江森自控 (JCI) 2009 Q3 法說會逐字稿

Good morning, and thank you for joining Brink's Home Securities Holdings Third Quarter 2009 Financial Results Conference Call.

Today's remarks will be made by President and CEO, Bob Allen, and CFO, Steve Yevich.

A question-and-answer session will be held following the prepared remarks.

An earnings release was issued this morning and is available on the Company's website at www.investment.broadviewsecurity.com under the Investors Information tab.

If you wish to have a copy of the release emailed to you, please call 972-871-3511.

This call and its ensuing question-and-answer session may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

These forward-looking statements may involve risk and uncertainties.

Such statements may address the (inaudible) goals or growth rates, disconnect rates, customer attrition, the ability for the Company to develop its new brand name, or incurring expense in the future periods, and financial results.

The actual results of which may differ materially from those projected, implied, or anticipated by the Company's forward-looking statement.

Please refer to today's press release for additional forward-looking cautionary informational statements including therein.

As results could differ materially from projected or estimated results, information regarding factors that could cause such differences and available in today's press release and in our SEC filings, which includes our report on Form 10-K and Form 10-Q.

The information discussed on this call is representative as today's only.

Brink's Home Securities Holding disclaims any obligation to update any forward-looking statements as a result of developments or events occurring after this call.

This call is copyrighted, and may be not used by any third party without written permission from the Company.

Today's call contains reference to certain non-GAAP financial measures, which the Company believes provided useful information for investors to enhance the understanding of the Company's performance.

Reconciliation of the non-GAAP measures to GAAP can be found in the earnings release.

A copy of the release can be found under the Investor Information tab at the Company investor relations website, www.

investors.broadviewsecurities.com.

As a reminder, today's call is being recorded.

A replay of the webcast will be available today at approximately 2pm Eastern time, and can be found on the Investor Relations section of the Company's website as previously noted.

A replay of the call can be accessed by calling 888-286-8010 domestic, or 617-801-6888 international using the replay passcode 38484859.

I would now like to turn the call over to Mr.

Bob Allen.

Please proceed.

Thank you, Karma.

I'd like to welcome you to our third quarter 2009 financial results conference call.

I'm glad you were able to join us today.

As you are probably aware, we launched our new brand, Broadview Security, the next generation of Brink's Home Security, at the beginning of the third quarter.

We are very pleased with our progress in establishing Broadview Security as our new brand identity and with the positive reception the new brand name has received from both existing and prospective customers.

I will get into more details on the new brand introduction later in my comments.

This morning, we reported third quarter net income of $13.1 million, and diluted earnings per share of $0.28 compared to net income of $14.0 million and $0.30 per diluted share last year.

It is worth noting that incremental expenses incurred in the third quarter for the new brand introduction totaled $10.6 million, reducing reported earnings per share by $0.14 in this year's third quarter.

Despite continued weakness in the housing market and increasing in unemployment rates, we delivered solid organic growth in subscriber count and monthly recurring revenues.

We ended the quarter, with a subscriber count of 1,348,100, an increase of 4.9% over prior year.

Monthly recurring revenue at the end of the quarter rose 9% over prior year to $43.4 million.

Growth and sales opportunities, which are inquiries from prospective customers, increased year-over-year, driven by the increased marketing expenditures associated with the new brand introduction.

Conversion of these sales opportunities in the new customer installations continues to be more challenging than prior year.

We continue to see increased window shopping by potential customers, higher rejection rates of prospective customers for failure to meet our credit score minimums, and ongoing competitive price pressure on both up-front fees and monthly rates.

New customer installations were 41,800 in the third quarter, down 2.1% from 42,700 installations in the third quarter of 2008.

Average monthly recurring revenue for a new customer installation now tops $37.

Shifting over to customer retention, our annualized customer disconnect rate for the third quarter was 9.4% versus 9.0% in the year-ago quarter.

On a trailing 12-month basis, disconnect rate was 8.1% up from 7.3% in the prior 12-month period.

We will cover this topic in more detail shortly.

The net result of customer installations and customer disconnects was that we added approximately 10,100 net new subscribers in the third quarter of 2009, compared to 13,800 in the same quarter last year.

As a result, as I stated earlier, ending subscribers increased to 1,348,100, up 4.9% over prior year.

Revenue increased 6.1% over prior year to $143.7 million in the third quarter.

Revenue continues to be driven by the growth in monthly recurring revenue, partially offset by lower revenue from our builder business, which continues to be affected by the slowdown in the new construction-housing market.

Third quarter operating profit was $21.3 million, down 6.6% from last year's $22.8 million.

Adjusted EBITDA from recurring services for the quarter increased 10.5% to $90.5 million, up from $81.9 million last year.

Steve will cover these measures in further detail in his comments.

Now I'd like to turn my remarks to the introduction of our brand, Broadview Security.

The launch of our new brand was announced on June 30th to our employees through a series of concurrent meetings held across the United States and western Canada, and to the general public through a press release.

We rang the opening bell at the New York Stock Exchange on July 1st as Broadview Security, and received substantial media coverage of our new brand introduction.

The advertising for our new brand began July 6th with greatly increased media weights through a series of 30 and 60-second television commercials on a wide range of cable networks.

Each commercial highlights the change to Broadview Security from Brink's Home Security.

As we indicated in our second quarter earnings call and the analyst's day we hosted here in Irving in September, the response from existing and prospective customers has been favorable.

In addition, as I mentioned earlier, we are seeing increased interest from prospective customers in our services because of our increased marketing efforts.

In the third quarter, we spent an incremental $10.6 million on our new brand introduction in addition to our normal base level of marketing.

Year-to-date, we have spent $13.9 million on our new brand introduction.

In the fourth quarter, incremental spending will range between $7 million and $10 million.

For all of 2009, we will incur incremental marketing and branding expense of approximately $21 million to $24 million, in addition to our base level marketing expense of roughly $40 million.

Spending in 2010 and beyond will depend on our continued ability to generate sales opportunities balanced against the need to build the awareness of our new brand.

Having gained some experience from actual results in the market, we have revised our estimates on the range of future incremental spending.

We previously indicated we would incur cumulative incremental marketing and conversion costs between $70 million and $120 million pre-tax over a 24 to 36-month period to fully establish our new brand identity.

We now believe this estimate can be lowered to a range between $60 million and $90 million.

Looking to next year, we currently expect to spend between $30 million and $40 million in 2010 with that spending somewhat more heavily weighted to the first half of the year.

It is important to remember that we are building a brand that will allow us to continue to drive our subscriber growth through direct response marketing, carefully monitor our spending and adjust as appropriate.

Looking ahead we continue to see challenging unemployment rates and a difficult housing market.

For full year 2009, we expect revenue growth to be in the mid-single digit range driven by mid-single digit growth in the subscriber base.

We anticipate monthly recurring revenue to grow in the upper single-digit range.

We expect growth in GAAP operating profit on a full-year basis for 2009.

We believe the pressure on customer retention will persist and anticipate our full-year disconnect rate to range between 8.0% and 8.2%.

This narrows our previously provided range of between 7.8% and 8.3%.

To put this in more perspective, the disconnect rate for full-year 2008 was 7.5%, so we expect an increase in the 2009 full-year rate of between 50 and 70 basis points.

2010 we continue to focus on many of the same initiatives as 2009; building our brand, growing our subscriber base with high-quality customer additions, increasing our revenue per subscriber, and maximizing customer retention.

And as always, we will focus on maintaining a disciplined economic approach to the business.

For 2010 we expect mid-single digit growth in net subscribers, high single-digit growth in revenues and monthly recurring revenue, and positive growth in GAAP operating profits.

Now I'll turn it over to our Chief Financial Officer, Steve Yevich, for his comments.

Thanks, Bob, and good morning, everyone.

First, I want to take you through the main elements to the income statement, then comment on key balance sheet and cash flow items, and at the end, address our performance on some key non-GAAP metrics.

We will be filing our 10-Q later today, and it will contain additional details and disclosure on many points I will cover in my remarks.

As Bob mentioned, revenues for the third quarter 2009 were $143.7 million, reflecting an increase of $8.3 million, or 6.1%, over the comparable 2008 period.

The revenue increase was due to the effect of the 4.9% larger ending subscriber base supplemented by a 4% increase in average revenue per ending customer.

We're particularly pleased that monthly recurring revenue, or MRR, grew 9.0% in the quarter, a rate that is increased about 60 basis points from the end of the second quarter.

Average MRR per customer now stands at $32.19.

Importantly, and as Bob noted, MRR from new customers we brought on in the third quarter averaged more than $37.

Pricing actions and new service offerings rolled out over the course of the last year are adding noticeably to our growth in recurring revenue.

As has been the case for a number of quarters, we experienced a year-over-year decline in revenue from our new home construction, or builder business.

Revenues in this operation are down about $1 million for the quarter compared to last year.

Let me remind you, our revenues from installing security systems in newly constructed houses for production home builders currently constitutes only a very small part of our total revenue.

Our cost of revenues declined by $4.6 million when comparing this year's third quarter results with last year's.

Gross margin increased to 50.1% from the 43.6% reported for last year.

But as most of you know, last year's reported numbers were affected by a 7% royalty rate charged to us by our former parent.

The royalty rate last year had been 1.25%, the rate we now pay; last year's gross margin would've been 49.4%.

Most of the 70 basis point year-over-year improvement in gross margin stated on this apples-to-apples basis, can be attributed to the reduced P&L drag from our downsized builder business, where we have cut costs proportionately more than we have lost revenue.

Partially offsetting that improvement was an increased non-cash impairment charge due to the higher disconnect volume this year; 2,800 more disconnects this quarter compared to last year's third quarter.

The annualized disconnect rate for the third quarter was 9.4%, up from 9.0% last year.

Multi-family disconnects only contributed about 10 basis points to the disconnect rate in the current three-month period, but contributed about 50 basis points for the prior-year disconnect rate.

Removing the effect of the multi-family disconnects from both years and also removing the effect on last year's rate of a technical subscriber adjustment, the core disconnect rate was 9.3% this year, compared to 8.1% last year.

The increase in disconnects was primarily due to more customers contacting us to request cancellation, with the increase still being driven by customers indicating cancellation for financial reasons.

We sustained an increase in the flow of customers contacting us to disconnect during the first five or six weeks of the quarter, but the flow has since moderated.

We expect a seasonal decrease in the fourth quarter disconnect rate, hence our expectation of a full-year rate of 8.0% to 8.2%.

Selling, general, and administrative, or SG&A, spending overall grew in the third quarter to 35.7% of revenue, compared to 27.3% in last year's third quarter.

SG&A increased by $14.4 million this year compared to last year.

As Bob mentioned, we incurred $10.6 million of brand introduction costs in the third quarter, about what we expected, and these costs are included in SG&A.

About 75% of that $10.6 million was incurred in media advertising, and the balance was spent on other rebranding expenditures.

In this year's third quarter, we spent about $1.5 million more in base marketing activities compared to last year.

The base marketing spend in the third quarter was sequentially consistent with spending in the second quarter of 2009.

Our expected base marketing spending for the full year remains at about the $40 million level, consistent with the last two years.

There are a few non-cash items included in SG&A for the quarter that I want to mention.

One, we recorded a non-cash credit of $1.2 million, or $0.02 per share, resulting from a court-ordered reduction in the jury award we disclosed earlier this year.

As a side note, we have recently filed our appeal in this matter.

Two, we recorded non-cash stock-based compensation expense in the quarter of $1.0 million, about $300,000 higher than last year.

Three, we expensed $3.0 million in the accrual for bad debt, up about $400,000 over last year.

We reduced the net rate at which we record our provision for bad debts sequentially about 10 basis points in the third quarter to roughly 2.1% of revenue, compared to the 2.2% rate we used in the first and second quarters, aligning the future expected write-off rate with current actual write-off trends.

Our tax rate for the third quarter was 38.5%, up from 38.0% recorded last year.

Our year-to-date effective tax rate for 2009 stands at 39.2%, and we still anticipate a full-year 2009 effective tax rate of between 38% and 40%.

Diluted earnings per share for the quarter were $0.28 compared to $0.30 last year.

There is some noise in the numbers from both years, with comparability being affected by the higher royalty rate last year and the brand introduction this year.

If you adjust for both items, the comparison is $0.42 this year to $0.40 last year.

Turning to our balance sheet, we ended September with a cash position of $108.5 million, an increase of $5.3 million from June 30th and up $44.9 million from last December.

We continue to operate during the third quarter in a range where we generate positive-free cash flow, although some of that cash was reinvested in the brand introduction.

Accounts receivable at September 30th net of the bad debt provision, stood at $36.3 million, lower by $2.0 million from September 30, 2008, even though the subscriber base has grown by 4.9% since last year.

Moving to deferred taxes on the balance sheet.

Our former parent filed its consolidated 2008 tax return in September.

That return included ten months of our operating results pre-spend.

As a result of some adjustments taken on that return, we trued-up our post spend deferred tax accounts in the third quarter, as we disclosed in an 8-K we filed on September 15th.

These adjustments, which totaled about $28 million, had no immediate cash impact on our taxes.

Our net liability for deferred income taxes continue to grow during the quarter, increasing by $7.9 million due to normal activity, including the large final adjustment to our pre-spend 2008 tax position that I just referenced.

The total increase in deferred taxes in the quarter was $35.8 million.

Now, let me remind you that we do not expect to pay any federal income taxes this year, but our cash tax payments during the next several years will be substantial, as the taxes deferred from 2008 and 2009 start coming due.

At this time, we expect that our cash tax rate in 2010 will be about the same as the effective tax rate we will record on our financial statements, that is, near 38% to 40% of operating profit next year.

On the statement of cash flows, cash flow from operations for the third quarter of 2009 improved to $52.5 million this year from $49.1 million last year.

The nine-month operating cash flow now stands at $185 million.

Capital expenditures for this year's third quarter totaled $48.1 million, up slightly from $45.2 million last year.

Depreciation and amortization totaled $23.0 million in the quarter, up some from last year due to the larger subscriber base.

Impairment charges related to subscriber disconnects were $18.9 million in the third quarter, up from $16.7 million in the third quarter last year, and up sequentially from the second quarter of 2009, as we expected.

Impairment charges run through cost of revenues.

Let me again remind you that impairment charges, we call it disconnect expense internally, run seasonally higher in the second and third quarters than in the fourth and first quarters.

We generated $90.5 million in adjusted EBITDA from recurring services for the third quarter, up 10.5% from the $81.9 million last year.

Adjusted EBITDA from recurring services is calculated by adjusting ongoing profit from subscribers for various non-cash charges and credits, provides a measure of the cash-generating capacity of our existing subscriber base.

Year-to-date, we have generated $252.9 million on this measure.

Adjusted cash invested in new subscribers was $67.3 million for the quarter, compared to $62.0 million last year.

Adjusted cash invested in new subscribers is the sum total of all cash costs incurred in adding new accounts net of any new cash receipt from customers.

This metric focuses on the cash, not on the accounting treatment, and it ignores whether the costs are capitalized, deferred, or expensed.

Cash invested for new customer continues to run higher this year than last year, as we expected.

Including the costs we incurred for existing customers who relocate, but excluding the brand introduction expense, we invested $1,400 per new and moving customer in the quarter compared to $1,260 last year.

As we said before, the brand introduction is a one-time cost that, as we move through this process, will distort our account creation cost structure.

It is not possible to tell how many incremental customers we obtained from the extra media exposure from the brand introduction, so a true apples-to-apples comparison to 2008 is difficult to make.

The cash we collect from newly installed customers still averages more than $300 for customers that come in through our field sales and installation processes.

But remember that a good portion of our new customers these days are delivered to us through our authorized dealer network, and on those customers, we don't receive any cash collected at all; the dealers keep that installation revenue when they sell the accounts to us.

The blended rate of cash collected per new customer in the third quarter was about $250.

We closely monitor and manage both of these operating metrics, adjusted EBITDA from recurring services, and adjusted cash invested in new subscribers, initially make substantial investments in our subscriber sites with the intention of recouping those cash investments and earning a solid economic return over a long period of time.

But the cash investment in a site must be balanced with margin dollars we earn back over time, represented by adjusted EBITDA from recurring services.

And the stream of cash flows is tempered by the long run disconnect rate.

With three inputs, adjusted EBITDA from recurring services, adjusted cash invested in new subscribers, and a forward disconnect rate assumption, you can construct a steady state operating cash flow for our business, or project a more classic EBITDA with or without an adjustment for maintenance CapEx.

With that, let me turn the call back over to Bob.

Thank you.

In summary, we continue to deliver solid results.

We are encouraged by our ability to grow our subscriber base and monthly recurring revenue, even in these challenging economic circumstances.

We look forward to growing our business as Broadview Security and delivering solid results into the future.

Karma, can we open up the call for questions, please?

(Operator Instructions)

The first question comes from the line of Ian Zaffino from Oppenheimer Company.

Please proceed.

Thanks, guys, this is Brian sitting in for Ian.

Terrific quarter.

Thank you.

You know, can you just talk a little bit about the rebranding, what it is that you saw that allows you to re-guide lower.

Obviously, the brand has been very well received, but how do you quantify that?

What have you guys seen that has made you guys realized just in the first few months that you've been able to take this expenditure guidance lower?

Yes, Brian.

It's -- we've gained a lot of experience over the last four months since we started the rebrand.

We watched sales opportunities very closely, watch our medium mix on stations, and also on the Internet and Yellow Pages, and other ways people contact us.

And we look at everything on a cost per sales opportunity basis, and we temper that with research that we have ongoing in the marketplace that measures brand awareness.

So we have been seeing a steady growth in our brand awareness of Broadview Security, and we've seen a steady inflow of sales opportunities.

Now we've been working on optimizing our direct response machine for a number of years.

So we're pretty well dialed in on our most economic spending in normal circumstances.

And what we've been doing is cutting back slightly on our expenditures in media, and we've been encouraged by the continued increase in sales opportunities, and the increased brand awareness.

So we're feeling like we're on a very good trajectory and feel much more comfortable lowering that range from $90 million to $120 million, down to $60 million to $90 million.

All right, thanks a lot.

Great quarter, guys.

Thank you.

The next question comes from the line of Van Edelson from Morgan Stanley.

Please proceed.

Hey, thanks.

I'll just follow up on that last question.

From watching your TV commercials at least, it would appear that you're barely making use of the Brink's name now.

It gets flashed on the screen at the very end.

I'm just wondering, is that really worth 1.25% revenues just to keep access to that name, or am I missing anything as to other reasons that you might want to keep access as we go forward?

Well, we still -- you'll see coming up in the coming quarters in reasonably short order -- you'll start to see some commercials where that tagline of the next generation of Brink's Home Security, or even the signage of Brink's Home Security may drop off of some of our executions in the market.

So you may see a commercial that has it.

You may see the next commercial that doesn't.

And we'll start tracking carefully how much of that Heritage brand name we still need to make use of.

And it's not just television advertising, though, Vance, you've got to look at Internet and Paper Click, and organic search, and you'll still see that we're making pretty extensive use of the old brand name in that medium.

So it -- we will continue to -- I don't want to say play.

We will continue to experiment, and that's the nice thing about direct response and having ongoing brand awareness data coming in, we'll try to optimize as quickly as we can.

Okay, got it.

And then, one more for you.

When you mention that the churn or the disconnect requests got a little bit better after the first five or six weeks of the quarter and should be lower in the fourth quarter, how much of that do you think is just the normal seasonality in that fourth quarter churn is almost always better versus an actual perceived improvement in the economy?

Yes, I wouldn't read it -- that the -- we're making the call on turning the economy or unemployment rates certainly.

We saw a higher level of disconnect activity early in the quarter which moderated, and we're encouraged by that.

We still think that, again, given our range of 8.0% to 8.2%, we still think there's a little pressure in the fourth quarter, but it's modest.

Got you.

Okay, thanks, Bob.

I'll leave it there.

Thanks, Vance.

And the next question comes from the line of Clint Fendley from Davenport.

Please proceed.

Thank you.

Good morning, guys.

Good morning.

Following up on the last question there, the higher level of activity as far as the disconnect rate that you saw earlier in the quarter, was that tied to housing, or was it due to economic issues?

Clint, it's really hard to tell.

When people call in and want to disconnect, they go to our loyalty group.

And we track that pretty carefully, the reasons people are telling us that they are disconnecting.

And we are still seeing an uptick of people that are saying, I'm under economic pressure and want to get out of my service agreement with you.

So, it's -- the disconnects from people moving is still lower than it was before.

So it really is people citing financial hardship.

Okay, and I guess if you could comment, Bob, on this.

The new service offerings that you have that's increasing the average monthly revenue to about $37 bucks here?

Bob Allen, Yes, we're still seeing a continuing increase in customers that are choosing to have the capability of sending alarm signals to our monitoring center via wireless communication.

So that means that they either have a radio product or a GSM digital wireless product or IP connectivity, or in association with IP connectivity, they may have voiceover IP as opposed to a straight Internet connection to us.

Each one of those requires a more substantial upfront investment from our customers, as well as a monthly fee.

So that's -- that monthly fee is really what's driving the -- helping to drive up that ending -- or the new MRR per new subscriber.

I'm having trouble getting that out today.

That's okay.

How high do you think this can go over time given the increasing proportion that we've seen of the wireless installs?

Well, we're still in -- our installation rate on new subscribers is greater than 10%, and it's growing.

So there's still a long runway there.

It's just a question of how many people really either don't have a hard line telephone, or want to have an alternative communication method as well as for backup.

Got it.

So, there's a lot of up sell still to go.

Good deal.

Thanks, guys.

Thanks, Clint.

And the next question comes from the line of Steve Velgot from SIG.

Please proceed.

Yes, just a quick housekeeping question before some other ones.

The reversal of the litigation charge, or the partial reversal, that was $1.2 million on a pre-tax basis?

Yes.

Okay, and what line item does that affect?

That was a credit in SG&A.

SG&A.

Okay, thanks.

And, I've gotten this question several times a bit.

Now that you guys have -- lowered the expected expenditure for the rebranding, I'm a little surprised that the board hasn't approved some sort of share repurchase program.

Was that even considered at this time, or -- when might be the first time that that would be considered?

It -- right now the board has, I mean, we always look at capital structure and what our cash balance is and what our future cash flows are anticipated to be.

We purposely put off the decision really into 2010 to address directly.

We're cognizant of where we are, but we also want to make sure that we have the wherewithal to rebrand and handle new subscribers with our internal cash flows.

But it's an ongoing conversation.

And Bob, could you comment at all on -- I have no idea if Stanley Works announced acquisition of Black & Decker might change their view on their security business, but do you have any sense of that?

You know, Stephen I really don't have any insight there.

Okay, thank you.

Welcome.

And the next question comes from the line of Chris Marangi from Gabelli & Company.

Please proceed.

Hey, good morning.

Could you give us a sense for what kind of impact your customer save program might've had on MRR per sub?

The customer save program is operating within the same parameters that we've been operating the last couple of years.

So the cost per customer per save has not changed.

We did have a higher flow of customers through that process in the third quarter.

But it is really -- the pull on MRR is fairly low.

I think a couple of quarters back we threw out an estimate of somewhere around perhaps $0.20.

Right, yes, that's what I recall.

Yes, and it is probably still in that range, although quite honestly, we've not looked at that here right before the call.

Chris Marangi; Okay, and I think the good thing about cyclical issues is that they're cyclical.

One of the cable companies mentioned this morning that home vacancies are as high as they've ever been since record keep -- since records were kept.

I don't know if you have some sense as to how many unlit homes are out there.

In other words, how many homes have your systems that aren't being monitored, and if you have any new plans to try to reconnect those once the world turns around?

We don't have a sense on how many homes there are sitting like that.

We do regularly market back to inactive -- what we believe are inactive sites, and we're continuing to do that.

In fact, Chris, we call those systems "takeovers." And in our Q that's gonna be released later today, you'll see those numbers.

Okay, great, and just last thing quickly, any -- I think I ask this question every quarter.

But on business services, any particularly different dynamics there with churn, or gross adds?

We haven't seen any -- well, let's talk the adds first.

Commercial continues to grow faster than residential business.

Overall, we're about a -- well, not about, we're at a 4.9% increase.

Residential is up 5%.

Multi-family is off a little bit, as that continues to decline.

We have little less than 20,000 customers in multi-family.

Commercial, we're growing north of 9% on an ending subscriber basis.

So Commercial still outperforms Residential from an installation standpoint, but it's clearly slowed with the impact on small business and more major businesses' reluctance to enter into major capital expenditures.

On the disconnect front, we haven't seen any differentially higher rates from Commercial.

I mean, in fact last time we looked at it, it was actually lower than the increase in Residential.

But I think we do a pretty good job of picking the right customers.

Great, thank you.

Thank you, Chris.

And the last question comes from the line of Steve Dyer from Craig Hallum.

Please proceed.

Thank you, good morning, guys.

As you look out into next year -- and I know it's early, and there's a lot of moving parts in the -- in the economy, how do you think about kind of churn looking out a year maybe -- relative to this year?

I mean, do you feel like we're at a point where it's peaking, or does the unemployment and so forth have you a little bit worried still?

You know, we purposely haven't given a forward guidance for 2010 on the disconnect rate; I think we'll be prepared to do that on our fourth quarter call in a few months.

But, I mean, again, just from our comments of narrowing the range for this year to 8.0% to 8.2% and saying that -- I mean, that kind of implies what the fourth quarter is going to be.

You know, it's -- you still have some pressure there, but it's not abnormally high given the circumstances.

Okay, and then, geographically -- maybe this was asked, and I missed it, but geographically, are you seeing anything that is of note in terms of where the churn is the highest, or are they kind of the areas you'd expect?

You know, it's -- the increase in churn rate is pretty widespread across the US and western Canada.

I mean, it's not isolated to geographic pockets.

Okay, and then, anything new on the competitive front either with ADT or any of the small mom-and-pops?

Anything new of note?

Not really.

I think it's - again, it's a competitive market out there on up-front fees as well as ongoing.

That's been true forever.

There is -- has been more activity in the last six months of giveaway programs or rebate programs like gas cards or debit cards.

So that's some additional pressure that's been out there for the last six months.

It appears from recent comments in the press, this -- some of our competitors have been able to raise quite a bit of money in the markets, which I think is a good sign for the industry.

Okay, that's it for me.

Thanks, guys.

Thanks, Steve.

The next question comes from the line of Jamie Clement from Sidoti.

Please proceed.

Jamie Clement from Sidoti.

Bob, Steve, good morning.

Good morning.

Good morning, Jamie.

Steve, I think that you may have given some numbers in the prepared remarks, but of the $10.6 million of rebrand spending during the quarter -- how much of that $10.6 million was really direct response advertising on TV, and how hard is it to sort of separate that number from just your ongoing ad budget -- just conceptually?

Yes.

The -- this year the way we laid out are marketing plan, we laid out the base marketing plan on the $40 million level, and then we layered on top in the last two quarters of the year the amounts for the brand introduction.

I said in the remarks that about 75% of the $10.6 million was media related.

And actually as we go forward into next year, it'll probably be a similar sort of break, 75%/25% between media spend and other rebranding costs that we're having to incur.

One of the things, Jamie -- let me expand on that a little bit.

Traditionally, we never ran 30-second commercials; very rarely did we run 30-second commercials.

We didn't view that as the best direct response medium.

It's a great awareness builder.

In the 30-second commercials you see out there, you'll see a lot more focus on the rebranding and the yard sign switch, and the -- and keying in on the heritage line of the next generation of Brink's Home Security.

So, I mean, some of it we view as non-direct response in nature.

Mm hmm.

Okay.

Okay.

And because I guess just from where I sit, and I hope this -- I don't mean to sound critical or anything, but if you're running ads and trying to encourage people to call, I -- it's sort of hard to figure out kind of x-rebrand spend what your actual cost of adding a customer is.

Did you -- you understand the question, right?

Sure, yes.

I mean, once you launch into one campaign and television media, you can't really separate out what's truly incremental.

Let me ask the question a different way.

In spending more money this quarter, your gross new adds has been pretty consistent with what it's been over the last couple of quarters.

Does that sort of support in your own minds that the way you've been doing this originally has in fact been the right way?

So in other words, maybe giving you some confidence that you can reduce it to kind of previous year levels with no problems?

Well, as I said, I mean, we're monitoring it carefully.

And the great thing with direct response marketing and on brand awareness where you're making periodic measurements, you have a lot of latitude to try new and different things and actually track them pretty well.

I mean, general brand advertising -- brand building is harder to track in a quantitative manner.

I mean --

Okay.

I mean, a brand awareness survey, you're getting quantitative results, but I mean, it's qualitative measure, really.

The real hard numbers are sales opportunities and the cost per sales opportunity, and we look at that carefully by channel.

And as I said, the start to see less reliance on -- in certain placements on the heritage brand name.

And so that'll really tell us a lot of -- can we continue to build the brand awareness and keep those sales opportunities coming in at a lower spend.

Okay, all right.

That's very fair.

Thank you very much.

Thanks, Jamie.

Thanks, Karma.

We'll make it --

My pleasure.

Oops, sorry.

Go ahead, Karma.

You may proceed.

Okay, thank you.

I want to thank everybody for joining us today.

We appreciate your interest, and we look forward to speaking with you in the New Year, and bringing you up to speed on our fourth quarter 2009 results.

Thank you.

This concludes the presentation for today, ladies and gentlemen.

You may now disconnect.

Have a wonderful day.