Live from Barnes Buchanan: Part II

We've just listened to presentations by four company CEOs: Brett Bontranger, Stanley Convergent Robert Kleinman, AFA Protective Systems Terry Olah, Alarm Detection Systems Rich Perry, Security Networks Now, Tom Buchanan leading a roundtable discussion. One note, since I can't type nearly as fast as Sam, there's some paraphrasing in my live blogging. Tom: Can you talk about the last 12 months' affect on attrition on your residential business? Rich: We always see a bump around the holidays. Last year we were concerned that it would keep going up. We were pleasantly surprised that it didn't. Terry: We had an uptick of about a half percentage. When you look at components, you can divide attrition into two: Those who move, which can recapture; and those who don't move. We saw higher percentage of attrition with those who didn't move. Tom: Robert, on the commercial side? Robert: We were surprised, we had one significant loss-a big customer, but if you take that out, attrition was less than last year .... Another thing, our customers were paying their bills, if they left that was not the reason. Tom: Did you delay any business initiatives in 2009, that you will ramp back up in 2010? Robert: We didn't delay initiatives Terry: We didn't ramp back any initiatives. We moved forward with some technology initiatives such as managed access, video monitoring. Tom: Did you change the way you approached the market? Rich: No. Our affiliates run their marketing their own way, and I didn't see any big changes. Terry: We continued what we were doing. We expanded some marketing on the technology side. You'll find us on Facebook and Twitter, though that hasn't had a material impact on sales yet. Tom: What about different areas of the country that were particularly hard hit? Robert: New Jersey and Florida were hit hard. Indications as of the end of January, are that thing are getting better. Brett: There's been softness in Central California, Vegas, Detroit, and Florida. Even in those areas, we've done a good job knowing where the fish are. Tom: What about employees? Did you have an uptick in layoffs in 2009? Brett: We had layoffs on G&A side last year with volume down. We right-sized in field. It was a difficult decision. I don't [anticipate further layoffs] in 2010. But, the market is far from recoved in our view. It's Something we watch in regular basis. Tom: What about salary freezes or reductions? Rich: We froze salaries, which was a little diffiicult to explain in some ways because we were hiring. We blamed it on our banks. (laughing) In all seriousness, even though we were growing our business, were concerned about attrition. At the end of the year, salaries were unfrozen and we paid bonuses. Terry: As positions turned over, we were able to keep some people by reassigning positions and responsibilities in some cases. That way we were able to get thorugh year without layoffs and with no reduction in benefits. Tom: Bill Polk mentioned state and local communities being hit hard and not have ability to print their own money like the feds. Are you finding that communities are looking for new ways to tax the security industry, with false alarms? security taxes? Terry: Not so much with false alarms. A more disturbing trend, in Chicago, a lot municipalities have alarm-company owned equipment at municipality. Typically, the alarm companies collect a fee. More recently there's been interest and movement in a couple cases of municipalities want to own their own equipment. In the case of fire alarm, the wya to mandate that monitoring be done there. Rich: We're licensed in 34 states. It's a constant struggle to keep up with what they're doing. So far, it's been more of a nuisance than anything else, but we're keeping an eye on it. Robert: I think they've been doing a good job for a whiile figuring out how to tax us. Tom: What about the crime rate. There are reports that it's up and then down. What's your experience? Robert: There has not been an increase. Rich: There's a perception of crime going up. There's more fear, and from marketing standpoint that's helped. Tom: Have you cut back on charitable giving? Brett: We didn't cut back. With as many branch offiices as we have, we do a lot of charitable events and we do a lot of community activity. It's one thiing that bonds our offices. It's something we promote and plan to continue to do in 2010. Robert: We haven't cut back on the dollar amount. We've been more selective where we give dollars. That's were we'll be for the future. Tom: What examples do you have of positive things in 2009? Rich: We grew substantially in 2009, and we worked on solidifying our infrastructure. Terry: We had more tech time available to us, so we had more time for training. As a result of reassigning some positions instead of layoffs, there was more teamwork, camraderie with employees. Our employees truly appreciated that. Robert: Our employees were grateful that they have job ... We started calling vendors to renegotiate rates and they did renegotiate. Brett: We grew profits organically. We did lot of acquisitions and got them successfully integrated. We're sitting in a nice position going into 2010. Tom: ADT announced the Broadview transaction. How will it impact the industry and your businesses? Rich: It's a direct competitor. It's nuetral and probably positive. Terry: It's one less competitor in the door on some alarm systems. It can't hurt. It's probably helpful. Rober: We're not in the residential business, but if biz, but if ADT has integration problems anything similar to what it had with Wells Fargo, it will lead to customer dissatisfaction. And it may affect their commercial business because (with this transaction) they'll be perceived more and more as a residential company. Brett: I don't have anything to add. Tom: There will probably be some layoffs. Will you activley target Broadview employees, as it's been suggested in the press. Brett: Actively target, no. But we're always looking to hire good talent. Tom: What about the impact on ADT and Broadview dealers? Rich: Those dealers may be nervous. We'll see what happens, it may present opportunities for companies like ours. Terry: In my estimation, Broadview ran first class operation, people may have been expecting a more premium price [than mid 40s]. I expect that the multiple that'll be paid for P1 will be substantially less than Broadview. So, the Broadview transactioin creates a new standard in today's market, one less than crazier numbers we've seen in the past. Robert: I agree with some of that. But, when we did acquisitions, we look at what that acquisition meant as a fit for us. [Multiples paid for do not necessarily] set a mark for us.. What an acquisition would mean for us is the prime determinant of the price.