Monitronics is entering into Chapter 11 bankruptcy. The company, also called Ascent Capital Group Inc., aka ASCMA, aka Brinks Home Security, formerly known as Moni, has struggled for some time.
Update: June 1, 2019, the company has now officially declared bankruptcy.
In this note, based on our own research and outreach to Ascent via their press contact, we examine the following:
What their plans are in bankruptcy
How "business as usual" means an intended merger
What the details of the restructuring are
Feedback from Peter Giacalone & John Brady
Challenges and Outlook
******'* ********** ***********, *** going ***** *** ****** Home ******** *****, ** the*** ******* ******** ********** in *** **, ** **** ***** in *** ********** **** the ***'* ***:
************, ****** ***********, ***** not ********* ******* ** full *** ***** ********** will ******* ****** * small ********** ** **** they *** **** ** a ******, *** ***** not **** ********** ** common ***** ** *** newly *********** ***********:
***********, *** ******* ****** that ********** **** *** RSA *** **********, ****** and *********** *** ******** a ****** ** ****** into ***********, ** **** below:
***** *** * ****** of ******** ******* *** the ****** *** *** release ***** **** *** merger *** *** ****** if ****** ** ******** to **** **** **** $20 ******* ** *** date ** ********** ** the ***, ** **** below:
***********, ***** *-* *************' *** ** *-******** *** ******, ********** that *** ***** ****** and "*********** ***********" ***** have ****** ***** *** listed ** * ******** securities ********, *** "*** be ******** ** ******* on ******* ******** ***** ******* *****," ** **** *****:
Feedback **** ******
******'* ***** ********** ************** ** **** **** not ********** ************ ** the ********** **** ** the *** *** ******** us ******* ***** *******:
**’** *** ******** *** comment ****** *** ***** release ** **** ****, but *** *** ******* of *** ************* *** in *** ***** *******.
SEC **** "********* *****"
*** ** *** ******** ****** ********* **** go ******* ******* ** often *** **** ******* and *****, **** ** their ************** ****** **** to **** *** *** other ****:
As for the CEO's comment about having the 'strongest balance sheet in the industry':
That's one incredibly arrogant comment considering the losses that their lenders took. I'm fascinated to see what terms lenders will give them going forward.
We have added the following section to the story above:
Feedback From Giacalone & Brady
John Brady President of TRG Associates, an industry financial services company, said that Monitronics—and the rest of the industry—would survive Chapter 11 and restructuring, but that it may take a number of years:
Not the end of the world for our industry but certainly unfortunate as it puts "a mark" on the "Dealer model" for the industry which has impacted valuations already across the industry for these type of companies.
They will survive which is the good news and they will right size their "obligations" so they can move forward. They have a very high attrition rate today but still have a sizable amount of RMR and I have always said, "Any company can work its way out of trouble if it takes care of it's existing customers and corresponding RMR in a patient manner—RMR has alot of healing power."
If you remember the Alert Centre back in the 90's—went into Chapter 11 with $7.0M of RMR—came out with $5.0M and the banks ended up getting their money back but it took 5 -7 years and we all survived.
Peter Giacalone President of Giacalone Associates, an industry consulting company, said there were options open to Monitronics if they were successful in finding a "new beginning." Further, he said that it was important to the industry that Monitronics achieve that success:
A variety of options exist if they can successfully restructure debt, create operational efficiencies and brush themselves off toward a new beginning. It’s important to the industry for Moni to survive and succeed.
Creditors charge exuberant interest and bleed remaining cash while management seeks new investors all the while touting the “strongest balance sheet in the industry.”
Now consider this... Unit attrition is at 17.5% and their creation multiple exceeds 36X!
Do the math... It takes over 36 months to break even on a single account. In that same time, they will have lost almost half of the accounts they created in month 1...
Remember how Monitronics was founded… major investment into fast growing, cash hungry Iowa based private company… plant their hand-picked new president …. Bankrupt the firm…. Buy the assets (RMR) for pennies… destroy the founding management and investors... move to Dallas…. rename the company Monitronics. History repeating??
“I believe there will be less lenders willing to lend to the residential alarm sector for the next few years — but still a number of active lenders — and the leverage levels available will be down 20-25% from the peak a few years ago,”
The other foot that is going to drop is, is Monitronics going to change the dealer multiple model? Are they going to have to? Are they going to have to come down a little bit? Are they going to send out a new dealer rate sheet [and require] average credit scores of 750 — not 650 — to get a 30 multiple? That is going to be the real bellwether,
You make a good point about the funding multiples. The subscriber acquisition cost is out of control (approximately 30% higher than ADT) and must be corrected. Unfortunately, lower multiples will decrease production and attrition is already outpacing new subscriber ads.
There is a giant hole in the bottom of the bucket (unit attrition is at 17.5%). A more disciplined approach to filling that bucket won’t solve their problem. And I’ve seen anecdotal evidence that they’ve taken extreme measures to retain accounts (ie. free upgrade + $15/monitoring), so reported unit attrition might be a little misrepresentative.
I believe this will mark the bubble for RMR valuations and some folks who’ve been playing hot potato with account portfolios will find themselves at the end of the line.
For too long, the model has been to knock on folks doors and give them a bunch of “free” stuff they didn’t know they wanted (or at least didn’t want badly enough to seek it on their own), and then sell that paper to the highest bidder.
This will be a painful but necessary correction.
Don’t get me wrong—it’s not Alarmageddon. But let’s be honest, everyone got a bit carried away and now it’s time to rest tulips on their graves and come to our senses.
Yes, the largest independent “dealer” network. However, some of us see it as a major weakness, not a strength. Hundreds of commission sales persons trained and managed by hundreds of different un-organized, un-disciplined, un-coordinated management and supervision. The new consumer contract and the customized alarm system occurs in the privacy of the customer site. Consequently, new customer expectations often differ substantially from Monitronics standardized service delivery. Helps to explain the very high attrition. And Monitronics pays a premium multiple for those contracts.
This article is part of IPVM's 7,256 reports and 966 tests and is only available to subscribers. To get a one-time preview of our work, enter your work email to access the full article.
Comments (10)
Undisclosed #1
Show of hands from everyone who is surprised to hear this:
Create New Topic
John Honovich
Dan, good reporting.
As for the CEO's comment about having the 'strongest balance sheet in the industry':
That's one incredibly arrogant comment considering the losses that their lenders took. I'm fascinated to see what terms lenders will give them going forward.
Create New Topic
Dan Gelinas
We have added the following section to the story above:
Feedback From Giacalone & Brady
John Brady President of TRG Associates, an industry financial services company, said that Monitronics—and the rest of the industry—would survive Chapter 11 and restructuring, but that it may take a number of years:
Peter Giacalone President of Giacalone Associates, an industry consulting company, said there were options open to Monitronics if they were successful in finding a "new beginning." Further, he said that it was important to the industry that Monitronics achieve that success:
Create New Topic
John Honovich
ASCMA stock rocketed 50%today:
That's great, except their market capitalization is still just $17 million after that.
And if you bought a year ago, you are still down nearly 50%
However, if you bought 6 months ago, you would have tripled your money! Wild ride.
Create New Topic
Undisclosed Distributor #2
So basically...
Creditors trade a portion of debt for equity.
Current investors get screwed due to dilution.
Unsecured creditors get a haircut in Chapter 11.
Creditors charge exuberant interest and bleed remaining cash while management seeks new investors all the while touting the “strongest balance sheet in the industry.”
Now consider this... Unit attrition is at 17.5% and their creation multiple exceeds 36X!
Do the math... It takes over 36 months to break even on a single account. In that same time, they will have lost almost half of the accounts they created in month 1...
Create New Topic
Lee Jones
05/23/19 06:56am
Remember how Monitronics was founded… major investment into fast growing, cash hungry Iowa based private company… plant their hand-picked new president …. Bankrupt the firm…. Buy the assets (RMR) for pennies… destroy the founding management and investors... move to Dallas…. rename the company Monitronics. History repeating??
Create New Topic
John Honovich
Good article from SSI: Monitronics Reorg Fallout: Dealer Program Model Losing Luster, Industry Experts Say, key quotes:
Create New Topic
John Honovich
Update: July 1, the company has officially filed for bankruptcy.
Create New Topic