, UT 42.2 801,773 52.63 2,546 500.9
6 Protection 1 Remoeoville, Il 28.0 1,500,000 18.67 2,743 429.6
7 Slomins Inc. Hicksville, NY 17.4 302,358 57.55 670 314.1
8 Diebold Security Untiontown, OH 13.8 200,000 69.00 0 2,857.0
9 Vector Security Inc. Pittsburgh, PA 13.5 285,077 47.36 0 256.2
10 Guardian Alarm Company Warrendale, PA 11.5 278,736 41.26 929 158.3
11 ASG Security Beltsville, MD 8.8 218,361 40.30 1,090 132.6
12 Interface Security Systems Holdings Earth City, MO 8.4 103,692 81.01 842 126.7
13 Bay Alarm Company Pacheco, CA 7.8 119,622 65.21 687 112.0
14 Central Security Group Inc. Tulsa, OK 6.3 195,645 32.20 380 74.3
15 Protect America Inc. Austin, TX 6.1 158,854 38.40 389 70.2
16 Security Systems Inc. Cromwell, CT 5.7 150,329 37.92 196 60.0
17 Alarm Capital Alliance Newtown Square, PA 5.0 145,411 34.39 420 59.0
18 Guardian Alarm Company Sounthfield, MI 4.9 116,500 42.06 441 85.6
19 CPI Security Systems, Inc. Charlotte, NC 4.7 111,760 42.05 448 61.9
20 Kastle Systems Falls Chruch, VA 4.5 n/a n/a 0 74.0
Security Monitoring Market
Top Security Monitoring Companies
16 Interface Security Systems ®
Business Strategy
17 Interface Security Systems ® 2014
According to Allied Market Research, the North American market for IP video surveillance and Video Surveillance-as-a-Service (VSaaS) is forecast to expand dramatically, rising from $2.4 billion in 2013 to $18 billion by 2020
33% compound annual growth rate
Winners in the market will be companies that “provide integrated services”
According to BIS Research, the North American market for IP video surveillance and Video Surveillance-as-a-Service (VSaaS) is also forecast to expand dramatically, rising from $4.56 billion in 2013 to $15.81 billion by 2020
19% compound annual growth rate
Projecting greater demand for VSaaS
Large Video Market Growth Opportunity
18 Interface Security Systems ® 2014
National account sales initiatives are driving consistent and substantial RMR growth
Nationwide presence through 16 regional service centers
Nationally distributed sales team
Steady growth in RMR at historical investment levels with year-on year increases in monitoring and
managed service revenues
~ 67% of total company RMR is from national account customers
Ending National Account RMR ($ in thousands)
CAGR: 66%
* Includes $2.5M of national account contracted backlog.
Strong National Account Growth
$1,143
$2,292
$4,341$4,817
$7,726
$0
$1,000
$2,000
$3,000
$4,000
$5,000
$6,000
$7,000
$8,000
2010 2011 2012 2013 3Q14*
19 Interface Security Systems ® 2014
National Partnership Ecosystem Driving Growth
….and 400+ other local service providers
®
20 Interface Security Systems ®
Financial Overview
21 Interface Security Systems ® 2014
Financial Overview
CAGR: 15%
($ in millions) ($ in millions)
($ in millions)
CAGR: 14%
($ in millions)
$3.9 $4.5
$5.8
$7.8 $8.4
$10.3
2009 2010 2011 2012 2013 2014LQA*
* Includes $2.5M of contracted backlog.
$0.7
$1.1
$1.8
$1.2
$1.5
$1.8
2009 2010 2011 2012 2013 P 2014
* Includes $0.9M of sold Residential RMR.
$67.5 $67.3
$87.4
$110.4
$126.7 $129.6
2009 2010 2011 2012 2013 2014 LQA
$3.9 $4.5
$5.8
$7.8 $8.4
$7.8
2009 2010 2011 2012 2013 2014 LQA
Total Revenue RMR
New RMR RMR with Backlog
22 Interface Security Systems ® 2014
Summary of Key Company Attributes
Operating Model Creates “Stickier” Customers
Established Blue Chip Customer Base
Significant Contracted Backlog and Pipeline
Experienced Management Team
Leader In Bundled Physical Security and Secured Network Services
High ARPU Customers with Low Creation Costs
Strong Financial Profile
Total Managed IP Technology Solution