Monitronics Interim CEO Details ‘Rapid Reset Program’
William Niles discusses the company’s strategy to return to profitability after a years-long battle contending with hefty debt and high attrition.
DALLAS — During a recent second-quarter earnings call, Monitronics Interim CEO William Niles proclaimed the company, dba Brinks Home Security, had posted “one of our best quarters in years.” The upbeat assessment follows the launch of key initiatives introduced in Q2 that include what Niles termed a “rapid reset program” and a bulk account acquisition strategy.
Niles, the company’s chief transformation officer and general counsel, was named interim CEO in March 2020. In that time he has worked to reshape Brinks Home Security’s beleaguered operations and go-to-market business model. During the earnings call he expressed his focus is on upfront creation cost reduction and creating a model where the economic interest of the company and dealer partners are aligned more closely.
While engaging in active discussions with its authorized dealers, Niles said he has made it clear to the dealer group the company must change its business model and paradigm of how it goes to market. And this entails no longer footing large creation multiples in the 40x to 45x range.
Specifically, the rapid reset program aims to improve unit economics in the company’s direct-to-consumer channel (DTC). To this end, staff reductions have been implemented, and the company shuddered a sales office in Kansas. The company has increased the average RMR per sale and cut back on inefficient marketing spend, he said.
“In this process, it has also become clear that our world class brand resonates in the marketplace. While lead volume declined somewhat organically, quality improved dramatically,” he said. “This resulted in greater efficiency with our sales teams and meaningful improvements in profitability.”
Based on the successful execution of this initiative, Niles said the company’s Q2 creation multiple in the DTC channel was down to 24x compared to 52.4x for the prior year. The figure excludes free accounts, which have an even lower creation cost, he said.
On a consolidated basis, the creation multiple was 32.4x versus 36.8x for the prior period. These figures also exclude free accounts acquired under the bulk buy strategy, which have even lower creation multiple.
“As we work through the next phase of rapid reset, we expect to see in the short term a modest drop in unit production. However, this comes with meaningfully improved unit economics and cash savings. Based on rapid reset, we expect to save an excess of $10 million in 2020,” Niles explained.
More Acquisitions Forethcoming?
Now about that bulk buy strategy initiated in Q2. The objective here is to identify large account portfolios held by under-capitalized midsize players in the industry. The focus is on companies strapped by high leverage and lack of access to capital that are not able sell their business or refinance debt load.
Monitronics is in an excellent position to manage these accounts and improve the subscriber lifetime value by leveraging Brinks Home Security brand recognition, scale, superior customer service and lower cost to serve, Niles said.
“We utilize the balance sheet-friendly structure, based on an earn-out formula that is designed to share the rate of attrition between buyer and seller,” he said.
The first fruit to result from the program was the purchase of around 114,000 residential alarm monitoring contracts from Protect America totaling approximately $4.6 million in recurring monthly revenue (RMR). Inclusive of the acquisition, the company added 126,781 new subscribers in the quarter and $5.3 million of RMR.
Under terms of the deal, Monitronics will take ownership of the alarm monitoring contracts at closing through an earnout structure that includes a $15 million upfront payment. For the first six months following the closing date, the company will pay a $5 monthly earnout payment per active account. For the remaining 44 months immediately following the initial earnout period, the company will pay Protect America a $25 monthly earnout payment per active account.
“We are actively pursuing other opportunities under our bulk strategy in order to execute additional transactions using this formula in the latter half of 2020 and into 2021,” Niles said.
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