APX Group Holdings, Inc. ("APX Group", "Vivint" or the "Company")
today reported results for the three months ended September 30, 2017.
"This has been a year of significant change in our sales and
go-to-market activities," said Todd Pedersen, CEO of APX Group, Inc.
"Our work to create a retail channel, specifically the Best Buy
partnership, will yield significant scale to our business. The
aggressive ramp of approximately 325 Best Buy store openings during Q3
2017, along with corresponding hiring and training activities, required
significant resources and management bandwidth. We are working closely
with Best Buy corporate and store management to integrate our activities
and prepare for the holiday selling season with a commensurate
improvement in sales productivity. With the introduction of the Vivint
Flex Pay program, our sales professionals have a new set of product
offerings and underwriting procedures. We expected sales productivity to
dip during the Vivint Flex Pay transition, and we believe we're
approaching the point where we have recovered to our pre-Vivint Flex Pay
momentum. These changes put the Company in a better position to take
advantage of the market opportunities in front of us. We'll spend the
remainder of 2017 fine-tuning both our sales and operational functions
to prepare for a successful 2018."
Revenue and Subscriber Data
APX Group reported total revenues of $228.7 million for the three month
period ended September 30, 2017, an increase of $30.3 million or 15.3%,
as compared to the same period in 2016. Approximately $20.9 million of
the increase in total revenues was driven by an increase in Total
Subscribers of 11.2% and $10.4 million of the increase in total revenues
was from the recognition of imputed interest and deferred revenue from
the sale of products and installation associated with the Company's
transition to the Vivint Flex Pay model. The increase in total revenues
was partially offset by $0.8 million due to lower Average Monthly
Service Revenue per User, also attributable to the Vivint Flex Pay
program, and a decrease in revenues of $0.4 million associated with the
Wireless internet business. Total Revenues for the third quarter of 2017
were positively impacted by $0.7 million from foreign exchange
translation as compared to the same period in 2016.
Total revenues for the nine-month period ended September 30, 2017,
increased 16.8% to $646.1 million as compared to $553.4 million for the
same period in 2016.
The Company added 89,019 net new smart home subscribers during the third
quarter of 2017. Vivint's inside sales channel originated 31,059 net new
smart home subscribers in the three months ended September 30, 2017,
while the DTH channel added 57,960 net new smart home subscribers during
the quarter. During the third quarter of 2017, Vivint received an
average of $997 of upfront proceeds per net new smart home subscriber at
the point of installation, an increase of $887 per net new smart home
subscriber, as compared to the same period in 2016, which can be
attributed to Vivint Flex Pay. As a result of the increase in the amount
collected at the point of installation, the Company's LTM net subscriber
acquisition costs per net new smart home subscriber decreased by $451
versus the same period LTM in 2016. Average Monthly Revenue per New
User, which includes the recognition of imputed interest and deferred
revenue related to the consumer purchasing of products was $67.42 for
the three months ended September 30, 2017, as compared to $68.85 for the
same period in 2016.
Summary of Key Financial and Portfolio Metrics
($ in millions, except for subscriber data)
"Summarizing third quarter 2017 performance, I would call out our strong
revenue growth of 15%, attrition improving to 11.3% for the LTM and
total subscribers increased to 1.27 million," said Mark Davies, chief
financial officer of APX Group, Inc. "Significantly, we are seeing the
cash flow benefits from our Vivint Flex Pay program as we generated $88
million in proceeds at point of sale through paid in full and
third-party financing during the quarter. As result of this Vivint Flex
Pay impact, our LTM net creation cost was reduced by 22%, or $451 per
new subscriber. The third quarter was the first full quarter for the
Vivint Flex Pay program and we expect the net subscriber acquisition
cost improvements to continue, until we have a full year to measure the
LTM impact. As planned, adjusted EBITDA did not grow as rapidly as
revenue in the third quarter 2017. Start-up costs associated with the
Best Buy roll-out, as well as targeted investments in customer service
delivery, quality, reliability, and platform technology, have had an
impact on currents results, but which we believe will yield return in
the coming quarters."
Costs and Expenses
Operating expenses in the third quarter of 2017 increased by 17.7% to
$81.1 million as compared to $68.9 million in the third quarter of 2016.
The $12.2 million increase was primarily related to $6.9 million in
personnel and support costs driven by an 11.2% increase in the Total
Subscribers and $3.3 million for the expansion of our sales channels,
related to the startup of our large-format retail program (Best Buy).
Net service cost per user was $15.04 as compared to $14.59 in the third
quarter 2016 as we made focused investments to improve customer service.
Selling expenses, net of capitalized subscriber acquisition costs, for
the third quarter of 2017 were $53.8 million, compared to $32.6 million
for the same period in 2016. The 65.0% year-over-year increase in
selling expenses is primarily attributable to $2.2 million in marketing
costs, primarily lead generation costs to support the growth in
origination from Inside Sales, $14.6 million to support the Company's
sales channel expansion, mostly related to Best Buy, and $2.0 million in
personnel and related cost to support growth within our core business.
General and administrative ("G&A") expenses, net of allocations, for the
third quarter of 2017 were $49.4 million as compared to $35.3 million
for the same period in 2016. The year-over-year increase of $14.1
million was primarily due to an additional $6.9 million to support
expansion of the Company's large-format retail program, $4.3 million in
personnel and related costs, and $1.5 million contracted services,
primarily related to legal and professional services.
Adjusted EBITDA and Net Loss
Adjusted EBITDA for the third quarter of 2017 grew by 8.9% to $128.5
million on a net loss of $107.9 million, compared to adjusted EBITDA of
$118.0 million on a net loss of $70.0 million for the same period in
Adjusted EBITDA for the nine-month period ended September 30, 2017 was
$365.5 million on a net loss of $274.8 million as compared to $325.8
million on a net loss of $204.8 million for the same period in 2016.
On August 10, 2017, we entered into a Third Amended and Restated Credit
Agreement among APX Group, Inc., the Company, the other guarantors party
thereto, each lender from time to time party thereto and Bank of
America, N.A., as administrative agent, L/C issuer and swing line lender
(the "Amended and Restated Credit Agreement"). The Amended and Restated
Credit Agreement amended and restated our existing credit agreement to
provide for, among other things, (1) an increase in the aggregate
commitments previously available to us from $289.4 million to $324.3
million and (2) the extension of the maturity date with respect to
certain of the previously available commitments.
As of September 30, 2017, 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 $431 million.
Certain Credit Statistics
Our net leverage ratio, defined as the ratio of net debt to LTM Adjusted
EBITDA, was 5.5x at September 30, 2017.
Vivint Smart Home will host a conference call and webcast to discuss the
quarterly results at 5:00 p.m. ET today, November 14, 2017. 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 (866) 393-4306 for domestic participants or (734) 385-2616 for
international participants with the conference code of 5389009.
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 provider of smart home services 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 System". 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, including without limitation with respect to the Vivint Flex
Pay plan and our 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 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 our most recent
annual report on Form 10-K, and other reports filed with the Securities
and 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
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
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 our most
recent annual report on Form 10-K, 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 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.
Total subscribers - the aggregate number of our smart home and security
subscribers under contract as of the end of a given period.
Total monthly service revenue ("MSR") - the aggregate, 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. This metric reflects billings on our Services and excludes
monthly billings for the purchases of our Products.
Average monthly service revenue per user ("AMSRU") - MSR divided by the
number of Total Subscribers as of the end of a given period.
Attrition rate - the aggregate number of canceled smart home and
security subscribers during the prior twelve-month 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 us or if payment
from such subscribers is deemed uncollectible (when at least four
monthly Service 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 user - average monthly service costs for the
period, including monitoring, customer service, field service and other
service support costs, less total non-recurring Product and Service
billings for the period divided by average monthly Total Subscribers for
the same 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.
Average monthly service revenue per new user ("AMSRNU") - the AMSRU for
New Subscribers divided by New Subscribers during a given period.
Average monthly revenue per new user ("AMRNU") - AMSRNU plus the average
monthly recognized deferred and interest revenue associated with Product
sales to New Subscribers during a given period.
Net subscriber acquisition cost per new user - the total capitalized and
expensed costs to acquire New Subscribers for a given period, divided by
New Subscribers added for the period. These costs include commissions,
equipment, installation, marketing and other sales support costs, less
upfront proceeds received at contract origination from Product sales,
activation and installation fees.
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)
Net increase in cash and cash equivalents
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
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.
Reflects costs associated with the restructuring and asset
impairment charges related to the transition of our Wireless
Internet business and the
Excludes loan amortization costs that are included in interest
Reflects subscriber acquisition cost that are expensed as incurred
because they are not directly related to the acquisition of
Reflects non-cash compensation costs related to employee and
director stock and stock option plans
Other adjustments including items such as product development
costs, subcontracted monitoring fee savings, non-recurring gain,
and other similar adjustments.
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.
View source version on businesswire.com: http://www.businesswire.com/news/home/20171114006695/en/
[ Back To SIP Trunking Home's Homepage ]