Ascent Capital Group, Inc. (“Ascent” or the “Company”)
(Nasdaq:ASCMA) has reported results for the three months ended
September 30, 2017. Ascent is a holding company that owns MONI, one
of the nation’s largest home security alarm monitoring companies.
Headquartered in the Dallas Fort-Worth area,
MONI provides security alarm monitoring services to approximately
one million residential and commercial customers as of September
30, 2017. MONI’s long-term monitoring contracts provide high margin
recurring revenue that results in predictable and stable cash
flow.
Operational Highlights:
- MONI announces important new partnership with Nest to provide
professional monitoring to Nest Secure customers
- MONI implements headcount reductions delivering $7 million of
annualized cost savings
- Realized first sequential improvement in Core Unit Attrition
since 2015
Key Financial Results1:
- Ascent’s net revenue for the three and nine months ended
September 30, 2017 totaled $138.2 million and $419.9 million,
respectively
- Ascent’s net loss for the three and nine months ended September
30, 2017 totaled $29.2 million and $91.5 million, respectively
- Ascent's Pre-SAC Adjusted EBITDA, which adjusts for the
expensed portion of subscriber acquisition costs, for the three and
nine months ended September 30, 2017 totaled $85.9 million and
$259.5 million, respectively
- MONI’s net loss for the three and nine months ended September
30, 2017 totaled $25.5 million and $96.7 million, respectively
- MONI’s Pre-SAC Adjusted EBITDA for the three and nine months
ended September 30, 2017 totaled $87.1 million and $265.9 million,
respectively
Ascent Chairman and Chief Executive Officer, Bill Fitzgerald
stated, “The MONI team continued to make meaningful progress in the
third quarter toward its strategic agenda of diversifying its
distribution channels, developing key partner relationships, and
improving certain of the core performance metrics of the business.
While there is certainly more work ahead of us, I believe we are
focusing on the right initiatives to benefit the long term
prospects of the business and drive improved shareholder
value.”
Jeffery Gardner, President and Chief Executive Officer of MONI
said, “I am encouraged by our continued execution in the third
quarter. We are making positive strides stabilizing dealer
economics and attrition metrics as well as reducing operating costs
and generating new sales and marketing leads for our direct
channel. Notably, our recently announced partnership with
Nest is set to be a transformative opportunity for the business. We
believe it will provide a unique opportunity to expand our
addressable market beyond traditional homeowners, drive greater
penetration into the growing connected home market and elevate
MONI’s brand awareness nationally. We are also making strategic
improvements to our operating cost structure through headcount
reductions principally in Dallas as well as reorganizing our sales
and marketing platforms to consolidate both MONI Direct and
LiveWatch under a single sales platform. All of this is being done
with an eye towards continuing to provide our customers with the
highest levels of customer service while driving greater
efficiencies across all areas of the business.”
Results for the Three and Nine Months
Ended September 30, 2017
For the three months ended September 30, 2017,
Ascent reported net revenue of $138.2 million, a decrease of 3.2%.
For the nine months ended September 30, 2017, net revenue totaled
$419.9 million, a decrease of 2.3%. The reduction in revenue for
the three and nine months ended September 30, 2017 is due to the
lower average number of subscribers in 2017. This decrease was
partially offset by an increase in average recurring monthly
revenue (“RMR”) per subscriber to $43.79 due to certain price
increases enacted during the past twelve months and an increase in
average RMR per new subscriber acquired.
Ascent’s total cost of services for the three months ended
September 30, 2017 increased 4.0% to $30.2 million. For the nine
months ended September 30, 2017, Ascent’s total costs of services
increased 4.2% to $89.8 million. The increase for the three and
nine months ended September 30, 2017 is attributable to increased
field service costs due to a higher volume of retention jobs being
completed and an increase in expensed subscriber acquisition costs
(or "SAC") primarily as a result of the initiation of MONI’s direct
sales channel. Subscriber acquisition costs were $3.3 million
and $8.8 million for the three and nine months ended September 30,
2017, respectively, as compared to $2.1 million and $6.5 million
for the three and nine months ended September 30, 2016,
respectively. Subscriber acquisition costs recognized in cost of
services include certain equipment costs and MONI labor
expenditures associated with the creation of new subscribers at
both MONI and LiveWatch.
Ascent’s selling, general & administrative
("SG&A") costs for the three months ended September 30, 2017
increased 8.8% to $35.8 million. The increase for the three months
ended September 30, 2017 is primarily attributable to increased
SAC, $1.2 million in severance charges related to a reduction in
force and transitioning executive leadership at MONI’s Dallas,
Texas headquarters and consulting fees related to the
implementation of strategic company initiatives. SG&A costs for
the nine months ended September 30, 2017, increased 40.8% to $136.8
million. The increase in SG&A for the nine months ended
September 30, 2017 is primarily attributable to a $28.0 million
legal settlement reserve recognized in the second quarter of 2017
in relation to class action litigation that alleged violation of
telemarketing laws and increased SAC. Other increases are
attributable to consulting fees related to strategic company
initiatives as well as the severance event and transition of
executive leadership discussed above. Additionally, Ascent realized
a foreign currency loss on a forward exchange contract as the
Company locked in foreign exchange rates earlier in the year in
anticipation of the sale of an overseas property. Included in
SG&A is a realized loss of $1.2 million on the maturity and
settlement of this contract.
SAC increased to $8.0 million and $21.0 million
for the three and nine months ended September 30, 2017 as compared
to $5.2 million and $14.0 million for the three and nine months
ended September 30, 2016, primarily as a result of increased
direct-to-consumer sales activities at MONI.
Ascent reported a net loss from continuing
operations for the three and nine months ended September 30, 2017
of $29.2 million and $91.6 million, respectively, compared to net
loss from continuing operations of $27.0 million and $72.5 million
in the prior year periods.
MONI reported a net loss for the three and nine
months ended September 30, 2017 of $25.5 million and $96.7 million,
respectively, compared to a net loss of $23.0 million and $59.7
million in the prior year periods.
Ascent’s Adjusted EBITDA decreased 10.9% to
$75.7 million for the three months ended September 30, 2017.
Ascent’s Adjusted EBITDA for the nine months ended September 30,
2017 decreased 9.2% to $233.4 million. MONI’s Adjusted EBITDA
decreased 11.4% and 8.6% to $76.9 million and $239.8 million during
the three and nine months ended September 30, 2017, respectively.
The decrease for the three and nine months ended September 30, 2017
is primarily the result of lower revenues and an increase in
subscriber acquisition costs, net of related revenue, associated
with an increase in MONI’s direct-to-consumer sales
activities. MONI's Adjusted EBITDA as a percentage of net
revenue for the three and nine months ended September 30, 2017 was
55.6% and 57.1%, respectively, compared to 60.8% and 61.1% in the
prior year periods.
Ascent's Pre-SAC Adjusted EBITDA for the three
and nine months ended September 30, 2017 decreased 5.5% and 5.2% to
$85.9 million and $259.5 million, respectively. MONI's Pre-SAC
Adjusted EBITDA for the three and nine months ended September 30,
2017 totaled $87.1 million and $265.9 million, respectively,
compared to $92.8 million and $279.0 million for the three and nine
months ended September 30, 2016, respectively. The decrease in
Pre-SAC Adjusted EBITDA is primarily the result of lower Pre-SAC
revenues and increased field service retention costs. MONI's
Pre-SAC Adjusted EBITDA as a percentage of Pre-SAC net revenue for
the three and nine months ended September 30, 2017 was 63.5% and
63.9%, respectively, compared to 65.6% and 65.5% in the three and
nine months ended September 30, 2016, respectively. For a
reconciliation of net loss from continuing operations to Adjusted
EBITDA to Pre-SAC Adjusted EBITDA for Ascent and MONI, as well as a
reconciliation of net revenue to Pre-SAC net revenue, please see
the Appendix of this release.
| |
Twelve Months Ended September 30, |
| |
2017 |
|
2016 |
| Beginning balance of
accounts |
1,059,634 |
|
|
1,091,627 |
|
| Accounts acquired |
103,650 |
|
|
136,414 |
|
| Accounts canceled |
(152,951 |
) |
|
(150,091 |
) |
| Canceled accounts
guaranteed by dealer and other adjustments (a) (b) |
(12,246 |
) |
|
(18,316 |
) |
| Ending balance of
accounts |
998,087 |
|
|
1,059,634 |
|
| Monthly weighted
average accounts |
1,033,150 |
|
|
1,079,100 |
|
| Attrition rate –
Unit |
14.8 |
% |
|
13.9 |
% |
| Attrition rate - RMR
(c) |
13.5 |
% |
|
12.2 |
% |
| Core Attrition (d) |
14.0 |
% |
|
13.3 |
% |
(a) Includes canceled accounts that are
contractually guaranteed to be refunded from
holdback.(b) Includes an estimated 4,945 and 10,488
accounts included in our Radio Conversion Program that primarily
canceled in excess of their expected attrition for the twelve
months ending September 30, 2017 and 2016,
respectively.(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.(d) Core Attrition
reflects the long-term attrition characteristics of MONI’s base by
excluding the one-time bulk buy of 113,000 accounts from Pinnacle
Security in 2012 and 2013.
MONI’s core account portfolio unit attrition rate for the twelve
months ended September 30, 2017, which excludes attrition of the
Pinnacle Security accounts, was 14.0%, compared to 13.3% for the
twelve months ended September 30, 2016. An increase in the number
of subscriber accounts with five-year contracts reaching the end of
their initial contract term as well as a more aggressive price
increase strategy contributed to the increase in attrition in the
period. Overall unit attrition increased from 13.9% for the twelve
months ended September 30, 2016 to 14.8% for the twelve months
ended September 30, 2017. Overall attrition reflects the
impact of the Pinnacle Security bulk buys, where MONI purchased
approximately 113,000 accounts from Pinnacle Security in 2012 and
2013, which are now experiencing normal end-of-term attrition. The
Company believes core attrition best reflects the long run
characteristics of our customer base.
RMR attrition for the twelve months ended September 30, 2017
increased to 13.5% from 12.2% for the twelve months ended September
30, 2016, reflecting price decreases related to the Company’s
efforts to secure contract extensions from existing customers.
During the three months ended September 30, 2017
and 2016, MONI acquired 21,268 and 32,570 subscriber accounts,
respectively.
Ascent Liquidity and Capital
Resources
At September 30, 2017, on a consolidated basis,
Ascent had $135.4 million of cash, cash equivalents and marketable
securities. A portion of these assets may be used to decrease debt
obligations or fund stock repurchases, strategic acquisitions or
investment opportunities.
At September 30, 2017, the existing long-term
debt includes the principal balance of $1.9 billion under the MONI
Senior Notes, Credit Facility term loans, Credit Facility revolver
and Ascent’s Convertible Notes. The Convertible Notes have an
outstanding principal balance of $96.8 million as of September 30,
2017 and mature July 15, 2020. The Senior Notes have an outstanding
principal balance of $585.0 million as of September 30, 2017 and
mature on April 1, 2020. The Credit Facility term loan has an
outstanding principal balance of $1.1 billion as of September 30,
2017 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, 2017, the Credit Facility revolver
has an outstanding balance of $80.4 million and becomes due on
September 30, 2021.
Conference Call
Ascent will host a call today, Thursday,
November 2, 2017 at 5:00 pm 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 1086934.
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 16, 2017 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
1086934.
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, diversification of distribution channels, generation of new
sales and marketing leads, the anticipated benefits of the
partnership with Nest, subscriber attrition, anticipated account
generation at LiveWatch, future financial prospects, 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 MONI, 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,
Inc.
Ascent Capital Group, Inc., (NASDAQ:ASCMA) is a
holding company that owns 100 percent of its operating subsidiary,
MONI, and through MONI, LiveWatch Security, LLC. MONI,
headquartered in the Dallas Fort-Worth area, secures approximately
one million residential customers and commercial client accounts
with monitored home and business security system services. MONI is
supported by one of the nation’s largest networks of independent
Authorized Dealers, providing products and support to customers in
the U.S., Canada and Puerto Rico. LiveWatch Security, LLC ®,
is a Do-It-Yourself (“DIY”) home security firm, offering
professionally monitored security services through a
direct-to-consumer sales channel. For more information on Ascent,
see http://ascentcapitalgroupinc.com/.
Contact:
Erica Bartsch
Sloane &
Company
212-446-1875
ebartsch@sloanepr.com
| ASCENT CAPITAL GROUP, INC. AND
SUBSIDIARIESUnaudited Condensed Consolidated
Balance SheetsAmounts in thousands, except share
amounts |
| |
| |
September 30, 2017 |
|
December 31,
2016 |
|
Assets |
|
|
|
| Current assets: |
|
|
|
| Cash and
cash equivalents |
$ |
34,920 |
|
|
$ |
12,319 |
|
|
Marketable securities, at fair value |
100,498 |
|
|
77,825 |
|
| Trade
receivables, net of allowance for doubtful accounts of $3,381 in
2017 and $3,043 in 2016 |
13,206 |
|
|
13,869 |
|
| Prepaid
and other current assets |
11,759 |
|
|
10,347 |
|
| Assets
held for sale |
— |
|
|
10,673 |
|
| Total
current assets |
160,383 |
|
|
125,033 |
|
| Property and equipment,
net of accumulated depreciation of $35,506 in 2017 and $29,071 in
2016 |
30,993 |
|
|
28,331 |
|
| Subscriber accounts,
net of accumulated amortization of $1,383,804 in 2017 and
$1,212,468 in 2016 |
1,333,627 |
|
|
1,386,760 |
|
| Dealer network and
other intangible assets, net of accumulated amortization of $40,348
in 2017 and $32,976 in 2016 |
9,452 |
|
|
16,824 |
|
| Goodwill |
563,549 |
|
|
563,549 |
|
| Other assets |
6,875 |
|
|
11,935 |
|
| Total
assets |
$ |
2,104,879 |
|
|
$ |
2,132,432 |
|
|
Liabilities and Stockholders’ Equity |
|
|
|
| Current
liabilities: |
|
|
|
| Accounts
payable |
$ |
10,521 |
|
|
$ |
11,516 |
|
| Accrued
payroll and related liabilities |
6,345 |
|
|
5,067 |
|
| Other
accrued liabilities |
66,873 |
|
|
34,970 |
|
| Deferred
revenue |
14,191 |
|
|
15,147 |
|
| Holdback
liability |
10,706 |
|
|
13,916 |
|
| Current
portion of long-term debt |
11,000 |
|
|
11,000 |
|
|
Liabilities of discontinued operations |
— |
|
|
3,500 |
|
| Total
current liabilities |
119,636 |
|
|
95,116 |
|
| Non-current
liabilities: |
|
|
|
| Long-term
debt |
1,789,810 |
|
|
1,754,233 |
|
| Long-term
holdback liability |
1,982 |
|
|
2,645 |
|
|
Derivative financial instruments |
16,122 |
|
|
16,948 |
|
| Deferred
income tax liability, net |
20,959 |
|
|
17,769 |
|
| Other
liabilities |
6,671 |
|
|
7,076 |
|
| Total
liabilities |
1,955,180 |
|
|
1,893,787 |
|
| Commitments and
contingencies |
|
|
|
| Stockholders’
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 11,947,767 and 11,969,152 shares at September 30,
2017 and December 31, 2016, respectively |
119 |
|
|
120 |
|
| Series B common
stock, $.01 par value. Authorized 5,000,000 shares; issued and
outstanding 381,528 and 381,859 shares at September 30, 2017 and
December 31, 2016, respectively |
4 |
|
|
4 |
|
| Series C common
stock, $0.01 par value. Authorized 45,000,000 shares; no shares
issued |
— |
|
|
— |
|
| Additional paid-in
capital |
1,422,608 |
|
|
1,417,505 |
|
| Accumulated
deficit |
(1,261,098 |
) |
|
(1,169,559 |
) |
| Accumulated other
comprehensive loss, net |
(11,934 |
) |
|
(9,425 |
) |
| Total
stockholders’ equity |
149,699 |
|
|
238,645 |
|
| Total
liabilities and stockholders’ equity |
$ |
2,104,879 |
|
|
$ |
2,132,432 |
|
See accompanying notes to condensed consolidated
financial statements.
|
ASCENT CAPITAL GROUP, INC. AND SUBSIDIARIESUnaudited
Condensed
Consolidated Statements of Operations and Comprehensive Income (Loss)Amounts in thousands, except
shares and per share amounts |
| |
|
|
|
| |
Three Months Ended September
30, |
|
Nine Months Ended September 30, |
| |
2017 |
|
2016 |
|
2017 |
|
2016 |
| Net revenue |
$ |
138,211 |
|
|
142,765 |
|
|
$ |
419,909 |
|
|
429,689 |
|
| Operating
expenses: |
|
|
|
|
|
|
|
| Cost of
services |
30,213 |
|
|
29,049 |
|
|
89,799 |
|
|
86,161 |
|
| Selling,
general and administrative, including stock-based compensation |
35,793 |
|
|
32,897 |
|
|
136,809 |
|
|
97,148 |
|
| Radio
conversion costs |
74 |
|
|
1,263 |
|
|
383 |
|
|
17,938 |
|
|
Amortization of subscriber accounts, dealer network and other
intangible assets |
59,384 |
|
|
62,156 |
|
|
178,896 |
|
|
185,415 |
|
|
Depreciation |
2,176 |
|
|
2,152 |
|
|
6,435 |
|
|
6,329 |
|
| Gain on
disposal of operating assets |
— |
|
|
— |
|
|
(21,217 |
) |
|
— |
|
| |
127,640 |
|
|
127,517 |
|
|
391,105 |
|
|
392,991 |
|
| Operating
income |
10,571 |
|
|
15,248 |
|
|
28,804 |
|
|
36,698 |
|
| Other income (expense),
net: |
|
|
|
|
|
|
|
| Interest
income |
617 |
|
|
548 |
|
|
1,575 |
|
|
1,593 |
|
| Interest
expense |
(38,360 |
) |
|
(31,794 |
) |
|
(114,011 |
) |
|
(94,805 |
) |
|
Refinancing Expense |
— |
|
|
(9,348 |
) |
|
— |
|
|
(9,348 |
) |
| Other
income (expense), net |
(222 |
) |
|
240 |
|
|
242 |
|
|
(1,079 |
) |
| |
(37,965 |
) |
|
(40,354 |
) |
|
(112,194 |
) |
|
(103,639 |
) |
| Loss from
continuing operations before income taxes |
(27,394 |
) |
|
(25,106 |
) |
|
(83,390 |
) |
|
(66,941 |
) |
| Income tax expense from
continuing operations |
(1,766 |
) |
|
(1,927 |
) |
|
(8,241 |
) |
|
(5,514 |
) |
| Net loss
from continuing operations |
(29,160 |
) |
|
(27,033 |
) |
|
(91,631 |
) |
|
(72,455 |
) |
| Discontinued
operations: |
|
|
|
|
|
|
|
| Income
from discontinued operations, net of income tax of $0 |
— |
|
|
— |
|
|
92 |
|
|
— |
|
| Net
loss |
(29,160 |
) |
|
(27,033 |
) |
|
(91,539 |
) |
|
(72,455 |
) |
| Other comprehensive
income (loss): |
|
|
|
|
|
|
|
| Foreign
currency translation adjustments |
(16 |
) |
|
(224 |
) |
|
626 |
|
|
(780 |
) |
|
Unrealized holding gain on marketable securities, net |
279 |
|
|
301 |
|
|
1,366 |
|
|
3,164 |
|
|
Unrealized gain (loss) on derivative contracts, net |
227 |
|
|
(2,459 |
) |
|
(4,501 |
) |
|
(19,001 |
) |
| Total
other comprehensive income (loss), net of tax |
490 |
|
|
(2,382 |
) |
|
(2,509 |
) |
|
(16,617 |
) |
|
Comprehensive loss |
$ |
(28,670 |
) |
|
(29,415 |
) |
|
$ |
(94,048 |
) |
|
(89,072 |
) |
| |
|
|
|
|
|
|
|
| Basic and diluted
income (loss) per share: |
|
|
|
|
|
|
|
|
Continuing operations |
$ |
(2.39 |
) |
|
(2.23 |
) |
|
$ |
(7.53 |
) |
|
(5.89 |
) |
|
Discontinued operations |
— |
|
|
— |
|
|
0.01 |
|
|
— |
|
| Net
loss |
$ |
(2.39 |
) |
|
(2.23 |
) |
|
$ |
(7.52 |
) |
|
(5.89 |
) |
|
|
|
|
|
|
|
|
|
| Weighted
average Series A and Series B shares - basic and diluted |
12,207,649 |
|
|
12,101,214 |
|
|
12,170,367 |
|
|
12,304,879 |
|
| Total
issued and outstanding Series A and Series B shares at period
end |
|
|
|
|
12,329,295 |
|
|
12,321,760 |
|
See accompanying notes to condensed consolidated
financial statements.
| ASCENT CAPITAL GROUP, INC. AND
SUBSIDIARIESUnaudited Condensed Consolidated
Statements of Cash FlowsAmounts in
thousands |
| |
|
| |
Nine Months Ended September 30, |
| |
2017 |
|
2016 |
| Cash flows from
operating activities: |
|
|
|
| Net
loss |
$ |
(91,539 |
) |
|
(72,455 |
) |
|
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, dealer network and other
intangible assets |
178,896 |
|
|
185,415 |
|
|
Depreciation |
6,435 |
|
|
6,329 |
|
|
Stock-based compensation |
5,968 |
|
|
5,205 |
|
| Deferred
income tax expense |
3,158 |
|
|
3,158 |
|
| Gain on
disposal of operating assets |
(21,217 |
) |
|
— |
|
| Legal
settlement reserve, net of cash payments |
23,000 |
|
|
— |
|
|
Amortization of debt discount and deferred debt costs |
8,227 |
|
|
8,063 |
|
|
Refinancing expense |
— |
|
|
9,348 |
|
| Bad debt
expense |
7,888 |
|
|
7,855 |
|
| Other
non-cash activity, net |
4,887 |
|
|
4,231 |
|
| Changes
in assets and liabilities: |
|
|
|
| Trade
receivables |
(7,225 |
) |
|
(7,906 |
) |
| Prepaid
expenses and other assets |
(3,535 |
) |
|
717 |
|
|
Subscriber accounts - deferred contract costs |
(2,299 |
) |
|
(2,080 |
) |
| Payables
and other liabilities |
4,770 |
|
|
10,667 |
|
| Operating
activities from discontinued operations, net |
(3,408 |
) |
|
— |
|
| Net cash
provided by operating activities |
113,914 |
|
|
158,547 |
|
| Cash flows from
investing activities: |
|
|
|
| Capital
expenditures |
(9,999 |
) |
|
(5,071 |
) |
| Cost of
subscriber accounts acquired |
(119,081 |
) |
|
(160,117 |
) |
| Purchases
of marketable securities |
(22,633 |
) |
|
(5,036 |
) |
| Proceeds
from sale of marketable securities |
1,108 |
|
|
12,909 |
|
| Decrease
in restricted cash |
— |
|
|
55 |
|
| Proceeds
from the disposal of operating assets |
32,612 |
|
|
— |
|
| Net cash
used in investing activities |
(117,993 |
) |
|
(157,260 |
) |
| Cash flows from
financing activities: |
|
|
|
| Proceeds
from long-term debt |
159,850 |
|
|
1,249,000 |
|
| Payments
on long-term debt |
(132,500 |
) |
|
(1,200,009 |
) |
| Value of
shares withheld for share-based compensation |
(670 |
) |
|
(347 |
) |
| Payments
of financing costs |
— |
|
|
(16,711 |
) |
| Purchases
and retirement of common stock |
— |
|
|
(7,140 |
) |
| Net cash
provided by financing activities |
26,680 |
|
|
24,793 |
|
| Net
increase in cash and cash equivalents |
22,601 |
|
|
26,080 |
|
| Cash and cash
equivalents at beginning of period |
12,319 |
|
|
5,577 |
|
| Cash and cash
equivalents at end of period |
$ |
34,920 |
|
|
31,657 |
|
| Supplemental cash flow
information: |
|
|
|
| State
taxes paid, net |
$ |
3,107 |
|
|
2,759 |
|
| Interest
paid |
93,753 |
|
|
73,521 |
|
| Accrued
capital expenditures |
386 |
|
|
638 |
|
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),
stock-based and long-term incentive compensation, and other
non-cash or nonrecurring charges. Ascent Capital
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, to fund 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 MONI’s covenants
are calculated under the agreements governing their debt
obligations. Adjusted EBITDA does not represent cash flow
from operations as defined by generally accepted accounting
principles ("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 Capital
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 Capital should not be compared to
any similarly titled measures reported by other companies.
Pre-SAC Adjusted EBITDA
In addition to MONI's dealer sales channel, MONI
and LiveWatch also generate leads and acquire accounts through its
direct-to-consumer sales channels. As such, certain expenditures
and related revenue associated with subscriber acquisition
(subscriber acquisition costs, or "SAC") are recognized as
incurred. This is in contrast to the dealer sales channel, which
capitalizes payments to dealers to acquire accounts. "Pre-SAC
Adjusted EBITDA" is a measure that eliminates the impact of
generating leads and acquiring accounts through the
direct-to-consumer sales channels that is recognized in operating
income. Pre-SAC Adjusted EBITDA is defined as total Adjusted EBITDA
excluding SAC related to internally generated subscriber leads and
accounts through the direct-to-consumer sales channels, as well as
any related revenue. We believe Pre-SAC Adjusted EBITDA is a
meaningful measure of the Company's financial performance in
servicing its customer base. Pre-SAC 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. Pre-SAC
Adjusted EBITDA is a non-GAAP financial measure. As companies often
define non-GAAP financial measures differently, Pre-SAC Adjusted
EBITDA as calculated by the Company 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 to Pre-SAC
Adjusted EBITDA for the periods indicated (amounts in
thousands):
| |
Three Months Ended September
30, |
|
Nine Months Ended September 30, |
| |
2017 |
|
2016 |
|
2017 |
|
2016 |
| Net loss from
continuing operations |
$ |
(29,160 |
) |
|
(27,033 |
) |
|
$ |
(91,631 |
) |
|
(72,455 |
) |
| Amortization of
subscriber accounts, dealer network and other intangible
assets |
59,384 |
|
|
62,156 |
|
|
178,896 |
|
|
185,415 |
|
| Depreciation |
2,176 |
|
|
2,152 |
|
|
6,435 |
|
|
6,329 |
|
| Stock-based
compensation |
2,393 |
|
|
1,760 |
|
|
5,968 |
|
|
5,205 |
|
| Radio conversion
costs |
74 |
|
|
1,263 |
|
|
383 |
|
|
17,938 |
|
| Rebranding marketing
program |
— |
|
|
602 |
|
|
880 |
|
|
839 |
|
| LiveWatch acquisition
contingent bonus charges |
391 |
|
|
1,104 |
|
|
1,746 |
|
|
3,096 |
|
| Integration /
implementation of company initiatives |
390 |
|
|
— |
|
|
2,420 |
|
|
— |
|
| Severance expense
(a) |
1,248 |
|
|
— |
|
|
1,275 |
|
|
245 |
|
| Impairment of
capitalized software |
— |
|
|
— |
|
|
713 |
|
|
— |
|
| Gain on revaluation of
acquisition dealer liabilities |
(954 |
) |
|
— |
|
|
(1,358 |
) |
|
— |
|
| Gain on disposal of
operating assets |
— |
|
|
— |
|
|
(21,217 |
) |
|
— |
|
| Legal settlement
reserve |
— |
|
|
— |
|
|
28,000 |
|
|
— |
|
| Software
implementation/integration |
— |
|
|
418 |
|
|
— |
|
|
418 |
|
| Other-than-temporary
impairment losses on marketable securities |
220 |
|
|
— |
|
|
220 |
|
|
1,904 |
|
| Interest
income |
(617 |
) |
|
(548 |
) |
|
(1,575 |
) |
|
(1,593 |
) |
| Interest
expense |
38,360 |
|
|
31,794 |
|
|
114,011 |
|
|
94,805 |
|
| Refinancing
expense |
— |
|
|
9,348 |
|
|
— |
|
|
9,348 |
|
| Income tax expense from
continuing operations |
1,766 |
|
|
1,927 |
|
|
8,241 |
|
|
5,514 |
|
| Adjusted
EBITDA |
75,671 |
|
|
84,943 |
|
|
233,407 |
|
|
257,008 |
|
| Gross subscriber
acquisition costs (b) |
11,275 |
|
|
7,313 |
|
|
29,758 |
|
|
20,474 |
|
| Revenue associated with
subscriber acquisition costs (b) |
(1,051 |
) |
|
(1,332 |
) |
|
(3,694 |
) |
|
(3,884 |
) |
| Pre-SAC Adjusted
EBITDA |
$ |
85,895 |
|
|
90,924 |
|
|
$ |
259,471 |
|
|
273,598 |
|
(a) Severance expense related to a reduction
in headcount event and transitioning executive leadership at
MONI.
(b) Gross subscriber acquisition costs and Revenue
associated with subscriber acquisition costs for the three and nine
months ended September 30, 2016 has been restated to include
$665,000 and $2,006,000 of costs, respectively, and $207,000 and
$584,000 of revenue, respectively, related to MONI's
direct-to-consumer sales channel activities for the period.
The following table provides a reconciliation of MONI’s net loss
to total Adjusted EBITDA to Pre-SAC Adjusted EBITDA for the periods
indicated (amounts in thousands):
| |
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
| |
2017 |
|
2016 |
|
2017 |
|
2016 |
| Net loss |
$ |
(25,536 |
) |
|
(23,002 |
) |
|
$ |
(96,653 |
) |
|
(59,721 |
) |
| Amortization of
subscriber accounts, dealer network and other intangible
assets |
59,384 |
|
|
62,156 |
|
|
178,896 |
|
|
185,415 |
|
| Depreciation |
2,170 |
|
|
2,084 |
|
|
6,415 |
|
|
6,084 |
|
| Stock-based
compensation |
1,311 |
|
|
682 |
|
|
2,759 |
|
|
1,871 |
|
| Radio conversion
costs |
74 |
|
|
1,263 |
|
|
383 |
|
|
17,938 |
|
| Rebranding marketing
program |
— |
|
|
602 |
|
|
880 |
|
|
839 |
|
| LiveWatch acquisition
contingent bonus charges |
391 |
|
|
1,104 |
|
|
1,746 |
|
|
3,096 |
|
| Integration /
implementation of company initiatives |
390 |
|
|
— |
|
|
2,420 |
|
|
— |
|
| Severance expense
(a) |
1,248 |
|
|
— |
|
|
1,275 |
|
|
245 |
|
| Impairment of
capitalized software |
— |
|
|
— |
|
|
713 |
|
|
— |
|
| Gain on revaluation of
acquisition dealer liabilities |
(954 |
) |
|
— |
|
|
(1,358 |
) |
|
— |
|
| Legal settlement
reserve |
— |
|
|
— |
|
|
28,000 |
|
|
— |
|
| Software
implementation/integration |
— |
|
|
418 |
|
|
— |
|
|
418 |
|
| Interest
expense |
36,665 |
|
|
30,211 |
|
|
108,980 |
|
|
91,459 |
|
| Refinancing
expense |
— |
|
|
9,348 |
|
|
— |
|
|
9,348 |
|
| Income tax expense |
1,767 |
|
|
1,929 |
|
|
5,330 |
|
|
5,462 |
|
| Adjusted
EBITDA |
76,910 |
|
|
86,795 |
|
|
239,786 |
|
|
262,454 |
|
| Gross subscriber
acquisition costs (b) |
11,275 |
|
|
7,313 |
|
|
29,758 |
|
|
20,474 |
|
| Revenue associated with
subscriber acquisition costs (b) |
(1,051 |
) |
|
(1,332 |
) |
|
(3,694 |
) |
|
(3,884 |
) |
| Pre-SAC Adjusted
EBITDA |
$ |
87,134 |
|
|
92,776 |
|
|
$ |
265,850 |
|
|
279,044 |
|
(a) Severance expense related to a reduction
in headcount event and transitioning executive leadership at
MONI.
(b) Gross subscriber acquisition costs and Revenue
associated with subscriber acquisition costs for the three and nine
months ended September 30, 2016 has been restated to include
$665,000 and $2,006,000 of costs, respectively, and $207,000 and
$584,000 of revenue, respectively, related to MONI's
direct-to-consumer sales channel activities for the period.
Presented below is the reconciliation of Net revenue for MONI
and Ascent Capital to Pre-SAC net revenue (amounts in
thousands):
| |
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
| |
2017 |
|
2016 |
|
2017 |
|
2016 |
| Net revenue, as
reported |
$ |
138,211 |
|
|
142,765 |
|
|
$ |
419,909 |
|
|
429,689 |
|
| Revenue associated with
subscriber acquisition cost |
(1,051 |
) |
|
(1,332 |
) |
|
(3,694 |
) |
|
(3,884 |
) |
| Pre-SAC net
revenue |
$ |
137,160 |
|
|
141,433 |
|
|
$ |
416,215 |
|
|
425,805 |
|
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