We have just published a new ebook that is free for our subscribers to download.
“Monitronics Under The Microscope –Everything You Need to Know to Better Understand your Business”
This blog post will give you a summary of the ebook and discuss why you want to learn more about Monitronics (“MONI”). Future blog posts will feature extensive excerpts of the ebook, but if you wish to subscribe now to our blogs, you can download the entire ebook immediately.
CLICK HERE TO SUBSCRIBE AND RECEIVE YOUR FREE ebook.
Studying MONI is a great way to better understand what is going on in your business because, as a public company, MONI releases lots of information to its public shareholders regarding MONI’s strategy, how it does its business, key metrics and financial results. You’ll get a great detailed look at the performance of another company with lots of similarities to yours.
We know that many of you have already formed opinions of MONI, its dealers or its prior business practices. It has been a major player in the industry since 1994.
We urge you to set aside preconceptions you may have and review MONI, not as a company to do business with nor one to copy, but rather as an example of an alarm industry player, with all its warts and blemishes, that is struggling, just like we all are, to reinvent itself in light of the circumstances of today.
While MONI is one of the largest companies in our industry, MONI’s strategy is, in many ways, a simple concept and a pure play in the alarm monitoring business. It’s only business has been to acquire and monitor customers with security alarm (and more recently home automation) systems.
In many ways MONI is not different from most other alarm companies. Here are some similarities:
- MONI acquires new accounts as they are created and, in recent years, it has begun to internally create about 40% of its new accounts.
- MONI provides monitoring through a large UL listed central station and it bills and arranges for physical service for its customers as needed.
- MONI struggles with customer attrition and new account creation rates.
- MONI has been impacted by changes felt by every company in the industry, including:
- Providing home automation and mobile interactive features for new systems that increase RMR, but reduce the Gross Margin percentage
- Responding to Federal restrictions on telephone soliciting which inhibit new account creation
- Dealing with increases in the attrition rate
- Competing with new direct-to-consumer channels such as DIY systems, Nest and others
- Increasing knowledge and awareness of consumers regarding home security and home automation alternatives, pricing and Internet shopping for alternatives
We have read, digested and organized substantially all of MONI’s publicly released information over the last 7 years to prepare “Monitronics Under the Microscope” which will give you many insights into how MONI works and, hopefully, some better understanding of how your own alarm business works.
Here’s the Executive Summary
Monitronics (MONI) is the number three company on the SDM 100 ranking of U.S. security alarm companies. MONI is an important player in our industry. As of March 31, 2018, MONI had around 958,000 active customers, more than $42.9 million of recurring monthly revenue (“RMR”) and was adding more than 7,000 new customers a month. MONI is owned by Ascent Capital, Inc. (“Ascent”), a public company traded on the NASDAQ with the symbol ASCMA. MONI is important to everybody in the security alarm industry because:
- In recent years, MONI has failed to create or acquire enough accounts to produce net growth and, as a result, enormous shareholder value has been destroyed.
- MONI has made many changes and is beginning to have some success in transforming its customer creation strategy from acquiring all its new accounts from traditional alarm dealers to internally creating a large portion of its new accounts from three direct-to-consumer channels.
- MONI has now rebranded as BRINKS Home Security (“BHS”), a bold move which may put MONI on a path to repair some of the damage done in recent years and support a critical near-term refinancing of its debt.
- The satisfactory (or unsatisfactory) resolution of its 2019 refinancing may well impact all of us as players in the alarm and home automation industries.
“Monitronics Under the Microscope” details MONI’s evolution over the last 7 years and provides perspective on how things are changing in the security alarm industry. It should also provide you with a better understanding of how your company can cope with similar challenges facing all alarm companies.
Highlights
In summary, here is a snapshot of what “Monitronics Under the Microscope” will show you in detail. MONI experienced some severe performance issues beginning in 2015 and continuing through Q1 2018. Highlights over the 3 ¼ year period include:
- The number of accounts dropped 9.5%.
- The number of active dealers dropped 43% and new account creation by dealers dropped more than 66%.
- Internal account creation through direct-to-consumer channels increased from nothing to 40% of new account creation, an annualized rate of 34,500 units in Q1 2018.
- Account attrition has been disastrous;
- Unit attrition has increased from 12.9% in 2014, to a current rate of 16.0%.
- RMR attrition has also increased from 12.6% to 13.9%.
- RMR per account has increased to $44.76 in Q1 2018.
- The Creation Multiple has improved from 36.4 to 34.6.
To turnaround this downtrend in operating performance, Ascent and MONI have taken many strong steps. There are some indications that the turnaround may be beginning to happen, but as of Q1 2018, results still have not improved materially.
Management has now embarked on a second rebranding by exclusively licensing the BRINKS Home Security name and changing all of its marketing to focus on the BRINKS Home Security brand for all its customer creation channels, both through its dealers and its direct-to-consumer channels.
MONI’s biggest challenge: It must refinance $585 million of a total $1.8 billion in debt by October 3, 2019 or risk the acceleration of more than $1.1 billion of other debt. If such debt acceleration were to occur, it could easily lead to the sale of the Company on unfavorable terms, or worse.
LVI’s Conclusions
Refinancing:
The refinancing looks to be exceedingly difficult based on the turnaround results achieved to date and the highly-leveraged status of the MONI Balance Sheet.
If, over the next 4 quarters, MONI were able to grow new account creation to the point it is at least replacing its RMR attrition or, better yet, replacing its unit account attrition, a refinancing will become more feasible.
Replacing Attrition:
For MONI to grow to the point that it is replacing its current RMR or unit attrition, it will have to increase its quarterly account creation from 21,547 in Q1 2018 to about 35,000 to 40,000 new accounts per quarter, an increase of 65% to 85% from the Q1 2018 creation levels.
MONI will need to show phenomenal growth in new RMR creation, roughly 20% quarter-over-quarter growth, over the next four quarters. If it does, it will have demonstrated results to show to new lenders before the commitment date. This is a tall order but perhaps achievable.
This blog post is a summary of the ebook; “Monitronics Under the Microscope”. If you wish to receive the full ebook now, CLICK HERE TO SUBSCRIBE AND RECEIVE YOUR FREE ebook.
Larrabee Ventures, Inc. (LVI)
LVI is staffed by highly experienced alarm professionals.
William Larrabee (“Bill”) has started three alarm companies from scratch, been president of five different alarm companies, and worked through crisis situations in numerous companies, either as an on-site executive or paid financial advisor. Bill knows the alarm business.
Michael Carter (“Mike”) has been a sales manager and vice president of sales and marketing for five of the largest alarm companies in the US. He also has ten years of experience driving sales and marketing programs as a consultant and coach. Michael knows sales, marketing, and sales management for alarm companies. For more information about LVI please visit our website: Larrabee Ventures.com.
Together we will answer your questions and help you get your business out of the fog and back on the open road.