UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D. C. 20549

FORM 10-Q

ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, ~~2017~~2018

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 333-110025

MONITRONICS INTERNATIONAL, INC.

(Exact name of Registrant as specified in its charter)



State of Texas		74-2719343
(State or other jurisdiction of		(I.R.S. Employer Identification No.)
incorporation or organization)



1990 Wittington Place
Farmers Branch, Texas		75234
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (972) 243-7443

Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No o

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company, ~~as defined~~" and "emerging growth company" in Rule 12b-2 of the Exchange Act.



Large accelerated filer o		Accelerated filer o
Non-accelerated filer x		Smaller reporting company o
(Do not check if a smaller reporting company)		Emerging growth company o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No ý

As of August ~~9, 2017,~~6, 2018, Monitronics International, Inc. is a wholly owned subsidiary of Ascent Capital Group, Inc.

Table of Contents

TABLE OF CONTENTS

Item 1.1.Financial Statements (unaudited).

MONITRONICS INTERNATIONAL, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

Amounts in thousands, except share amounts

(unaudited)


	June 30, 2017			December 31, 2016			June 30, 2018			December 31, 2017
Assets
Current assets:
Cash and cash equivalents	$	2,827		$	3,177		$	2,103		3,302
Trade receivables, net of allowance for doubtful accounts of $2,625 in 2017 and $3,043 in 2016	12,831			13,869
Restricted cash							104			—
Trade receivables, net of allowance for doubtful accounts of $3,390 in 2018 and $4,162 in 2017							12,456			12,645
Prepaid and other current assets	7,716			9,360			22,959			10,668
Total current assets	23,374			26,406			37,622			26,615
Property and equipment, net of accumulated depreciation of $33,070 in 2017 and $28,825 in 2016	28,999			28,270
Subscriber accounts, net of accumulated amortization of $1,326,947 in 2017 and $1,212,468 in 2016	1,359,721			1,386,760
Dealer network and other intangible assets, net of accumulated amortization of $37,891 in 2017 and $32,976 in 2016	11,909			16,824
Property and equipment, net of accumulated depreciation of $43,024 in 2018 and $37,643 in 2017							36,582			32,789
Subscriber accounts and deferred contract acquisition costs, net of accumulated amortization of $1,519,406 in 2018 and $1,439,164 in 2017							1,222,485			1,302,028
Dealer network and other intangible assets, net of accumulated amortization of $47,288 in 2018 and $42,806 in 2017							1,213			6,994
Goodwill	563,549			563,549			349,149			563,549
Other assets	7,244			11,908			31,699			9,340
Total assets	$	1,994,796		$	2,033,717		$	1,678,750		1,941,315
Liabilities and Stockholder's Equity
Liabilities and Stockholder's (Deficit) Equity
Current liabilities:
Accounts payable	$	10,160		$	11,461		$	12,730		11,073
Accrued payroll and related liabilities	3,645			4,068			4,934			3,458
Other accrued liabilities	54,587			31,579			51,911			50,026
Deferred revenue	15,306			15,147			12,965			13,871
Holdback liability	11,204			13,916			9,740			9,309
Current portion of long-term debt	11,000			11,000			11,000			11,000
Total current liabilities	105,902			87,171			103,280			98,737
Non-current liabilities:
Long-term debt	1,704,322			1,687,778			1,720,235			1,707,297
Long-term holdback liability	2,251			2,645			2,031			2,658
Derivative financial instruments	15,624			16,948			3,313			13,491
Deferred income tax liability, net	19,435			17,330			14,628			13,304
Other liabilities	7,055			6,900			2,958			3,092
Total liabilities	1,854,589			1,818,772			1,846,445			1,838,579
Commitments and contingencies
Stockholder's equity:
Common stock, $.01 par value. 1,000 shares authorized, issued and outstanding both at June 30, 2017 and December 31, 2016	—			—
Stockholder's (deficit) equity:
Common stock, $.01 par value. 1,000 shares authorized, issued and outstanding both at June 30, 2018 and December 31, 2017							—			—
Additional paid-in capital	447,933			446,826			444,691			444,330
Accumulated deficit	(294,041		)	(222,924		)	(625,543		)	(334,219	)
Accumulated other comprehensive loss	(13,685		)	(8,957		)
Total stockholder's equity	140,207			214,945
Total liabilities and stockholder's equity	$	1,994,796		$	2,033,717
Accumulated other comprehensive income (loss), net							13,157			(7,375	)
Total stockholder's (deficit) equity							(167,695		)	102,736
Total liabilities and stockholder's (deficit) equity							$	1,678,750		1,941,315

See accompanying notes to condensed consolidated financial statements.

MONITRONICS INTERNATIONAL, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)

Amounts in thousands

(unaudited)


	Three Months Ended June 30,					Six Months Ended June 30,						Three Months Ended June 30,					Six Months Ended June 30,
	2017			2016		2017			2016			2018			2017		2018			2017
Net revenue	$	140,498		143,656		$	281,698		286,924			$	135,013		140,498		$	268,766		281,698
Operating expenses:
Cost of services	29,617			27,637		59,586			57,112			33,047			29,617		65,748			59,586
Selling, general, and administrative, including stock-based compensation	60,562			29,203		93,285			57,816
Selling, general and administrative, including stock-based and long-term incentive compensation												32,655			60,562		64,669			93,285
Radio conversion costs	77			7,596		309			16,675			_—			₇₇		—			309
Amortization of subscriber accounts, dealer network and other intangible assets	59,965			61,937		119,512			123,259
Amortization of subscriber accounts, deferred contract acquisition costs and other intangible assets												53,891			59,965		108,302			119,512
Depreciation	2,125			2,025		4,245			4,000			2,865			2,125		5,480			4,245
Loss on goodwill impairment												214,400			—		214,400			—
	152,346			128,398		276,937			258,862			336,858			152,346		458,599			276,937
Operating income (loss)	(11,848		)	15,258		4,761			28,062			(201,845		)	(11,848	)	(189,833		)	4,761
Other expense:
Interest expense	36,477			30,024		72,315			61,248			38,600			36,477		75,473			72,315
	36,477			30,024		72,315			61,248			38,600			36,477		75,473			72,315
Loss before income taxes	(48,325		)	(14,766	)	(67,554		)	(33,186		)	(240,445		)	(48,325	)	(265,306		)	(67,554	)
Income tax expense	1,779			1,743		3,563			3,533			1,347			1,779		2,693			3,563
Net loss	(50,104		)	(16,509	)	(71,117		)	(36,719		)	(241,792		)	(50,104	)	(267,999		)	(71,117	)
Other comprehensive loss:
Unrealized loss on derivative contracts, net	(5,777		)	(4,697	)	(4,728		)	(16,542		)
Total other comprehensive loss, net of tax	(5,777		)	(4,697	)	(4,728		)	(16,542		)
Other comprehensive income (loss):
Unrealized gain (loss) on derivative contracts, net												5,521			(5,777	)	19,927			(4,728	)
Total other comprehensive income (loss), net of tax												5,521			(5,777	)	19,927			(4,728	)
Comprehensive loss	$	(55,881	)	(21,206	)	$	(75,845	)	$	(53,261	)	$	(236,271	)	(55,881	)	$	(248,072	)	(75,845	)

See accompanying notes to condensed consolidated financial statements.

MONITRONICS INTERNATIONAL, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

Amounts in thousands

(unaudited)


	Six Months Ended June 30,					Six Months Ended June 30,
	2017			2016		2018			2017
Cash flows from operating activities:
Net loss	$	(71,117	)	(36,719	)	$	(267,999	)	(71,117	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Amortization of subscriber accounts, dealer network and other intangible assets	119,512			123,259
Amortization of subscriber accounts, deferred contract acquisition costs and other intangible assets						108,302			119,512
Depreciation	4,245			4,000		5,480			4,245
Stock-based compensation	1,448			1,189
Stock-based and long-term incentive compensation						406			1,448
Deferred income tax expense	2,105			2,105		1,324			2,105
Legal settlement reserve	28,000			—		—			28,000
Amortization of debt discount and deferred debt costs	3,344			3,513		3,613			3,344
Bad debt expense	4,987			5,133		5,623			4,987
Loss on goodwill impairment						214,400			—
Other non-cash activity, net	3,539			1,540		1,463			3,539
Changes in assets and liabilities:
Trade receivables	(3,949		)	(5,395	)	(5,434		)	(3,949	)
Prepaid expenses and other assets	1,042			1,762		(2,276		)	1,042
Subscriber accounts - deferred contract costs	(1,547		)	(1,294	)
Subscriber accounts - deferred contract acquisition costs						(2,586		)	(1,547	)
Payables and other liabilities	(10,926		)	(8,109	)	5,181			(10,926	)
Net cash provided by operating activities	80,683			90,984		67,497			80,683
Cash flows from investing activities:
Capital expenditures	(5,752		)	(3,100	)	(8,928		)	(5,752	)
Cost of subscriber accounts acquired	(88,287		)	(106,805	)	(69,695		)	(88,287	)
Decrease in restricted cash	—			55
Net cash used in investing activities	(94,039		)	(109,850	)	(78,623		)	(94,039	)
Cash flows from financing activities:
Proceeds from long-term debt	95,550			88,200		105,300			95,550
Payments on long-term debt	(82,350		)	(69,700	)	(95,200		)	(82,350	)
Value of shares withheld for share-based compensation	(194		)	(83	)	(69		)	(194	)
Net cash provided by financing activities	13,006			18,417		10,031			13,006
Net decrease in cash and cash equivalents	(350		)	(449	)
Cash and cash equivalents at beginning of period	3,177			2,580
Cash and cash equivalents at end of period	$	2,827		2,131

Net decrease in cash, cash equivalents and restricted cash						(1,095		)	(350	)
Cash, cash equivalents and restricted cash at beginning of period						3,302			3,177
Cash, cash equivalents and restricted cash at end of period						$	2,207		2,827
Supplemental cash flow information:
State taxes paid, net	$	3,105		2,745		$	2,710		3,105
Interest paid	69,045			60,031		71,713			69,045
Accrued capital expenditures	493			585		616			493

See accompanying notes to condensed consolidated financial statements.

MONITRONICS INTERNATIONAL, INC. AND SUBSIDIARIES

Condensed Consolidated Statement of Stockholder’s ~~Equity~~Deficit

Amounts in thousands, except share amounts

(unaudited)


	Common Stock			Additional Paid-in Capital			Accumulated Other Comprehensive Loss			Accumulated Deficit		Total Stockholder’s Equity			Common Stock				Additional Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Income (Loss)		Total Stockholder’s (Deficit) Equity
	Shares	Amount					Accumulated Other Comprehensive Loss		Shares			Total Stockholder’s Equity			Amount				Additional Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Income (Loss)		Total Stockholder’s (Deficit) Equity
Balance at December 31, 2016	1,000	$	—	Additional Paid-in Capital		446,826			(8,957	Accumulated Deficit	)	(222,924	)		$	214,945
Balance at December 31, 2017															1,000		$	—	444,330		(334,219	)	(7,375	)	$	102,736
Impact of adoption of Topic 606															—		—		—		(22,720	)	—		(22,720		)
Impact of adoption of ASU 2017-12															—		—		—		(605	)	605		—
Adjusted balance at January 1, 2018															1,000		—		444,330		(357,544	)	(6,770	)	80,016
Net loss	—	—		—			—			(71,117	)	(71,117		)	—		—		—		(267,999	)	—		(267,999		)
Other comprehensive income	—	—		—			(4,728	)		—		(4,728		)	—		—		—		—		19,927		19,927
Stock-based compensation	—	—		1,301			—			—		1,301			—		—		430		—		—		430
Value of shares withheld for minimum tax liability	—	—		(194	)		—			—		(194		)	—		—		(69	)	—		—		(69		)
Balance at June 30, 2017	1,000	$	—	447,933			(13,685	)		(294,041	)	$	140,207
Balance at June 30, 2018															1,000		$	—	444,691		(625,543	)	13,157		$	(167,695	)

See accompanying notes to condensed consolidated financial statements.

MONITRONICS INTERNATIONAL, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(1) Basis of Presentation

Monitronics International, Inc. and its subsidiaries (collectively, "Brinks Home Security^TM" or the "Company" ~~or "MONI"~~) are wholly owned subsidiaries of Ascent Capital Group, Inc. ("Ascent Capital"). ~~MONI,~~Brinks Home Security provides residential customers and ~~its wholly owned subsidiary LiveWatch Security, LLC ("LiveWatch"), monitor signals arising from burglaries, fires, medical alerts~~commercial client accounts with monitored home and ~~other events through~~business security systems, ~~installed at subscribers' premises,~~ as well as ~~providing for~~ interactive and home automation ~~services.~~services, in the United States, Canada and Puerto Rico. Brinks Home Security customers are obtained through our direct-to-consumer sales channel or our Authorized Dealer network, which provides product and installation services, as well as support to customers. Our direct-to-consumer channel offers both Do-It-Yourself ("DIY") and professional installation security solutions.

The rollout of the Brinks Home Security brand in the second quarter of 2018 included the integration of our business model under a single brand. As part of the integration, we reorganized our business from two reportable segments, "MONI" and "LiveWatch," to one reportable segment, Brinks Home Security. Following the integration, the Company's chief operating decision maker reviews internal financial information on a consolidated basis. The change in reportable segments had no impact on our previously reported historical condensed consolidated financial statements.

The unaudited interim financial information of the Company has been prepared in accordance with Article 10 of the Securities and Exchange Commission’s (the "SEC") Regulation S-X. Accordingly, it does not include all of the information required by generally accepted accounting principles in the United States ("~~U.S.~~ GAAP") for complete financial statements. The Company’s unaudited condensed consolidated financial statements as of June 30, ~~2017,~~2018, and for the three and six months ended June 30, 2018 and 2017, ~~and 2016,~~ include ~~MONI~~Brinks Home Security and all of its direct and indirect subsidiaries. The accompanying interim condensed consolidated financial statements are unaudited but, in the opinion of management, reflect all adjustments (consisting of normal recurring accruals) necessary for a fair presentation of the results for such periods. The results of operations for any interim period are not necessarily indicative of results for the full year. These condensed consolidated financial statements should be read in conjunction with the ~~MONI~~Brinks Home Security Annual Report on Form 10-K for the year ended December 31, ~~2016,~~2017, filed with the SEC on March ~~13, 2017 (the "2016 Form 10-K").~~

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of revenue and expenses for each reporting period. The significant estimates made in preparation of the Company’s condensed consolidated financial statements primarily relate to valuation of goodwill, other intangible assets, long-lived assets, deferred tax assets, derivative financial instruments, and the amount of the allowance for doubtful accounts. These estimates are based on management’s best estimates and judgment. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors and adjusts them when facts and circumstances change. As the effects of future events cannot be determined with any certainty, actual results could differ from the estimates upon which the carrying values were based.

~~(2) Recent Accounting Pronouncements~~7, 2018.

~~In May 2014, the Financial Accounting Standards Board (the "FASB") issued~~The Company adopted Accounting Standards Update ("ASU") 2014-09, Revenue from Contracts with Customers (Topic 606)~~("ASU 2014-09"~~ ("Topic 606")~~. Under~~ using the update, revenue will be recognized based on a five-step model. The core principle of the model is that revenue will be recognized when the transfer of promised goods or services to customers is made in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In the third quarter of 2015, the FASB deferred the effective date of the standard to annual and interim periods beginning after December 15, 2017. In March and April 2016, the FASB issued amendments to provide clarification on assessment of collectability criteria, presentation of sales taxes and measurement of non-cash consideration. In addition, the amendment provided clarification and included simplification to transaction guidance on contract modifications and completed contracts at transaction. In December 2016, the FASB issued amendments to provide clarification on codification and guidance application. The standard allows the option of either a full retrospective adoption, meaning the standard is applied to all periods presented, or modified retrospective ~~adoption, meaning~~approach on January 1, 2018, at which time it became effective for the Company. The Company recognized the cumulative effect of initially applying the new revenue standard ~~is applied only~~as an adjustment to the ~~most current period.~~opening balance of retained earnings.

The Company ~~currently plans~~adopted ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to ~~adopt~~ Accounting for Hedging Activities ("ASU ~~2014-09 using~~2017-12") which amends the ~~full retrospective approach. However,~~hedge accounting rules to align risk management activities and financial reporting by simplifying the application of hedge accounting guidance. The guidance expands the ability to hedge nonfinancial and financial risk components and eliminates the requirement to separately measure and report hedge ineffectiveness. Additionally, certain hedge effectiveness assessment requirements may be accomplished qualitatively instead of quantitatively. The Company early adopted ASU 2017-12 effective January 1, 2018, and as such, an opening equity adjustment of $605,000 was recognized that reduced Accumulated deficit, offset by a ~~final decision regarding~~gain in Accumulated other comprehensive income (loss). This adjustment primarily relates to the ~~adoption method has not been made at this time. The Company's final determination will depend on the significance~~derecognition of the ~~impact of the new standard~~cumulative ineffectiveness recorded on the Company's ~~financial results.~~

~~The Company is continuing its evaluation of the impact of ASU 2014-09 on the accounting policies, processes, and system requirements. The Company has assigned internal resources in addition~~interest rate swap derivative instruments, as well as adjustments to the engagement of a third party service provider to assist in the evaluation. While the Company is in the process of assessing revenue recognition and cost deferral policies across each type of its contracts, thecumulative dedesignation adjustments. The Company does not ~~know or cannot reasonably estimate the~~expect this adoption to have a material impact ~~of the adoption ASU 2014-09~~ on its financial position, results of operations ~~and~~or cash ~~flows.~~flows on an ongoing basis.

~~In February 2016, the FASB issued ASU 2016-02,~~ ~~Leases (Topic 842)~~ ("ASU 2016-02"). ASU 2016-02 requires the lessee to recognize assets and liabilities for leases with lease terms of more than twelve months. For leases with a term of twelve months or less, the Company is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. Further, ASU 2016-02 requires a finance lease to be recognized as both an interest expense and an

amortization of the associated expense. Operating leases generally recognize the associated expense on a straight line basis. ASU 2016-02 requires the Company to adopt the standard using a modified retrospective approach and becomes effective on January 1, 2019. The Company ~~is currently evaluating the impact that ASU 2016-02 will have on its financial position, results of operations and cash flows.~~

~~In January 2017, the FASB issued~~early adopted ASU 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment ("ASU 2017-04"). Currently, the fair value of the reporting unit is compared with the carrying value of the reporting unit (identified as "Step 1"). If the fair value of the reporting unit is lower than its carrying amount, then the implied fair value of goodwill is calculated. If the implied fair value of goodwill is lower than the carrying value of goodwill, an impairment is recognized (identified as "Step 2"). ASU 2017-04 eliminates Step 2 from the impairment test; therefore, a goodwill impairment will be recognized as the difference of the fair value and the carrying value.

The comparative information has not been restated and continues to be reported under the accounting standards in effect during those periods. See note 3, Revenue Recognition, and note 4, Goodwill, in the notes to the condensed consolidated financial statements for further discussion.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of revenue and expenses for each reporting period. The significant estimates made in

preparation of the Company’s condensed consolidated financial statements primarily relate to valuation of subscriber accounts, valuation of deferred tax assets and valuation of goodwill. These estimates are based on management’s best estimates and judgment. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors and adjusts them when facts and circumstances change. As the effects of future events cannot be determined with any certainty, actual results could differ from the estimates upon which the carrying values were based.

(2) Recent Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board (the "FASB") issued ASU ~~2017-04~~2016-02, Leases (Topic 842) ("ASU 2016-02"). ASU 2016-02 requires the lessee to recognize assets and liabilities for leases with lease terms of more than twelve months. For leases with a term of twelve months or less, the Company is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. Further, ASU 2016-02 requires a finance lease to be recognized as both an interest expense and an amortization of the associated asset. Operating leases generally recognize the associated expense on a straight line basis. ASU 2016-02 requires the Company to adopt the standard using a modified retrospective approach and becomes effective on January 1, ~~2020 with early adoption permitted.~~2019. The Company is currently evaluating ~~when to adopt~~ the ~~standard.~~

~~In May 2017, the FASB issued~~impact that ASU ~~2017-09,~~ ~~Compensation-Stock Compensation (Topic 718): Scope of Modification Accounting~~ ("ASU 2017-09"). ASU 2017-09 requires modification accounting in Topic 718 to be applied to a change to the terms or conditions of a share-based payment award unless the fair value, vesting conditions and classification of the modified award are the same immediately before and after the modification of the award. ASU 2017-09 is effective for annual and interim periods beginning after December 15, 2017, and requires a prospective approach. Early adoption is permitted. The Company plans to adopt the standard when it becomes effective. The adoption is not expected to2016-02 will have ~~a material impact~~ on ~~the Company's~~its financial position, results of operations and cash flows.

(3) Revenue Recognition

Topic 606 amends and supersedes FASB Accounting Standards Codification ("ASC") Topic 605, Revenue Recognition ("Topic 605"). The core principle of Topic 606 is that revenue will be recognized when the transfer of promised goods or services to customers is made in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

Accounting Policy for Periods Commencing January 1, 2018

The Company offers its subscribers professional alarm monitoring services, as well as interactive and home automation services, through equipment at the subscriber's site that communicates with the Company’s central monitoring station and interfaces with other equipment at the site and third party technology companies for interactive and home automation services. These services are typically provided under alarm monitoring agreements (“AMAs”) between the Company and the subscriber. The equipment at the site is either obtained independently from the Company’s network of third party Authorized Dealers or directly from the Company, via its direct-to-consumer sales channel. The Company also offers equipment sales and installation services and, to its existing subscribers, maintenance services on existing alarm equipment. The Company also collects fees for contract monitoring, which are services provided to other security alarm companies for monitoring their accounts on a wholesale basis and other fees from subscribers for late fee or insufficient fund charges.

Revenue under subscriber AMAs is allocated to alarm monitoring revenue and, if applicable, product and installation revenue based on the stand alone selling prices (“SSP”) of each performance obligation as a percentage of the total SSP of all performance obligations. Allocated alarm monitoring revenue is recognized as the monthly service is provided. Allocated product and installation revenue is recognized when the product sale is complete or shipped and the installation service is provided, typically at inception of the AMA. Product and installation revenue is not applicable to AMA's acquired from Authorized Dealers in their initial term. Any cash not received from the subscriber at the time of product sale and installation is recognized as a contract asset at inception of the AMA and is subsequently amortized over the subscriber contract term as a reduction of the amounts billed for professional alarm monitoring, interactive and home automation services. If a subscriber cancels the AMA within the negotiated term, any existing contract asset is determined to be impaired and is immediately expensed in full to Selling, general and administrative expense on the condensed consolidated statement of operations.

Maintenance services are billed and recognized as revenue when the services are completed in the home and agreed to by the subscriber under the subscriber AMA. Contract monitoring fees are recognized as alarm monitoring revenue as the monitoring service is provided. Other fees are recognized as other revenue when billed to the subscriber which coincides with the timing of when the services are provided.

Disaggregation of Revenue

Revenue is disaggregated by source of revenue as follows (in thousands):



	Three Months Ended June 30,			Six Months Ended June 30,
	2018		2017	2018		2017
Alarm monitoring revenue	$	124,844	136,453	$	249,685	273,343
Product and installation revenue	9,477		3,136	17,624		6,430
Other revenue	692		909	1,457		1,925
Total Net revenue	$	135,013	140,498	$	268,766	281,698

Contract Balances

The following table provides information about receivables, contract assets and contract liabilities from contracts with customers (in thousands):



	June 30, 2018		At adoption
Trade receivables, net	$	12,456	12,645
Contract assets, net - current portion (a)	13,528		14,197
Contract assets, net - long-term portion (b)	12,908		10,377
Deferred revenue	12,965		12,892

(a)Amount is included in Prepaid and other current assets in the unaudited condensed consolidated balance sheets.

(b)Amount is included in Other assets in the unaudited condensed consolidated balance sheets.

Changes in Accounting Policies

The Company adopted Topic 606, effective January 1, 2018, using the modified retrospective transition method. Under the modified retrospective transition method, the Company evaluated active AMAs on the adoption date as if each AMA had been accounted for under Topic 606 from its inception. Some revenue related to AMAs originated through our direct-to-consumer channel or through extensions that would have been recognized in future periods under Topic 605 were recast under Topic 606 as if revenue had been accelerated and recognized in prior periods, as it was allocated to product and installation performance obligations. A contract asset was recorded as of the adoption date for any cash that has yet to be collected on the accelerated revenue. As this transition method requires that the Company not adjust historical reported revenue amounts, the accelerated revenue that would have been recognized under this method prior to the adoption date was recorded as an adjustment to opening retained earnings and, thus, will not be recognized as revenue in future periods as previously required under Topic 605. Therefore, the comparative information has not been adjusted and continues to be reported under Topic 605.

Under Topic 605, revenue provided under the AMA was recognized as the services were provided, based on the recurring monthly revenue amount billed for each month under contract. Product, installation and service revenue generally was recognized as billed and incurred. Under Topic 606, the Company concluded that certain product and installation services sold or provided to our customers at AMA inception are capable of being distinct and are distinct within the context of the contract. As such, when the Company initiates an AMA with a customer directly and provides equipment and installation services, each component is considered a performance obligation that must have revenue allocated accordingly. The allocation is based on the SSP of each performance obligation as a percentage of the total SSP of all performance obligations multiplied by the total consideration, or cash, expected to be received over the contract term. These AMAs may relate to new customers originated by the Company through its direct-to-consumer channel or existing customers who agree to new contract terms through customer service offerings. For AMAs with multiple performance obligations, management notes that a certain amount of the revenue billed on a recurring monthly basis is recognized earlier under Topic 606 than it was recognized under Topic 605, as a portion of that revenue is allocated to the equipment sale and installation, which is satisfied upon delivery of the product and performance of the installation services at AMA inception.

Revenue on AMAs originated through the Authorized Dealer program are not impacted by Topic 606 in their initial term, as the customer contracts for the equipment sale and installation separately with the Authorized Dealer prior to the Company purchasing the AMA from the Authorized Dealer. Revenue on these customers is recognized as the service is provided based on the recurring monthly revenue amount billed for each month of the AMA. Maintenance service revenue for repair of existing alarm equipment at the subscribers' premises will continue to be billed and recognized based on their SSP at the time the Company performs the services.

Topic 606 also requires the deferral of incremental costs of obtaining a contract with a customer. Certain direct and incremental costs were capitalized under Topic 605, including on new AMAs obtained in connection with a subscriber move (“Moves Costs”). Under Topic 606, Moves Costs are expensed as incurred to accompany the allocated revenue recognized upon product and installation performance obligations recognized at the AMA inception. There are no other significant changes in contract costs that are capitalized or the period over which they are expensed.

Impacts on Financial Statements

The significant effects of adopting Topic 606 are changes to Prepaid and other current assets, Subscriber accounts, net, Other assets, net, Net revenue, Cost of services, Selling, general and administrative and Amortization of subscriber accounts for the period beginning January 1, 2018 for AMAs initiated by the Company with the customer directly with multiple performance obligations, as a portion of that revenue is allocated to the equipment sale and installation, which is satisfied upon delivery of the product and performance of the installation services at AMA inception.

The following tables summarize the impacts of adopting Topic 606 on the Company’s condensed consolidated financial statements as of and for the three and six months ended June 30, 2018 (in thousands):

i. Condensed consolidated balance sheets



	Impact of changes in accounting policies
	As reported June 30, 2018			Adjustments		Balances without adoption of Topic 606
Assets
Current assets:
Cash and cash equivalents	$	2,103		—		2,103
Restricted cash	104			—		104
Trade receivables, net of allowance for doubtful accounts	12,456			—		12,456
Prepaid and other current assets	22,959			(13,528	)	9,431
Total current assets	37,622			(13,528	)	24,094
Property and equipment, net of accumulated depreciation	36,582			—		36,582
Subscriber accounts and deferred contract acquisition costs, net of accumulated amortization	1,222,485			47,452		1,269,937
Dealer network and other intangible assets, net of accumulated amortization	1,213			—		1,213
Goodwill	349,149			—		349,149
Other assets, net	31,699			(12,908	)	18,791
Total assets	$	1,678,750		21,016		1,699,766
Liabilities and Stockholder’s (Deficit) Equity
Current liabilities:
Accounts payable	$	12,730		—		12,730
Accrued payroll and related liabilities	4,934			—		4,934
Other accrued liabilities	51,911			—		51,911
Deferred revenue	12,965			1,302		14,267
Holdback liability	9,740			—		9,740
Current portion of long-term debt	11,000			—		11,000
Total current liabilities	103,280			1,302		104,582
Non-current liabilities:
Long-term debt	1,720,235			—		1,720,235
Long-term holdback liability	2,031			—		2,031
Derivative financial instruments	3,313			—		3,313
Deferred income tax liability, net	14,628			—		14,628
Other liabilities	2,958			—		2,958
Total liabilities	1,846,445			1,302		1,847,747
Commitments and contingencies
Stockholder’s (deficit) equity:
Common stock	—			—		—
Additional paid-in capital	444,691			—		444,691
Accumulated deficit	(625,543		)	19,714		(605,829	)
Accumulated other comprehensive income, net	13,157			—		13,157
Total stockholder’s (deficit) equity	(167,695		)	19,714		(147,981	)
Total liabilities and stockholder’s (deficit) equity	$	1,678,750		21,016		1,699,766

ii. Condensed consolidated statements of operations and comprehensive income (loss)



	Impact of changes in accounting policies
	As reported three months ended June 30, 2018			Adjustments		Balances without adoption of Topic 606
Net revenue	$	135,013		(2,445	)	132,568
Operating expenses:
Cost of services	33,047			(1,596	)	31,451
Selling, general and administrative, including stock-based and long-term incentive compensation	32,655			(30	)	32,625
Amortization of subscriber accounts, deferred contract acquisition costs and other intangible assets	53,891			1,880		55,771
Depreciation	2,865			—		2,865
Loss on goodwill impairment	214,400			—		214,400
	336,858			254		337,112
Operating loss	(201,845		)	(2,699	)	(204,544	)
Other expense:
Interest expense	38,600			—		38,600
	38,600			—		38,600
Loss before income taxes	(240,445		)	(2,699	)	(243,144	)
Income tax expense	1,347			—		1,347
Net loss	(241,792		)	(2,699	)	(244,491	)
Other comprehensive income (loss):
Unrealized gain on derivative contracts, net	5,521			—		5,521
Total other comprehensive income, net of tax	5,521			—		5,521
Comprehensive loss	$	(236,271	)	(2,699	)	(238,970	)



	Impact of changes in accounting policies
	As reported six months ended June 30, 2018			Adjustments		Balances without adoption of Topic 606
Net revenue	$	268,766		(2,770	)	265,996
Operating expenses:
Cost of services	65,748			(3,518	)	62,230
Selling, general and administrative, including stock-based and long-term incentive compensation	64,669			(9	)	64,660
Amortization of subscriber accounts, deferred contract acquisition costs and other intangible assets	108,302			3,763		112,065
Depreciation	5,480			—		5,480
Loss on goodwill impairment	214,400			—		214,400
	458,599			236		458,835
Operating loss	(189,833		)	(3,006	)	(192,839	)
Other expense:
Interest expense	75,473			—		75,473
	75,473			—		75,473
Loss before income taxes	(265,306		)	(3,006	)	(268,312	)
Income tax expense	2,693			—		2,693
Net loss	(267,999		)	(3,006	)	(271,005	)
Other comprehensive income (loss):
Unrealized gain on derivative contracts, net	19,927			—		19,927
Total other comprehensive income, net of tax	19,927			—		19,927
Comprehensive loss	$	(248,072	)	(3,006	)	(251,078	)

iii. Condensed consolidated statements of cash flows



	Impact of changes in accounting policies
	As reported six months ended June 30, 2018			Adjustments		Balances without adoption of Topic 606
Cash flows from operating activities:
Net loss	$	(267,999	)	(3,006	)	(271,005	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Amortization of subscriber accounts, deferred contract acquisition costs and other intangible assets	108,302			3,763		112,065
Depreciation	5,480			—		5,480
Stock-based and long-term incentive compensation	406			—		406
Deferred income tax expense	1,324			—		1,324
Amortization of debt discount and deferred debt costs	3,613			—		3,613
Bad debt expense	5,623			—		5,623
Goodwill impairment	214,400			—		214,400
Other non-cash activity, net	1,463			—		1,463
Changes in assets and liabilities:
Trade receivables	(5,434		)	—		(5,434	)
Prepaid expenses and other assets	(2,276		)	3,164		888
Subscriber accounts - deferred contract acquisition costs	(2,586		)	89		(2,497	)
Payables and other liabilities	5,181			(783	)	4,398
Net cash provided by operating activities	67,497			3,227		70,724
Cash flows from investing activities:
Capital expenditures	(8,928		)	—		(8,928	)
Cost of subscriber accounts acquired	(69,695		)	(3,227	)	(72,922	)
Net cash used in investing activities	(78,623		)	(3,227	)	(81,850	)
Cash flows from financing activities:
Proceeds from long-term debt	105,300			—		105,300
Payments on long-term debt	(95,200		)	—		(95,200	)
Value of shares withheld for share-based compensation	(69		)	—		(69	)
Net cash provided by financing activities	10,031			—		10,031
Net decrease in cash, cash equivalents and restricted cash	(1,095		)	—		(1,095	)
Cash, cash equivalents and restricted cash at beginning of period	3,302			—		3,302
Cash, cash equivalents and restricted cash at end of period	$	2,207		—		2,207

(4) Goodwill

The following table provides the activity and balances of goodwill by reporting unit (amounts in thousands):



	MONI			LiveWatch			Brinks Home Security		Total
Balance at 12/31/2017	$	527,502		$	36,047		$	—	$	563,549
Goodwill impairment	(214,400		)	—			—		(214,400		)
Reporting unit reallocation	(313,102		)	(36,047		)	349,149		—
Balance at 6/30/2018	$	—		$	—		$	349,149	$	349,149

The Company accounts for its goodwill pursuant to the provisions of FASB ASC Topic 350, Intangibles - Goodwill and Other ("FASB ASC Topic 350"). In accordance with FASB ASC Topic 350, goodwill is not amortized, but rather tested for impairment annually, or earlier if an event occurs, or circumstances change, that indicate the fair value of a reporting unit may be below its carrying amount.

As of May 31, 2018, the Company determined that a triggering event had occurred due to a sustained decrease in Ascent Capital's share price. In response to the triggering event, the Company performed a quantitative impairment test for both the MONI and LiveWatch reporting units. Fair value was determined using a combination of the income-based approach (using a discount rate of 8.50%) and market-based approach for the MONI reporting unit and an income-based approach (using a discount rate of 8.50%) for the LiveWatch reporting unit. Based on the analysis, the fair value of the LiveWatch reporting unit substantially exceeded its carrying value, while the carrying amount for the MONI reporting unit exceeded its estimated fair value, which indicated an impairment at the MONI reporting unit.

The Company early adopted ASU 2017-04, which eliminated Step 2 from the goodwill impairment test, and as such, an impairment charge is recognized for the amount by which the carrying amount exceeds the reporting unit's fair value. Applying this methodology, we recorded an impairment charge of $214,400,000 for the MONI reporting unit during the three months ended June 30, 2018. Factors leading to the impairment are primarily the experience of overall lower account acquisition in recent periods. Using this information, we adjusted the growth outlook for this reporting unit, which resulted in reductions in future cash flows and a lower fair value calculation under the income-based approach. Additionally, decreases in observable market share prices for comparable companies in the quarter reduced the fair value calculated under the market-based approach.

In early June 2018, the reportable segments known as MONI and LiveWatch were combined and presented as Brinks Home Security. Refer to Note 1, Basis of Presentation, for further discussion on the change in reportable segments. As a result of the change in reportable segments, goodwill assigned to these former reporting units of $313,102,000 and $36,047,000, for MONI and LiveWatch, respectively, have been reallocated and combined as of June 30, 2018 under the Brinks Home Security reporting unit.

(5) Other Accrued Liabilities

Other accrued liabilities consisted of the following (amounts in thousands):


	June 30, 2017			December 31, 2016		June 30, 2018		December 31, 2017
Interest payable	$	14,318		$	14,588	$	14,606	$	14,835
Income taxes payable	1,318			2,947		1,601		2,839
Legal accrual, including settlement reserve	28,326		(a)	271
LiveWatch acquisition retention bonus	—			4,990
Derivative financial instruments	2,634			—
Legal settlement reserve (a)						23,000		23,000
Other	7,991			8,783		12,704		9,352
Total Other accrued liabilities	$	54,587		$	31,579	$	51,911	$	50,026

(a) ~~Amount includes $28,000,000 related to a legal settlement reserve.~~ See note 8,10, Commitments, Contingencies and Other Liabilities, for further information.

~~(4)~~(6) Long-Term Debt

Long-term debt consisted of the following (amounts in thousands):


	June 30, 2017			December 31, 2016			June 30, 2018			December 31, 2017
9.125% Senior Notes due April 1, 2020 with an effective interest rate of 9.5%	$	579,033		$	578,078		$	580,282		$	580,026
Promissory Note to Ascent Capital due October 1, 2020 with an effective rate of 12.5% (a)	12,000			12,000
Term loan, matures September 30, 2022, LIBOR plus 5.50%, subject to a LIBOR floor of 1.00% with an effective rate of 7.0%	1,062,822			1,066,130
$295 million revolving credit facility, matures September 30, 2021, LIBOR plus 4.00%, subject to a LIBOR floor of 1.00% with an effective rate of 6.4%	61,467			42,570
Ascent Intercompany Loan due October 1, 2020 with an effective rate of 12.5%							12,000			12,000
Term loan, matures September 30, 2022, LIBOR plus 5.50%, subject to a LIBOR floor of 1.00%, with an effective rate of 8.0%							1,056,465			1,059,598
$295 million revolving credit facility, matures September 30, 2021, LIBOR plus 4.00%, subject to a LIBOR floor of 1.00%, with an effective rate of 5.7%							82,488			66,673
	1,715,322			1,698,778			1,731,235			1,718,297
Less current portion of long-term debt	(11,000		)	(11,000		)	(11,000		)	(11,000		)
Long-term debt	$	1,704,322		$	1,687,778		$	1,720,235		$	1,707,297


~~(a)~~	~~The effective rate was 9.868% until February 29, 2016.~~

Senior Notes

The senior notes total $585,000,000 in principal, mature on April 1, 2020 and bear interest at 9.125% per annum (the "Senior Notes"). Interest payments are due semi-annually on April 1 and October 1 of each year. ~~The Senior Notes are guaranteed by all of the Company's existing domestic subsidiaries.~~ Ascent Capital has not guaranteed any of the Company's obligations under the Senior Notes. As of June 30, ~~2017,~~2018, the Senior Notes had deferred financing costs, net of accumulated amortization of ~~$5,967,000.~~$4,718,000.

The Senior Notes are guaranteed by all of the Company's existing domestic subsidiaries. See note ~~10,~~12, Consolidating Guarantor Financial Information for further information.

Ascent Intercompany Loan

On February 29, 2016, the Company retired the existing intercompany loan with an outstanding principal amount of $100,000,000 and executed and delivered a Promissory Note to Ascent Capital in a principal amount of $12,000,000 (the "Ascent Intercompany Loan"), with the $88,000,000 remaining principal being treated as a capital contribution. The entire principal amount under the Ascent Intercompany Loan is due on October 1, 2020. The Company may prepay any portion of the balance of the Ascent Intercompany Loan at any time from time to time without fee, premium or penalty (subject to certain financial covenants associated with the Company’s other indebtedness). Any unpaid balance of the Ascent Intercompany Loan bears interest at a rate equal to 12.5% per annum, payable semi-annually in cash in arrears on January 12 and July 12 of each year. Borrowings under the Ascent Intercompany Loan constitute unsecured obligations of the Company and are not guaranteed by any of the Company’s subsidiaries.

Credit Facility

On September 30, 2016, the Company entered into an amendment ("Amendment No. 6") with the lenders of its existing senior secured credit agreement dated March 23, 2012, and as amended and restated on April 9, 2015, February 17, 2015, August 16, 2013, March 25, 2013, and November 7, 2012 (the "Existing Credit Agreement"). Amendment No. 6 provided for, among other things, the issuance of a $1,100,000,000 senior secured term loan at a 1.5% discount and a new $295,000,000 super priority revolver (the Existing Credit Agreement together with Amendment No. 6, the "Credit Facility").

As of June 30, ~~2017,~~2018, the Credit Facility term loan has a principal amount of ~~$1,091,750,000,~~$1,080,750,000, maturing on September 30, 2022. The term loan requires quarterly interest payments and quarterly principal payments of $2,750,000. The term loan bears interest at LIBOR plus 5.5%, subject to a LIBOR floor of 1.0%. The Credit Facility revolver has a principal amount outstanding of ~~$63,500,000~~$84,100,000 as of June 30, ~~2017~~2018 and matures on September 30, 2021. The Credit Facility revolver bears interest at LIBOR plus 4.0%, subject to a LIBOR floor of 1.0%. There is a commitment fee of 0.5% on unused portions of the Credit Facility ~~Revolver.~~revolver. As of June 30, ~~2017, $231,500,000~~2018, $210,900,000 is available for borrowing under the Credit Facility ~~revolver.~~revolver subject to certain financial covenants.

The maturity date for both the term loan and the revolving credit facility under the Credit Facility are subject to a springing maturity 181 days prior to the scheduled maturity date of the Senior Notes, or October 3, 2019 (the "Springing Maturity") if we are unable to refinance the Senior Notes by that date. In addition, if we are unable to repay or refinance the Senior Notes prior to the filing with the SEC of our Annual Report on Form 10-K for the year ended December 31, 2018, we may be subject to a

going concern qualification in connection with our audit, which would be an event of default under the Credit Facility. At any time after the occurrence of an event of default under the Credit Facility, the lenders may, among other options, declare any amounts outstanding under the Credit Facility immediately due and payable and terminate any commitment to make further loans under the Credit Facility. ~~In addition,~~Also, failure to comply with restrictions contained in the Senior Notes could lead to an event of default under the Credit Facility.

The Credit Facility is secured by a pledge of all of the outstanding stock of the Company and all of its existing subsidiaries and is guaranteed by all of the Company’s existing domestic subsidiaries. Ascent Capital has not guaranteed any of the Company’s obligations under the Credit Facility.

As of June 30, ~~2017,~~2018, the Company has deferred financing costs and unamortized discounts, net of accumulated amortization, of ~~$30,961,000~~$25,897,000 related to the Credit Facility.

In order to reduce the financial risk related to changes in interest rates associated with the floating rate term loan under the Credit Facility term loan, the Company has entered into interest rate swap agreements with terms similar to the Credit Facility term loan (all outstanding interest rate swap agreements are collectively referred to as the “Swaps”). The Swaps have been designated as effective hedges of the Company’s variable rate debt and qualify for hedge accounting. As a result of these interest rate swaps, the Company's ~~current~~ effective weighted average interest rate (excluding the impacts of non-cash amortization of deferred debt costs and discounts) on the borrowings under the Credit Facility term loan ~~is 7.18%.~~was 7.98% as of June 30, 2018. See note 5,7, Derivatives, for further disclosures related to these derivative instruments.

The terms of the Senior Notes and the Credit Facility provide for certain financial and nonfinancial covenants. As of June 30, ~~2017,~~2018, the Company was in compliance with all required covenants under these financing arrangements.

As of June 30, ~~2017,~~2018, principal payments scheduled to be made on the Company’s debt obligations, assuming no Springing Maturity of the Credit Facility, are as follows (amounts in thousands):


Remainder of 2017	$	5,500
2018	11,000
Remainder of 2018			$	5,500
2019	11,000		11,000
2020	608,000		608,000
2021	74,500		95,100
2022	1,042,250		1,042,250
2023			—
Thereafter	—		—
Total principal payments	1,752,250		1,761,850
Less:
Unamortized deferred debt costs and discounts	36,928		30,615
Total debt on condensed consolidated balance sheet	$	1,715,322	$	1,731,235

~~(5)~~(7) Derivatives

The Company utilizes ~~interest rate swap agreements~~Swaps to reduce the interest rate risk inherent in the Company's variable rate Credit Facility term loan. The valuation of these instruments is determined using widely accepted valuation techniques, including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves and implied volatility. The Company incorporates credit valuation adjustments to appropriately reflect the respective counterparty’s nonperformance risk in the fair value measurements. See note 6,8, Fair Value Measurements, for additional information about the credit valuation adjustments.

All of the Swaps are designated and qualify as cash flow hedging instruments, with the effective portion of the Swaps' change in fair value recorded in Accumulated other comprehensive income (loss). Changes in the fair value of the Swaps recognized in Accumulated other comprehensive income (loss) are reclassified to Interest expense when the hedged interest payments on the underlying debt are recognized. Amounts in Accumulated other comprehensive income (loss) expected to be recognized as a reduction of Interest expense in the coming 12 months total approximately $474,000.

As of June 30, ~~2017,~~2018, the Swaps’ outstanding notional balances, effective dates, maturity dates and interest rates paid and received are noted below:

Notional Effective Date Maturity Date
Fixed
Rate Paid
Variable Rate Received
$ 521,125,000
March 28, 2013 March 23, 2018 1.884% 3 mo. USD-LIBOR-BBA, subject to a 1.00% floor (a)
138,112,500
March 28, 2013 March 23, 2018 1.384% 3 mo. USD-LIBOR-BBA, subject to a 1.00% floor (a)
107,977,387
September 30, 2013 March 23, 2018 1.959% 3 mo. USD-LIBOR-BBA, subject to a 1.00% floor
107,977,387
September 30, 2013 March 23, 2018 1.850% 3 mo. USD-LIBOR-BBA, subject to a 1.00% floor
191,475,002
March 23, 2018 April 9, 2022 3.110% 3 mo. USD-LIBOR-BBA, subject to a 1.00% floor (a)
250,000,000
March 23, 2018 April 9, 2022 3.110% 3 mo. USD-LIBOR-BBA, subject to a 1.00% floor (a)
50,000,000
March 23, 2018 April 9, 2022 2.504% 3 mo. USD-LIBOR-BBA, subject to a 1.00% floor
377,000,000
March 23, 2018 September 30, 2022 1.833% 3 mo. USD-LIBOR-BBA, subject to a 1.00% floor



Notional		Effective Date	Maturity Date	Fixed Rate Paid	Variable Rate Received
$	190,490,554	March 23, 2018	April 9, 2022	3.110%	3 mo. USD-LIBOR-BBA, subject to a 1.00% floor (a)
248,750,000		March 23, 2018	April 9, 2022	3.110%	3 mo. USD-LIBOR-BBA, subject to a 1.00% floor (a)
49,750,000		March 23, 2018	April 9, 2022	2.504%	3 mo. USD-LIBOR-BBA, subject to a 1.00% floor
375,115,000		March 23, 2018	September 30, 2022	1.833%	3 mo. USD-LIBOR-BBA, subject to a 1.00% floor

(a)

On ~~March 25, 2013 and~~ September 30, 2016, ~~MONI~~the Company negotiated amendments to the terms of these interest rate swap agreements (the "Existing Swap Agreements," as amended, the "Amended Swaps"). The Amended Swaps are held with the same counterparties as the Existing Swap Agreements. Upon entering into the Amended Swaps, ~~MONI~~the Company simultaneously dedesignated the Existing Swap Agreements and redesignated the Amended Swaps as cash flow hedges for the underlying change in the swap terms. The amounts previously recognized in Accumulated other comprehensive income (loss) relating to the dedesignation are recognized in Interest expense over the remaining life of the Amended Swaps.

~~other comprehensive loss relating to the dedesignation are recognized in Interest expense over the remaining life of the Amended Swaps.~~

All of the Swaps are designated and qualify as cash flow hedging instruments, with the effective portion of the Swaps' change in fair value recorded in Accumulated other comprehensive loss. Any ineffective portions of the Swaps' change in fair value are recognized in current earnings in Interest expense. Changes in the fair value of the Swaps recognized in Accumulated other comprehensive loss are reclassified to Interest expense when the hedged interest payments on the underlying debt are recognized. Amounts in Accumulated other comprehensive loss expected to be recognized in Interest expense in the coming 12 months total approximately $5,216,000.

The impact of the derivatives designated as cash flow hedges on the condensed consolidated financial statements is depicted below (amounts in thousands):

Three Months Ended
June 30, Six Months Ended
June 30,
2017 2016 2017 2016
Effective portion of loss recognized in Accumulated other comprehensive loss $ (7,243 ) (6,506 ) $ (7,976 ) (20,163 )
Effective portion of loss reclassified from Accumulated other comprehensive loss into Net loss (a) $ (1,466 ) (1,809 ) $ (3,248 ) (3,621 )
Ineffective portion of amount of loss recognized into Net loss (a) $ (110 ) (19 ) $ (92 ) (77 )



	Three Months Ended June 30,					Six Months Ended June 30,
	2018			2017		2018			2017
Effective portion of gain (loss) recognized in Accumulated other comprehensive income (loss)	$	5,096		(7,243	)	$	18,764		(7,976	)
Effective portion of loss reclassified from Accumulated other comprehensive income (loss) into Net loss (a)	$	(425	)	(1,466	)	$	(1,163	)	(3,248	)
Ineffective portion of amount of loss recognized into Net loss (a)	$	—		(110	)	$	—		(92	)

(a) Amounts are included in Interest expense in the unaudited condensed consolidated statements of operations and comprehensive income (loss). Upon the adoption of ASU 2017-12 on January 1, 2018, ineffectiveness is no longer measured or recognized.

~~(6)~~(8) Fair Value Measurements

According to the FASB ASC Topic 820, Fair Value Measurement, fair value is defined as the amount that would be received for selling an asset or paid to transfer a liability in an orderly transaction between market participants and requires that assets and liabilities carried at fair value are classified and disclosed in the following three categories:

Level 1 - Quoted prices for identical instruments in active markets.

Level 2 - Quoted prices for similar instruments in active or inactive markets and valuations derived from models where all significant inputs are observable in active markets.

Level 3 - Valuations derived from valuation techniques in which one or more significant inputs are unobservable in any market.

The following summarizes the fair value level of assets and liabilities that are measured on a recurring basis at June 30, ~~2017~~2018 and December 31, ~~2016~~2017 (amounts in thousands):


	Level 1		Level 2		Level 3	Total			Level 1		Level 2		Level 3	Total
June 30, 2017
Interest rate swap agreement - assets (a)	—		5,006		—	5,006
June 30, 2018
Interest rate swap agreements - assets (a)									$	—	16,166		—	16,166
Interest rate swap agreements - liabilities (b)	—		(18,258	)	—	(18,258		)	—		(3,313	)	—	(3,313	)
Total	$	—	(13,252	)	—	$	(13,252	)	$	—	12,853		—	12,853
December 31, 2016
Interest rate swap agreement - assets (a)	—		8,521		—	8,521
December 31, 2017
Interest rate swap agreements - assets (a)									$	—	7,058		—	7,058
Interest rate swap agreements - liabilities (b)	—		(16,948	)	—	(16,948		)	—		(13,817	)	—	(13,817	)
Total	$	—	(8,427	)	—	$	(8,427	)	$	—	(6,759	)	—	(6,759	)


(a)	Included in non-current Other assets on the condensed consolidated balance ~~sheets~~sheets.


(b)	~~Interest rate swap agreement liability values are included~~Included in ~~current Other accrued liabilities or~~ non-current Derivative financial instruments on the condensed consolidated balance ~~sheets depending on the maturity date of the swap.~~sheets.

The Company has determined that the significant inputs used to value the Swaps fall within Level 2 of the fair value hierarchy. As a result, the Company has determined that its derivative valuations are classified in Level 2 of the fair value hierarchy.

Carrying values and fair values of financial instruments that are not carried at fair value are as follows (amounts in thousands):


	June 30, 2017		December 31, 2016		June 30, 2018		December 31, 2017
Long term debt, including current portion:
Carrying value	$	1,715,322	$	1,698,778	$	1,731,235	1,718,297
Fair value (a)	1,731,090		1,716,385		1,498,452		1,645,616


(a)	The fair value is based on market quotations from third party financial institutions and is classified as Level 2 in the hierarchy.

The Company’s other financial instruments, including cash and cash equivalents, accounts receivable and accounts payable are carried at cost, which approximates their fair value because of their short-term maturity.

~~(7)~~(9) Accumulated Other Comprehensive ~~Loss~~Income (Loss)

The following table provides a summary of the changes in Accumulated other comprehensive ~~loss~~income (loss) for the period presented (amounts in thousands):



	~~Accumulated~~ ~~other~~ ~~comprehensive~~ ~~loss~~
~~Balance at December 31, 2016~~	~~(8,957~~	)
~~Unrealized loss on derivatives recognized through Accumulated other comprehensive loss, net of income tax of $0~~	~~(7,976~~	)
~~Reclassifications of unrealized loss on derivatives into Net loss, net of income tax of $0 (a)~~	~~3,248~~
~~Net current period other comprehensive loss~~	~~(4,728~~	)
~~Balance at June 30, 2017~~	~~(13,685~~	)



	Accumulated Other Comprehensive Income (Loss)
Balance at December 31, 2017	$	(7,375	)
Impact of adoption of ASU 2017-12	605
Adjusted balance at January 1, 2018	(6,770		)
Unrealized gain on derivatives recognized through Accumulated other comprehensive income (loss), net of income tax of $0	18,764
Reclassifications of unrealized loss on derivatives into Net loss, net of income tax of $0 (a)	1,163
Net current period other comprehensive income	19,927
Balance at June 30, 2018	$	13,157


(a)	Amounts reclassified into net loss are included in Interest expense on the condensed consolidated statement of operations. See note 5,7, Derivatives, for further information.

~~(8)~~(10) Commitments, Contingencies and Other Liabilities

The Company was named as a defendant in multiple putative class actions consolidated in U.S. District Court (Northern District of West Virginia) on behalf of purported class(es) of persons who claim to have received telemarketing calls in violation of various state and federal laws. The actions were brought by plaintiffs seeking monetary damages on behalf of all plaintiffs who received telemarketing calls made by a ~~Monitronics~~Brinks Home Security Authorized Dealer, or any Authorized Dealer’s lead generator or sub-dealer. ~~During~~In the ~~three months ended June 30,~~second quarter of 2017, the Company and the plaintiffs agreed to settle this litigation ~~and~~ for $28,000,000 ("the ~~Company has set up a legal reserve for $28,000,000.~~Settlement Amount"). The Company is actively seeking to recover ~~$28,000,000~~the Settlement Amount under its insurance ~~policies in connection with the settlement.~~policies. The settlement agreement remains subject to court approval and the court’s entry of a final order dismissing the actions. In the third quarter of 2017, the Company paid $5,000,000 of the Settlement Amount pursuant to the settlement agreement with the plaintiffs.

In addition to the above, the Company is also involved in litigation and similar claims incidental to the conduct of its business, including from time to time, contractual disputes, claims related to alleged security system failures and claims related to alleged violations of the U.S. Telephone Consumer Protection Act. Matters that are probable of unfavorable outcome to the Company and which can be reasonably estimated are accrued. Such accruals are based on information known about the matters, management's estimate of the outcomes of such matters and experience in contesting, litigating and settling similar matters. In management's opinion, none of the pending actions are likely to have a material adverse impact on the Company's financial position or results of operations. The Company accrues and expenses legal fees related to loss contingency matters as incurred.

~~(9) Reportable Business Segments~~

~~Description of Segments~~

The Company operates through two reportable business segments according to the nature and economic characteristics of its services as well as the manner in which the information issued internally by the Company's key decision maker, who is the Company's Chief Executive Officer. The Company's business segments are as follows:

~~MONI~~

The MONI segment is engaged in the business of providing security alarm monitoring services: monitoring signals arising from burglaries, fires, medical alerts and other events through security systems at subscribers' premises, as well as providing customer service and technical support. MONI primarily outsources the sales, installation and most of its field service functions to its dealers.

~~LiveWatch~~

LiveWatch is a Do-It-Yourself home security provider offering professionally monitored security services through a direct-to-consumer sales channel. LiveWatch offers a differentiated go-to-market strategy through direct response TV, internet and radio advertising. When a customer initiates the process to obtain monitoring services, LiveWatch pre-configures the alarm monitoring system based on customer specifications. LiveWatch then packages and ships the equipment directly to the customer. The customer self-installs the equipment on-site and activates the monitoring service over the phone.

As they arise, transactions between segments are recorded on an arm's length basis using relevant market prices. The following table sets forth selected data from the accompanying condensed consolidated statements of operations for the periods indicated (amounts in thousands):

MONI LiveWatch Consolidated
Three Months Ended June 30, 2017
Net revenue $ 133,536
$ 6,962
$ 140,498
Depreciation and amortization $ 60,975
$ 1,115
$ 62,090
Net loss before income taxes $ (43,480 ) $ (4,845 ) $ (48,325 )

Three Months Ended June 30, 2016
Net revenue $ 138,174
$ 5,482
$ 143,656
Depreciation and amortization $ 62,877
$ 1,085
$ 63,962
Net loss before income taxes $ (9,703 ) $ (5,063 ) $ (14,766 )

Six Months Ended June 30, 2017
Net revenue $ 267,944
$ 13,754
$ 281,698
Depreciation and amortization $ 121,483
$ 2,274
$ 123,757
Net loss before income taxes $ (56,779 ) $ (10,775 ) $ (67,554 )

Six Months Ended June 30, 2016
Net revenue $ 276,270
$ 10,654
$ 286,924
Depreciation and amortization $ 125,029
$ 2,230
$ 127,259
Net loss before income taxes $ (22,854 ) $ (10,332 ) $ (33,186 )

~~The following table sets forth selected data from the accompanying condensed consolidated balance sheets for the periods indicated (amounts in thousands):~~

MONI LiveWatch Eliminations Consolidated
Balance at June 30, 2017
Subscriber accounts, net of amortization $ 1,338,117
$ 21,604
$ —
$ 1,359,721
Goodwill $ 527,502
$ 36,047
$ —
$ 563,549
Total assets $ 2,038,719
$ 63,719
$ (107,642 ) $ 1,994,796

Balance at December 31, 2016
Subscriber accounts, net of amortization $ 1,364,804
$ 21,956
$ —
$ 1,386,760
Goodwill $ 527,502
$ 36,047
$ —
$ 563,549
Total assets $ 2,062,838
$ 63,916
$ (93,037 ) $ 2,033,717

~~(10)~~(11) Consolidating Guarantor Financial Information

The Senior Notes were issued by ~~MONI~~Brinks Home Security (the “Parent Issuer”) and are fully and unconditionally guaranteed, on a joint and several basis, by all of the Company’s existing domestic subsidiaries (“Subsidiary Guarantors”). Ascent Capital has not guaranteed any of the Company’s obligations under the Senior Notes. The unaudited condensed consolidating financial information for the Parent Issuer, the Subsidiary Guarantors and the non-guarantors are as follows:

MONITRONICS INTERNATIONAL, INC. AND SUBSIDIARIES

Condensed Consolidating Balance Sheet

(unaudited)


	As of June 30, 2017							As of June 30, 2018
	Parent Issuer		Subsidiary Guarantors	Non-Guarantors	Eliminations		Consolidated	Parent Issuer			Subsidiary Guarantors		Non-Guarantors	Eliminations		Consolidated
	(amounts in thousands)							(amounts in thousands)
Assets
Current assets:
Cash and cash equivalents	$	1,636	1,191	—	—		2,827	$	1,282		821		—	—		2,103
Restricted cash								104			—		—	—		104
Trade receivables, net	12,291		540	—	—		12,831	11,817			639		—	—		12,456
Prepaid and other current assets	63,096		1,930	—	(57,310	)	7,716	97,842			3,059		—	(77,942	)	22,959
Total current assets	77,023		3,661	—	(57,310	)	23,374	111,045			4,519		—	(77,942	)	37,622

Investment in subsidiaries	12,337		—	—	(12,337	)	—
Property and equipment, net	27,048		1,951	—	—		28,999	34,513			2,069		—	—		36,582
Subscriber accounts, net	1,322,397		37,324	—	—		1,359,721
Subscriber accounts and deferred contract acquisition costs, net								1,186,868			35,617		—	—		1,222,485
Dealer network and other intangible assets, net	10,912		997	—	—		11,909	1,213			—		—	—		1,213
Goodwill	527,191		36,358	—	—		563,549	313,102			36,047		—	—		349,149
Other assets, net	7,218		26	—	—		7,244	30,795			904		—	—		31,699
Total assets	$	1,984,126	80,317	—	(69,647	)	1,994,796	$	1,677,536		79,156		—	(77,942	)	1,678,750

Liabilities and Stockholder's Equity
Liabilities and Stockholder's (Deficit) Equity
Current liabilities:
Accounts payable	$	8,356	1,804	—	—		10,160	$	11,068		1,662		—	—		12,730
Accrued payroll and related liabilities	3,097		548	—	—		3,645	4,251			683		—	—		4,934
Other accrued liabilities	53,987		57,910	—	(57,310	)	54,587	47,641			82,212		—	(77,942	)	51,911
Deferred revenue	13,881		1,425	—	—		15,306	11,284			1,681		—	—		12,965
Holdback liability	10,688		516	—	—		11,204	9,579			161		—	—		9,740
Current portion of long-term debt	11,000		—	—	—		11,000	11,000			—		—	—		11,000
Total current liabilities	101,009		62,203	—	(57,310	)	105,902	94,823			86,399		—	(77,942	)	103,280

Non-current liabilities:
Long-term debt	1,704,322		—	—	—		1,704,322	1,720,235			—		—	—		1,720,235
Long-term holdback liability	2,251		—	—	—		2,251	2,031			—		—	—		2,031
Derivative financial instruments	15,624		—	—	—		15,624	3,313			—		—	—		3,313
Deferred income tax liability, net	17,312		2,123	—	—		19,435	12,731			1,897		—	—		14,628
Other liabilities	3,401		3,654	—	—		7,055	12,098			—		—	(9,140	)	2,958
Total liabilities	1,843,919		67,980	—	(57,310	)	1,854,589	1,845,231			88,296		—	(87,082	)	1,846,445

Total stockholder's equity	140,207		12,337	—	(12,337	)	140,207
Total liabilities and stockholder's equity	$	1,984,126	80,317	—	(69,647	)	1,994,796
Total stockholder's (deficit) equity								(167,695		)	(9,140	)	—	9,140		(167,695	)
Total liabilities and stockholder's (deficit) equity								$	1,677,536		79,156		—	(77,942	)	1,678,750

MONITRONICS INTERNATIONAL, INC. AND SUBSIDIARIES

Condensed Consolidating Balance Sheet

(unaudited)



	As of December 31, 2017
	Parent Issuer		Subsidiary Guarantors	Non-Guarantors	Eliminations		Consolidated
	(amounts in thousands)
Assets
Current assets:
Cash and cash equivalents	$	2,705	597	—	—		3,302
Trade receivables, net	12,082		563	—	—		12,645
Prepaid and other current assets	74,613		2,396	—	(66,341	)	10,668
Total current assets	89,400		3,556	—	(66,341	)	26,615

Investment in subsidiaries	4,554		—	—	(4,554	)	—
Property and equipment, net	30,727		2,062	—	—		32,789
Subscriber accounts and deferred contract acquisition costs, net	1,265,519		36,509	—	—		1,302,028
Dealer network and other intangible assets, net	6,063		931	—	—		6,994
Goodwill	527,191		36,358	—	—		563,549
Other assets, net	9,311		29	—	—		9,340
Total assets	$	1,932,765	79,445	—	(70,895	)	1,941,315

Liabilities and Stockholder's Equity
Current liabilities:
Accounts payable	$	9,705	1,368	—	—		11,073
Accrued payroll and related liabilities	2,648		810	—	—		3,458
Other accrued liabilities	47,800		68,567	—	(66,341	)	50,026
Deferred revenue	12,332		1,539	—	—		13,871
Holdback liability	9,035		274	—	—		9,309
Current portion of long-term debt	11,000		—	—	—		11,000
Total current liabilities	92,520		72,558	—	(66,341	)	98,737

Non-current liabilities:
Long-term debt	1,707,297		—	—	—		1,707,297
Long-term holdback liability	2,658		—	—	—		2,658
Derivative financial instruments	13,491		—	—	—		13,491
Deferred income tax liability, net	11,684		1,620	—	—		13,304
Other liabilities	2,379		713	—	—		3,092
Total liabilities	1,830,029		74,891	—	(66,341	)	1,838,579

Total stockholder's equity	102,736		4,554	—	(4,554	)	102,736
Total liabilities and stockholder's equity	$	1,932,765	79,445	—	(70,895	)	1,941,315

MONITRONICS INTERNATIONAL, INC. AND SUBSIDIARIES

Condensed Consolidating Statement of Operations and Comprehensive Income (Loss)

(unaudited)

As of December 31, 2016
Parent Issuer
Subsidiary
Guarantors
Non-Guarantors Eliminations Consolidated
(amounts in thousands)
Assets
Current assets:
Cash and cash equivalents $ 1,739
1,438
—
—
3,177
Trade receivables, net 13,265
604
—
—
13,869
Prepaid and other current assets 51,251
2,171
—
(44,062 ) 9,360
Total current assets 66,255
4,213
—
(44,062 ) 26,406

Investment in subsidiaries 22,533
—
—
(22,533 ) —
Property and equipment, net 26,652
1,618
—
—
28,270
Subscriber accounts, net 1,349,285
37,475
—
—
1,386,760
Dealer network and other intangible assets, net 15,762
1,062
—
—
16,824
Goodwill 527,191
36,358
—
—
563,549
Other assets, net 11,889
19
—
—
11,908
Total assets $ 2,019,567
80,745
—
(66,595 ) $ 2,033,717

Liabilities and Stockholder's Equity
Current liabilities:
Accounts payable $ 9,919
1,542
—
—
11,461
Accrued payroll and related liabilities 3,731
337
—
—
4,068
Other accrued liabilities 25,951
49,690
—
(44,062 ) 31,579
Deferred revenue 13,807
1,340
—
—
15,147
Holdback liability 13,434
482
—
—
13,916
Current portion of long-term debt 11,000
—
—
—
11,000
Total current liabilities 77,842
53,391
—
(44,062 ) 87,171

Non-current liabilities:
Long-term debt 1,687,778
—
—
—
1,687,778
Long-term holdback liability 2,645
—
—
—
2,645
Derivative financial instruments 16,948
—
—
—
16,948
Deferred income tax liability, net 15,649
1,681
—
—
17,330
Other liabilities 3,760
3,140
—
—
6,900
Total liabilities 1,804,622
58,212
—
(44,062 ) 1,818,772

Total stockholder's equity 214,945
22,533
—
(22,533 ) 214,945
Total liabilities and stockholder's equity $ 2,019,567
80,745
—
(66,595 ) 2,033,717



	Three Months Ended June 30, 2018
	Parent Issuer			Subsidiary Guarantors		Non-Guarantors	Eliminations		Consolidated
	(amounts in thousands)
Net revenue	$	124,126		10,887		—	—		135,013

Operating expenses:
Cost of services	27,865			5,182		—	—		33,047
Selling, general, and administrative, including stock-based compensation	22,616			10,039		—	—		32,655
Amortization of subscriber accounts, deferred contract acquisition costs and other intangible assets	52,091			1,800		—	—		53,891
Depreciation	2,622			243		—	—		2,865
Loss on goodwill impairment	214,089			311		—	—		214,400
	319,283			17,575		—	—		336,858
Operating loss	(195,157		)	(6,688	)	—	—		(201,845	)
Other expense:
Equity in loss of subsidiaries	6,870			—		—	(6,870	)	—
Interest expense	38,600			—		—	—		38,600
	45,470			—		—	(6,870	)	38,600
Loss before income taxes	(240,627		)	(6,688	)	—	6,870		(240,445	)
Income tax expense	1,165			182		—	—		1,347
Net loss	(241,792		)	(6,870	)	—	6,870		(241,792	)
Other comprehensive income (loss):
Unrealized gain on derivative contracts	5,521			—		—	—		5,521
Total other comprehensive income	5,521			—		—	—		5,521
Comprehensive loss	$	(236,271	)	(6,870	)	—	6,870		(236,271	)

MONITRONICS INTERNATIONAL, INC. AND SUBSIDIARIES

Condensed Consolidating Statement of Operations and Comprehensive Income (Loss)

(unaudited)


	Three Months Ended June 30, 2017										Three Months Ended June 30, 2017
	Parent Issuer			Subsidiary Guarantors		Non-Guarantors	Eliminations		Consolidated		Parent Issuer			Subsidiary Guarantors		Non-Guarantors	Eliminations		Consolidated
	(amounts in thousands)										(amounts in thousands)
Net revenue	$	132,223		8,275		—	—		140,498		$	132,223		8,275		—	—		140,498
									0
Operating expenses:									0
Cost of services	25,956			3,661		—	—		29,617		25,956			3,661		—	—		29,617
Selling, general, and administrative, including stock-based compensation	53,453			7,109		—	—		60,562		53,453			7,109		—	—		60,562
Radio conversion costs	72			5		—	—		77		72			5		—	—		77
Amortization of subscriber accounts, dealer network and other intangible assets	58,373			1,592		—	—		59,965
Amortization of subscriber accounts, deferred contract acquisition costs and other intangible assets											58,373			1,592		—	—		59,965
Depreciation	1,960			165		—	—		2,125		1,960			165		—	—		2,125
	139,814			12,532		—	—		152,346		139,814			12,532		—	—		152,346
Operating loss	(7,591		)	(4,257	)	—	—		(11,848	)	(7,591		)	(4,257	)	—	—		(11,848	)
Other expense:
Equity in loss of subsidiaries	4,515			—		—	(4,515	)	—		4,515			—		—	(4,515	)	—
Interest expense	36,477			—		—	—		36,477		36,477			—		—	—		36,477
	40,992			—		—	(4,515	)	36,477		40,992			—		—	(4,515	)	36,477
Loss before income taxes	(48,583		)	(4,257	)	—	4,515		(48,325	)	(48,583		)	(4,257	)	—	4,515		(48,325	)
Income tax expense	1,521			258		—	—		1,779		1,521			258		—	—		1,779
Net loss	(50,104		)	(4,515	)	—	4,515		(50,104	)	(50,104		)	(4,515	)	—	4,515		(50,104	)
Other comprehensive loss:
Unrealized loss on derivative contracts	(5,777		)	—		—	—		(5,777	)	(5,777		)	—		—	—		(5,777	)
Total other comprehensive loss	(5,777		)	—		—	—		(5,777	)	(5,777		)	—		—	—		(5,777	)
Comprehensive loss	$	(55,881	)	(4,515	)	—	4,515		(55,881	)	$	(55,881	)	(4,515	)	—	4,515		(55,881	)

MONITRONICS INTERNATIONAL, INC. AND SUBSIDIARIES

Condensed Consolidating Statement of Operations and Comprehensive Income (Loss)

(unaudited)

Three Months Ended June 30, 2016
Parent Issuer
Subsidiary
Guarantors
Non-Guarantors Eliminations Consolidated
(amounts in thousands)
Net revenue $ 137,212
6,444
—
—
143,656
0
Operating expenses: 0
Cost of services 24,504
3,133
—
—
27,637
Selling, general, and administrative, including stock-based compensation 22,857
6,346
—
—
29,203
Radio conversion costs 7,542
54
—
—
7,596
Amortization of subscriber accounts, dealer network and other intangible assets 60,482
1,455
—
—
61,937
Depreciation 1,939
86
—
—
2,025
117,324
11,074
—
—
128,398
Operating income (loss) 19,888
(4,630 ) —
—
15,258
Other expense:

Equity in loss of subsidiaries 4,860
—
—
(4,860 ) —
Interest expense 30,019
5
—
—
30,024
34,879
5
—
(4,860 ) 30,024
Loss before income taxes (14,991 ) (4,635 ) —
4,860
(14,766 )
Income tax expense 1,518
225
—
—
1,743
Net loss (16,509 ) (4,860 ) —
4,860
(16,509 )
Other comprehensive loss:
Unrealized loss on derivative contracts (4,697 ) —
—
—
(4,697 )
Total other comprehensive loss (4,697 ) —
—
—
(4,697 )
Comprehensive loss $ (21,206 ) (4,860 ) —
4,860
(21,206 )



	Six Months Ended June 30, 2018
	Parent Issuer			Subsidiary Guarantors		Non-Guarantors	Eliminations		Consolidated
	(amounts in thousands)
Net revenue	$	248,421		20,345		—	—		268,766

Operating expenses:
Cost of services	56,164			9,584		—	—		65,748
Selling, general, and administrative, including stock-based compensation	45,419			19,250		—	—		64,669
Amortization of subscriber accounts, deferred contract acquisition costs and other intangible assets	104,328			3,974		—	—		108,302
Depreciation	5,007			473		—	—		5,480
Loss on goodwill impairment	214,089			311		—	—		214,400
	425,007			33,592		—	—		458,599
Operating loss	(176,586		)	(13,247	)	—	—		(189,833	)
Other expense:
Equity in loss of subsidiaries	13,610			—		—	(13,610	)	—
Interest expense	75,473			—		—	—		75,473
	89,083			—		—	(13,610	)	75,473
Loss before income taxes	(265,669		)	(13,247	)	—	13,610		(265,306	)
Income tax expense	2,330			363		—	—		2,693
Net loss	(267,999		)	(13,610	)	—	13,610		(267,999	)
Other comprehensive income (loss):
Unrealized gain on derivative contracts	19,927			—		—	—		19,927
Total other comprehensive income	19,927			—		—	—		19,927
Comprehensive loss	$	(248,072	)	(13,610	)	—	13,610		(248,072	)

MONITRONICS INTERNATIONAL, INC. AND SUBSIDIARIES

Condensed Consolidating Statement of Operations and Comprehensive Income (Loss)

(unaudited)

Six Months Ended June 30, 2017
Parent Issuer
Subsidiary
Guarantors
Non-Guarantors Eliminations Consolidated
(amounts in thousands)
Net revenue $ 265,341
16,357
—
—
281,698
0
Operating expenses:

0
Cost of services 52,263
7,323
—
—
59,586
Selling, general, and administrative, including stock-based compensation 78,170
15,115
—
—
93,285
Radio conversion costs 259
50
—
—
309
Amortization of subscriber accounts, dealer network and other intangible assets 116,276
3,236
—
—
119,512
Depreciation 3,936
309
—
—
4,245
250,904
26,033
—
—
276,937
Operating income (loss) 14,437
(9,676 ) —
—
4,761
Other expense:

Equity in loss of subsidiaries 10,197
—
—
(10,197 ) —
Interest expense 72,310
5
—
—
72,315
82,507
5
—
(10,197 ) 72,315
Loss before income taxes (68,070 ) (9,681 ) —
10,197
(67,554 )
Income tax expense 3,047
516
—
—
3,563
Net loss (71,117 ) (10,197 ) —
10,197
(71,117 )
Other comprehensive loss:

Unrealized loss on derivative contracts (4,728 ) —
—
—
(4,728 )
Total other comprehensive loss (4,728 ) —
—
—
(4,728 )
Comprehensive loss $ (75,845 ) (10,197 ) —
10,197
(75,845 )

~~MONITRONICS INTERNATIONAL, INC. AND SUBSIDIARIES~~

~~Condensed Consolidating Statement of Operations and Comprehensive Income (Loss)~~

~~(unaudited)~~


	Six Months Ended June 30, 2016										Six Months Ended June 30, 2017
	Parent Issuer			Subsidiary Guarantors		Non-Guarantors	Eliminations		Consolidated		Parent Issuer			Subsidiary Guarantors		Non-Guarantors	Eliminations		Consolidated
	(amounts in thousands)										(amounts in thousands)
Net revenue	$	274,519		12,405		—	—		286,924		$	265,341		16,357		—	—		281,698
									0
Operating expenses:									0
Cost of services	50,746			6,366		—	—		57,112		52,263			7,323		—	—		59,586
Selling, general, and administrative, including stock-based compensation	45,388			12,428		—	—		57,816		78,170			15,115		—	—		93,285
Radio conversion costs	16,621			54		—	—		16,675		259			50		—	—		309
Amortization of subscriber accounts, dealer network and other intangible assets	120,310			2,949		—	—		123,259
Amortization of subscriber accounts, deferred contract acquisition costs and other intangible assets											116,276			3,236		—	—		119,512
Depreciation	3,849			151		—	—		4,000		3,936			309		—	—		4,245
	236,914			21,948		—	—		258,862		250,904			26,033		—	—		276,937
Operating income (loss)	37,605			(9,543	)	—	—		28,062		14,437			(9,676	)	—	—		4,761
Other expense:
Equity in loss of subsidiaries	10,001			—		—	(10,001	)	—		10,197			—		—	(10,197	)	—
Interest expense	61,239			9		—	—		61,248		72,310			5		—	—		72,315
	71,240			9		—	(10,001	)	61,248		82,507			5		—	(10,197	)	72,315
Loss before income taxes	(33,635		)	(9,552	)	—	10,001		(33,186	)	(68,070		)	(9,681	)	—	10,197		(67,554	)
Income tax expense	3,084			449		—	—		3,533		3,047			516		—	—		3,563
Net loss	(36,719		)	(10,001	)	—	10,001		(36,719	)	(71,117		)	(10,197	)	—	10,197		(71,117	)
Other comprehensive loss:
Unrealized loss on derivative contracts	(16,542		)	—		—	—		(16,542	)	(4,728		)	—		—	—		(4,728	)
Total other comprehensive loss	(16,542		)	—		—	—		(16,542	)	(4,728		)	—		—	—		(4,728	)
Comprehensive loss	$	(53,261	)	(10,001	)	—	10,001		(53,261	)	$	(75,845	)	(10,197	)	—	10,197		(75,845	)

MONITRONICS INTERNATIONAL, INC. AND SUBSIDIARIES

Condensed Consolidating Statement of Cash Flows

(unaudited)


	Six Months Ended June 30, 2017									Six Months Ended June 30, 2018
	Parent Issuer			Subsidiary Guarantors		Non- Guarantors	Eliminations	Consolidated		Parent Issuer			Subsidiary Guarantors		Non-Guarantors	Eliminations	Consolidated
	(amounts in thousands)									(amounts in thousands)
Net cash provided by operating activities	$	78,832		1,851		—	—	80,683		$	66,082		1,415		—	—	67,497
Investing activities:
Capital expenditures	(5,110		)	(642	)	—	—	(5,752	)	(8,449		)	(479	)	—	—	(8,928	)
Cost of subscriber accounts acquired	(86,831		)	(1,456	)	—	—	(88,287	)	(68,983		)	(712	)	—	—	(69,695	)
Net cash used in investing activities	(91,941		)	(2,098	)	—	—	(94,039	)	(77,432		)	(1,191	)	—	—	(78,623	)
Financing activities:
Proceeds from long-term debt	95,550			—		—	—	95,550		105,300			—		—	—	105,300
Payments on long-term debt	(82,350		)	—		—	—	(82,350	)	(95,200		)	—		—	—	(95,200	)
Value of shares withheld for share-based compensation	(194		)	—		—	—	(194	)	(69		)	—		—	—	(69	)
Net cash provided by financing activities	13,006			—		—	—	13,006		10,031			—		—	—	10,031
Net decrease in cash and cash equivalents	(103		)	(247	)	—	—	(350	)
Cash and cash equivalents at beginning of period	1,739			1,438		—	—	3,177
Cash and cash equivalents at end of period	$	1,636		1,191		—	—	2,827
Net increase (decrease) in cash, cash equivalents and restricted cash										(1,319		)	224		—	—	(1,095	)
Cash, cash equivalents and restricted cash at beginning of period										2,705			597		—	—	3,302
Cash, cash equivalents and restricted cash at end of period										$	1,386		821		—	—	2,207


	Six Months Ended June 30, 2016									Six Months Ended June 30, 2017
	Parent Issuer			Subsidiary Guarantors		Non- Guarantors	Eliminations	Consolidated		Parent Issuer			Subsidiary Guarantors		Non-Guarantors	Eliminations		Consolidated
	(amounts in thousands)									(amounts in thousands)
Net cash provided by operating activities	$	86,664		4,320		—	—	90,984		$	78,832		1,851		—	—		80,683
Investing activities:
Capital expenditures	(2,408		)	(692	)	—	—	(3,100	)	(5,110		)	(642	)	—	—		(5,752	)
Cost of subscriber accounts acquired	(103,046		)	(3,759	)	—	—	(106,805	)	(86,831		)	(1,456	)	—	—		(88,287	)
Increase in restricted cash	55			—		—	—	55
Net cash used in investing activities	(105,399		)	(4,451	)	—	—	(109,850	)	(91,941		)	(2,098	)	—	—		(94,039	)
Financing activities:
Proceeds from long-term debt	88,200			—			—	88,200		95,550			—		—	—		95,550
Payments on long-term debt	(69,700		)	—		—	—	(69,700	)	(82,350		)	—		—	—		(82,350	)
Value of shares withheld for share-based compensation	(83		)	—		—	—	(83	)	(194		)	—		—	—		(194	)
Net cash provided by financing activities	18,417			—		—	—	18,417		13,006			—		—	—	��	13,006
Net decrease in cash and cash equivalents	(318		)	(131	)	—	—	(449	)
Cash and cash equivalents at beginning of period	1,513			1,067		—	—	2,580
Cash and cash equivalents at end of period	$	1,195		936		—	—	2,131
Net decrease in cash, cash equivalents and restricted cash										(103		)	(247	)	—	—		(350	)
Cash, cash equivalents and restricted cash at beginning of period										1,739			1,438		—	—		3,177
Cash, cash equivalents and restricted cash at end of period										$	1,636		1,191		—	—		2,827

Item 2.2.Management’s Discussion and Analysis of Financial Condition and Results of ~~Operations.~~Operations

Certain statements in this Quarterly Report on Form 10-Q constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding our business, marketing and operating strategies, integration of acquired ~~assets and~~ businesses, new service offerings, the availability of debt refinancing, financial prospects and anticipated sources and uses of capital. Where, in any forward-looking statement, we express an expectation or belief as to future results or events, such expectation or belief is expressed in good faith and believed to have a reasonable basis, but there can be no assurance that the expectation or belief will result or be achieved or accomplished. The following include some but not all of the factors that could cause actual results or events to differ materially from those anticipated:

general business conditions and industry trends;

macroeconomic conditions and their effect on the general economy and on the U.S. housing market, in particular single family homes, which represent our largest demographic;

uncertainties in the development of our business strategies, including ~~our increased direct marketing efforts~~the rebranding to Brinks Home Security and market acceptance of new products and services;

the competitive environment in which we operate, in particular, increasing competition in the alarm monitoring industry from larger existing competitors and new market entrants, including technology, telecommunications and cable companies;

the development of new services or service innovations by competitors;

our ability to acquire and integrate additional accounts, including competition for dealers with other alarm monitoring companies which could cause an increase in expected subscriber acquisition costs;

integration of acquired assets and businesses;

the regulatory environment in which we operate, including the multiplicity of jurisdictions, state and federal consumer protection laws and licensing requirements to which we and/or our dealers isare subject and the risk of new regulations, such as the increasing adoption of "false alarm" ordinances;

technological changes which could result in the obsolescence of currently utilized technology ~~and~~with the need for significant upgrade ~~expenditures, including the phase-out of 2G networks by cellular carriers;~~expenditures;

the trend away from the use of public switched telephone network lines and the resultant increase in servicing costs associated with alternative methods of communication;

the operating performance of our network, including the potential for service disruptions at both the main monitoring facility and back-up monitoring facility due to acts of nature or technology ~~deficiencies;~~deficiencies, and the potential of security breaches related to network or customer information;

the outcome of any pending, threatened, or future litigation, including potential liability for failure to respond adequately to alarm activations;

the ability to continue to obtain insurance coverage sufficient to hedge our risk exposures, including as a result of acts of third parties and/or alleged regulatory violations;

changes in the nature of strategic relationships with original equipment manufacturers, dealers and other ~~MONI~~of our business partners;

the reliability and creditworthiness of our independent alarm systems dealers and subscribers;

changes in our expected rate of subscriber attrition;

the availability and terms of capital, including ~~the~~our ability ~~of the Company~~ to refinance our existing debt or obtain future financing to grow ~~its~~our business;

our high degree of leverage and the restrictive covenants governing its indebtedness; and

availability of qualified personnel.

For additional risk factors, please see Part I, Item 1A, Risk Factors, in our Annual Report on Form 10-K for the year ended December 31, ~~2016~~2017 (the ~~"2016~~"2017 Form 10-K"). and Part II, Item 1A, Risk Factors in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2018 and this Quarterly Report on Form 10-Q. These forward-looking statements and such risks, uncertainties and other factors speak only as of the date of this Quarterly Report, and we expressly disclaim any obligation or undertaking to disseminate any updates or revisions to any forward-looking statement contained herein, to reflect any change in our expectations with regard thereto, or any other change in events, conditions or circumstances on which any such statement is based.

The following discussion and analysis provides information concerning our results of operations and financial condition. This discussion should be read in conjunction with our accompanying condensed consolidated financial statements and the notes thereto included elsewhere herein and the ~~2016~~2017 Form 10-K.

Overview

~~MONI,~~Monitronics International, Inc. ("Brinks Home Security" or the "Company") provides residential customers and ~~its wholly owned subsidiary LiveWatch Security, LLC ("LiveWatch"), monitor signals arising from burglaries, fires, medical alerts~~commercial client accounts with monitored home and ~~other events through~~business security systems, ~~installed at subscribers' premises,~~ as well as ~~providing for~~ interactive and home automation ~~services.~~services, in the United States, Canada and Puerto Rico. Brinks Home Security customers are obtained through our direct-to-consumer sales channel or our Authorized Dealer network, which provides product and installation services, as well as support to customers. Our direct-to-consumer channel offers both Do-It-Yourself ("DIY") and professional installation security solutions.

Effective January 1, 2018, the Company adopted Accounting Standards Update ("ASU") 2014-09, Revenue from Contracts with Customers (Topic 606) ("Topic 606") using the modified retrospective approach, which means the standard is applied to only the current period. Any significant impact as a result of this adoption is discussed in the results of operations detail below. See note 3, Revenue Recognition, in the notes to the accompanying condensed consolidated financial statements for further discussion.

The Company early adopted ASU 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment ("ASU 2017-04") which requires a goodwill impairment to be recognized as the difference of the fair value and the carrying value. See note 4, Goodwill, in the notes to the accompanying condensed consolidated financial statements for further discussion.

The Company also adopted ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities ("ASU 2017-12") which simplifies the application of hedge accounting guidance. The standard was early adopted effective January 1, 2018, and an opening equity adjustment of $605,000 was recognized that reduced Accumulated deficit, offset by a gain in Accumulated other comprehensive income (loss). There was no material impact as a result of this adoption to the results of operations detail below. See note 1, Basis of Presentation, in the notes to the accompanying condensed consolidated financial statements for further discussion.

Attrition

Account cancellation, otherwise referred to as subscriber attrition, has a direct impact on the number of subscribers that the Company services and on its financial results, including revenues, operating income and cash flow. A portion of the subscriber base can be expected to cancel its service every year. Subscribers may choose not to renew or to terminate their contract for a variety of reasons, including relocation, cost, ~~and~~ switching to a competitor's ~~service.~~service and limited use by the subscriber and thus low perceived value. The largest categories of canceled accounts relate to subscriber relocation or the inability to contact the subscriber. The Company defines its attrition rate as the number of canceled accounts in a given period divided by the weighted average of number of subscribers for that period. The Company considers an account canceled if payment from the subscriber is deemed uncollectible or if the subscriber cancels for various reasons. If a subscriber relocates but continues its service, this is not a cancellation. If the subscriber relocates, discontinues its service and a new subscriber takes over the original subscriber's service continuing the revenue stream, this is also not a cancellation. The Company adjusts the number of canceled accounts by excluding those that are contractually guaranteed by its dealers. The typical dealer contract provides that if a subscriber cancels in the first year of its contract, the dealer must either replace the canceled account with a new one or refund to the Company the cost paid to acquire the contract. To help ensure the ~~dealer’s~~dealer's obligation to the Company, the Company typically maintains a dealer funded holdback reserve ranging from 5-8% of subscriber accounts in the guarantee period. In some cases, the amount of the holdback liability is less than actual attrition experience.

The table below presents subscriber data for the twelve months ended June 30, ~~2017~~2018 and ~~2016:~~

2017:


	Twelve Months Ended June 30,				Twelve Months Ended June 30,
	2017		2016		2018		2017
Beginning balance of accounts	1,074,922		1,092,083		1,020,923		1,074,922
Accounts acquired	114,955		148,620		98,561		114,955
Accounts canceled(b)	(154,969	)	(150,703	)	(158,233	)	(161,622	)
Canceled accounts guaranteed by dealer and other adjustments (a) (b)	(13,985	)	(15,078	)	(5,398	)	(7,332	)
Ending balance of accounts	1,020,923		1,074,922		955,853		1,020,923
Monthly weighted average accounts	1,047,754		1,085,600		980,008		1,047,754
Attrition rate - Unit(b)	14.8	%	13.9	%	16.1	%	15.4	%
Attrition rate - RMR (c)	13.4	%	12.5	%
Attrition rate - RMR (b) (c)					13.6	%	14.0	%


(a)	Includes canceled accounts that are contractually guaranteed to be refunded from holdback.


(b)	~~Includes an estimated 6,653 and 7,200 accounts included in our Radio Conversion Program that primarily~~Accounts canceled ~~in excess of their expected attrition~~ for the twelve months ending June 30, 2017 ~~and 2016, respectively.~~were recast to include an estimated 6,653 accounts included in the Company's Radio Conversion Program that canceled in excess of their expected attrition.


(c)	The recurring monthly revenue ("RMR") of canceled accounts follows the same definition as subscriber unit attrition as noted above. RMR attrition is defined as the RMR of canceled accounts in a given period, adjusted for the impact of price increases or decreases in that period, divided by the weighted average of RMR for that period.

The unit attrition rate for the twelve months ended June 30, 2018 and 2017 was 16.1% and ~~2016 was 14.8% and 13.9%~~15.4%, respectively. Contributing to the increase in the unit attrition rate was the relative proportion of the number of ~~subscriber accounts with 5-year contracts reaching the end of their initial~~new customers under contract ~~term~~or in the dealer guarantee period in the twelve months ended June 30, 2018, as ~~well as our more aggressive price increase strategy. Overall attrition reflects~~compared to the ~~impact of the Pinnacle Security bulk buys, where the Company purchased approximately 113,000 accounts from Pinnacle Security in 2012 and 2013, which are now experiencing normal end-of-term attrition.~~prior year period. The ~~unit~~RMR attrition rate ~~without the Pinnacle Security accounts (core attrition)~~ for the twelve months ended June 30, 2018 and 2017 was 13.6% and ~~2016 was 14.1% and 13.2%~~14.0%, respectively. The decrease in the RMR attrition rate for the twelve months ended June 30, 2018 was our more aggressive price increase strategy. There was also a modest increase to attrition attributed to subscriber losses related to the impacts of Hurricane Maria on the Company's Puerto Rico customer base. See Impact from Natural Disasters below for further information.

We analyze our attrition by classifying accounts into annual pools based on the year of acquisition. We then track the number of accounts that cancel as a percentage of the initial number of accounts acquired for each pool for each year subsequent to its acquisition. Based on the average cancellation rate across the pools, the Company's attrition rate is very low within the initial 12 month period after considering the accounts which were replaced or refunded by the dealers at no additional cost to the Company. Over the next few years of the subscriber account life, the number of subscribers that cancel as a percentage of the

initial number of subscribers in that pool gradually increases and historically has peaked following the end of the initial contract term, which is typically three to five years. ~~The peak following the end of the initial contract term is primarily a result of subscribers that moved, no longer had need for the service or switched to a competitor.~~ Subsequent to the peak following the end of the initial contract term, the number of subscribers that cancel as a percentage of the initial number of subscribers in that pool declines.

Accounts Acquired

During the three months ended June 30, ~~2017~~2018 and ~~2016,~~2017, the Company acquired ~~26,782~~37,383 and ~~37,284~~26,782 subscriber accounts, ~~respectively.~~respectively, through its dealer and direct sales channels. During the six months ended June 30, ~~2017~~2018 and ~~2016,~~2017, the Company acquired 58,930 and 56,158 subscriber accounts, respectively, through its dealer and ~~66,495 subscriber~~direct sales channels. Accounts acquired for the three and six months ended June 30, 2018 reflect bulk buys of approximately 10,600 and 10,900 accounts, respectively. Accounts acquired for the three and six months ended June 30, 2017 reflect bulk buys of approximately 450 and 3,450 accounts, respectively. ~~Accounts~~The increase in accounts acquired for the three and six months ~~ended June 30, 2016 reflect~~is due to bulk buys ~~of approximately 6,300~~ and ~~6,700 accounts.~~year over year growth in the direct-to-consumer sales channel. The increase was partially offset by year over year decline in accounts acquired from the dealer channel.

RMR acquired during the three months ended June 30, 2018 and 2017 was $1,759,000 and ~~2016 was~~ $1,304,000, ~~and $1,734,000,~~ respectively. RMR acquired during the six months ended June 30, 2018 and 2017 was $2,745,000 and ~~2016 was~~ $2,740,000, ~~and $3,058,000,~~ respectively.

Strategic Initiatives

Given the recent decreases in the generation of new subscriber accounts in our dealer channel and trends in subscriber attrition, the Company has implemented several initiatives related to account growth, creation costs, attrition and margin improvements.

Account Growth

We believe that generating account growth at a reasonable cost is essential to scaling our business and generating shareholder value. In recent years, acquisition of new subscriber accounts through our dealer channel has declined due to the attrition of large dealers, efforts to acquire new accounts from dealers at lower purchases prices, changes in consumer buying behavior and increased competition from technology, telecommunications and cable companies in the market. The Company currently has several initiatives in place to improve account growth, which include:

Enhancing our brand recognition with consumers, which was recently bolstered by the rebranding to Brinks Home Security,

Recruiting high quality dealers into the Brinks Home Security Authorized Dealer Program,

Assisting new and existing dealers with training and marketing initiatives to increase productivity,

Acquiring bulk accounts to supplement account generation,

Offering third party equipment financing to consumers which is expected to assist in driving account growth at lower creation costs, and

Growing the direct-to-consumer sales channel under the Brinks Home Security brand.

Creation Costs

We also consider the management of creation costs to be a key driver in improving the Company's financial results, as lower creation costs would improve the Company's profitability and cash flows. The initiatives related to managing creation costs include:

Growing the direct-to-consumer sales channel with expected lower creation cost multiples, and

Negotiating lower subscriber account purchase price multiples in our dealer channel.

In addition, we expect that new customers who subscribe to our services through our partnership with Nest will also contribute to lower creation cost multiples as it is expected that Nest equipment will be purchased up front by the consumer as opposed to subsidized by the Company.

Attrition

We have also experienced higher subscriber attrition rates in the past few years. While there are a number of factors impacting our attrition rate, we expect subscriber cancellations relating to a number of subscriber accounts that were acquired in bulk purchases during 2012 and 2013 from Pinnacle Security to decrease in the future.

Notwithstanding the anticipated decrease in future cancellations for these specific subscriber accounts, we have continued to develop our efforts to manage subscriber attrition, which we believe will help drive increases in our subscriber base and shareholder value. The Company currently has several initiatives in place to reduce subscriber attrition, which include:

Maintaining high customer service levels,

Using predictive modeling to identify subscribers with a higher risk of cancellation and engaging with these subscribers to obtain contract extensions on terms favorable to the Company, and

Implementing effective pricing strategies.

Margin Improvement

We have also adopted initiatives to reduce expenses and improve our financial results, which include:

Reducing our operating costs by right sizing the cost structure to the business and leveraging our scale,

Implementing more sophisticated purchasing techniques, and

Increasing use of automation.

While the uncertainties related to the successful implementation of the foregoing initiatives could impact the Company's ability to achieve net profitability and positive cash flows in the near term, we believe they will position the Company to improve its operating performance, increase cash flows and create shareholder value over the long-term.

Impact from Natural Disasters

Hurricanes Harvey, Irma and Maria, made landfall in Texas, Florida and Puerto Rico, respectively, in the third quarter of 2017. The Company had approximately 38,000, 55,000 and 36,000 subscribers in areas impacted by Harvey, Irma and Maria, respectively. In the fourth quarter of 2017, the Company recognized $2,000,000 in revenue credits or refunds to subscribers due to service interruptions or other customer service incentives to retain subscribers impacted from these natural disasters. A vast majority of these credits were issued to subscribers in Puerto Rico, where damage from the hurricanes had been the most severe and widespread.

In the first half of 2018, the Company recognized $1,250,000 in hurricane related revenue credits, substantially all due to continued customer service retention efforts on Puerto Rico subscribers. There continues to be a modest increase to last twelve months' attrition related to these events. As recovery from Hurricane Maria in Puerto Rico is still ongoing, the Company may continue to experience increased revenue credits or refunds, field service costs and higher attrition in future periods. However, the extent to which we may experience these impacts cannot currently be estimated. We will continue to assess the impact of these events.

Adjusted EBITDA

We evaluate the performance of our operations based on financial measures such as revenue and "Adjusted EBITDA." Adjusted EBITDA is defined as net income (loss) before interest expense, interest income, income taxes, depreciation, amortization (including the amortization of subscriber accounts, dealer network and other intangible assets), restructuring charges, stock-based ~~and long-term incentive~~ compensation, and other non-cash or non-recurring charges. We believe that Adjusted EBITDA is an important indicator of the operational strength and performance of ~~its~~our business, including the business' ability to fund its ongoing acquisition of subscriber accounts, its capital expenditures and to service its debt. In addition, this measure is used by management to evaluate operating results and perform analytical comparisons and identify strategies to improve performance. Adjusted EBITDA is also a measure that is customarily used by financial analysts to evaluate the financial performance of companies in the security alarm monitoring industry and is one of the financial measures, subject to certain adjustments, by which our covenants are calculated under the agreements governing our debt obligations. Adjusted EBITDA does not represent cash flow from operations as defined by generally accepted accounting principles in the United States ("GAAP"), should not be construed as an alternative to net income or loss and is indicative neither of our results of operations nor of cash flows available to fund all of our cash needs. It is, however, a measurement that we believe is useful to investors in analyzing our operating performance. Accordingly, Adjusted EBITDA should be considered in addition to, but not as a substitute for, net income, cash flow provided by operating activities and other measures of financial performance prepared in accordance with GAAP. Adjusted EBITDA is a non-GAAP financial measure. As companies often define non-GAAP financial measures differently, Adjusted EBITDA as calculated by ~~MONI~~Brinks Home Security should not be compared to any similarly titled measures reported by other companies.

~~Pre-SAC Adjusted EBITDA~~

In addition to MONI's dealer sales channel, MONI and LiveWatch also generate leads and acquire accounts through their direct-to-consumer sales channels. As such, certain expenditures and related revenue associated with subscriber acquisition (subscriber acquisition costs, or "SAC") are recognized as incurred. This is in contrast to the dealer sales channel, which capitalizes payments to dealers to acquire accounts. "Pre-SAC Adjusted EBITDA" is a measure that eliminates the impact of generating leads and acquiring accounts through the direct-to-consumer sales channels that is recognized in operating income. Pre-SAC Adjusted EBITDA is defined as total Adjusted EBITDA excluding SAC related to internally generated subscriber leads and accounts through the direct-to-consumer sales channels, as well as any related revenue. We believe Pre-SAC Adjusted EBITDA is a meaningful measure of our financial performance in servicing our customer base. Pre-SAC Adjusted EBITDA should be considered in addition to, but not as a substitute for, net income, cash flow provided by operating activities and other measures of financial performance prepared in accordance with GAAP. Pre-SAC Adjusted EBITDA is a non-GAAP financial measure. As companies often define non-GAAP financial measures differently, Pre-SAC Adjusted EBITDA as calculated by the Company should not be compared to any similarly titled measures reported by other companies.

Results of Operations

The following table sets forth selected data from the accompanying condensed consolidated statements of operations and comprehensive income (loss) for the periods indicated (dollar amounts in thousands).


	Three Months Ended June 30,					Six Months Ended June 30,					Three Months Ended June 30,					Six Months Ended June 30,
	2017			2016		2017			2016		2018			2017		2018			2017
Net revenue	$	140,498		143,656		$	281,698		286,924		$	135,013		140,498		$	268,766		281,698
Cost of services	29,617			27,637		59,586			57,112		33,047			29,617		65,748			59,586
Selling, general, and administrative	60,562			29,203		93,285			57,816
Amortization of subscriber accounts, dealer network and other intangible assets	59,965			61,937		119,512			123,259
Selling, general and administrative, including stock-based and long-term incentive compensation											32,655			60,562		64,669			93,285
Amortization of subscriber accounts, deferred contract acquisition costs and other intangible assets											53,891			59,965		108,302			119,512
Interest expense	36,477			30,024		72,315			61,248		38,600			36,477		75,473			72,315
Income tax expense	1,779			1,743		3,563			3,533		1,347			1,779		2,693			3,563
Net loss	(50,104		)	(16,509	)	(71,117		)	(36,719	)	(241,792		)	(50,104	)	(267,999		)	(71,117	)

Adjusted EBITDA (a)	$	80,654		88,639		$	162,876		175,659		$	72,159		80,654		$	142,198		162,876
Adjusted EBITDA as a percentage of Net revenue	57.4		%	61.7	%	57.8		%	61.2	%	53.4		%	57.4	%	52.9		%	57.8	%

Pre-SAC Adjusted EBITDA (b)	$	88,853		94,177		$	178,716		186,268
Pre-SAC Adjusted EBITDA as a percentage of Pre-SAC net revenue (c)	63.8		%	66.1	%	64.0		%	65.5	%
Expensed Subscriber acquisition costs, net
Gross subscriber acquisition costs											$	13,135		9,450		$	24,825		18,483
Revenue associated with subscriber acquisition costs											(1,255		)	(1,251	)	(2,767		)	(2,643	)
Expensed Subscriber acquisition costs, net											$	11,880		8,199		$	22,058		15,840


(a)	See reconciliation of ~~net~~Net loss to Adjusted EBITDA below.


~~(b)~~	~~See reconciliation of Adjusted EBITDA to Pre-SAC Adjusted EBITDA below.~~


~~(c)~~	~~Presented below is the reconciliation of Net revenue to Pre-SAC net revenue (amounts in thousands):~~

Three Months Ended
June 30, Six Months Ended
June 30,
2017 2016 2017 2016
Net revenue, as reported $ 140,498
143,656
$ 281,698
286,924
Revenue associated with subscriber acquisition cost (1,251 ) (1,257 ) (2,643 ) (2,552 )
Pre-SAC net revenue $ 139,247
142,399
$ 279,055
284,372

Net revenue. Net revenue decreased ~~$3,158,000,~~$5,485,000, or ~~2.2%~~3.9%, and ~~$5,226,000,~~$12,932,000, or ~~1.8%~~4.6%, for the three and six months ended June 30, ~~2017,~~2018, respectively, as compared to the corresponding prior year periods. The decrease in net revenue is attributable to the lower average number of subscribers in ~~2017.~~2018. This decrease was partially offset by an increase in average RMR per subscriber due to certain price increases enacted during the past twelve ~~months and an increase in average RMR per new subscriber acquired.~~months. Average RMR per subscriber increased from ~~$42.70 as of June 30, 2016 to~~ $43.84 as of June 30, ~~2017.~~2017 to $45.01 as of June 30, 2018. In addition, the Company realized a $2,445,000 and $2,770,000 increase in revenue for the three and six months ended June 30, 2018, respectively, from the favorable impact of the new revenue recognition guidance, Topic 606, adopted effective January 1, 2018.

Cost of services. Cost of services increased ~~$1,980,000,~~$3,430,000, or ~~7.2%~~11.6%, and ~~$2,474,000,~~$6,162,000, or ~~4.3%~~10.3%, for the three and six months ended June 30, ~~2017,~~2018, respectively, as compared to the corresponding prior year periods. The increase is primarily ~~attributable~~due to ~~increased~~expensing certain direct and incremental field service costs ~~due~~on new contracts obtained in connection with a subscriber move ("Moves Costs") of $2,232,000 and $4,637,000 for the three and six months ended June 30, 2018, respectively. Upon adoption of Topic 606, all Moves Costs are expensed, whereas prior to ~~a higher volume of retention jobs being completed~~adoption, certain Moves Costs were capitalized on the balance sheet. Moves Costs capitalized as Subscriber accounts, net for the three and ~~an increase in expensed~~six months ended June 30, 2017 were $3,594,000 and $7,483,000, respectively. Furthermore, subscriber acquisition costs, ~~attributable to MONI, as a result of the initiation of MONI's direct installation sales channel. Subscriber acquisition costs~~which include expensed ~~MONI~~equipment and ~~LiveWatch equipment costs and MONI~~ labor costs associated with the creation of new subscribers, ofincreased to $4,320,000 and $7,930,000 for the three and six months ended June 30, 2018, respectively, as compared to $2,803,000 and $5,467,000 for the three and six months ended June 30, 2017, respectively, ~~as compared~~attributable to ~~$2,081,000~~increased production volume in the Company's direct sales channel. These increases were offset by reduced salary and ~~$4,333,000 for the three and six months ended June 30, 2016, respectively.~~wage expense due to lower headcount. Cost of services as a percent of net revenue increased from ~~19.2% and 19.9% for the three and six months ended June 30, 2016, respectively, to~~ 21.1% and 21.2% for the three and six months ended June 30, 2017, respectively, to 24.5% for both the three and six months ended June 30, 2018, respectively.

Selling, general and administrative. Selling, general and administrative costs ("SG&A") ~~increased $31,359,000,~~decreased $27,907,000, or ~~107.4%~~46.1%, and ~~$35,469,000,~~$28,616,000, or ~~61.3%~~30.7%, for the three and six months ended June 30, ~~2017,~~2018, respectively, as compared to the corresponding prior year periods. The ~~increase for both the three and six months~~decrease is primarily attributable to athe $28,000,000 legal settlement ~~reserve~~ recognized in the second quarter of 2017 in relation to class action litigation of alleged violation of telemarketing laws. Furthermore, there were decreases in consulting fees related to company cost reduction initiatives, stock-based compensation expense and LiveWatch acquisition contingent bonus charges for the three and six months ended June 30, 2018, due to recent settlements or

~~telemarketing laws. Also contributing to the change are increased~~renegotiations of certain key agreements governing these costs. The decrease was offset by increases in direct marketing and other SG&A subscriber acquisition costs ~~(marketing and sales costs related to~~associated with the creation of new ~~subscribers) and consulting fees related to future cost reduction initiatives at MONI.~~subscribers. Subscriber acquisition costs in SG&A increased to $8,815,000 and $16,895,000 for the three and six months ended June 30, 2018, respectively, as compared to $6,647,000 and $13,016,000 for the three and six months ended June 30, 2017, ~~respectively, as compared to $4,714,000 and $8,828,000 for the three and six months ended June 30, 2016, respectively, primarily as a result of increased direct-to-consumer sales activities at MONI.~~respectively. SG&A as a percent of net revenue ~~increased~~decreased from ~~20.3% and 20.2% for the three and six months ended June 30, 2016 to~~ 43.1% and 33.1% for the three and six months ended June 30, 2017, respectively, to 24.2% and 24.1% for the three and six months ended June 30, 2018, respectively.

Amortization of subscriber accounts, ~~dealer network~~deferred contract acquisition costs and other intangible assets. Amortization of subscriber accounts, ~~dealer network~~deferred contract acquisition costs and other intangible assets decreased ~~$1,972,000~~$6,074,000 and ~~$3,747,000,~~$11,210,000, or ~~3.2%~~10.1% and ~~3.0%~~9.4%, for the three and six months ended June 30, ~~2017,~~2018, respectively, as compared to the corresponding prior year periods. The decrease is related to a lower number of subscriber accounts purchased in the last twelve months ended June 30, 2018 compared to the prior corresponding period as well as the timing of amortization of subscriber accounts acquired prior to the second quarter of ~~2016,~~2017, which have a lower rate of amortization in ~~2017~~2018 based on the applicable double declining balance amortization method. Additionally, as discussed above, Moves Costs are expensed under Topic 606, whereas prior to adoption, these Moves Costs were capitalized on the balance sheet and amortized. This change resulted in a $1,880,000 and $3,763,000 decrease in amortization expense for the three and six months ended June 30, 2018, respectively. The decrease is partially offset by increased amortization related to accounts acquired subsequent to June 30, ~~2016.~~2017.

Interest expense. Interest expense increased ~~$6,453,000~~$2,123,000 and ~~$11,067,000,~~$3,158,000, or 5.8% and 4.4%, for the three and six months ended June 30, ~~2017,~~2018, respectively, as compared to the corresponding prior year periods. The increase in interest expense is attributable to increases in the Company's ~~consolidated~~revolving credit facility activity, higher interest rates from increasing LIBOR rates and increased amortization of debt ~~balance~~discount and ~~higher applicable margins on Credit Facility borrowings as a result of~~deferred debt costs under the ~~September 2016 Credit Facility refinancing.~~effective interest rate method.

Income tax expense from continuing operations. The Company had pre-tax loss from continuing operations of $240,445,000 and $265,306,000 and income tax expense of $1,347,000 and $2,693,000 for the three and six months ended June 30, 2018, respectively. The Company had pre-tax loss from continuing operations of $48,325,000 and $67,554,000 and income tax expense of $1,779,000 and $3,563,000 for the three and six months ended June 30, 2017, respectively. The Company had pre-tax loss from continuing operations of $14,766,000 and $33,186,000 and income tax expense of $1,743,000 and $3,533,000 for the three and six months ended June 30, 2016, respectively. Income tax expense for the three and six months ended June 30, ~~2017~~2018 and ~~2016~~2017 is attributable to the Company's state tax expense and the deferred tax impact from amortization of deductible goodwill related to the Company's ~~recent~~ business acquisitions.

Net loss. The Company had net loss of ~~$50,104,000~~$241,792,000 and $267,999,000 for the three and six months ended June 30, 2018, respectively, as compared to $50,104,000 and $71,117,000 for the three and six months ended June 30, 2017, ~~respectively, as compared to~~ ~~$16,509,000~~ ~~and $36,719,000 for the three and six months ended June 30, 2016,~~ respectively. The increase in net loss is primarily ~~driven~~attributable to the $214,400,000 goodwill impairment recognized in the second quarter of 2018 and reductions in net revenue offset by the $28,000,000 legal settlement reserve recognized in the second quarter of 2017 as ~~well as increases in other operating costs and decreases in revenue as~~ discussed above. ~~These changes were offset by a reduction in Radio conversion costs, as MONI has substantially completed its radio conversion program in 2016.~~

~~Adjusted EBITDA and Pre-SAC~~ Adjusted EBITDA. The following table provides a reconciliation of ~~net~~Net loss to total ~~Adjusted EBITDA to Pre-SAC~~ Adjusted EBITDA for the periods indicated (amounts in thousands):


	Three Months Ended June 30,					Six Months Ended June 30,					Three Months Ended June 30,					Six Months Ended June 30,
	2017			2016		2017			2016		2018			2017		2018			2017
Net loss	$	(50,104	)	(16,509	)	$	(71,117	)	(36,719	)	$	(241,792	)	(50,104	)	$	(267,999	)	(71,117	)
Amortization of subscriber accounts, dealer network and other intangible assets	59,965			61,937		119,512			123,259
Amortization of subscriber accounts, deferred contract acquisition costs and other intangible assets											53,891			59,965		108,302			119,512
Depreciation	2,125			2,025		4,245			4,000		2,865			2,125		5,480			4,245
Stock-based compensation	930			667		1,448			1,189		383			930		430			1,448
Radio conversion costs	77			7,596		309			16,675		—			77		—			309
Legal settlement reserve											—			28,000		—			28,000
Severance expense (a)											—			—		—			27
LiveWatch acquisition contingent bonus charges											62			387		124			1,355
Rebranding marketing program	33			64		880			237		2,403			33		3,295			880
LiveWatch acquisition contingent bonus charges	387			1,092		1,355			1,992
Integration / implementation of company initiatives	1,389			—		2,030			—		—			1,389		—			2,030
Severance expense (a)	—			—		27			245
Gain on revaluation of acquisition dealer liabilities											—			(404	)	—			(404	)
Impairment of capitalized software	—			—		713			—		—			—		—			713
Gain on revaluation of acquisition dealer liabilities	(404		)	—		(404		)	—
Legal settlement reserve	28,000			—		28,000			—
Loss on goodwill impairment											214,400			—		214,400			—
Interest expense	36,477			30,024		72,315			61,248		38,600			36,477		75,473			72,315
Income tax expense	1,779			1,743		3,563			3,533		1,347			1,779		2,693			3,563
Adjusted EBITDA	80,654			88,639		162,876			175,659		$	72,159		80,654		$	142,198		162,876
Gross subscriber acquisition costs (b)	9,450			6,795		18,483			13,161
Revenue associated with subscriber acquisition costs (b)	(1,251		)	(1,257	)	(2,643		)	(2,552	)
Pre-SAC Adjusted EBITDA	$	88,853		94,177		$	178,716		186,268


(a)	Severance expense related to ~~a 2016 reduction in headcount event and~~ transitioning executive leadership at ~~MONI.~~


~~(b)~~	Gross subscriber acquisition costs and Revenue associated with subscriber acquisition costs for the three and six months ended June 30, 2016 has been restated to include $974,000 and $1,341,000 of costs, respectively, and $207,000 and $377,000 of revenue, respectively, related to MONI's direct-to-consumer sales channel activities for the period.Brinks Home Security.

Adjusted EBITDA decreased ~~$7,985,000,~~$8,495,000, or ~~9.0%~~10.5%, and ~~$12,783,000,~~$20,678,000, or ~~7.3%~~12.7%, for the three and six months ended June 30, ~~2017,~~2018, respectively, as compared to the corresponding prior year periods. The decrease is primarily the result of lower revenues, ~~as discussed above,~~the expensing of subscriber moves in 2018 and an increase in subscriber acquisition costs ~~net of related revenue, which is primarily associated with an increase in MONI's direct-to-consumer sales activities.~~as discussed above.

Expensed Subscriber acquisition costs, net ~~of related revenue,~~. Subscriber acquisition costs, net increased ~~from $5,538,000~~to $11,880,000 and ~~$10,609,000~~$22,058,000 for the three and six months ended June 30, ~~2016,~~2018, respectively, as compared to $8,199,000 and $15,840,000 for the three and six months ended June 30, 2017, respectively.

Pre-SAC Adjusted EBITDA decreased $5,324,000, or 5.7%, and $7,552,000, or 4.1%, for the three and six months ended June 30, 2017, respectively, as compared to the corresponding prior year periods which The increase in subscriber acquisition costs, net is primarily attributable to ~~lower Pre-SAC revenues and increased field service retention costs as discussed above.~~increase in volume of direct sales subscriber acquisitions year over year.

Liquidity and Capital Resources

At June 30, ~~2017,~~2018, we had ~~$2,827,000~~$2,103,000 of cash and cash equivalents. Our primary sources of funds are our cash flows from operating activities which are generated from alarm monitoring and related service revenues. During the six months ended June 30, ~~2017~~2018 and ~~2016,~~2017, our cash flow from operating activities was ~~$80,683,000~~$67,497,000 and ~~$90,984,000,~~$80,683,000, respectively. The primary driver of our cash flow from operating activities is Adjusted EBITDA. Fluctuations in our Adjusted EBITDA and the components of that measure are discussed in “Results of Operations” above. In addition, our cash flow from operating activities may be significantly impacted by changes in working capital.

During the six months ended June 30, ~~2017~~2018 and ~~2016,~~2017, the Company used cash of ~~$88,287,000~~$69,695,000 and ~~$106,805,000,~~$88,287,000, respectively, to fund subscriber account acquisitions, net of holdback and guarantee obligations. In addition, during the six months ended June 30, ~~2017~~2018 and ~~2016,~~2017, the Company used cash of ~~$5,752,000~~$8,928,000 and ~~$3,100,000,~~$5,752,000, respectively, to fund its capital expenditures.

~~The~~Our existing long-term debt ~~of the Company~~ at June 30, ~~2017~~2018 includes the aggregate principal balance of ~~$1,752,250,000~~$1,761,850,000 under ~~its Senior Notes,~~(i) the senior notes totaling $585,000,000 in principal, maturing on April 1, 2020 and bearing interest at 9.125% per annum (the “Senior Notes”), (ii) the Ascent Intercompany Loan ~~Credit Facility~~totaling $12,000,000 in principal, maturing on October 1, 2020 and bearing interest at 12.5% per annum (the “Ascent Intercompany Loan”), and (iii) the $1,100,000,000 senior secured term loan and ~~Credit Facility revolver.~~$295,000,000 super priority revolver under the sixth amendment to the Brinks Home Security secured credit agreement dated March 23, 2012, as amended (the “Credit Facility”). The Senior Notes have an outstanding principal balance of $585,000,000 as of June 30, ~~2017 and mature on April 1, 2020.~~2018. The Ascent Intercompany Loan has an outstanding principal balance of ~~$12,000,000 and matures on October 1, 2020.~~$12,000,000. The Credit Facility term loan has an outstanding principal balance of ~~$1,091,750,000~~$1,080,750,000 as of June 30, ~~2017~~2018 and requires principal payments of $2,750,000 per quarter with the remaining amount becoming due on September 30, 2022. The Credit Facility revolver has an

outstanding balance of ~~$63,500,000~~$84,100,000 as of June 30, ~~2017~~2018 and becomes due on September 30, 2021. The maturity date for both the term loan and the revolving credit facility under the Credit Facility are subject to a springing maturity 181 days prior to the scheduled maturity date of the Senior Notes, or October 3, 2019 if we are unable to refinance the Senior Notes by that date. In addition, if we are unable to repay or refinance the Senior Notes prior to the filing with the SEC of our Annual Report on Form 10-K for the year ended December 31, 2018, we may be subject to a going concern qualification in connection with our audit, which would be an event of default under the Credit Facility. At any time after the occurrence of an event of default under the Credit Facility, the lenders may, among other options, declare any amounts outstanding under the Credit Facility immediately due and payable and terminate any commitment to make further loans under the Credit Facility.

In considering our liquidity requirements for the remainder of ~~2017,~~2018, we evaluated our known future commitments and obligations. We will require the availability of funds to finance our planned strategy to grow through the acquisition of subscriber accounts. We considered the expected operating cash flows as well as the borrowing capacity of our Credit Facility revolver, under which we could borrow an additional ~~$231,500,000~~$210,900,000 as of June 30, ~~2017.~~2018, subject to certain financial covenants. Based on this analysis, we expect that cash on hand, cash flow generated from operations and available borrowings under the Credit Facility revolver will provide sufficient liquidity, given our anticipated current and future requirements.

We may seek capital contributions from Ascent Capital or debt financing in the event of any new investment opportunities, additional capital expenditures or our operations requiring additional funds, but there can be no assurance that we will be able to obtain capital contributions from Ascent Capital or debt financing on terms that would be acceptable to us or at all. Our ability to seek additional sources of funding depends on our future financial position and results of operations, which are subject to general conditions in or affecting our industry and our customers and to general economic, political, financial, competitive, legislative and regulatory factors beyond our control.

Item 3.3.Quantitative and Qualitative Disclosure about Market Risk

Interest Rate Risk

~~Due to the terms of our debt obligations, we~~We have exposure to changes in interest rates related to ~~these~~the terms of our debt obligations. The Company uses derivative financial instruments to manage the exposure related to the movement in interest rates. The derivatives are designated as hedges and were entered into with the intention of reducing the risk associated with variable interest rates on the debt obligations. We do not use derivative financial instruments for trading purposes.

Tabular Presentation of Interest Rate Risk

The table below provides information about our outstanding debt obligations and derivative financial instruments that are sensitive to changes in interest rates. Interest rate swaps are presented at their fair value amount and by maturity date as of June 30, ~~2017.~~2018. Debt amounts represent principal payments by maturity date as of June 30, ~~2017.~~2018, assuming no springing maturity of both the term loan and the revolving credit facility under the Credit Facility.


Year of Maturity	Fixed Rate Derivative Instruments, net (a)		Variable Rate Debt		Fixed Rate Debt		Total		Fixed Rate Derivative Instruments, net (a)			Variable Rate Debt		Fixed Rate Debt		Total
	(Amounts in thousands)								(Amounts in thousands)
Remainder of 2017	$	—	$	5,500	$	—	$	5,500
2018	2,634		11,000		—		13,634
Remainder of 2018									$	—		$	5,500	$	—	$	5,500
2019	—		11,000		—		11,000		—			11,000		—		11,000
2020	—		11,000		597,000		608,000		—			11,000		597,000		608,000
2021	—		74,500		—		74,500		—			95,100		—		95,100
2022	10,618		1,042,250		—		1,052,868		(12,853		)	1,042,250		—		1,029,397
2023									—			—		—		—
Thereafter	—		—		—		—		—			—		—		—
Total	$	13,252	$	1,155,250	$	597,000	$	1,765,502	$	(12,853	)	$	1,164,850	$	597,000	$	1,748,997

(a)

The derivative financial instruments reflected in this column include four interest rate swaps with a maturity date in ~~2018 and four interest rate swaps with a maturity date in~~ 2022. As a result of these interest rate swaps, the Company's ~~current~~ effective weighted average interest rate on the borrowings under the Credit Facility term loans ~~is 7.18%.~~was 7.98% as of June 30, 2018. See notes ~~4, 5~~6, 7 and 68 to our accompanying condensed consolidated financial statements included in this Quarterly Report for further information.

Item 4.4.Controls and Procedures

In accordance with Rules 13a-15 and 15d-15 under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), the Company carried out an evaluation, under the supervision and with the participation of management, including its chief executive officer and chief financial officer (the "Executives"), of the effectiveness of its disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, the Executives concluded that the Company’s disclosure controls and procedures were effective as of June 30, ~~2017~~2018 to provide reasonable assurance that information required to be disclosed in its reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the ~~SEC’s~~Securities and Exchange Commission’s rules and forms.

There has been no change in the Company’s internal controls over financial reporting that occurred during the three months ended June 30, ~~2017~~2018 that has materially affected, or is reasonably likely to materially affect, its internal controls over financial reporting.

~~MONITRONICS INTERNATIONAL, INC. AND SUBSIDIARIES~~

PART II - OTHER INFORMATION

Item 1A. Risk Factors

Except as discussed below, there have been no material changes in our risk factors from those disclosed in Part I, Item 1A of the 2017 Form 10-K and Part II, Item 1A of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2018.

We may be unable to obtain future financing on terms acceptable to us or at all, which may hinder our ability to grow our business or satisfy our obligations.

We intend to continue to pursue growth through the acquisition of subscriber accounts through our authorized dealer network, our strategic relationships and our direct to consumer channel, among other means. To continue our growth strategy, we intend to make additional drawdowns under the revolving credit portion of our Credit Facility and may seek financing through new credit arrangements or the possible sale of new securities, any of which may lead to higher leverage or result in higher borrowing costs. In addition, any future downgrade in our credit rating could also result in higher borrowing costs. An inability to obtain funding through external financing sources on favorable terms or at all is likely to adversely affect our ability to continue or accelerate our subscriber account acquisition activities.

Additionally, we may be unable to refinance our existing indebtedness, which could affect our ability to satisfy our obligations. The maturity date for both the term loan and the revolving credit facility under the Credit Facility are subject to a springing maturity 181 days prior to the scheduled maturity date of the Senior Notes. Accordingly, if we are unable to repay or refinance the Senior Notes by October 3, 2019, the maturity date for both the term loan and the revolving credit facility would be accelerated. Further, if we are unable to repay or refinance the Senior Notes prior to the filing with the SEC of our Annual Report on Form 10-K for the year ended December 31, 2018, we may be subject to a going concern qualification in connection with our audit, which would be an event of default under the Credit Facility. In either event, we would be unable to meet our obligations and would need to take other measures to satisfy our creditors, which could result in significant negative and other consequences, as described under "We have a substantial amount of indebtedness and the costs of servicing that debt may materially affect our business" in Part I. Item 1A, Risk Factors of our Annual Report on Form 10-K for the year ended December 31, 2017.

Goodwill and other identifiable intangible assets represent a significant portion of our total assets, and we may be required to recognize additional impairment charges.

As of December 31, 2017, we had goodwill of $563,549,000, which represented 29% of total assets. Goodwill was recorded in connection with the MONI, Security Networks, and LiveWatch acquisitions. The Company accounts for its goodwill pursuant to the provisions of Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic 350, Intangibles-Goodwill and Other ("FASB ASC Topic 350"). In accordance with FASB ASC Topic 350, goodwill is tested for impairment annually or when events or changes in circumstances occur that would, more likely than not, reduce the fair value of an asset below its carrying value, resulting in an impairment. Impairments may result from, among other things, deterioration in financial and operational performance, declines in Ascent Capital's stock price, increased attrition, adverse market conditions, adverse changes in applicable laws and/or regulations, deterioration of general macroeconomic conditions, fluctuations in foreign exchange rates, increased competitive markets in which we operate in, declining financial performance over a sustained period, changes in key personnel and/or strategy, and a variety of other factors.

The amount of any quantified impairment must be expensed immediately as a charge to results of operations. Any future impairment charges relating to goodwill or other intangible assets would have the effect of decreasing our earnings or increasing our losses in such period. At least annually, or as circumstances arise that may trigger an assessment, we will test our goodwill for impairment. The Company typically tests its goodwill for impairment in the fourth quarter of each year and determined to test its goodwill again during the second quarter 2018 in light of Ascent Capital's recent stock price performance. During the three months ended June 30, 2018, the Company recorded a non-cash charge of $214,400,000 for the impairment of goodwill at the MONI reporting unit primarily due to lower overall account acquisitions in recent periods. There can be no assurance that our future evaluations of goodwill will not result in our recognition of additional impairment charges, which may have a material adverse effect on our financial statements and results of operations.

Item 5.Other Information

General Development of Business

We were incorporated in the state of Texas on August 31, 1994 and are a wholly-owned subsidiary of Ascent Capital Group, Inc. ("Ascent Capital").

On February 26, 2018, Monitronics International Inc. ("Monitronics", or the "Company" and, collectively with its subsidiaries, doing business as "Brinks Home Security^TM") entered into an exclusive, long-term, trademark licensing agreement with The Brink’s Company ("Brink's"), which resulted in a complete rebranding of Monitronics and its subsidiary, LiveWatch Security, LLC ("LiveWatch") as Brinks Home Security (the "Brink's License Agreement"). Under the terms of the Brink's License Agreement, Monitronics has exclusive use of the Brinks and Brinks Home Security trademarks related to the residential smart home and home security categories in the U.S. and Canada for an initial term of seven years, which, subject to certain conditions, may be extended in subsequent renewal periods beyond 20 years pursuant to the agreement’s renewal provisions.

We provide residential customers and commercial client accounts with monitored home and business security systems, as well as interactive and home automation services, in the United States, Canada and Puerto Rico. Our customers are obtained through our direct-to-consumer sales channel (the "Direct to Consumer Channel") and our exclusive authorized dealer network (the "Dealer Channel"), which provides product and installation services, as well as support to customers. Our direct-to-consumer channel offers both Do-It-Yourself ("DIY") and professional installation security solutions.

* * * * *

Financial Information About Reportable Segments

We identify our reportable segments based on financial information reviewed by the Company's chief operating decision maker. Prior to the second quarter of 2018, we reported financial information for our consolidated business segments that represented more than 10% of our consolidated revenue or earnings before income taxes. Based on the foregoing criteria, we had two reportable segments as of December 31, 2017 and 2016, MONI and LiveWatch.

The rollout of the Brinks Home Security brand in the second quarter of 2018 included the integration of our business model under a single brand. As part of the integration, we reorganized our business from two reportable segments, MONI and LiveWatch, to one reportable segment, Brinks Home Security. Following the integration, our chief operating decision maker reviews internal financial information on a consolidated basis. The change in reportable segments had no impact on our previously reported historical condensed consolidated financial statements.

Narrative Description of Business

Monitronics International Inc., a Texas corporation, does business as Brinks Home Security and provides residential customers and commercial clients accounts with monitored home and business security systems, as well as interactive and home automation services, in the United States, Canada and Puerto Rico. Our principal executive office is located at 1990 Wittington Place, Farmers Branch, Texas 75234, telephone number (972) 243-7443.

Brinks Home Security

We are one of the largest security alarm monitoring companies in North America, with customers under contract in all 50 states, the District of Columbia, Puerto Rico and Canada. We offer:

monitoring services for alarm signals arising from burglaries, fires, medical alerts and other events through security systems at our customers' premises;

a comprehensive platform of home automation services, including, among other things, remote activation and control of security systems, support for video monitoring, flood sensors, automated garage door and door lock capabilities and thermostat integration, with mobile device accessibility provided through our proprietary mobile notification system;

hands‑free two‑way interactive voice communication between our monitoring center and our customers; and

customer service and technical support related to home monitoring systems and home automation services.

Our business model consists of two principal sales channels consisting of customers sourced through our Dealer Channel and our Direct to Consumer Channel, which sources customers through direct-to-consumer advertising primarily through internet,

print and partnership program marketing activities. In May 2018, both the Dealer Channel and Direct to Consumer Channels began to go to market under the Brinks Home Security brand.

Our Dealer Channel, which we consider exclusive based on our right of first refusal with respect to any accounts generated by such dealers, is our largest source of customers representing 62% of gross additional customers in the second quarter of 2018, when excluding bulk account purchases in the period. By outsourcing the low margin, high fixed‑cost elements of our business to a large network of dealers, we have significant flexibility in managing our asset‑light cost structure across business cycles. Accordingly, we are able to allocate capital to growing our revenue‑generating customer base rather than to local offices or depreciating hard assets and, we believe, derive higher cash flow generation.

Our Direct to Consumer Channel is an important addition to our channel diversity. Our Direct to Consumer Channel accounted for 38% of our gross additional customers in the second quarter of 2018, when excluding bulk account purchases in the period. Our Direct to Consumer Channel provides customers with a do-it-yourself (“DIY”) home security product and a professional installation option. Our DIY offering provides an asset-light, geographically unconstrained product. In contrast to our Dealer Channel with local market presence, our Direct to Consumer Channel generates accounts through leads from direct response marketing. The Direct to Consumer Channel, including DIY, is expected to lower creation costs per account acquired.

We generate nearly all of our revenue from fees charged to customers (or "subscribers") under alarm monitoring agreements ("AMAs"), which include access to interactive and automation features at a higher fee. Additional revenue is also generated as our customers bundle other interactive services with their traditional monitoring services. During the three months ended June 30, 2018, 95% of new customers purchased at least one of our interactive services alongside traditional security monitoring services. As of June 30, 2018, we had 955,853 subscribers generating $43,000,000 of Recurring Monthly Revenue ("RMR").

We generate incremental revenue through product and installation sales or by providing additional services, such as maintenance and wholesale contract monitoring. Contract monitoring includes fees charged to other security alarm companies for monitoring their accounts on a wholesale basis. As of June 30, 2018, we provided wholesale monitoring services for over 57,000 accounts. The incremental revenue streams do not represent a significant portion of our overall revenue.

Sales and Marketing

In June 2018, management began marketing the Brinks Home Security brand directly to consumers through internet and print national advertising campaigns and partnerships with other subscription- or member-based organizations and businesses. This, coupled with the Authorized Dealer nationwide network, is an effective way for us to market alarm systems. Locally-based dealers are often an integral part of the communities they serve and understand the local market and how best to satisfy local needs. By combining the dealer’s local presence and reputation with the nationally marketed Brinks Home Security brand, accompanied with our high quality service and support, we are able to cost-effectively provide local services and take advantage of economies of scale where appropriate. We also offer a differentiated go-to-market strategy through direct response TV, internet and radio advertising.

Dealer Channel

Our Dealer Channel consists of over 345 independent dealers who are typically small businesses that sell and install alarm systems. These dealers generally do not retain the AMAs due to the scale and large upfront investment required to build and efficiently operate monitoring stations and related infrastructure. These dealers typically sell the AMAs to third parties and outsource the monitoring function for any AMAs they retain. The initial contract term for contracts generated by the dealers are typically three to five years, with automatic renewals annually or on a month-to-month basis depending on state and local regulations. We have the ability to monitor signals from nearly all types of residential security systems.

We generally enter into exclusive contracts with dealers that typically have initial terms ranging between two to five years, with renewal terms thereafter. In order to maximize revenue and geographic diversification, we partner with dealers from throughout the U.S. We believe our ability to maximize return on invested capital is largely dependent on the quality of our dealers and the accounts acquired. In addition, rigorous underwriting standards are applied and a detailed review of each AMA to be acquired.

We generally acquire each new AMA at a cost based on a multiple of the account’s RMR. The dealer contracts generally provide that if an acquired AMA is terminated within the first 12 months, the dealer must replace the AMA or refund the AMA purchase price. To secure the dealer’s obligation, we typically retain a percentage of the AMA purchase price.

Customer Integration and Marketing

Dealers in our Dealer Channel typically introduce customers to Brinks Home Security when describing our central monitoring station. Following the acquisition of an AMA from a dealer, the customer is notified that Brinks Home Security is responsible for all their monitoring and customer service needs. The customer’s awareness and identification of the Brinks Home Security brand as the monitoring service provider is further supported by the distribution of branded materials by the dealer to the customer at the point of sale. Such materials may include the promotional items listed below. All materials provided in the dealer model focus on our brand and our role as the single source of support for the customer.

Dealer Network Development

We remain focused on expanding our network of independent authorized dealers. To do so, we have established a dealer program that provides participating dealers with a variety of support services to assist them as they grow their businesses. Authorized dealers may use the Brinks Home Security brand name in their sales and marketing activities and on the products they sell and install. Authorized dealers benefit from their affiliation with Brinks Home Security and our national reputation for high customer satisfaction, as well as the support they receive from us. Authorized dealers also have the opportunity to obtain discounts on alarm systems and other equipment purchased by such dealers from original equipment manufacturers. We also make available sales, business and technical training, sales literature, co-branded marketing materials, sales leads and management support to our authorized dealers. In most cases, these services and cost savings would not be available to security alarm dealers on an individual basis.

Currently, we employ sales representatives to promote our authorized dealer program, find account acquisition opportunities and sell our monitoring services. We target independent alarm dealers across the U.S. that can benefit from our dealer program services and can generate high quality monitoring customers for the company. We use a variety of marketing techniques to promote the dealer program and related services. These activities include direct mail, trade magazine advertising, trade shows, internet web site marketing, publicity and telemarketing.

Dealer Marketing Support

We offer our authorized dealers an extensive marketing support program that is focused on developing professionally designed sales and marketing materials that will help dealers market alarm systems and monitoring services with maximum effectiveness. Materials offered to authorized dealers include:

•sales brochures and flyers;

•yard signs;

•window decals;

•customer forms and agreements;

•sales presentation binders;

•door hangers;

•vehicle graphics;

•trade show booths; and

•clothing bearing the Brinks Home Security brand name.

These materials are made available to dealers at prices that we believe would not be available to dealers on an individual basis.

Sales materials used by authorized dealers promote both the Brinks Home Security brand and the dealer's status as a Brinks Home Security authorized dealer. Dealers often sell and install alarm systems which display the Brinks Home Security logo and telephone number, which further strengthens consumer recognition of their status as Brinks Home Security authorized dealers. Management believes that the dealers' use of the Brinks Home Security brand to promote their affiliation with one of the nation’s largest alarm monitoring companies boosts the dealers’ credibility and reputation in their local markets and also assists in supporting their sales success.

Negotiated Account Acquisitions

In addition to the development of our dealer network, we periodically acquire alarm monitoring accounts from other alarm companies in bulk on a negotiated basis. Our management has extensive experience in identifying potential opportunities, negotiating account acquisitions and performing thorough due diligence, which helps facilitate execution of new acquisitions in a timely manner.

Customer Operations

Once a customer has contracted for services through the Dealer Channel, we provide monitoring services as well as billing and 24-hour telephone support through our central monitoring station, located in Farmers Branch, Texas. This facility is Underwriters Laboratories ("UL") listed. To obtain and maintain a UL listing, an alarm monitoring center must be located in a building meeting UL’s structural requirements, have back-up and uninterruptable power supplies, have secure telephone lines and maintain redundant computer systems. UL conducts periodic reviews of alarm monitoring centers to ensure compliance with their requirements. Our central monitoring station has also received the Monitoring Association’s prestigious Five Diamond certification. Five Diamond certification is achieved by having all alarm monitoring operators complete special industry training and pass an exam.

We also have a back-up facility in Dallas, Texas that is capable of supporting monitoring and certain customer service operations in the event of a disruption at our primary monitoring and customer care center.

Our telephone systems utilize high-capacity, high-quality, digital circuits backed up by conventional telephone lines. When an alarm signal is received at the monitoring facility, it is routed to an operator. At the same time, information concerning the subscriber whose alarm has been activated and the nature and location of the alarm signal is delivered to the operator’s computer terminal. The operator is then responsible for following standard procedures to contact the subscriber or take other appropriate action, including, if the situation requires, contacting local emergency service providers. We never dispatch our own personnel to the subscriber’s premises in response to an alarm event. If a subscriber lives in an area where the emergency service provider will not respond without verification of an actual emergency, we will contract with an independent third party responder if available in that area.

Security system interactive and home automation services are contracted with and provided by various third party technology companies to the subscriber.

We seek to increase subscriber satisfaction and retention by carefully managing customer and technical service. The customer service center handles all general inquiries from all subscribers, including those related to subscriber information changes, basic alarm troubleshooting, alarm verification, technical service requests and requests to enhance existing services. We have a proprietary centralized information system that enables us to satisfy over 90% of subscriber technical inquiries over the telephone, without dispatching a service technician. If the customer requires field service, we rely on our nationwide network of independent service dealers and over 85 employee field service technicians to provide such service. We closely monitor service dealer performance with customer satisfaction forms, follow-up quality assurance calls and other performance metrics. In 2017, we dispatched approximately 295 independent service dealers around the country to handle our field service.

DIY and Customer Operations

We are also a leading DIY home security provider offering professionally monitored security services through the Direct to Consumer Channel. This DIY business is an asset-light business and geographically unconstrained. We obtain subscribers through e-commerce online sales and through a trained inside sales phone operation and typically offer substantial equipment subsidies to initiate, renew or upgrade AMAs. The initial contract term for DIY AMAs is typically one to three years, with automatic renewal on a month-to-month basis.

When a customer initiates and completes the sales process to obtain alarm monitoring services, including signing an AMA, we pre-configure the alarm monitoring system based on the customer’s specifications, then package and ship the equipment directly to the customer. The customer self-installs the equipment on-site and activates the monitoring service over the phone. Technical support for installation is provided via telephone or online assistance via our website. Monitoring services are provided through a third party central monitoring station. Security system, interactive and home automation services are contracted with and provided to the subscriber by various third party technology companies. Our customer care centers handle general inquiries from the DIY subscribers as well as engage in retention activities.

Customers

We believe our subscriber acquisition process, which includes both clearly defined customer account standards and a comprehensive due diligence process focusing on both the dealers and the AMAs to be acquired, contributes significantly to the high quality of our subscriber base. For each of the last five calendar years, the average credit score associated with AMAs that were acquired was 715 or higher on the FICO scale.

Approximately 94% of our subscribers are residential homeowners and the remainder are small commercial accounts. We believe that by focusing on residential homeowners, rather than renters, we can reduce attrition, because homeowners relocate less frequently than renters.

Intellectual Property

Pursuant to the terms of the Brink's License Agreement, Monitronics has exclusive use of the Brinks and Brinks Home Security trademarks related to the residential smart home and home security categories in the U.S. and Canada. We also own certain proprietary software applications that are used to provide services to our dealers and subscribers, including various trademarks, patents and patents pending related to our "ASAPer" system, which causes a predetermined group of recipients to receive a text message automatically once an alarm is triggered. Other than as mentioned above, we and our subsidiaries do not hold any patents or other intellectual property rights on our proprietary software applications.

Strategy

Our goal is to maximize return on invested capital, which we believe can be achieved by pursuing the following strategies:

Capitalize on Limited Market Penetration

We seek to capitalize on what we view as the current limited market penetration in security services and grow our existing customer base through the following initiatives:

continue to develop our leading dealer position in the market to drive acquisitions of high quality AMAs;

leverage our DIY business to competitively secure new DIY customers without significantly altering our existing asset‑light business model;

increase home integration, automation and ancillary product offerings; and

continue to monitor potential accretive merger and acquisition opportunities and further industry contraction.

Proactively Manage Customer Attrition

Customer attrition has historically been reasonably predictable and we regularly identify and monitor the principal drivers thereof, including our customers’ credit scores, which we believe are the strongest predictors of retention. We seek to maximize customer retention by consistently offering high quality automated home monitoring services and increasing the average life of acquired AMAs through the following initiatives:

maintain the high quality of our customer base by continuing to implement our highly disciplined AMA acquisition program;

continue to motivate our dealers to obtain only high‑quality accounts through incentives built into purchase multiples and by having a performance guarantee on substantially all dealer originated accounts;

prioritize the inclusion of interactive and home automation services in the AMAs that we purchase, which we believe increases customer retention;

proactively identifying customers “at‑risk” for attrition through new technology initiatives;

improve customer care and first call resolution;

continue to implement initiatives to reduce core attrition, which include more effective initial on-boarding of customers, conducting customer surveys at key touchpoints and competitive retention offers for departing customers; and

utilize available customer data to actively identify customers who are relocating and target retention of such customers.

Maximize Economics of Business Model

Due to the scalability of our operations and the low fixed and variable costs inherent in our cost structure, we believe we will continue to experience high Adjusted EBITDA margins as costs are spread over increased recurring revenue streams. In addition, we optimize the rate of return on investment by managing subscriber acquisition costs, or the costs of acquiring an account (“Subscriber Acquisition Costs”). Subscriber Acquisition Costs, whether capitalized or expensed, include the costs related to the Direct to Consumer Channel and the costs to acquire alarm monitoring contracts from authorized dealers and certain sales and marketing costs. We consistently offer what we view as competitive rates for account acquisition. We believe our cash flows may also benefit from continued efforts to decrease our cost to serve by investing in customer service automation, targeting cost saving initiatives and integrating the operations of our subsidiaries.

Grow Dealer Channel

We plan to expand AMA acquisitions by targeting new dealers from whom we expect to generate high quality customers. We believe that by providing dealers with a full range of services designed to assist them in all aspects of their business, including sales leads, sales training, technical training, comprehensive on‑line account access, detailed weekly account summaries, sales support materials and discounts on security system hardware purchased through our strategic alliances with security system manufacturers, we are able to attract and partner with dealers that will succeed in our existing dealer network.

Industry; Competition

The security alarm industry is highly competitive and fragmented. Our competitors include two other major security alarm companies with nationwide coverage, numerous smaller providers with regional or local coverage and certain large multi-service organizations in the telecommunications or cable businesses. Our significant competitors for obtaining subscriber AMA's are:

ADT, Inc. ("ADT");

Vivint, Inc.;

Guardian Protection Services;

Vector Security, Inc.;

Comcast Corporation; and

SimpliSafe, Inc.

Competition in the security alarm industry is based primarily on reputation for quality of service, market visibility, services offered, price and the ability to identify and obtain customer accounts. Competition for customers has also increased in recent years with the emergence of DIY home security providers and other technology companies expanding into the security alarm industry. We believe we compete effectively with other national, regional and local alarm monitoring companies, including cable and telecommunications companies, due to our reputation for reliable monitoring, customer and technical services, the quality of our services, and our relatively lower cost structure. We believe the dynamics of the security alarm industry favor larger alarm monitoring companies, such as Brinks Home Security, with a nationwide focus that have greater resources and benefit from economies of scale in technology, advertising and other expenditures.

Some of these security alarm companies have also adopted, in whole or in part, a dealer program similar to us. In these instances, we must also compete with these programs in recruiting dealers. We believe we compete effectively with other dealer programs due to the quality of our dealer support services and our competitive acquisition terms. Our significant competitors for recruiting dealers are:

ADT;

Central Security Group, Inc.;

Guardian Protection Services, Inc.; and

Vector Security, Inc.

Seasonality

Our operations are subject to a certain level of seasonality. Since more household moves take place during the second and third calendar quarters of each year, our disconnect rate and expenses related to retaining customers are typically higher in those calendar quarters than in the first and fourth quarters. There is also a slight seasonal effect resulting in higher new customer volume and related cash expenditures incurred in investment in new subscribers in the second and third quarters.

Regulatory Matters

Our operations are subject to a variety of laws, regulations and licensing requirements of federal, state and local authorities including federal and state customer protection laws. In certain jurisdictions, we are required to obtain licenses or permits to comply with standards governing employee selection and training and to meet certain standards in the conduct of our business. The security industry is also subject to requirements imposed by various insurance, approval, listing and standards organizations. Depending upon the type of subscriber served, the type of security service provided and the requirements of the applicable local governmental jurisdiction, adherence to the requirements and standards of such organizations is mandatory in some instances and voluntary in others.

Although local governments routinely respond to panic and smoke/fire alarms, there are an increasing number of local governmental authorities that have adopted or are considering various measures aimed at reducing the number of false burglar alarms. Such measures include:

•subjecting alarm monitoring companies to fines or penalties for false alarms;

•imposing fines on alarm subscribers for false alarms;

•imposing limitations on the number of times the police will respond to false alarms at a particular location;

requiring additional verification of intrusion alarms by calling two different phone numbers prior to dispatch ("Enhanced Call Verification"); and

requiring visual verification of an actual emergency at the premise before the police will respond to an alarm signal.

Enhanced Call Verification has been implemented as standard policy by our company.

Security alarm systems monitored by us utilize telephone lines, internet connections, cellular networks and radio frequencies to transmit alarm signals. The cost of telephone lines, and the type of equipment which may be used in telephone line transmission, are currently regulated by both federal and state governments. The operation and utilization of cellular and radio frequencies are regulated by the Federal Communications Commission and state public utility commissions.

Employees

At June 30, 2018, we had over 1,280 full-time employees and over 60 part-time employees, all of which are located in the U.S.

Financial Information About Geographic Areas

We provide monitoring services for subscribers located in all 50 states, the District of Columbia, Puerto Rico, and Canada.

Available Information

All of our filings with the Securities and Exchange Commission (the "SEC"), including our Form 10-Ks, Form 10-Qs and Form 8-Ks, as well as amendments to such filings are available on our Internet website free of charge generally within 24 hours after we file such material with the SEC. Our website address is www.brinkshome.com.

The information contained on our website is not incorporated by reference herein.

Item 6. Exhibits

Listed below are the exhibits which are included as a part of this Report (according to the number assigned to them in Item 601 of Regulation S-K):



31.1		Rule 13a-14(a)/15d-14(a) Certification. *
31.2		Rule 13a-14(a)/15d-14(a) Certification. *
32		Section 1350 Certification. **
101.INS		XBRL Instance Document. *
101.SCH		XBRL Taxonomy Extension Schema Document. *
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document. *
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document. *
101.LAB		XBRL Taxonomy Extension Labels Linkbase Document. *
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document. *



*	Filed herewith.
**	Furnished herewith.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



				MONITRONICS INTERNATIONAL, INC.


Date:	August ~~9, 2017~~6, 2018		By:	/s/ Jeffery R. Gardner
				Jeffery R. Gardner
				President and Chief Executive Officer


Date:	August ~~9, 2017~~6, 2018		By:	/s/ ~~Michael R. Meyers~~Fred A. Graffam
		~~Michael R. Meyers~~		Fred A. Graffam
		~~Chief Financial Officer, Executive~~		Senior Vice President and ~~Assistant Secretary~~Chief Financial Officer
				(Principal Financial and Accounting Officer)

~~EXHIBIT INDEX~~



~~31.1~~		Rule 13a-14(a)/15d-14(a) Certification. *
~~31.2~~		Rule 13a-14(a)/15d-14(a) Certification. *
32		Section 1350 Certification. **
~~101.INS~~		XBRL Instance Document. *
~~101.SCH~~		XBRL Taxonomy Extension Schema Document. *
~~101.CAL~~		XBRL Taxonomy Extension Calculation Linkbase Document. *
~~101.DEF~~		XBRL Taxonomy Extension Definition Linkbase Document. *
~~101.LAB~~		XBRL Taxonomy Extension Labels Linkbase Document. *
~~101.PRE~~		XBRL Taxonomy Extension Presentation Linkbase Document. *



*	~~Filed herewith.~~
**	~~Furnished herewith.~~



		Page

PART I — FINANCIAL INFORMATION

Item 1.	Financial Statements (unaudited)	2

	Condensed Consolidated Balance Sheets (unaudited)	2

	Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) (unaudited)	3

	Condensed Consolidated Statements of Cash Flows (unaudited)	4

	Condensed Consolidated Statement of Stockholder’s ~~Equity~~Deficit (unaudited)	5

	Notes to Condensed Consolidated Financial Statements	6

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	2127

Item 3.	Quantitative and Qualitative Disclosure about Market Risk	2836

Item 4.	Controls and Procedures	2836

PART II - OTHER INFORMATION

Item 1A.	Risk Factors	37

Item 5.	Other Information	38

Item 6.	Exhibits	2944

	SIGNATURES	30

	~~EXHIBIT INDEX~~	3145



	As of December 31, 2016
	Parent Issuer		Subsidiary Guarantors	Non-Guarantors	Eliminations		Consolidated
	(amounts in thousands)
Assets
Current assets:
Cash and cash equivalents	$	1,739	1,438	—	—		3,177
Trade receivables, net	13,265		604	—	—		13,869
Prepaid and other current assets	51,251		2,171	—	(44,062	)	9,360
Total current assets	66,255		4,213	—	(44,062	)	26,406

Investment in subsidiaries	22,533		—	—	(22,533	)	—
Property and equipment, net	26,652		1,618	—	—		28,270
Subscriber accounts, net	1,349,285		37,475	—	—		1,386,760
Dealer network and other intangible assets, net	15,762		1,062	—	—		16,824
Goodwill	527,191		36,358	—	—		563,549
Other assets, net	11,889		19	—	—		11,908
Total assets	$	2,019,567	80,745	—	(66,595	)	$	2,033,717

Liabilities and Stockholder's Equity
Current liabilities:
Accounts payable	$	9,919	1,542	—	—		11,461
Accrued payroll and related liabilities	3,731		337	—	—		4,068
Other accrued liabilities	25,951		49,690	—	(44,062	)	31,579
Deferred revenue	13,807		1,340	—	—		15,147
Holdback liability	13,434		482	—	—		13,916
Current portion of long-term debt	11,000		—	—	—		11,000
Total current liabilities	77,842		53,391	—	(44,062	)	87,171

Non-current liabilities:
Long-term debt	1,687,778		—	—	—		1,687,778
Long-term holdback liability	2,645		—	—	—		2,645
Derivative financial instruments	16,948		—	—	—		16,948
Deferred income tax liability, net	15,649		1,681	—	—		17,330
Other liabilities	3,760		3,140	—	—		6,900
Total liabilities	1,804,622		58,212	—	(44,062	)	1,818,772

Total stockholder's equity	214,945		22,533	—	(22,533	)	214,945
Total liabilities and stockholder's equity	$	2,019,567	80,745	—	(66,595	)	2,033,717



	Three Months Ended June 30, 2016
	Parent Issuer			Subsidiary Guarantors		Non-Guarantors	Eliminations		Consolidated
	(amounts in thousands)
Net revenue	$	137,212		6,444		—	—		143,656
									0
Operating expenses:									0
Cost of services	24,504			3,133		—	—		27,637
Selling, general, and administrative, including stock-based compensation	22,857			6,346		—	—		29,203
Radio conversion costs	7,542			54		—	—		7,596
Amortization of subscriber accounts, dealer network and other intangible assets	60,482			1,455		—	—		61,937
Depreciation	1,939			86		—	—		2,025
	117,324			11,074		—	—		128,398
Operating income (loss)	19,888			(4,630	)	—	—		15,258
Other expense:
Equity in loss of subsidiaries	4,860			—		—	(4,860	)	—
Interest expense	30,019			5		—	—		30,024
	34,879			5		—	(4,860	)	30,024
Loss before income taxes	(14,991		)	(4,635	)	—	4,860		(14,766	)
Income tax expense	1,518			225		—	—		1,743
Net loss	(16,509		)	(4,860	)	—	4,860		(16,509	)
Other comprehensive loss:
Unrealized loss on derivative contracts	(4,697		)	—		—	—		(4,697	)
Total other comprehensive loss	(4,697		)	—		—	—		(4,697	)
Comprehensive loss	$	(21,206	)	(4,860	)	—	4,860		(21,206	)