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Edited Transcript of ASCMA earnings conference call or presentation 5-Nov-18 2:00pm GMT

Q3 2018 Ascent Capital Group Inc Earnings Call

ENGLEWOOD Nov 12, 2018 (Thomson StreetEvents) -- Edited Transcript of Ascent Capital Group Inc earnings conference call or presentation Monday, November 5, 2018 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Fred Albert Graffam

Ascent Capital Group, Inc. - CFO & Senior VP

* Jeffery R. Gardner

Monitronics International, Inc. - President & CEO

* William E. Niles

Ascent Capital Group, Inc. - CEO, General Counsel & Secretary

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Conference Call Participants

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* Andrew Elie Gadlin

Odeon Capital Group LLC, Research Division - Research Analyst

* Ashish Nair

* Jeffrey Ted Kessler

Imperial Capital, LLC - MD of Sales and Trading Group

* Saliq Jamil Khan

Imperial Capital, LLC, Research Division - VP

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Presentation

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Operator [1]

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Good day, and welcome to Ascent Capital Group's Conference Call to discuss the company's Third Quarter 2018 Earnings. Today's call is being recorded, and a replay of the call will be available on the Ascent IR website an hour after the completion of this call.

For those of you following along on the webcast, we'll be using a flip -- a slide's deck to supplement a portion of management's commentary today.

This call includes certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements about business strategies, including those with respect to our dealer and direct sales and installation channels; markets potential and expansion; the success of new products and services; launch of BRINKS Home Security's consumer financing solution; the anticipated benefits of the BRINKS Home rebranding; customer retention; account creation and related cost; anticipated account generation; future financial performance; debt refinancing; recovery of insurance proceeds; 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 the company's services, technological innovations in the alarm monitoring industry, competitive issues, continued access to capital on terms acceptable to Ascent, 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 call, 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 Form 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 during this call.

On today's call, we will discuss certain non-GAAP financial measures, including adjusted EBITDA. The required definitions and reconciliations are included in our earnings release, which was made publicly available earlier today.

I would now like to turn the call our to your host, Ascent Capital Group's Chief Executive Officer and General Counsel, Bill Niles. Please go ahead, sir.

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William E. Niles, Ascent Capital Group, Inc. - CEO, General Counsel & Secretary [2]

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Thank you, operator. Good morning, everyone, and welcome to our Q3 2018 earnings call. Joining me on the call today is Jeff Gardner, our CEO of BRINKS Home Security. Also with us today is Fred Graffam, Ascent's CFO.

Team continued to make meaningful progress, advancing its business objectives in the third quarter. I'm also pleased with our execution around the recently announced, amended and restated transaction support agreement with our term loan and senior note holders. For the agreement, this morning, we launched an exchange offer for our senior notes and a consent solicitation for certain proposed amendments for our credit facility and senior notes.

While I'm encouraged by our progress, there can be no assurance that a transaction acceptable to the company and the creditors will be consummated. As such, I point you to the liquidity and capital resources section of the company's press release issued earlier this morning.

With that, let me turn things over to Jeff to provide an update on the business. Thanks, Jeff.

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Jeffery R. Gardner, Monitronics International, Inc. - President & CEO [3]

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Thank you, Bill, and good morning, everyone. On today's call, I want to provide an update on the following: a look at our progress towards stabilizing and growing the dealer channel; a review of our direct channel performance; an update on customer retention and creation costs. And finally, I want to touch on certain recently implemented cost-saving measures.

Let me begin, however, with the review of our top line financials. In the third quarter, BRINKS Home Security delivered net revenue of $137.2 million, a 1.5% sequential increase and year-to-date net revenues of $405.9 million. We reported a net loss of $33.8 million and $301.8 million in the quarter and year-to-date periods, respectively. This is compared to a net loss of $25.5 million and $96.7 million in the prior year period.

As a reminder, the company recorded a $214.4 million goodwill impairment in the second quarter, which was the principle reason for the increase in our year-to-date net loss versus the prior year period. Adjusted EBITDA in the quarter was $71.3 million and $213.5 million year-to-date. We added 33,065 customers in the quarter, which includes 6,650 bulk account purchases. Excluding the impact of the bulks, this represents 24% year-over-year improvement versus Q3 of 2017, a 1% decline versus Q2 of 2018.

Our direct channel accounted for 34% of new customers in the quarter, excluding the bulk accounts. We continue to see stabilization and strengthening in the dealer program, which was up 6% sequentially and 22% year-over-year. Based on feedback from our dealers, we believe that the BRINKS Home Security brand is resonating well with the customers purchasing through this channel. Our dealer partners have been quick to adopt the brand and are providing positive feedback on its effectiveness in their respective go-to-market strategies.

We remain optimistic about the long-term benefits that the brand can bring to the program. In our direct-to-consumer channel, while activations were up 29% versus the same quarter in the prior year, we experienced some softness relative to Q2. We found that the BRINKS Home Security brand attracts cost-effective leads through digital media and other forms of marketing. However, the introduction of 3-year contracts and an increase in our underwriting discipline related to our free upfront offer somewhat constrained DIY sales. We have since adjusted our primary offer. Going forward, we anticipate that our direct channel performance will continue to be varied, as we refine our sales and marketing strategy under the BRINKS Home Security brand and launch our consumer financing offer with our partner, GreenSky.

As it relates to consumer financing, I am pleased to announce that we are in the final stages of launching our solution with GreenSky. Our development team has built a sales flow that allows our reps to offer no-interest-equipment financing to qualified customers in a scalable and efficient manner. We believe the introduction of 36-month 0% financing will provide additional flexibility to the customer, allowing them to purchase the security and home automation solution they want without the downside of a large upfront payment. The reduction in our equipment subsidy will allow us to offer a more competitive monthly monitoring rate. We also believe this pricing transparency will help improve the efficiency of lead generation and sales conversion, and we expect consumer financing to reduce our net creation costs.

Further, we believe that customers who financed our equipment may be less likely to attrit in the future.

Moving to creation costs. Our creation multiple of 36.8x was up 0.2x versus prior year and 2.5x sequentially. The sequential increase was driven by seasonally higher production from our larger dealers who generally enjoy higher multiples, the impact of marketing and fixed sales costs in our direct channel being spread over lower-than-anticipated account additions, a smaller favorable impact due to bulk purchases and the full quarter impact of BRINKS commissions. To better manage our direct channel creation costs, we have recently made adjustments to our cost base. We expect that these changes will bring our investment in line with performance expectations. As we demonstrate a consistent ability to generate direct channel additions at targeted multiples, our investment will be adjusted accordingly.

Total unit attrition was 16.8% in Q3 as compared to 16.1% in the second quarter. Beside from the attrition rate effect of the declining customer base, we also experienced higher disconnects due to fewer customers under contract or in the dealer guarantee period and some competitive pressure from new market entrants. RMR attrition was 14.1% in the quarter, up 50 basis points sequentially. The smaller increase as compared to unit attrition was due to net price increases. As we indicated in the second quarter, the RMR attrition benefits of pricing strategies implemented in the early part of the year are mostly behind us. Improving attrition remains a key priority for the business.

In addition to providing industry-leading customer service, we will also continue to utilize and refine strategies around retention and predictive churn analytics, making special efforts to secure high-risk customers with extended contracts. As a testament to our customer service efforts, I am pleased to announce that BRINKS Home Security was recently recognized by J.D. Power and Associates, ranking us #1 in customer satisfaction among home security brands. It is gratifying that our team has once again been recognized for its unwavering service and support and remain committed to continuing to be a customer service leader in the industry.

Finally, during the third quarter, we continued efforts to further integrate our legacy LiveWatch operations, including rationalizing our direct-to-consumer channel and our customer care operations. We anticipate approximately $6 million of annualized savings will be realized as a result of these changes, a portion of which will be realized in Q4. Going forward, we will continue to take opportunities to drive operational efficiencies and manage our cost base.

Looking ahead, our focus over the next several months will be on executing and delivering against our key performance indicators. I continue to believe in the strength of this business and I'm confident we have the right initiatives in place to achieve success over the long term.

With that, I will thing -- turn things over to Fred.

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Fred Albert Graffam, Ascent Capital Group, Inc. - CFO & Senior VP [4]

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Thanks, Jeff. As Jeff noted, we continue to take meaningful steps to control costs and maintain margins in our business.

Turning to our top line performance. Net revenue decreased 0.8% in the third quarter to $137.2 million and decreased 3.3% year-to-date to $405.9 million as compared to the respective prior year periods. This decline is due to a lower average number of customers in both periods as compared to the prior year. Partially offsetting this decline was an increase in average recurring monthly revenue per customer due to certain price increases enacted during the past 12 months.

In addition, we realized the $4.2 million and $7 million increase in revenue for the quarter and 9 months, respectively, from the favorable impact of ASC 606, adopted effective January 1, 2018.

Cost of services expense, excluding subscriber acquisition costs for the quarter and 9 months increased $3.6 million and $7.3 million, respectively, as compared to the prior year periods. These increases were primarily due to expense in move cost of $2.4 million and $7.1 million, respectively, due to the adoption of ASC 606. As a reminder, prior to the adoption of this new accounting standard, these costs were capitalized on the balance sheet.

Subscriber acquisition costs expense as a component of cost of service were $4.6 million and $12.5 million in the quarter and 9-month periods, respectively, as compared to $3.3 million and $8.8 million in the prior year periods. The primary reason for the increase is higher equipment costs related to growth in the direct-to-consumer channel. Ascent's selling, general and administrative expenses, excluding subscriber acquisition costs, in the quarter increased $0.9 million as compared to the prior year period, principally due to increased legal and professional fees as well as costs related to the BRINKS Home Security rebrand. This increase was offset by reduced stock-based compensation expense.

For the first 9 months, SG&A, excluding subscriber acquisition costs, decreased $32.2 million as compared to the prior year period. The decline is primarily due to previously disclosed prior year charge of $28 million for a legal settlement of alleged violations of telemarketing laws by one of our former dealers.

While the final settlement payment of $23 million was paid in the third quarter, we also signed an insurance settlement agreement with one of our carriers for $9.7 million that is expected to be received in the fourth quarter. Also contributing to the decline were decreases in stock-based compensation expense and consulting fees in the first 9 months related to cost-cutting initiatives.

Subscriber acquisition cost expenses as a component of SG&A were $9.5 million and $26.4 million in the quarter and 9-month periods, respectively, as compared to $8 million and $21 million in the prior year periods. The primary reason for the increase is higher costs related to growth in the direct-to-consumer channel.

In the quarter and first 9 months, Ascent reported a net loss of $40.1 million and $315.3 million respectively, as compared to a net loss of $29.2 million and $91.5 million in the prior year periods. The year-over-year increase in net loss for the 9-month period was principally attributable to a previously disclosed goodwill impairment of $214.4 million recognized in the second quarter.

Adjusted EBITDA, which is not adjusted for the expense portion of subscriber acquisition costs, totaled $66.9 million in the quarter as compared to $75.7 million in the prior year period. For the 9-month period, adjusted EBITDA totaled $205.2 million compared to $233.4 million in the prior year. The decrease in adjusted EBITDA was due to lower subscriber revenue and increased creation costs net of associated revenue in our direct-to-consumer channel as well as the previously discussed change in accounting for move costs.

Net creation costs, which are expensed during the period, totaled $13.4 million in the quarter and $35.4 million in the first 9 months, up from $10.2 million and $26.1 million in the respective prior year periods.

In terms of liquidity, at September 30, on a consolidated basis, Ascent had $137.6 million of cash and cash equivalents. At quarter-end, we had an outstanding balance of $159.1 million on our revolver and available borrowings subject to certain debt covenants of $135.9 million.

With that, let me turn the call back over to the operator for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question will come from the line of Jeff Kessler of Imperial Capital.

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Jeffrey Ted Kessler, Imperial Capital, LLC - MD of Sales and Trading Group [2]

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A couple of questions here. First, with regard to the creation cost increase, can you balance what is going on with acceptance in the brand by your internal people and then being able to sell that brand, the BRINKS brand, out to -- out into the -- out into your potential clients? And has that been -- have you been gaining any leverage in being able to lower your creation cost by having an easier sale? Or is it just the mix of internal sales versus dealers regardless of the brand?

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Jeffery R. Gardner, Monitronics International, Inc. - President & CEO [3]

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Jeff, thanks for the question. I think as it relates to the brand, there's just a lot going on. We're very pleased with the strength of the BRINKS Home Security brand in the marketplace. As I said, we've been able to generate leads very cost effectively. And I think it's most evident in our dealer count. Remember, we had a lot of changes going on in our direct-to-consumer channel, where to really make our -- to reduce channel conflict, we moved to 36-month contracts in that channel, which is admittedly harder to sell for our sales reps. So that took some adjustment. But in the dealer channel, when there hasn't been many changes at all other than BRINKS Home Security brand, I think you can see the benefit of better closing rate for our dealers. And they were up 22% year-over-year. We've -- our top 5 dealers are really, really producing really strong results. So I think that's where you see the benefit of the brand. We fully expect to see very similar things in our direct-to-consumer business as well as we kind of move to this new ecosystem. We're making progress on that today. We had to make a few adjustments in the quarter. But we feel very good about it on a go-forward basis.

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Jeffrey Ted Kessler, Imperial Capital, LLC - MD of Sales and Trading Group [4]

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Okay. Can you drill down a little bit on the GreenSky agreement? What does -- what can you do with them? What are some of the limitations of what you can do with them?

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Fred Albert Graffam, Ascent Capital Group, Inc. - CFO & Senior VP [5]

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Yes. Interestingly, other than the -- there is a level of minimum equipment purchase that they are willing to finance, but it's well within the sort of the range of what we typically sell to a customer. And we're going to package in a manner that really incents customers to choose the GreenSky initiative. I think I've said this before, it's a 0% 36-month financing package. We obviously, at some level, subsidized the 0% financing. But we do it at a cost of capital that's very favorable in light of our cost of capital as a company. And we think the benefit of it is that customers are going to take more equipment. We're going to be able to offer a lower RMR, because we're not subsidizing equipment. Therefore, we believe that it will resonate with customers, we'll be able to advertise a low RMR with a low monthly payment for your equipment purchase, which means, when they come off contract in the, sort of say, 3-year period, they're going to be harder to approach because of the lower RMR. So we feel it's going to be an incentive on the front end for some of our equipment, have a happier customer and ultimately also benefit from a attrition perspective.

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Jeffrey Ted Kessler, Imperial Capital, LLC - MD of Sales and Trading Group [6]

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And when can -- when do you think we'll be able to start seeing some of the effects of this?

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Fred Albert Graffam, Ascent Capital Group, Inc. - CFO & Senior VP [7]

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This quarter. I mean, it will -- one will show up in the -- in sort of the overall creation multiple, that will take a little more time. We're going to have to scale it. But this is -- this will be our primary offer going forward. And we're in the very final stages of sort of making sure all the technology is working.

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Jeffrey Ted Kessler, Imperial Capital, LLC - MD of Sales and Trading Group [8]

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Okay, great. Can you talk a little bit about replacing -- how you're doing replacing alliance and replacing or any -- or getting anything back from Puerto Rico at this point to areas where there is some potential?

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Jeffery R. Gardner, Monitronics International, Inc. - President & CEO [9]

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Yes. Great question. I mean, our new dealer, Skyline, is performing amazingly well. They're the biggest new dealer, Jeff, that we've added. They've been our top dealer. From the very first day they joined our program, we're seeing excellent results. They are one of our many big dealers that are really benefiting from the BRINKS Home Security brand. So I think our dealer channel is healthy as it's been in the entire time that I have been here. And so we're very pleased with that. In addition, the biggest impediment that we had in attracting new dealers was the brand versus another player in the industry that had a more established brand. So I think we're in a better position going forward. So we're very excited about the opportunities there.

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Fred Albert Graffam, Ascent Capital Group, Inc. - CFO & Senior VP [10]

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I would -- yes, I would reinforce that it isn't just about our new dealers replacing Alliance, but also we're seeing meaningful increases in production on our other large dealers that have been with us for a while. So it's probably going to be a combination of not just our new dealer growing in at the Alliance levels, but it's got to be all of our dealers contributing.

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Jeffrey Ted Kessler, Imperial Capital, LLC - MD of Sales and Trading Group [11]

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Okay. And one final question, and that is on the false alarms and verification. You have -- it's with the advent of a lot of the DIY product out there, where -- and just a lot more sensors out there, we're expecting a meaningful increase in false alarms above the level that there already is. You folks introduced a year or so ago the ASAPer. And I'm wondering if you have done anything with that in educating us in the time that you've been able to -- have been able to sell it? Have you been able to talk to any PSAPs with regard to getting a more formal agreement to fix, to have the monitoring station be able to basically measure and determine whether or not a dispatch should be made or should not be made?

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Jeffery R. Gardner, Monitronics International, Inc. - President & CEO [12]

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Good question, Jeff. Listen, yes, we've deployed ASAPer not just to our DIY customer base, but to our dealer customer base. We've had good success with that to date. I don't know about formal discussions with the PSAP on that. I will say one of the things that I'm most proud of here is that we really do professional monitoring as a value-add and something that we do extremely well. I think it's one of the reasons we won the J.D. Power award again, because we do that very well. And our team is incredibly self-aware of making sure that when we deploy a first responder, it's a real incident. So I think we do that very, very well. That's 100% in source that brings some security. And it's really important to us to maintain very good relationships with all the PSAPs around the country. So I know that's a big regulatory issue, long term for the industry and one that I think we're very focused on. And you'll see us continue to invest in our alarm response centers so that we can continue to do a better and better job there.

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Operator [13]

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Your next question comes from the line of Ashish Nair of Citi.

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Ashish Nair, [14]

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A couple of quick ones on the creation multiple. Is it fair to assume that the average dealer multiples are above 36.8? Or was it more driven by just direct channel investments that you don't have any offsetting revenue growth for?

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Fred Albert Graffam, Ascent Capital Group, Inc. - CFO & Senior VP [15]

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Yes, I would say that typically our larger dealers enjoy higher multiples. I won't get into specific numbers. From the standpoint of the quarter, I would say the 2 things were very much expected in the creation multiple. One is that it's a -- seasonally, it's a higher production season for -- time of the year for our dealers. And they -- our larger leaders, frankly, did very well with the new BRINKS brand. So it even skewed us a little bit higher. We also knew that we were going to have to charge a component of the amount we pay to BRINKS to creation costs, and we expected that. And I think we've been very transparent that we've made some investments in the third quarter in our direct channel. And while we had a reasonable level of performance in direct, it wasn't quite what we expected. So that drove multiples up a little bit more. So I think it was a combination of both.

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Ashish Nair, [16]

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Got it. So the -- sorry, the -- so the royalty payment, I think, are sort of in that 36.8?

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Fred Albert Graffam, Ascent Capital Group, Inc. - CFO & Senior VP [17]

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Actually, the commission is, not the royalty payment. The commission is.

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Ashish Nair, [18]

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Okay. And also the new year's ARPU seems to be increasing possibly by dealers, or you're paying up for it? Could you talk about like why you feel comfortable paying maybe the higher multiple? Are you adding a different consumer from your legacy base is, I guess, what I'm asking.

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Jeffery R. Gardner, Monitronics International, Inc. - President & CEO [19]

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Yes. I think that's a great question. And our dealer channel is all about a professional installation. And as we all know, a big part of this industry is the rapidly evolving smart home market. And so our dealers are doing an excellent job selling not just traditional intrusion and fire protection, but smart locks and thermostats and video is more and more part of our packages every day. So I think they're doing a great job. They're providing a high-value add when you add these -- what -- when you add these more sophisticated systems, that's where you can really demonstrate the value of professionally installing that channel. So we're not worried about that all. In terms of discipline, we're providing a very good service with very high value for the customer.

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Fred Albert Graffam, Ascent Capital Group, Inc. - CFO & Senior VP [20]

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I would say some of it is math too. I mean, we do have a 1-year guarantee period in -- typically in our dealer channel. So there is some additional value that's reflected in the dealer multiples, because we have that guarantee period with that. We effectively have no churn in the first year with the dealer count.

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Ashish Nair, [21]

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Great, great. Also, any color on how much Nest is driving down some of your sort of creation multiple?

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Jeffery R. Gardner, Monitronics International, Inc. - President & CEO [22]

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Yes, the Nest product continues to perform well, very similar to last quarter. And as you know, when we activated Nest customer from one of the big box retail change, it's a very, very efficient -- from a creation cost perspective, very little incremental creation cost in that regard. And that product continues to perform very well in terms of customers liking the ease of install. Nest has done a really nice job rolling out the Nest Hello doorbell product. One of the best in the market. And they continue to get better and better on their video product. So we're pretty happy with everything going on in the industry. To be a partner with a brand like Nest and a big part of that, as you mentioned, is the creation cost opportunity there.

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Ashish Nair, [23]

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Right. Got it. And switching on to -- you mentioned the competitive pressures driving RMR -- sorry, RMR attrition and unit attrition. In the past, you had been exempt sending contracts via a discounting strategy. I was curious, a, how much of your RMR is under contract and how is that progressing? And also just specifically, I don't think we've ever talked about this, but just attrition for specifically LiveWatch, I was thinking how is competition impacting your LiveWatch some -- with some of your other older products?

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Jeffery R. Gardner, Monitronics International, Inc. - President & CEO [24]

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Yes. Our DIY business continues to perform well. And we talk about competition, we're talking about broadly. I think the biggest thing this course we saw very, very heavy advertising from 3 big players. 2 pretty new, 1 really new, Ring, SimpliSafe and ADT, all advertised a great deal. That put some pressure more specifically on our direct-to-consumer business over time. But in terms of the second part of that question was around RMR, I don't think we're feeling the pressure so much on the RMR side. I think it's more on the advertising side and the ability to get a proper market share. So the BRINKS Home Security brand is going to help with that. We have run some television there, which I think will be helpful, but we've got to continue to be focused there.

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Fred Albert Graffam, Ascent Capital Group, Inc. - CFO & Senior VP [25]

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And I would point out that we acknowledge that our unit attrition -- well, both our unit and RMR attrition is too high. And we're continuing to work at it. Yes, there's some impact of that -- of the new entrants into the market and all of our competitors being more aggressive. We are continuing to be strategic about using our predictive analytics. And they are helping. We have internal analysis showing that we would have substantially fewer customers under contract had we not done the predictive analytics and even just some of those -- the basic retention stuff we do. But what you have right now in a declining subscriber base is you have more customers rolling off of contract and we can economically put back on contract. And so that's some of the -- when we talk about the aging of our subscriber base, that's really what we're talking about. We're looking for new strategies to put customers under contract with other tools other than an expensive equipment or meaningful reductions in our RMR. We're looking for less expensive cameras and things of that nature to incent customers to go back under contract with us. But besides being under contract, and Jeff always says this internally, the contract is just a component of our attrition. We also want to be -- we also want to focus on the customer service experience, which again, we're very focused on it. And the J.D. Power award is just another example of -- we believe we are doing a good job and an outside firm has elaborated that.

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Ashish Nair, [26]

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Right. Makes sense. Lastly, I don't know how much you're able to express this, but I -- is it fair to assume what -- that your $1,200 of your sort of net SAC core customer is hardware install, that will be funded by the third-party financing?

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Fred Albert Graffam, Ascent Capital Group, Inc. - CFO & Senior VP [27]

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Yes. It's not quite $1,200. I mean, we've said that somewhere in the 4 to 6 turns of RMR is typical within your creation -- I'm sorry, 4 to 6 turns of creation multiple relates to the equipment subsidy. So I don't think that equates to $1,200. Now with that said, we would like to see the amount of equipment being sold under consumer financing going up meaningfully, because we believe that's a better customer experience to get all the equipment in a home they're looking for.

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Ashish Nair, [28]

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Right. And so the subsidy would be for the equipment, not sort of the installation or the costs that are there?

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Fred Albert Graffam, Ascent Capital Group, Inc. - CFO & Senior VP [29]

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Well, interestingly, they can subsidize the installation. So there is some element of that. Historically, we have had the customer subsidize some piece of the installation already. Not always. Yes.

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Ashish Nair, [30]

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Got it. And just like one last item. Could -- are you able to disclose what your leverage is per your covenant EBITDA?

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Fred Albert Graffam, Ascent Capital Group, Inc. - CFO & Senior VP [31]

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We have not disclosed that historically. No.

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Operator [32]

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Your next question comes from the line of Saliq Khan of Imperial Capital.

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Saliq Jamil Khan, Imperial Capital, LLC, Research Division - VP [33]

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Two quick questions on my end to follow-up on what Jeff had asked previously. And I wanted to make sure I heard this correctly, you guys are moving to a 3-year contract on the DIY offering, is that correct? Or did I hear that incorrectly?

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Jeffery R. Gardner, Monitronics International, Inc. - President & CEO [34]

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No, you heard that correctly. In fact, we have already moved there. We did that coincidence with the BRINKS Home Security brand rollout. So we have contracts in both our channels.

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Saliq Jamil Khan, Imperial Capital, LLC, Research Division - VP [35]

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Got it. Given that you kind of talked about some of the other competition that has DIY products out there, and most recently you saw, obviously, Arlo as well with their IPO that they had done. So given Arlo, Amazon, Google, what these guys are doing with DIY, would you consider having different options for contract or contract renewals? Rather than a 3 year, would you go to maybe a 1 year or move the contract altogether? How should I be kind of thinking about that versus what you guys are doing in your competition?

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Jeffery R. Gardner, Monitronics International, Inc. - President & CEO [36]

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Sure. I think that's a good question. I think we moved there, because we think that we have a sales process that validates we can sell that today. We've seen good results with that. We're building on that. As I said, we had some friction in the quarter, because it was new to our reps. But we haven't had a ton of pushback on that. We're going to stick with it for a while, Saliq, because we just started it, and we think we're having enough success to stay with it. But we'll obviously continue to monitor what's going around or around us in the competitive space.

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Saliq Jamil Khan, Imperial Capital, LLC, Research Division - VP [37]

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Perfect. And then, Jeff, in the space in the broader premises control space, we're seeing a couple of things. First one is we're seeing utilities companies, insurance companies, a number of different players that are not traditional, they're getting excited about the space. And then second is we're seeing consolidation in the marketplace. So given those 2 things, is there a way for you to become a bigger player and provide monitoring to their products or solutions kind of like what you guys have been doing with Google Nest?

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Jeffery R. Gardner, Monitronics International, Inc. - President & CEO [38]

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No, I think there is -- especially with our new brands, with the BRINKS Home Security brand, we are already in more strategic discussions around kind of -- distribution strategies like that. So nothing to report right now, Saliq. But I think that's something that we have our eyes wide open on how this business is changing quickly. I think that we have a lot to provide in terms of differentiation on a -- we really believe in the professional monitoring side of this business and think we offer a really great product there. And with this brand, I think we're a great partner.

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Saliq Jamil Khan, Imperial Capital, LLC, Research Division - VP [39]

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Got it. And guys, just one last question from my end from a strategy perspective, which is what do you think about mobile PERS? Because we just -- we saw Apple come out with the Apple Watch. They've got the mPERS solution in place as well. So to be able to provide monitoring for a lot of these other products that are out there, I think you guys would be a great fit for anyone of those PERS or mobile PERS solutions. How has that been part of your conversations from a strategic perspective? Or has that not been part of the conversation at all?

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Jeffery R. Gardner, Monitronics International, Inc. - President & CEO [40]

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No. It's something that's on our mind. I mean, we like the PERS market. We have a lot of PERS customer out there today. We'd like to extend that into the mobile space for sure. That's important to us. Saliq, the most important thing for us is to continue to invest in technology. We did a big upgrade in our alarm response center on the software side. It's going to allow us not only to do things like mobile PERS, but to think about more video surveillance in the future. So way too early to talk about that now. We definitely see it the same way as you and we're making investments to do better there.

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Operator [41]

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Your final question will come from the line of Andrew Gadlin of Odeon Capital.

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Andrew Elie Gadlin, Odeon Capital Group LLC, Research Division - Research Analyst [42]

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I just want to follow up on the Nest and DTC channels. So Nest, it looks like you still have a 3-year option and a month-to-month option. But the standard DTC is where you're only selling 3-year contracts now?

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Jeffery R. Gardner, Monitronics International, Inc. - President & CEO [43]

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That's correct. With Nest, we do have the 2 programs. You had it exactly right, with the 3-year plans with lower RMR, and then we still have the month-to-month option.

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Andrew Elie Gadlin, Odeon Capital Group LLC, Research Division - Research Analyst [44]

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And could you tell us anything about how Nest did this summer?

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Jeffery R. Gardner, Monitronics International, Inc. - President & CEO [45]

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Nest did very similar to last quarter. We can't report their numbers from a disclosure perspective. But I gave some commentary on it earlier. We're very pleased with the product. We like -- our customers really like their doorbell product and their cameras as well. So something that we continue to work really hard on. We like the creation cost opportunity, and we love to be affiliated with BRINKS Home Security and a brand like Nest.

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Andrew Elie Gadlin, Odeon Capital Group LLC, Research Division - Research Analyst [46]

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Got it. And then regarding the exchange, there's some litigation from convertible note holders against the company using cash at the Holdco for this exchange. Is there anything you can comment on there in terms of expected timing of a resolution there?

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William E. Niles, Ascent Capital Group, Inc. - CEO, General Counsel & Secretary [47]

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It's Bill Niles. I mean, we generally don't comment on the litigation. There is a preliminary hearing on December 5. That's really all we can say about that. I wish we could say more.

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Operator [48]

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I will now return the call to Bill Niles for any additional or closing remarks.

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William E. Niles, Ascent Capital Group, Inc. - CEO, General Counsel & Secretary [49]

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Jeff and Fred, thanks. And to everyone on the call, thank you for joining us today. And we look forward to speaking with you again in the next quarter. Back to you, operator. And thank you.

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Operator [50]

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Thank you for participating in Ascent Capital Group's conference call to discuss the company's third quarter 2018 earnings. This does conclude today's conference and you may now disconnect.