Ascent Capital Group, Inc.
Ascent Capital Group, Inc. (Form: 8-K, Received: 11/03/2017 11:10:47)


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 8-K
 
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
 
Date of Report (date of earliest event reported): November 2, 2017
 
ASCENT CAPITAL GROUP, INC.
(Exact name of registrant as specified in its charter)
 
Delaware
 
001-34176
 
26-2735737
(State or other jurisdiction of
 
(Commission
 
(I.R.S. Employer
incorporation or organization)
 
File Number)
 
Identification No.)
 
5251 DTC Parkway, Suite 1000
Greenwood Village, Colorado 80111
(Address of principal executive offices and zip code)
 
Registrant’s telephone number, including area code: (303) 628-5600
 
 
(Former name or former address, if changed since last report)
 
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
 
o   Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
 
o   Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
 
o   Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
 
o   Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (17 CFR §230.405) or Rule 12b-2 of the Securities Exchange Act of 1934 (17 CFR §240.12b-2).
Emerging growth company o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o





Item 2.02. Results of Operations and Financial Condition.
 
On November 2, 2017, Ascent Capital Group, Inc. (the “Company”) issued a press release, attached hereto as Exhibit 99.1, setting forth information, including financial information, which is intended to supplement the financial statements and related Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2017, which the Company filed with the Securities and Exchange Commission on November 2, 2017.
The information furnished pursuant to this Form 8-K (including the exhibit hereto) shall not be considered “filed” under the Securities Exchange Act of 1934, as amended, nor shall it be incorporated by reference into any of the Company’s filings under the Securities Act of 1933, as amended, or under the Securities Exchange Act of 1934, as amended, unless the Company expressly states in such filing that such information is to be considered “filed” or incorporated by reference therein.

Item 9.01. Financial Statements and Exhibits.
 
(d) Exhibits.
 

2



SIGNATURE
 
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
 
Date: November 3, 2017
 
 
ASCENT CAPITAL GROUP, INC.
 
 
 
 
 
By:
/s/ William E. Niles
 
 
Name:
William E. Niles
 
 
Title:
Executive Vice President, General Counsel and Secretary



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Exhibit 99.1

ASCENTLOGOA21.JPG

ASCENT CAPITAL GROUP ANNOUNCES FINANCIAL RESULTS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2017

Englewood, CO - November 2, 2017 - Ascent Capital Group, Inc. (“Ascent” or the “Company”) (Nasdaq: ASCMA) has reported results for the three months ended September 30, 2017. Ascent is a holding company that owns MONI, one of the nation’s largest home security alarm monitoring companies.

Headquartered in the Dallas Fort-Worth area, MONI provides security alarm monitoring services to approximately one million residential and commercial customers as of September 30, 2017. MONI’s long-term monitoring contracts provide high margin recurring revenue that results in predictable and stable cash flow.

Operational Highlights:
MONI announces important new partnership with Nest to provide professional monitoring to Nest Secure customers
MONI implements headcount reductions delivering $7 million of annualized cost savings
Realized first sequential improvement in Core Unit Attrition since 2015

Key Financial Results 1 :
Ascent’s net revenue for the three and nine months ended September 30, 2017 totaled $138.2 million and $419.9 million, respectively
Ascent’s net loss for the three and nine months ended September 30, 2017 totaled $29.2 million and $91.5 million, respectively
Ascent's Pre-SAC Adjusted EBITDA, which adjusts for the expensed portion of subscriber acquisition costs, for the three and nine months ended September 30, 2017 totaled $85.9 million and $259.5 million, respectively
MONI’s net loss for the three and nine months ended September 30, 2017 totaled $25.5 million and $96.7 million, respectively
MONI’s Pre-SAC Adjusted EBITDA for the three and nine months ended September 30, 2017 totaled $87.1 million and $265.9 million, respectively

Ascent Chairman and Chief Executive Officer, Bill Fitzgerald stated, “The MONI team continued to make meaningful progress in the third quarter toward its strategic agenda of diversifying its distribution channels, developing key partner relationships, and improving certain of the core performance metrics of the business. While there is certainly more work ahead of us, I believe we are focusing on the right initiatives to benefit the long term prospects of the business and drive improved shareholder value.”

Jeffery Gardner, President and Chief Executive Officer of MONI said, “I am encouraged by our continued execution in the third quarter. We are making positive strides stabilizing dealer economics and attrition metrics as well as reducing operating costs and generating new sales and marketing leads for our direct channel. Notably, our recently announced partnership with Nest is set to be a transformative opportunity for the business. We believe it will provide a unique opportunity to expand our addressable market beyond traditional homeowners, drive greater penetration into the growing connected home market and elevate MONI's brand awareness nationally. We are also making strategic improvements to our operating cost structure through headcount reductions principally in Dallas as well as reorganizing our sales and marketing platforms to consolidate both MONI Direct and LiveWatch under a single sales platform. All of this is being done with an eye towards continuing to provide our customers with the highest levels of customer service while driving greater efficiencies across all areas of the business.”
 
1. Comparisons are year-over-year unless otherwise specified.


1



Results for the Three and Nine Months Ended September 30, 2017

For the three months ended September 30, 2017, Ascent reported net revenue of $138.2 million, a decrease of 3.2%. For the nine months ended September 30, 2017, net revenue totaled $419.9 million, a decrease of 2.3%. The reduction in revenue for the three and nine months ended September 30, 2017 is due to the lower average number of subscribers in 2017. This decrease was partially offset by an increase in average recurring monthly revenue (“RMR”) per subscriber to $43.79 due to certain price increases enacted during the past twelve months and an increase in average RMR per new subscriber acquired.

Ascent’s total cost of services for the three months ended September 30, 2017 increased 4.0% to $30.2 million. For the nine months ended September 30, 2017, Ascent’s total costs of services increased 4.2% to $89.8 million. The increase for the three and nine months ended September 30, 2017 is attributable to increased field service costs due to a higher volume of retention jobs being completed and an increase in expensed subscriber acquisition costs (or "SAC") primarily as a result of the initiation of MONI’s direct sales channel. Subscriber acquisition costs were $3.3 million and $8.8 million for the three and nine months ended September 30, 2017, respectively, as compared to $2.1 million and $6.5 million for the three and nine months ended September 30, 2016, respectively. Subscriber acquisition costs recognized in cost of services include certain equipment costs and MONI labor expenditures associated with the creation of new subscribers at both MONI and LiveWatch.

Ascent’s selling, general & administrative ("SG&A") costs for the three months ended September 30, 2017 increased 8.8% to $35.8 million. The increase for the three months ended September 30, 2017 is primarily attributable to increased SAC, $1.2 million in severance charges related to a reduction in force and transitioning executive leadership at MONI's Dallas, Texas headquarters and consulting fees related to the implementation of strategic company initiatives. SG&A costs for the nine months ended September 30, 2017, increased 40.8% to $136.8 million. The increase in SG&A for the nine months ended September 30, 2017 is primarily attributable to a $28.0 million legal settlement reserve recognized in the second quarter of 2017 in relation to class action litigation that alleged violation of telemarketing laws and increased SAC. Other increases are attributable to consulting fees related to strategic company initiatives as well as the severance event and transition of executive leadership discussed above. Additionally, Ascent realized a foreign currency loss on a forward exchange contract as the Company locked in foreign exchange rates earlier in the year in anticipation of the sale of an overseas property. Included in SG&A is a realized loss of $1.2 million on the maturity and settlement of this contract.

SAC increased to $8.0 million and $21.0 million for the three and nine months ended September 30, 2017 as compared to $5.2 million and $14.0 million for the three and nine months ended September 30, 2016, primarily as a result of increased direct-to-consumer sales activities at MONI.
 
Ascent reported a net loss from continuing operations for the three and nine months ended September 30, 2017 of $29.2 million and $91.6 million, respectively, compared to net loss from continuing operations of $27.0 million and $72.5 million in the prior year periods.

MONI reported a net loss for the three and nine months ended September 30, 2017 of $25.5 million and $96.7 million, respectively, compared to a net loss of $23.0 million and $59.7 million in the prior year periods.

Ascent’s Adjusted EBITDA decreased 10.9% to $75.7 million for the three months ended September 30, 2017. Ascent’s Adjusted EBITDA for the nine months ended September 30, 2017 decreased 9.2% to $233.4 million. MONI’s Adjusted EBITDA decreased 11.4% and 8.6% to $76.9 million and $239.8 million during the three and nine months ended September 30, 2017, respectively. The decrease for the three and nine months ended September 30, 2017 is primarily the result of lower revenues and an increase in subscriber acquisition costs, net of related revenue, associated with an increase in MONI’s direct-to-consumer sales activities. MONI's Adjusted EBITDA as a percentage of net revenue for the three and nine months ended September 30, 2017 was 55.6% and 57.1%, respectively, compared to 60.8% and 61.1% in the prior year periods.

Ascent's Pre-SAC Adjusted EBITDA for the three and nine months ended September 30, 2017 decreased 5.5% and 5.2% to $85.9 million and $259.5 million, respectively. MONI's Pre-SAC Adjusted EBITDA for the three and nine months ended September 30, 2017 totaled $87.1 million and $265.9 million, respectively, compared to $92.8 million and $279.0 million for the three and nine months ended September 30, 2016, respectively. The decrease in Pre-SAC Adjusted EBITDA is primarily the result of lower Pre-SAC revenues and increased field service retention costs. MONI's Pre-SAC Adjusted EBITDA as a percentage of Pre-SAC net revenue for the three and nine months ended September 30, 2017 was 63.5% and

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63.9%, respectively, compared to 65.6% and 65.5% in the three and nine months ended September 30, 2016, respectively. For a reconciliation of net loss from continuing operations to Adjusted EBITDA to Pre-SAC Adjusted EBITDA for Ascent and MONI, as well as a reconciliation of net revenue to Pre-SAC net revenue, please see the Appendix of this release.

 
 
Twelve Months Ended
September 30,
 
 
2017
 
2016
Beginning balance of accounts
 
1,059,634

 
1,091,627

Accounts acquired
 
103,650

 
136,414

Accounts canceled
 
(152,951
)
 
(150,091
)
Canceled accounts guaranteed by dealer and other adjustments (a) (b)
 
(12,246
)
 
(18,316
)
Ending balance of accounts
 
998,087

 
1,059,634

Monthly weighted average accounts
 
1,033,150

 
1,079,100

Attrition rate - Unit
 
14.8
%
 
13.9
%
Attrition rate - RMR (c)
 
13.5
%
 
12.2
%
Core Attrition (d)
 
14.0
%
 
13.3
%
 
(a)
Includes canceled accounts that are contractually guaranteed to be refunded from holdback.
(b)
Includes an estimated 4,945 and 10,488 accounts included in our Radio Conversion Program that primarily canceled in excess of their expected attrition for the twelve months ending September 30, 2017 and 2016, respectively.
(c)
The RMR of canceled accounts follows the same definition as subscriber unit attrition as noted above. RMR attrition is defined as the RMR of canceled accounts in a given period, adjusted for the impact of price increases or decreases in that period, divided by the weighted average of RMR for that period.
(d)
Core Attrition reflects the long-term attrition characteristics of MONI’s base by excluding the one-time bulk buy of 113,000 accounts from Pinnacle Security in 2012 and 2013.

MONI’s core account portfolio unit attrition rate for the twelve months ended September 30, 2017, which excludes attrition of the Pinnacle Security accounts, was 14.0%, compared to 13.3% for the twelve months ended September 30, 2016. An increase in the number of subscriber accounts with five-year contracts reaching the end of their initial contract term as well as a more aggressive price increase strategy contributed to the increase in attrition in the period. Overall unit attrition increased from 13.9% for the twelve months ended September 30, 2016 to 14.8% for the twelve months ended September 30, 2017. Overall attrition reflects the impact of the Pinnacle Security bulk buys, where MONI purchased approximately 113,000 accounts from Pinnacle Security in 2012 and 2013, which are now experiencing normal end-of-term attrition. The Company believes core attrition best reflects the long run characteristics of our customer base.

RMR attrition for the twelve months ended September 30, 2017 increased to 13.5% from 12.2% for the twelve months ended September 30, 2016, reflecting price decreases related to the Company’s efforts to secure contract extensions from existing customers.

During the three months ended September 30, 2017 and 2016, MONI acquired 21,268 and 32,570 subscriber accounts, respectively.

Ascent Liquidity and Capital Resources

At September 30, 2017, on a consolidated basis, Ascent had $135.4 million of cash, cash equivalents and marketable securities. A portion of these assets may be used to decrease debt obligations or fund stock repurchases, strategic acquisitions or investment opportunities.

At September 30, 2017, the existing long-term debt includes the principal balance of $1.9 billion under the MONI Senior Notes, Credit Facility term loans, Credit Facility revolver and Ascent’s Convertible Notes. The Convertible Notes have an outstanding principal balance of $96.8 million as of September 30, 2017 and mature July 15, 2020. The Senior Notes have an outstanding principal balance of $585.0 million as of September 30, 2017 and mature on April 1, 2020. The Credit Facility term loan has an outstanding principal balance of $1.1 billion as of September 30, 2017 and requires principal payments of

3



approximately $2.8 million per quarter with the remaining amount becoming due on September 30, 2022. As of September 30, 2017, the Credit Facility revolver has an outstanding balance of $80.4 million and becomes due on September 30, 2021.

Conference Call

Ascent will host a call today, Thursday, November 2, 2017 at 5:00 pm ET. To access the call please dial (888) 462-5915 from the United States, or (760) 666-3831 from outside the U.S. The conference call I.D. number is 1086934. Participants should dial in 5 to 10 minutes before the scheduled time and must be on a touch-tone telephone to ask questions.

A replay of the call can be accessed through November 16, 2017 by dialing (800) 585-8367 from the U.S., or (404) 537-3406 from outside the U.S. The conference call I.D. number is 1086934.

This call will also be available as a live webcast which can be accessed at Ascent’s Investor Relations Website at http://ir.ascentcapitalgroupinc.com/index.cfm .

Forward Looking Statements

This press release includes certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements about business strategies, market potential and expansion, the success of new products and services, account creation and related costs, diversification of distribution channels, generation of new sales and marketing leads, the anticipated benefits of the partnership with Nest, subscriber attrition, anticipated account generation at LiveWatch, future financial prospects, and other matters that are not historical facts. These forward-looking statements involve many risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements, including, without limitation, possible changes in market acceptance of our services, technological innovations in the alarm monitoring industry, competitive issues, continued access to capital on terms acceptable to Ascent and/or MONI, our ability to capitalize on acquisition opportunities, general market and economic conditions and changes in law and government regulations. These forward-looking statements speak only as of the date of this press release, and Ascent expressly disclaims any obligation or undertaking to disseminate any updates or revisions to any forward-looking statement contained herein to reflect any change in Ascent's expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based. Please refer to the publicly filed documents of Ascent, including the most recent Forms 10-K and 10-Q for additional information about Ascent and about the risks and uncertainties related to Ascent's business which may affect the statements made in this press release.

About Ascent Capital Group, Inc.

Ascent Capital Group, Inc., (NASDAQ: ASCMA) is a holding company that owns 100 percent of its operating subsidiary, MONI, and through MONI, LiveWatch Security, LLC. MONI, headquartered in the Dallas Fort-Worth area, secures approximately one million residential customers and commercial client accounts with monitored home and business security system services. MONI is supported by one of the nation’s largest networks of independent Authorized Dealers, providing products and support to customers in the U.S., Canada and Puerto Rico. LiveWatch Security, LLC ®, is a Do-It-Yourself (“DIY”) home security firm, offering professionally monitored security services through a direct-to-consumer sales channel. For more information on Ascent, see http://ascentcapitalgroupinc.com/ .

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










4



ASCENT CAPITAL GROUP, INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Balance Sheets
Amounts in thousands, except share amounts
 
September 30,
2017
 
December 31,
2016
Assets
 
 
 
Current assets:
 

 
 

Cash and cash equivalents
$
34,920

 
$
12,319

Marketable securities, at fair value
100,498

 
77,825

Trade receivables, net of allowance for doubtful accounts of $3,381 in 2017 and $3,043 in 2016
13,206

 
13,869

Prepaid and other current assets
11,759

 
10,347

Assets held for sale

 
10,673

Total current assets
160,383

 
125,033

Property and equipment, net of accumulated depreciation of $35,506 in 2017 and $29,071 in 2016
30,993

 
28,331

Subscriber accounts, net of accumulated amortization of $1,383,804 in 2017 and $1,212,468 in 2016
1,333,627

 
1,386,760

Dealer network and other intangible assets, net of accumulated amortization of $40,348 in 2017 and $32,976 in 2016
9,452

 
16,824

Goodwill
563,549

 
563,549

Other assets
6,875

 
11,935

Total assets
$
2,104,879

 
$
2,132,432

Liabilities and Stockholders’ Equity
 

 
 

Current liabilities:
 

 
 

Accounts payable
$
10,521

 
$
11,516

Accrued payroll and related liabilities
6,345

 
5,067

Other accrued liabilities
66,873

 
34,970

Deferred revenue
14,191

 
15,147

Holdback liability
10,706

 
13,916

Current portion of long-term debt
11,000

 
11,000

Liabilities of discontinued operations

 
3,500

Total current liabilities
119,636

 
95,116

Non-current liabilities:
 

 
 

Long-term debt
1,789,810

 
1,754,233

Long-term holdback liability
1,982

 
2,645

Derivative financial instruments
16,122

 
16,948

Deferred income tax liability, net
20,959

 
17,769

Other liabilities
6,671

 
7,076

Total liabilities
1,955,180

 
1,893,787

Commitments and contingencies
 
 
 
Stockholders’ equity:
 

 
 

Preferred stock, $0.01 par value. Authorized 5,000,000 shares; no shares issued

 

Series A common stock, $.01 par value. Authorized 45,000,000 shares; issued and outstanding 11,947,767 and 11,969,152 shares at September 30, 2017 and December 31, 2016, respectively
119

 
120

Series B common stock, $.01 par value. Authorized 5,000,000 shares; issued and outstanding 381,528 and 381,859 shares at September 30, 2017 and December 31, 2016, respectively
4

 
4

Series C common stock, $0.01 par value. Authorized 45,000,000 shares; no shares issued

 

Additional paid-in capital
1,422,608

 
1,417,505

Accumulated deficit
(1,261,098
)
 
(1,169,559
)
Accumulated other comprehensive loss, net
(11,934
)
 
(9,425
)
Total stockholders’ equity
149,699

 
238,645

Total liabilities and stockholders’ equity
$
2,104,879

 
$
2,132,432

See accompanying notes to condensed consolidated financial statements.

5



ASC ENT CAPITAL GROUP, INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)
Amounts in thousands, except shares and per share amounts
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2017
 
2016
 
2017
 
2016
Net revenue
$
138,211

 
142,765

 
$
419,909

 
429,689

Operating expenses:
 

 
 

 
 

 
 

Cost of services
30,213

 
29,049

 
89,799

 
86,161

Selling, general and administrative, including stock-based compensation
35,793

 
32,897

 
136,809

 
97,148

Radio conversion costs
74

 
1,263

 
383

 
17,938

Amortization of subscriber accounts, dealer network and other intangible assets
59,384

 
62,156

 
178,896

 
185,415

Depreciation
2,176

 
2,152

 
6,435

 
6,329

Gain on disposal of operating assets

 

 
(21,217
)
 

 
127,640

 
127,517

 
391,105

 
392,991

Operating income
10,571

 
15,248

 
28,804

 
36,698

Other income (expense), net:
 

 
 

 
 

 
 

Interest income
617

 
548

 
1,575

 
1,593

Interest expense
(38,360
)
 
(31,794
)
 
(114,011
)
 
(94,805
)
Refinancing Expense

 
(9,348
)
 

 
(9,348
)
Other income (expense), net
(222
)
 
240

 
242

 
(1,079
)
 
(37,965
)
 
(40,354
)
 
(112,194
)
 
(103,639
)
Loss from continuing operations before income taxes
(27,394
)
 
(25,106
)
 
(83,390
)
 
(66,941
)
Income tax expense from continuing operations
(1,766
)
 
(1,927
)
 
(8,241
)
 
(5,514
)
Net loss from continuing operations
(29,160
)
 
(27,033
)
 
(91,631
)
 
(72,455
)
Discontinued operations:
 

 
 

 
 

 
 

Income from discontinued operations, net of income tax of $0

 

 
92

 

Net loss
(29,160
)
 
(27,033
)
 
(91,539
)
 
(72,455
)
Other comprehensive income (loss):
 

 
 

 
 

 
 

Foreign currency translation adjustments
(16
)
 
(224
)
 
626

 
(780
)
Unrealized holding gain on marketable securities, net
279

 
301

 
1,366

 
3,164

Unrealized gain (loss) on derivative contracts, net
227

 
(2,459
)
 
(4,501
)
 
(19,001
)
Total other comprehensive income (loss), net of tax
490

 
(2,382
)
 
(2,509
)
 
(16,617
)
Comprehensive loss
$
(28,670
)
 
(29,415
)
 
$
(94,048
)
 
(89,072
)
 
 
 
 
 
 
 
 
Basic and diluted income (loss) per share:
 

 
 

 
 

 
 

Continuing operations
$
(2.39
)
 
(2.23
)
 
$
(7.53
)
 
(5.89
)
Discontinued operations

 

 
0.01

 

Net loss
$
(2.39
)
 
(2.23
)
 
$
(7.52
)
 
(5.89
)
 
 
 
 
 
 
 
 
Weighted average Series A and Series B shares - basic and diluted
12,207,649

 
12,101,214

 
12,170,367

 
12,304,879

Total issued and outstanding Series A and Series B shares at period end
 
 
 
 
12,329,295

 
12,321,760


See accompanying notes to condensed consolidated financial statements.

6



ASCENT CAPITAL GROUP, INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Cash Flows
Amounts in thousands
 
Nine Months Ended
September 30,
 
2017
 
2016
Cash flows from operating activities:
 
 
 
Net loss
$
(91,539
)
 
(72,455
)
Adjustments to reconcile net loss to net cash provided by operating activities:
 

 
 

Income from discontinued operations, net of income tax
(92
)
 

Amortization of subscriber accounts, dealer network and other intangible assets
178,896

 
185,415

Depreciation
6,435

 
6,329

Stock-based compensation
5,968

 
5,205

Deferred income tax expense
3,158

 
3,158

Gain on disposal of operating assets
(21,217
)
 

Legal settlement reserve, net of cash payments
23,000

 

Amortization of debt discount and deferred debt costs
8,227

 
8,063

Refinancing expense

 
9,348

Bad debt expense
7,888

 
7,855

Other non-cash activity, net
4,887

 
4,231

Changes in assets and liabilities:
 

 
 

Trade receivables
(7,225
)
 
(7,906
)
Prepaid expenses and other assets
(3,535
)
 
717

Subscriber accounts - deferred contract costs
(2,299
)
 
(2,080
)
Payables and other liabilities
4,770

 
10,667

Operating activities from discontinued operations, net
(3,408
)
 

Net cash provided by operating activities
113,914

 
158,547

Cash flows from investing activities:
 

 
 

Capital expenditures
(9,999
)
 
(5,071
)
Cost of subscriber accounts acquired
(119,081
)
 
(160,117
)
Purchases of marketable securities
(22,633
)
 
(5,036
)
Proceeds from sale of marketable securities
1,108

 
12,909

Decrease in restricted cash

 
55

Proceeds from the disposal of operating assets
32,612

 

Net cash used in investing activities
(117,993
)
 
(157,260
)
Cash flows from financing activities:
 

 
 

Proceeds from long-term debt
159,850

 
1,249,000

Payments on long-term debt
(132,500
)
 
(1,200,009
)
Value of shares withheld for share-based compensation
(670
)
 
(347
)
Payments of financing costs

 
(16,711
)
Purchases and retirement of common stock

 
(7,140
)
Net cash provided by financing activities
26,680

 
24,793

Net increase in cash and cash equivalents
22,601

 
26,080

Cash and cash equivalents at beginning of period
12,319

 
5,577

Cash and cash equivalents at end of period
$
34,920

 
31,657

Supplemental cash flow information:
 

 
 

State taxes paid, net
$
3,107

 
2,759

Interest paid
93,753

 
73,521

Accrued capital expenditures
386

 
638


See accompanying notes to condensed consolidated financial statements.

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Adjusted EBITDA

We evaluate the performance of our operations based on financial measures such as revenue and "Adjusted EBITDA."  Adjusted EBITDA is defined as net income (loss) before interest expense, interest income, income taxes, depreciation, amortization (including the amortization of subscriber accounts, dealer network and other intangible assets), stock-based and long-term incentive compensation, and other non-cash or nonrecurring charges.   Ascent Capital believes that Adjusted EBITDA is an important indicator of the operational strength and performance of its business, including the business’ ability to fund its ongoing acquisition of subscriber accounts, to fund its capital expenditures and to service its debt.  In addition, this measure is used by management to evaluate operating results and perform analytical comparisons and identify strategies to improve performance.   Adjusted EBITDA is also a measure that is customarily used by financial analysts to evaluate the financial performance of companies in the security alarm monitoring industry and is one of the financial measures, subject to certain adjustments, by which MONI’s covenants are calculated under the agreements governing their debt obligations.  Adjusted EBITDA does not represent cash flow from operations as defined by generally accepted accounting principles ("GAAP"), should not be construed as an alternative to net income or loss and is indicative neither of our results of operations nor of cash flows available to fund all of our cash needs.  It is, however, a measurement that Ascent Capital believes is useful to investors in analyzing its operating performance.  Accordingly, Adjusted EBITDA should be considered in addition to, but not as a substitute for, net income, cash flow provided by operating activities and other measures of financial performance prepared in accordance with GAAP.  Adjusted EBITDA is a non-GAAP financial measure.  As companies often define non-GAAP financial measures differently, Adjusted EBITDA as calculated by Ascent Capital should not be compared to any similarly titled measures reported by other companies.

Pre-SAC Adjusted EBITDA

In addition to MONI's dealer sales channel, MONI and LiveWatch also generate leads and acquire accounts through its direct-to-consumer sales channels. As such, certain expenditures and related revenue associated with subscriber acquisition (subscriber acquisition costs, or "SAC") are recognized as incurred. This is in contrast to the dealer sales channel, which capitalizes payments to dealers to acquire accounts. "Pre-SAC Adjusted EBITDA" is a measure that eliminates the impact of generating leads and acquiring accounts through the direct-to-consumer sales channels that is recognized in operating income. Pre-SAC Adjusted EBITDA is defined as total Adjusted EBITDA excluding SAC related to internally generated subscriber leads and accounts through the direct-to-consumer sales channels, as well as any related revenue. We believe Pre-SAC Adjusted EBITDA is a meaningful measure of the Company's financial performance in servicing its customer base. Pre-SAC Adjusted EBITDA should be considered in addition to, but not as a substitute for, net income, cash flow provided by operating activities and other measures of financial performance prepared in accordance with GAAP. Pre-SAC Adjusted EBITDA is a non-GAAP financial measure. As companies often define non-GAAP financial measures differently, Pre-SAC Adjusted EBITDA as calculated by the Company should not be compared to any similarly titled measures reported by other companies.













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The following table provides a reconciliation of Ascent's net loss from continuing operations to total Adjusted EBITDA to Pre-SAC Adjusted EBITDA for the periods indicated (amounts in thousands):
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2017
 
2016
 
2017
 
2016
Net loss from continuing operations
$
(29,160
)
 
(27,033
)
 
$
(91,631
)
 
(72,455
)
Amortization of subscriber accounts, dealer network and other intangible assets
59,384

 
62,156

 
178,896

 
185,415

Depreciation
2,176

 
2,152

 
6,435

 
6,329

Stock-based compensation
2,393

 
1,760

 
5,968

 
5,205

Radio conversion costs
74

 
1,263

 
383

 
17,938

Rebranding marketing program

 
602

 
880

 
839

LiveWatch acquisition contingent bonus charges
391

 
1,104

 
1,746

 
3,096

Integration / implementation of company initiatives
390

 

 
2,420

 

Severance expense (a)
1,248

 

 
1,275

 
245

Impairment of capitalized software

 

 
713

 

Gain on revaluation of acquisition dealer liabilities
(954
)
 

 
(1,358
)
 

Gain on disposal of operating assets

 

 
(21,217
)
 

Legal settlement reserve

 

 
28,000

 

Software implementation/integration

 
418

 

 
418

Other-than-temporary impairment losses on marketable securities
220

 

 
220

 
1,904

Interest income
(617
)
 
(548
)
 
(1,575
)
 
(1,593
)
Interest expense
38,360

 
31,794

 
114,011

 
94,805

Refinancing expense

 
9,348

 

 
9,348

Income tax expense from continuing operations
1,766

 
1,927

 
8,241

 
5,514

Adjusted EBITDA
75,671

 
84,943

 
233,407

 
257,008

Gross subscriber acquisition costs (b)
11,275

 
7,313

 
29,758

 
20,474

Revenue associated with subscriber acquisition costs (b)
(1,051
)
 
(1,332
)
 
(3,694
)
 
(3,884
)
Pre-SAC Adjusted EBITDA
$
85,895

 
90,924

 
$
259,471

 
273,598

 
(a) 
Severance expense related to a reduction in headcount event and transitioning executive leadership at MONI.
(b)
Gross subscriber acquisition costs and Revenue associated with subscriber acquisition costs for the three and nine months ended September 30, 2016 has been restated to include $665,000 and $2,006,000 of costs, respectively, and $207,000 and $584,000 of revenue, respectively, related to MONI's direct-to-consumer sales channel activities for the period.


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The following table provides a reconciliation of MONI’s net loss to total Adjusted EBITDA to Pre-SAC Adjusted EBITDA for the periods indicated (amounts in thousands):
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2017
 
2016
 
2017
 
2016
Net loss
$
(25,536
)
 
(23,002
)
 
$
(96,653
)
 
(59,721
)
Amortization of subscriber accounts, dealer network and other intangible assets
59,384

 
62,156

 
178,896

 
185,415

Depreciation
2,170

 
2,084

 
6,415

 
6,084

Stock-based compensation
1,311

 
682

 
2,759

 
1,871

Radio conversion costs
74

 
1,263

 
383

 
17,938

Rebranding marketing program

 
602

 
880

 
839

LiveWatch acquisition contingent bonus charges
391

 
1,104

 
1,746

 
3,096

Integration / implementation of company initiatives
390

 

 
2,420

 

Severance expense (a)
1,248

 

 
1,275

 
245

Impairment of capitalized software

 

 
713

 

Gain on revaluation of acquisition dealer liabilities
(954
)
 

 
(1,358
)
 

Legal settlement reserve

 

 
28,000

 

Software implementation/integration

 
418

 

 
418

Interest expense
36,665

 
30,211

 
108,980

 
91,459

Refinancing expense

 
9,348

 

 
9,348

Income tax expense
1,767

 
1,929

 
5,330

 
5,462

Adjusted EBITDA
76,910

 
86,795

 
239,786

 
262,454

Gross subscriber acquisition costs (b)
11,275

 
7,313

 
29,758

 
20,474

Revenue associated with subscriber acquisition costs (b)
(1,051
)
 
(1,332
)
 
(3,694
)
 
(3,884
)
Pre-SAC Adjusted EBITDA
$
87,134

 
92,776

 
$
265,850

 
279,044

 
(a) 
Severance expense related to a reduction in headcount event and transitioning executive leadership at MONI.
(b)
Gross subscriber acquisition costs and Revenue associated with subscriber acquisition costs for the three and nine months ended September 30, 2016 has been restated to include $665,000 and $2,006,000 of costs, respectively, and $207,000 and $584,000 of revenue, respectively, related to MONI's direct-to-consumer sales channel activities for the period.


Presented below is the reconciliation of Net revenue for MONI and Ascent Capital to Pre-SAC net revenue (amounts in thousands):
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2017
 
2016
 
2017
 
2016
Net revenue, as reported
$
138,211

 
142,765

 
$
419,909

 
429,689

Revenue associated with subscriber acquisition cost
(1,051
)
 
(1,332
)
 
(3,694
)
 
(3,884
)
Pre-SAC net revenue
$
137,160

 
141,433

 
$
416,215

 
425,805

    



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