Ascent Capital Group, Inc. (“Ascent” or the “Company”) (Nasdaq:
ASCMA) has reported results for the three and nine months ended
September 30, 2018. Ascent is a holding company that owns Brinks
Home SecurityTM, one of the nation’s largest home security alarm
monitoring companies.
Headquartered in the Dallas-Fort Worth area,
Brinks Home Security provides security alarm monitoring services to
approximately 942,000 residential and commercial customers as of
September 30, 2018. Brinks Home Security’s long-term monitoring
contracts provide high margin recurring revenue that results in
predictable and stable cash flow.
Highlights1:
- Ascent’s net revenue for the three and nine months ended
September 30, 2018 totaled $137.2 million and $405.9 million,
respectively
- Ascent’s net loss for the three and nine months ended September
30, 2018 totaled $40.1 million and $315.3 million, respectively.
Brinks Home Security’s net loss for the three and nine months ended
September 30, 2018 totaled $33.8 million and $301.8 million,
respectively
- Ascent’s Adjusted EBITDA for the three and nine months ended
September 30, 2018 totaled $66.9 million and $205.2 million,
respectively. Brinks Home Security’s Adjusted EBITDA for the three
and nine months ended September 30, 2018 totaled $71.3 million and
$213.5 million, respectively
- On October 30, 2018, Ascent and Brinks Home Security entered
into an amended and restated transaction support agreement with
creditors representing a majority of each of its Term B-2 Loan
lenders and holders of Brinks Home Security’s outstanding 9.125%
Senior Notes due 2020 (“Senior Notes”). Pursuant to the agreement,
Brinks Home Security expects to commence an exchange offer for its
Senior Notes and a consent solicitation for certain proposed
amendments to its Credit Facility and its Senior Notes
- Brinks Home Security recently ranked #1 in customer
satisfaction among home security brands as part of the J.D. Power
2018 Home Security Satisfaction Study
Ascent’s Chief Executive Officer, William
Niles stated, “The Brinks Home Security team continued to make
meaningful progress against its strategic operational initiatives
in the third quarter. I am also pleased with our execution around
the recent amended and restated transaction support agreement.
Strengthening the balance sheet and providing the Brinks Home
Security management team continued runway to execute on its
business objectives remains a key priority, and I am encouraged by
our progress.”
Jeffery Gardner, President and Chief Executive
Officer of Brinks Home Security said, “We continued to advance our
business objectives in the third quarter. Total account additions,
excluding a large bulk purchase of 6,650 accounts, were up 24%
year-over-year, with consistent year-over-year growth in both our
Dealer and Direct to Consumer channels. The third quarter was
the first full quarter under the Brinks Home Security brand, and we
will continue to actively refine our sales and marketing strategies
utilizing the brand. Additionally, I am pleased to note that
Brinks Home Security was recently ranked #1 in customer
satisfaction among home security brands as part of the J.D. Power
2018 Home Security Satisfaction Study, a testament to our continued
focus on providing the highest level of support and service to all
of our customers.”
Results for the Three and Nine Months
Ended September 30, 2018
For the three months ended September 30, 2018,
Ascent reported net revenue of $137.2 million, a decrease of 0.8%.
For the nine months ended September 30, 2018, net revenue totaled
$405.9 million, a decrease of 3.3%. The reduction in revenue for
the three and nine months ended September 30, 2018 is due to the
lower average number of subscribers in 2018. This decrease was
partially offset by an increase in average recurring monthly
revenue (“RMR”) per subscriber to $45.12 due to certain price
increases enacted during the past twelve months. In addition, the
Company recognized $4.2 million and $7.0 million increases in
revenue for the three and nine months ended September 30, 2018,
respectively, from the favorable impact of the new revenue
recognition guidance, Topic 606, adopted effective January 1,
2018. All revenues of Ascent are generated by its
wholly-owned subsidiary, Brinks Home Security.
Ascent’s total cost of services, which are all
incurred by its wholly-owned subsidiary, Brinks Home Security, for
the three months ended September 30, 2018 increased 16.0% to $35.1
million. For the nine months ended September 30, 2018 Ascent’s
total costs of services increased 12.3% to $100.8 million. The
increase for the three and nine months ended September 30, 2018 is
primarily due to expensing certain direct and incremental field
service costs on new AMAs obtained in connection with a subscriber
move ("Moves Costs") of $2.4 million and $7.1 million for the three
and nine months ended September 30, 2018, respectively. Upon
adoption of the new revenue recognition guidance, Topic 606, all
Moves Costs are expensed, whereas prior to adoption, certain Moves
Costs were capitalized on the balance sheet. Moves Costs
capitalized as Subscriber accounts, net for the three and nine
months ended September 30, 2017 were $4.3 million and $11.8
million, respectively. Furthermore, subscriber acquisition costs,
which include expensed equipment and labor costs associated with
the creation of new subscribers, increased to $4.6 million and
$12.5 million for the three and nine months ended September 30,
2018, respectively, as compared to $3.3 million and $8.8 million
for the three and nine months ended September 30, 2017,
respectively, attributable to increased production volume in the
direct sales channels.
Ascent’s selling, general & administrative
("SG&A") costs for the three months ended September 30, 2018,
increased 6.7% to $38.2 million. The increase in SG&A for the
three months ended September 30, 2018 is primarily attributable to
increased professional legal fees incurred at Ascent, rebranding
expense at Brinks Home Security and subscriber acquisition costs in
SG&A associated with the creation of new subscribers at Brinks
Home Security. Subscriber acquisition costs in SG&A increased
to $9.5 million for the three months ended September 30, 2018 as
compared to $8.0 million for the three months September 30, 2017.
These increases were offset by reduced stock based compensation
expense and non-recurring expenses recognized in the third quarter
of 2017.
Ascent’s SG&A costs for the nine months
ended September 30, 2018, decreased 19.6% to $110.0 million. The
decrease is primarily attributable to the $28.0 million legal
settlement recognized in the second quarter of 2017 in relation to
putative class action litigation of alleged violation of
telemarketing laws. Additionally, there were decreases in stock
based compensation expense and consulting fees related to Brinks
Home Security cost reduction initiatives. These decreases
were offset by increases in SG&A subscriber acquisition costs
associated with the creation of new subscribers at Brinks Home
Security. Subscriber acquisition costs in SG&A increased to
$26.4 million for the nine months ended September 30, 2018, as
compared to $21.0 million for the nine months ended September 30,
2017. Other increases in SG&A that contributed to the change
year over year included increased professional legal fees at
Ascent, Brinks Home Security rebranding expense and severance
expense related to transitioning Ascent executive leadership.
Brinks Home Security SG&A costs for the
three and nine months ended September 30, 2018 were $34.3 million
and $98.9 million, respectively, as compared to $33.5 million and
$126.8 million, respectively, for the three and nine months ended
September 30, 2017.
Ascent reported a net loss from continuing
operations for the three and nine months ended September 30, 2018
of $40.1 million and $315.3 million, respectively, compared to net
loss from continuing operations of $29.2 million and $91.6 million
in the prior year periods.
Brinks Home Security reported a net loss for the
three and nine months ended September 30, 2018 of $33.8 million and
$301.8 million, respectively, compared to a net loss of $25.5
million and $96.7 million in the prior year periods.
Ascent’s Adjusted EBITDA decreased 11.5% to
$66.9 million for the three months ended September 30, 2018.
Ascent’s Adjusted EBITDA for the nine months ended September 30,
2018 decreased 12.1% to $205.2 million. Brinks Home Security’s
Adjusted EBITDA decreased 7.3% and 11.0% to $71.3 million and
$213.5 million during the three and nine months ended September 30,
2018, respectively. The decrease for the three and nine months
ended September 30, 2018 is due to lower revenues, the expensing of
subscriber moves costs, and an increase in total subscriber
acquisition costs, net of related revenue. Total subscriber
acquisition costs, net of related revenue, increased to $13.4
million and $35.4 million for the three and nine months ended
September 30, 2018 as compared to $10.2 million and $26.1 million
for the three and nine months ended September 30, 2017. The
increase is primarily the result of increased production in the
Company’s direct-to-consumer sales channel year-over-year.
Brinks Home Security’s Adjusted EBITDA as a percentage of net
revenue for the three and nine months ended September 30, 2018 was
52.0% and 52.6%, respectively, as compared to 55.6% and 57.1% in
the prior year periods.
For a reconciliation of net loss from continuing
operations to Adjusted EBITDA, please see the Appendix of this
release.
| |
|
Twelve Months Ended September 30, |
| |
|
2018 |
|
2017 |
| |
Beginning balance of
accounts |
998,087 |
|
|
1,059,634 |
|
| |
Accounts acquired |
110,358 |
|
|
103,650 |
|
| |
Accounts canceled
(b) |
(161,657 |
) |
|
(157,896 |
) |
| |
Canceled accounts
guaranteed by dealer and other adjustments (a) (b) |
(4,631 |
) |
|
(7,301 |
) |
| |
Ending balance of
accounts |
942,157 |
|
|
998,087 |
|
| |
Monthly weighted
average accounts |
965,026 |
|
|
1,033,150 |
|
| |
Attrition rate – Unit
(b) |
16.8 |
% |
|
15.3 |
% |
| |
Attrition rate –
RMR (b) (c) |
14.1 |
% |
|
13.9 |
% |
| |
|
|
|
|
|
|
| |
|
|
|
(a) |
Includes canceled accounts that are contractually guaranteed to be
refunded from holdback. |
| (b) |
Accounts canceled for the twelve months ending September 30, 2017
were recast to include an estimated 4,945 accounts included in
Brinks Home Security’s Radio Conversion Program that canceled in
excess of their expected attrition. |
| (c) |
The RMR of canceled accounts follows the same definition as
subscriber unit attrition as noted above. RMR attrition is
defined as the RMR of canceled accounts in a given period, adjusted
for the impact of price increases or decreases in that period,
divided by the weighted average of RMR for that period. |
Unit attrition increased from 15.3% for the
twelve months ended September 30, 2017 to 16.8% for the twelve
months ended September 30, 2018. Contributing to the increase
in unit attrition was fewer customers under contract or in the
dealer guarantee period in the twelve months ended September 30,
2018, as compared to the prior period, and increased competition
from new market entrants. The RMR attrition rate for the twelve
months ended September 30, 2018 and 2017 was 14.1% and 13.9%,
respectively. The relatively smaller increase in the RMR
attrition rate for the twelve months ended September 30, 2018
was due to Brinks Home Security's more aggressive price increase
strategy. There was also a modest increase to attrition
attributed to subscriber losses related to the impacts of Hurricane
Maria on Brinks Home Security’s Puerto Rico customer base.
During the three and nine months ended September
30, 2018, Brinks Home Security acquired 33,065 and 91,995
subscriber accounts, respectively, as compared to 21,268 and 77,423
subscriber accounts in the three and nine months ended September
30, 2017.
Ascent Liquidity and Capital
Resources
At September 30, 2018, on a consolidated basis,
Ascent had $137.6 million of cash and cash equivalents. A portion
of these assets may be used to decrease debt obligations or fund
stock repurchases, strategic acquisitions or investment
opportunities.
At September 30, 2018, the existing long-term
debt includes the principal balance of $1.9 billion under the
Brinks Home Security Senior Notes, Credit Facility term loan,
Credit Facility revolver and Ascent’s Convertible Notes. The
Convertible Notes have an outstanding principal balance of $96.8
million as of September 30, 2018 and mature July 15, 2020. The
Senior Notes have an outstanding principal balance of $585.0
million as of September 30, 2018 and mature on April 1, 2020. The
Credit Facility term loan has an outstanding principal balance of
$1.1 billion as of September 30, 2018 and requires principal
payments of approximately $2.8 million per quarter with the
remaining amount becoming due on September 30, 2022. As of
September 30, 2018, the Credit Facility revolver has an outstanding
balance of $159.1 million and becomes due on September 30,
2021. The maturity date for both the Credit Facility term
loan and the Credit Facility revolver are subject to a springing
maturity 181 days prior to the scheduled maturity date of the
Senior Notes. Accordingly, if Brinks Home Security is unable
to refinance the Senior Notes by October 3, 2019, both the
Credit Facility term loan and the Credit Facility revolver would be
become due and payable.
In addition, if Brinks Home Security is unable
to refinance the Senior Notes, or demonstrate the ability to meet
its financial covenants for a period of twelve months after the
issuance date, prior to the filing with the SEC of their Annual
Report on Form 10-K for the year ended December 31, 2018, they may
be subject to a going concern qualification in connection with
their audit, which would be an event of default under the Credit
Facility. At any time after the occurrence of an event of default
under the Credit Facility, the lenders may, among other options,
declare any amounts outstanding under the Credit Facility
immediately due and payable and terminate any commitment to make
further loans under the Credit Facility. These matters raise
substantial doubt regarding the Company's ability to continue as a
going concern within one year from the date these financial
statements are issued. The consolidated financial statements do not
include any adjustments that might result from the outcome of this
uncertainty. As a result, the Company’s consolidated financial
statements as of September 30, 2018 have been prepared on a going
concern basis, which contemplates the realization of assets and the
settlement of liabilities and commitments in the normal course of
business.
Conference Call
Ascent will host a call on Monday, November 5,
2018 at 9:00 am ET. To access the call please dial (888)
462-5915 from the United States, or (760) 666-3831 from outside the
U.S. The conference call I.D. number is 2190818. Participants
should dial in 5 to 10 minutes before the scheduled time and must
be on a touch-tone telephone to ask questions.
A replay of the call can be accessed through
November 19, 2018 by dialing (800) 585-8367 from the U.S., or (404)
537-3406 from outside the U.S. The conference call I.D. number is
2190818.
This call will also be available as a live
webcast which can be accessed at Ascent’s Investor Relations
Website at http://ir.ascentcapitalgroupinc.com/index.cfm.
Forward Looking Statements
This press release includes certain
forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995, including statements
about business strategies, market potential and expansion, the
success of new products and services, account creation and related
costs, anticipated account generation, future financial performance
and prospects, the transactions contemplated by the amended and
restated support agreement (including the anticipated benefits of
such transactions), anticipated sources and uses of capital, and
other matters that are not historical facts. These forward-looking
statements involve many risks and uncertainties that could cause
actual results to differ materially from those expressed or implied
by such statements, including, without limitation, possible changes
in market acceptance of our services, technological innovations in
the alarm monitoring industry, competitive issues, continued access
to capital on terms acceptable to Ascent and/or Brinks Home
Security, our ability to capitalize on acquisition opportunities,
general market and economic conditions and changes in law and
government regulations. These forward-looking statements speak only
as of the date of this press release, and Ascent expressly
disclaims any obligation or undertaking to disseminate any updates
or revisions to any forward-looking statement contained herein to
reflect any change in Ascent's expectations with regard thereto or
any change in events, conditions or circumstances on which any such
statement is based. Please refer to the publicly filed documents of
Ascent, including the most recent Forms 10-K and 10-Q for
additional information about Ascent and about the risks and
uncertainties related to Ascent's business which may affect the
statements made in this press release.
About Ascent Capital Group and Brinks
Home Security
Ascent Capital Group, Inc. (Nasdaq: ASCMA) is a
holding company whose primary subsidiary operates as Brinks Home
SecurityTM, one of the largest home security and alarm monitoring
companies in the U.S. Headquartered in the Dallas-Fort Worth area,
Brinks Home Security secures approximately 942,000 residential and
commercial customers through highly responsive, simple security
solutions backed by expertly trained professionals. The company has
the nation’s largest network of independent authorized dealers –
providing products and support to customers in the U.S., Canada and
Puerto Rico – as well as direct-to-consumer sales of DIY and
professionally installed products. For more information on Ascent,
see http://ir.ascentcapitalgroupinc.com.
Contact:Erica Bartsch Sloane
& Company212-446-1875ebartsch@sloanepr.com
ASCENT CAPITAL GROUP, INC. AND SUBSIDIARIESCondensed
Consolidated Balance SheetsAmounts in thousands,
except share amounts
|
|
September
30,2018 |
|
December
31,2017 |
| Assets |
|
|
|
|
Current assets: |
|
|
|
| Cash and cash equivalents |
$ |
137,561 |
|
|
10,465 |
|
| Restricted cash |
133 |
|
|
— |
|
| Marketable securities, at fair value |
— |
|
|
105,958 |
|
| Trade receivables, net of allowance for doubtful
accounts of $3,630 in 2018 and $4,162 in 2017 |
13,162 |
|
|
12,645 |
|
| Prepaid and other current assets |
25,883 |
|
|
11,175 |
|
| Total current assets |
176,739 |
|
|
140,243 |
|
|
Property and equipment, net of accumulated depreciation of $46,195
in 2018 and $37,915 in 2017 |
36,568 |
|
|
32,823 |
|
|
Subscriber accounts and deferred contract acquisition costs, net of
accumulated amortization of $1,570,729 in 2018 and $1,439,164 in
2017 |
1,215,831 |
|
|
1,302,028 |
|
|
Dealer network and other intangible assets, net of accumulated
amortization of $48,500 in 2018 and $42,806 in 2017 |
— |
|
|
6,994 |
|
|
Goodwill |
349,149 |
|
|
563,549 |
|
|
Other assets |
36,819 |
|
|
9,348 |
|
| Total assets |
$ |
1,815,106 |
|
|
2,054,985 |
|
| Liabilities and Stockholders’ (Deficit)
Equity |
|
|
|
|
Current liabilities: |
|
|
|
| Accounts payable |
$ |
11,661 |
|
|
11,092 |
|
| Accrued payroll and related liabilities |
6,513 |
|
|
3,953 |
|
| Other accrued liabilities |
46,840 |
|
|
52,329 |
|
| Deferred revenue |
12,069 |
|
|
13,871 |
|
| Holdback liability |
10,766 |
|
|
9,309 |
|
| Current portion of long-term debt |
11,000 |
|
|
11,000 |
|
| Total current liabilities |
98,849 |
|
|
101,554 |
|
|
Non-current liabilities: |
|
|
|
| Long-term debt |
1,869,502 |
|
|
1,778,044 |
|
| Long-term holdback liability |
2,031 |
|
|
2,658 |
|
| Derivative financial instruments |
1,139 |
|
|
13,491 |
|
| Deferred income tax liability, net |
15,298 |
|
|
13,311 |
|
| Other liabilities |
2,858 |
|
|
3,255 |
|
| Total liabilities |
1,989,677 |
|
|
1,912,313 |
|
|
Commitments and contingencies |
|
|
|
|
Stockholders’ (deficit) equity: |
|
|
|
|
Preferred stock, $0.01 par value. Authorized 5,000,000 shares; no
shares issued |
— |
|
|
— |
|
|
Series A common stock, $.01 par value. Authorized 45,000,000
shares; issued and outstanding 12,052,703 and 11,999,630
shares at September 30, 2018 and December 31, 2017,
respectively |
121 |
|
|
120 |
|
|
Series B common stock, $.01 par value. Authorized 5,000,000
shares; issued and outstanding 381,528 shares at both September 30,
2018 and December 31, 2017 |
4 |
|
|
4 |
|
|
Series C common stock, $0.01 par value. Authorized 45,000,000
shares; no shares issued |
— |
|
|
— |
|
|
Additional paid-in capital |
1,425,379 |
|
|
1,423,899 |
|
|
Accumulated deficit |
(1,615,743 |
) |
|
(1,277,118 |
) |
|
Accumulated other comprehensive income (loss), net |
15,668 |
|
|
(4,233 |
) |
| Total stockholders’ (deficit) equity |
(174,571 |
) |
|
142,672 |
|
| Total liabilities and stockholders’ (deficit)
equity |
$ |
1,815,106 |
|
|
2,054,985 |
|
See accompanying notes to condensed consolidated
financial statements.
ASCENT CAPITAL GROUP, INC. AND SUBSIDIARIESCondensed
Consolidated Statements of Operations and Comprehensive Income (Loss)Amounts in thousands, except
shares and per share amounts
|
|
Three Months
EndedSeptember 30, |
|
Nine Months
EndedSeptember 30, |
|
|
2018 |
|
2017 |
|
2018 |
|
2017 |
|
Net revenue |
$ |
137,156 |
|
|
$ |
138,211 |
|
|
$ |
405,922 |
|
|
$ |
419,909 |
|
|
Operating expenses: |
|
|
|
|
|
|
|
| Cost of services |
35,059 |
|
|
30,213 |
|
|
100,807 |
|
|
89,799 |
|
| Selling, general and administrative, including
stock-based and long-term incentive compensation |
38,199 |
|
|
35,793 |
|
|
109,992 |
|
|
136,809 |
|
| Radio conversion costs |
— |
|
|
74 |
|
|
— |
|
|
383 |
|
| Amortization of subscriber accounts, deferred
contract acquisition costs and other intangible assets |
52,671 |
|
|
59,384 |
|
|
160,973 |
|
|
178,896 |
|
| Depreciation |
2,886 |
|
|
2,176 |
|
|
8,378 |
|
|
6,435 |
|
| Loss on goodwill impairment |
— |
|
|
— |
|
|
214,400 |
|
|
— |
|
| Gain on disposal of operating assets |
— |
|
|
— |
|
|
— |
|
|
(21,217 |
) |
|
|
128,815 |
|
|
127,640 |
|
|
594,550 |
|
|
391,105 |
|
| Operating income (loss) |
8,341 |
|
|
10,571 |
|
|
(188,628 |
) |
|
28,804 |
|
|
Other expense (income), net: |
|
|
|
|
|
|
|
| Interest income |
(624 |
) |
|
(617 |
) |
|
(1,879 |
) |
|
(1,575 |
) |
| Interest expense |
40,943 |
|
|
38,360 |
|
|
120,017 |
|
|
114,011 |
|
| Refinancing expense |
6,731 |
|
|
— |
|
|
6,731 |
|
|
— |
|
| Other income, net |
40 |
|
|
222 |
|
|
(2,236 |
) |
|
(242 |
) |
|
|
47,090 |
|
|
37,965 |
|
|
122,633 |
|
|
112,194 |
|
| Loss from continuing operations before income
taxes |
(38,749 |
) |
|
(27,394 |
) |
|
(311,261 |
) |
|
(83,390 |
) |
|
Income tax expense from continuing operations |
1,346 |
|
|
1,766 |
|
|
4,039 |
|
|
8,241 |
|
| Net loss from continuing operations |
(40,095 |
) |
|
(29,160 |
) |
|
(315,300 |
) |
|
(91,631 |
) |
|
Discontinued operations: |
|
|
|
|
|
|
|
| Income from discontinued operations, net of income
tax of $0 |
— |
|
|
— |
|
|
— |
|
|
92 |
|
| Net loss |
(40,095 |
) |
|
(29,160 |
) |
|
(315,300 |
) |
|
(91,539 |
) |
|
Other comprehensive income (loss): |
|
|
|
|
|
|
|
| Foreign currency translation adjustments |
— |
|
|
(16 |
) |
|
— |
|
|
626 |
|
| Unrealized holding gain (loss) on marketable
securities, net |
— |
|
|
279 |
|
|
(3,900 |
) |
|
1,366 |
|
| Unrealized gain (loss) on derivative contracts,
net |
3,269 |
|
|
227 |
|
|
23,196 |
|
|
(4,501 |
) |
| Total other comprehensive income (loss), net of
tax |
3,269 |
|
|
490 |
|
|
19,296 |
|
|
(2,509 |
) |
| Comprehensive loss |
$ |
(36,826 |
) |
|
$ |
(28,670 |
) |
|
$ |
(296,004 |
) |
|
$ |
(94,048 |
) |
|
|
|
|
|
|
|
|
|
|
Basic and diluted income (loss) per share: |
|
|
|
|
|
|
|
| Continuing operations |
$ |
(3.24 |
) |
|
$ |
(2.39 |
) |
|
$ |
(25.57 |
) |
|
$ |
(7.53 |
) |
| Discontinued operations |
— |
|
|
— |
|
|
— |
|
|
0.01 |
|
| Net loss |
$ |
(3.24 |
) |
|
$ |
(2.39 |
) |
|
$ |
(25.57 |
) |
|
$ |
(7.52 |
) |
| |
|
|
|
|
|
|
|
| Weighted average Series A and Series B shares -
basic and diluted |
12,361,495 |
|
|
12,207,649 |
|
|
12,329,497 |
|
|
12,170,367 |
|
| Total issued and outstanding Series A and Series B
shares at period end |
|
|
|
|
12,434,231 |
|
|
12,329,295 |
|
See accompanying notes to condensed consolidated
financial statements.
ASCENT CAPITAL GROUP, INC. AND
SUBSIDIARIESCondensed Consolidated Statements of
Cash FlowsAmounts in thousands
|
|
Nine Months
EndedSeptember 30, |
|
|
2018 |
|
2017 |
|
Cash flows from operating activities: |
|
|
|
| Net
loss |
$ |
(315,300 |
) |
|
(91,539 |
) |
|
Adjustments to reconcile net loss to net cash provided by operating
activities: |
|
|
|
| Income from discontinued operations, net of income
tax |
— |
|
|
(92 |
) |
|
Amortization of subscriber accounts, deferred contract acquisition
costs and other intangible assets |
160,973 |
|
|
178,896 |
|
|
Depreciation |
8,378 |
|
|
6,435 |
|
|
Stock-based and long-term incentive compensation |
1,600 |
|
|
5,968 |
|
| Deferred
income tax expense |
1,987 |
|
|
3,158 |
|
| Gain on
disposal of operating assets |
— |
|
|
(21,217 |
) |
| Legal
settlement reserve, net of cash payments |
— |
|
|
23,000 |
|
|
Refinancing expense |
6,731 |
|
|
— |
|
|
Amortization of debt discount and deferred debt costs |
9,108 |
|
|
8,227 |
|
| Bad debt
expense |
8,511 |
|
|
7,888 |
|
| Loss on
goodwill impairment |
214,400 |
|
|
— |
|
| Other
non-cash activity, net |
(186 |
) |
|
4,887 |
|
| Changes
in assets and liabilities: |
|
|
|
| Trade
receivables |
(9,028 |
) |
|
(7,225 |
) |
| Prepaid
expenses and other assets |
(8,359 |
) |
|
(3,535 |
) |
|
Subscriber accounts - deferred contract acquisition costs |
(4,529 |
) |
|
(2,299 |
) |
| Payables
and other liabilities |
(4,752 |
) |
|
4,770 |
|
| Operating
activities from discontinued operations, net |
— |
|
|
(3,408 |
) |
| Net cash provided by operating activities |
$ |
69,534 |
|
|
113,914 |
|
|
Cash flows from investing activities: |
|
|
|
| Capital
expenditures |
(11,513 |
) |
|
(9,999 |
) |
| Cost of
subscriber accounts acquired |
(111,531 |
) |
|
(119,081 |
) |
| Purchases
of marketable securities |
(39,022 |
) |
|
(22,633 |
) |
| Proceeds
from sale of marketable securities |
143,316 |
|
|
1,108 |
|
| Proceeds
from the disposal of operating assets |
— |
|
|
32,612 |
|
| Net cash used in investing activities |
$ |
(18,750 |
) |
|
(117,993 |
) |
|
Cash flows from financing activities: |
|
|
|
| Proceeds
from long-term debt |
218,950 |
|
|
159,850 |
|
| Payments
on long-term debt |
(136,600 |
) |
|
(132,500 |
) |
| Payments
of financing costs |
(5,734 |
) |
|
— |
|
| Value of
shares withheld for share-based compensation |
(171 |
) |
|
(670 |
) |
| Net cash provided by financing activities |
$ |
76,445 |
|
|
26,680 |
|
| Net increase (decrease) in cash, cash equivalents
and restricted cash |
$ |
127,229 |
|
|
22,601 |
|
|
Cash, cash equivalents and restricted cash at beginning of
period |
10,465 |
|
|
12,319 |
|
|
Cash, cash equivalents and restricted cash at end of period |
$ |
137,694 |
|
|
34,920 |
|
|
Supplemental cash flow information: |
|
|
|
| State taxes paid, net |
$ |
2,710 |
|
|
3,107 |
|
| Interest paid |
98,260 |
|
|
93,753 |
|
| Accrued capital expenditures |
882 |
|
|
386 |
|
See accompanying notes to condensed consolidated
financial statements.
Adjusted EBITDA
We evaluate the performance of our operations based on financial
measures such as revenue and "Adjusted EBITDA." Adjusted EBITDA is
defined as net income (loss) before interest expense, interest
income, income taxes, depreciation, amortization (including the
amortization of subscriber accounts, dealer network and other
intangible assets), restructuring charges, stock-based
compensation, and other non-cash or non-recurring charges. Ascent
believes that Adjusted EBITDA is an important indicator of the
operational strength and performance of its business, including the
business' ability to fund its ongoing acquisition of subscriber
accounts, its capital expenditures and to service its debt. In
addition, this measure is used by management to evaluate operating
results and perform analytical comparisons and identify strategies
to improve performance. Adjusted EBITDA is also a measure
that is customarily used by financial analysts to evaluate the
financial performance of companies in the security alarm monitoring
industry and is one of the financial measures, subject to certain
adjustments, by which Brinks Home Security's covenants are
calculated under the agreements governing its debt
obligations. Adjusted EBITDA does not represent cash flow
from operations as defined by generally accepted accounting
principles in the United States ("GAAP"), should not be construed
as an alternative to net income or loss and is indicative neither
of our results of operations nor of cash flows available to fund
all of our cash needs. It is, however, a measurement that
Ascent believes is useful to investors in analyzing its operating
performance. Accordingly, Adjusted EBITDA should be
considered in addition to, but not as a substitute for, net income,
cash flow provided by operating activities and other measures of
financial performance prepared in accordance with GAAP.
Adjusted EBITDA is a non-GAAP financial measure. As companies
often define non-GAAP financial measures differently, Adjusted
EBITDA as calculated by Ascent should not be compared to any
similarly titled measures reported by other companies.
The following table provides a reconciliation of Ascent's Net
loss from continuing operations to total Adjusted EBITDA for the
periods indicated (amounts in thousands):
| |
Three Months
Ended September 30, |
|
Nine Months EndedSeptember
30, |
| |
2018 |
|
2017 |
|
2018 |
|
2017 |
| Net loss from continuing
operations |
$ |
(40,095 |
) |
|
(29,160 |
) |
|
$ |
(315,300 |
) |
|
(91,631 |
) |
| Amortization of
subscriber accounts, deferred contract acquisition costs and other
intangible assets |
52,671 |
|
|
59,384 |
|
|
160,973 |
|
|
178,896 |
|
| Depreciation |
2,886 |
|
|
2,176 |
|
|
8,378 |
|
|
6,435 |
|
| Stock-based
compensation |
682 |
|
|
2,393 |
|
|
1,652 |
|
|
5,968 |
|
| Radio conversion
costs |
— |
|
|
74 |
|
|
— |
|
|
383 |
|
| Legal settlement
reserve |
— |
|
|
— |
|
|
— |
|
|
28,000 |
|
| Severance expense
(a) |
— |
|
|
1,248 |
|
|
2,955 |
|
|
1,275 |
|
| LiveWatch acquisition
contingent bonus charges |
63 |
|
|
391 |
|
|
187 |
|
|
1,746 |
|
| Rebranding marketing
program |
3,060 |
|
|
— |
|
|
6,355 |
|
|
880 |
|
| Integration /
implementation of company initiatives |
195 |
|
|
390 |
|
|
195 |
|
|
2,420 |
|
| Gain on revaluation of
acquisition dealer liabilities |
(240 |
) |
|
(954 |
) |
|
(240 |
) |
|
(1,358 |
) |
| Impairment of
capitalized software |
— |
|
|
— |
|
|
— |
|
|
713 |
|
| Gain on disposal of
operating assets |
— |
|
|
— |
|
|
— |
|
|
(21,217 |
) |
| Loss on goodwill
impairment |
— |
|
|
— |
|
|
214,400 |
|
|
— |
|
| Interest income |
(624 |
) |
|
(617 |
) |
|
(1,879 |
) |
|
(1,575 |
) |
| Interest expense |
40,943 |
|
|
38,360 |
|
|
120,017 |
|
|
114,011 |
|
| Refinancing
expense |
6,731 |
|
|
— |
|
|
6,731 |
|
|
— |
|
| Unrealized (gain) loss
on marketable securities, net |
(675 |
) |
|
220 |
|
|
(3,251 |
) |
|
220 |
|
| Income tax expense from
continuing operations |
1,346 |
|
|
1,766 |
|
|
4,039 |
|
|
8,241 |
|
| Adjusted EBITDA |
$ |
66,943 |
|
|
75,671 |
|
|
$ |
205,212 |
|
|
233,407 |
|
| |
|
|
|
|
|
|
|
| Expensed subscriber
acquisition costs, net |
|
|
|
|
|
|
|
| Gross
subscriber acquisition costs |
$ |
14,098 |
|
|
11,275 |
|
|
$ |
38,923 |
|
|
29,758 |
|
| Revenue
associated with subscriber acquisition costs |
(722 |
) |
|
(1,051 |
) |
|
(3,489 |
) |
|
(3,694 |
) |
| Expensed
Subscriber acquisition costs, net |
$ |
13,376 |
|
|
10,224 |
|
|
$ |
35,434 |
|
|
26,064 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (a)
Severance expense related to transitioning executive
leadership at Ascent in 2018 and a reduction in headcount event and
transitioning executive leadership at Brinks Home Security in
2017. |
The following table provides a reconciliation of Brinks Home
Security’s Net loss to total Adjusted EBITDA for the periods
indicated (amounts in thousands):
| |
Three Months EndedSeptember
30, |
|
Nine Months EndedSeptember
30, |
| |
2018 |
|
2017 |
|
2018 |
|
2017 |
| Net loss. |
$ |
(33,840 |
) |
|
(25,536 |
) |
|
$ |
(301,839 |
) |
|
(96,653 |
) |
| Amortization of
subscriber accounts, deferred contract acquisition costs and other
intangible assets |
52,671 |
|
|
59,384 |
|
|
160,973 |
|
|
178,896 |
|
| Depreciation |
2,880 |
|
|
2,170 |
|
|
8,360 |
|
|
6,415 |
|
| Stock-based
compensation |
373 |
|
|
1,311 |
|
|
803 |
|
|
2,759 |
|
| Radio conversion
costs |
— |
|
|
74 |
|
|
— |
|
|
383 |
|
| Legal settlement
reserve |
— |
|
|
— |
|
|
— |
|
|
28,000 |
|
| Severance expense
(a) |
— |
|
|
1,248 |
|
|
— |
|
|
1,275 |
|
| LiveWatch acquisition
contingent bonus charges |
63 |
|
|
391 |
|
|
187 |
|
|
1,746 |
|
| Rebranding marketing
program |
3,060 |
|
|
— |
|
|
6,355 |
|
|
880 |
|
| Integration /
implementation of company initiatives |
195 |
|
|
390 |
|
|
195 |
|
|
2,420 |
|
| Gain on revaluation of
acquisition dealer liabilities |
(240 |
) |
|
(954 |
) |
|
(240 |
) |
|
(1,358 |
) |
| Impairment of
capitalized software |
— |
|
|
— |
|
|
— |
|
|
713 |
|
| Loss on goodwill
impairment |
— |
|
|
— |
|
|
214,400 |
|
|
— |
|
| Interest expense |
39,077 |
|
|
36,665 |
|
|
114,550 |
|
|
108,980 |
|
| Refinancing
expense |
5,697 |
|
|
— |
|
|
5,697 |
|
|
— |
|
| Income tax expense |
1,346 |
|
|
1,767 |
|
|
4,039 |
|
|
5,330 |
|
| Adjusted EBITDA |
$ |
71,282 |
|
|
76,910 |
|
|
$ |
213,480 |
|
|
239,786 |
|
| |
|
|
|
|
|
|
|
| Expensed subscriber
acquisition costs, net |
|
|
|
|
|
|
|
| Gross
subscriber acquisition costs |
$ |
14,098 |
|
|
11,275 |
|
|
$ |
38,923 |
|
|
29,758 |
|
| Revenue
associated with subscriber acquisition costs |
(722 |
) |
|
(1,051 |
) |
|
(3,489 |
) |
|
(3,694 |
) |
| Expensed
Subscriber acquisition costs, net |
$ |
13,376 |
|
|
10,224 |
|
|
$ |
35,434 |
|
|
26,064 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
Severance expense related to a reduction in headcount event
and transitioning executive leadership at Brinks Home
Security. |
_____________________________
1 Comparisons are year-over-year unless otherwise specified.
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