Ascent Capital Group, Inc.
May 08, 2018

Ascent Capital Group Announces Financial Results for the Three Months Ended March 31, 2018

ENGLEWOOD, Colo., May 08, 2018 (GLOBE NEWSWIRE) -- Ascent Capital Group, Inc. (“Ascent” or the “Company”) (Nasdaq:ASCMA) has reported results for the three months ended March 31, 2018. 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 over 950,000 residential and commercial customers as of March 31, 2018. MONI’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 months ended March 31, 2018 totaled $133.8 million.
  • Ascent’s net loss for the three months ended March 31, 2018 totaled $30.8 million. MONI’s net loss for the three months ended March 31, 2018 totaled $26.2 million.
  • Ascent’s Adjusted EBITDA for the three months ended March 31, 2018 totaled $68.9 million. MONI’s Adjusted EBITDA for the three months ended March 31, 2018 totaled $70.0 million.
  • The Company expects to formally launch the Brinks Home Security™ brand in May 2018.
  • The Company’s partnership with Nest is off to a solid start with approximately 3,000 accounts activated since the launch of professional monitoring on December 5, 2017.
  • The Company’s Direct Channel grew 21% year-over-year and 16% sequentially.
  • Consolidated creation costs totaled 34.6 times in the three months ended March 31, 2018, down 1.0 times year-over-year and down 1.4 times sequentially, due to improved efficiency in the Company’s Direct Channel.

Ascent Chief Executive Officer, Bill Niles stated, “The MONI team continues to remain focused on improving key operating metrics.  MONI delivered significant year over year growth in the direct to consumer sales channel and they have positioned the business to launch all of its operations, marketing and sales efforts under the Brinks Home Security™ brand in the second quarter.  We are pleased with the progress.” 
  
Jeffery Gardner, President and Chief Executive Officer of MONI said, “In the first quarter we made solid progress against several of our operational initiatives, including improvements in account growth and creation multiples. On a sequential basis, we delivered a 17% and 16% improvement in customer additions in our Dealer and Direct Channels, respectively, in the quarter.  Our largest dealer, Skyline, improved performance in each month of the quarter since launching with MONI on January 1st. Our partnership with Nest is also ramping up with approximately 3,000 accounts activated since the launch of professional monitoring on December 5, 2017. Further, consolidated creation costs dropped in the first quarter to 34.6 times. While we saw some sequential improvement in RMR attrition, we still have more work to do on both unit and RMR attrition, leveraging pricing strategies while taking a balanced approach to contract extensions.”

“Our efforts around the BRINKS rebrand are also progressing. We are on track to officially launch the full rebranding in May. We are excited for this new chapter in the Company’s evolution and look forward to the opportunities ahead.”

Results for the Three Months Ended March 31, 20182

For the three months ended March 31, 2018, Ascent reported net revenue of $133.8 million, a decrease of 5.3%. The reduction in revenue for the three months ended March 31, 2018 is due to the lower average number of subscribers in the first quarter of 2018 as a result of lower production in the dealer channel leading to fewer subscriber additions than cancellations. This decrease was partially offset by an increase in average recurring monthly revenue (“RMR”) per subscriber to $44.76 due to certain price increases enacted during the past twelve months.

Ascent’s total cost of services for the three months ended March 31, 2018 increased 9.1% to $32.7 million. The increase for the three months ended March 31, 2018 is primarily attributable to expensing subscriber moves costs of $2.4 million, which were previously capitalized on the balance sheet in periods prior to January 1, 2018. This was principally the result of adoption of the new revenue recognition standard, Topic 606.  An increase in subscriber acquisition costs, which include certain equipment costs and MONI labor expenditures associated with the creation of new subscribers, also contributed to the increase in total cost of services.  Subscriber acquisition costs recognized in cost of services were $3.6 million for the three months ended March 31, 2018 as compared to $2.7 million for the three months ended March 31, 2017.

Ascent’s selling, general & administrative ("SG&A") costs for the three months ended March 31, 2018, increased 3.2% to $37.4 million. The increase is attributable to $3.0 million in severance and related costs in conjunction with transitioning executive leadership at Ascent and increases in direct marketing and other SG&A subscriber acquisition costs associated with the creation of new subscribers.  Subscriber acquisition costs in SG&A increased to $8.1 million for the three months ended March 31, 2018, as compared to $6.4 million for the three months ended March 31, 2017.  These increases were offset by decreases in stock based compensation expense and LiveWatch acquisition contingent bonus charges due to recent settlements or renegotiations of certain key agreements governing these costs. Furthermore, there was $713,000 and $641,000 of software impairment charges and consulting fees on integration and implementation of company initiatives, respectively, that were recognized in the three months ended March 31, 2017 with no corresponding costs being incurred in the three months ended March 31, 2018.

Ascent reported a net loss from continuing operations for the three months ended March 31, 2018 of $30.8 million, compared to net loss from continuing operations of $18.9 million in the prior year period.

MONI reported a net loss for the three months ended March 31, 2018 of $26.2 million, as compared to a net loss of $21.0 million in the prior year period.

Ascent’s Adjusted EBITDA decreased 13.9% to $68.9 million for the three months ended March 31, 2018, as compared to $80 million in the three months ended March 31, 2017. MONI’s Adjusted EBITDA decreased 14.8% to $70.0 million during the three months ended March 31, 2018, as compared to $82.2 million in the three months ended March 31, 2017. The decrease for the three months ended March 31, 2018 is primarily the result of 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 $10.2 million for the three months ended March 31, 2018 as compared to $7.6 million for the three months ended March 31, 2017.  The increase is primarily the result of increased production in our direct-to-consumer sales channel year over year.  MONI's Adjusted EBITDA as a percentage of net revenue for the three months ended March 31, 2018 was 52.4%, compared to 58.2% in the prior year period.

For a reconciliation of net loss from continuing operations to Adjusted EBITDA, please see the Appendix of this release.

   
  Twelve Months Ended
March 31,
  2018   2017
Beginning balance of accounts 1,036,794     1,080,726  
Accounts acquired 87,957     125,457  
Accounts canceled (b) (159,845 )   (162,086 )
Canceled accounts guaranteed by dealer and other adjustments (a) (b) (6,187 )   (7,303 )
Ending balance of accounts 958,719     1,036,794  
Monthly weighted average accounts 998,137     1,059,526  
Attrition rate – Unit (b) 16.0 %   15.3 %
Attrition rate - RMR (b) (c) 13.9 %   13.4 %
           
(a) Includes canceled accounts that are contractually guaranteed to be refunded from holdback.
(b) Accounts canceled for the twelve months ending March 31, 2017 were recast to include an estimated 9,522 accounts included in MONI’s Radio Conversion Program that canceled in excess of their expected attrition.
(c) The Recurring Monthly Revenue (“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 March 31, 2017 to 16.0% for the twelve months ended March 31, 2018.  Contributing to the increase in unit attrition was the number of subscriber accounts with 5-year contracts reaching the end of their initial contract term in the period, the relative proportion of the number of new customers under contract or in the dealer guarantee period and the Company’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 MONI’s Puerto Rico customer base.

RMR attrition for the twelve months ended March 31, 2018 increased to 13.9% from 13.4% for the twelve months ended March 31, 2017, reflecting price decreases related to the Company’s efforts to secure contract extensions from existing customers.

During the three months ended March 31, 2018 and 2017, MONI acquired 21,547 and 29,376 subscriber accounts, respectively.

Ascent Liquidity and Capital Resources

At March 31, 2018, on a consolidated basis, Ascent had $137.5 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 March 31, 2018, the existing long-term debt includes the principal balance of $1.8 billion under the MONI 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 March 31, 2018 and mature July 15, 2020. The Senior Notes have an outstanding principal balance of $585.0 million as of March 31, 2018 and mature on April 1, 2020. The Credit Facility term loan has an outstanding principal balance of $1.1 billion as of March 31, 2018 and requires principal payments of approximately $2.8 million per quarter with the remaining amount becoming due on September 30, 2022.  As of March 31, 2018, the Credit Facility revolver has an outstanding balance of $73.5 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 MONI is unable to refinance the Senior Notes by October 3, 2019, both the Credit Facility term loan and the Credit Facility revolver would become due and payable.

Conference Call

Ascent will host a call today, Tuesday, May 8, 2018 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 1095147. 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 May 22, 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 1095147.

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, launch of the Brinks Home Security™ brand and the anticipated benefits of the rebranding, the success of new products and services, account creation and related costs, subscriber attrition, anticipated account generation in our Direct Channel, the anticipated benefits from our partnership with Nest, future financial performance, 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 SUBSIDIARIES
Condensed Consolidated Balance Sheets
Amounts in thousands, except share amounts
       
  March 31, 2018   December 31, 2017
Assets      
Current assets:      
Cash and cash equivalents $ 30,087     10,465  
Restricted cash 93      
Marketable securities, at fair value 107,450     105,958  
Trade receivables, net of allowance for doubtful accounts of $3,632 in 2018 and $4,162 in 2017 12,300     12,645  
Prepaid and other current assets 23,498     11,175  
Total current assets 173,428     140,243  
Property and equipment, net of accumulated depreciation of $40,537 in 2018 and $37,915 in 2017 34,070     32,823  
Subscriber accounts and deferred contract acquisition costs, net of accumulated amortization of $1,468,359 in 2018 and $1,439,164 in 2017 1,224,937     1,302,028  
Dealer network and other intangible assets, net of accumulated amortization of $45,859 in 2018 and $42,806 in 2017 3,941     6,994  
Goodwill 563,549     563,549  
Other assets 27,633     9,348  
Total assets $ 2,027,558     2,054,985  
Liabilities and Stockholders’ Equity      
Current liabilities:      
Accounts payable $ 12,910     11,092  
Accrued payroll and related liabilities 6,145     3,953  
Other accrued liabilities 66,584     52,329  
Deferred revenue 13,477     13,871  
Holdback liability 7,601     9,309  
Current portion of long-term debt 11,000     11,000  
Total current liabilities 117,717     101,554  
Non-current liabilities:      
Long-term debt 1,783,253     1,778,044  
Long-term holdback liability 2,191     2,658  
Derivative financial instruments 6,553     13,491  
Deferred income tax liability, net 13,973     13,311  
Other liabilities 3,259     3,255  
Total liabilities 1,926,946     1,912,313  
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 12,002,103 and 11,999,630 shares at March 31, 2018 and December 31, 2017, respectively 120     120  
Series B common stock, $.01 par value. Authorized 5,000,000 shares; issued and outstanding 381,528 shares at both March 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 1,424,068     1,423,899  
Accumulated deficit (1,331,281 )   (1,277,118 )
Accumulated other comprehensive income (loss), net 7,701     (4,233 )
Total stockholders’ equity 100,612     142,672  
Total liabilities and stockholders’ equity $ 2,027,558     2,054,985  
             

See accompanying notes to condensed consolidated financial statements.

   
ASCENT CAPITAL GROUP, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)
Amounts in thousands, except shares and per share amounts
   
  Three Months Ended March 31,
  2018   2017
Net revenue $ 133,753     141,200  
Operating expenses:      
Cost of services 32,701     29,969  
Selling, general and administrative, including stock-based and long-term incentive compensation 37,406     36,245  
Radio conversion costs     232  
Amortization of subscriber accounts, deferred contract acquisition costs and other intangible assets 54,411     59,547  
Depreciation 2,621     2,127  
Gain on disposal of operating assets     (6,638 )
  127,139     121,482  
Operating income 6,614     19,718  
Other expense (income), net:      
Interest income (481 )   (395 )
Interest expense 38,652     37,486  
Other income, net (2,065 )   (242 )
  36,106     36,849  
Loss from continuing operations before income taxes (29,492 )   (17,131 )
Income tax expense from continuing operations 1,346     1,814  
Net loss from continuing operations (30,838 )   (18,945 )
Discontinued operations:      
Income from discontinued operations, net of income tax of $0     92  
Net loss (30,838 )   (18,853 )
Other comprehensive income (loss):      
Foreign currency translation adjustments     58  
Unrealized holding gain (loss) on marketable securities, net (3,077 )   551  
Unrealized gain on derivative contracts, net 14,406     1,049  
Total other comprehensive income, net of tax 11,329     1,658  
Comprehensive loss $ (19,509 )   (17,195 )
       
Basic and diluted income (loss) per share:      
Continuing operations $ (2.51 )   (1.56 )
Discontinued operations     0.01  
Net loss $ (2.51 )   (1.55 )
       
Weighted average Series A and Series B shares - basic and diluted 12,298,922     12,134,061  
Total issued and outstanding Series A and Series B shares at period end 12,383,631     12,353,681  
           

See accompanying notes to condensed consolidated financial statements.

   
ASCENT CAPITAL GROUP, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
Amounts in thousands
   
  Three Months Ended March 31,
  2018   2017
Cash flows from operating activities:      
Net loss $ (30,838 )   (18,853 )
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 54,411     59,547  
Depreciation 2,621     2,127  
Stock-based and long-term incentive compensation 226     1,576  
Deferred income tax expense 662     1,052  
Gain on disposal of operating assets     (6,638 )
Amortization of debt discount and deferred debt costs 2,959     2,673  
Bad debt expense 3,017     2,557  
Other non-cash activity, net 41     1,872  
Changes in assets and liabilities:      
Trade receivables (2,672 )   (1,659 )
Prepaid expenses and other assets 851     1,506  
Contract asset, net (70 )    
Subscriber accounts - deferred contract acquisition costs (898 )   (754 )
Payables and other liabilities 17,644     4,491  
Operating activities from discontinued operations, net     (3,408 )
Net cash provided by operating activities $ 47,954     45,997  
Cash flows from investing activities:      
Capital expenditures (3,310 )   (1,693 )
Cost of subscriber accounts acquired (24,560 )   (46,708 )
Purchases of marketable securities (7,998 )   (2,627 )
Proceeds from sale of marketable securities 5,495     997  
Proceeds from the disposal of operating assets     12,090  
Decrease in restricted cash (93 )    
Net cash used in investing activities $ (30,466 )   (37,941 )
Cash flows from financing activities:      
Proceeds from long-term debt 50,000     64,750  
Payments on long-term debt (47,750 )   (42,600 )
Value of shares withheld for share-based compensation (116 )   (268 )
Net cash provided by financing activities $ 2,134     21,882  
Net increase in cash and cash equivalents $ 19,622     29,938  
Cash and cash equivalents at beginning of period 10,465     12,319  
Cash and cash equivalents at end of period $ 30,087     42,257  
Supplemental cash flow information:      
State taxes paid, net $     3  
Interest paid 22,920     22,643  
Accrued capital expenditures 830     780  
           

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 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, 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 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 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.

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 March 31,
  2018   2017
Net loss from continuing operations $ (30,838 )   (18,945 )
Amortization of subscriber accounts, deferred contract acquisition costs and other intangible assets 54,411     59,547  
Depreciation 2,621     2,127  
Stock-based compensation 285     1,576  
Radio conversion costs     232  
Severance expense (a) 2,955     27  
LiveWatch acquisition contingent bonus charges 62     968  
Rebranding marketing program 892     847  
Integration / implementation of company initiatives     641  
Impairment of capitalized software     713  
Gain on disposal of operating assets     (6,638 )
Interest income (481 )   (395 )
Interest expense 38,652     37,486  
Reversal of other-than-temporary impairment losses on sale of marketable securities (1,036 )    
Income tax expense from continuing operations 1,346     1,814  
Adjusted EBITDA $ 68,869     80,000  
       
Expensed subscriber acquisition costs, net      
Gross subscriber acquisition costs $ 11,690     9,033  
Revenue associated with subscriber acquisition costs (1,512 )   (1,392 )
Expensed Subscriber acquisition costs, net 10,178     7,641  
           
(a) Severance expense related to transitioning executive leadership at Ascent in 2018 and MONI in 2017.          

The following table provides a reconciliation of MONI’s Net loss to total Adjusted EBITDA for the periods indicated (amounts in thousands):

  Three Months Ended March 31,
  2018   2017
Net loss $ (26,207 )   (21,013 )
Amortization of subscriber accounts, deferred contract acquisition costs and other intangible assets 54,411     59,547  
Depreciation 2,615     2,120  
Stock-based compensation 47     518  
Radio conversion costs     232  
Severance expense (a)     27  
LiveWatch acquisition contingent bonus charges 62     968  
Rebranding marketing program 892     847  
Integration / implementation of company initiatives     641  
Impairment of capitalized software     713  
Interest expense 36,873     35,838  
Income tax expense (benefit) 1,346     1,784  
Adjusted EBITDA $ 70,039     82,222  
       
Expensed subscriber acquisition costs, net      
Gross subscriber acquisition costs $ 11,690     9,033  
Revenue associated with subscriber acquisition costs (1,512 )   (1,392 )
Expensed Subscriber acquisition costs, net 10,178     7,641  
           
(a) Severance expense related to transitioning executive leadership at MONI.          
           


1 Comparisons are year-over-year unless otherwise specified.

2 On January 1, 2018, Ascent adopted the new revenue recognition standard, FASB ASC Topic 606, Revenue from Contracts with Customers (“Topic 606”) using the modified retrospective approach, which means the standard is applied only to the current period.  Any significant impact to results of operations is discussed here.

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Source: Ascent Capital Group

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Contact

Erica Bartsch
Sloane & Company
212-446-1875
ebartsch@sloanepr.com