MONI CEO Jeff Gardner Talks Q2 Earnings, Strategic Focus on Future
MONI executives hosted an earnings call following the release of its Q2 financials report. Hear from CEO Jeff Gardner about on-going challenges and successes with a new strategic focus.
DALLAS — During an earnings call Wednesday, executives from Ascent Capital Group (Nasdaq: ASCMA) and MONI discussed the company’s second quarter performance, as well as continuing initiatives to strengthen its position in the marketplace.
Coming up is an overview of what MONI CEO Jeff Gardner delved into during the call with analysts and investors. But first a glance at the company’s Q2 and year-to-date numbers to provide some context:
MONI posted Q2 net revenue of $140.5 million, a net loss of $50.1 million and pre-SAC adjusted EBITDA of $88.9 million. Year-to-date, the wholesale monitoring and smart home security services provider has generated net revenue of $281.7 million, a net loss of $71.1 million, and pre-SAC adjusted EBITDA of $178.7 million. During Q2 and year-to-date, the company added 26,782 and 56,158 customers, respectively. As Gardner discussed during the call, core unit attrition in Q2 edged up slightly from 14% to 14.1%. (For a deeper look at Q2 and year-to-date results, go here.)
Gardner began by explaining dealer productivity in Q2 decreased more than anticipated, which put pressure on the company’s revenues and attrition. “We are finding that it is taking longer for dealers to transition from traditional go-to-market strategies like door-to-door sales to more sophisticated methods, like online sales and marketing,” he said.
MONI took a significant hit after ending its relationship with its largest authorized dealer, which involves a $28 million expense to settle class action litigation over unsolicited telemarketing practices.
“From a creation cost perspective, this dealer was our highest cost partner and their departure from the program will help lower our average multiple going forward,” he said.
MONI also cut ties with an unspecified number of smaller dealers as well due to telemarketing transgressions. The company said the settlement amount is within MONI’s insurance policy limits, although its insurance carriers have not yet agreed to underwrite the entire settlement amount. MONI has commenced litigation to recover the $28 million in order to cover the settlement in full.
Gardner said the company continues to invest significantly in initiatives such as sales training, dealer development, recruitment support and lead generation to help stabilize its authorized dealer channel. The efforts are bearing fruit. The company saw a significant year-over-year increase in total number of accounts produced from participating dealers in the quarter.
“However, I continue to believe that our future success is dependent on growing our direct-to-consumer sales at LiveWatch and MONI at lower creation multiples. We are making progress on both fronts but not fast enough to offset the fall off in the dealer channel,” he said.
Going Direct to Consumers
The company launched its direct sales and installation sales channel in the first quarter, which utilizes an internal sales team and field technicians. The platform scaled nicely in Q2. “While the number of accounts generated is still modest, the channel accounted for 47% of all marketing source sales in the quarter,” Gardner said. “By comparison just six months ago, 100% of our marketing source leads were closed and installed by our dealers.”
The LiveWatch DIY business is also growing at a solid pace, he said, delivering another quarter of year-over-year growth in average revenue per user (ARPU) and RMR. The monthly average RMR for new clients has increased more than $40 year-over-year, “a sign of the attractiveness of the product offering and the strength of our business model,” Gardner said.
On a combined basis, both MONI Direct and LiveWatch platforms represented 25% of MONI’s total accounts generated at the end of Q2. No, that is not a huge number, but the investment in the platforms is paying off. Consider: just two years ago MONI’s dealer channel generated 100% of its accounts (see this earnings call slide for further illustration).
“As we scale our direct channel and improve dealer economics I am confident that we will see continued improvements in both our creation multiple and account quality,” Gardner said. “This will help drive us towards our goal of annual reductions in these metrics over the next five years.”
Taking Aim at Attrition
Check out this slide in support of Gardener’s contention that the company is making real headway in its years-long effort to tame a vexing attrition rate.
The company is leveraging what it terms “predictive churn analytics” to help identify its most at-risk customers. In Q2, MONI extended roughly 2,500 accounts per week — up from 1,800 per week the year prior. MONI is on track to end 2017 with the highest percent of customers under an extended contract in the last three years. Gardner explained the economics around extending the contracts creates value for its stakeholders by lowering attrition in the long-term.
“In the near term however, it does impact RMR attrition and margins. In the second quarter RMR attrition increased year-over-year from 12.5% to 13.4% as we offer rate reductions to our high risk customers and exchange for contract expansion that will lower future attrition,” he said.
MONI is also making progress at creating “stickier” customers with new interactive services. For example, customers who subscribe to the company’s HomeTouch smart home services are proving to be more engaged and exhibit better attrition characteristics.
Gardner said the company is on track to realize modest improvement in core and RMR attrition in the second half of 2017 and beyond. What will drive the reductions? Fewer accounts coming to term, continued improvement in customer services, a higher percentage of total account under contract and a focus on high quality accounts.
“Fundamentally, I believe we are making the right decisions with our business. And I am pleased with our execution today. Not only did we do the right thing economically with our dealers, but we’re also making smart investments in LiveWatch and our direct channel that will benefit the long-term growth of the business,” he said.
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