Ascent Capital Group, Inc. (“Ascent” or the “Company”) (Nasdaq:
ASCMA) has reported results for the three and twelve months ended
December 31, 2018. Ascent is a holding company that owns Brinks
Home Security™, 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 922,000 residential and commercial customers as of
December 31, 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 twelve months ended December 31, 2018 totaled $134.4 million
and $540.4 million, respectively
- Ascent’s net loss for the three and
twelve months ended December 31, 2018 totaled $382.7 million and
$698.0 million, respectively. Brinks Home Security’s net loss for
the three and twelve months ended December 31, 2018 totaled $376.9
million and $678.8 million, respectively. Net loss for the three
and twelve months ended December 31, 2018 includes goodwill
impairment charges of $349.1 million and $563.5 million,
respectively.
- Ascent’s Adjusted EBITDA for the
three and twelve months ended December 31, 2018 totaled $75.6
million and $280.8 million, respectively. Brinks Home Security’s
Adjusted EBITDA for the three and twelve months ended December 31,
2018 totaled $76.0 million and $289.4 million, respectively
Results for the Three and Twelve Months
Ended December 31, 2018
For the three months ended December 31, 2018,
Ascent reported net revenue of $134.4 million, an increase of 0.7%.
The increase in revenue for the three months ended December 31,
2018 included a $1.1 million favorable impact of the adoption of
Topic 606, discussed below. For the twelve months ended December
31, 2018, net revenue totaled $540.4 million, a decrease of 2.4%.
The reduction in revenue for the twelve months ended December 31,
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 $45.27 due to
certain price increases enacted during the past twelve months. In
addition, the Company recognized an $8.1 million increase in
revenue for the twelve months ended December 31, 2018 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 Brinks Home Security, for the three months ended
December 31, 2018 decreased 4.3% to $28.1 million. The decrease in
cost of services for the three months ended December 31, 2018 is
attributable to lower production volume in the direct to consumer
sales channel which reduced expensed subscriber acquisition costs
to $2.2 million for the three months ended December 31, 2018 as
compared to $3.4 million for the three months ended December 31,
2017. Expensed subscriber acquisition costs include equipment and
labor costs associated with the creation of new subscribers.
Further contributing to the decrease in cost of services for the
three months ended December 31, 2018 was fewer field service
retention jobs, which reduced certain field service costs, and
favorable impacts from a lower headcount. These decreases are
partially offset by expensing $1.5 million of direct and
incremental field service costs on new alarm monitoring agreements
obtained in connection with a subscriber move (“Moves Costs”) for
the three months ended December 31, 2018. Moves Costs, net, for the
three months ended December 31, 2017 of $2.6 million were
capitalized to the balance sheet, as discussed further below.
For the twelve months ended December 31, 2018,
Ascent’s total cost of services increased 8.2% to $128.9 million.
The increase for the twelve months ended December 31, 2018 is
primarily due to expensing Moves Costs of $8.6 million for the
twelve months ended December 31, 2018. 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 twelve months ended December 31,
2017 were $14.4 million. Subscriber acquisition costs in cost of
services increased to $14.7 million for the twelve months ended
December 31, 2018 as compared to $12.2 million for the twelve
months ended December 31, 2017, which is attributable to increased
production volume in the direct to consumer sales channel
year-over-year. These increases were offset by reduced salary and
wage expense due to lower headcount for the full year ended
December 31, 2018.
Ascent’s selling, general & administrative
("SG&A") costs for the three months ended December 31, 2018,
decreased 33.6% to $20.6 million which included an aggregate of
$12.5 million in insurance receivable settlements reached with
multiple carriers in connection with the 2017 legal settlement for
class action litigation of alleged violation of telemarketing laws.
Additionally, subscriber acquisition costs in SG&A decreased to
$6.8 million for the three months ended December 31, 2018 as
compared to $7.2 million for the three months ended December 31,
2017 on lower production volume in the direct to consumer sales
channel. Offsetting these decreases were approximately $1.1 million
in expenses associated with the Brinks Home Security rebranding and
severance expense of $1.0 million related to a reduction in
headcount event at Brinks Home Security.
Ascent’s SG&A costs for the twelve months
ended December 31, 2018, decreased 22.2% to $130.6 million. The
decrease in SG&A for the twelve month period is primarily
attributable to a $28.0 million legal settlement recognized in the
second quarter of 2017 for class action litigation of alleged
violation of telemarketing laws and the 2018 recognition of an
aggregate of $12.5 million in related insurance receivable
settlements as discussed above. Additionally, there were decreases
in stock based compensation expense, consulting fees related to
Brinks Home Security cost reduction initiatives and general and
administrative headcount. These decreases were offset by year over
year increases in subscriber acquisition costs associated with the
creation of new subscribers at Brinks Home Security. Subscriber
acquisition costs in SG&A increased to $33.2 million for the
twelve months ended December 31, 2018, as compared to $28.2 million
for the twelve months ended December 31, 2017. Other increases in
SG&A year-over-year included increased professional legal fees
at Ascent, Brinks Home Security rebranding expense and severance
expense related to transitioning Ascent executive leadership and a
reduction in headcount at Brinks Home Security.
Brinks Home Security SG&A costs for the
three and twelve months ended December 31, 2018 were $20.0 million
and $118.9 million, respectively, as compared to $29.1 million and
$155.9 million, respectively, for the three and twelve months ended
December 31, 2017.
Ascent reported a net loss from continuing
operations for the three and twelve months ended December 31, 2018
of $382.7 million and $698.0 million, respectively, compared to net
loss from continuing operations of $16.0 million and $107.7 million
in the prior year periods. The increase in net loss from continuing
operations is primarily related to a goodwill impairment of $214.4
million recognized in the second quarter of 2018 and a further
goodwill impairment of $349.1 million recognized in the fourth
quarter of 2018, combined with the decreases in operating income
discussed above.
Brinks Home Security reported a net loss for the
three and twelve months ended December 31, 2018 of $376.9 million
and $678.8 million, respectively, compared to a net loss of $14.6
million and $111.3 million in the prior year periods.
Ascent’s Adjusted EBITDA increased 3.8% to $75.6
million for the three months ended December 31, 2018. Ascent’s
Adjusted EBITDA for the twelve months ended December 31, 2018
decreased 8.3% to $280.8 million. Brinks Home Security’s Adjusted
EBITDA increased 3.0% to $76.0 million for the three months ended
December 31, 2018. This increase is attributable to reduced
subscriber acquisition costs, net of creation revenue, of $7.8
million for the three months ended December 31, 2018, as compared
to $9.4 million for the three months ended December 31, 2017 and
the increase in net revenue for the three months ended December 31,
2018 as discussed above. Brinks Home Security’s Adjusted EBITDA
decreased 7.7% to $289.4 million in the twelve months ended
December 31, 2018. This decrease is due to lower revenues, the
expensing of Moves Costs, and higher subscriber acquisition costs,
net of related revenue. Total subscriber acquisition costs, net of
related revenue, for the year ended December 31, 2018 increased to
$43.2 million, as compared to $35.5 million for the year ended
December 31, 2017. Brinks Home Security’s Adjusted EBITDA as a
percentage of net revenue for the three and twelve months ended
December 31, 2018 was 56.5% and 53.6%, respectively, as compared to
55.2% and 56.7% in the prior year periods.
For a reconciliation of net loss from continuing
operations to Adjusted EBITDA, please see the Appendix of this
release.
|
Year Ended December 31, |
|
2018 |
|
2017 |
Beginning balance of
accounts |
975,996 |
|
|
1,046,791 |
|
Accounts acquired |
112,920 |
|
|
95,786 |
|
Accounts canceled
(b) |
(162,579 |
) |
|
(159,630 |
) |
Canceled accounts
guaranteed by dealer and other adjustments (a) (b) |
(4,587 |
) |
|
(6,951 |
) |
Ending balance of
accounts |
921,750 |
|
|
975,996 |
|
Monthly weighted
average accounts |
950,705 |
|
|
1,016,798 |
|
Attrition rate – Unit
(b) |
17.1 |
% |
|
15.7 |
% |
Attrition rate - RMR
(b) (c) |
14.9 |
% |
|
14.1 |
% |
(a) Includes canceled accounts that are
contractually guaranteed to be refunded from holdback.(b) Accounts
canceled for the twelve months ending December 31, 2017 were recast
to include an estimated 4,532 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 15.7% for the
twelve months ended December 31, 2017 to 17.1% for the twelve
months ended December 31, 2018. The RMR attrition rate for the
twelve months ended December 31, 2018 and 2017 was 14.9% and 14.1%,
respectively. Contributing to the increase in unit and RMR
attrition was fewer customers under contract or in the dealer
guarantee period in the twelve months ended December 31, 2018, as
compared to the prior period, and increased competition from new
market entrants. The increase in the RMR attrition rate for the
twelve months ended December 31, 2018 is partially offset by Brinks
Home Security's more aggressive price increase strategy.
During the three and twelve months ended
December 31, 2018, Brinks Home Security acquired 20,925 and 112,920
subscriber accounts, respectively, as compared to 18,363 and 95,786
subscriber accounts in the three and twelve months ended December
31, 2017. Accounts acquired for the years ended December 31, 2018
and 2017 reflect bulk buys of approximately 17,800 and 3,500
accounts, respectively. Bulk buys for the three months ended
December 31, 2018 and 2017 were negligible.
Ascent Liquidity and Capital
Resources
At December 31, 2018, on a consolidated basis,
Ascent had $105.9 million of cash and cash equivalents. Subsequent
to December 31, 2018, Ascent used an aggregate of approximately
$70.7 million of its cash to make payments pursuant to the terms of
the Settlement Agreement (as defined below) and an additional
approximately $19.8 million of its cash to pay holders of its
outstanding 4.00% Convertible Senior Notes due 2020 (the
“Convertible Notes”) whose Convertible Notes were accepted for
payment in the Amended Tender Offer (as defined below). Ascent may
use a portion of its remaining cash and cash equivalents to
decrease debt obligations, fund stock repurchases, or fund
potential strategic acquisitions or investment opportunities.
At December 31, 2018, the existing long-term
debt includes the principal balance of $1.9 billion under the
Brinks Home Security 9.125% Senior Notes due 2020 (the “Senior
Notes”), term loan and revolving credit facility under Brinks Home
Security’s Credit Agreement, dated March 23, 2012 (as amended and
restated, the “Credit Facility”) and Ascent’s Convertible Notes.
The Convertible Notes had an outstanding principal balance of $96.8
million as of December 31, 2018 and mature July 15, 2020. Following
the consummation of the transactions contemplated by the Settlement
Agreement (as defined below) and the consummation of the Amended
Tender Offer (as defined below), an aggregate principal amount of
$260,000 of Convertible Notes remain outstanding. The Senior Notes
have an outstanding principal balance of $585.0 million as of
December 31, 2018 and mature on April 1, 2020. The Credit Facility
term loan has an outstanding principal balance of $1.1 billion as
of December 31, 2018 and requires principal payments of
approximately $2.8 million per quarter with the remaining amount
becoming due on December 31, 2022. As of December 31, 2018, the
Credit Facility revolver has an outstanding balance of $144.2
million and a $600,000 standby letter of credit issued, which
becomes due on September 30, 2021.
On February 14, 2019, Ascent repurchased
approximately $75.7 million in aggregate principal amount of then
outstanding Convertible Notes from certain then holders of
Convertible Notes pursuant to the previously announced Settlement
and Note Repurchase Agreement and Release (the “Settlement
Agreement”), dated February 11, 2019, between Ascent and its
directors and executive officers, on the one hand, and certain
holders of Convertible Notes, on the other hand. Convertible Notes
repurchased pursuant to the Settlement Agreement were
cancelled.
On February 19, 2019, Ascent commenced a cash
tender offer to purchase any and all of its outstanding Convertible
Notes (the “Tender Offer”). On March 22, 2019, Ascent entered into
transaction support agreements with holders of approximately $18.6
million in aggregate principal amount of the Convertible Notes then
outstanding, pursuant to which Ascent agreed to increase the
purchase price for the Convertible Notes in the Tender Offer to
$950 per $1,000 principal amount of Convertible Notes, with no
accrued and unpaid interest to be payable (as so amended, the
“Amended Tender Offer”) and such holders agreed to tender, or cause
to be tendered, into the Amended Tender Offer all Convertible Notes
held by such holders. The Amended Tender Offer expired at 5:00 pm
Eastern time on March 29, 2019 and the settlement date of the
Amended Tender Offer was April 1, 2019. A total of $20.8 million in
aggregate principal amount of Convertible Notes were accepted for
payment pursuant to the Amended Tender Offer. The information in
this press release shall not constitute an offer to purchase nor a
solicitation of an offer to sell the Convertible Notes or any other
securities of Ascent, nor shall there be any offer, solicitation or
sale of such securities in any state or other jurisdiction in which
such an offer, solicitation or sale would be unlawful.
The maturity date for each of the Credit
Facility revolver and the Credit Facility term loan is subject to a
springing maturity 181 days prior to the scheduled maturity date of
the Senior Notes, or October 3, 2019, if Brinks Home Security is
unable to refinance the Senior Notes by that date. As there is
substantial doubt about Brinks Home Security’s ability to continue
as a going concern, Brinks Home Security has received a going
concern qualification in connection with its standalone external
audit of its Annual Report on Form 10-K for the year ended December
31, 2018, which constitutes a default under the Credit Facility.
Any default under the Credit Facility, if not waived or cured, may
mature into an event of default thereunder. 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.
Such a default under the Credit Facility is also an event of
default under the Senior Notes. Further, in connection with
management’s negotiations with its creditors, Brinks Home Security
did not make its Senior Notes interest payment due on April 1,
2019. The indenture governing the Senior Notes provides for a
30-day cure period on past due interest payments. If an event of
default occurs and is continuing under the indenture governing the
Senior Notes, the holders of the Senior Notes may declare the
aggregate principal amount of the Senior Notes and any accrued
interest on the Senior Notes to be immediately due and
payable.
Brinks Home Security has obtained a waiver from
the required revolving lenders under the Credit Facility and a
forbearance from the required term lenders under the Credit
Facility, in each case with respect to, among other things, the
default in connection with the going concern qualification
contained in Brinks Home Security’s external audit report of their
Annual Report on Form 10-K for the year ended December 31, 2018
(the “Going Concern Default”), and, in each case through April 30,
2019, subject to the terms and conditions of the waiver and
forbearance. The waiver obtained from the Credit Facility revolving
loan lenders allows Brinks Home Security to continue to borrow
under the revolving credit facility under the Credit Facility, up
to $195,000,000 at an alternate base rate plus 3.00%. The
forbearance obtained from the Credit Facility term lenders provides
that the term loan lenders will not exercise remedies with respect
to an event of default that may occur from the Going Concern
Default. The Going Concern Default and any resulting event of
default under the Credit Facility would continue, absent a waiver
from the required revolving and term loan lenders, as
applicable.
Brinks Home Security has engaged financial and
legal advisors to advise it regarding potential alternatives to
address the issues described above. There can be no assurance that
any restructuring will be possible on acceptable terms, if at all.
Brinks Home Security may not be able to come to an agreement that
is acceptable to all of its stakeholders. Brinks Home Security’s
failure to reach an agreement on the terms of a restructuring with
its stakeholders would have a material adverse effect on its and
Ascent’s liquidity, financial condition and results of operations,
including potentially requiring Brinks Home Security to file a
voluntary petition for relief under Chapter 11 of the United States
Bankruptcy Code in order to implement a restructuring plan.
These matters raise substantial doubt regarding
Ascent’s ability to continue as a going concern within one year
from the date Ascent’s financial statements as of and for the year
ended December 31, 2018 are issued. As a result, Ascent’s
consolidated financial statements as of and for the year ended
December 31, 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 not host an earnings call or webcast
due to its previously disclosed decision to consider strategic
alternatives with respect to Ascent or Brinks Home Security. Ascent
has not set a definitive timetable for completing the review, and
there can be no assurance that the process will result in a
transaction or a restructuring of Brinks Home Security. Ascent does
not intend to disclose developments or provide updates on the
progress or status of this process or discuss its results of
operations with investors unless and until further disclosure is
appropriate or required. No assurance can be given of the outcome
of the strategic alternatives review process, including whether any
transaction will result or the associated timing or terms.
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, anticipated sources and uses of capital, obtaining
or maintaining any waiver or forbearance with respect to the Credit
Facility and Senior Notes, the ability of Ascent and Brinks Home
Security to continue as going concerns, potential restructurings
and strategic transactions 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 922,000 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
SUBSIDIARIESConsolidated Balance
SheetsAmounts in thousands, except share
amounts
|
December 31,2018 |
|
December 31,2017 |
Assets |
|
|
|
Current assets: |
|
|
|
Cash and cash
equivalents |
$ |
105,921 |
|
|
10,465 |
|
Restricted cash |
189 |
|
|
— |
|
Marketable securities, at fair value |
— |
|
|
105,958 |
|
Trade
receivables, net of allowance for doubtful accounts of $3,759 in
2018 and $4,162 in 2017 |
13,121 |
|
|
12,645 |
|
Prepaid
and other current assets |
32,202 |
|
|
11,175 |
|
Total
current assets |
151,433 |
|
|
140,243 |
|
Property and equipment,
net of accumulated depreciation of $40,827 in 2018 and $37,915 in
2017 |
36,549 |
|
|
32,823 |
|
Subscriber accounts and
deferred contract acquisition costs, net of accumulated
amortization of $1,621,242 in 2018 and $1,439,164 in 2017 |
1,195,463 |
|
|
1,302,028 |
|
Dealer network and
other intangible assets, net of accumulated amortization of $0 in
2018 and $42,806 in 2017 |
— |
|
|
6,994 |
|
Goodwill |
— |
|
|
563,549 |
|
Deferred income tax
asset, net |
783 |
|
|
— |
|
Other assets |
29,316 |
|
|
9,348 |
|
Total
assets |
$ |
1,413,544 |
|
|
2,054,985 |
|
Liabilities and Stockholders’ (Deficit)
Equity |
|
|
|
Current
liabilities: |
|
|
|
Accounts
payable |
$ |
12,668 |
|
|
11,092 |
|
Other
accrued liabilities |
36,006 |
|
|
56,282 |
|
Deferred
revenue |
13,060 |
|
|
13,871 |
|
Holdback
liability |
11,513 |
|
|
9,309 |
|
Current
portion of long-term debt |
1,895,175 |
|
|
11,000 |
|
Total
current liabilities |
1,968,422 |
|
|
101,554 |
|
Non-current
liabilities: |
|
|
|
Long-term
debt |
— |
|
|
1,778,044 |
|
Long-term
holdback liability |
1,770 |
|
|
2,658 |
|
Derivative financial instruments |
6,039 |
|
|
13,491 |
|
Deferred
income tax liability, net |
— |
|
|
13,311 |
|
Other
liabilities |
2,742 |
|
|
3,255 |
|
Total
liabilities |
1,978,973 |
|
|
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 12,080,683 and 11,999,630 shares at December 31,
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 December 31, 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 |
1,425,325 |
|
|
1,423,899 |
|
Accumulated
deficit |
(1,998,487 |
) |
|
(1,277,118 |
) |
Accumulated other
comprehensive income (loss), net |
7,608 |
|
|
(4,233 |
) |
Total
stockholders’ (deficit) equity |
(565,429 |
) |
|
142,672 |
|
Total
liabilities and stockholders’ (deficit) equity |
$ |
1,413,544 |
|
|
2,054,985 |
|
See accompanying notes to condensed consolidated
financial statements.
ASCENT CAPITAL GROUP, INC. AND SUBSIDIARIESConsolidated Statements of Operations and Comprehensive Income (Loss)Amounts in thousands, except
shares and per share amounts
|
Year Ended December 31, |
|
2018 |
|
2017 |
|
2016 |
Net revenue |
$ |
540,358 |
|
|
553,455 |
|
|
570,372 |
|
Operating
expenses: |
|
|
|
|
|
Cost of
services |
128,939 |
|
|
119,193 |
|
|
115,236 |
|
Selling,
general and administrative, including stock-based and long-term
incentive compensation |
130,637 |
|
|
167,887 |
|
|
125,892 |
|
Radio
conversion costs |
— |
|
|
450 |
|
|
18,422 |
|
Amortization of subscriber accounts, deferred contract acquisition
costs and other intangible assets |
211,639 |
|
|
236,788 |
|
|
246,753 |
|
Depreciation |
11,457 |
|
|
8,844 |
|
|
8,435 |
|
Loss on
goodwill impairment |
563,549 |
|
|
— |
|
|
— |
|
Gain on
disposal of operating assets |
— |
|
|
(21,217 |
) |
|
— |
|
|
1,046,221 |
|
|
511,945 |
|
|
514,738 |
|
Operating
income (loss) |
(505,863 |
) |
|
41,510 |
|
|
55,634 |
|
Other expense (income),
net: |
|
|
|
|
|
Interest
income |
(2,439 |
) |
|
(2,446 |
) |
|
(2,282 |
) |
Interest
expense |
191,202 |
|
|
152,257 |
|
|
132,269 |
|
Unrealized loss on derivative financial instruments |
3,151 |
|
|
— |
|
|
— |
|
Refinancing expense |
13,356 |
|
|
— |
|
|
9,500 |
|
Other
expense (income), net |
(1,478 |
) |
|
(242 |
) |
|
140 |
|
|
203,792 |
|
|
149,569 |
|
|
139,627 |
|
Loss from
continuing operations before income taxes |
(709,655 |
) |
|
(108,059 |
) |
|
(83,993 |
) |
Income tax expense
(benefit) from continuing operations |
(11,611 |
) |
|
(408 |
) |
|
7,251 |
|
Net loss
from continuing operations |
(698,044 |
) |
|
(107,651 |
) |
|
(91,244 |
) |
Discontinued
operations: |
|
|
|
|
|
Income
from discontinued operations, net of income tax of $0 |
— |
|
|
92 |
|
|
— |
|
Net
loss |
(698,044 |
) |
|
(107,559 |
) |
|
(91,244 |
) |
Other comprehensive
income (loss): |
|
|
|
|
|
Foreign
currency translation adjustments |
758 |
|
|
782 |
|
|
(1,032 |
) |
Unrealized holding gain (loss) on marketable securities, net |
(3,900 |
) |
|
2,828 |
|
|
1,956 |
|
Unrealized gain on derivative contracts, net |
14,378 |
|
|
1,582 |
|
|
4,589 |
|
Total
other comprehensive income (loss), net of tax |
11,236 |
|
|
5,192 |
|
|
5,513 |
|
Comprehensive loss |
$ |
(686,808 |
) |
|
$ |
(102,367 |
) |
|
$ |
(85,731 |
) |
|
|
|
|
|
|
Basic and diluted
income (loss) per share: |
|
|
|
|
|
Continuing operations |
$ |
(56.54 |
) |
|
$ |
(8.83 |
) |
|
$ |
(7.44 |
) |
Discontinued operations |
— |
|
|
0.01 |
|
|
— |
|
Net
loss |
$ |
(56.54 |
) |
|
$ |
(8.82 |
) |
|
$ |
(7.44 |
) |
|
|
|
|
|
|
Weighted
average Series A and Series B shares - basic and diluted |
12,346,804 |
|
|
12,195,530 |
|
|
12,256,895 |
|
Total
issued and outstanding Series A and Series B shares at period
end |
12,462,211 |
|
|
12,381,158 |
|
|
12,351,011 |
|
See accompanying notes to condensed consolidated
financial statements.
ASCENT CAPITAL GROUP, INC. AND
SUBSIDIARIESConsolidated Statements of Cash
FlowsAmounts in thousands
|
Year Ended December 31, |
|
2018 |
|
2017 |
|
2016 |
Cash flows from
operating activities: |
|
|
|
|
|
Net loss |
$ |
(698,044 |
) |
|
(107,559 |
) |
|
(91,244 |
) |
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 |
211,639 |
|
|
236,788 |
|
|
246,753 |
|
Depreciation |
11,457 |
|
|
8,844 |
|
|
8,435 |
|
Stock-based and long-term incentive compensation |
1,451 |
|
|
7,431 |
|
|
6,984 |
|
Deferred
income tax expense (benefit) |
(14,094 |
) |
|
(4,474 |
) |
|
4,201 |
|
Gain on
disposal of operating assets |
— |
|
|
(21,217 |
) |
|
— |
|
Non-cash
legal settlement reserve (related insurance recovery) |
(2,750 |
) |
|
23,000 |
|
|
— |
|
Amortization of debt discount and deferred debt costs |
41,430 |
|
|
11,111 |
|
|
10,670 |
|
Refinancing expense |
13,356 |
|
|
— |
|
|
9,500 |
|
Unrealized loss on derivative financial instruments |
3,151 |
|
|
— |
|
|
— |
|
Bad debt
expense |
12,300 |
|
|
11,014 |
|
|
10,785 |
|
Loss on
goodwill impairment |
563,549 |
|
|
— |
|
|
— |
|
Other
non-cash activity, net |
(2,199 |
) |
|
(4,057 |
) |
|
(3,210 |
) |
Changes
in assets and liabilities: |
|
|
|
|
|
Trade
receivables |
(12,776 |
) |
|
(9,790 |
) |
|
(11,032 |
) |
Prepaid
expenses and other assets |
(14,576 |
) |
|
(1,669 |
) |
|
325 |
|
Subscriber accounts - deferred contract acquisition costs |
(5,418 |
) |
|
(3,064 |
) |
|
(2,947 |
) |
Payables
and other liabilities |
(15,545 |
) |
|
(6,361 |
) |
|
(317 |
) |
Operating
activities from discontinued operations, net |
— |
|
|
(3,408 |
) |
|
— |
|
Net cash
provided by operating activities |
92,931 |
|
|
136,497 |
|
|
188,903 |
|
Cash flows from
investing activities: |
|
|
|
|
|
Capital
expenditures |
(14,903 |
) |
|
(14,393 |
) |
|
(9,180 |
) |
Cost of
subscriber accounts acquired |
(140,450 |
) |
|
(142,909 |
) |
|
(201,381 |
) |
Purchases
of marketable securities |
(39,022 |
) |
|
(26,634 |
) |
|
(5,036 |
) |
Proceeds
from sale of marketable securities |
143,316 |
|
|
1,108 |
|
|
15,184 |
|
Proceeds
from the disposal of operating assets |
— |
|
|
32,612 |
|
|
— |
|
Net cash
used in investing activities |
(51,059 |
) |
|
(150,216 |
) |
|
(200,413 |
) |
Cash flows from
financing activities: |
|
|
|
|
|
Proceeds
from long-term debt |
248,800 |
|
|
187,950 |
|
|
1,280,700 |
|
Payments
on long-term debt |
(184,100 |
) |
|
(175,250 |
) |
|
(1,238,059 |
) |
Payments
of financing costs |
(10,739 |
) |
|
— |
|
|
(16,946 |
) |
Value of
shares withheld for share-based compensation |
(188 |
) |
|
(835 |
) |
|
(358 |
) |
Purchases
and retirement of common stock |
— |
|
|
— |
|
|
(7,140 |
) |
Net cash
provided by financing activities |
53,773 |
|
|
11,865 |
|
|
18,197 |
|
Net
increase (decrease) in cash, cash equivalents and restricted
cash |
95,645 |
|
|
(1,854 |
) |
|
6,687 |
|
Cash, cash equivalents
and restricted cash at beginning of period |
10,465 |
|
|
12,319 |
|
|
5,632 |
|
Cash, cash equivalents
and restricted cash at end of period |
$ |
106,110 |
|
|
10,465 |
|
|
12,319 |
|
Supplemental cash flow
information: |
|
|
|
|
|
State
taxes paid, net |
$ |
2,517 |
|
|
2,713 |
|
|
2,645 |
|
Interest
paid |
150,003 |
|
|
140,706 |
|
|
120,873 |
|
Accrued
capital expenditures |
552 |
|
|
272 |
|
|
558 |
|
See accompanying notes to condensed consolidated
financial statements.
Adjusted EBITDA
We evaluate the performance of our and Brinks
Home Security's 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 and Brinks Home Security's business, including the ability
to fund its and Brinks Home Security's ongoing acquisition of
subscriber accounts, its and Brinks Home Security's capital
expenditures and to service its and Brinks Home Security's 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 nor Brinks Home
Security's results of operations nor of cash flows available to
fund all of our or Brinks Home Security's cash needs. It is,
however, a measurement that Ascent believes is useful to investors
in analyzing its and Brinks Home Security's 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 and
Brinks Home Security 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 December 31, |
|
Year Ended December 31, |
|
2018 |
|
2017 |
|
2018 |
|
2017 |
Net loss from continuing
operations |
$ |
(382,744 |
) |
|
(16,020 |
) |
|
(698,044 |
) |
|
(107,651 |
) |
Amortization of
subscriber accounts, deferred contract acquisition costs and other
intangible assets |
50,666 |
|
|
57,892 |
|
|
211,639 |
|
|
236,788 |
|
Depreciation |
3,079 |
|
|
2,409 |
|
|
11,457 |
|
|
8,844 |
|
Stock-based
compensation |
(37 |
) |
|
1,261 |
|
|
1,615 |
|
|
7,229 |
|
Radio conversion
costs |
— |
|
|
67 |
|
|
— |
|
|
450 |
|
Legal settlement
reserve (related insurance recovery) |
(12,500 |
) |
|
— |
|
|
(12,500 |
) |
|
28,000 |
|
Severance expense
(a) |
1,059 |
|
|
88 |
|
|
4,014 |
|
|
1,363 |
|
LiveWatch acquisition
contingent bonus charges |
63 |
|
|
(1,557 |
) |
|
250 |
|
|
189 |
|
Rebranding marketing
program |
1,055 |
|
|
— |
|
|
7,410 |
|
|
880 |
|
Integration /
implementation of company initiatives |
321 |
|
|
5 |
|
|
516 |
|
|
2,425 |
|
Gain on revaluation of
acquisition dealer liabilities |
— |
|
|
— |
|
|
(240 |
) |
|
(1,358 |
) |
Impairment of
capitalized software |
— |
|
|
— |
|
|
— |
|
|
713 |
|
Loss on goodwill
impairment |
349,149 |
|
|
— |
|
|
563,549 |
|
|
— |
|
Gain on disposal of
operating assets |
— |
|
|
— |
|
|
— |
|
|
(21,217 |
) |
Interest income |
(560 |
) |
|
(871 |
) |
|
(2,439 |
) |
|
(2,446 |
) |
Interest expense |
71,185 |
|
|
38,246 |
|
|
191,202 |
|
|
152,257 |
|
Unrealized loss on
derivative financial instruments |
3,151 |
|
|
— |
|
|
3,151 |
|
|
— |
|
Refinancing
expense |
6,625 |
|
|
— |
|
|
13,356 |
|
|
— |
|
Unrealized (gain) loss
on marketable securities, net |
— |
|
|
— |
|
|
(3,251 |
) |
|
220 |
|
Release of foreign
currency translation adjustments |
758 |
|
|
— |
|
|
758 |
|
|
— |
|
Income tax expense
(benefit) from continuing operations |
(15,650 |
) |
|
(8,649 |
) |
|
(11,611 |
) |
|
(408 |
) |
Adjusted EBITDA |
$ |
75,620 |
|
|
72,871 |
|
|
280,832 |
|
|
306,278 |
|
|
|
|
|
|
|
|
|
Expensed Subscriber
acquisition costs, net |
|
|
|
|
|
|
|
Gross
subscriber acquisition costs |
$ |
8,951 |
|
|
10,554 |
|
|
47,874 |
|
|
40,312 |
|
Revenue
associated with subscriber acquisition costs |
(1,189 |
) |
|
(1,158 |
) |
|
(4,678 |
) |
|
(4,852 |
) |
Expensed
Subscriber acquisition costs, net |
$ |
7,762 |
|
|
9,396 |
|
|
43,196 |
|
|
35,460 |
|
(a) Severance expense for the year ended
December 31, 2018 related to transitioning executive leadership at
Ascent and a reduction in headcount event at Brinks Home Security.
Severance expense for the year ended December 31, 2017 related to
transitioning executive leadership and a reduction in headcount
event at Brinks Home Security.
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 Ended December 31, |
|
Year Ended December 31, |
|
2018 |
|
2017 |
|
2018 |
|
2017 |
Net loss |
$ |
(376,911 |
) |
|
(14,642 |
) |
|
(678,750 |
) |
|
(111,295 |
) |
Amortization of
subscriber accounts, deferred contract acquisition costs and other
intangible assets |
50,666 |
|
|
57,892 |
|
|
211,639 |
|
|
236,788 |
|
Depreciation |
3,074 |
|
|
2,403 |
|
|
11,434 |
|
|
8,818 |
|
Stock-based
compensation |
(329 |
) |
|
222 |
|
|
474 |
|
|
2,981 |
|
Radio conversion
costs |
— |
|
|
67 |
|
|
— |
|
|
450 |
|
Legal settlement
reserve (related insurance recovery) |
(12,500 |
) |
|
— |
|
|
(12,500 |
) |
|
28,000 |
|
Severance expense
(a) |
1,059 |
|
|
88 |
|
|
1,059 |
|
|
1,363 |
|
LiveWatch acquisition
contingent bonus charges |
63 |
|
|
(1,557 |
) |
|
250 |
|
|
189 |
|
Rebranding marketing
program |
1,055 |
|
|
— |
|
|
7,410 |
|
|
880 |
|
Integration /
implementation of company initiatives |
321 |
|
|
5 |
|
|
516 |
|
|
2,425 |
|
Gain on revaluation of
acquisition dealer liabilities |
— |
|
|
— |
|
|
(240 |
) |
|
(1,358 |
) |
Impairment of
capitalized software |
— |
|
|
— |
|
|
— |
|
|
713 |
|
Loss on goodwill
impairment |
349,149 |
|
|
— |
|
|
563,549 |
|
|
— |
|
Interest expense |
66,220 |
|
|
36,512 |
|
|
180,770 |
|
|
145,492 |
|
Unrealized loss on
derivative financial instruments |
3,151 |
|
|
— |
|
|
3,151 |
|
|
— |
|
Refinancing
expense |
6,541 |
|
|
— |
|
|
12,238 |
|
|
— |
|
Income tax expense
(benefit) |
(15,591 |
) |
|
(7,223 |
) |
|
(11,552 |
) |
|
(1,893 |
) |
Adjusted EBITDA |
$ |
75,968 |
|
|
73,767 |
|
|
289,448 |
|
|
313,553 |
|
|
|
|
|
|
|
|
|
Expensed Subscriber
acquisition costs, net |
|
|
|
|
|
|
|
Gross
subscriber acquisition costs |
$ |
8,951 |
|
|
10,554 |
|
|
47,874 |
|
|
40,312 |
|
Revenue
associated with subscriber acquisition costs |
(1,189 |
) |
|
(1,158 |
) |
|
(4,678 |
) |
|
(4,852 |
) |
Expensed
Subscriber acquisition costs, net |
$ |
7,762 |
|
|
9,396 |
|
|
43,196 |
|
|
35,460 |
|
(a) Severance expense for the year ended
December 31, 2018 related to a reduction in headcount event.
Severance expense for the year ended December 31, 2017 related to
transitioning executive leadership and a reduction in headcount
event.
1 Comparisons are year-over-year unless
otherwise specified.
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