- We protect over 150,000 people across North America
- Over 20 years experience in the industry
- One of the few alarm companies to manufacture our own technology
- You deal directly with AlarmForce at all times
- Lowest prices and best value in the business
Financial Information
Successive Years of Record Results
Corresponding to the growth in subscribers and monthly recurring revenue, income before income taxes increased to $2,517,754, up by 30%, net income decreased to $1,275,986, down 2%, and operating cash flow increased to $7,906,761, up 51%. The decrease in net income mainly reflects the increase in the effective income tax rate in 2004, which is a result of certain non-deductible amortization expenses. Diluted net income per share decreased from $0.13 to $0.116 per share, which reflects the foregoing as well as the increase in outstanding and issued common shares from the two private placements.
Gross margin as a percentage of total revenue increased from 74% to 77% showing the effect of increased efficiency in our operations and continuing the company’s year-over year trend of surpassing the previous results.
Expanding solely through organically created new accounts, AlarmForce crossed the 50,000 security system subscriber account milestone in early 2005. This marks a historic moment in AlarmForce’s record of continual annual record-breaking growth, attesting to the outstanding efforts and commitment of our team and our ever-expanding brand recognition. The AlarmForce team is firmly committed to our long-standing values and customer-care philosophy, which inspire excellence in quality and service, offering our subscribers the best possible value superior home security system. Turning customer commitment and vision into value for subscribers will continue to be a key strength in accomplishing our mission to expand brand differentiation.
Brand Differentiation
AlarmForce has earned a high level of recognition as an innovative and differentiated company that delivers the best value to the consumer. We constantly aim to stay ahead, with new features in our security system that leverage the technological advances that are driving a growing use of user voice feedback, audio verification and wireless technology. AlarmForce took a leadership role in introducing technology such as the AlarmPlus line-cut feature and other affordable security system features into the mass market. In 2004, we continued investing in our continuous home security product quality improvement process with a dedicated focus on customer satisfaction. Our capacity and team have expanded to service a larger account base without compromising quality. The brand differentiation, high customer retention performance, strong referral business, and cost-effective business model are important assets giving the home alarm company a premier position in the security system market.
Our return on investment from our market position and brand is reflected in the results and represents a significant component of the overall value of our home security company, even though not reflected in the balance sheet. It is a prized asset despite being intangible, and reflects a sustained investment in educating consumers, increasing awareness and developing long-term brand recognition. We will continue to invest in marketing programs to sustain our brand differentiation and recognition which is rapidly expanding in major centres across Canada.
What has also helped us to deliver superior financial results is the fact that we own and control the manufacturing and development of our alarm systems and burglar alarm, differentiating us from our competition. Our business model is conducive to long range maximization of profitability, value and shareholder returns, with each line item of expense and cost of creating new accounts carefully controlled, resulting in economies of scale as our account base grows even more.
Outlook and Future Growth
The fundamental drivers for the residential alarm industry are considered sound, with fine-tuning of the low-cost approach, false alarm minimization and up market features expected to be strong drivers. We are very well positioned to grow our account base in the foreseeable future, given the fundamental advantages of our technology, which we continue to deploy and innovate.
The residential alarm industry is continuing to do well, and based on industry estimates, the compound annual growth rate for total revenues in North America over the past five years is approximately 8.4%. Meanwhile AlarmForce continued to grow at over twice this rate. We intend to continue investing in the AlarmForce brand through direct-response marketing programs which have proven to be cost-effective in differentiating our technology, and educating the consumer to make the right choice.
Our new office in Charlotte, NC, which opened after the end of the year, represented the first phase of our US expansion, and I am pleased to advise that the State of North Carolina has recently granted AlarmForce an alarm business operating license and active marketing has already begun. Our goal is to leverage the AlarmForce infrastructure and central station, and to increase economies of scale even further over the next five years.
It is expected that industry fragmentation will continue in the North American alarm industry, with the estimated market share of the top three companies in terms of recurring monthly revenue having decreased from 45% to 41% since 2002. In the meantime, the estimated market share of the rest of the top 100 companies has remained virtually unchanged in that period. The net internal growth estimated for the industry was between 3% and 6 % per annum in the eight year period including 2004, while AlarmForce has posted a growth rate of approximately 20% per annum, entirely all of which is internal through organic account creation. In addition, the market penetration rate in North America is estimated to be less than 20%. We believe that our track record speaks for our growth prospects in 2005.
We are confident that our financial capitalization, credit facilities and cash flows are sufficient to support operating and capital requirements for expansion in the foreseeable future. Through our North American distribution, we will aim to add more new monitored accounts to the base of recurring revenue, a key performance metric which drives the value of the company and ultimately the stock value. We believe that 2005 will continue to see impressive results.
In closing, I would like to thank all of our shareholders including our newest investors, and the AlarmForce team for your continuing support in 2005.
Respectfully submitted on behalf of the Board of Directors
Joel Matlin
President & Chief Executive Officer