APX Group Holdings, Inc. (“APX Group”, “Vivint” or the “Company”)
today reported financial and operational results for the second quarter
ended June 30, 2018.
Todd Pedersen, CEO of APX Group, commented, ”Vivint achieved strong
second quarter 2018 results with total revenues increasing over 20% year
over year. We also had strong growth in New Subscribers, adding
approximately 118,000 New Subscribers during the quarter, up 27% from
the same period a year ago, with the Direct to Home channel adding over
79,000 new customers, a 20% increase year over year, and the Inside
Sales channel adding over 33,000 new customers, up 24% from the same
period a year ago. With regards to our retail channel, the Company and
Best Buy agreed in principle to end the co-branded Best Buy Smart Home
by Vivint arrangement. We believe there are opportunities in the retail
channel, and are committed to work towards more efficient ways to better
help our customers explore, learn about, and buy the latest smart home
products and services.”
Revenue and Subscriber Data
APX Group reported total revenues of $255.0 million for the three month
period ended June 30, 2018 versus $212.1 million for the same period in
2017, an increase of $42.8 million or 20.2%. The adoption of Topic 606
accounted for $10.9 million of the year-over-year increase.
Total recurring and other revenue of $255.0 million increased $52.2
million, or 25.7% for the three months ended June 30, 2018, as compared
to the three months ended June 30, 2017, of which $22.2 million was
associated with the adoption of Topic 606 related to the timing of
revenue recognition and classification of revenue components.
Excluding the impact of the adoption of Topic 606, recurring and
other revenue for the three months ended June 30, 2018 totaled $232.8
million, which represented an increase of $30.0 million, or 14.8%
compared to the three months ended June 30, 2017. Approximately $28.3
million was due to an increase of 14.7% in Total Subscribers. The
increase in recurring and other revenue was partially offset by $13.2
million from a decrease in the average monthly service revenue per user
of approximately $3.79 attributable to the Company’s transition to
Vivint Flex Pay in early 2017, as well as a shift in package pricing
mix. Recognized deferred product revenues increased $12.4 million and
recognized retail installment contract imputed interest increased $2.4
million, due to the increased subscriber base and increases in sales of
products. When compared to the three months ended June 30, 2017, foreign
currency translation positively affected total revenues by $0.7 million,
as computed on a constant currency basis.
The Company added 117,875 New Subscribers during the second quarter of
2018, a 27.0% increase compared to the 92,837 New Subscribers added
during the same period in 2017. The direct-to-home and inside sales
channels grew 20.0% and 24.1%, respectively.
a:
Summary of Quarterly Key Financial and Portfolio Metrics($
in millions, except for subscriber data)
June 30,2017
September 30,2017
December 31,2017
March 31,2018
June 30,2018
“As we work towards cash neutrality, we have made progress on multiple
fronts,” said Mark Davies, CFO of APX Group. “We are scaling our fixed
costs throughout the Company and as we previously announced, we
downsized our corporate staff by approximately 140 employees in the
second quarter. We also announced the Best Buy co-branded partnership
was cancelled in principle and we correspondingly eliminated over 400
in-store sales positions and related overhead costs. We are pleased with
the progress we’ve made in our Vivint Flex Pay program, which has
allowed us to reduce the number of retail installment contracts we
finance on our balance sheet and significantly lowered our net
subscriber acquisition cost. We plan to carry the momentum in these
areas into the second-half of 2018, with the belief that we have reached
a stage where we will effectively scale our adjusted EBITDA and reduce
our dependency on the capital markets to drive growth. Driving
efficiency in all areas of our business: subscriber acquisition and
service costs; G&A strategic investments and credit-based pricing; are
key elements of our go-forward plans.”
Costs and Expenses
Operating expenses increased $12.0 million, or 15.5%, for the three
months ended June 30, 2018, as compared to the three months ended June
30, 2017. Adjusting for Topic 606, which took contract costs that were
previously expensed and now records them as capitalized contract costs,
the year-over-year increase was $17.7 million, or 22.9%. The increase is
primarily due to personnel and related support costs of $16.7 million
driven by a 14.7% increase in the Total Subscribers, non-capitalized
installation costs of $2.8 million and $1.0 million in costs associated
with our retail sales efforts. Net service cost per subscriber was
$16.71 in the second quarter as compared to $15.45 in the same period in
2017.
Selling expenses increased by $19.4 million, or 41.9%, for the three
months ended June 30, 2018 as compared to the three months ended June
30, 2017, primarily due to increases in personnel and related support
costs of $12.1 million, an increase of $4.4 million in costs associated
with our retail and other sales pilots, and legal costs of $1.0 million.
The Company’s Net Subscriber Acquisition Costs per New Subscriber was
$1,375 for the last twelve months ended June 30, 2018, as compared to
$1,815 for the same period in 2017. Vivint Flex Pay increased the
average proceeds collected at point of sale by approximately $1,000 per
new subscriber.
General and administrative (“G&A”) expenses increased $10.3 million, or
26.5%, for the three months ended June 30, 2018, as compared to the
three months ended June 30, 2017, primarily due to an increase in
personnel and related costs of $7.5 million, including $1.4 million
associated with the Company’s offering of a 401(k) match, an increase in
research and development costs of $1.2 million, and a $1.0 million
increase in corporate insurance costs.
Adjusted EBITDA and Net Loss
Adjusted EBITDA for the second quarter of 2018 was $137.2 million and
net loss was $144.4 million, as compared to Adjusted EBITDA of $120.5
million and net loss of $84.2 million for the same period in 2017.
Liquidity
As of June 30, 2018, the Company’s liquidity position on a consolidated
basis, defined as cash on hand, short-term marketable securities and
available borrowing capacity under the Company’s revolving credit
facility, was approximately $137 million.
Certain Credit Statistics
The Company’s net leverage ratio, defined as the ratio of net debt to
LTM Adjusted EBITDA, was 5.7x as of June 30, 2018.
Conference Call
Vivint Smart Home will host a conference call and webcast to discuss the
quarterly results at 5:00 p.m. ET today, August 1, 2018. To join the
live webcast and conference call, please visit the Investor Relations
section of the Vivint Smart Home website, www.investors.vivint.com/events-presentations/events
or dial (833) 235-7641 for domestic participants or (647) 689-4162 for
international participants with the conference code of 7095378.
A financial results presentation and online access to join the webcast
will be available immediately before the call on the Investor Relations
section of the Company’s website at http://www.investors.vivint.com/events-presentations/events.
A replay of the webcast will be available for 30 days on the Investor
Relations section of the Company’s website at www.investors.vivint.com
following the completion of the webcast and conference call.
About Vivint Smart Home
Vivint Smart Home is a leading smart home company in North America.
Vivint delivers an integrated smart home system with in-home
consultation, professional installation and support delivered by its
Smart Home Pros, as well as 24-7 customer care and monitoring. Dedicated
to redefining the home experience with intelligent products and
services, Vivint serves more than one million customers. J.D. Power
ranked Vivint Smart Home “Highest in Customer Satisfaction for Home
Security Systems.” For more information, visit www.vivint.com.
Forward-Looking Statements
This earnings release and accompanying conference call include certain
forward-looking statements as defined by the Private Securities
Litigation Reform Act of 1995, including statements regarding, among
other things, the Company’s plans, strategies and prospects, both
business and financial, including without limitation with respect to the
Vivint Flex Pay plan and the Company’s partnership with Best Buy.
Forward-looking statements convey the Company’s current expectations or
forecasts of future events. All statements contained in this earnings
release other than statements of historical fact are forward-looking
statements. These statements are based on the beliefs and assumptions of
management. Although we believe that the Company’s plans, intentions and
expectations reflected in or suggested by these forward-looking
statements are reasonable, we cannot assure you that the Company will
achieve or realize these plans, intentions or expectations.
Forward-looking statements are inherently subject to risks,
uncertainties and assumptions. These statements may be preceded by,
followed by or include the words “believes,” “estimates,” “expects,”
“projects,” “forecasts,” “may,” “will,” “should,” “seeks,” “plans,”
“scheduled,” “anticipates” or “intends” or similar expressions.
Forward-looking statements are not guarantees of performance. You should
not put undue reliance on these statements which speak only as of the
date hereof. You should understand that the following important factors
could affect our future results and could cause those results or other
outcomes to differ materially from those expressed or implied in our
forward-looking statements:
In addition, the origination and retention of new subscribers will
depend on various factors, including, but not limited to, market
availability, subscriber interest, the availability of suitable
components, the negotiation of acceptable contract terms with
subscribers, local permitting, licensing and regulatory compliance, and
our ability to manage anticipated expansion and to hire, train and
retain personnel, the financial viability of subscribers and general
economic conditions.
These and other factors that could cause actual results to differ from
those implied by the forward-looking statements in this press release
are more fully described in the “Risk Factors” section in the Company’s
most recent annual report on Form 10-K, as such factors may be updated
from time to time in the Company’s periodic and other filings with the
Securities and Exchange Commission. These risk factors should not be
construed as exhaustive. We undertake no obligations to update or revise
publicly any forward-looking statements, whether a result of new
information, future events, or otherwise, except as required by law.
Certain Definitions
Total Subscribers – the aggregate number of active smart home and
security subscribers at the end of a given period.
Total Monthly Service Revenue (MSR) – the contracted recurring
monthly service billings to our smart home and security subscribers,
based on the number of Total Subscribers as of the end of a given period.
Average Monthly Service Revenue per User (AMSRU) – Total MSR
divided by the number of Total Subscribers as of the end of a given
period.
Total Monthly Revenue (Total MR) – average monthly total revenue
recognized during the period.
Average Monthly Revenue per User (AMRU) – Total MR divided by
average monthly Total Subscribers during a given period.
Attrition Rate – the aggregate number of canceled smart home and
security subscribers during the prior 12-month period divided by the
monthly weighted average number of Total Subscribers, based on the Total
Subscribers at the beginning and end of each month of a given period.
Subscribers are considered canceled when they terminate in accordance
with the terms of their contract, are terminated by us or if payment
from such subscribers is deemed uncollectible (when at least four
monthly billings become past due). If a sale of a service contract to
third parties occurs, or a subscriber relocates but continues their
service, we do not consider this as a cancellation. If a subscriber
transfers their service contract to a new subscriber, we do not consider
this as a cancellation.
Net Service Cost per Subscriber – average monthly service costs
incurred during the period (both period and capitalized service costs),
including monitoring, customer service, field service and other service
support costs, less total non-recurring Smart Home Services billings for
the period divided by average monthly Total Subscribers for the same
period.
Net Service Margin – the monthly average MSR for the period, less
total average net service costs for the period divided by the monthly
average MSR for the period.
New Subscribers – the aggregate number of net new smart home and
security subscribers originated during a given period. This metric
excludes new subscribers acquired by the transfer of a service contract
from one subscriber to another.
Net Subscriber Acquisition Costs per New Subscriber – the direct
and indirect costs to create a new smart home and security subscriber
divided by New Subscribers for a given 12-month period. These costs
include commissions, Products, installation, marketing, sales support
and other allocations (general and administrative and overhead); less
upfront payment received from the sale of Products associated with the
initial installation and installation fees. These costs exclude
capitalized contract costs and upfront proceeds associated with contract
modifications.
All key operating metric calculations defined above exclude our wireless
internet business and pilot programs.
APX GROUP HOLDINGS, INC. and SUBSIDIARIESConsolidated
Statements of Operations (In thousands)(Unaudited)
APX GROUP HOLDINGS, INC. and SUBSIDIARIESCondensed
Consolidated Balance Sheets (In thousands)(Unaudited)
APX GROUP HOLDINGS, INC. and SUBSIDIARIESSummary Cash
Flow Data (In thousands)(Unaudited)
Statement Regarding Non-GAAP Financial Measures
This earnings release includes Adjusted EBITDA, which is a supplemental
measure that is not required by, or presented in accordance with,
accounting principles generally accepted in the United States (“GAAP”).
“Adjusted EBITDA” is defined as net income (loss) before interest
expense (net of interest income), income and franchise taxes and
depreciation and amortization (including amortization of capitalized
subscriber acquisition costs), further adjusted to exclude the effects
of certain contract sales to third parties, non-capitalized subscriber
acquisition costs, stock based compensation, the historical results of
Solar and certain unusual, non-cash, non-recurring and other items
permitted in certain covenant calculations under the indentures and
other agreements governing our notes and the credit agreement governing
our revolving credit facility.
We believe that the presentation of Adjusted EBITDA is appropriate to
provide additional information to investors about the calculation of,
and compliance with, certain covenants in the indentures and other
agreements governing our notes and the credit agreement governing our
revolving credit facility. We caution investors that amounts presented
in accordance with our definition of Adjusted EBITDA may not be
comparable to similar measures disclosed by other issuers, because not
all issuers and analysts calculate Adjusted EBITDA in the same manner.
Adjusted EBITDA is not a measurement of our financial performance under
GAAP and should not be considered as an alternative to net income (loss)
or any other performance measures derived in accordance with GAAP or as
an alternative to cash flows from operating activities as a measure of
our liquidity.
See the following table for a quantitative reconciliation of Adjusted
EBITDA to Net Loss, which we believe is the most comparable financial
measure calculated in accordance with GAAP.
(1.9
(50.4
(1.2
(0.4
(0.9
(12.9
(16.6
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