Getting cold feet, page-288

Does anyone understand deferred vs expensed costs as it applies to Subscriber Acquisition Costs (SAC), i feel like i almost understand it, but not quite.

"The deferred subscriber acquisition cost (SAC) balances for M2 were reset post the merger with Vocus in February 2016 as required by purchase price accounting. This has had the effect of delivering the P&L a net benefit in both FY16 and FY17 relative to cash flow while the level of costs “normalise” in the balance sheet. The net benefit to EBITDA in the P&L in FY17 across the three Divisions was $41.3m"

Subscriber Acquisition Costs (SAC) costs are the costs involved in signing up a new customer, i believe currently its about $108 per customer, which includes modem and admin in creating the account etc, but there might be other costs involved eg promotions, advertising, not sure.

SAC is amortised over 22 months, because thats the average contract length when they sign up, most are 24 months, some less.

Does 'Deferred SAC' mean the same thing as 'amortised SAC' ?

So in FY16 and FY17 Profit and Loss looks better because costs are being expensed over nearly two years, and cash flow looks worse because its an up-front cash cost.

If the up-front cash costs for a FY is about the same as the amortised SAC for the year, is that what they mean as 'normalised' ?

The '$41m SAC headwinds' that have been mentioned is bad for NPAT but good for cashflow, and its why cash-conversion ratio is expected to improve in FY18

It doesnt matter very much in practice as our churn ratio is 2.4% (copper) or 1.3% (NBN), as we get the benefit of the customer for more like 41 or 77 months, between 2 and 4 times the amortisation period.

When the NBN rollout gets past its peak the deferred SAC will be exceed expensed SAC so P&L will look even worse, and cashflow even better than a 'normalised' FY18.

That sound right ?