Subscriber Growth Slowing at Brink's Home Security

On October 31, cash-in-transit security provider The Brinks Company completed its Brink's Home Security (BHS) Holdings spin-off. Immediately following the transaction, BHS Holdings debuted on the New York Stock Exchange under the symbol "CFL", reflecting its corporate mission of creating "Customers For Life" in its principal business-- home security system monitoring services. Although subscriber growth grew year-on-year seven percent for the September-2008 quarter, a rise in the comparable disconnect rate suggests the appellative CFL could be misleading:

The annualized disconnect rate for the third quarter of 2008 was 9.0%, and 7.4% for the first nine months of 2008 compared to 6.9% and 7.0% for the same periods of 2007. There are three primary drivers of the third quarter increase in disconnect rate as compared to the 2007 period, the most significant being an increase in customer requested cancellations and customer moves to rented housing which appears to be related to the slowing economy. Additionally, cancellations of 1,600 multi-family housing subscriber-monitoring contracts, and reconciliation adjustments related to 1,000 subscriber accounts both increased in the third quarter of 2008 as compared to the same 2007 period. - Third-quarter 2008 10-Q regulatory filing

As of November 2008, the Company provided monitored security services for approximately 1.3 million customers across the United States and Canada. Management expects to end the year with subscriber growth in the mid-single digits versus a year ago, reflecting the ongoing weakness in the housing market and the overall economy.

In addition, the company expects the full-year disconnect rate for 2008 to range between 7.5 % and 7.8 percent. However, growing unemployment could translate to a higher disconnect rate, as the jobless transition from home ownership to rentals.

David Phillips

David Phillips has more than 25 years' experience on Wall Street, first as a financial consultant and then as an equity analyst for several investment banking firms. He sifts through SEC filings for his blog The 10Q Detective, looking for financial statement soft spots, such as depreciation policies, warranty reserves and restructuring charges. He has been widely quoted in outlets such as BusinessWeek, The International Herald Tribune, Investor's Business Daily, Kiplinger's Personal Finance, and The Wall Street Journal.

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