Ascent Capital Group's (ASCMA) CEO William Fitzgerald on Q4 2016 Results - Earnings Call Transcript

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Ascent Capital Group, Inc. (NASDAQ:ASCMA) Q4 2016 Results Earnings Conference Call February 28, 2017 5:00 PM ET

Executives

William Fitzgerald - Chairman and Chief Executive Officer

Jeffery Gardner - Chief Executive Officer, Monitronics International, Inc.

Michael Meyers - SVP and Chief Financial Officer

William Niles - EVP, General Counsel

Analysts

Jeffrey Kessler - Imperial Capital

Conor Mills - Bank of America Merrill Lynch

Todd Morgan - Jefferies

Operator

Good day and welcome to Ascent Capital Group’s Conference Call to discuss the Company’s Fourth Quarter and Full Year 2016 Earnings. Today’s call is being recorded and a replay of the call will be available on the Ascent IR Web site an hour after the completion of this call. For those of you following along on the webcast, we will be using a slide deck to supplement a portion of management’s commentary today.

This call includes certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements about business strategies, including development of and access to multiple sales channels, market potential and expansion, the success of new products and services including ASAPer, consumer demand for interactive and home automation services, account creation and related costs, 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 the Company’s services, technological innovations in the alarm monitoring industry, competitive issues, continued access to capital on terms acceptable to Ascent, 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 call, and Ascent expressly disclaims any obligation or undertaking to disseminate any updates or revisions to any forward-looking statements 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 Form 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 during this call. On today’s call, we will discuss certain non-GAAP financial measures, including adjusted EBITDA and pre-tax adjusted EBITDA. The required definitions and reconciliations are included in our earnings release, which was made publicly available earlier today.

I'd now like to turn the call over to your host, Ascent Capital Group’s Chief Executive Officer, Bill Fitzgerald. Please go ahead, sir.

William Fitzgerald

Thank you, operator. Good afternoon, everyone and welcome to our fourth quarter and full year 2016 earnings call. Joining me on the call today is Jeff Gardner, our CEO of MONI Smart Security; as well as our CFO, Mike Meyers; and Ascent’s General Counsel, Bill Niles.

During the call I will provide a brief update on the business and then turn the call over to Jeff to discuss the MONI business and financial performance in more detail. Following that, Mike will give you a detailed look at fourth quarter and full year financials. We will also leave time for your questions at the end of this presentation.

I am pleased with what Jeff and his team accomplished during 2016, positioning the business very well for a solid 2017. In addition to the meaningful improvements made in dealer economics and creation costs, customer retention initiatives have helped to improve customer satisfaction levels and strengthened RMR attrition metrics. Additionally, MONI's affiliate partnership programs and rebranding efforts are supporting new customer growth from internally generated leads and sales. We are confident that continued development of this new channel will have the same success as our LiveWatch business, which delivered another quarter of strong performance.

While we still have more work ahead of us, I am confident that we are on the right path and taking the right steps to strengthen our core operations and key performance metrics to drive increased shareholder value. With that, let met turn things over to Jeff. Jeff?

Jeffery Gardner

Thank you, Bill, and good afternoon, everyone. I would like to begin by providing a quick recap of our activity in 2016 and then offer a brief over view of our top line performance. I will then take a detailed look at our efforts, executing against our key operating initiatives in the quarter and full year, along with some expectations for 2017.

Beginning on Slide 3, as you can see, 2016 was a busy year for the business. In addition to completing a $1.4 billion refinancing, we launched the new MONI brand, made meaningful improvements to customer service that were validated by JD Power Customer Service Award, grew internally generated leads and sales year-over-year, largely met our expectations on revenue and pre-SAC EBITDA goals at MONI and delivered record growth at LiveWatch, to name a few. While there is still more work ahead of us, I am very pleased with our efforts to date.

I believe our execution is serving to strengthen the underlying fundamentals of our operations and build a solid foundation for the business as we move into 2017. Turning to our top line performance. As detailed on Slide 4, MONI delivered net revenue of $140.7 million in the fourth quarter and $570.4 million in the full year. Pre-SAC adjusted EBITDA was $88.9 million in the quarter and $366.5 million in the full year. And net loss from continuing operations totaled $16.6 million and $76.3 million in the quarter and full year respectively.

During the quarter we added 26,227 customers. I am pleased with our execution in the quarter and full year and believe we are making strides in positioning the business for profitable growth. Much of my confidence stems from the hard work we are doing against our operational initiatives. If you turn to Slide 5. In early 2016, we initiated a multiyear strategy that we refer to as Grand slam focused on four key initiatives. Lowering creation cost, reducing attrition, driving improvements in customer growth and improving pre-SAC EBITDA margins.

As we look to position ourselves as a leader in the rapidly evolving home security space, we believe that improves across each of these areas will serve to make MONI a better organization and one that generates stronger financial performance. Let's dig into each of these initiatives in more detail now. First, during the fourth quarter we continued to make marked progress in reducing our creation cost multiple.

Slide 6 details creation cost trends over the last several years. In the fourth quarter, our multiple was 35.1, down meaningfully year-over-year and our lowest point in 2016. Our success here is driven by growth at LiveWatch and the changes we have implemented to our dealer program. Going forward, our plan is to show continued reductions in creation cost over the next five years. We will accomplish this by continuing to improve the economics of our dealer program and growing MONI and LiveWatch direct sales each year.

Speaking of LiveWatch, if you turn to Slide 7, you can see that this business is continuing to scale nicely delivering another quarter of year-over-year growth in recurring monthly revenue. Monthly average RMR for new customer, grew to over $40 in the quarter, up substantially year-over-year. A clear sign of the attractiveness of the LiveWatch product offering and the strength of its business model.

Turning to customer growth. We did see pressure year-over-year as it relates to new customers added through our dealer channel. As we told you at the beginning of 2016, our focus was on improving the economics of this channel by reducing creation costs and then deliver sustainable growth that creates value for the business and our shareholders. We are pursuing several specific growth initiatives to support the business.

Slide 8 covers these in greater detail. First, we are beginning to see the benefits of our 2016 rebranding, winning the Gold Marcom Award for outstanding achievement by creative professionals for our rebranding effort. This award further confirms my belief that a customer focused brand emphasizing our leadership in the smart home space, greatly benefits our business for the long term. Second, we are committed to enabling the success of our dealer partners by supporting recruitment and sales training, as well as marketing and lead generation.

At MONI, while still small, we are making great progress with marketing generated leads growing 82% year-over-year in 2016. Turning to Slide 9. Our partnership programs with AARP and AAA also remain a key part of our strategy to support lead generation going forward. We continue to focus on attracting new dealers through our program. We also have two new dealers initiatives, RISE and Elevate, designed to increased dealer production. Both programs are highlighted on Slide 10.

Under RISE, our dealers have added over 100 new sales personnel, providing them with comprehensive sales and marketing training and back office support. This entrepreneurial program is a growing new dealer channel for us, allowing us to train and support the next generation of MONI dealers. Our Elevate program on the other hand is focused on bringing best in class operating and financial practices to top generating dealers in our existing network.

With a strong plan in motion to drive growth, we are also making progress around attrition. Slide 11 illustrates that RMR attrition is down 1.2% year-over-year to 12.2%, due to an effective price increase strategy and higher rates associated with selling in more home automation services. Core unit attrition rose modestly on a sequential basis to 13.4%. For 2017, our plan is to realize modest improvement in core attrition. Over the next five years we anticipate steady declines in core attrition, driven by fewer accounts to coming to term, excellent customer service, a focus on generating higher quality accounts, and our new predictive term analytics.

Slide 12 highlights the expected decrease in customers coming to term, which is the point where customer attrition peaks. That said, we are still pursuing a very aggressive program to bring down unit attrition. Slide 13 details our most prominent efforts. First, we are committed to providing and exceptionally high level of customer service. Answering calls quickly and resolving issues on the first call. Second, we continue to add new high credit score customers and are using our predictive churn analytics to direct high risk customers to our best performing customer service representatives.

As a result of this program, during Q4 we dramatically increased the number of customers that we treated pro-actively and are confident that this will continue to help support our attrition metrics going forward. Third, we are conducting more frequent customer engagement in order to keep customers aware of our comprehensive HomeTouch product and service offering, which is highlighted on Slide 14. For example, we launched an aggressive Q4 marketing campaign to alert existing customers of our JD Power customer service recognition and leverage this dialog to sell in additional services.

Finally, we are also looking to identify opportunities that support ongoing margin improvements. We are currently evaluating programs to develop more sophisticated purchasing techniques, introduce more customer service automation, and also move more work to our internal technicians to deliver meaningful improvements to our cost base and margins over time. Before I turn the call over to Mike, I want to quickly highlight our new interactive messaging hub ASAPer.

Launched in the fourth quarter, our proprietary and patented ASAPer platform allows MONI to respond to customer emergencies faster than any other service provider. Slide 15 provides more detail. While plenty of other systems alert you when alarm goes off, ASAPer is unique in its collaborative, interactive messaging interface that allows multiple users to connect with one another via text, email, voice and web to coordinate a response. When moments matter, ASAPer helps to reduce the false alarms, mitigate the risk of unnecessary emergency dispatches and ensure that first responders are only called to true emergency situations.

Originally developed within LiveWatch, we spend the last year integrating it into our system. It was launched to our over one million customers in early 2017 and I expect it will serve as a real differentiator to what other alarm providers are doing today. I encourage you to follow the link in the presentation to learn more about ASAPer.

In conclusion, I am pleased with our efforts in 2016 and believe the steps we are taking are positioning the business well as we move into the new year. We accomplished a great deal this year and have tremendous opportunity ahead of us and I am excited about what the future holds. With that I will turn things over to Mike?

Michael Meyers

Thanks, Jeff. Let me begin by reviewing our top line performance.

In the fourth quarter Ascent's net revenue decreased 0.6% to $140.7 million primarily due to lower account growth at MONI as compared to the fourth quarter of 2015. For the full-year Ascent's revenues increased 1.2% to $570.4 million. The increase in full-year net revenue is primarily attributable to increases in average RMR per subscriber to $43.10 as of $41.92 for the prior year period. It also reflects the inclusion of a full first quarter for LiveWatch.

Turning to Slide 16. Let me provide an update on 2G. Since Q1 2015 we have reduced the 2G population from 200,000 customers to approximately 12,000 as of year-end. We incurred $18.4 million in 2016 converting 2G accounts. As expected, AT&T shut down the network in January and as of today we have less than 10,000 customers left to convert. While we anticipate that the majority of remaining customers will ultimately cancel their service, we will continue our ongoing efforts to convert as many of these customers as possible throughout the coming year.

Let me now turn to costs with a specific emphasis on LiveWatch's impact on our cost structure and margins. During Q4 and the full-year LiveWatch's net expensed creation cost totaled $6.5 million and $21.6 million respectively. Because LiveWatch's expenses its creation cost associated with new customers, this drives our total operating expenses higher and reduces margins. Ascent's Pre-SAC adjusted EBITDA which adds back the expensed portion of LiveWatch creation cost, decreased 0.2% in the fourth quarter and decreased 0.3% in 2016.

MONI's Pre-SAC adjusted EBITDA decreased 1.5% in the fourth quarter and decreased 0.7% in the full-year. On a Pre-SAC basis after removing LiveWatch's expensed creation cost, MONI's Pre-SAC EBITDA margins in the fourth quarter, we are 63.7% and 64.8% for the 12 month period. This compares to 64.3% and 66.0% in the year ago periods. I should reiterate that narrower Pre-SAC margins are partially driven by the fact that LiveWatch is a much younger business and therefore has lower margins than MONI. As LiveWatch grows and matures, margins will expand approaching MONI's level.

For the fourth quarter and full-year, LiveWatch drove an 80 and 70 basis point reduction in Pre-SAC margins respectively. Increases in retention related field service, the number of HomeTouch customers and investments in our service areas to improve the customer experience also contributed to margin pressure.

Turning to our liquidity position. At December 31 on a consolidated basis, Ascent had $90.1 million of cash, cash equivalents and marketable securities. At quarter-end we had an outstanding balance of $44.8 million on the credit facility revolver. With that, let me turn the call back over to Bill.

William Fitzgerald

Thanks, Mike. As you have just heard Jeff and his team continue to make really good progress with the business, setting the stage for a very solid 2017 ahead. We are excited about the changes underway and look forward to sharing more about the developments of the business in our next quarter's call. Thank you all for joining us today and will now be happy to take any questions you have for us.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from Jeff Kessler of Imperial Capital.

Jeffrey Kessler

I have got a couple of questions here. First, you mentioned on the call, I guess, Jeff, you mentioned on the call that you are making some changes over the course of the year to the dealer program to get attrition down. Can you elaborate on that a little bit?

Jeffery Gardner

Sure. I mean, Jeff, there are several things that we are doing. I mean we continue to learn more everyday about what can help us drive lower attrition numbers. We are using predictive analytics to help identify customers and be proactive on the front-end, improving -- the other thing that we do is on the quality. So our credit scores remain very high. And that really is key as you know. And we have been very disciplined in our underwriting. And the last thing that we have been really focused on, I mentioned this on the call that we are really beginning to have more of a dialog with our customers from day one and as a part of that, really making sure that customers are engaged from the get go. That they are using their system and products from the beginning.

We find that it has a very high correlation to driving retention over time. And so we are doing many things. Working with our dealers, very pleased with the customer satisfaction ratings we have from both our own technicians and from dealer technicians. We are paying a lot of attention to net promoter score on that and we are doing a good job there too. So starting customers outright, making sure that they are using their system and continuing to add high quality customers, are all helping us drive attrition down.

Jeffrey Kessler

Okay. Great. Second question. I notice that LiveWatch ARPU has significant increases over the course of the year until we got into the fourth quarter. Is there a ceiling right now on ARPU? Are you holding ARPU at a certain level to kind of figure out what is the right price for LiveWatch customer?

Jeffery Gardner

Yes. I think a little bit of the latter there, in terms of -- we are very pleased. I mean when we acquired that business, the average revenue per customer per month was in the low 30s and the team has done such an excellent job targeting high value customers with higher incomes and they are buying many products and services from us and the team has done a nice job selling up. But as we look at the DIY market, we also want to be very careful in our collaborative sales process that we are selling and offering what customers want rather than pushing products to them just to drive up the average revenue per unit.

So I think it's 40. We believe we are kind of in the sweet spot in terms of maximizing the penetration and profitability we can get from that DIY segment.

Jeffrey Kessler

Great. One other question and that is, moving more work towards your internal technicians. Moving more internal leads, from a small number obviously, up 82%. Is this helping -- number one, how are you managing this with your dealer base, and number two, what are beginning to find from the internal group that you have.

Jeffery Gardner

Yes. That’s a great question, Jeff. I mean what we are doing is I think managing this in a way that’s very responsive to our dealer partners today. Many of the leads that I have mentioned, in fact most of the leads that we generated in 2016, I referred to an 82% increase from programs like AARP. Those are going directly to our dealers. So we are really helping them. I think that one of the challenges some of the smaller dealers have is they don’t have the scale or structure to run a sophisticated marketing program and so we are kind of reaching out through our lead program. I think at the end of the day, they make them more effective over time. And so despite the fact that we are focusing more on building an internal channel, I don’t think it's at the expense of the dealers. We are working harder than ever to help them run businesses, not only just to create more volume but to help them become more profitable over time. And so that was key here.

As we diversify from the dealer model, we have been very careful to make sure that we are still being proactive in supporting these business being successful down the road. I think that in the long run, when we look at all the challenges we have in terms of just accelerating customer growth, responding in a more sophisticated way on the marketing side and driving down creation cost, that a more diversified strategy is what's right for the business. And so a healthy MONI is probably the best thing for our dealer today. And so they have been an intricate part of this process. They are along for the ride. We are working collaboratively with them on the lead generation.

Operator

Your next question comes from [Kevin Zilkes] [ph] of Citi.

Unidentified Analyst

Hi, this is actually [Ashish] [ph] on for Kevin. Thank you for taking my questions. Just had a couple of quick ones on the LiveWatch piece. Saw your creation cost improve sequentially. Just wanted to understand whether that’s been driven by higher growth of LiveWatch subscribers or is it just [dealer] [ph] more purchase multiples being lower. And on that point, we also saw like LiveWatch equipment and marketing cost rise sequentially. I just want to understand what is driving that? Is it just an acceleration of LiveWatch subscribers sequentially or is there some onetime cost in there.

Jeffery Gardner

Okay. I will take the first part and then I will ask Mike to talk about the equipment and marketing cost sequentially that you asked about. First of all, our improvement in creation cost is really driven by both factors that you mentioned. One, adjusting our dealer multiple certainly had an impact. We did that early in the year and so we are benefitting there. If you look at the dealer multiples year-over-year, those are down significantly but also LiveWatch. One of the things we like about the DIY channel and our own self generated channel is that we believe we can create accounts at a lower creation cost than our traditional dealer channel and so it's really both of those things.

LiveWatch started out as a very small business. They have been growing at 30% for, I guess, we have had them for eight quarters now. So they are becoming a larger part of the business. And so they have a pretty significant impact on creation cost. So it's been a big factor and that’s one of the things we love about that business is that they are able to generate leads efficiently and convert them at a high rate to drive a lower creation cost.

Michael Meyers

And the answer to your question on expense [indiscernible] it's really the same. They are just becoming bigger and creating more accounts and so what you are seeing in the growth in their expense creation cost is primarily just that they are scaling and getting bigger and becoming a more meaningful part of the accounts we are creating each quarter.

Unidentified Analyst

Understood. So I just want to clarify. Does that mean the creation cost at LiveWatch are sort of stable sequentially. Would that be a good, like takeaway?

Michael Meyers

Yes. What we have always said about creation cost at LiveWatch is it's somewhere in the low 30s multiple. And they have done a good job managing that as they have grown.

Jeffery Gardner

And pretty consistently throughout the year.

Unidentified Analyst

Understood. That’s great color. A second point on free cash flow. I just wanted to understand what you are looking for in terms of added subscribers in '17 and how that plays with your free cash flow generation? And the reason I am asking that is, you have some investments for your -- you are also targeting a lot of cost improvement, creation cost, attrition improvement etcetera. I guess I am curious as you look to more of these improvements, would you look to sort of refinance your existing 2020 bonds, given how strong the debt market is.

Michael Meyers

We continue to look at the 2020 bonds. I mean we are happy with our capital structure. We were really pleased in September that we got the credit facility refinanced. We feel like we have got a pretty good runway up until 2020 on the bonds but we are always going to be opportunistic and keep an eye on how the markets are trading.

Jeffery Gardner

I guess the first part of your question, just in terms of what is our outlook on customer growth. We are not providing specific numbers here but I talked a number of initiatives that we have including continued growth at LiveWatch. Our internal channel is going to grow quite a bit next year. And we believe that after our dealers who this year had quite an adjustment in terms of creation multiples, they are much better prepared to get back to what we think is more normal growth rates. Having said that, when we look at the business overall, we are very focused on cash flow. The Grand Slam initiatives are really very focused on improving the internal rates return at this business and focused on the metric that we look at often is, steady state free cash flow.

So to me, if we can make progress on creation cost, attrition and margin improvement, this makes this a stronger business. And I am very pleased that we were able to refinance it this year and excited about our prospects to make progress on some of these fundamental drivers of our economics.

Unidentified Analyst

That’s great to hear. I just have one final question. One of your competitors, Vivint, announced sort of an equipment financing plan earlier this month. I was just curious if you guys have looked at something similar and if you have considered something like that, how MONI's model either help it create some challenges.

Jeffery Gardner

Sure. We think that the Vivint Flex Pay announcement is an interesting development. As you know this business has been largely one where the customers pay a little upfront for the equipment. So buying the equipment upfront is interesting. We have been exploring various options to offer credit capabilities to our customers as well. And we are doing some market testing as we speak to get a sense of whether customers really want to pay for services upfront. That’s something that’s not -- I think this is interesting and you have seen similar things done in the wireless business. So we are pretty far along in terms of doing some market testing to see if this is realistic. So we are anxiously watching what's going on at Vivint and we have really taken the steps that if this makes sense for us to do, we are ready to do it.

We are still in the early stages, so it's too early to give you a precise time as to when and if we are going to roll this out but I feel like we are very well prepared. The team has been looking at this for some time now.

Operator

Your next question comes from Conor Mills of Bank of America.

Conor Mills

Just one on creation multiple. You have obviously realized some of the benefits from the dealer renegotiations earlier this year. I was wondering how much improvement do you think is left from further renegotiations? Have the big chunks kind of already been realized there.

Jeffery Gardner

Well, what I tried to convey today is that we look at creation cost as not kind of a single product, as a single year effort, but as a multiyear effort. This business gets a lot better if you can reduce that over a long period of time and that’s really what we are focused on. Through further improvements in the dealer side, we did make some fairly significant changes we won't be adjusting that as much this year. But I think we also did a lot to change in the market. If you look at what some of our competitors are doing, there has been a lot of discipline as it relates to new dealers coming into play. We have been able to recruit dealers at really effective creation cost multiples and we are feeling good about the way the market is behaving.

So what got the industry in a little bit of challenge with the fact that these were increasing over time and now it just feels like there is more discipline. And what we are trying to do is not do this on the backs of our dealers because I said earlier, we are really trying to help or dealers understand how to become more profitable. And it's not just about the creation multiple, it's helping them understand the business model. What drives profitability in an effective dealer, what we see more and more of is the ability to recruit sales people. Some of our most successful dealers have been recruiting people who are new to the industry. And so they are not just kind of retreads from other programs but new sales people and training them professionally so that they can go out there and make it different and I think that’s really where we are focused on. Continuing to work with our dealers, help them understand that we all benefit from fundamentally improving the economics of the business.

Conor Mills

Great. Thanks very much. And then just one more, if I could. Kind of a follow up on the earlier question on the pace of subscriber growth. You had mentioned that part of the reason for the slow down over the course of the year was that the company was focused on improving the economics per customer and then reaccelerating growth. So I was wondering if you had any specific targets whether it be creation multiple or any other metrics that you are looking at before. Kind of you refocusing going forward.

Jeffery Gardner

Yes. I mean we are looking at all those things. We are not going to give any specific guidance as it relates to customer growth or the creation cost multiples. I did say that our goal is to reduce those over a longer period of time. We made some adjustment this year that I think caused our dealer program to suffer a little bit and our dealers had to adjust to that. But we have continued to have very strong underwriting. We are recruiting new dealers to the program. We have rolled out these two new initiatives, Elevate and RISE, to help them. So all of that I think is going to help on the customer growth side. But I think it's the kind of multiples that our investors will be more comfortable with.

Operator

Your next question comes from Todd Morgan of Jefferies.

Todd Morgan

I did want to follow up a little bit on the dealer comments you had made. If I look at the accounts required in 2016 versus 2015, it looks like on a gross basis there is about 60,000 fewer accounts that you acquired in that period. And again assuming that LiveWatch was growing pretty heavily that implies, I think, that the number of dealer channel accounts that you acquired, jumped dramatically. Is that, does that just feel like a really big change? I mean is there sort of a -- how the dealers try to adjust to that? Is that having fewer folks on board or is that -- what does it really try to do that and how stable do you think that network is now? Thanks.

Jeffery Gardner

Well, that’s a great question. And when you look at 2015, you got to also remember that we acquired LiveWatch. So that was treated as a large customer acquisition when we acquired it. So the follow up wasn’t as significant as it may seem. There was some pressure as they adjusted to the new pricing. As I said, I think it was temporary in that they really had to get organized around getting their own economics right. They had to make some adjustments in terms of how they are driving sales. But I will say today, I feel like we have got many many examples of really healthy dealers who are growing year-over-year and the secret has been, as I said earlier, recruiting new sales people to the industry, focusing on sales training and really just staying on top of the business model and looking at their own economics to drive their profitability.

So we expect them to have a better year than they did in 2016. But you are right, there was some pressure but I think it was -- when you look at that and account for the LiveWatch plus, we did many more bulks in 2015 than we did in 2016. Remember the bulk market has also become much more disciplined and so we didn’t pull the trigger on as many bulk buys.

Michael Meyers

And just specifically, the bulk we got when we bought LiveWatch was about 32,000 accounts. That’s in our 2015 numbers.

Operator

We have one more question. Your final question comes from Jeff Kessler of Imperial Capital.

Jeffrey Kessler

Just quickly, with regard to looking at cost to serve. Industry has been under some pressure on the monitoring and -- particularly on the service side of that businesses as higher technology comes into play. And it was a fairly frequent topic at the recent [indiscernible] conference. I am wondering, what are you guys doing to get that -- amongst other things, to get your pre-SAC margin up in terms of, try to help out that cost to serve expense.

Jeffery Gardner

Sure. Jeff, you are exactly right. That’s a fundamental driver. It's pretty big in terms of expense as a percent of revenue. And it has been under pressure because we are seeing more and more interactive customers. It's being offset somewhat by the fact that we are realizing more revenue per unit than we were say a year ago. But fundamentally, what we have tried to do at MONI, remember we have a number of different providers of the middleware or the sell cost that are the primary drivers of this expense. And so we have been trying to work closely with our vendors to help them kind of understand our economics.

We are doing a fairly sophisticated RFP process across the business this year. So we are just working on a number of different ways to really focus on that. Because you are right at the end of the day, we have got to make improvement in that pre-SAC EBITDA and, Mike, I don’t know if you have anything to add to that as it relates to the sell costs.

Michael Meyers

No. We look at the industry developing. I mean we all know that there are, as we move forward, there is going to be more reliance on Wi-Fi as the industry matures and we think there is opportunities there as we evolve to help us and just more generally we are focused on all our cost and focused on a little more disciplined approach. Jeff, mentioned it, where we are doing RFPs on basically all our cost and seeing where we can cut things out. We also, Jeff, you talk about just cost to serve in general. We think we are going to get more leverage with our individual technicians that are money technicians. We think that program is working excellent and we will continue to see benefits as we continue to scale that up a little bit more.

Jeffery Gardner

The last thing I will say on margin is, I still believe there is a big opportunity in the security and home automation space to sell into the base. We are much more sophisticated today then we were a year ago in terms of marketing. We understand that customer segments that we have. We have a much better idea of what customers need. So I think that will be another opportunity to have more on the revenue side that can help us in the long run with pre-SAC EBITDA margins.

Operator

This concludes today's question-and-answer session. I will now turn the floor back over to Bill Fitzgerald for any additional or closing remarks.

William Fitzgerald

Thank you, operator. Thank you all for joining us. Thanks for the great questions and very sound replies from Mike and Jeff. We look forward to giving you guys an update in three months on the heels of our first quarter performance and we look forward to getting another great round of questions from everyone. So talk in three months. Thank you all.

Operator

Thank you for your participation in today's conference. This concludes today's call. You may now disconnect.

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