Attached files

file filename
8-K - FORM 8-K - APX Group Holdings, Inc.d57555d8k.htm

Exhibit 99.1

APX GROUP HOLDINGS, INC. REPORTS THIRD QUARTER 2015 RESULTS

 

LOGO

Third Quarter 2015 Financial and Portfolio Highlights

 

    Total Revenues increased 14.8% to $168.6 Million

 

    Adjusted EBITDA1 up 30.3% to $102.7 Million, Net Loss of $125.1 Million

 

    20.7 % Growth in Net New Subscribers Originations

 

    79.6% Adoption Rate of Additional Smart Home Services

 

    LTM Attrition of 12.0%, 80bps Year over Year Improvement

Provo, UT –November 12, 2015 – APX Group Holdings, Inc. (“APX Group”, “Vivint” or the “Company”) today reported financial and operational results for the third quarter ended September 30, 2015.

“2015 has been a record setting year for us so far,” said Todd Pedersen, CEO of APX Group. “We surpassed 1 million customers with a record Average RMR per Subscriber of $55.00. We added a record 203,400 new customers in the first nine months of 2015. Our innovation team’s launch of the doorbell camera, cloud data storage and other new products and services helped to boost our additional services adoption rate to approximately 78% this year.” Mr. Pedersen continued, “This level of execution combined to deliver record quarterly total revenues of $168.6 million and Adjusted EBITDA of $102.7 million. While we are pleased with these results, we fully expect to build on the momentum we have created in 2015 to extend our position as the Smart Home provider of choice.”

APX Group reported an increase in total revenues of 14.8% to a record $168.6 million for the quarter ended September 30, 2015. Recurring revenue for the same period increased 15.1% as a result of a 12.9 % increase in Total Subscribers, along with a 28.8% increase in the number of Total Subscribers receiving Smart Home services beyond the Company’s basic interactive security offering. Additionally, customer refund credits decreased by approximately $3.5 million year over year. The Company added a record 88,406 net new subscribers in the third quarter, including 18,116 from its inside sales channel, which grew 49.6% year over year during the quarter. Adoption of additional Smart Home services for the quarter was 79.6%, resulting in an Average RMR per New Subscriber of $61.30. Total revenues in the third quarter were negatively impacted by $2.4 million due to a weaker Canadian dollar.

Year to date total revenues for the nine month period ended September 30, 2015, was $478.7 million, a 16.4% increase over the same period in 2014. Recurring revenue for the nine months ended September 30, 2015, was up 16.1% to $456.6 million compared to the same period in 2014. Canadian foreign exchange rates negatively impacted total revenues for this period by $5.6 million.

 

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.


Summary of Key Financial and Portfolio Metrics for the last five quarters

($ in millions, except for subscriber data)

 

     September 30,     December 31,     March 31,     June 30,     September 30,  
     2014     2014     2015     2015     2015  

Total Revenues

   $ 146.9      $ 152.4      $ 152.2      $ 157.9      $ 168.6   

Adjusted EBITDA

   $ 78.8      $ 84.1      $ 89.5      $ 93.4      $ 102.7   

Total RMR(1)

   $ 49.0      $ 48.7      $ 48.3      $ 52.4      $ 55.8   

Net New Originations

     73,220        21,545        25,809        89,185        88,406   

Average RMR per New Subscriber(1)

   $ 62.81      $ 60.16      $ 61.46      $ 62.05      $ 61.30   

Total Subscribers(1)

     899,174        894,175        890,125        955,162        1,015,267   

Average RMR per Subscriber(1)

   $ 54.48      $ 54.50      $ 54.26      $ 54.86      $ 55.00   

Subscriber Account Attrition(2)

     12.8     12.5     12.5     12.0     12.0

 

(1) Total Subscribers and RMR data excludes wireless internet business and are provided as of each period end
(2) Subscriber attrition is reported on an LTM basis for each period end and excludes wireless Internet business

“Vivint’s Adjusted EBITDA continued to grow faster (30.3%) than total revenues (14.8%) in the third quarter as we achieved a record $102.7 million in Adjusted EBITDA, gaining scale and momentum”, said Mark Davies, CFO of APX Group. “Vivint’s Net Service Margin increased to 73.6% year-to-date, as Net Service Cost per Subscriber dropped to $14.50 from $15.29 for the first nine months last year. The Company’s LTM account attrition showed marked year over year improvement demonstrated by an 80 basis point reduction to 12.0%. We continued to scale fixed costs, as total G&A YTD, normalized for the $12.2 million non-cash gain on the merger-related escrow adjustment recorded in the second quarter 2015, was down more than $9 million or 10.1% year over year. Overall, we’re pleased with our year to date 2015 financial performance, which represents both operational execution and the benefits of Vivint’s economic model”

Costs and Expenses

Operating expenses were $61.5 million for the quarter ended September 30, 2015, compared to $52.8 million for the same period in 2014. Excluding operating expenses directly associated with the wireless internet business unit, operating expenses increased by only 8.1% or $4.3 million, while the subscriber base grew by 12.9%. The $4.3 million increase in operating expenses was attributable to the growth in our subscriber base, including personnel costs within our monitoring, customer support and field service functions.

Selling expenses, net of capitalized subscriber acquisition costs, were $33.2 million for the third quarter 2015 compared to $26.9 million for the third quarter 2014. The year over year increase was primarily attributable to higher personnel and digital marketing lead generation costs associated with the 49.6% growth in our inside sales channel. Vivint’s LTM Net Creation Cost Multiple as of September 30, 2015, was 31.2x, excluding its wireless internet business.

General and administrative (“G&A”) expenses decreased by 6.6% to $29.7 million for the quarter ended September 30, 2015, compared to $31.8 million for the same period in 2014. The decrease in G&A was primarily driven by a reduction in brand marketing and personnel costs, partially offset by a $1.8 million insurance recovery benefit in the third quarter 2014. Excluding the $1.8 million insurance recovery benefit, G&A expenses would have decreased by 11.6%.


On September 21, 2015, the board of directors of the Company approved a plan to transition Vivint’s wireless internet business from a 5Ghz to a 60Ghz-based network technology that provides higher data transmission speeds. The Company will continue to service its existing 5Ghz subscribers. As a result of this transition, the Company will discontinue the build-out of additional 5Ghz networks and the installation of new 5Ghz customers. Vivint expects the shift to the new technology will begin with a set of 60Ghz test installations in 2016. During the three months ended September 30, 2015, the Company recorded wireless internet-related restructuring and asset impairment charges totaling $58.0 million. These charges included $52.1 million of asset impairment charges related to write downs of network assets, subscriber acquisition costs, certain intellectual property and goodwill. The $58 million charge also included $5.9 million in restructuring costs related to employee severance, termination benefits and the write offs of certain vendor contracts.

The Company’s net loss for the third quarter of 2015, including the wireless internet restructuring and asset impairment charges of $58.0 million, was $125.1 million compared to a net loss of $59.5 million for the same period in 2014. Adjusted EBITDA for the Company was $102.7 million for the third quarter 2015, up 30.3% as compared to $78.8 million for the same period in 2014.

Net loss for the nine months ended September 30, 2015, including the wireless internet restructuring and asset impairment charges of $58.0 million, was $216.7 million compared to a net loss of $173.0 million for the same period in 2014. Adjusted EBITDA for the nine months ended September 30, 2015, was $285.6 million, up 26.8% compared to $225.3 million for the same period of 2014.

Liquidity

As of September 30, 2015, the Company’s liquidity position on a consolidated basis, defined as cash on hand, marketable securities and available borrowing capacity under the Company’s revolving credit facility, was approximately $92 million.

On October 19, 2015, APX issued $300.0 million aggregate principal amount of 8.875% senior secured notes due 2022 in a private placement exempt from registration under the Securities Act of 1933.

Certain Credit Statistics

Our net leverage ratio, defined as the ratio of net debt to LTM Adjusted EBITDA, was 5.5x at September 30, 2015.

Conference Call

Vivint will host a conference call and webcast to discuss the quarterly results at 5:00 p.m. ET today, November 12, 2015. To join the live webcast and conference call, please visit the investor relations section of Vivint’s website, www.investors.vivint.com/events-calendar or dial (877) 201-0168 for domestic participants or (647) 788-4901 for international participants with the conference code of 70397018. A financial results presentation and online access to join the webcast will be made available immediately before the call on the Investor Relations section of the Company’s website at www.investors.vivint.com/events-presentations/events-calendar. A replay of the webcast will be made 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

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, energy management and home automation. Dedicated to redefining the home experience with intelligent products and services, Vivint serves more than one million customers throughout the U.S. and Canada. 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, our plans, strategies and prospects, both business and financial. 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 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 Amendment No. 1 on Form 10K/A to the Company’s annual report on Form 10-K for the year ended December 31, 2014 (the “10-K”), and other reports filed with the Securities Exchange Commission (“SEC”), as such factors may be updated from time to time in our periodic filings with the SEC, which are available on the SEC’s 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 in Amendment No. 1 on Form 10K/A of the Company’s annual report on Form 10-K for the year ended December 31, 2014, and other reports 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, except as required by law. 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

The following definitions are used in this press release for purposes of describing the results in our home security and automation business and except where noted, exclude our wireless internet business.

“Total Subscribers” means the aggregate number of active security and home automation subscribers at the end of a given period.

“RMR” means the recurring monthly revenue billed to a security and home automations subscriber.

“Total RMR” means the aggregate RMR billed to all security and home automation 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 security and home automation subscribers during a period divided by the monthly weighted average number of total security and home automation 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 (when at least four monthly billings become past due). Sales of contracts to third parties and certain moves are excluded from the attrition calculation.

“Net Subscriber Acquisition Costs” means direct and indirect costs to create a new security and home automation subscriber. These include commissions, equipment, installation, marketing and other allocations (G&A and overhead), less activation fees and up sell revenue. These costs also exclude residuals and long-term equity expenses associated with the direct-to-home sales channel.

“Net Creation Cost Multiple” means total Net Subscriber Acquisition Costs, divided by the number of new subscribers originated, and then divided by the Average RMR per New Subscriber.

“Net Service Cost per Subscriber” means total service costs, including monitoring, customer service, field service and other allocations (G&A and overhead) costs, less total service revenue divided by total service subscribers.

“Net Service Margin” means Average RMR per Subscriber less Net Service Costs divided by Average RMR per Subscriber.

Contact:

Dale R. Gerard

Senior 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 September 30,     Nine Months Ended September 30,  
     2015     2014     2015     2014  

Revenues:

        

Recurring revenue

   $ 161,440      $ 140,227      $ 456,647      $ 393,383   

Service and other sales revenue

     5,503        5,517        17,720        15,070   

Activation fees

     1,634        1,151        4,320        2,795   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

     168,577        146,895        478,687        411,248   

Costs and expenses:

        

Operating expenses

     61,492        52,770        171,445        141,303   

Selling expenses

     33,200        26,884        89,719        81,202   

General and administrative expenses

     29,674        31,792        70,772        92,253   

Depreciation and amortization

     64,379        57,847        181,506        161,563   

Restructuring and asset impairment charges

     57,991        —          57,991        —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Total costs and expenses

     246,736        169,293        571,433        476,321   
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss from operations

     (78,159     (22,398     (92,746     (65,073

Other expenses (income):

        

Interest expense

     39,838        38,135        116,936        109,487   

Interest income

     (9     (340     (9     (1,464

Other (income) expenses, net

     7,058        535        6,724        238   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other expenses

     46,887        38,330        123,651        108,261   

Loss before income taxes

     (125,046     (60,728     (216,397     (173,334

Income tax expense (benefit)

     26        (1,264     335        (319
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

   $ (125,072   $ (59,464   $ (216,732   $ (173,015
  

 

 

   

 

 

   

 

 

   

 

 

 


APX GROUP HOLDINGS, INC. and SUBSIDIARIES

Condensed Consolidated Balance Sheets

(In thousands)

 

     September 30,     December 31,  
     2015     2014  
     (unaudited)     (audited)  

ASSETS

    

Current Assets:

    

Cash and cash equivalents

   $ 6,463      $ 10,807   

Restricted cash and cash equivalents

     14,214        14,214   

Accounts receivable, net

     8,513        8,739   

Inventories

     30,664        36,157   

Prepaid expenses and other current assets

     12,294        15,454   
  

 

 

   

 

 

 

Total current assets

     72,148        85,371   

Property and equipment, net

     57,144        62,790   

Subscriber acquisition costs, net

     768,565        548,073   

Deferred financing costs, net

     48,708        52,158   

Intangible assets, net

     592,636        703,226   

Goodwill

     835,277        841,522   

Long-term investments and other assets, net

     10,813        10,533   
  

 

 

   

 

 

 

Total assets

   $ 2,385,291      $ 2,303,673   
  

 

 

   

 

 

 

LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY

    

Current Liabilities:

    

Accounts payable

   $ 51,069      $ 31,324   

Accrued payroll and commissions

     109,481        37,979   

Accrued expenses and other current liabilities

     60,061        28,862   

Deferred revenue

     36,710        33,226   

Current portion of capital lease obligations

     7,126        5,549   
  

 

 

   

 

 

 

Total current liabilities

     264,447        136,940   

Notes payable, net

     1,862,340        1,863,155   

Revolving line of credit

     199,000        20,000   

Capital lease obligations, net of current portion

     11,070        10,655   

Deferred revenue, net of current portion

     44,583        32,504   

Other long-term obligations

     9,920        6,906   

Deferred income tax liabilities

     7,800        9,027   
  

 

 

   

 

 

 

Total liabilities

     2,399,160        2,079,187   

Total stockholders’ (deficit) equity

     (13,869     224,486   
  

 

 

   

 

 

 

Total liabilities and stockholders’ (deficit) equity

   $ 2,385,291      $ 2,303,673   
  

 

 

   

 

 

 


APX GROUP HOLDINGS, INC. and SUBSIDIARIES

Summary Cash Flow Data

(In thousands)

(Unaudited)

 

     Nine Months Ended September 30,  
     2015     2014  
           (Restated)  

Net cash used in operating activities

   $ (129,625   $ (185,240

Net cash used in investing activities

     (43,178     (55,655

Net cash provided by (used in) financing activities

     170,212        46,951   

Effect of exchange rate changes on cash

     (1,753     (775
  

 

 

   

 

 

 

Net increase (decrease) in cash

     (4,344     (194,719

Cash:

    

Beginning of period

     10,807        261,905   
  

 

 

   

 

 

 

End of period

   $ 6,463      $ 67,186   
  

 

 

   

 

 

 


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”). 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 company’s 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 company’s 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 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.


APX GROUP HOLDINGS, INC. and SUBSIDIARIES

Reconciliation of Non-GAAP Financial Measures

(In millions)

(Unaudited)

 

     Three Months Ended  
     September 30,     December 31,     March 31,     June 30,     September 30,  
     2014     2014     2015     2015     2015  

Net loss

   $ (59.5   $ (65.6   $ (48.0   $ (43.6   $ (125.1

Interest expense, net

     37.8        38.0        38.2        38.8        39.8   

Other (income) expense, net

     0.5        (2.0     —          (0.3     7.1   

Income tax expense

     (1.3     0.8        0.1        0.2        —     

Restructuring and asset impairment (i)

     —          —          —          —          58.0   

Depreciation and amortization (ii)

     40.8        41.4        37.7        38.3        38.6   

Amortization of capitalized creation costs

     17.1        18.4        19.4        21.8        25.8   

Non-capitalized subscriber acquisition costs (iii)

     35.9        38.3        34.9        43.7        44.5   

Non-cash compensation (iv)

     0.5        0.5        0.7        0.6        0.6   

Other Adjustments (v)

     6.9        14.3        6.6        (6.1     13.4   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

   $ 78.8      $ 84.1      $ 89.5      $ 93.4      $ 102.7   
     Nine Months Ended                    
     September 30,                    
     2015     2014                    

Net loss

   $ (216.7   $ (173.0      

Interest expense, net

     116.9        108.0         

Other (income) expense, net

     6.7        0.2         

Income tax expense

     0.3        (0.3      

Restructuring and asset impairment (i)

     58.0        —           

Depreciation and amortization (ii)

     114.5        121.2         

Amortization of capitalized creation costs

     67.0        40.3         

Non-capitalized subscriber acquisition costs (iii)

     123.1        96.7         

Non-cash compensation (iv)

     2.0        1.4         

Other Adjustments (v)

     13.8        30.8         
  

 

 

   

 

 

       

Adjusted EBITDA

   $ 285.6      $ 225.3         

 

(i) Reflects costs related to the restructuring charges and asset impairments related to the transition of the wireless internet business to a 60Ghz-based technology.
(ii) Excludes loan amortization costs that are included in interest expense.
(iii) 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.
(iv) Reflects non-cash compensation costs related to employee and director stock option plans.
(v) Other Adjustments includes certain items such as product development costs, non-operating legal fees, other R&D, deferred revenue fair value adjustment, subcontracted monitoring fee savings, non-cash gain on settlement of merger-related escrow and other similar adjustments.