APX Group Holdings, Inc. Reports 4th Quarter and Full Year 2018 Results
4th Quarter 2018 Highlights
- Total revenues increased 17.3% year over year to $276.5 million
- Net loss of $118.6 million; $140.1 million in Adjusted EBITDAa
- 44,948 New Subscribers
Full Year 2018 Highlights
- $1.05 billion in total revenues, year-over-year increase of 19.1%
- Net loss of $467.9 million; $541.1 million in Adjusted EBITDAa
- Record 322,574 New Subscribers, a 15.3% year-over-year increase
- 12.3% Attrition Rate
PROVO, Utah–(BUSINESS WIRE)–APX Group Holdings, Inc. (“APX Group”, “Vivint” or the “Company”)
today reported financial and operational results for the fourth quarter
and full year ended December 31, 2018.
“At the beginning of 2018, Vivint established a number of key
initiatives to deliver during the year, including aggressive growth
targets, cash-flow improvements, and broad technology enhancements
within our smart home platform,” said Todd Pedersen, Chief Executive
Officer of APX Group. “As we look back upon the year, we believe we’ve
made significant progress in each of these areas. Our year-over-year
growth in New Subscribers and total revenue was robust at 15.3% and
19.1%, respectively, our Flex Pay program continued to define a
best-of-breed capability within our industry and our software, firmware
and hardware releases in mid-2018 have led to material improvements in
the quality of service and functional capabilities. All of these
accomplishments provide company-specific momentum as we move into 2019,
that coupled with the continued emergence of the Smart-Home-as-a-Service
model, should, we believe, put Vivint in a great position for the coming
year.”
Revenue and Subscriber Data
The Company reported total revenues of $276.5 million for the
three-month period ended December 31, 2018, an increase of $40.7
million, or 17.3%, as compared to the same period in 2017. The adoption
of Topic 606 related to the timing of revenue recognition was a driver
of $13.3 million of the year-over-year increase. The impact of Topic 606
primarily related to the change in the timing of revenue recognition
associated with deferred revenue. The remaining increase of $27.4
million in total revenues was primarily driven by $26.5 million in
recurring and other revenues from an increase in Total Subscribers of
11.8%, an increase in deferred revenue and retail installment contract
(“RIC”) imputed interest of $10.9 million, and an increase of $5.7
million in service and other sales related to upgrade product sales and
other service-related billings. The increase in total revenues was
partially offset by $13.7 million from a decrease in the Average Monthly
Service Revenue per User of approximately $3.00 attributable to the
Company’s transition to Vivint Flex Pay.
The Company added 44,948 New Subscribers during the fourth quarter of
2018, a decrease of 14.1% compared to 52,342 New Subscribers during the
same period in 2017. The fourth quarter of 2017 had 11,627 New
Subscribers from a retail partnership which was discontinued during the
second quarter of 2018. New Subscriber growth in the fourth quarter of
2018, excluding the retail partnership, increased 10.4% from the same
period in 2017.
APX Group reported total revenues of $1.05 billion for the full-year
period ended December 31, 2018, an increase of 19.1% or $168.4 million,
as compared to 2017. The adoption of Topic 606 related to the timing of
revenue recognition was a driver of $43.9 million of the year-over-year
increase. The impact of Topic 606 primarily related to the change in
timing of revenue recognition associated with deferred revenue. The
primary other drivers of the increase were $110.1 million in recurring
and other revenue driven by an increase in Total Subscribers, $53.6
million of deferred revenue and RIC imputed interest associated with the
Company’s transition to Vivint Flex Pay in early 2017, and an increase
of $19.2 million in service and other sales related to upgrade product
sales and other service-related billings. The increases in total
revenues were offset by $53.7 million from a decrease in the Average
Monthly Revenue per User and a decrease of $2.7 million related to the
wireless internet business.
In 2018, the Company originated 322,574 New Subscribers, as compared to
279,735 for the same period in 2017. Approximately 55% of the New
Subscribers in 2018 were originated from the direct-to-home channel. The
direct-to-home channel grew New Subscribers in 2018 by 20.3% as compared
to New Subscriber originations during 2017. The inside sales channel
increased New Subscribers as compared to 2017 by 15.1%.
| Summary of Quarterly Key Financial and Portfolio Metrics | |||||||||||||||||||||||
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($ in millions, except for subscriber data) |
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December 31, |
March 31,
2018 |
June 30,
2018 |
September 30,
2018 |
December 31, |
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| Total Revenues | $ | 235.8 | $ | 246.6 | $ | 255.0 | $ | 272.3 | $ | 276.5 | |||||||||||||
| Net Loss | $ | (135.4 | ) | $ | (84.7 | ) | $ | (144.4 | ) | $ | (120.2 | ) | $ | (118.6 | ) | ||||||||
| Adjusted EBITDA(a) | $ | 125.9 | $ | 122.9 | $ | 137.2 | $ | 141.0 | $ | 140.1 | |||||||||||||
| Adj EBITDA Margin | 53.4 | % | 49.8 | % | 53.8 | % | 51.8 | % | 50.7 | % | |||||||||||||
| New Subscribers(1) | 52,342 | 55,502 | 117,875 | 104,249 | 44,948 | ||||||||||||||||||
| Total Subscribers(1) | 1,292,698 | 1,313,742 | 1,393,635 | 1,450,185 | 1,444,822 | ||||||||||||||||||
| Total Monthly Service Revenue(1) | $ | 71.0 | $ | 71.0 | $ | 73.3 | $ | 75.5 | $ | 76.1 | |||||||||||||
| Average Monthly Service Revenue per User(1) | $ | 54.92 | $ | 54.00 | $ | 52.61 | $ | 52.05 | $ | 52.67 | |||||||||||||
| Total Monthly Revenue(1) | $ | 78.6 | $ | 82.2 | $ | 85.0 | $ | 90.8 | $ | 92.2 | |||||||||||||
| Average Monthly Revenue per User(1) | $ | 61.09 | $ | 62.97 | $ | 62.49 | $ | 63.12 | $ | 63.80 | |||||||||||||
| Attrition Rate(2) | 11.0 | % | 10.7 | % | 11.1 | % | 11.8 | % | 12.3 | % | |||||||||||||
(1) New Subscribers from sales pilots are not included
(2)
Data excludes wireless internet business and pilot programs and are
provided as of each period end Attrition Rate is reported on an LTM
basis for each period end and excludes wireless internet business and
pilot programs
“The management team is pleased with Vivint’s fiscal 2018 operational
execution, which was primarily focused on a continuation of
long-standing strategic priorities and progress towards our stated
objectives of driving scale and efficiencies into the Vivint operating
model,” said Mark Davies, Chief Financial Officer of APX Group. “Cash
flow from operations improved significantly, service margins were
managed to the 70% range, and further progress was made towards reducing
our net subscriber acquisition costs, all while growing our subscriber
base.”
“We’ve made significant strides in reducing net subscriber acquisition
costs by more than $400 per New Subscriber, from $1,594 in 2017 to
$1,189 in 2018,” continued Davies. “The decrease is even more material
when compared with our net subscriber acquisition costs in 2016 of
$1,996, and we expect this trend to continue into 2019. The company has
meaningfully scaled G&A expenses, which improved from 21.4% to 19.5%
year over year as a percentage of total revenue. Finally, based on a
comprehensive plan to improve customer experience, our R&D and service
organizations orchestrated a cross-platform technology upgrade, which
has already yielded an improvement in our net service costs, exiting
2018 at $15.07 per month versus the full-year net service costs of
$16.27 per month. We’ll continue to focus on these key metrics and
expect to drive further improvements in 2019.”
Costs and Expenses
Operating expenses in the fourth quarter of 2018 decreased by $1.7
million to $90.0 million as compared to $91.7 million in the fourth
quarter of 2017. The primary drivers of the decrease were $9.4 million
related to certain contract costs previously expensed, but now included
in capitalized contract costs after the adoption of Topic 606 and a
decrease of $10.2 million in cost associated with our retail sales
channel and other sales pilots. The decreases were offset by increases
of $14.8 million of personnel and related support costs and $4.7 million
in non-capitalized equipment and shipping costs to support the increase
of 152,124 in Total Subscribers.
Full year 2018 operating expenses increased 10.7% from $321.5 million in
2017 to $355.8 million in 2018, which excluded $29.9 million related to
certain contract costs previously expensed, but now included in
capitalized contract costs after the adoption of Topic 606. The $64.2
million increase in operating expenses, excluding the impact of Topic
606, is primarily attributed to $62.9 million in personnel and related
costs for field service and customer care, $11.1 million in
non-capitalized equipment and shipping costs, and a $2.7 million
increase in payment processing and bank fees associated with the
increase in Total Subscribers and the Company’s transition to Vivint
Flex Pay, which requires a customer to use a credit or debit card as
their payment method. The increase in operating expenses was partially
offset by $6.8 million in reduced costs associated with our retail sales
channel and other sales pilots, $5.0 million in contracted services for
third-party field services and $2.1 million in information technology
related services.
Net Service Cost per Subscriber was $16.27 for the full year 2018, which
contributed to a net service margin of 69.2%, as compared to $15.69 for
the same period in 2017. The increase in Net Service Cost per Subscriber
is due to an increase in the number of smart home devices per customer,
specifically cameras, along with investments in service levels and the
overall experience provided to our customers.
Fourth quarter 2018 selling expenses, net of capitalized subscriber
acquisition costs, were $46.5 million, as compared to $63.5 million for
the same period in 2017. The 26.8% year-over-year decrease in selling
expenses is primarily attributable to a $23.6 million reduction in costs
related to the Company’s decision to terminate its relationship with one
of its retail sales channel partners. The decrease in selling expenses
related to the retail sales channel was partially offset by an increase
of $3.1 million in lead generation cost to support the growth of new
subscribers in our inside sales channel and $1.3 million in information
technology costs.
Selling expenses for the full year 2018, net of capitalized subscriber
acquisition costs, were $213.4 million, as compared to $198.3 million in
2017. The $15.1 million increase in selling expenses was largely driven
by $14.1 million in personnel and related costs; $7.9 million in sales
focused information technology related costs; housing and related costs
of $6.0 million; and $4.7 million of marketing costs, primarily related
to lead generation in support of our inside sales channel. These
increases were offset by a reduction in costs related to our retail
sales channel and other sales pilot initiatives of $18.8 million.
The Company’s Net Subscriber Acquisition Costs per New Subscriber was
$1,189 for 2018 as compared to $1,594 for 2017. The Company continued to
drive enhancements with its Vivint Flex Pay, with the average proceeds
collected at point of sale being approximately $1,020 per new subscriber.
General and administrative (“G&A”) expenses, net of allocations, for the
fourth quarter of 2018 were $53.8 million as compared to $61.2 million
for the same period in 2017. The year-over-year decrease of $7.4 million
was primarily due to a litigation settlement of $10.0 million recorded
in the fourth quarter of 2017 and lower costs of $3.1 million related to
our retail sales channels and other sales pilots. The decreases were
partially offset by increases in personnel and related costs of $5.2
million and information technology related costs of $2.5 million.
Full year 2018 G&A expenses, net of allocations, increased 8.6% to
$204.5 million as compared to $188.4 million in 2017. The $16.1 million
increase was primarily due to $25.4 million in personnel and related
costs, including $6.0 million associated with the company’s offering a
401(k) match to employees at the beginning of 2018. Other drivers of the
year-over-year increase were $5.3 million in research and development
costs, $4.3 million in information technology related costs and $2.3
million in contracted services costs. The increases were partially
offset by a $10.4 million reduction in costs related to our retail sales
channel and other sales pilots and a decrease of $9.1 million in legal
and litigation-related matters.
Net Loss and Adjusted EBITDA
Net loss was $118.6 million for the fourth quarter of 2018 and Adjusted
EBITDA was $140.1 million, as compared to net loss of $135.4 million and
adjusted EBITDA of $125.9 million for the same period in 2017.
Net loss was $467.9 million for the full year ended December 31,2018,
and Adjusted EBITDA was $541.1 million, as compared to net loss of
$410.2 million and Adjusted EBITDA of $490.3 million for the same period
in 2017.
Liquidity
As of December 31, 2018, the Company’s liquidity position on a
consolidated basis, defined as cash on hand, short-term marketable
securities and available borrowing capacity under the Company’s
revolving credit facility, was approximately $303 million.
Certain Credit Statistics
The Company’s net leverage ratio, defined as the ratio of net debt to
LTM Adjusted EBITDA, was 5.6x at December 31, 2018.
Conference Call
Vivint Smart Home will host a conference call and webcast to discuss the
quarterly results at 5:00 p.m. ET today, March 5, 2019. To join the live
webcast and conference call, please visit the Investor Relations section
of the Vivint Smart Home website, www.investors.vivint.com/events-presentations/events,
or dial (833) 235-7641 for domestic participants or (647) 689-4162 for
international participants with the conference code of 9799996.
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.
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a This earning release includes Adjusted EBITDA, a |
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 1.4 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, including without limitation with respect to the
Vivint Flex Pay plan and the Company’s ability to successfully compete
in the retail sales channel. Forward-looking statements convey the
Company’s current expectations or forecasts of future events. All
statements contained in this earnings release other than statements of
historical fact are forward-looking statements. These statements are
based on the beliefs and assumptions of management. Although we believe
that the Company’s plans, intentions and expectations reflected in or
suggested by these forward-looking statements are reasonable, we cannot
assure you that the Company will achieve or realize these plans,
intentions or expectations. Forward-looking statements are inherently
subject to risks, uncertainties and assumptions. These statements may be
preceded by, followed by or include the words “believes,” “estimates,”
“expects,” “projects,” “forecasts,” “may,” “will,” “should,” “seeks,”
“plans,” “scheduled,” “anticipates” or “intends” or similar expressions.
Forward-looking statements are not guarantees of performance. You should
not put undue reliance on these statements which speak only as of the
date hereof. You should understand that the following important factors,
in addition to those discussed in “Risk Factors” and elsewhere in the
Company’s most recent Annual Report on Form 10-K, 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 Vivint’s
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; -
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; and -
the impact to the Company’s business, results of operations, financial
condition, regulatory compliance and customer experience of the Vivint
Flex Pay plan and our ability to successfully compete in the retail
sales channels.
In addition, the origination and retention of new subscribers will
depend on various factors, including, but not limited to, market
availability, subscriber interest, the availability of suitable
components, the negotiation of acceptable contract terms with
subscribers, local permitting, licensing and regulatory compliance, and
our ability to manage anticipated expansion and to hire, train and
retain personnel, the financial viability of subscribers and general
economic conditions.
These and other factors that could cause actual results to differ from
those implied by the forward-looking statements in this press release
are more fully described in the “Risk Factors” section in the Company’s
most recent annual report on Form 10-K, and other reports as such
factors may be updated from time to time in the Company’s 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.
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 a given period.
Average Monthly Service Revenue per New Subscriber – is the Total
Monthly Service Revenue for New Subscribers divided by New Subscribers
during a given period.
Lifetime Service Revenue per New Subscriber – is the Total
Monthly Service Revenue for New Subscribers divided by New Subscribers,
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 | |||||||||||||||||
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Consolidated Statements of Operations |
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(In thousands) |
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(Unaudited) |
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| Three Months Ended December 31, | Years Ended December 31, | ||||||||||||||||
| 2018 | 2017 | 2018 | 2017 | ||||||||||||||
| Revenues: | |||||||||||||||||
| Recurring and other revenue | $ | 276,542 | $ | 224,668 | $ | 1,050,441 | $ | 843,420 | |||||||||
| Service and other sales revenue | – | 8,475 | – | 26,988 | |||||||||||||
| Activation fees | – | 2,703 | – | 11,575 | |||||||||||||
| Total revenues | 276,542 | 235,846 | 1,050,441 | 881,983 | |||||||||||||
| Costs and expenses: | |||||||||||||||||
| Operating expenses | 90,029 | 91,700 | 355,813 | 321,476 | |||||||||||||
| Selling expenses | 46,514 | 63,454 | 213,386 | 198,348 | |||||||||||||
| General and administrative expenses | 53,821 | 61,218 | 204,536 | 188,397 | |||||||||||||
| Depreciation and amortization | 132,315 | 87,830 | 514,082 | 329,255 | |||||||||||||
| Restructuring expenses | – | – | 4,683 | – | |||||||||||||
| Total costs and expenses | 322,679 | 304,202 | 1,292,500 | 1,037,476 | |||||||||||||
| Loss from operations | (46,137 | ) | (68,356 | ) | (242,059 | ) | (155,493 | ) | |||||||||
| Other expenses (income): | |||||||||||||||||
| Interest expense | 64,216 | 59,128 | 245,214 | 225,772 | |||||||||||||
| Interest income | (394 | ) | (26 | ) | (425 | ) | (130 | ) | |||||||||
| Other loss (income), net | 8,676 | 9,178 | (17,323 | ) | 27,986 | ||||||||||||
| Total other expenses | 72,498 | 68,280 | 227,466 | 253,628 | |||||||||||||
| Loss before income taxes | (118,635 | ) | (136,636 | ) | (469,525 | ) | (409,121 | ) | |||||||||
| Income tax (benefit) expense | (49 | ) | (1,230 | ) | (1,611 | ) | 1,078 | ||||||||||
| Net loss | $ | (118,586 | ) | $ | (135,406 | ) | $ | (467,914 | ) | $ | (410,199 | ) | |||||
Contacts
Dale R. Gerard
Senior Vice President of Finance and Treasurer
801-705-8011
dgerard@vivint.com
