Ascent Capital Group, Inc. (“Ascent” or the “Company”) (OTC: ASCMA,
ASCMB) has reported results for the three and six months ended June
30, 2019. Ascent is a holding company that owns Monitronics
International, Inc., ("Monitronics", doing business as Brinks Home
SecurityTM), one of the nation’s largest home security alarm
monitoring companies.
Headquartered in the Dallas-Fort Worth area,
Monitronics provides security alarm monitoring services to
approximately 900,000 residential and commercial customers as of
June 30, 2019. Monitronics’ long-term monitoring contracts provide
high margin recurring revenue that produce predictable and stable
cash flow.
Highlights1:
- Ascent’s net revenue for the three and six months ended June
30, 2019 totaled $128.1 million and $257.7 million,
respectively.
- Ascent’s net income for the three and six months ended June 30,
2019 totaled $628.9 million and $601.1 million, respectively.
Monitronics’ net loss for the three and six months ended June 30,
2019 totaled $54.2 million and $86.0 million, respectively.
- Ascent’s Adjusted EBITDA for the three and six months ended
June 30, 2019 totaled $67.2 million and $139.9 million,
respectively. Monitronics’ Adjusted EBITDA for the three and six
months ended June 30, 2019 totaled $68.3 million and $142.0
million, respectively.
- On May 20, 2019, Ascent, Monitronics and Monitronics’ largest
creditors entered into a Restructuring Support Agreement (the
“RSA”) that will eliminate approximately $885.0 million of
Monitronics’ debt.
- On June 30, 2019, in accordance with the plans outlined in the
RSA, Monitronics voluntarily filed for Chapter 11 bankruptcy
protection. As a result, Ascent deconsolidated Monitronics from its
financial statements and recognized a net gain on deconsolidation
of $685.5 million for the three and six months ended June 30,
20192.
- On July 26, 2019, Ascent mailed its definitive proxy statement
with respect to the special meeting of Ascent stockholders, to be
held on August 21, 2019, at which the Ascent stockholders will be
asked to vote in favor of Ascent’s participation in the
restructuring of Monitronics by means of a merger of Ascent into
Monitronics.
Results for the Three and Six Months
Ended June 30, 2019
For the three months ended June 30, 2019, Ascent
reported net revenue of $128.1 million, a decrease of 5.1%. For the
six months ended June 30, 2019, net revenue totaled $257.7 million,
a decrease of 4.1%. The reduction in revenue for the three and six
months ended June 30, 2019 is due to the lower average number of
subscribers in 2019. This decrease was partially offset by an
increase in average recurring monthly revenue (“RMR”) per
subscriber, to $45.40, due to certain price increases enacted
during the past twelve months. In addition, when compared to the
prior year periods, revenue decreased $3.8 million and $5.8 million
for the three and six months ended June 30, 2019, respectively,
related to changes in Topic 606 contract assets. All revenues of
Ascent are generated by its wholly-owned subsidiary,
Monitronics.
Ascent’s cost of services, which are all
incurred by Monitronics, for the three months ended June 30, 2019
decreased 13.7% to $28.5 million. For the six months ended June 30,
2019, Ascent’s cost of services decreased 15.9% to $55.3 million.
The decreases in cost of services for the three and six months
ended June 30, 2019 are primarily attributable to lower field
service costs due to fewer retention and move jobs being completed
and a decrease in expensed subscriber acquisition costs. Subscriber
acquisition costs, which include expensed equipment and labor costs
associated with the creation of new subscribers, decreased to $3.1
million and $4.8 million for the three and six months ended June
30, 2019, respectively, as compared to $4.3 million and $7.9
million for the three and six months ended June 30, 2018,
respectively.
Ascent’s selling, general & administrative
("SG&A") costs for the three months ended June 30, 2019,
decreased 14.6% to $29.4 million. For the six months ended June 30,
2019, Ascent’s SG&A decreased 13.8% to $61.9 million. The
decreases in SG&A for the three and six months ended June 30,
2019 are attributable to several factors including Monitronics
receiving a $4.8 million insurance receivable settlement in April
2019 from an insurance carrier that provided coverage related to
the 2017 class action litigation of alleged violation of
telemarketing laws. Also contributing to the decline in SG&A in
2019 were rebranding expenses of $2.4 million and $3.3 million
recognized in the three and six months ended June 30, 2018,
respectively, and $3.0 million of Ascent Capital severance expense
in the six months ended June 30, 2018. Subscriber acquisition costs
in SG&A decreased to $7.8 million and $13.3 million for the
three and six months ended June 30, 2019, respectively, as compared
to $8.8 million and $16.9 million for the three and six months
ended June 30, 2018, respectively.
Monitronics’ SG&A costs for the three and
six months ended June 30, 2019 were $28.2 million and $59.4
million, respectively, as compared to $32.7 million and $64.7
million for the three and six months ended June 30, 2018,
respectively.
Monitronics’ consolidated creation multiple,
including both expensed subscriber acquisition costs and other
capitalized creation costs, was 38.4x and 37.7x for the three and
six months ended June 30, 2019, respectively.
Ascent reported net income for the three and six
months ended June 30, 2019 of $628.9 million and $601.1 million,
respectively, compared to net loss of $244.4 million and $275.2
million in the three and six months ended June 30, 2018. The
increase in net income is primarily attributable to the gain on
deconsolidation of subsidiaries, partially offset by $34.7 million
of restructuring and reorganization expenses, recognized for the
three and six months ended June 30, 2019, as compared to a $214.4
million loss on goodwill impairment recorded in the three and six
months ended June 30, 2018.
Monitronics reported a net loss for the three
and six months ended June 30, 2019 of $54.2 million and $86.0
million, respectively, as compared to a net loss of $241.8 million
and $268.0 million in the three and six months ended June 30, 2018,
respectively. The decrease in Monitronics’ net loss is primarily
due to the loss on goodwill impairment recorded in the three and
six months ended June 30, 2018 partially offset by the
restructuring and reorganization expense recorded in the three and
six months ended June 30, 2019.
Ascent’s Adjusted EBITDA decreased 3.2% to $67.2
million for the three months ended June 30, 2019. For the six
months ended June 30, 2019, Ascent’s Adjusted EBITDA increased 1.2%
to $139.9 million.
Monitronics’ Adjusted EBITDA decreased 5.4% and
0.1% to $68.3 million and $142.0 million for the three and six
months ended June 30, 2019, respectively. Monitronics’
Adjusted EBITDA, as a percentage of net revenue, for the three and
six months ended June 30, 2019 was 53.3% and 55.1%, respectively,
as compared to 53.4% and 52.9% in the three and six months ended
June 30, 2018, respectively.
For a reconciliation of net income (loss) to
Adjusted EBITDA, please see the Appendix of this release.
LTM Subscriber Rollforward and
Attrition
|
Twelve Months Ended June 30, |
|
2019 |
|
2018 |
Beginning balance of accounts |
955,853 |
|
|
1,020,923 |
|
Accounts acquired |
96,736 |
|
|
98,561 |
|
Accounts canceled |
(162,318 |
) |
|
(158,233 |
) |
Canceled accounts guaranteed
by dealer and other adjustments (a) |
(4,835 |
) |
|
(5,398 |
) |
Ending balance of
accounts |
885,436 |
|
|
955,853 |
|
Monthly weighted average
accounts |
921,898 |
|
|
980,008 |
|
Attrition rate – Unit |
17.6 |
% |
|
16.1 |
% |
Attrition rate - RMR (b) |
17.5 |
% |
|
13.6 |
% |
(a) Includes canceled accounts that are contractually guaranteed
to be refunded from holdback.(b) 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 16.1% for the
twelve months ended June 30, 2018 to 17.6% for the twelve months
ended June 30, 2019. The RMR attrition rate for the twelve
months ended June 30, 2019 and 2018 was 17.5% and 13.6%,
respectively. Contributing to the increase in unit and RMR
attrition were fewer customers under contract or in the dealer
guarantee period for the twelve months ended June 30, 2019, as
compared to the prior period, increased non-pay attrition as well
as some impact from competition from new market entrants. The
increase in the RMR attrition rate for the twelve months ended June
30, 2019 was also impacted by a less aggressive price increase
strategy in first half of 2019.
During the three and six months ended June 30, 2019, Monitronics
acquired 22,743 and 42,746 subscriber accounts, respectively, as
compared to 37,383 and 58,930 subscriber accounts in the three
months ended June 30, 2018, respectively. Accounts acquired
for the three and six months ended June 30, 2018 reflect bulk buys
of approximately 10,600 and 10,900 accounts, respectively.
Ascent Liquidity and Capital
Resources
At June 30, 2019, on a consolidated basis, Ascent had $29.8
million of cash and cash equivalents. In accordance with the RSA,
Ascent plans to use its remaining cash and cash equivalents to fund
Ascent Capital liabilities and contribute its net cash to the
proposed merger of Ascent and Monitronics.
On February 14, 2019, Ascent repurchased $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, the Company entered
into transaction support agreements with holders of approximately
$18.6 million in aggregate principal amount of the Convertible
Notes, pursuant to which the Company 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 was settled on 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. Following the consummation of the transactions
contemplated by the Settlement Agreement and the consummation of
the Amended Offer, the Company separately negotiated private
repurchases of the remaining $260,000 in aggregate principal amount
for cash of $247,000 during the second quarter of 2019.
In considering the Company’s liquidity
requirements for the next twelve months, Ascent evaluated its known
future commitments and obligations. Ascent will be required to hold
at least $20 million in net cash (calculated in accordance with the
RSA) to contribute to the merger of Ascent and Monitronics. While
Ascent had $29.8 million in cash on hand as of June 30, 2019, the
Company currently has approximately $2.1 million of outstanding
liabilities and expects to incur at least $3 million in severance,
legal, and other operating costs, and there is no assurance that
these expenses will not be higher. Given such outstanding
liabilities and projected additional liabilities and expenditures
through the anticipated date of the merger, Ascent expects to have
at least $20 million in net cash to complete the merger, but there
can be no assurances that it will meet all the requirements
stipulated in the RSA, including having the minimum net cash on
hand if forecasted expenditures are larger than expected. If the
merger is not completed for any reason as noted in the RSA, then
the restructuring of Monitronics will be completed without the
participation of Ascent, and Ascent’s equity interests in
Monitronics will be cancelled without Ascent recovering any
property or value on account of such equity interests.
Furthermore, Ascent will be obligated to make a cash contribution
to Monitronics in the amount of $3.5 million upon Monitronics'
emergence from bankruptcy if the merger is not consummated.
In addition, if the merger is not consummated, the Ascent board of
directors will evaluate strategic alternatives, including but not
limited to raising additional capital, acquiring a business, the
sale of the Company, or the dissolution of the Company. In
the event of dissolution, there can be no assurance that engaging
in a statutory dissolution process under Delaware law could be
completed within 12 months of filing for dissolution, and no
assurance can be given as to the amount of contingent liabilities
for which reserves may be taken during the dissolution process.
Also, during this time, the dissolution process would result in
incremental costs and expenses to Ascent (including an expected
shared service arrangement with Monitronics) and thus, in the event
of a dissolution of the Company, the distribution of an aggregate
amount of cash to the Ascent stockholders is expected to be
substantially lower than the cash projected to be on hand as of the
Plan effective date.
Conference Call
Ascent will not host an earnings call or webcast
due to the pending restructuring of Monitronics and proposed merger
of Ascent and Monitronics.
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, the
restructuring of Monitronics (including the proposed merger with
Ascent), strategic alternatives available to Ascent if it does not
participate in the merger (including the terms on which any such
alternatives could be effected) 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, the ability of Monitronics
to complete its restructuring, the ability of Ascent to participate
in the merger (including statements regarding expected expenditures
and contingent liabilities), the ability of Ascent to effect
strategic alternatives to the merger, 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.
Additional Information
Nothing in this communication shall constitute a
solicitation to buy or an offer to sell any securities of Ascent or
Monitronics. Ascent stockholders and other investors are urged to
read the proxy statement/prospectus forming a part of the
Registration Statement on Form S-4 regarding the proposed merger of
Ascent and Monitronics and any other relevant documents that have
been filed with the SEC, as well as any amendments or supplements
to those documents, because they will contain important information
about the proposed merger and the transactions contemplated by the
Support Agreement. Copies of Ascent’s and Monitronics’ SEC filings
are available free of charge at the SEC’s website
(http://www.sec.gov). Copies of the filings together with the
materials incorporated by reference therein will also be available,
without charge, by directing a request to Monitronics
International, Inc., 1990 Wittington Place, Farmers Branch, TX,
Telephone: (972) 243-7443, or to Ascent Capital Group, Inc.,
5251 DTC Parkway. Suite 1000, Greenwood Village, CO 80111,
Telephone: (303) 628-5600.
Participants in the
Solicitation
The directors and executive officers of Ascent
and Monitronics and other persons may be deemed to be participants
in the solicitation of proxies in respect of any proposals relating
to the proposed merger of Ascent and Monitronics. Information
regarding the directors and executive officers of Ascent is
available in Amendment No. 1 to its Annual Report on Form 10-K for
the year ended December 31, 2018, which has been filed with the
SEC, and certain of its Current Reports on Form 8-K.
Information regarding the directors and executive officers of
Monitronics is set forth in the proxy statement/prospectus forming
a part of the Registration Statement on Form S-4 that has been
filed with the SEC regarding the proposed merger and other
transactions contemplated by the Support Agreement. Other
information regarding the participants in the proxy solicitation
and a description of their direct and indirect interests, by
security holdings or otherwise, is available in the proxy materials
regarding the foregoing filed with the SEC. Free copies of these
documents may be obtained as described in the preceding
paragraph.
About Ascent and
Monitronics
Ascent Capital Group, Inc. (OTC: ASCMA, ASCMB)
is a holding company whose primary subsidiary is Monitronics, one
of the largest home security and alarm monitoring companies in the
U.S. Headquartered in the Dallas-Fort Worth area, Monitronics
secures approximately 900,000 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
SUBSIDIARIES
Condensed Consolidated Balance
Sheets
Amounts in thousands, except share
amounts
|
June 30, 2019 |
|
December 31, 2018 |
Assets |
|
|
|
Current assets: |
|
|
|
Cash and cash equivalents |
$ |
29,762 |
|
|
|
105,921 |
|
Restricted cash |
— |
|
|
|
189 |
|
Trade receivables, net of allowance for doubtful accounts of $0 in
2019 and $3,759 in 2018 |
— |
|
|
|
13,121 |
|
Prepaid and other current assets |
323 |
|
|
|
32,202 |
|
Total current assets |
30,085 |
|
|
|
151,433 |
|
Property and equipment, net of
accumulated depreciation of $303 in 2019 and $40,827 in 2018 |
3 |
|
|
|
36,549 |
|
Subscriber accounts and
deferred contract acquisition costs, net of accumulated
amortization of $0 in 2019 and $1,621,242 in 2018 |
— |
|
|
|
1,195,463 |
|
Deferred income tax asset,
net |
— |
|
|
|
783 |
|
Operating lease right-of-use
asset |
97 |
|
|
|
— |
|
Other assets |
8 |
|
|
|
29,316 |
|
Total assets |
$ |
30,193 |
|
|
|
1,413,544 |
|
Liabilities and Stockholders’ Equity
(Deficit) |
|
|
|
Current liabilities: |
|
|
|
Accounts payable |
$ |
173 |
|
|
|
12,668 |
|
Other accrued liabilities |
1,924 |
|
|
|
36,006 |
|
Deferred revenue |
— |
|
|
|
13,060 |
|
Holdback liability |
— |
|
|
|
11,513 |
|
Current portion of long-term debt |
— |
|
|
|
1,895,175 |
|
Total current liabilities |
2,097 |
|
|
|
1,968,422 |
|
Non-current liabilities: |
|
|
|
Long-term holdback liability |
— |
|
|
|
1,770 |
|
Derivative financial instruments |
— |
|
|
|
6,039 |
|
Operating lease liabilities |
— |
|
|
|
— |
|
Other liabilities |
12 |
|
|
|
2,742 |
|
Total liabilities |
2,109 |
|
|
|
1,978,973 |
|
Commitments and
contingencies |
|
|
|
Stockholders’ deficit: |
|
|
|
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 12,115,260 and 12,080,683 shares at June 30,
2019 and December 31, 2018, respectively |
121 |
|
|
|
121 |
|
Series B common stock,
$.01 par value. Authorized 5,000,000 shares; issued and
outstanding 381,528 shares at both June 30, 2019 and
December 31, 2018 |
4 |
|
|
|
4 |
|
Series C common stock,
$0.01 par value. Authorized 45,000,000 shares; no shares
issued |
— |
|
|
|
— |
|
Additional paid-in
capital |
1,425,384 |
|
|
|
1,425,325 |
|
Accumulated deficit |
(1,397,425 |
) |
|
|
(1,998,487 |
) |
Accumulated other
comprehensive income, net |
— |
|
|
|
7,608 |
|
Total stockholders’ equity (deficit) |
28,084 |
|
|
|
(565,429 |
) |
Total liabilities and stockholders’ equity (deficit) |
$ |
30,193 |
|
|
|
1,413,544 |
|
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 June 30, |
|
Six Months Ended June 30, |
|
2019 |
|
2018 |
|
2019 |
|
2018 |
Net revenue |
$ |
128,091 |
|
|
|
135,013 |
|
|
$ |
257,697 |
|
|
268,766 |
|
Operating expenses: |
|
|
|
|
|
|
|
Cost of services |
28,536 |
|
|
|
33,047 |
|
|
55,300 |
|
|
65,748 |
|
Selling, general and administrative, including stock-based and
long-term incentive compensation |
29,364 |
|
|
|
34,387 |
|
|
61,876 |
|
|
71,793 |
|
Amortization of subscriber accounts, deferred contract acquisition
costs and other intangible assets |
49,138 |
|
|
|
53,891 |
|
|
98,283 |
|
|
108,302 |
|
Depreciation |
3,123 |
|
|
|
2,871 |
|
|
6,281 |
|
|
5,492 |
|
Loss on goodwill impairment |
— |
|
|
|
214,400 |
|
|
— |
|
|
214,400 |
|
|
110,161 |
|
|
|
338,596 |
|
|
221,740 |
|
|
465,735 |
|
Operating income (loss) |
17,930 |
|
|
|
(203,583 |
) |
|
35,957 |
|
|
(196,969 |
) |
Other expense (income),
net: |
|
|
|
|
|
|
|
Gain on deconsolidation of subsidiaries |
(685,530 |
) |
|
|
— |
|
|
(685,530 |
) |
|
— |
|
Restructuring and reorganization expense |
34,730 |
|
|
|
— |
|
|
34,730 |
|
|
— |
|
Interest income |
(318 |
|
) |
|
(774 |
) |
|
(862 |
) |
|
(1,255 |
) |
Interest expense |
40,521 |
|
|
|
40,422 |
|
|
78,415 |
|
|
79,074 |
|
Realized and unrealized (gain) loss, net on derivative financial
instruments |
(969 |
|
) |
|
— |
|
|
6,804 |
|
|
— |
|
Refinancing expense |
— |
|
|
|
— |
|
|
331 |
|
|
— |
|
Other income, net |
(71 |
|
) |
|
(211 |
) |
|
(330 |
) |
|
(2,276 |
) |
|
(611,637 |
|
) |
|
39,437 |
|
|
(566,442 |
) |
|
75,543 |
|
Income (loss) before income taxes |
629,567 |
|
|
|
(243,020 |
) |
|
602,399 |
|
|
(272,512 |
) |
Income tax expense |
666 |
|
|
|
1,347 |
|
|
1,337 |
|
|
2,693 |
|
Net income (loss) |
628,901 |
|
|
|
(244,367 |
) |
|
601,062 |
|
|
(275,205 |
) |
Other comprehensive income
(loss): |
|
|
|
|
|
|
|
Unrealized holding loss on marketable securities, net |
— |
|
|
|
(823 |
) |
|
— |
|
|
(3,900 |
) |
Unrealized gain (loss) on derivative contracts, net |
(472 |
|
) |
|
5,521 |
|
|
(940 |
) |
|
19,927 |
|
Deconsolidation of subsidiaries |
(6,668 |
|
) |
|
— |
|
|
(6,668 |
) |
|
— |
|
Total other comprehensive income (loss), net of tax |
(7,140 |
|
) |
|
4,698 |
|
|
(7,608 |
) |
|
16,027 |
|
Comprehensive income (loss) |
$ |
621,761 |
|
|
|
(239,669 |
) |
|
$ |
593,454 |
|
|
(259,178 |
) |
|
|
|
|
|
|
|
|
Basic earnings (loss) per
share: |
|
|
|
|
|
|
|
Net income (loss) |
$ |
50.48 |
|
|
|
(19.82 |
) |
|
$ |
48.30 |
|
|
(22.35 |
) |
|
|
|
|
|
|
|
|
Diluted earnings (loss) per
share: |
|
|
|
|
|
|
|
Net income (loss) |
$ |
50.02 |
|
|
|
(19.82 |
) |
|
$ |
47.86 |
|
|
(22.35 |
) |
|
|
|
|
|
|
|
|
Weighted average Series A and Series B shares - basic |
12,459,283 |
|
|
|
12,327,387 |
|
|
12,444,628 |
|
|
12,313,233 |
|
Weighted average Series A and Series B shares - diluted |
12,574,076 |
|
|
|
12,327,387 |
|
|
12,559,421 |
|
|
12,313,233 |
|
Total issued and outstanding Series A and Series B shares at period
end |
|
|
|
|
|
|
12,496,788 |
|
|
12,413,898 |
|
See accompanying notes to condensed consolidated
financial statements.
ASCENT CAPITAL GROUP, INC. AND
SUBSIDIARIES
Condensed Consolidated Statements of Cash
Flows
Amounts in thousands
|
Six Months Ended June 30, |
|
2019 |
|
2018 |
Cash flows from operating
activities: |
|
|
|
Net income (loss) |
$ |
601,062 |
|
|
|
(275,205 |
) |
Adjustments to reconcile net income (loss) to net cash provided by
operating activities: |
|
|
|
Amortization of subscriber accounts, deferred contract acquisition
costs and other intangible assets |
98,283 |
|
|
|
108,302 |
|
Depreciation |
6,281 |
|
|
|
5,492 |
|
Stock-based and long-term incentive compensation |
760 |
|
|
|
945 |
|
Deferred income tax expense |
— |
|
|
|
1,324 |
|
Amortization of debt discount and deferred debt costs |
197 |
|
|
|
5,994 |
|
Gain on deconsolidation of subsidiaries |
(685,530 |
) |
|
|
— |
|
Restructuring and reorganization expense |
34,730 |
|
|
|
— |
|
Unrealized loss on derivative financial instruments, net |
4,577 |
|
|
|
— |
|
Refinancing expense |
331 |
|
|
|
— |
|
Bad debt expense |
5,903 |
|
|
|
5,623 |
|
Loss on goodwill impairment |
— |
|
|
|
214,400 |
|
Other non-cash activity, net |
(738 |
) |
|
|
(805 |
) |
Changes in assets and liabilities: |
|
|
|
Trade receivables |
(5,327 |
) |
|
|
(5,434 |
) |
Prepaid expenses and other assets |
4,590 |
|
|
|
(2,001 |
) |
Subscriber accounts - deferred contract acquisition costs |
(1,781 |
) |
|
|
(2,586 |
) |
Payables and other liabilities |
34,780 |
|
|
|
7,623 |
|
Net cash provided by operating activities |
98,118 |
|
|
|
63,672 |
|
Cash flows from investing
activities: |
|
|
|
Capital expenditures |
(6,767 |
) |
|
|
(8,928 |
) |
Cost of subscriber accounts acquired |
(61,335 |
) |
|
|
(69,695 |
) |
Deconsolidation of subsidiary cash |
(11,588 |
) |
|
|
— |
|
Purchases of marketable securities |
— |
|
|
|
(39,022 |
) |
Proceeds from sale of marketable securities |
— |
|
|
|
37,841 |
|
Net cash used in investing activities |
(79,690 |
) |
|
|
(79,804 |
) |
Cash flows from financing
activities: |
|
|
|
Proceeds from long-term debt |
43,100 |
|
|
|
105,300 |
|
Payments on long-term debt |
(99,376 |
) |
|
|
(95,200 |
) |
Payments of restructuring and reorganization costs |
(35,968 |
) |
|
|
— |
|
Payments of refinancing costs |
(2,521 |
) |
|
|
— |
|
Value of shares withheld for share-based compensation |
(11 |
) |
|
|
(144 |
) |
Net cash provided by (used in) financing activities |
(94,776 |
) |
|
|
9,956 |
|
Net decrease in cash, cash equivalents and restricted cash |
(76,348 |
) |
|
|
(6,176 |
) |
Cash, cash equivalents and
restricted cash at beginning of period |
106,110 |
|
|
|
10,465 |
|
Cash, cash equivalents and
restricted cash at end of period |
$ |
29,762 |
|
|
|
4,289 |
|
Supplemental cash flow
information: |
|
|
|
State taxes paid, net |
$ |
2,637 |
|
|
|
2,710 |
|
Interest paid |
38,063 |
|
|
|
72,899 |
|
Accrued capital expenditures |
461 |
|
|
|
616 |
|
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
a non-GAAP measure and is defined as net income (loss) before
interest expense, interest income, income taxes, depreciation,
amortization (including the amortization of subscriber accounts,
dealer network and other intangible assets), restructuring charges,
stock-based compensation, and other non-cash or non-recurring
charges. Ascent believes that Adjusted EBITDA is an important
indicator of the operational strength and performance of its
business. 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 Monitronics' covenants are
calculated under the agreements governing its debt obligations.
Adjusted EBITDA does not represent cash flow from operations as
defined by generally accepted accounting principles in the United
States ("GAAP"), should not be construed as an alternative to net
income or loss and is indicative neither of our results of
operations nor of cash flows available to fund all of our cash
needs. It is, however, a measurement that Ascent believes is useful
to investors in analyzing its operating performance. Accordingly,
Adjusted EBITDA should be considered in addition to, but not as a
substitute for, net income, cash flow provided by operating
activities and other measures of financial performance prepared in
accordance with GAAP. Adjusted EBITDA is a non-GAAP financial
measure. As companies often define non-GAAP financial measures
differently, Adjusted EBITDA as calculated by Ascent should not be
compared to any similarly titled measures reported by other
companies.
The following table provides a reconciliation of Ascent's Net
income (loss) to total Adjusted EBITDA for the periods indicated
(amounts in thousands):
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
|
2019 |
|
2018 |
|
2019 |
|
2018 |
Net income (loss) |
$ |
628,901 |
|
|
|
(244,367 |
) |
|
$ |
601,062 |
|
|
|
(275,205 |
) |
Amortization of subscriber
accounts, deferred contract acquisition costs and other intangible
assets |
49,138 |
|
|
|
53,891 |
|
|
98,283 |
|
|
|
108,302 |
|
Depreciation |
3,123 |
|
|
|
2,871 |
|
|
6,281 |
|
|
|
5,492 |
|
Stock-based compensation |
(389 |
) |
|
|
685 |
|
|
70 |
|
|
|
970 |
|
Long-term incentive
compensation |
264 |
|
|
|
— |
|
|
550 |
|
|
|
— |
|
Severance expense (a) |
— |
|
|
|
— |
|
|
— |
|
|
|
2,955 |
|
LiveWatch acquisition contingent
bonus charges |
— |
|
|
|
62 |
|
|
63 |
|
|
|
124 |
|
Legal settlement reserve (related insurance recovery) |
(4,800 |
) |
|
|
— |
|
|
(4,800 |
) |
|
|
— |
|
Rebranding marketing program |
— |
|
|
|
2,403 |
|
|
— |
|
|
|
3,295 |
|
Integration / implementation of
company initiatives |
1,833 |
|
|
|
— |
|
|
3,414 |
|
|
|
— |
|
Loss on goodwill impairment |
— |
|
|
|
214,400 |
|
|
— |
|
|
|
214,400 |
|
Gain on deconsolidation of
subsidiaries |
(685,530 |
) |
|
|
— |
|
|
(685,530 |
) |
|
|
— |
|
Restructuring and reorganization
expense |
34,730 |
|
|
|
— |
|
|
34,730 |
|
|
|
— |
|
Interest income |
(318 |
) |
|
|
(774 |
) |
|
(862 |
) |
|
|
(1,255 |
) |
Interest expense |
40,521 |
|
|
|
40,422 |
|
|
78,415 |
|
|
|
79,074 |
|
Realized and unrealized (gain)
loss, net on derivative financial instruments |
(969 |
) |
|
|
— |
|
|
6,804 |
|
|
|
— |
|
Refinancing expense |
— |
|
|
|
— |
|
|
331 |
|
|
|
— |
|
Insurance recovery in excess of
cost on Ascent Convertible Note litigation |
— |
|
|
|
— |
|
|
(259 |
) |
|
|
— |
|
Unrealized gain on marketable
securities, net |
— |
|
|
|
(1,540 |
) |
|
— |
|
|
|
(2,576 |
) |
Income tax expense |
666 |
|
|
|
1,347 |
|
|
1,337 |
|
|
|
2,693 |
|
Adjusted EBITDA |
$ |
67,170 |
|
|
|
69,400 |
|
|
$ |
139,889 |
|
|
|
138,269 |
|
|
|
|
|
|
|
|
|
Expensed Subscriber acquisition
costs, net |
|
|
|
|
|
|
|
Gross subscriber acquisition costs |
$ |
10,877 |
|
|
|
13,135 |
|
|
$ |
18,192 |
|
|
|
24,825 |
|
Revenue associated with subscriber acquisition costs |
(2,393 |
) |
|
|
(1,255 |
) |
|
(4,096 |
) |
|
|
(2,767 |
) |
Expensed Subscriber acquisition costs, net |
$ |
8,484 |
|
|
|
11,880 |
|
|
$ |
14,096 |
|
|
|
22,058 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) Severance expense related to transitioning executive
leadership at Ascent in 2018.
The following table provides a reconciliation of Monitronics’
Net loss to total Adjusted EBITDA for the periods indicated
(amounts in thousands):
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
|
2019 |
|
2018 |
|
2019 |
|
2018 |
Net loss |
$ |
(54,202 |
) |
|
(241,792 |
) |
|
$ |
(85,972 |
) |
|
(267,999 |
) |
Amortization of subscriber
accounts, deferred contract acquisition costs and other intangible
assets |
49,138 |
|
|
53,891 |
|
|
98,283 |
|
|
108,302 |
|
Depreciation |
3,121 |
|
|
2,865 |
|
|
6,275 |
|
|
5,480 |
|
Stock-based compensation |
(413 |
) |
|
383 |
|
|
(224 |
) |
|
430 |
|
Long-term incentive
compensation |
264 |
|
|
— |
|
|
550 |
|
|
— |
|
LiveWatch acquisition contingent
bonus charges |
— |
|
|
62 |
|
|
63 |
|
|
124 |
|
Legal settlement reserve (related
insurance recovery) |
(4,800 |
) |
|
— |
|
|
(4,800 |
) |
|
— |
|
Rebranding marketing program |
— |
|
|
2,403 |
|
|
— |
|
|
3,295 |
|
Integration / implementation of
company initiatives |
1,833 |
|
|
— |
|
|
3,414 |
|
|
— |
|
Loss on goodwill impairment |
— |
|
|
214,400 |
|
|
— |
|
|
214,400 |
|
Restructuring and reorganization
expense |
33,102 |
|
|
— |
|
|
33,102 |
|
|
— |
|
Interest expense |
40,536 |
|
|
38,600 |
|
|
77,969 |
|
|
75,473 |
|
Realized and unrealized (gain)
loss, net on derivative financial instruments |
(969 |
) |
|
— |
|
|
6,804 |
|
|
— |
|
Refinancing expense |
— |
|
|
— |
|
|
5,214 |
|
|
— |
|
Income tax expense |
666 |
|
|
1,347 |
|
|
1,337 |
|
|
2,693 |
|
Adjusted EBITDA |
$ |
68,276 |
|
|
72,159 |
|
|
$ |
142,015 |
|
|
142,198 |
|
|
|
|
|
|
|
|
|
Expensed Subscriber acquisition
costs, net |
|
|
|
|
|
|
|
Gross subscriber acquisition costs |
$ |
10,877 |
|
|
13,135 |
|
|
$ |
18,192 |
|
|
24,825 |
|
Revenue associated with subscriber acquisition costs |
(2,393 |
) |
|
(1,255 |
) |
|
(4,096 |
) |
|
(2,767 |
) |
Expensed Subscriber acquisition costs, net |
$ |
8,484 |
|
|
11,880 |
|
|
$ |
14,096 |
|
|
22,058 |
|
1 Comparisons are year-over-year unless otherwise specified.
2 As a result of the deconsolidation, Ascent’s June 30, 2019
balance sheet excludes all assets and liabilities of
Monitronics. Ascent’s statements of operations and cash flows
include Monitronics operating results through June 30, 2019.
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