2nd Quarter 2019 Highlights
- Total revenues increased 10.2% year over year, to $281.1 million
- Net loss of $115.9 million compared to net loss of $144.4 million in the prior year
- $155.3 million in Adjusted EBITDAa compared to $137.2 million in Adjusted EBITDAa in the prior year
PROVO, Utah–(BUSINESS WIRE)–APX Group Holdings, Inc. (“APX Group”, “Vivint” or the “Company”) today reported financial and operational results for the second quarter ended June 30, 2019.
“The second quarter was one of operational focus in all areas of our business,” said Todd Pedersen, chief executive officer of APX Group. “We’ve been highly focused on increasing our service margins and we continue to make good progress in this area; Average Revenue per User is up $0.86 year over year and with corresponding reductions in net service costs, we’ve seen service margins materially increase. We had a significant new product launch with the release of our Vivint Outdoor Camera Pro, and we’ve achieved our goal to drive a majority of our outdoor camera installations to this new product which improves customer experience, lowers service costs and drives incremental hardware margin. Finally, we’ve had our sales teams focused on the changes to our underwriting process as we implemented a second financing source to the Vivint Flex Pay program. All of this has had some impact on our sales productivity during the summer season, but we saw progress over the course of the second quarter. We’re confident that all of these activities will strengthen both Vivint’s financial performance and our customer value proposition.”
Revenue and Subscriber Data
The Company reported total revenues of $281.1 million for the three-month period ended June 30, 2019, an increase of $26.1 million or 10.2%, as compared to the same period in 2018. Total Subscribers increased by approximately 8% during the three-month period ended June 30, 2019, which accounted for approximately $22.7 million of the increase in total revenues, while approximately $4.1 million of the increase was due to an increase of $0.86 in the Average Monthly Revenue per User. When compared to the three months ended June 30, 2018, foreign currency translation negatively affected total revenues by $0.7 million, as computed on a constant foreign currency basis.
The Company added 111,581 New Subscribers during the second quarter of 2019, a decrease of 5.3% compared to 117,875 New Subscribers during the same period in 2018. Excluding the New Subscribers originated from the retail channel in the second quarter of 2018, New Subscriber growth is flat on a year-over-year comparison basis.
|
a: This earning release includes Adjusted EBITDA, a metric that is not calculated in accordance with Generally Accepted Accounting Principles in the U.S. (“GAAP”). See “Statement Regarding Non-GAAP Financial Measures” section at the end of this earnings release for the definition of Adjusted EBITDA and a reconciliation to its most directly comparable financial measure calculated in accordance with GAAP. |
|
Summary of Quarterly Key Financial and Portfolio Metrics |
|||||||||||||||||||||
|
($ in millions, except for subscriber data) |
|||||||||||||||||||||
| June 30, 2018 |
September 30, 2018 |
December 31, 2018 |
March 31, 2019 |
June 30, 2019 |
|||||||||||||||||
| Total Revenues |
$ |
255.0 |
|
$ |
272.3 |
|
$ |
276.5 |
|
$ |
276.2 |
|
$ |
281.1 |
|
||||||
| Net Loss |
$ |
(144.4 |
) |
$ |
(120.2 |
) |
$ |
(118.6 |
) |
$ |
(89.2 |
) |
$ |
(115.9 |
) |
||||||
| Adjusted EBITDA(a) |
$ |
137.2 |
|
$ |
139.3 |
|
$ |
138.3 |
|
$ |
149.7 |
|
$ |
155.3 |
|
||||||
| Adj EBITDA Margin |
|
53.8 |
% |
|
51.2 |
% |
|
50.0 |
% |
|
54.2 |
% |
|
55.2 |
% |
||||||
| New Subscribers(1) |
|
117,875 |
|
|
104,249 |
|
|
44,948 |
|
|
47,536 |
|
|
111,581 |
|
||||||
| Total Subscribers(1) |
|
1,393,635 |
|
|
1,450,185 |
|
|
1,444,822 |
|
|
1,445,349 |
|
|
1,507,664 |
|
||||||
| Total Monthly Service Revenue(1) |
$ |
73.3 |
|
$ |
75.5 |
|
$ |
76.1 |
|
$ |
77.0 |
|
$ |
79.3 |
|
||||||
| Average Monthly Service Revenue per User(1) |
$ |
52.61 |
|
$ |
52.05 |
|
$ |
52.67 |
|
$ |
53.26 |
|
$ |
52.63 |
|
||||||
| Total Monthly Revenue(1) |
$ |
85.0 |
|
$ |
90.8 |
|
$ |
92.2 |
|
$ |
92.1 |
|
$ |
93.7 |
|
||||||
| Average Monthly Revenue per User(1) |
$ |
62.49 |
|
$ |
63.12 |
|
$ |
63.80 |
|
$ |
63.78 |
|
$ |
63.35 |
|
||||||
| Attrition Rate(2) |
|
11.1 |
% |
|
11.8 |
% |
|
12.3 |
% |
|
12.9 |
% |
|
13.4 |
% |
||||||
|
(1) New Subscribers from sales pilots are not included |
|
(2) Attrition Rate is reported on an LTM basis for each period end and excludes wireless internet business and pilot programs |
“Vivint continued to make progress on key financial metrics throughout the second quarter of 2019,” said Mark Davies, chief financial officer of APX Group. “Net subscriber acquisition costs continue to improve, contributing not only to increased cash flow from operations, but also to an improvement in our unit of one metrics. On a last 12-month basis, net subscriber acquisition costs per subscriber were down $311 year over year, or 23% from $1,375 in the last 12-months period ended June 30, 2018 to $1,064 per subscriber in the last 12-months period ended June 30, 2019. A large portion of the reduction is due to a decrease in our US Retail Installment Contract mix, which dropped 11 points from the second quarter of 2018 and five points sequentially from 14% in the first quarter 2019 to 9% in the second quarter 2019.”
“General and Administrative expenses, which has been a particular focus of ours, has scaled nicely over the past year,” continued Davies. “G&A expenses have decreased 240 basis points from 19.3% of revenue in the second quarter 2018 to 16.9% in the second quarter of 2019. Our engineering and operations teams have also made marked progress on net service costs, as we reported monthly net service costs of $13.13 per subscriber this quarter, down $3.58, or 21%, from the second quarter 2018 and a sequential improvement from the first quarter of 2019 of $.70 per subscriber in the second quarter of 2019. Financial scaling has been and will continue to be a focus of the entire Vivint team and we expect further improvement on these metrics in the future.”
Costs and Expenses
Operating expenses for the second quarter of 2019 increased by $2.7 million to $92.0 million as compared to $89.3 million for the second quarter of 2018. The primary drivers of the increase were personnel and related support costs of $1.2 million, third-party contracted services costs of $0.8 million, an increase of $0.5 million for postage and shipping related costs, and customer payment processing costs of $0.5 million. The costs increases were partially offset by a decrease of $1.2 million in costs associated with the retail sales channel and other sales pilots.
Net Service Cost per Subscriber was $13.13 for the second quarter of 2019 and Net Service Margin was 75.2%, as compared to Net Service Cost per Subscriber of $16.71 and Net Service Margin of 68.6% for the same period in 2018.
Selling expenses, net of capitalized contract costs, for the second quarter of 2019 decreased by $7.7 million to $57.9 million as compared to $65.7 million for second quarter of 2018. The primary drivers of the decrease were a $6.5 million decrease in personnel and related support costs and $2.8 million in lower costs associated with the retail sales channel and other sales pilots. The cost decreases were partially offset by an increase in marketing and lead generation costs of $2.8 million.
The Company’s Net Subscriber Acquisition Costs per New Subscriber were $1,064 for the last twelve months ended June 30, 2019 as compared to $1,375 for the same period in 2018. The average proceeds collected at point of sale during the last twelve months ended June 30, 2019 was approximately $1,082 per New Subscriber as compared to $1,018 for the same period in 2018.
General and administrative (“G&A”) expenses, net of allocations, for the second quarter of 2019 decreased by $1.8 million to $47.4 million as compared to $49.2 million for the second quarter of 2018. The primary drivers of the decrease were lower personnel and related support costs of $2.3 million and a reduction in research and development costs of $1.5 million. The decreases were partially offset by a $1.3 million increase in bad debt and higher legal services costs of $0.6 million.
Adjusted EBITDA and Net Loss
Net loss was $115.9 million and Adjusted EBITDA was $155.3 million for the second quarter of 2019, as compared to net loss of $144.4 million and Adjusted EBITDA of $137.2 million for the same period in 2018.
Liquidity
As of June 30, 2019, 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 $143 million.
Certain Credit Statistics
The Company’s net leverage ratio, defined as the ratio of net debt to LTM Adjusted EBITDA, was 5.5x as of June 30, 2019.
Conference Call
Vivint will host a conference call and webcast to discuss the quarterly results at 5:00 p.m. ET today, August 6, 2019. To join the live webcast and conference call, please visit the Investor Relations section of the Vivint 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 6574896.
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 1.5 million customers. 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. These statements are based on the beliefs and assumptions of the Company’s management. Although the Company believes that its plans, intentions and expectations reflected in or suggested by these forward-looking statements are reasonable, the Company cannot assure you that it will achieve or realize these plans, intentions or expectations. Forward-looking statements are inherently subject to risks, uncertainties and assumptions. Generally, statements that are not historical facts, including statements concerning our possible or assumed future actions, business strategies, events or results of operations, are forward-looking statements. 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, in addition to those discussed in “Risk Factors” and elsewhere in the Company’s most recent Annual Report on Form 10-K/A, for the fiscal year ended December 31, 2018 (the “Form 10-K/A”) and the Company’s Quarterly Report on Form 10-Q (the “Form 10-Q”) for the fiscal quarter ended March 31, 2019, which is expected to be filed on or about the date of this earnings release, 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 smart home and security industry, including risks of and publicity surrounding the sales, subscriber origination and retention process;
• the highly competitive nature of the smart home and security industry and product introductions and promotional activity by our competitors;
• litigation, complaints, product liability claims and/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;
• increases and/or decreases in utility and other energy costs, increased costs related to utility or governmental requirements;
• cost increases or shortages in smart home and security technology products or components;
• the introduction of unsuccessful new Smart Home Services;
• privacy and data protection laws, privacy or data breaches, or the loss of data;
• the impact to the Company’s business, results of operations, financial condition, regulatory compliance and customer experience of the Vivint Flex Pay plan (as described in Note 1 – Basis of Presentation in the unaudited condensed consolidated financial statements) and the Company’s ability to successfully compete in retail sales channels; and
• risks related to the Company’s exposure to variable rates of interest with respect to its revolving credit facility and term loan facility.
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 the Form 10-K/A , as filed with the Securities and Exchange Commission (the “SEC”) and the Form 10-Q, as such risk factors may be updated from time to time in the Company’s periodic filings with the SEC, and are accessible on the SEC’s website at www.sec.gov. The risks described herein or in the “Risk Factors” sections of the Form 10-K/A and Form 10-Q are not exhaustive.
The Company undertakes no obligations to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
Certain Definitions
Total Subscribers – is the aggregate number of active smart home and security subscribers at the end of a given period.
Total Monthly Revenue – or Total MR, is the average monthly total revenue recognized during the period.
Average Monthly Revenue per User – or AMRU, is Total MR divided by average monthly Total Subscribers during a given period.
Total Monthly Service Revenue – or MSR, is the contracted recurring monthly service billings to our smart home and security subscribers, based on the Total Subscribers number as of the end of a given period.
Average Monthly Service Revenue per User – or AMSRU, is Total MSR divided by Total Subscribers at the end of a given period.
Attrition Rate – is 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 a cancellation.
Average Subscriber Lifetime – in number of months, is 100% divided by our expected long-term annualized attrition rate (which is currently estimated at 13%) multiplied by 12 months.
Net Service Cost per Subscriber – is the 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 – is 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 – is 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 – is the net cash cost to create new smart home and security subscribers during a given 12 month period divided by New Subscribers for that 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.
Total Bookings – is total monthly service revenue for New Subscribers multiplied by Average Subscriber Lifetime, plus total Product revenue to be recognized over the contract term from New Subscribers.
Total Monthly Service Revenue for New Subscribers – is the contracted recurring monthly service billings to our New Subscribers during the prior 12-month period.
Average Monthly Service Revenue per New Subscriber – is the Total Monthly Service Revenue for New Subscribers divided by New Subscribers during the prior 12-month period.
Lifetime Service Revenue per New Subscriber – is the Total Monthly Service Revenue for New Subscribers divided by New Subscribers during the prior 12-month period, multiplied by Average Subscriber Lifetime.
Lifetime Service Revenue Multiple – is the Lifetime Service Revenue per New Subscriber divided by Net Subscriber Acquisition Costs per New Subscriber.
Total Subscriber Lifetime Backlog – is total unrecognized Product revenue plus total service revenue expected to be recognized over the remaining subscriber lifetime for Total Subscribers.
|
APX GROUP HOLDINGS, INC. and SUBSIDIARIES |
||||||||||||||||
|
Condensed Consolidated Statements of Operations |
||||||||||||||||
|
(In thousands) |
||||||||||||||||
|
(Unaudited) |
||||||||||||||||
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
|
2019 |
|
|
2018 |
|
|
|
2019 |
|
|
|
2018 |
|
||||
| Revenues: | ||||||||||||||||
| Recurring and other revenue |
$ |
281,053 |
|
$ |
254,967 |
|
$ |
557,302 |
|
$ |
501,564 |
|
||||
| Total revenues |
|
281,053 |
|
|
254,967 |
|
|
557,302 |
|
|
501,564 |
|
||||
| Costs and expenses: |
|
|
||||||||||||||
| Operating expenses |
|
92,013 |
|
|
89,321 |
|
|
175,089 |
|
|
173,081 |
|
||||
| Selling expenses |
|
57,926 |
|
|
65,659 |
|
|
101,517 |
|
|
124,902 |
|
||||
| General and administrative expenses |
|
47,439 |
|
|
49,206 |
|
|
93,778 |
|
|
100,173 |
|
||||
| Depreciation and amortization |
|
134,504 |
|
|
126,873 |
|
|
265,725 |
|
|
251,131 |
|
||||
| Restructuring expenses |
|
– |
|
|
4,141 |
|
|
– |
|
|
4,141 |
|
||||
| Total costs and expenses |
|
331,882 |
|
|
335,200 |
|
|
636,109 |
|
|
653,428 |
|
||||
| Loss from operations |
|
(50,829 |
) |
|
(80,233 |
) |
|
(78,807 |
) |
|
(151,864 |
) |
||||
| Other expenses (income): | ||||||||||||||||
| Interest expense |
|
65,817 |
|
|
60,327 |
|
|
129,565 |
|
|
119,117 |
|
||||
| Interest income |
|
– |
|
|
– |
|
|
(23 |
) |
|
(31 |
) |
||||
| Other (income) loss, net |
|
(198 |
) |
|
4,731 |
|
|
(2,444 |
) |
|
(40,509 |
) |
||||
| Total other expenses |
|
65,619 |
|
|
65,058 |
|
|
127,098 |
|
|
78,577 |
|
||||
| Loss before income taxes |
|
(116,448 |
) |
|
(145,291 |
) |
|
(205,905 |
) |
|
(230,441 |
) |
||||
| Income tax benefit |
|
(552 |
) |
|
(906 |
) |
|
(853 |
) |
|
(1,339 |
) |
||||
| Net loss |
$ |
(115,896 |
) |
$ |
(144,385 |
) |
$ |
(205,052 |
) |
$ |
(229,102 |
) |
||||
|
APX GROUP HOLDINGS, INC. and SUBSIDIARIES Condensed Consolidated Balance Sheets |
||||||||
|
(In thousands) |
||||||||
|
(Unaudited) |
||||||||
| June 30, 2019 | December 31, 2018 | |||||||
| ASSETS | ||||||||
| Current Assets: | ||||||||
| Cash and cash equivalents |
$ |
3,133 |
|
$ |
12,773 |
|
||
| Accounts and notes receivable, net |
|
71,390 |
|
|
48,724 |
|
||
| Inventories |
|
139,350 |
|
|
50,552 |
|
||
| Prepaid expenses and other current assets |
|
16,988 |
|
|
11,449 |
|
||
| Total current assets |
|
230,861 |
|
|
123,498 |
|
||
| Property, plant and equipment, net |
|
61,600 |
|
|
73,401 |
|
||
| Capitalized contract costs, net |
|
1,170,687 |
|
|
1,115,775 |
|
||
| Deferred financing costs, net |
|
1,572 |
|
|
2,058 |
|
||
| Intangible assets, net |
|
217,778 |
|
|
255,085 |
|
||
| Goodwill |
|
836,289 |
|
|
834,855 |
|
||
| Operating lease right-of-use assets |
|
71,557 |
|
|
– |
|
||
| Long-term notes receivables and other assets, net |
|
122,631 |
|
|
119,819 |
|
||
| Total assets |
$ |
2,712,975 |
|
$ |
2,524,491 |
|
||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
| Current Liabilities: | ||||||||
| Accounts payable |
$ |
143,072 |
|
$ |
66,646 |
|
||
| Accrued payroll and commissions |
|
69,548 |
|
|
65,479 |
|
||
| Accrued expenses and other current liabilities |
|
138,049 |
|
|
136,715 |
|
||
| Deferred revenue |
|
220,105 |
|
|
186,953 |
|
||
| Current portion of operating lease liabilities |
|
12,058 |
|
|
– |
|
||
| Current portion of finance lease liabilities |
|
6,984 |
|
|
7,743 |
|
||
| Total current liabilities |
|
589,816 |
|
|
463,536 |
|
||
| Notes payable, net |
|
3,030,749 |
|
|
3,037,095 |
|
||
| Revolving line of credit |
|
134,000 |
|
|
– |
|
||
| Capital lease obligations, net of current portion |
|
3,397 |
|
|
5,571 |
|
||
| Finance lease liabilities, net of current portion |
|
69,975 |
|
|
– |
|
||
| Deferred revenue, net of current portion |
|
383,266 |
|
|
323,585 |
|
||
| Other long-term obligations |
|
99,736 |
|
|
90,209 |
|
||
| Deferred income tax liabilities |
|
1,139 |
|
|
1,096 |
|
||
| Total liabilities |
|
4,312,078 |
|
|
3,921,092 |
|
||
| Total stockholders’ deficit |
|
(1,599,103 |
) |
|
(1,396,601 |
) |
||
| Total liabilities and stockholders’ deficit |
$ |
2,712,975 |
|
$ |
2,524,491 |
|
||
|
APX GROUP HOLDINGS, INC. and SUBSIDIARIES |
|||||||||||||||
|
Summary Cash Flow Data |
|||||||||||||||
|
(In thousands) |
|||||||||||||||
|
(Unaudited) |
|||||||||||||||
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
|
|
2019 |
|
|
|
2018 |
|
|
2019 |
|
|
2018 |
|
|||
| Net cash used in operating activities |
$ |
(87,973 |
) |
$ |
(71,407 |
) |
$ |
(130,990 |
) |
$ |
(130,989 |
) |
|||
| Net cash provided (used in) by investing activities |
|
1,939 |
|
|
(5,883 |
) |
|
128 |
|
|
40,703 |
|
|||
| Net cash provided by financing activities |
|
85,489 |
|
|
78,380 |
|
|
121,210 |
|
|
90,996 |
|
|||
| Effect of exchange rate changes on cash |
|
(13 |
) |
|
(43 |
) |
|
12 |
|
|
(62 |
) |
|||
| Net (decrease) increase in cash and cash equivalents |
$ |
(558 |
) |
$ |
1,047 |
|
$ |
(9,640 |
) |
$ |
648 |
|
|||
| Cash and cash equivalents: | |||||||||||||||
| Beginning of period |
|
3,691 |
|
|
3,473 |
|
|
12,773 |
|
|
3,872 |
|
|||
| End of period |
$ |
3,133 |
|
$ |
4,520 |
|
$ |
3,133 |
|
$ |
4,520 |
|
|||
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 and certain unusual, non-cash, non-recurring and other items permitted in certain covenant calculations under the agreements governing our notes, the credit agreement governing our term loan 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 financial covenants contained in the agreements governing the notes, and the credit agreements governing the revolving credit facility and the term loan. 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.
Contacts
Dale R. Gerard
Senior Vice President of Finance and Treasurer
801-705-8011
[email protected]
