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8-K - 8-K - APX Group Holdings, Inc. | d820321d8k.htm |
EX-99.2 - EX-99.2 - APX Group Holdings, Inc. | d820321dex992.htm |
Exhibit 99.1
APX GROUP HOLDINGS, INC. REPORTS THIRD QUARTER 2014 RESULTS
| APX Group Reports Record Total Revenue of $146.9 Million, up 13% Year over Year |
| Total Recurring Monthly Revenue of $49.0 Million, up 15% Year over Year |
| Adjusted EBITDA $78.8 Million on a Net Loss of $59.5 Million |
| Added Over 73,000 Subscribers to the SkyControl Smart Home Operating System an 86% Increase From Second Quarter 2014 |
Provo, UT November 11, 2014 APX Group Holdings, Inc. (APX Group, Vivint or the Company) today reported results for the three and nine month periods ended September 30, 2014. APX Group reported total revenue of $146.9 million for the three month period ended September 30, 2014, an increase of 13.4%, as compared to $129.5 million for the three month period ended September 30, 2013. Total revenue for the nine month period ended September 30, 2014 was $411.2 million, up 11.7% compared to $368.2 million for the same period of 2013. Year-to-date total revenue, net of the sale of 2GIG Technologies, Inc. (the 2GIG Sale) in the first quarter of 2013, increased by 17.3%. Total revenue growth was driven by an increase in the subscriber base of approximately 96,000, and the adoption rate of Vivints smart home products and services.
We continue to experience excellent progress with our Vivint Sky smart home cloud operating system. Customer adoption of smart home products and services was over 70% during the summer sales season, driving our Average RMR per New Subscriber to an all-time high of $62.81 for the third quarter, said Todd Pedersen, CEO of APX Group. Mr. Pedersen added, We are also pleased with the progress in our Wireless Internet service offering, the acquisition of a data cloud storage technology and other innovations which we believe will provide even more value for our existing and future customers.
While the Vivint team is extremely focused on building out our industry leading smart home platform, we are equally committed to enhancing productivity and creating value for our bondholders and shareholders, said Mark Davies, CFO of the Company. Mr. Davies further added, Our Adjusted EBITDA is up approximately $10 million sequentially, customer Attrition dropped to 12.8%, down from 13.7% in Q2, and our higher-margin smart home automation services drove our installed-base Average RMR per Subscriber to a record high $54.48
Summary of Key Financial and Portfolio Metrics for the last six quarters1
($ in millions, except for subscriber data)
Three Months Ended | ||||||||||||||||||||||||
June 30, | September | December 31, | March 31, | June 30, | September 30, | |||||||||||||||||||
2013 | 30, 2013 | 2013 | 2014 | 2014 | 2014 | |||||||||||||||||||
Total Revenue |
$ | 114.3 | $ | 129.5 | $ | 132.7 | $ | 130.2 | $ | 134.2 | $ | 146.9 | ||||||||||||
Adjusted EBITDA |
$ | 68.8 | $ | 77.7 | $ | 79.8 | $ | 77.9 | $ | 68.6 | $ | 78.8 | ||||||||||||
Total RMR(1) |
$ | 39.3 | $ | 42.6 | $ | 42.2 | $ | 42.0 | $ | 45.8 | $ | 49.0 | ||||||||||||
Total Subscribers(1) |
754,304 | 803,413 | 795,500 | 791,571 | 851,129 | 899,174 | ||||||||||||||||||
Avg. RMR per Subscriber (1) |
$ | 52.12 | $ | 53.00 | $ | 53.05 | $ | 53.03 | $ | 53.84 | $ | 54.48 | ||||||||||||
Total Net New Originations |
94,395 | 78,309 | 20,439 | 25,004 | 84,695 | 73,220 | ||||||||||||||||||
Avg. RMR per New Subscriber (1) |
$ | 58.70 | $ | 58.61 | $ | 57.40 | $ | 58.21 | $ | 62.12 | $ | 62.81 | ||||||||||||
Subscriber Account Attrition(2) |
12.9 | % | 13.0 | % | 12.8 | % | 13.6 | % | 13.7 | % | 12.8 | % |
(1) | Total Subscribers and RMR data reflects Vivint only, excluding Wireless and is provided as of each period end |
(2) | Subscriber attrition is reported on a LTM basis for each period end |
Costs and Expenses
Operating expenses were $52.8 million and $141.3 million, respectively, for the three and nine month periods ended September 30, 2014, compared to $40.2 million and $124.3 million for the same periods in 2013. The principal drivers of the increase were related to growth in our subscriber base, including labor, telephony and equipment, and costs associated with our Wireless Internet service.
Selling expenses, net of capitalized subscriber acquisition costs, were $26.9 million and $81.2 million for the three and nine month periods ended September 30, 2014 compared to $26.5 million and $75.4 million for the three and nine month periods ended September 30, 2013. The year to date increase was primarily attributable to inside-sales lead generation and information technology costs.
General and administrative (G&A) expenses were $31.8 million and $92.3 million for the three and nine month periods ended September 30, 2014, compared to $20.7 million and $65.9 million for the three and nine month periods ended September 30, 2013. The increases were primarily driven by research and development, information technology, brand spend, and our Wireless Internet service. The three and nine month periods ended September 30, 2014, also include expenses, net of probable insurance recoveries, related to fire damage at our Lindon facility that occurred in the first quarter of 2014.
The Companys net losses for the three and nine month periods ended September 30, 2014 were $59.5 million and $173.0 million compared to net losses of $34.9 million and $87.3 million for the same periods in 2013. Adjusted EBITDA1 for the Company was $78.8 million and $225.3 million for the three and nine month periods ended September 30, 2014, as compared to $77.7 million and $212.5 million for the three and nine month periods ended September 30, 2013.
1 | This earning release includes Adjusted EBITDA, a metric that is not calculated in accordance with Generally Accepted Accounting Principles in the U.S. (GAAP). See the Statement Regarding Non-GAAP Financial Measures section at the end of this earnings release for the definition of Adjusted EBITDA and a reconciliation to its most directly comparable financial measure calculated in accordance with GAAP. |
Liquidity
As of September 30, 2014, our liquidity position on a consolidated basis, defined as cash on hand, marketable securities and available borrowing capacity under the Companys revolving credit facility, was approximately $264 million.
Certain Credit Statistics
Our net leverage ratio, defined as the ratio of net debt to LTM Adjusted EBITDA, was 5.9x at September 30, 2014.
Other
On July 1, 2014, the Company issued an additional $100.0 million of its 8.75% Senior Notes due 2020 at a price of 102.0%
Conference Call
Vivint will host a conference call and webcast to discuss the quarterly results at 5:00 p.m. EDT today, November 11, 2014. To access the conference call, please dial (877) 201-0168 from the United States and Canada or (647) 788-4901 from outside the United States and Canada and use the conference ID 30861250. A financial results presentation and access to join the webcast will be made available immediately prior to the call on the Investor Relations section of the Companys website at www.investors.vivint.com/events-presentations/events-calendar.
A replay of the webcast will be made available on the Investor Relations section of the Companys website at www.investors.vivint.com for 30 days following the call.
About Vivint
Vivint is a leading provider of smart home technology. Vivint delivers services through a cloud-based platform that integrates a wide range of wireless features and components to provide simple, affordable home security, home automation and energy management. Vivints Home Automation package and Advanced Security package have received the Consumers Digest Best Buy rating. Dedicated to protecting families, increasing energy efficiency, and simplifying lives, Vivint provides services to nearly 900,000 customers throughout the United States and Canada. For more information, visit the Companys website at 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, our plans, strategies and prospects, both business and financial. Forward-looking statements convey the Companys 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 our management. Although we believe that our plans, intentions and expectations reflected in or suggested by these forward-looking statements are reasonable, we cannot assure you that we 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 this date hereof. You should understand that the following important factors in addition to those discussed in Risk Factors in the Companys annual report on Form 10-K for the year ended December 31, 2013 (the 10- K),
filed with the Securities Exchange Commission, as such factors may be updated from time to time in our periodic filings with the SEC, which are available on the SECs website at www.sec.gov, 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:
| risks of the security and home automation industry, including risks of and publicity surrounding the sales, subscriber origination and retention process; |
| the highly competitive nature of the security and home automation industry and product introductions and promotional activity by our competitors; |
| litigation, complaints or adverse publicity; |
| the impact of changes in consumer spending patterns, consumer preferences, local, regional, and national economic conditions, crime, weather, demographic trends and employee availability; |
| adverse publicity and product liability claims; |
| increases and/or decreases in utility and other energy costs, increased costs related to utility or governmental requirements; and |
| cost increases or shortages in security and home automation technology products or components. |
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 of our annual report on Form 10-K for the year ended December 31, 2013 as such factors may be updated from time to time in our periodic filings with the SEC. These risk factors should not be construed as exhaustive. We disclaim any obligations to and do not intend to update the above list or to announce publicly the results of any revisions to any of the forward-looking statements to reflect future events or developments. All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the foregoing cautionary statements. We undertake no obligations to update or revise publicly any forward-looking statements, whether a result of new information, future events, or otherwise.
Certain Definitions
Total Subscribers means the aggregate number of active subscribers at the end of a given period.
RMR means the recurring monthly revenue billed to a subscriber.
Total RMR means the aggregate RMR billed for all subscribers.
Average RMR per Subscriber means the Total RMR divided by Total Subscribers. This is also commonly referred to as Average Revenue per User, or ARPU.
Average RMR per New Subscriber means the aggregate RMR for new subscribers originated during a period divided by the number of new subscribers originated during such period.
Attrition means the aggregate number of canceled subscribers during a period divided by the monthly weighted average number of total subscribers for such period. Subscribers are considered canceled when they terminate in accordance with the terms of their contract, are terminated by the Company, or if payment from such subscribers is deemed uncollectible (120 days past due). Sales of contracts to third parties and certain moves are excluded from the attrition calculation.
Contact:
Dale R. Gerard, Vice President of Finance and Treasurer
801-705-8011
dgerard@vivint.com
APX GROUP HOLDINGS, INC. and SUBSIDIARIES
Consolidated Statements of Operations
(In thousands)
(Unaudited)
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||||||
Revenues: |
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Monitoring revenue |
$ | 140,227 | $ | 123,329 | $ | 393,383 | $ | 334,344 | ||||||||
Service and other sales revenue |
5,517 | 5,587 | 15,070 | 32,902 | ||||||||||||
Activation fees |
1,151 | 587 | 2,795 | 951 | ||||||||||||
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Total revenues |
146,895 | 129,503 | 411,248 | 368,197 | ||||||||||||
Costs and expenses: |
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Operating expenses (exclusive of depreciation and amortization shown separately below) |
52,770 | 40,208 | 141,303 | 124,336 | ||||||||||||
Selling expenses |
26,884 | 26,488 | 81,202 | 75,394 | ||||||||||||
General and administrative expenses |
31,792 | 20,661 | 92,253 | 65,910 | ||||||||||||
Depreciation and amortization |
57,847 | 50,835 | 161,563 | 142,967 | ||||||||||||
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Total costs and expenses |
169,293 | 138,192 | 476,321 | 408,607 | ||||||||||||
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Loss from operations |
(22,398 | ) | (8,689 | ) | (65,073 | ) | (40,410 | ) | ||||||||
Other expenses (income): |
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Interest expense |
38,135 | 30,055 | 109,487 | 83,309 | ||||||||||||
Interest income |
(340 | ) | (411 | ) | (1,464 | ) | (1,087 | ) | ||||||||
Other expenses (income), net |
535 | (84 | ) | 238 | 233 | |||||||||||
Gain on 2GIG Sale |
| (479 | ) | | (47,122 | ) | ||||||||||
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Loss before income taxes |
(60,728 | ) | (37,770 | ) | (173,334 | ) | (75,743 | ) | ||||||||
Income tax expense |
(1,264 | ) | (2,865 | ) | (319 | ) | 11,598 | |||||||||
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Net loss |
$ | (59,464 | ) | $ | (34,905 | ) | $ | (173,015 | ) | $ | (87,341 | ) | ||||
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APX GROUP HOLDINGS, INC. and SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In thousands)
(Unaudited)
September 30, | December 31, | |||||||
2014 | 2013 | |||||||
ASSETS |
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Current Assets: |
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Cash and cash equivalents |
$ | 67,186 | $ | 261,905 | ||||
Restricted cash and cash equivalents |
14,214 | 14,375 | ||||||
Accounts receivable, net |
9,843 | 2,593 | ||||||
Inventories, net |
61,273 | 29,260 | ||||||
Prepaid expenses and other current assets |
40,808 | 13,870 | ||||||
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Total current assets |
193,324 | 322,003 | ||||||
Property and equipment, net |
51,877 | 35,818 | ||||||
Subscriber contract costs, net |
530,980 | 288,316 | ||||||
Deferred financing costs, net |
54,602 | 59,375 | ||||||
Intangible assets, net |
740,246 | 840,714 | ||||||
Goodwill |
842,665 | 836,318 | ||||||
Restricted cash and cash equivalents, net of current portion |
14,214 | 14,214 | ||||||
Long-term investments and other assets, net |
9,874 | 27,676 | ||||||
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Total assets |
$ | 2,437,782 | $ | 2,424,434 | ||||
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LIABILITIES AND STOCKHOLDERS EQUITY |
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Current Liabilities: |
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Accounts payable |
$ | 40,994 | $ | 24,004 | ||||
Accrued payroll and commissions |
103,535 | 46,007 | ||||||
Accrued expenses and other current liabilities |
67,318 | 33,118 | ||||||
Deferred revenue |
36,356 | 26,894 | ||||||
Current portion of capital lease obligations |
4,309 | 4,199 | ||||||
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Total current liabilities |
252,512 | 134,222 | ||||||
Notes payable, net |
1,863,413 | 1,762,049 | ||||||
Capital lease obligations, net of current portion |
8961 | 6268 | ||||||
Deferred revenue, net of current portion |
32,294 | 18,533 | ||||||
Other long-term obligations |
9,121 | 3,905 | ||||||
Deferred income tax liabilities |
9,884 | 9,214 | ||||||
Total liabilities |
2,176,185 | 1,934,191 | ||||||
Commitments and contingencies (See Note 13) |
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Stockholders equity: |
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Common stock |
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Additional paid-in capital |
603,851 | 652,488 | ||||||
Accumulated deficit |
(327,630 | ) | (154,615 | ) | ||||
Accumulated other comprehensive loss |
(14,624 | ) | (7,630 | ) | ||||
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Total stockholders equity |
261,597 | 490,243 | ||||||
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Total liabilities and stockholders equity |
$ | 2,437,782 | $ | 2,424,434 | ||||
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APX GROUP HOLDINGS, INC. and SUBSIDIARIES
Summary Cash Flow Data
(In thousands)
(Unaudited)
Nine Months Ended September 30, | ||||||||
2014 | 2013 | |||||||
Net loss |
$ | (173,015 | ) | $ | (87,341 | ) | ||
Net cash provided by operating activities |
91,656 | 139,671 | ||||||
Net cash used in investing activities |
(332,712 | ) | (140,722 | ) | ||||
Net cash provided by financing activities |
47,112 | 104,863 | ||||||
Effect of exchange rate changes on cash |
(775 | ) | (169 | ) | ||||
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Net (decrease) increase in cash |
(194,719 | ) | 103,643 | |||||
Cash: |
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Beginning of period |
261,905 | 8,090 | ||||||
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End of period |
$ | 67,186 | $ | 111,733 | ||||
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Statement Regarding Non-GAAP Financial Measures
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 a supplemental measure that is not required by, or presented in accordance with, accounting principles generally accepted in the United States. It is not a measurement of our financial performance under GAAP and should not be considered as an alternative to net income or any other measure derived in accordance with GAAP or as an alternative to cash flows from operating activities as a measure of our liquidity. We define Adjusted EBITDA 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 our Solar variable interest entity and certain unusual, non-cash, non-recurring and other items permitted in certain covenant calculations under the indenture governing our existing senior secured notes, the indenture governing our existing senior unsecured 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. We believe that Adjusted EBITDA provides useful information about flexibility under our covenants to investors, lenders, financial analysts and rating agencies since these groups have historically used EBITDA-related measures in our industry, along with other measures, to estimate the value of a company, to make informed investment decisions, and to evaluate a companys ability to meet its debt service requirements. Adjusted EBITDA eliminates the effect of non-cash depreciation of tangible assets and amortization of intangible assets, much of which results from acquisitions accounted for under the purchase method of accounting. Adjusted EBITDA also eliminates the effects of interest rates and changes in capitalization which management believes may not necessarily be indicative of a companys underlying operating performance. Adjusted EBITDA is also used by us to measure covenant compliance under the indenture governing our existing senior secured notes, the indenture governing our existing senior unsecured notes and the credit agreement governing our revolving credit facility.
See the tables below for a quantitative reconciliation of Adjusted EBITDA to Net Loss, which we believe is the most comparable financial measure calculated in accordance with GAAP.
APX GROUP HOLDINGS, INC. and SUBSIDIARIES
Reconciliation of Non-GAAP Financial Measures
(In millions)
(Unaudited)
Three Months Ended | ||||||||||||||||||||||||
June 30, | September 30, | December 31, | March 31, | June 30, | September 30, | |||||||||||||||||||
2013 | 2013 | 2013 | 2014 | 2014 | 2014 | |||||||||||||||||||
Net loss |
$ | (21.5 | ) | $ | (34.9 | ) | $ | (37.2 | ) | $ | (47.3 | ) | $ | (66.3 | ) | $ | (59.5 | ) | ||||||
Interest expense, net |
27.0 | 29.6 | 30.8 | 35.1 | 35.1 | 37.8 | ||||||||||||||||||
Other (income) expense, net |
| (0.1 | ) | (0.3 | ) | (0.3 | ) | (0.1 | ) | 0.5 | ||||||||||||||
Income tax expense |
17.5 | (2.9 | ) | (8.0 | ) | 0.2 | 0.7 | (1.3 | ) | |||||||||||||||
Depreciation and amortization (i) |
42.6 | 42.9 | 43.1 | 40.0 | 40.4 | 40.8 | ||||||||||||||||||
Amortization of capitalized creation costs |
3.7 | 7.9 | 9.4 | 10.3 | 12.9 | 17.1 | ||||||||||||||||||
Non-capitalized subscriber acquisition costs (ii) |
31.3 | 25.5 | 22.9 | 26.9 | 33.9 | 35.9 | ||||||||||||||||||
Non-cash compensation (iii) |
0.4 | 0.6 | 0.6 | 0.5 | 0.5 | 0.5 | ||||||||||||||||||
Gain on 2GIG Sale (iv) |
(46.6 | ) | (0.5 | ) | 0.2 | | | | ||||||||||||||||
Transaction costs related to 2GIG Sale (v) |
5.2 | | | | | | ||||||||||||||||||
Transaction related costs |
0.1 | 0.3 | 0.2 | | | | ||||||||||||||||||
Other Adjustments (vi) |
9.1 | 9.3 | 18.1 | 12.5 | 11.5 | 6.9 | ||||||||||||||||||
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Adjusted EBITDA |
$ | 68.8 | $ | 77.7 | $ | 79.8 | $ | 77.9 | $ | 68.6 | $ | 78.8 |
Nine Months Ended September 30, | ||||||||
2013 | 2014 | |||||||
Net loss |
$ | (87.3 | ) | $ | (173.0 | ) | ||
Interest expense, net |
82.2 | 108.0 | ||||||
Other (income) expense, net |
0.2 | 0.2 | ||||||
Income tax expense (benefit) |
11.6 | (0.3 | ) | |||||
Depreciation and amortization (i) |
130.2 | 121.2 | ||||||
Amortization of capitalized creation costs |
12.8 | 40.3 | ||||||
Non-capitalized subscriber acquisition costs (ii) |
78.1 | 96.7 | ||||||
Non-cash compensation (iii) |
1.3 | 1.4 | ||||||
Gain on 2GIG Sale (iv) |
(47.1 | ) | | |||||
Transaction costs related to 2GIG Sale (v) |
5.5 | | ||||||
Transaction related costs |
0.6 | | ||||||
Other Adjustments (vi) |
24.4 | 30.8 | ||||||
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Adjusted EBITDA |
$ | 212.5 | $ | 225.3 |
(i) | Excludes loan amortization costs that are included in interest expense. |
(ii) | Reflects subscriber acquisition costs that are expensed as incurred because they are not directly related to the acquisition of specific subscribers. Certain other industry participants purchase subscribers through subscriber contract purchases and, as a result, may capitalize the full cost to purchase these subscriber contracts, as compared to our organic generation of new subscribers, which requires us to expense a portion of our subscriber acquisition costs under GAAP. |
(iii) | Reflects non-cash compensation costs related to employee and director stock and stock option plans. |
(iv) | Non-recurring gain on the 2GIG Sale. |
(v) | Bonuses and transaction related costs associated with the 2GIG Sale. |
(vi) | Other Adjustments including certain items such as product development costs, fire related expenses, subcontracted monitoring fee savings, and other similar adjustments. |