ý | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Delaware | 46-1304852 | |
(State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) |
4931 North 300 West Provo, UT | 84604 | |
(Address of Principal Executive Offices) | (Zip Code) |
Large accelerated filer | ¨ | Accelerated filer | ¨ | |||
Non-accelerated filer | x (Do not check if a smaller reporting company) | Smaller reporting company | ¨ | |||
Emerging growth company | ¨ |
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Item 2. | ||
Item 3. | ||
Item 4. | ||
Item 1. | ||
Item 1A. | ||
Item 2. | ||
Item 3. | ||
Item 4. | ||
Item 5. | ||
Item 6. | ||
• | references to “Vivint,” “we,” “us,” “our” and “the Company” are to APX Group Holdings, Inc. and its consolidated subsidiaries; |
• | references to “our Sponsor” are to certain investment funds affiliated with The Blackstone Group L.P.; |
• | references to the “Merger” are to the acquisition of APX Group and two of its affiliates, Vivint Solar, Inc. and 2GIG Technologies, Inc., on November 16, 2012, by an investor group comprised of certain investment funds affiliated with our Sponsor, and certain co-investors and management investors; and |
• | the terms “subscriber” and “customer” are used interchangeably. |
• | accelerate adoption of our smart home solution; |
• | establish and grow through new customer acquisition channels; |
• | increase brand awareness; |
• | meet customer expectations and address key friction points for smart home adoption and use; |
• | expand our ecosystem with third-party and proprietary devices; |
• | reduce customer attrition; |
• | lower net customer acquisition costs; |
• | improve unit economics and grow subscription revenues per customer over time; |
• | increase new customer originations, customer usage, and customer satisfaction; |
• | develop, design, and sell our own products and services that are differentiated from those of our competitors; |
• | attract, train and retain an effective sales force and other key personnel; |
• | upgrade and maintain our information technology systems; |
• | acquire and protect intellectual property; |
• | meet future liquidity requirements and comply with restrictive covenants related to our long-term indebtedness; |
• | enhance our future operating and financial results; |
• | comply with laws and regulations applicable to our business; and |
• | successfully defend litigation brought against us. |
• | 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 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 products and services; |
• | privacy and data protection laws, privacy or data breaches, or the loss of data; and |
• | the impact to our business, results of operations, financial condition, regulatory compliance and customer experience of the Vivint Flex Pay plan (as defined in Note 1 - Basis of Presentation in the unaudited condensed consolidated financial statements) and the Best Buy Smart Home powered by Vivint program. |
ITEM 1. | UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
September 30, 2017 | December 31, 2016 | ||||||
ASSETS | |||||||
Current Assets: | |||||||
Cash and cash equivalents | $ | 115,567 | $ | 43,520 | |||
Accounts and notes receivable, net | 34,414 | 12,891 | |||||
Inventories | 99,185 | 38,452 | |||||
Prepaid expenses and other current assets | 19,969 | 10,158 | |||||
Total current assets | 269,135 | 105,021 | |||||
Property, plant and equipment, net | 72,920 | 63,626 | |||||
Subscriber acquisition costs, net | 1,275,364 | 1,052,434 | |||||
Deferred financing costs, net | 3,373 | 4,420 | |||||
Intangible assets, net | 402,961 | 475,392 | |||||
Goodwill | 837,210 | 835,233 | |||||
Long-term investments and other assets, net | 83,057 | 11,536 | |||||
Total assets | $ | 2,944,020 | $ | 2,547,662 | |||
LIABILITIES AND STOCKHOLDERS’ DEFICIT | |||||||
Current Liabilities: | |||||||
Accounts payable | $ | 81,348 | $ | 49,119 | |||
Accrued payroll and commissions | 103,456 | 46,288 | |||||
Accrued expenses and other current liabilities | 108,558 | 34,265 | |||||
Deferred revenue | 83,288 | 45,722 | |||||
Current portion of capital lease obligations | 10,063 | 9,797 | |||||
Total current liabilities | 386,713 | 185,191 | |||||
Notes payable, net | 2,759,200 | 2,486,700 | |||||
Capital lease obligations, net of current portion | 8,220 | 7,935 | |||||
Deferred revenue, net of current portion | 227,442 | 58,734 | |||||
Other long-term obligations | 70,501 | 47,080 | |||||
Deferred income tax liabilities | 7,761 | 7,204 | |||||
Total liabilities | 3,459,837 | 2,792,844 | |||||
Commitments and contingencies (See Note 10) | |||||||
Stockholders’ deficit: | |||||||
Common stock, $0.01 par value, 100 shares authorized; 100 shares issued and outstanding | — | — | |||||
Additional paid-in capital | 733,239 | 731,920 | |||||
Accumulated deficit | (1,223,165 | ) | (948,339 | ) | |||
Accumulated other comprehensive loss | (25,891 | ) | (28,763 | ) | |||
Total stockholders’ deficit | (515,817 | ) | (245,182 | ) | |||
Total liabilities and stockholders’ deficit | $ | 2,944,020 | $ | 2,547,662 |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Revenues: | |||||||||||||||
Recurring and other revenue | $ | 219,111 | $ | 189,032 | $ | 618,752 | $ | 528,950 | |||||||
Service and other sales revenue | 6,764 | 6,005 | 18,513 | 16,842 | |||||||||||
Activation fees | 2,783 | 3,298 | 8,872 | 7,603 | |||||||||||
Total revenues | 228,658 | 198,335 | 646,137 | 553,395 | |||||||||||
Costs and expenses: | |||||||||||||||
Operating expenses (exclusive of depreciation and amortization shown separately below) | 81,108 | 68,872 | 229,776 | 195,806 | |||||||||||
Selling expenses | 53,821 | 32,633 | 134,894 | 98,856 | |||||||||||
General and administrative expenses | 49,416 | 35,284 | 127,179 | 101,834 | |||||||||||
Depreciation and amortization | 84,460 | 76,837 | 241,425 | 209,418 | |||||||||||
Restructuring and asset impairment recoveries | — | 2,445 | — | 1,765 | |||||||||||
Total costs and expenses | 268,805 | 216,071 | 733,274 | 607,679 | |||||||||||
Loss from operations | (40,147 | ) | (17,736 | ) | (87,137 | ) | (54,284 | ) | |||||||
Other expenses (income): | |||||||||||||||
Interest expense | 58,005 | 51,962 | 166,644 | 144,827 | |||||||||||
Interest income | — | (130 | ) | (104 | ) | (153 | ) | ||||||||
Other loss, net | 8,611 | 551 | 18,808 | 5,304 | |||||||||||
Loss before income taxes | (106,763 | ) | (70,119 | ) | (272,485 | ) | (204,262 | ) | |||||||
Income tax expense (benefit) | 1,157 | (145 | ) | 2,308 | 527 | ||||||||||
Net loss | $ | (107,920 | ) | $ | (69,974 | ) | $ | (274,793 | ) | $ | (204,789 | ) |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Net loss | $ | (107,920 | ) | $ | (69,974 | ) | $ | (274,793 | ) | $ | (204,789 | ) | |||
Other comprehensive income, net of tax effects: | |||||||||||||||
Foreign currency translation adjustment | 1,967 | 673 | 3,543 | 3,474 | |||||||||||
Unrealized loss on marketable securities | (413 | ) | — | (671 | ) | — | |||||||||
Total other comprehensive gain | 1,554 | 673 | 2,872 | 3,474 | |||||||||||
Comprehensive loss | $ | (106,366 | ) | $ | (69,301 | ) | $ | (271,921 | ) | $ | (201,315 | ) |
Nine Months Ended September 30, | |||||||
2017 | 2016 | ||||||
Cash flows from operating activities: | |||||||
Net loss | $ | (274,793 | ) | $ | (204,789 | ) | |
Adjustments to reconcile net loss to net cash used in operating activities: | |||||||
Amortization of subscriber acquisition costs | 149,933 | 109,313 | |||||
Amortization of customer relationships | 71,108 | 81,150 | |||||
Depreciation and amortization of property, plant and equipment and other intangible assets | 20,384 | 18,955 | |||||
Amortization of deferred financing costs and bond premiums and discounts | 5,201 | 7,783 | |||||
Loss (gain) on sale or disposal of assets | 338 | (50 | ) | ||||
Loss on early extinguishment of debt | 23,040 | 10,178 | |||||
Stock-based compensation | 1,287 | 3,338 | |||||
Provision for doubtful accounts | 14,723 | 13,302 | |||||
Deferred income taxes | (378 | ) | 186 | ||||
Restructuring and asset impairment recoveries | — | 7,878 | |||||
Changes in operating assets and liabilities: | |||||||
Accounts and notes receivable | (35,578 | ) | (15,309 | ) | |||
Inventories | (59,500 | ) | (31,741 | ) | |||
Prepaid expenses and other current assets | (9,792 | ) | (8,479 | ) | |||
Subscriber acquisition costs – deferred contract costs | (367,300 | ) | (366,187 | ) | |||
Other assets | (68,117 | ) | 498 | ||||
Accounts payable | 42,435 | 6,040 | |||||
Accrued expenses and other current liabilities | 132,717 | 121,240 | |||||
Restructuring liability | (68 | ) | (1,999 | ) | |||
Deferred revenue | 205,092 | 23,904 | |||||
Net cash used in operating activities | (149,268 | ) | (224,789 | ) | |||
Cash flows from investing activities: | |||||||
Subscriber acquisition costs – company owned equipment | — | (4,957 | ) | ||||
Capital expenditures | (14,842 | ) | (6,905 | ) | |||
Proceeds from the sale of capital assets | 275 | 2,778 | |||||
Acquisition of intangible assets | (1,057 | ) | (789 | ) | |||
Acquisition of other assets | (156 | ) | — | ||||
Net cash used in investing activities | (15,780 | ) | (9,873 | ) | |||
Cash flows from financing activities: | |||||||
Proceeds from notes payable | 724,750 | 604,000 | |||||
Repayment of notes payable | (450,000 | ) | (235,535 | ) | |||
Borrowings from revolving credit facility | 124,000 | 57,000 | |||||
Repayments on revolving credit facility | (124,000 | ) | (77,000 | ) | |||
Proceeds from capital contribution | — | 100,407 | |||||
Repayments of capital lease obligations | (7,161 | ) | (5,981 | ) | |||
Payments of other long-term obligations | (2,065 | ) | — | ||||
Financing costs | (17,771 | ) | (8,936 | ) | |||
Deferred financing costs | (10,730 | ) | (8,931 | ) | |||
Net cash provided by financing activities | 237,023 | 425,024 | |||||
Effect of exchange rate changes on cash | 72 | (482 | ) | ||||
Net increase in cash and cash equivalents | 72,047 | 189,880 | |||||
Cash and cash equivalents: | |||||||
Beginning of period | 43,520 | 2,559 | |||||
End of period | $ | 115,567 | $ | 192,439 | |||
Supplemental non-cash investing and financing activities: | |||||||
Capital lease additions | $ | 8,285 | $ | 5,518 | |||
Intangible assets acquisitions included within accounts payable, accrued expenses and other current liabilities and other long-term obligations | $ | 923 | $ | 1,930 | |||
Capital expenditures included within accounts payable and accrued expenses and other current liabilities | $ | 2,502 | $ | 1,932 | |||
Change in fair value of marketable securities | $ | 293 | $ | — | |||
Financing costs included within accounts payable and accrued expenses and other current liabilities | $ | 982 | $ | 480 |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Beginning balance | $ | 3,799 | $ | 3,097 | $ | 4,138 | $ | 3,541 | |||||||
Provision for doubtful accounts | 4,997 | 5,585 | 14,723 | 13,302 | |||||||||||
Write-offs and adjustments | (4,316 | ) | (4,952 | ) | (14,381 | ) | (13,113 | ) | |||||||
Balance at end of period | $ | 4,480 | $ | 3,730 | $ | 4,480 | $ | 3,730 |
Other expense and loss on extinguishment | Deferred financing costs | ||||||||||||||||||||||||||
Issuance | Original discount extinguished | Original deferred financing costs extinguished | New financing costs | Total other expense and loss on extinguishment | Original deferred financing rolled over | New deferred financing costs | Total deferred financing costs | ||||||||||||||||||||
Three months ended September 30, 2017 | |||||||||||||||||||||||||||
August 2017 issuance | $ | — | $ | 1,408 | $ | 8,881 | $ | 10,289 | $ | 473 | $ | 4,556 | $ | 5,029 | |||||||||||||
Nine months ended September 30, 2017 | |||||||||||||||||||||||||||
August 2017 issuance | — | 1,408 | 8,881 | 10,289 | 473 | 4,556 | 5,029 | ||||||||||||||||||||
February 2017 issuance | — | 3,259 | 9,491 | 12,750 | 1,476 | 6,077 | 7,553 | ||||||||||||||||||||
Nine months ended September 30, 2016 | |||||||||||||||||||||||||||
May 2016 issuance | 355 | 695 | 9,036 | 10,086 | 3,423 | 6,628 | 10,051 |
Unamortized Deferred Financing Costs | |||||||||||||||||||||||
Balance December 31, 2016 | Additions | Rolled Over | Early Extinguishment | Amortized | Balance September 30, 2017 | ||||||||||||||||||
Revolving Credit Facility | $ | 4,420 | $ | 399 | $ | — | $ | — | $ | (1,446 | ) | $ | 3,373 | ||||||||||
2019 Notes | 11,693 | — | (1,949 | ) | (4,667 | ) | (1,824 | ) | 3,253 | ||||||||||||||
2020 Notes | 15,053 | — | — | — | (2,884 | ) | 12,169 | ||||||||||||||||
2022 Private Placement Notes | 903 | — | — | — | (113 | ) | 790 | ||||||||||||||||
2022 Notes | 11,714 | 6,077 | 1,476 | — | (2,383 | ) | 16,884 | ||||||||||||||||
2023 Notes | — | 4,556 | 473 | — | (70 | ) | 4,959 | ||||||||||||||||
Total Deferred Financing Costs | $ | 43,783 | $ | 11,032 | $ | — | $ | (4,667 | ) | $ | (8,720 | ) | $ | 41,428 |
September 30, 2017 | |||||||||||||||
Outstanding Principal | Unamortized Premium (Discount) | Unamortized Deferred Financing Costs (1) | Net Carrying Amount | ||||||||||||
6.375% Senior Secured Notes due 2019 | 269,465 | — | (3,253 | ) | 266,212 | ||||||||||
8.75% Senior Notes due 2020 | 930,000 | 4,799 | (12,169 | ) | 922,630 | ||||||||||
8.875% Senior Secured Notes Due 2022 | 270,000 | (2,662 | ) | (790 | ) | 266,548 | |||||||||
7.875% Senior Secured Notes Due 2022 | 900,000 | 25,653 | (16,884 | ) | 908,769 | ||||||||||
7.625% Senior Notes Due 2023 | 400,000 | — | (4,959 | ) | 395,041 | ||||||||||
Total Long-Term Debt | $ | 2,769,465 | $ | 27,790 | $ | (38,055 | ) | $ | 2,759,200 |
December 31, 2016 | |||||||||||||||
Outstanding Principal | Unamortized Premium (Discount) | Unamortized Deferred Financing Costs (1) | Net Carrying Amount | ||||||||||||
6.375% Senior Secured Notes due 2019 | $ | 719,465 | $ | — | $ | (11,693 | ) | $ | 707,772 | ||||||
8.75% Senior Notes due 2020 | 930,000 | 5,848 | (15,053 | ) | 920,795 | ||||||||||
8.875% Senior Secured Notes due 2022 | 270,000 | (2,960 | ) | (903 | ) | 266,137 | |||||||||
7.875% Senior Secured Notes due 2022 | 600,000 | 3,710 | (11,714 | ) | 591,996 | ||||||||||
Total Long-Term Debt | $ | 2,519,465 | $ | 6,598 | $ | (39,363 | ) | $ | 2,486,700 |
(1) | Unamortized deferred financing costs related to the revolving credit facilities included in deferred financing costs, net on the condensed consolidated balance sheets at September 30, 2017 and December 31, 2016 was $3.4 million and $4.4 million, respectively. |
September 30, 2017 | |||
RIC receivables, gross | $ | 121,836 | |
Deferred interest | (36,237 | ) | |
RIC receivables, net of deferred interest | 85,599 | ||
Classified on the condensed consolidated unaudited balance sheets as: | |||
Accounts and notes receivable, net | $ | 13,715 | |
Long-term investments and other assets, net | 71,884 | ||
RIC receivables, net | $ | 85,599 |
Nine months ended September 30, 2017 | |||
Deferred interest, beginning of period | $ | — | |
Bad debt expense | — | ||
Write-offs, net of recoveries | (2,114 | ) | |
Change in deferred interest on short-term and long-term RIC receivables | 38,351 | ||
Deferred interest, end of period | $ | 36,237 |
September 30, 2017 | December 31, 2016 | ||||||
Prepaid expenses and other current assets | |||||||
Prepaid expenses | $ | 9,243 | $ | 7,983 | |||
Deposits | 1,611 | 1,046 | |||||
Other | 9,115 | 1,129 | |||||
Total prepaid expenses and other current assets | $ | 19,969 | $ | 10,158 | |||
Subscriber acquisition costs | |||||||
Subscriber acquisition costs | $ | 1,748,268 | $ | 1,373,080 | |||
Accumulated amortization | (472,904 | ) | (320,646 | ) | |||
Subscriber acquisition costs, net | $ | 1,275,364 | $ | 1,052,434 | |||
Accrued payroll and commissions | |||||||
Accrued commissions | $ | 74,208 | $ | 22,187 | |||
Accrued payroll | 29,248 | 24,101 | |||||
Total accrued payroll and commissions | $ | 103,456 | $ | 46,288 | |||
Accrued expenses and other current liabilities | |||||||
Accrued interest payable | $ | 68,894 | $ | 16,944 | |||
Accrued taxes | 8,405 | 3,376 | |||||
Current portion of derivative liability | 16,896 | — | |||||
Spectrum license obligation | 3,786 | — | |||||
Accrued payroll taxes and withholdings | 2,455 | 4,793 | |||||
Loss contingencies | 2,131 | 2,571 | |||||
Blackstone monitoring fee, a related party | 1,641 | 1,389 | |||||
Other | 4,350 | 5,192 | |||||
Total accrued expenses and other current liabilities | $ | 108,558 | $ | 34,265 | |||
Current deferred revenue | |||||||
Subscriber deferred revenues | $ | 38,864 | $ | 34,682 | |||
Deferred product revenues | 34,218 | — | |||||
Deferred activation fees | 10,206 | 11,040 | |||||
Total current deferred revenue | $ | 83,288 | $ | 45,722 | |||
Deferred revenue, net of current portion | |||||||
Deferred product revenues | $ | 174,129 | $ | 975 | |||
Deferred activation fees | 53,313 | 57,759 | |||||
Total deferred revenue, net of current portion | $ | 227,442 | $ | 58,734 |
September 30, 2017 | December 31, 2016 | Estimated Useful Lives | |||||||
Vehicles | $ | 31,272 | $ | 31,416 | 3 - 5 years | ||||
Computer equipment and software | 43,476 | 27,006 | 3 - 5 years | ||||||
Leasehold improvements | 19,292 | 17,717 | 2 - 15 years | ||||||
Office furniture, fixtures and equipment | 15,277 | 13,508 | 7 years | ||||||
Buildings | 702 | 702 | 39 years | ||||||
Build-to-suit lease building | 8,247 | 5,004 | 10.5 years | ||||||
Construction in process | 9,950 | 9,908 | |||||||
Property, plant and equipment, gross | 128,216 | 105,261 | |||||||
Accumulated depreciation and amortization | (55,296 | ) | (41,635 | ) | |||||
Property, plant and equipment, net | $ | 72,920 | $ | 63,626 |
September 30, 2017 | December 31, 2016 | ||||||||||||||||||||||||
Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | Estimated Useful Lives | |||||||||||||||||||
Definite-lived intangible assets: | |||||||||||||||||||||||||
Customer contracts | $ | 970,834 | $ | (614,442 | ) | $ | 356,392 | $ | 965,179 | $ | (539,910 | ) | $ | 425,269 | 10 years | ||||||||||
2GIG 2.0 technology | 17,000 | (12,575 | ) | 4,425 | 17,000 | (10,479 | ) | 6,521 | 8 years | ||||||||||||||||
Other technology | 2,917 | (1,146 | ) | 1,771 | 7,067 | (4,984 | ) | 2,083 | 5 - 7 years | ||||||||||||||||
Space Monkey technology | 7,100 | (3,616 | ) | 3,484 | 7,100 | (2,268 | ) | 4,832 | 6 years | ||||||||||||||||
Patents | 10,295 | (5,282 | ) | 5,013 | 8,724 | (3,913 | ) | 4,811 | 5 years | ||||||||||||||||
Total definite-lived intangible assets: | $ | 1,008,146 | $ | (637,061 | ) | $ | 371,085 | $ | 1,005,070 | $ | (561,554 | ) | $ | 443,516 | |||||||||||
Indefinite-lived intangible assets: | |||||||||||||||||||||||||
Spectrum licenses | $ | 31,253 | $ | — | $ | 31,253 | $ | 31,253 | $ | — | $ | 31,253 | |||||||||||||
IP addresses | 564 | — | 564 | 564 | — | 564 | |||||||||||||||||||
Domain names | 59 | — | 59 | 59 | — | 59 | |||||||||||||||||||
Total Indefinite-lived intangible assets | 31,876 | — | 31,876 | 31,876 | — | 31,876 | |||||||||||||||||||
Total intangible assets, net | $ | 1,040,022 | $ | (637,061 | ) | $ | 402,961 | $ | 1,036,946 | $ | (561,554 | ) | $ | 475,392 |
2017 - Remaining Period | $ | 25,563 | |
2018 | 90,617 | ||
2019 | 78,746 | ||
2020 | 67,772 | ||
2021 | 58,658 | ||
Thereafter | 48,833 | ||
Total estimated amortization expense | $ | 370,189 |
September 30, 2017 | |||||||||||||||||||||||
Adjusted Cost | Unrealized Gains | Unrealized Losses | Fair Value | Cash and Cash Equivalents | Long-Term Investments and Other Assets, net | ||||||||||||||||||
Cash | $ | 95,567 | $ | — | $ | — | $ | 95,567 | $ | 95,567 | $ | — | |||||||||||
Level 1: | |||||||||||||||||||||||
Money market funds | 20,000 | — | — | 20,000 | 20,000 | — | |||||||||||||||||
Corporate securities | 4,018 | — | (292 | ) | 3,726 | — | 3,726 | ||||||||||||||||
Subtotal | 24,018 | — | (292 | ) | 23,726 | 20,000 | 3,726 | ||||||||||||||||
Total | $ | 119,585 | $ | — | $ | (292 | ) | $ | 119,293 | $ | 115,567 | $ | 3,726 |
December 31, 2016 | |||||||||||||||||||||||
Adjusted Cost | Unrealized Gains | Unrealized Losses | Fair Value | Cash and Cash Equivalents | Long-Term Investments and Other Assets, net | ||||||||||||||||||
Cash | $ | 1,191 | $ | — | $ | — | $ | 1,191 | $ | 1,191 | $ | — | |||||||||||
Level 1: | |||||||||||||||||||||||
Money market funds | 42,329 | — | — | 42,329 | 42,329 | — | |||||||||||||||||
Corporate securities | 3,007 | 1,011 | — | 4,018 | — | 4,018 | |||||||||||||||||
Subtotal | 45,336 | 1,011 | — | 46,347 | 42,329 | 4,018 | |||||||||||||||||
Total | $ | 46,527 | $ | 1,011 | $ | — | $ | 47,538 | $ | 43,520 | $ | 4,018 |
September 30, 2017 | December 31, 2016 | Stated Interest Rate | |||||||||||||||||
Issuance | Face Value | Estimated Fair Value | Face Value | Estimated Fair Value | |||||||||||||||
2019 Notes | $ | 269,465 | $ | 275,016 | $ | 719,465 | $ | 743,783 | 6.375 | % | |||||||||
2020 Notes | 930,000 | 959,109 | 930,000 | 946,275 | 8.75 | % | |||||||||||||
2022 Private Placement Notes | 270,000 | 277,643 | 270,000 | 280,372 | 8.875 | % | |||||||||||||
2022 Notes | 900,000 | 981,270 | 600,000 | 655,140 | 7.875 | % | |||||||||||||
2023 Notes | 400,000 | 423,000 | — | — | 7.625 | % | |||||||||||||
Total | $ | 2,769,465 | $ | 2,916,038 | $ | 2,519,465 | $ | 2,625,570 |
• | The Company pays a monthly fee based on the average daily outstanding balance of the installment loans |
• | The Company shares the liability for credit losses depending on the credit quality of the customer |
• | The Company pays transactional fees associated with customer payment processing |
September 30, 2017 | |||||||
Fair Value | Notional Amount | ||||||
Consumer Financing Program Contractual Obligations | $ | 35,096 | $ | 141,554 | |||
Classified on the condensed consolidated unaudited balance sheets as: | |||||||
Accrued expenses and other current liabilities | 16,896 | ||||||
Other long-term obligations | 18,200 | ||||||
Total Consumer Financing Program Contractual Obligation | $ | 35,096 |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Operating expenses | $ | 9 | $ | 11 | $ | 49 | $ | 42 | |||||||
Selling expenses | 55 | 49 | 165 | (190 | ) | ||||||||||
General and administrative expenses | 337 | 448 | 1,073 | 3,486 | |||||||||||
Total stock-based compensation | $ | 401 | $ | 508 | $ | 1,287 | $ | 3,338 |
Rent Expense | ||||||||||||||||
For the three months ended, | For the nine months ended, | |||||||||||||||
September 30, 2017 | September 30, 2016 | September 30, 2017 | September 30, 2016 | Lease Term | ||||||||||||
Arrangement | ||||||||||||||||
Warehouse, office space and other | $ | 3,489 | $ | 2,820 | $ | 9,374 | $ | 8,413 | 11 - 15 years | |||||||
Wireless towers and spectrum | 1,169 | 1,116 | 3,513 | 3,483 | 1 - 10 years | |||||||||||
Total Rent Expense | $ | 4,658 | $ | 3,936 | $ | 12,887 | $ | 11,896 |
• | A Master Intercompany Framework Agreement which establishes a framework for the ongoing relationship between the Company and Solar and contains master terms regarding the protection of each other’s confidential information, and master procedural terms, such as notice procedures, restrictions on assignment, interpretive provisions, governing law and dispute resolution; |
• | A Non-Competition Agreement in which the Company and Solar each define their current areas of business and their competitors, and agree not to directly or indirectly engage in the other’s business for three years; |
• | A Transition Services Agreement pursuant to which the Company will provide to Solar various enterprise services, including services relating to information technology and infrastructure, human resources and employee benefits, administration services and facilities-related services; |
• | A Marketing and Customer Relations Agreement which governs various cross-marketing initiatives between the Company and Solar, in particularly the provision of sales leads from each company to the other; and |
• | A Trademark License Agreement pursuant to which the licensor, a special purpose subsidiary majority-owned by the Company and minority-owned by Solar, will grant Solar a royalty-free exclusive license to the trademark “VIVINT SOLAR” in the field of selling renewable energy or energy storage products and services. |
Three Months Ended | Nine Months Ended | ||||||||||||
September 30, 2017 | September 30, 2016 | September 30, 2017 | September 30, 2016 | ||||||||||
Wireless restructuring and asset impairment (recoveries) charges: | |||||||||||||
Recoveries of impaired assets | $ | — | $ | — | $ | — | $ | (710 | ) | ||||
Contract termination costs | — | (3 | ) | — | — | ||||||||
Employee severance and termination benefits charges | — | (103 | ) | — | (76 | ) | |||||||
Total wireless restructuring and asset impairment recoveries | — | (106 | ) | — | (786 | ) | |||||||
Loss on subscriber contract sales | — | 2,551 | — | 2,551 | |||||||||
Total restructuring and asset impairment costs | $ | — | $ | 2,445 | $ | — | $ | 1,765 |
Contract termination costs | |||
Accrued restructuring balance as of December 31, 2016 | $ | 649 | |
Cash payments | (68 | ) | |
Accrued restructuring balance as of September 30, 2017 | $ | 581 |
United States | Canada | Total | ||||||||||
Revenue from external customers | ||||||||||||
Three months ended September 30, 2017 | $ | 211,077 | $ | 17,581 | $ | 228,658 | ||||||
Three months ended September 30, 2016 | 183,144 | 15,191 | 198,335 | |||||||||
Nine months ended September 30, 2017 | 597,842 | 48,295 | 646,137 | |||||||||
Nine months ended September 30, 2016 | 511,325 | 42,070 | 553,395 | |||||||||
Property, plant and equipment, net | ||||||||||||
As of September 30, 2017 | $ | 72,124 | $ | 796 | $ | 72,920 | ||||||
As of December 31, 2016 | 62,781 | 845 | 63,626 |
Parent | APX Group, Inc. | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Consolidated | ||||||||||||||||||
Assets | |||||||||||||||||||||||
Current assets | $ | — | $ | 113,899 | $ | 249,783 | $ | 37,274 | $ | (131,821 | ) | $ | 269,135 | ||||||||||
Property, plant and equipment, net | — | — | 72,124 | 796 | — | 72,920 | |||||||||||||||||
Subscriber acquisition costs, net | — | — | 1,178,823 | 96,541 | — | 1,275,364 | |||||||||||||||||
Deferred financing costs, net | — | 3,373 | — | — | — | 3,373 | |||||||||||||||||
Investment in subsidiaries | — | 2,195,885 | — | — | (2,195,885 | ) | — | ||||||||||||||||
Intercompany receivable | — | — | 6,303 | — | (6,303 | ) | — | ||||||||||||||||
Intangible assets, net | — | — | 374,055 | 28,906 | — | 402,961 | |||||||||||||||||
Goodwill | — | — | 809,678 | 27,532 | — | 837,210 | |||||||||||||||||
Long-term investments and other assets | — | 106 | 72,922 | 10,135 | (106 | ) | 83,057 | ||||||||||||||||
Total Assets | $ | — | $ | 2,313,263 | $ | 2,763,688 | $ | 201,184 | $ | (2,334,115 | ) | $ | 2,944,020 | ||||||||||
Liabilities and Stockholders’ (Deficit) Equity | |||||||||||||||||||||||
Current liabilities | $ | — | $ | 69,880 | $ | 330,555 | $ | 118,099 | $ | (131,821 | ) | $ | 386,713 | ||||||||||
Intercompany payable | — | — | — | 6,303 | (6,303 | ) | — | ||||||||||||||||
Notes payable and revolving credit facility, net of current portion | — | 2,759,200 | — | — | — | 2,759,200 | |||||||||||||||||
Capital lease obligations, net of current portion | — | — | 7,836 | 384 | — | 8,220 | |||||||||||||||||
Deferred revenue, net of current portion | — | — | 212,152 | 15,290 | — | 227,442 | |||||||||||||||||
Other long-term obligations | — | — | 70,501 | — | — | 70,501 | |||||||||||||||||
Accumulated losses of investee, net | 515,817 | (515,817 | ) | — | |||||||||||||||||||
Deferred income tax liability | — | — | 106 | 7,761 | (106 | ) | 7,761 | ||||||||||||||||
Total (deficit) equity | (515,817 | ) | (515,817 | ) | 2,142,538 | 53,347 | (1,680,068 | ) | (515,817 | ) | |||||||||||||
Total liabilities and stockholders’ (deficit) equity | $ | — | $ | 2,313,263 | $ | 2,763,688 | $ | 201,184 | $ | (2,334,115 | ) | $ | 2,944,020 |
Parent | APX Group, Inc. | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Consolidated | ||||||||||||||||||
Assets | |||||||||||||||||||||||
Current assets | $ | — | $ | 25,136 | $ | 143,954 | $ | 3,730 | $ | (67,799 | ) | $ | 105,021 | ||||||||||
Property, plant and equipment, net | — | — | 62,781 | 845 | — | 63,626 | |||||||||||||||||
Subscriber acquisition costs, net | — | — | 974,975 | 77,459 | — | 1,052,434 | |||||||||||||||||
Deferred financing costs, net | — | 4,420 | — | — | — | 4,420 | |||||||||||||||||
Investment in subsidiaries | — | 2,228,903 | — | — | (2,228,903 | ) | — | ||||||||||||||||
Intercompany receivable | — | — | 9,492 | — | (9,492 | ) | — | ||||||||||||||||
Intangible assets, net | — | — | 443,189 | 32,203 | — | 475,392 | |||||||||||||||||
Goodwill | — | — | 809,678 | 25,555 | — | 835,233 | |||||||||||||||||
Long-term investments and other assets | — | 106 | 11,523 | 13 | (106 | ) | 11,536 | ||||||||||||||||
Total Assets | $ | — | $ | 2,258,565 | $ | 2,455,592 | $ | 139,805 | $ | (2,306,300 | ) | $ | 2,547,662 | ||||||||||
Liabilities and Stockholders’ (Deficit) Equity | |||||||||||||||||||||||
Current liabilities | $ | — | $ | 17,047 | $ | 160,956 | $ | 74,987 | $ | (67,799 | ) | $ | 185,191 | ||||||||||
Intercompany payable | — | — | — | 9,492 | (9,492 | ) | — | ||||||||||||||||
Notes payable and revolving credit facility, net of current portion | — | 2,486,700 | — | — | — | 2,486,700 | |||||||||||||||||
Capital lease obligations, net of current portion | — | — | 7,368 | 567 | — | 7,935 | |||||||||||||||||
Deferred revenue, net of current portion | — | — | 53,991 | 4,743 | — | 58,734 | |||||||||||||||||
Accumulated Losses of Investee, net | 245,182 | (245,182 | ) | — | |||||||||||||||||||
Other long-term obligations | — | — | 47,080 | — | — | 47,080 | |||||||||||||||||
Deferred income tax liability | — | — | 106 | 7,204 | (106 | ) | 7,204 | ||||||||||||||||
Total (deficit) equity | (245,182 | ) | (245,182 | ) | 2,186,091 | 42,812 | (1,983,721 | ) | (245,182 | ) | |||||||||||||
Total liabilities and stockholders’ (deficit) equity | $ | — | $ | 2,258,565 | $ | 2,455,592 | $ | 139,805 | $ | (2,306,300 | ) | $ | 2,547,662 |
Parent | APX Group, Inc. | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Consolidated | ||||||||||||||||||
Revenues | $ | — | $ | — | $ | 216,560 | $ | 12,770 | $ | (672 | ) | $ | 228,658 | ||||||||||
Costs and expenses | — | — | 257,988 | 11,489 | (672 | ) | 268,805 | ||||||||||||||||
(Loss) income from operations | — | — | (41,428 | ) | 1,281 | — | (40,147 | ) | |||||||||||||||
Loss from subsidiaries | (107,920 | ) | (40,608 | ) | — | — | 148,528 | — | |||||||||||||||
Other expense (income), net | — | 67,312 | 2,356 | (3,052 | ) | — | 66,616 | ||||||||||||||||
(Loss) income before income tax expenses | (107,920 | ) | (107,920 | ) | (43,784 | ) | 4,333 | 148,528 | (106,763 | ) | |||||||||||||
Income tax (benefit) expense | — | — | (34 | ) | 1,191 | — | 1,157 | ||||||||||||||||
Net (loss) income | $ | (107,920 | ) | $ | (107,920 | ) | $ | (43,750 | ) | $ | 3,142 | $ | 148,528 | $ | (107,920 | ) | |||||||
Other comprehensive (loss) income, net of tax effects: | |||||||||||||||||||||||
Net (loss) income | $ | (107,920 | ) | $ | (107,920 | ) | $ | (43,750 | ) | $ | 3,142 | $ | 148,528 | $ | (107,920 | ) | |||||||
Foreign currency translation adjustment | — | 1,967 | — | 1,967 | (1,967 | ) | 1,967 | ||||||||||||||||
Unrealized loss on marketable securities | — | (413 | ) | (413 | ) | — | 413 | (413 | ) | ||||||||||||||
Total other comprehensive income (loss) | — | 1,554 | (413 | ) | 1,967 | (1,554 | ) | 1,554 | |||||||||||||||
Comprehensive (loss) income | $ | (107,920 | ) | $ | (106,366 | ) | $ | (44,163 | ) | $ | 5,109 | $ | 146,974 | $ | (106,366 | ) |
Parent | APX Group, Inc. | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Consolidated | ||||||||||||||||||
Revenues | $ | — | $ | — | $ | 187,225 | $ | 11,786 | $ | (676 | ) | $ | 198,335 | ||||||||||
Costs and expenses | — | — | 202,068 | 14,679 | (676 | ) | 216,071 | ||||||||||||||||
Loss from operations | — | — | (14,843 | ) | (2,893 | ) | — | (17,736 | ) | ||||||||||||||
Loss from subsidiaries | (69,974 | ) | (18,287 | ) | — | — | 88,261 | — | |||||||||||||||
Other expense (income), net | — | 51,687 | 2,545 | (1,849 | ) | — | 52,383 | ||||||||||||||||
Loss before income tax expenses | (69,974 | ) | (69,974 | ) | (17,388 | ) | (1,044 | ) | 88,261 | (70,119 | ) | ||||||||||||
Income tax expense (benefit) | — | — | 156 | (301 | ) | — | (145 | ) | |||||||||||||||
Net loss | $ | (69,974 | ) | $ | (69,974 | ) | $ | (17,544 | ) | $ | (743 | ) | $ | 88,261 | $ | (69,974 | ) | ||||||
Other comprehensive loss, net of tax effects: | — | ||||||||||||||||||||||
Net loss | $ | (69,974 | ) | $ | (69,974 | ) | $ | (17,544 | ) | $ | (743 | ) | $ | 88,261 | $ | (69,974 | ) | ||||||
Foreign currency translation adjustment | — | 673 | — | 673 | (673 | ) | 673 | ||||||||||||||||
Total other comprehensive income | — | 673 | — | 673 | (673 | ) | 673 | ||||||||||||||||
Comprehensive loss | $ | (69,974 | ) | $ | (69,301 | ) | $ | (17,544 | ) | $ | (70 | ) | $ | 87,588 | $ | (69,301 | ) |
Parent | APX Group, Inc. | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Consolidated | ||||||||||||||||||
Revenues | $ | — | $ | — | $ | 612,075 | $ | 36,085 | $ | (2,023 | ) | $ | 646,137 | ||||||||||
Costs and expenses | — | — | 703,656 | 31,641 | (2,023 | ) | 733,274 | ||||||||||||||||
(Loss) income from operations | — | — | (91,581 | ) | 4,444 | — | (87,137 | ) | |||||||||||||||
Loss from subsidiaries | (274,793 | ) | (88,104 | ) | — | — | 362,897 | — | |||||||||||||||
Other expense (income), net | — | 186,689 | 4,097 | (5,438 | ) | — | 185,348 | ||||||||||||||||
(Loss) income before income tax expenses | (274,793 | ) | (274,793 | ) | (95,678 | ) | 9,882 | 362,897 | (272,485 | ) | |||||||||||||
Income tax (benefit) expense | — | — | (303 | ) | 2,611 | — | 2,308 | ||||||||||||||||
Net (loss) income | $ | (274,793 | ) | $ | (274,793 | ) | $ | (95,375 | ) | $ | 7,271 | $ | 362,897 | $ | (274,793 | ) | |||||||
Other comprehensive (loss) income, net of tax effects: | |||||||||||||||||||||||
Net (loss) income | $ | (274,793 | ) | $ | (274,793 | ) | $ | (95,375 | ) | $ | 7,271 | $ | 362,897 | $ | (274,793 | ) | |||||||
Foreign currency translation adjustment | — | 3,543 | — | 3,543 | (3,543 | ) | 3,543 | ||||||||||||||||
Unrealized loss on marketable securities | — | (671 | ) | (671 | ) | — | 671 | (671 | ) | ||||||||||||||
Total other comprehensive income (loss) | — | 2,872 | (671 | ) | 3,543 | (2,872 | ) | 2,872 | |||||||||||||||
Comprehensive (loss) income | $ | (274,793 | ) | $ | (271,921 | ) | $ | (96,046 | ) | $ | 10,814 | $ | 360,025 | $ | (271,921 | ) |
Parent | APX Group, Inc. | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Consolidated | ||||||||||||||||||
Revenues | $ | — | $ | — | $ | 524,481 | $ | 30,941 | $ | (2,027 | ) | $ | 553,395 | ||||||||||
Costs and expenses | — | — | 575,387 | 34,319 | (2,027 | ) | 607,679 | ||||||||||||||||
Loss from operations | — | — | (50,906 | ) | (3,378 | ) | — | (54,284 | ) | ||||||||||||||
Loss from subsidiaries | (204,789 | ) | (50,781 | ) | — | — | 255,570 | — | |||||||||||||||
Other expense (income), net | — | 154,008 | 1,117 | (5,147 | ) | — | 149,978 | ||||||||||||||||
(Loss) income before income tax expenses | (204,789 | ) | (204,789 | ) | (52,023 | ) | 1,769 | 255,570 | (204,262 | ) | |||||||||||||
Income tax expense | — | — | 341 | 186 | — | 527 | |||||||||||||||||
Net (loss) income | $ | (204,789 | ) | $ | (204,789 | ) | $ | (52,364 | ) | $ | 1,583 | $ | 255,570 | $ | (204,789 | ) | |||||||
Other comprehensive loss, net of tax effects: | |||||||||||||||||||||||
Net (loss) income | $ | (204,789 | ) | $ | (204,789 | ) | $ | (52,364 | ) | $ | 1,583 | $ | 255,570 | $ | (204,789 | ) | |||||||
Foreign currency translation adjustment | — | 3,474 | — | 3,474 | (3,474 | ) | 3,474 | ||||||||||||||||
Total other comprehensive income | — | 3,474 | — | 3,474 | (3,474 | ) | 3,474 | ||||||||||||||||
Comprehensive (loss) income | $ | (204,789 | ) | $ | (201,315 | ) | $ | (52,364 | ) | $ | 5,057 | $ | 252,096 | $ | (201,315 | ) |
Parent | APX Group, Inc. | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Consolidated | ||||||||||||||||||
Cash flows from operating activities: | |||||||||||||||||||||||
Net cash (used in) provided by operating activities | $ | — | $ | — | $ | (154,360 | ) | $ | 5,092 | $ | — | $ | (149,268 | ) | |||||||||
Cash flows from investing activities: | |||||||||||||||||||||||
Capital expenditures | — | — | (14,842 | ) | — | — | (14,842 | ) | |||||||||||||||
Proceeds from sale of assets | — | — | 275 | — | — | 275 | |||||||||||||||||
Investment in subsidiary | — | (157,400 | ) | — | — | 157,400 | — | ||||||||||||||||
Acquisition of intangible assets | — | — | (1,057 | ) | — | — | (1,057 | ) | |||||||||||||||
Acquisition of other assets | — | — | (156 | ) | — | — | (156 | ) | |||||||||||||||
Net cash used in investing activities | — | (157,400 | ) | (15,780 | ) | — | 157,400 | (15,780 | ) | ||||||||||||||
Cash flows from financing activities: | |||||||||||||||||||||||
Proceeds from notes payable | — | 724,750 | — | — | — | 724,750 | |||||||||||||||||
Repayment on notes payable | — | (450,000 | ) | — | — | — | (450,000 | ) | |||||||||||||||
Borrowings from revolving credit facility | — | 124,000 | — | — | — | 124,000 | |||||||||||||||||
Repayments on revolving credit facility | — | (124,000 | ) | — | — | — | (124,000 | ) | |||||||||||||||
Proceeds from capital contribution | — | — | 157,400 | — | (157,400 | ) | — | ||||||||||||||||
Intercompany receivable | — | — | 3,621 | — | (3,621 | ) | — | ||||||||||||||||
Intercompany payable | — | — | — | (3,621 | ) | 3,621 | — | ||||||||||||||||
Repayments of capital lease obligations | — | — | (6,899 | ) | (262 | ) | — | (7,161 | ) | ||||||||||||||
Payments of other long-term obligations | — | — | (2,065 | ) | — | — | (2,065 | ) | |||||||||||||||
Financing costs | — | (17,771 | ) | — | — | — | (17,771 | ) | |||||||||||||||
Deferred financing costs | — | (10,730 | ) | — | — | — | (10,730 | ) | |||||||||||||||
Net cash provided by (used in) financing activities | — | 246,249 | 152,057 | (3,883 | ) | (157,400 | ) | 237,023 | |||||||||||||||
Effect of exchange rate changes on cash | — | — | — | 72 | — | 72 | |||||||||||||||||
Net increase (decrease) in cash and cash equivalents | — | 88,849 | (18,083 | ) | 1,281 | — | 72,047 | ||||||||||||||||
Cash and cash equivalents: | |||||||||||||||||||||||
Beginning of period | — | 24,680 | 18,186 | 654 | — | 43,520 | |||||||||||||||||
End of period | $ | — | $ | 113,529 | $ | 103 | $ | 1,935 | $ | — | $ | 115,567 |
Parent | APX Group, Inc. | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Consolidated | ||||||||||||||||||
Cash flows from operating activities: | |||||||||||||||||||||||
Net cash (used in) provided by operating activities | $ | — | $ | — | $ | (237,441 | ) | $ | 12,652 | $ | — | $ | (224,789 | ) | |||||||||
Cash flows from investing activities: | |||||||||||||||||||||||
Subscriber acquisition costs – company owned equipment | — | — | (4,957 | ) | — | — | (4,957 | ) | |||||||||||||||
Capital expenditures | — | — | (6,905 | ) | — | — | (6,905 | ) | |||||||||||||||
Investment in subsidiary | (100,407 | ) | (261,590 | ) | — | — | 361,997 | — | |||||||||||||||
Acquisition of intangible assets | — | — | (789 | ) | — | — | (789 | ) | |||||||||||||||
Proceeds from sale of assets | — | — | 2,735 | 43 | — | 2,778 | |||||||||||||||||
Net cash (used in) provided by investing activities | (100,407 | ) | (261,590 | ) | (9,916 | ) | 43 | 361,997 | (9,873 | ) | |||||||||||||
Cash flows from financing activities: | |||||||||||||||||||||||
Proceeds from notes payable | — | 604,000 | — | — | — | 604,000 | |||||||||||||||||
Repayment on notes payable | — | (235,535 | ) | — | — | — | (235,535 | ) | |||||||||||||||
Borrowings from revolving credit facility | — | 57,000 | — | — | — | 57,000 | |||||||||||||||||
Repayments on revolving credit facility | — | (77,000 | ) | — | — | — | (77,000 | ) | |||||||||||||||
Intercompany receivable | — | — | 8,001 | — | (8,001 | ) | — | ||||||||||||||||
Intercompany payable | — | — | 261,590 | (8,001 | ) | (253,589 | ) | — | |||||||||||||||
Proceeds from capital contributions | 100,407 | 100,407 | — | (100,407 | ) | 100,407 | |||||||||||||||||
Payment of intercompany settlement | — | — | 3,000 | (3,000 | ) | — | — | ||||||||||||||||
Repayments of capital lease obligations | — | — | (5,977 | ) | (4 | ) | — | (5,981 | ) | ||||||||||||||
Financing costs | — | (8,936 | ) | — | — | — | (8,936 | ) | |||||||||||||||
Deferred financing costs | — | (8,931 | ) | — | — | — | (8,931 | ) | |||||||||||||||
Net cash provided by (used in) financing activities | 100,407 | 431,005 | 266,614 | (11,005 | ) | (361,997 | ) | 425,024 | |||||||||||||||
Effect of exchange rate changes on cash | — | — | — | (482 | ) | — | (482 | ) | |||||||||||||||
Net increase in cash and cash equivalents | — | 169,415 | 19,257 | 1,208 | — | 189,880 | |||||||||||||||||
Cash and cash equivalents: | |||||||||||||||||||||||
Beginning of period | — | 2,299 | (1,941 | ) | 2,201 | — | 2,559 | ||||||||||||||||
End of period | $ | — | $ | 171,714 | $ | 17,316 | $ | 3,409 | $ | — | $ | 192,439 |
ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
• | number of subscriber additions, |
• | net subscriber acquisition costs, |
• | AMRNU, |
• | the total price paid by new subscribers for our Products under the Vivint Flex Pay plan, |
• | the mix of subscribers purchasing our Products through the Consumer Financing Program versus through RICs, |
• | subscriber attrition, |
• | the costs to monitor and service our subscribers, |
• | the level of general and administrative expenses; and |
• | the availability and cost of capital required to generate new subscribers. |
Twelve months ended September 30, 2017 | Twelve months ended September 30, 2016 | ||||
Beginning balance of subscribers | 1,142,571 | 1,015,267 | |||
Net new additions | 260,953 | 270,598 | |||
Subscriber contracts sold (1) | — | (7,520 | ) | ||
Attrition | (133,046 | ) | (135,774 | ) | |
Ending balance of subscribers | 1,270,478 | 1,142,571 | |||
Monthly average subscribers | 1,180,116 | 1,050,185 | |||
Attrition rate | 11.3 | % | 12.9 | % |
(1) | Represents our New Zealand and Puerto Rico subscriber contracts sold during the three months ended September 30, 2016. |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
(in thousands) | |||||||||||||||
Total revenues | $ | 228,658 | $ | 198,335 | $ | 646,137 | $ | 553,395 | |||||||
Total costs and expenses | 268,805 | 216,071 | 733,274 | 607,679 | |||||||||||
Loss from operations | (40,147 | ) | (17,736 | ) | (87,137 | ) | (54,284 | ) | |||||||
Other expenses | 66,616 | 52,383 | 185,348 | 149,978 | |||||||||||
Loss before taxes | (106,763 | ) | (70,119 | ) | (272,485 | ) | (204,262 | ) | |||||||
Income tax (benefit) expense | 1,157 | (145 | ) | 2,308 | 527 | ||||||||||
Net loss | $ | (107,920 | ) | $ | (69,974 | ) | $ | (274,793 | ) | $ | (204,789 | ) |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Key operating metrics (1) | |||||||||||||||
Total Subscribers, as of September 30 (in thousands) (2) | 1,270.5 | 1,142.6 | |||||||||||||
Total MSR (in thousands) (2) | $ | 71,235 | $ | 65,306 | |||||||||||
AMSRU (2) | $ | 56.07 | $ | 57.16 | |||||||||||
AMRNU | $ | 67.42 | $ | 68.85 | $ | 67.72 | $ | 66.89 | |||||||
Net Service Cost per User | $ | 15.04 | $ | 14.59 | $ | 15.47 | $ | 14.68 | |||||||
Net Service Margin | 73.2 | % | 74.5 | % | 72.4 | % | 74.3 | % |
Three Months Ended September 30, | ||||||||||
2017 | 2016 | % Change | ||||||||
Recurring and other revenue | $ | 219,111 | $ | 189,032 | 16 | % | ||||
Service and other sales revenue | 6,764 | 6,005 | 13 | % | ||||||
Activation fees | 2,783 | 3,298 | (16 | )% | ||||||
Total revenues | $ | 228,658 | $ | 198,335 | 15 | % |
Three Months Ended September 30, | ||||||||||
2017 | 2016 | % Change | ||||||||
Operating expenses | $ | 81,108 | $ | 68,872 | 18 | % | ||||
Selling expenses | 53,821 | 32,633 | 65 | % | ||||||
General and administrative | 49,416 | 35,284 | 40 | % | ||||||
Depreciation and amortization | 84,460 | 76,837 | 10 | % | ||||||
Restructuring and asset impairment charges | — | 2,445 | NM | |||||||
Total costs and expenses | $ | 268,805 | $ | 216,071 | 24 | % |
Three Months Ended September 30, | ||||||||||
2017 | 2016 | % Change | ||||||||
Interest expense | $ | 58,005 | $ | 51,962 | 12 | % | ||||
Interest income | — | (130 | ) | NM | ||||||
Other loss, net | 8,611 | 551 | NM | |||||||
Total other expenses, net | $ | 66,616 | $ | 52,383 | 27 | % |
Three Months Ended September 30, | ||||||||||
2017 | 2016 | % Change | ||||||||
Income tax expense (benefit) | $ | 1,157 | $ | (145 | ) | (898 | )% |
Nine Months Ended September 30, | ||||||||||
2017 | 2016 | % Change | ||||||||
Recurring and other revenue | $ | 618,752 | $ | 528,950 | 17 | % | ||||
Service and other sales revenue | 18,513 | 16,842 | 10 | % | ||||||
Activation fees | 8,872 | 7,603 | 17 | % | ||||||
Total revenues | $ | 646,137 | $ | 553,395 | 17 | % |
Nine Months Ended September 30, | ||||||||||
2017 | 2016 | % Change | ||||||||
Operating expenses | $ | 229,776 | $ | 195,806 | 17 | % | ||||
Selling expenses | 134,894 | 98,856 | 36 | % | ||||||
General and administrative | 127,179 | 101,834 | 25 | % | ||||||
Depreciation and amortization | 241,425 | 209,418 | 15 | % | ||||||
Restructuring and asset impairment charges | — | 1,765 | NM | |||||||
Total costs and expenses | $ | 733,274 | $ | 607,679 | 21 | % |
Nine Months Ended September 30, | ||||||||||
2017 | 2016 | % Change | ||||||||
Interest expense | $ | 166,644 | $ | 144,827 | 15 | % | ||||
Interest income | (104 | ) | (153 | ) | NM | |||||
Other loss, net | 18,808 | 5,304 | NM | |||||||
Total other expenses, net | $ | 185,348 | $ | 149,978 | 24 | % |
Nine Months Ended September 30, | |||||||||
2017 | 2016 | % Change | |||||||
Income tax expense | $ | 2,308 | $ | 527 | NM |
Nine Months Ended September 30, | ||||||||||
2017 | 2016 | % Change | ||||||||
Net cash used in operating activities | $ | (149,268 | ) | $ | (224,789 | ) | (34 | )% | ||
Net cash used in investing activities | (15,780 | ) | (9,873 | ) | 60 | % | ||||
Net cash provided by financing activities | 237,023 | 425,024 | (44 | )% |
• | incur or guarantee additional debt or issue disqualified stock or preferred stock; |
• | pay dividends and make other distributions on, or redeem or repurchase, capital stock; |
• | make certain investments; |
• | incur certain liens; |
• | enter into transactions with affiliates; |
• | merge or consolidate; |
• | enter into agreements that restrict the ability of restricted subsidiaries to make dividends or other payments to APX; |
• | designate restricted subsidiaries as unrestricted subsidiaries; |
• | amend, prepay, redeem or purchase certain subordinated debt; and |
• | transfer or sell certain assets. |
Three Months Ended September 30, 2017 | Nine Months Ended September 30, 2017 | Twelve months ended September 30, 2017 | |||||||||
Net loss | $ | (107,920 | ) | $ | (274,793 | ) | $ | (345,961 | ) | ||
Interest expense, net | 58,005 | 166,540 | 219,399 | ||||||||
Other expense, net | 8,611 | 18,808 | 20,759 | ||||||||
Income tax expense | 1,157 | 2,308 | 1,848 | ||||||||
Restructuring and asset impairment recoveries (1) | — | — | (752 | ) | |||||||
Depreciation and amortization (2) | 30,910 | 91,492 | 125,053 | ||||||||
Amortization of subscriber acquisition costs | 53,550 | 149,933 | 195,497 | ||||||||
Non-capitalized subscriber acquisition costs (3) | 69,477 | 172,528 | 215,807 | ||||||||
Non-cash compensation (4) | 343 | 1,120 | 1,590 | ||||||||
Other adjustments (5) | 14,409 | 36,538 | 49,509 | ||||||||
Adjusted EBITDA | $ | 128,542 | $ | 364,474 | $ | 482,749 |
(1) | Reflects recoveries associated with the restructuring and asset impairment charges related to the transition of our Wireless Internet business (See Note 13 to the accompanying unaudited condensed consolidated financial statements). |
(2) | Excludes loan amortization costs that are included in interest expense. |
(3) | 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. |
(4) | Reflects non-cash compensation costs related to employee and director stock and stock option plans. Excludes non-cash compensation costs included in non-capitalized subscriber acquisition costs. |
(5) | Other adjustments represent primarily the following items (in thousands): |
Three Months Ended September 30, 2017 | Nine Months Ended September 30, 2017 | Twelve months ended September 30, 2017 | |||||||||
Product development (a) | $ | 6,359 | $ | 18,483 | $ | 25,168 | |||||
Information technology implementation (b) | — | 3,188 | 4,453 | ||||||||
Monitoring fee (c) | 1,192 | 3,539 | 4,356 | ||||||||
Purchase accounting deferred revenue fair value adjustment (d) | 759 | 2,642 | 3,726 | ||||||||
Non-operating legal and professional fees | 1,054 | 2,027 | 3,615 | ||||||||
Start-up of new strategic initiatives (e) | 2,669 | 3,486 | 3,486 | ||||||||
Compensation-related payments (f) | — | 225 | 416 | ||||||||
All other adjustments | 2,376 | 2,948 | 4,289 | ||||||||
Total other adjustments | $ | 14,409 | $ | 36,538 | $ | 49,509 |
(a) | Costs related to the development of control panels, including associated software, peripheral devices and Wireless Internet Technology. |
(b) | Costs related to the implementation of new information technologies. |
(c) | BMP monitoring fee (See Note 11 to the accompanying unaudited condensed consolidated financial statements). |
(d) | Add back revenue reduction directly related to purchase accounting deferred revenue adjustments. |
(e) | Costs related to the start-up of potential new service offerings and sales channels. |
(f) | Severance and other non-recurring employee compensation payments. |
ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
ITEM 4. | CONTROLS AND PROCEDURES |
ITEM 1. | LEGAL PROCEEDINGS |
ITEM 1A. | RISK FACTORS |
• | making it more difficult for us to satisfy our obligations with respect to our debt; |
• | limiting our ability to obtain additional financing to fund future working capital, capital expenditures, acquisitions or other general corporate requirements; |
• | requiring a substantial portion of our cash flows to be dedicated to debt service payments instead of other purposes, thereby reducing the amount of cash flows and future borrowings available for working capital, capital expenditures (including subscriber acquisition costs), acquisitions and other general corporate purposes; |
• | increasing our vulnerability to general adverse economic and industry conditions; |
• | exposing us to the risk of increased interest rates as certain of our borrowings are at variable rates of interest; |
• | limiting our flexibility in planning for and reacting to changes in the industry in which we compete; |
• | placing us at a disadvantage compared to other, less leveraged competitors; and |
• | increasing our cost of borrowing. |
• | incur or guarantee additional debt or issue disqualified stock or preferred stock; |
• | pay dividends and make other distributions on, or redeem or repurchase, capital stock; |
• | make certain investments; |
• | incur certain liens; |
• | enter into transactions with affiliates; |
• | merge or consolidate; |
• | enter into agreements that restrict the ability of certain subsidiaries to make dividends or other payments to us; and |
• | transfer or sell assets. |
ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
ITEM 3. | DEFAULTS UPON SENIOR SECURITIES |
ITEM 4. | MINE SAFETY DISCLOSURES |
ITEM 5. | OTHER INFORMATION |
ITEM 6. | EXHIBITS |
Incorporated by Reference | ||||||||||||
Exhibit Number | Exhibit Title | Form | File No. | Exhibit No. | Filing Date | Provided Herewith | ||||||
4.1 | 8-K | 333-191132-02 | 4.1 | August 10, 2017 | ||||||||
4.2 | 8-K | 333-191132-02 | 4.2 | August 10, 2017 | ||||||||
10.1 | 8-K | 333-191132-02 | 10.1 | August 10, 2017 | ||||||||
31.1 | X | |||||||||||
31.2 | X | |||||||||||
32.1 | X | |||||||||||
32.2 | X | |||||||||||
101.INS | XBRL Instance Document. | X | ||||||||||
101.SCH | XBRL Taxonomy Extension Schema Document. | X | ||||||||||
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document. | X | ||||||||||
101.DEF | XBRL Taxonomy Extension Schema Document. | X | ||||||||||
101.LAB | XBRL Taxonomy Extension Label Linkbase Document. | X | ||||||||||
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document. | X |
APX Group Holdings Inc. | |||||||
Date: | November 14, 2017 | By: | /s/ Todd Pedersen | ||||
Todd Pedersen | |||||||
Chief Executive Officer and Director (Principal Executive Officer) | |||||||
Date: | November 14, 2017 | By: | /s/ Mark Davies | ||||
Mark Davies | |||||||
Chief Financial Officer (Principal Financial Officer) |
/s/ Todd Pedersen |
Todd Pedersen |
Chief Executive Officer and Director (Principal Executive Officer) |
/s/ Mark Davies |
Mark Davies |
Chief Financial Officer (Principal Financial Officer) |
• | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
• | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company for the periods presented therein. |
/s/ Todd Pedersen |
Todd Pedersen |
Chief Executive Officer and Director (Principal Executive Officer) |
• | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
• | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company for the periods presented therein. |
/s/ Mark Davies |
Mark Davies |
Chief Financial Officer (Principal Financial Officer) |
Document and Entity Information - shares |
9 Months Ended | |
---|---|---|
Sep. 30, 2017 |
Nov. 14, 2017 |
|
Document And Entity Information [Abstract] | ||
Document Type | 10-Q | |
Amendment Flag | false | |
Document Period End Date | Sep. 30, 2017 | |
Document Fiscal Year Focus | 2017 | |
Document Fiscal Period Focus | Q3 | |
Trading Symbol | ck0001584423 | |
Entity Registrant Name | APX Group Holdings, Inc. | |
Entity Central Index Key | 0001584423 | |
Current Fiscal Year End Date | --12-31 | |
Entity Filer Category | Non-accelerated Filer | |
Entity Common Stock, Shares Outstanding | 100 |
Condensed Consolidated Balance Sheets (unaudited) (Parenthetical) - $ / shares |
Sep. 30, 2017 |
Dec. 31, 2016 |
---|---|---|
Statement of Financial Position [Abstract] | ||
Common stock, par value (in dollars per share) | $ 0.01 | $ 0.01 |
Common stock, authorized (in shares) | 100 | 100 |
Common stock, issued (in shares) | 100 | 100 |
Common stock, outstanding (in shares) | 100 | 100 |
Condensed Consolidated Statements of Operations (unaudited) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2017 |
Sep. 30, 2016 |
Sep. 30, 2017 |
Sep. 30, 2016 |
|
Revenues: | ||||
Recurring and other revenue | $ 219,111 | $ 189,032 | $ 618,752 | $ 528,950 |
Service and other sales revenue | 6,764 | 6,005 | 18,513 | 16,842 |
Activation fees | 2,783 | 3,298 | 8,872 | 7,603 |
Total revenues | 228,658 | 198,335 | 646,137 | 553,395 |
Costs and expenses: | ||||
Operating expenses (exclusive of depreciation and amortization shown separately below) | 81,108 | 68,872 | 229,776 | 195,806 |
Selling expenses | 53,821 | 32,633 | 134,894 | 98,856 |
General and administrative expenses | 49,416 | 35,284 | 127,179 | 101,834 |
Depreciation and amortization | 84,460 | 76,837 | 241,425 | 209,418 |
Restructuring and asset impairment recoveries | 0 | 2,445 | 0 | 1,765 |
Total costs and expenses | 268,805 | 216,071 | 733,274 | 607,679 |
Loss from operations | (40,147) | (17,736) | (87,137) | (54,284) |
Other expenses (income): | ||||
Interest expense | 58,005 | 51,962 | 166,644 | 144,827 |
Interest income | 0 | (130) | (104) | (153) |
Other loss, net | 8,611 | 551 | 18,808 | 5,304 |
Loss before income taxes | (106,763) | (70,119) | (272,485) | (204,262) |
Income tax expense (benefit) | 1,157 | (145) | 2,308 | 527 |
Net loss | $ (107,920) | $ (69,974) | $ (274,793) | $ (204,789) |
Condensed Consolidated Statements of Comprehensive Loss (unaudited) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2017 |
Sep. 30, 2016 |
Sep. 30, 2017 |
Sep. 30, 2016 |
|
Statement of Comprehensive Income [Abstract] | ||||
Net loss | $ (107,920) | $ (69,974) | $ (274,793) | $ (204,789) |
Other comprehensive income, net of tax effects: | ||||
Foreign currency translation adjustment | 1,967 | 673 | 3,543 | 3,474 |
Unrealized loss on marketable securities | (413) | 0 | (671) | 0 |
Total other comprehensive gain | 1,554 | 673 | 2,872 | 3,474 |
Comprehensive loss | $ (106,366) | $ (69,301) | $ (271,921) | $ (201,315) |
Basis of Presentation and Significant Accounting Policies |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Basis of Presentation and Significant Accounting Policies | BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES Unaudited Interim Financial Statements —The accompanying interim unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q have been prepared by APX Group Holdings, Inc. and subsidiaries (the “Company”) without audit. The accompanying consolidated financial statements include the accounts of APX Group Holdings, Inc. and its subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted pursuant to such rules and regulations. The information as of December 31, 2016 included in the unaudited condensed consolidated balance sheets was derived from the Company’s audited consolidated financial statements. The unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q were prepared on the same basis as the audited consolidated financial statements and, in the opinion of management, reflect all adjustments (all of which are considered of a normal recurring nature) considered necessary to present fairly the Company’s financial position, results of operations and cash flows for the periods and dates presented. The results of operations for the three and nine months ended September 30, 2017 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017. These unaudited condensed consolidated financial statements and notes should be read in conjunction with the Company’s audited consolidated financial statements and related notes as set forth in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016, as filed with the Securities and Exchange Commission (“SEC”) on March 10, 2016, which is available on the SEC’s website at www.sec.gov. Basis of Presentation —The unaudited condensed consolidated financial statements of the Company are presented for APX Group Holdings, Inc. (“Holdings") and its wholly-owned subsidiaries. The Company has prepared the accompanying unaudited condensed consolidated financial statements pursuant to GAAP. Preparing financial statements requires the Company to make estimates and assumptions that affect the amounts that are reported in the consolidated financial statements and accompanying disclosures. Although these estimates are based on the Company’s best knowledge of current events and actions that the Company may undertake in the future, actual results may be different from the Company’s estimates. The results of operations presented herein are not necessarily indicative of the Company’s results for any future period. Vivint Flex Pay—On January 3, 2017, the Company announced the introduction of the Vivint Flex Pay plan (“Vivint Flex Pay”), which became the Company's primary sales model beginning in March 2017. Under Vivint Flex Pay, customers pay separately for the products and related installation (“Products”) and Vivint's smart home and security services (“Services”). The customer has the following three options to pay for the Products: (i) qualified customers in the United States may finance the purchase of Products through a third-party financing provider (“Consumer Financing Program”) (ii) customers not eligible for the Consumer Financing Program, but who qualify under the Company's underwriting criteria, may enter into a retail installment contract (“RIC”) directly with Vivint, or (iii) customers may purchase the Products at the outset of the service contract with cash, ACH, credit or debit card. Although customers pay separately for the Products and Services under the Vivint Flex Pay plan, the Company has determined that the shift in model does not change the Company's conclusion that the Product sales and Services are one combined unit of accounting. As a result, all forms of transactions under Vivint Flex Pay create deferred revenue for the gross amount of Products sold. Gross deferred revenues are reduced by imputed interest on the RICs and the present value of expected payments due to the third-party financing provider under the Consumer Financing Program. These deferred revenues are recognized in a pattern that reflects the estimated life of the subscriber relationships. The Company amortizes these deferred revenues over 15 years using a 240% declining balance method, which converts to a straight-line methodology after approximately nine years when the resulting amortization exceeds that from the accelerated method. Under the Consumer Financing Program, qualified customers are eligible for installment loans provided by a third-party financing provider of up to $4,000 for either 42 or 60 months. The Company pays a monthly fee to the third-party financing provider based on the average daily outstanding balance of the installment loans. Additionally, the Company shares liability for credit losses depending on the credit quality of the customer. Because of the nature of these provisions under the Consumer Financing Program, the Company records a derivative liability at its fair value when the third-party financing provider originates installment loans to customers, which reduces the amount of revenue recognized on the provision of the services. The derivative liability is reduced as payments are made from the Company to the third-party financing provider. Subsequent changes to the fair value of the derivative liability are realized through other loss/(income), net in the Condensed Consolidated Statement of Operations. (See Note 7). Retail Installment Contract Receivables—For customers that enter into a RIC under the Vivint Flex Pay plan, the Company records a receivable for the amount financed. The RIC receivables are recorded at their present value, net of the imputed interest. At the time of installation, the Company records a long-term note receivable within long-term investments and other assets, net on the condensed consolidated balance sheets for the present value of the receivables that are expected to be collected beyond 12 months of the reporting date. The unbilled receivable amounts that are expected to be collected within 12 months of the reporting date are included as a short-term notes receivable within accounts and notes receivable, net on the condensed consolidated balance sheets. The billed amounts of notes receivables are included in accounts receivable within accounts and notes receivable, net on the condensed consolidated balance sheets. The Company imputes the interest on the RIC receivable using a risk adjusted market interest rate and records it as an adjustment to deferred revenue and as an adjustment to the face amount of the related receivable. The imputed interest income is recognized over the term of the RIC contract as recurring and other revenue on the condensed consolidated statement of operations. When the Company determines that there are RIC receivables that have become uncollectible, the Company records an allowance for credit losses and bad debt expense. The estimate of allowance for credit losses considers a number of factors, including collection experience, aging of the remaining RIC receivable portfolios, credit quality of the subscriber base and other qualitative considerations, including macro-economic factors. Account balances are written-off if collection efforts are unsuccessful and future collection is unlikely based on the length of time from the day accounts become past due. As of September 30, 2017 and December 31, 2016 there was no allowance for credit losses associated with RIC receivables (See Note 3). Accounts Receivable —Accounts receivable consists primarily of amounts due from customers for recurring monthly monitoring services and the billed portion of RIC receivables. The accounts receivable are recorded at invoiced amounts and are non-interest bearing and are included within accounts and notes receivable, net on the condensed consolidated balance sheets. Accounts receivable totaled $20.7 million and $12.9 million at September 30, 2017 and December 31, 2016, respectively net of the allowance for doubtful accounts of $4.5 million and $4.1 million at September 30, 2017 and December 31, 2016, respectively. The Company estimates this allowance based on historical collection experience and subscriber attrition rates. When the Company determines that there are accounts receivable that are uncollectible, they are charged off against the allowance for doubtful accounts. As of September 30, 2017 and December 31, 2016, no accounts receivable were classified as held for sale. The provision for doubtful accounts is included in general and administrative expenses in the accompanying unaudited condensed consolidated statements of operations and totaled $5.0 million and $5.6 million for the three months ended September 30, 2017 and 2016, respectively. The changes in the Company’s allowance for accounts receivable were as follows for the periods ended (in thousands):
Revenue Recognition— The Company recognizes revenue principally on three types of transactions: (i) recurring and other revenue, which includes revenues for monitoring and other smart home services, recognition of deferred revenue associated with the sales of Products at the time of installation, imputed interest associated with the RIC receivables and recurring monthly revenue associated with Vivint Wireless Inc. (“Wireless Internet” or “Wireless”), (ii) service and other sales, which includes non-recurring service fees charged to subscribers provided on contracts, contract fulfillment revenues and sales of products that are not part of the Company's service offerings, and (iii) activation fees on subscriber contracts, which are amortized over the expected life of the customer. Recurring and other revenue includes (i) the Company’s subscriber contracts associated with Services, which are billed directly to the subscriber in advance, generally monthly, pursuant to the terms of subscriber contracts and recognized ratably over the service period, (ii) monthly recognition of deferred Product revenue and (iii) imputed interest associated with the RIC receivables, which is recognized over the initial term of the RIC. Service and other sales revenue is recognized as services are provided or when title to the products and equipment sold transfers to the customer. Contract fulfillment revenue, included in service and other sales, is recognized when payment is received from customers who cancel their contract in-term. Revenue from sales of products that are not part of the service offering and sold after the initial point of installation is generally recognized upon delivery of products. Activation fees represent upfront one-time charges billed to subscribers at the time of installation and are deferred. The Company amortizes deferred activation fees over 15 years using a 240% declining balance method, which converts to a straight-line methodology after approximately nine years when the resulting amortization exceeds that from the accelerated method. The Company evaluates subscriber account attrition on a periodic basis, utilizing observed attrition rates for the Company’s subscriber contracts and industry information and, when necessary, makes adjustments to the estimated subscriber relationship period and amortization method. Activation fees are no longer charged under Vivint Flex Pay, as these fees will no longer be billed separately to subscribers at the time of installation. Deferred Revenue— The Company's deferred revenues primarily consist of amounts for sales of Products and Services. Deferred Product revenues are recorded at the time of sale and deferred in a pattern that reflects the estimated life of the subscriber relationships. The Company amortizes these deferred revenues over 15 years using a 240% declining balance method, which converts to a straight-line methodology after approximately nine years when the resulting amortization exceeds that from the accelerated method. Deferred Service revenues represent the amounts billed, generally monthly, in advance and collected from customers for services yet to be performed. Subscriber Acquisition Costs —Subscriber acquisition costs represent the costs related to the origination of new subscribers. A portion of subscriber acquisition costs is expensed as incurred, which includes costs associated with the direct-to-home sale housing, marketing and recruiting, certain portions of sales commissions (residuals), overhead and other costs, considered not directly and specifically tied to the origination of a particular subscriber. The remaining portion of the costs is considered to be directly tied to subscriber acquisition and consists primarily of certain portions of sales commissions, equipment and installation costs. These costs are deferred and recognized in a pattern that reflects the estimated life of the subscriber relationships. The Company amortizes subscriber acquisition costs over 15 years using a 240% declining balance method, which converts to a straight-line methodology after approximately nine years when the resulting amortization exceeds that from the accelerated method. The Company evaluates subscriber account attrition on a periodic basis, utilizing observed attrition rates for the Company’s subscriber contracts and industry information and, when necessary, makes adjustments to the estimated subscriber relationship period and amortization method. On the condensed consolidated statement of cash flows, subscriber acquisition costs that are comprised of equipment and related installation costs purchased for or used in subscriber contracts in which the Company retains ownership to the equipment are classified as investing activities and reported as “Subscriber acquisition costs – company owned equipment”. All other subscriber acquisition costs are classified as operating activities and reported as “Subscriber acquisition costs – deferred contract costs” on the condensed consolidated statements of cash flows as these assets represent deferred costs associated with customer contracts. Cash and Cash Equivalents— Cash and cash equivalents consists of highly liquid investments with remaining maturities when purchased of three months or less. Inventories —Inventories, which are comprised of smart home and security system equipment and parts, are stated at the lower of cost or net realizable value with cost determined under the first-in, first-out (FIFO) method. The Company adjusts the inventory balance based on anticipated obsolescence, usage and historical write-offs. Long-lived Assets and Intangibles —Property, plant and equipment are stated at cost and depreciated on the straight-line method over the estimated useful lives of the assets or the lease term for assets under capital leases, whichever is shorter. Intangible assets with definite lives are amortized over the remaining estimated economic life of the underlying technology or relationships, which ranges from five to ten years. Definite-lived intangible assets are amortized on the straight-line method over the estimated useful life of the asset or in a pattern in which the economic benefits of the intangible asset are consumed. Amortization expense associated with leased assets is included with depreciation expense. Routine repairs and maintenance are charged to expense as incurred. The Company periodically assesses potential impairment of its long-lived assets and intangibles and performs an impairment review whenever events or changes in circumstances indicate that the carrying value may not be recoverable. In addition, the Company periodically assesses whether events or changes in circumstance continue to support an indefinite life of certain intangible assets or warrant a revision to the estimated useful life of definite-lived intangible assets. Wireless Spectrum Licenses—The Company has capitalized, as an intangible asset, wireless spectrum licenses that its subsidiary acquired from a third party. The cost basis of the wireless spectrum asset includes the purchase price paid for the licenses at the time of acquisition, plus costs incurred to acquire the licenses. The asset and related liability were recorded at the net present value of future cash outflows using the Company's incremental borrowing rate at the time of acquisition. The Company has determined that the wireless spectrum licenses meet the definition of indefinite-lived intangible assets because the licenses may be renewed periodically for a nominal fee, provided that the Company continues to meet the service and geographic coverage provisions. The Company has also determined that there are currently no legal, regulatory, contractual, competitive, economic or other factors that limit the useful lives of these wireless spectrum licenses. Long-term Investments —The Company’s long-term investments are comprised of available-for-sale securities and cost-based investments in other companies. As of September 30, 2017 and December 31, 2016, cost-based investments totaled $0.6 million and $0.4 million and available-for-sale securities totaled $3.7 million and $4.0 million, respectively. The Company’s marketable equity securities have been classified and accounted for as available-for-sale. Management determines the appropriate classification of its investments at the time of purchase and reevaluates the classifications at each balance sheet date. Marketable equity securities, are classified as either short-term or long-term, based on the nature of each security and its availability for use in current operations. The Company’s marketable equity securities are carried at fair value, with unrealized gains and losses, reported as a component of accumulated other comprehensive income (“AOCI”) in equity, with the exception of unrealized losses believed to be other-than-temporary which are reported in earnings in the current period. The cost of securities sold is based upon the specific identification method. The Company performs impairment analyses of its cost based investments when events occur or circumstances change that would, more likely than not, reduce the fair value of the investment below its carrying value. When indicators of impairment do not exist and certain accounting criteria are met, the Company evaluates impairment using a qualitative approach. As of September 30, 2017 and December 31, 2016, no indicators of impairment existed associated with these cost based investments. Deferred Financing Costs —Costs incurred in connection with obtaining debt financing are deferred and amortized utilizing the straight-line method, which approximates the effective-interest method, over the life of the related financing. Deferred financing costs incurred with draw downs on APX Group, Inc.’s (“APX”) revolving credit facility will be amortized over the amended maturity dates discussed in Note 2. If such financing is paid off or replaced prior to maturity with debt instruments that have substantially different terms, the unamortized costs are charged to expense. Deferred financing costs included in the accompanying unaudited condensed consolidated balance sheets within deferred financing costs, net at September 30, 2017 and December 31, 2016 were $3.4 million and $4.4 million, net of accumulated amortization of $8.3 million and $6.9 million, respectively. Deferred financing costs included in the accompanying unaudited condensed consolidated balance sheets within notes payable, net at September 30, 2017 and December 31, 2016 were $38.1 million and $39.4 million, net of accumulated amortization of $42.8 million and $35.6 million, respectively. Amortization expense on deferred financing costs recognized and included in interest expense in the accompanying unaudited condensed consolidated statements of operations, totaled $2.8 million and $2.9 million for the three months ended September 30, 2017 and 2016, respectively and $8.7 million and $8.6 million for the nine months ended September 30, 2017 and 2016 (See Note 2). Residual Income Plan —The Company has a program that allows certain third-party sales channel partners to receive additional compensation based on the performance of the underlying contracts they create. The Company calculates the present value of the expected future payments and recognizes this amount in the period the commissions are earned. Subsequent accretion and adjustments to the estimated liability are recorded as interest and operating expense, respectively. The Company monitors actual payments and customer attrition on a periodic basis and, when necessary, makes adjustments to the liability. The amount included in accrued payroll and commissions was $2.2 million and $1.2 million at September 30, 2017 and December 31, 2016, respectively, and the amount included in other long-term obligations was $11.6 and $6.6 million at September 30, 2017 and December 31, 2016, respectively, representing the present value of the estimated amounts owed to third-party sales channel partners. Stock-Based Compensation —The Company measures compensation costs based on the grant-date fair value of the award and recognizes that cost over the requisite service period of the awards (See Note 9). During the first quarter of 2017, the Company adopted Accounting Standard Update (“ASU”) 2016-09. Under the provisions of ASU 2016-09, the Company has elected to recognize the impact of forfeitures when they occur with no adjustment for estimated forfeitures and recognizes excess tax benefits as a reduction of income tax expense regardless of whether the benefit reduces income taxes payable. Additionally, the Company recognizes the cash flow impact of such excess tax benefits in operating activities in the condensed consolidated statements of cash flows. The Company adopted ASU 2016-09 on a modified retrospective basis for the income statement impact of forfeitures and income taxes and have retrospectively applied ASU 2016-09 to its condensed consolidated statements of cash flows for the impact of excess tax benefits. Accordingly, the Company recognized an immaterial cumulative adjustment charge for the adoption of the impact of forfeitures to beginning retained earnings as of January 1, 2017. The Company recognized no cumulative adjustment benefit for the excess tax benefit for the exercise of equity grants from prior fiscal years due to a full valuation allowance recorded against the excess tax benefits. Advertising Expense —Advertising costs are expensed as incurred. Advertising costs were $12.6 million and $8.4 million for the three months ended September 30, 2017 and 2016, respectively and $33.7 million and $25.4 million for the nine months ended September 30, 2017 and 2016. Income Taxes —The Company accounts for income taxes based on the asset and liability method. Under the asset and liability method, deferred tax assets and deferred tax liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Valuation allowances are established when necessary to reduce deferred tax assets when it is determined that it is more likely than not that some portion of the deferred tax asset will not be realized. The Company recognizes the effect of an uncertain income tax position on the income tax return at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant taxing authority. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. The Company’s policy for recording interest and penalties is to record such items as a component of the provision for income taxes. Concentrations of Credit Risk —Financial instruments that potentially subject the Company to concentration of credit risk consist principally of receivables and cash. At times during the year, the Company maintains cash balances in excess of insured limits. The Company is not dependent on any single customer or geographic location. The loss of a customer would not adversely impact the Company’s operating results or financial position. Concentrations of Supply Risk —As of September 30, 2017, approximately 68% of the Company’s installed panels were SkyControl panels and 30% were 2GIG Go!Control panels. In connection with the 2GIG Sale in April 2013, the Company entered into a five-year supply agreement with 2GIG, pursuant to which they will be the exclusive provider of the Company’s control panel requirements, subject to certain exceptions as provided in the supply agreement. The loss of 2GIG as a supplier could potentially impact the Company’s operating results or financial position. Fair Value Measurement —Fair value is based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Assets and liabilities subject to on-going fair value measurement are categorized and disclosed into one of three categories depending on observable or unobservable inputs employed in the measurement. These two types of inputs have created the following fair value hierarchy: Level 1: Quoted prices in active markets that are accessible at the measurement date for assets and liabilities. Level 2: Observable prices that are based on inputs not quoted in active markets, but corroborated by market data. Level 3: Unobservable inputs are used when little or no market data is available. This hierarchy requires the Company to minimize the use of unobservable inputs and to use observable market data, if available, when determining fair value. The Company recognizes transfers between levels of the hierarchy based on the fair values of the respective financial measurements at the end of the reporting period in which the transfer occurred. There were no transfers between levels of the fair value hierarchy during the nine months ended September 30, 2017 and 2016. The carrying amounts of the Company’s accounts receivable, accounts payable and accrued and other liabilities approximate their fair values due to their short maturities. Goodwill —The Company conducts a goodwill impairment analysis annually in the fourth fiscal quarter, as of October 1, and as necessary if changes in facts and circumstances indicate that the fair value of the Company’s reporting units may be less than its carrying amount. When indicators of impairment do not exist and certain accounting criteria are met, the Company is able to evaluate goodwill impairment using a qualitative approach. When necessary, the Company’s quantitative goodwill impairment test consists of two steps. The first step requires that the Company compare the estimated fair value of its reporting units to the carrying value of the reporting unit’s net assets, including goodwill. If the fair value of the reporting unit is greater than the carrying value of its net assets, goodwill is not considered to be impaired and no further testing is required. If the fair value of the reporting unit is less than the carrying value of its net assets, the Company would be required to complete the second step of the test by analyzing the fair value of its goodwill. If the carrying value of the goodwill exceeds its fair value, an impairment charge is recorded. As of September 30, 2017, there were no changes in facts and circumstances since the most recent annual impairment analysis to indicate impairment existed. Foreign Currency Translation and Other Comprehensive Income —The functional currencies of Vivint Canada, Inc. and Vivint New Zealand, Ltd. are the Canadian and New Zealand dollars, respectively. Accordingly, assets and liabilities are translated from their respective functional currencies into U.S. dollars at period-end rates and revenue and expenses are translated at the weighted-average exchange rates for the period. Adjustments resulting from this translation process are classified as other comprehensive income (loss) and shown as a separate component of equity. During the three months ended September 30, 2016, the Company sold all of its New Zealand and Puerto Rico subscriber contracts and ceased operations in these geographical regions (“2016 Contract Sales”). See Note 13 for further information on the 2016 Contract Sales. When intercompany foreign currency transactions between entities included in the consolidated financial statements are of a long term investment nature (i.e., those for which settlement is not planned or anticipated in the foreseeable future) foreign currency translation adjustments resulting from those transactions are included in stockholders’ deficit as accumulated other comprehensive loss. When intercompany transactions are deemed to be of a short term nature, translation adjustments are required to be included in the condensed consolidated statement of operations. Beginning in July 2015, the Company determined that settlement of Vivint Canada, Inc. and Vivint New Zealand, Ltd. intercompany balances was anticipated and therefore such balances were deemed to be of a short term nature. Translation activity included in the statement of operations in other loss, net related to intercompany balances was a gain of $3.1 million for the three months ended September 30, 2017 and a loss of $0.8 million for the three months ended September 30, 2016. Translation gains included in the statement of operations in other loss, net related to intercompany balances were $5.5 million and $4.1 million for the nine months ended September 30, 2017 and 2016, respectively. Letters of Credit —As of September 30, 2017 and December 31, 2016, the Company had $8.7 million and $5.7 million, respectively, of letters of credit issued in the ordinary course of business, all of which are undrawn. Restructuring and Asset Impairment Charges —Restructuring and asset impairment charges represent expenses incurred in relation to activities to exit or dispose of portions of the Company's business that do not qualify as discontinued operations. Liabilities associated with restructuring are measured at their fair value when the liability is incurred. Expenses for related termination benefits are recognized at the date the Company notifies the employee, unless the employee must provide future service, in which case the benefits are expensed ratably over the future service period. Liabilities related to termination of a contract are measured and recognized at fair value when the contract does not have any future economic benefit to the entity and the fair value of the liability is determined based on the present value of the remaining obligation. The Company expenses all other costs related to an exit or disposal activity as incurred (See Note 13). New Accounting Pronouncements —In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606),” which supersedes the revenue recognition requirements in “Revenue Recognition (Topic 605).” Under Topic 606, revenue is recognized when a customer obtains control of promised goods or services and is recognized in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. In addition, Topic 606 requires enhanced disclosures, including disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The FASB has recently issued several amendments to the standard, including clarification on accounting for licenses of intellectual property and identifying performance obligations. Topic 606 will be effective for the Company beginning with the first quarter of fiscal 2018. The Company offers its customers a smart home service combining its proprietary control panel; equipment in the home that interfaces with the control panel, including door and window sensors, door locks, security cameras and smoke alarms (“Interfacing Equipment”); installation; and its proprietary back end cloud platform software and services. These combined elements together create an integrated system that allows the Company’s customers to monitor, control and protect their home (“Smart Home Service”). Based on the Company’s assessment of the potential impacts of Topic 606, it expects to continue to recognize most revenue over time for its Smart Home contracts based on the life of the contract, which is included in Recurring and other revenue on the Company’s Statement of Operations. The Company has preliminarily concluded that, while certain equipment provided to its customers may be capable of being distinct, its customers are buying an integrated system that provides them Smart Home Services. The equipment and services contracted for by the customer are necessary to provide the integrated system the customer has contracted for. Because the equipment and services included in the customer’s contract are integrated and highly interdependent, and because they must work together to deliver the Smart Home Services, the Company has preliminarily concluded that the Interfacing Equipment, control panel, related installation and Smart Home Services contracted for by the customer are generally not distinct within the context of the contract and, therefore, constitute a single, combined performance obligation. This single, combined performance obligation will be recognized over the customer’s contract term, whereas under Topic 605 the revenue was recorded over the expected customer life. Interfacing Equipment purchased subsequent to the purchase of the initial system and the related installation services will be treated as a contract modification. If the Company determines that certain equipment is capable of being distinct, and distinct within the context of the contract, revenue for that equipment will be recognized upon delivery. Discounts and other concessions will be estimated and accrued for on a monthly basis based on the Company’s historical trends of offering discounts and concessions to its customers. Service and other sales revenue will continue to be recognized at the time the Company performs services for its customers. More judgment and estimates will be required under Topic 606 than are required under Topic 605, including estimating the SSP for each performance obligation identified within the Company’s contracts. The Company is currently performing analyses to determine the SSP for each of the performance obligations that have been identified. The Company is currently calculating its SSPs based on its historical pricing practices. Due to the complexity of certain contracts, the actual revenue recognition treatment required under Topic 606 for these arrangements may depend on contract- specific terms and vary in some instances. Topic 606 permits two methods of adoption: retrospectively to each prior reporting period presented (full retrospective method), or modified retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application (the cumulative catch-up transition method). The Company currently anticipates adopting the standard using the cumulative catch-up transition method. Under the cumulative catch-up transition method, the Company will evaluate each contract that is effective on the adoption date as if that contract had been accounted for under Topic 606 from contract inception. Some revenue related to customer Smart Home contracts that would have been recognized in future periods under Topic 605 (based on expected customer life) will be recast under Topic 606 (based on contract term) as if the revenue had been recognized in prior periods. As this transition method requires that the Company not adjust historical reported revenue amounts, the revenue that would have been recognized under this method prior to the adoption date will be an adjustment to retained earnings and will not be recognized as revenue in future periods as previously planned. Topic 606 also requires the deferral of incremental costs of obtaining a contract with a customer. The Company is deferring these same costs under Topic 605. It does not anticipate any significant change in contract costs that are capitalized or the period over which they are expensed. Refer to Subscriber Acquisition Costs in Note 2 for further detail. In June 2016, the FASB issued ASU 2016-13 which modifies the measurement of expected credit losses of certain financial instruments. This update is effective for fiscal years, and interim periods within those years, beginning after December 15, 2019 and must be applied using a modified-retrospective approach, with early adoption permitted. The Company does not believe the adoption of ASU 2016-13 will have a material impact on the consolidated financial statements. In February 2016, the FASB issued ASU 2016-02 to increase transparency and comparability among organizations as it relates to lease assets and lease liabilities. The update requires that lease assets and lease liabilities be recognized on the balance sheet, and that key information about leasing arrangements be disclosed. Prior to this update, GAAP did not require operating leases to be recognized as lease assets and lease liabilities on the balance sheet. This update is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018 and must be applied using a modified retrospective approach, with early adoption permitted. The Company is in the initial stages of evaluating the impact of ASU 2016-02 on its accounting policies, processes, and system requirements. The Company’s current operating lease portfolio is primarily comprised of network, real estate, and equipment leases. Upon adoption of this standard, the Company expects the balance sheet to include a right of use asset and liability related to substantially all operating lease arrangements. The Company has assigned internal resources to perform the evaluation. Furthermore, the Company has made and will continue to make investments in systems to enable timely and accurate reporting under the new standard. While the Company continues to assess the potential impacts of ASU 2016-02, including the areas described above, and anticipate this standard could have a material impact on the consolidated financial statements, the Company does not know or cannot reasonably estimate quantitative information related to the impact of the new standard on the financial statements at this time. |
Long-Term Debt |
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Long-Term Debt | LONG-TERM DEBT Notes Payable On November 16, 2012, APX issued $1.3 billion aggregate principal amount of notes, of which $925.0 million aggregate principal amount of 6.375% senior secured notes due 2019 (the “2019 notes”) mature on December 1, 2019 and are secured on a first-priority lien basis by substantially all of the tangible and intangible assets whether now owned or hereafter acquired by the Company, subject to permitted liens and exceptions, and $380.0 million aggregate principal amount of 8.75% senior notes due 2020 (the “2020 notes”), mature on December 1, 2020. During 2013, APX completed two offerings of additional 2020 notes under the indenture dated November 16, 2012. On May 31, 2013, the Company issued $200.0 million of 2020 notes at a price of 101.75% and on December 13, 2013, APX issued an additional $250.0 million of 2020 notes at a price of 101.50%. During 2014, APX issued an additional $100.0 million of 2020 notes at a price of 102.00%. In October 2015, APX issued $300.0 million aggregate principal amount of 8.875% senior secured notes due 2022 (the “2022 private placement notes”), pursuant to a note purchase agreement dated as of October 19, 2015 in a private placement exempt from registration under the Securities Act. The 2022 private placement notes will mature on December 1, 2022, unless on September 1, 2020 (the 91st day prior to the maturity of the 2020 notes) more than an aggregate principal amount of $190.0 million of such 2020 notes remain outstanding or have not been refinanced as permitted under the note purchase agreement for the 2022 private placement notes, in which case the 2022 private placement notes will mature on September 1, 2020. The 2022 private placement notes are secured, on a pari passu basis, by the collateral securing obligations under the 2019 notes, the 2022 private placement notes, the 2022 notes (as defined below), and the 2023 notes (as defined below) and the revolving credit facilities, in each case, subject to certain exceptions and permitted liens. In May 2016, APX issued $500.0 million aggregate principal amount of 7.875% senior secured notes due 2022 (the “2022 notes”), pursuant to an indenture dated as of May 26, 2016 among APX, the guarantors party thereto and Wilmington Trust, National Association, as trustee and collateral agent (“May 2016 issuance”.) The 2022 notes will mature on December 1, 2022, or on such earlier date when any outstanding pari passu lien indebtedness matures as a result of the operation of any “Springing Maturity” provision set forth in the agreements governing such pari passu lien indebtedness. The 2022 notes are secured, on a pari passu basis, by the collateral securing obligations under the 2019 notes and 2022 private placement notes and the revolving credit facilities, in all cases, subject to certain exceptions and permitted liens. APX used a portion of the net proceeds from the issuance of the 2022 notes to repurchase approximately $235 million aggregate principal amount of the outstanding 2019 notes and 2022 private placement notes in privately negotiated transactions and repaid borrowings under the existing revolving credit facility. In August 2016, APX issued an additional $100.0 million aggregate principal amount of the 2022 notes at a price of 104.00%. In February 2017, APX issued an additional $300.0 million aggregate principal amount of the 2022 notes at a price of 108.25% (“February 2017 issuance”.) A portion of the net proceeds from the offering of these 2022 notes were used to redeem $300.0 million aggregate principal amount of the existing 2019 notes and pay the related accrued interest and redemption premium, and to pay all fees and expenses related thereto and any remaining proceeds will be used for general corporate purposes. In August 2017, APX issued $400.0 million aggregate principal amount of the 7.625% senior notes due 2023 (the “2023 notes” and, together with the 2019 notes, the 2020 notes and the 2022 private placement notes, the “notes”) (“August 2017 issuance”.) The proceeds from the outstanding 2023 notes offering were used to redeem $150.0 million aggregate principal amount of the outstanding 2019 notes and pay the related accrued interest and redemption premium, and to pay all fees and expenses related thereto. Any remaining net proceeds have been or will be used for general corporate purposes, which may include the repayment of outstanding borrowings under the revolving credit facility. The notes are fully and unconditionally guaranteed, jointly and severally by APX and each of APX’s existing restricted subsidiaries that guarantee indebtedness under APX’s revolving credit facility or our other indebtedness. Interest accrues at the rate of 6.375% per annum for the 2019 notes, 8.75% per annum for the 2020 notes, 8.875% per annum for the 2022 private placement notes, and 7.875% per annum for the 2022 notes. Interest on the notes is payable semiannually in arrears on each June 1 and December 1. APX may redeem the notes at the prices and on the terms specified in the applicable indenture or note purchase agreement. Debt Modifications and Extinguishments In accordance with ASC 470-50 Debt – Modifications and Extinguishments, the Company performed analyses on a creditor-by-creditor basis for the May 2016 issuance, February 2017 issuance and August 2017 issuance to determine if the repurchased notes were substantially different than the notes issued to determine the appropriate accounting treatment of associated issuance fees. As a result of these analyses the company recorded the following amounts of other expense and loss on extinguishment and deferred financing costs during the three and nine months ended September 30, 2017 and 2016 (in thousands):
The original unamortized portion of deferred financing costs associated with new creditors and creditors under the repurchased notes, whose debt instruments were not deemed to be substantially different, will be amortized to interest expense over the life of the issued notes. The Company had no debt issuances or related modification or extinguishment costs during the three months ended September 30, 2016. The following table presents deferred financing cost activity for the nine months ended September 30, 2017 (in thousands):
Revolving Credit Facility On November 16, 2012, APX entered into a $200.0 million senior secured revolving credit facility, with a five year maturity. On March 6, 2015, APX amended and restated the credit agreement governing the revolving credit facility to provide for, among other things, (1) an increase in the aggregate commitments previously available to APX thereunder from $200.0 million to $289.4 million (“Revolving Commitments”) and (2) the extension of the maturity date with respect to certain of the previously available commitments. On August 10, 2017, APX further amended and restated the credit agreement governing the revolving credit facility 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. Borrowings under the amended and restated revolving credit facility bear interest at a rate per annum equal to an applicable margin plus, at APX’s option, either (1) the base rate determined by reference to the highest of (a) the Federal Funds rate plus 0.50%, (b) the prime rate of Bank of America, N.A. and (c) the LIBOR rate determined by reference to the costs of funds for U.S. dollar deposits for an interest period of one month, plus 1.00% or (2) the LIBOR rate determined by reference to the London interbank offered rate for dollars for the interest period relevant to such borrowing. The applicable margin for base rate-based borrowings (1)(a) under the Series A Revolving Commitments of approximately $267.0 million, Series C Revolving Commitments of approximately $20.8 million and Series D Revolving Commitments of approximately $15.4 million is currently 2.0% per annum and (b) under the Series B Revolving Commitments of approximately $21.2 million is currently 3.0% and (2)(a) the applicable margin for LIBOR rate-based borrowings (a) under the Series A Revolving Commitments, Series C Revolving Commitments, and Series D Revolving Commitments is currently 3.0% per annum and (b) under the Series B Revolving Commitments is currently 4.0%. The applicable margin for borrowings under the revolving credit facility is subject to one step-down of 25 basis points based on APX meeting a consolidated first lien net leverage ratio test at the end of each fiscal quarter. Outstanding borrowings under the amended and restated revolving credit facility are allocated on a pro-rata basis between each Series based on the total Revolving Commitments. In addition to paying interest on outstanding principal under the revolving credit facility, APX is required to pay a quarterly commitment fee (which will be subject to one interest rate step-down of 12.5 basis points, based on APX meeting a consolidated first lien net leverage ratio test) to the lenders under the revolving credit facility in respect of the unutilized commitments thereunder. APX also pays customary letter of credit and agency fees. APX is not required to make any scheduled amortization payments under the revolving credit facility. The principal amount outstanding under the revolving credit facility will be due and payable in full on (1) with respect to the non-extended commitments under the Series C Revolving Credit Facility, November 16, 2017, (2) with respect to the non-extended commitments under the Series D, March 31, 2019 and (3) with respect to the extended commitments under the Series A Revolving Credit Facility and Series B Revolving Credit Facility, March 31, 2021. As of September 30, 2017 and December 31, 2016, there were no outstanding borrowings under the credit facility. The Company’s debt at September 30, 2017 and December 31, 2016 consisted of the following (in thousands):
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Retail Installment Contract Receivables |
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Receivables [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Retail Installment Contract Receivables | RETAIL INSTALLMENT CONTRACT RECEIVABLES Certain subscribers have the option to purchase Products under a RIC, payable over either 42 or 60 months. Short-term RIC receivables are recorded in accounts and notes receivable, net and long-term RIC receivables are recorded in long-term investments and other assets, net in the condensed consolidated unaudited balance sheets. The following table summarizes the installment receivables (in thousands):
Activity in the deferred interest for the RIC receivables was as follows (in thousands):
Since the inception of RICs and during the three and nine months ended September 30, 2017 the amount of RIC imputed interest income recognized in recurring and other revenue was $2.8 million and $4.0 million, respectively. |
Balance Sheet Components |
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Organization, Consolidation and Presentation of Financial Statements [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance Sheet Components | BALANCE SHEET COMPONENTS The following table presents material balance sheet component balances (in thousands):
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Property Plant and Equipment |
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Property, Plant and Equipment [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Property Plant and Equipment | PROPERTY PLANT AND EQUIPMENT Property, plant and equipment consisted of the following (in thousands):
Property, plant and equipment, net includes approximately $17.2 million and $21.2 million of assets under capital lease obligations at September 30, 2017 and December 31, 2016, respectively, net of accumulated amortization of $14.7 million and $10.9 million at September 30, 2017 and December 31, 2016, respectively. Depreciation and amortization expense on all property, plant and equipment was $5.2 million and $4.2 million for the three months ended September 30, 2017 and 2016, respectively and $14.9 million and $12.4 million for the nine months ended September 30, 2017 and 2016, respectively. Amortization expense relates to assets under capital leases and is included in depreciation and amortization expense. In June 2016, the Company entered into a non-cancellable lease to occupy a new building constructed in Logan, UT as a location to further sales recruitment and training, as well as conduct research and development (the "Logan Facility"). Because of its involvement in certain aspects of the construction of the Logan Facility, per the terms of the lease, the Company was deemed the owner of the building for accounting purposes during the construction period. Accordingly, the Company recorded a build-to-suit lease asset and a corresponding build-to-suit lease liability during the construction period. In April 2017, construction on the Logan Facility was completed and the Company commenced occupancy. In accordance with ASC 840-40 Sale-Leaseback Transactions, the building did not qualify for sale-leaseback treatment. As such, the Company will retain the building asset and corresponding lease obligation on the balance sheet. Accordingly, the Company has a build-to-suit building asset, which totaled $8.2 million and $5.0 million, respectively, net of accumulated depreciation of $0.3 million and $0 as of September 30, 2017 and December 31, 2016, respectively. (See Note 10) |
Goodwill and Intangible Assets |
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Goodwill and Intangible Assets Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Goodwill and Intangible Assets | GOODWILL AND INTANGIBLE ASSETS Goodwill As of September 30, 2017 and December 31, 2016, the Company had a goodwill balance of $837.2 million and $835.2 million, respectively. The change in the carrying amount of goodwill during the nine months ended September 30, 2017 was the result of foreign currency translation adjustments. Intangible assets, net The following table presents intangible asset balances (in thousands):
During the year ended December 31, 2016, a subsidiary of the Company entered into leasing agreements with a third party for designated radio frequency spectrum in 40 mid-sized metropolitan markets. The lease term is for seven years, with an option to become the licensor of record with the Federal Communications Commission ("FCC") with respect to the applicable spectrum licenses at the end of this term for a nominal fee. The Company acquired $31.3 million of spectrum licenses, measured using the present value of the lease payments, and recorded an intangible asset and a corresponding liability within other long-term obligations. While licenses are issued for only a fixed time, such licenses are subject to renewal by the FCC. The Company intends to renew the licenses with the FCC at the end of the initial term. License renewals within the industry have occurred routinely and at nominal cost. Moreover, the Company has determined that there are currently no legal, regulatory, contractual, competitive, economic or other factors that limit the useful life of the licenses. As a result, the Company treats the wireless licenses as an indefinite-lived intangible asset. Amortization expense related to intangible assets was approximately $25.5 million and $29.3 million for the three months ended September 30, 2017 and 2016, respectively and $76.3 million and $87.7 million during the nine months ended September 30, 2017 and 2016, respectively. As of September 30, 2017, the remaining weighted-average amortization period for definite-lived intangible assets was 5.1 years. Estimated future amortization expense of intangible assets, excluding approximately $0.9 million in patents currently in process, is as follows as of September 30, 2017 (in thousands):
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Financial Instruments |
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Financial Instruments | FINANCIAL INSTRUMENTS Cash, Cash Equivalents and Marketable Securities Cash equivalents and available-for-sale securities are classified as level 1 assets, as they have readily available market prices in an active market. The Company held $20.0 million money market funds as of September 30, 2017. As of December 31, 2016, the Company held $42.3 million of money market funds. As of September 30, 2017 and December 31, 2016, the company held $3.7 million and $4.0 million, respectively, of corporate securities classified as level 1 investments. The following tables set forth the Company’s cash and cash equivalents and available-for-sale securities’ adjusted cost, gross unrealized gains, gross unrealized losses and fair value by significant investment category recorded as cash and cash equivalents or long-term investments and other assets, net as of September 30, 2017 and December 31, 2016 (in thousands):
The corporate securities represents the Company's investment of $3.0 million in preferred stock of a privately held company ("investee") not affiliated with the Company. On October 28, 2016 the investee began trading shares publicly and the Company's preferred stock was converted to publicly traded common stock. As a result, the Company classified the investment as an available for sale security. During the three and nine months ended September 30, 2017, the Company recorded an unrealized loss of $0.5 million and a unrealized gain of $0.3 million, respectively associated with the change in fair value of the investee's stock. As of September 30, 2017 and December 31, 2016, accumulated other comprehensive income associated with unrealized gains and losses for the change in fair value of the investment totaled $0.7 million and $1.0 million, respectively. The carrying amounts of the Company’s accounts receivable, accounts payable and accrued and other liabilities approximate their fair values due to their short maturities. Long-Term Debt Components of long-term debt including the associated interest rates and related fair values are as follows (in thousands, except interest rates):
The fair values of the 2019 notes, the 2020 notes, the 2022 private placement notes, the 2022 notes and the 2023 notes were considered Level 2 measurements as the values were determined using observable market inputs, such as current interest rates, prices observable from less active markets, as well as prices observable from comparable securities. Derivative Financial Instruments Under the Consumer Financing Program, the Company pays a monthly fee to a third-party financing provider based on the average daily outstanding balance of the installment loans and shares the liability for credit losses, depending on the credit quality of the customer. Because of the nature of certain provisions under the Consumer Financing Program, the Company records a derivative liability that is not designated as a hedging instrument and is adjusted to fair value, measured using the present value of the estimated future payments. Changes to the fair value are recorded through other loss (income), net in the Condensed Consolidated Statement of Operations. The following represent the contractual obligations with the third-party financing provider under the Consumer Financing Program that are components of the derivative:
During the three and nine months ended September 30, 2017, the Company recognized a loss on its derivative instrument of $1.4 million. The following table summarizes the fair value, measured using Level 2 fair value inputs, and the notional amount of the Company’s outstanding derivative instrument as of September 30, 2017 (in thousands):
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Income Taxes |
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Sep. 30, 2017 | |
Income Tax Disclosure [Abstract] | |
Income Taxes | INCOME TAXES In order to determine the quarterly provision for income taxes, the Company uses an estimated annual effective tax rate, which is based on expected annual income and statutory tax rates in the various jurisdictions in which the Company operates. Certain significant or unusual items are separately recognized in the quarter during which they occur and can be a source of variability in the effective tax rates from quarter to quarter. The Company’s effective income tax rate for the nine months ended September 30, 2017 and 2016 was approximately a negative 0.85% and a negative 0.27%, respectively. Income tax expense for the nine months ended September 30, 2017 was affected by an intraperiod tax allocation due to unrealized gains and losses on investments held by the Company and prior year return-to-provision true up adjustments on the U.S. and Canadian tax returns. Both the 2017 and 2016 effective tax rates are less than the statutory rate primarily due to the combination of not benefiting from expected pre-tax US losses and recognizing current state income tax expense for minimum state taxes. Significant judgment is required in determining the Company’s provision for income taxes, recording valuation allowances against deferred tax assets and evaluating the Company’s uncertain tax positions. In evaluating the ability to realize its deferred tax assets, in full or in part, the Company considers all available positive and negative evidence, including past operating results, forecasted future earnings, and prudent and feasible tax planning strategies. Due to historical net losses incurred and the uncertainty of realizing the deferred tax assets, for all the periods presented, the Company has maintained a full valuation allowance against domestic deferred tax assets. The Company has not recorded a valuation allowance against its foreign deferred tax assets due to being in a net deferred tax liability position. During the first quarter of 2017, the Company adopted ASU 2016-09. Under the provisions of ASU 2016-09, the Company recognizes the impact of stock-based compensation award forfeitures when they occur with no adjustment for estimated forfeitures and recognizes excess tax benefits as a reduction of income tax expense regardless of whether the benefit reduces income taxes payable. The Company recognized no cumulative adjustment benefit for the excess tax benefit for the exercise of equity grants from prior fiscal years due to a full valuation allowance recorded against the excess tax benefits. |
Stock-Based Compensation and Equity |
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Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock-Based Compensation and Equity | STOCK-BASED COMPENSATION AND EQUITY 313 Incentive Units The Company’s indirect parent, 313 Acquisition LLC (“313”), which is majority owned by Blackstone, has authorized the award of profits interests, representing the right to share a portion of the value appreciation on the initial capital contributions to 313 (“Incentive Units”). In March 2015, a total of 4,315,106 Incentive Units previously issued to the Company’s Chief Executive Officer and President were voluntarily relinquished. The Company recorded all unrecognized stock-based compensation associated with such Incentive Units at the time the Incentive Units were relinquished. As of September 30, 2017, 85,812,836 Incentive Units had been awarded, and were outstanding, to current and former members of senior management and a board member, of which 42,169,456 were outstanding to the Company’s Chief Executive Officer and President. The Incentive Units are subject to time-based and performance-based vesting conditions, with one-third subject to ratable time-based vesting over a five year period and two-thirds subject to the achievement of certain investment return thresholds by The Blackstone Group, L.P. and its affiliates (“Blackstone”). The Company has not recorded any expense related to the performance-based portion of the awards, as the achievement of the vesting condition is not yet deemed probable. The fair value of stock-based awards is measured at the grant date and is recognized as expense over the employee’s requisite service period. The grant date fair value was primarily determined using a Monte Carlo simulation valuation approach with the following assumptions: expected volatility varies from 55% to 125%; expected exercise term between 3.96 and 6.00 years; and risk-free rates between 0.62% and 1.18%. Vivint Stock Appreciation Rights The Company’s subsidiary, Vivint Group, Inc. (“Vivint Group”), has awarded Stock Appreciation Rights (“SARs”) to various levels of key employees, pursuant to an omnibus incentive plan. The purpose of the SARs is to attract and retain personnel and provide an opportunity to acquire an equity interest of Vivint Group. The SARs are subject to time-based and performance-based vesting conditions, with one-third subject to ratable time-based vesting over a five year period and two-thirds subject to the achievement of certain investment return thresholds by 313. The Company has not recorded any expense related to the performance-based portion of the awards, as the achievement of the vesting condition is not yet deemed probable. In connection with this plan, 24,244,659 SARs were outstanding as of September 30, 2017. In addition, 53,621,891 SARs have been set aside for funding incentive compensation pools pursuant to long-term incentive plans established by the Company. On April 1, 2015, a new plan was created and all issued and outstanding Vivint, Inc. (“Vivint”) SARs were re-granted and all reserved SARs were converted under the new Vivint Group plan. The Company assessed the conversion of the SARs as a modification of equity instruments. The restructuring did not change the fair value of the existing awards and as such, no incremental compensation expense was incurred as a result of the restructuring. The fair value of the Vivint Group awards is measured at the grant date and is recognized as expense over the employee’s requisite service period. The fair value is determined using a Black-Scholes option valuation model with the following assumptions: expected volatility varies from 55% to 125%, expected dividends of 0%; expected exercise term between 6.00 and 6.47 years; and risk-free rates between 0.61% and 1.77%. Due to the lack of historical exercise data, the Company used the simplified method in determining the estimated exercise term, for all Vivint Group awards. Wireless Stock Appreciation Rights The Company’s subsidiary, Vivint Wireless, has awarded SARs to various key employees, pursuant to an omnibus incentive plan. The purpose of the SARs is to attract and retain personnel and provide an opportunity to acquire an equity interest of Vivint Wireless. The SARs are subject to a five year time-based ratable vesting period. In connection with this plan, 10,000 SARs were outstanding as of September 30, 2017. The Company does not intend to issue any additional Wireless SARs. The fair value of the Vivint Wireless awards is measured at the grant date and is recognized as expense over the employee’s requisite service period. The fair value is determined using a Black-Scholes option valuation model with the following assumptions: expected volatility of 65%, expected dividends of 0%; expected exercise term between 6.00 and 6.50 years; and risk-free rates between 1.51% and 1.77%. Due to the lack of historical exercise data, the Company used the simplified method in determining the estimated exercise term, for all Vivint Wireless awards. Stock-based compensation expense in connection with all stock-based awards is presented as follows (in thousands):
Stock-based compensation expense presented in selling expenses was negative for the nine months ended September 30, 2016 due to a retrospective adjustment in the grant-date fair value of a series of stock-based awards. Stock-based compensation expense included in general and administrative expenses for the nine months ended September 30, 2016 included $2.2 million of compensation related to an equity repurchase by 313 from one of the Company's executives. Capital Contribution— In 2016, Vivint Smart Home, Inc. ("Parent"), the parent company of the Company, completed issuances and sales to certain investors of shares of a series of preferred stock and contributed the net proceeds from such issuances of $100.4 million to the Company as equity contributions. These issuances were private placements exempt from registration under the U.S. Securities Act of 1933, as amended (the “Securities Act”). |
Commitments and Contingencies |
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Commitments and Contingencies Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Commitments and Contingencies | COMMITMENTS AND CONTINGENCIES Indemnification – Subject to certain limitations, the Company is obligated to indemnify its current and former directors, officers and employees with respect to certain litigation matters and investigations that arise in connection with their service to the Company. These obligations arise under the terms of its certificate of incorporation, its bylaws, applicable contracts, and Delaware and California law. The obligation to indemnify generally means that the Company is required to pay or reimburse the individuals’ reasonable legal expenses and possibly damages and other liabilities incurred in connection with these matters. Legal – The Company is named from time to time as a party to lawsuits arising in the ordinary course of business related to its sales, marketing, the provision of its services and equipment claims. Actions filed against the Company include commercial, intellectual property, customer, and labor and employment related claims, including complaints of alleged wrongful termination and potential class action lawsuits regarding alleged violations of federal and state wage and hour and other laws. In general, litigation can be expensive and disruptive to normal business operations. Moreover, the results of legal proceedings are difficult to predict, and the costs incurred in litigation can be substantial. The Company believes the amounts provided in its financial statements are adequate in light of the probable and estimated liabilities. Factors that the Company considers in the determination of the likelihood of a loss and the estimate of the range of that loss in respect of legal matters include the merits of a particular matter, the nature of the matter, the length of time the matter has been pending, the procedural posture of the matter, how the Company intends to defend the matter, the likelihood of settling the matter and the anticipated range of a possible settlement. Because such matters are subject to many uncertainties, the ultimate outcomes are not predictable and there can be no assurances that the actual amounts required to satisfy alleged liabilities from the matters described above will not exceed the amounts reflected in the Company’s financial statements or that the matters will not have a material adverse effect on the Company’s results of operations, financial condition or cash flows. The Company regularly reviews outstanding legal claims and actions to determine if reserves for expected negative outcomes of such claims and actions are necessary. The Company had reserves for all such matters of approximately $2.1 million and $2.6 million as of September 30, 2017 and December 31, 2016, respectively. In conjunction with one of the settlements, the Company is obligated to pay certain future royalties, based on sales of future products. Operating Leases —The Company leases office and warehouse space, certain equipment, towers, wireless spectrum, software and an aircraft under operating leases with related and unrelated parties expiring in various years through 2028. The leases require the Company to pay additional rent for increases in operating expenses and real estate taxes and contain renewal options. The Company's operating lease arrangements and related terms consisted of the following (in thousands):
Capital Leases —The Company also enters into certain capital leases with expiration dates through July 2021. On an ongoing basis, the Company enters into vehicle lease agreements under a Fleet Lease Agreement. The lease agreements are typically 36 month leases for each vehicle and the average remaining life for the fleet is 15 months as of September 30, 2017. As of September 30, 2017 and December 31, 2016, the capital lease obligation balance was $18.3 million and $17.7 million, respectively. Spectrum Licenses —During the year ended December 31, 2016, a subsidiary of the Company entered into leasing agreements with a third party for designated radio frequency spectrum in 40 mid-sized metropolitan markets. The initial lease term is for seven years, with an option to become the licensor of record with the FCC with respect to the applicable spectrum licenses at the end of this initial term for a nominal fee. While licenses are issued for only a fixed time, such licenses are subject to renewal by the Federal Communications Commission (FCC). The Company intends to renew the licenses at the end of the initial term. License renewals within the industry have occurred routinely and at nominal cost. Moreover, the Company has determined that there are currently no legal, regulatory, contractual, competitive, economic or other factors that limit the useful life of the licenses. As a result, the Company treats these Spectrum licenses as an indefinite-lived intangible asset. Build-to-Suit Lease Arrangements —In June 2016, the Company entered into a non-cancellable lease to occupy the Logan Facility. In 2016, because of its involvement in certain aspects of the construction of the Logan Facility, per the terms of the lease, the Company was deemed the owner of the building for accounting purposes during the construction period. Accordingly, the Company recorded a build-to-suit lease asset and a corresponding build-to-suit lease liability during the construction period. In April 2017, construction on the Logan Facility was completed and the Company commenced occupancy. In accordance with ASC 840-40 Sale-Leaseback Transactions, the building did not qualify for sale-leaseback treatment. As such, the Company will retain the building asset and corresponding lease obligation on the balance sheet. Accordingly, the Company has a build-to-suit building asset, which totaled $8.2 million and $5.0 million, respectively, net of accumulated depreciation of $0.3 million and $0 as of September 30, 2017 and December 31, 2016, respectively. |
Related Party Transactions |
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Related Party Transactions [Abstract] | |||||||||||||||||||||
Related Party Transactions | RELATED PARTY TRANSACTIONS Transactions with Vivint Solar The Company and Vivint Solar, Inc. (“Solar”) have entered into agreements under which the Company subleased corporate office space through October 2014, and provides certain other ongoing administrative services to Solar. During the three months ended September 30, 2017 and 2016, the Company charged $0.7 million and $0.9 million, respectively, and during the nine months ended September 30, 2017 and 2016, the Company charged $1.8 million and $3.7 million, respectively, of general and administrative expenses to Solar in connection with these agreements. The balance due from Solar in connection with these agreements and other expenses paid on Solar’s behalf was $0.2 million at both September 30, 2017 and December 31, 2016, respectively, and is included in prepaid expenses and other current assets in the accompanying condensed consolidated balance sheets. Also in connection with Solar’s initial public offering, the Company entered into a number of agreements with Solar related to services and other support that it has provided and will provide to Solar including:
In November 2016, the Company amended the Marketing and Customer Relations Agreement with Solar to update certain terms and conditions governing existing cross-marketing initiatives and to implement new cross-marketing initiatives, including a pilot program with the purpose of exploring potential opportunities for each company to offer, sell and integrate the other company’s respective products and services with its standard product offering. The pilot program is still ongoing. Other Related-party Transactions Long-term investments and other assets, includes amounts due for non-interest bearing advances made to employees that are expected to be repaid in excess of one year. Amounts due from employees as of both September 30, 2017 and December 31, 2016, amounted to approximately $0.3 million. As of September 30, 2017 and December 31, 2016, this amount was fully reserved. Prepaid expenses and other current assets at both September 30, 2017 and December 31, 2016 included a receivable for $0.4 million, respectively, from certain members of management in regards to their personal use of the corporate jet. The Company incurred additional expenses of $0.4 million and $0.5 million during the three months ended September 30, 2017 and 2016, respectively, and $1.2 million and $1.6 million during the nine months ended September 30, 2017 and 2016, respectively, for other related-party transactions including contributions to the charitable organization Vivint Gives Back, legal fees, and services. Accrued expenses and other current liabilities at September 30, 2017 and December 31, 2016, included a payable to Vivint Gives Back for $0.1 million and $1.8 million, respectively. On November 16, 2012, the Company was acquired by an investor group comprised of certain investment funds affiliated with Blackstone Capital Partners VI L.P., and certain co-investors and management investors through certain mergers and related reorganization transactions (collectively, the “Merger”). In connection with the Merger, the Company engaged Blackstone Management Partners L.L.C. (“BMP”) to provide monitoring, advisory and consulting services on an ongoing basis. In consideration for these services, the Company agreed to pay an annual monitoring fee equal to the greater of (i) a minimum base fee of $2.7 million, subject to adjustments if the Company engages in a business combination or disposition that is deemed significant and (ii) the amount of the monitoring fee paid in respect of the immediately preceding fiscal year, without regard to any post-fiscal year “true-up” adjustments as determined by the agreement. The Company incurred expenses for such services of approximately $1.2 million and $1.1 million during the three months ended September 30, 2017 and 2016, respectively, and $3.6 million and $3.0 million during the nine months ended September 30, 2017 and 2016, respectively. Accrued expenses and other current liabilities at September 30, 2017 included a liability for $1.6 million to BMP in regards to the monitoring fee. Under the support and services agreement, the Company also engaged BMP to arrange for Blackstone’s portfolio operations group to provide support services customarily provided by Blackstone’s portfolio operations group to Blackstone’s private equity portfolio companies of a type and amount determined by such portfolio services group to be warranted and appropriate. BMP will invoice the Company for such services based on the time spent by the relevant personnel providing such services during the applicable period but in no event shall the Company be obligated to pay more than $1.5 million during any calendar year. During the three and nine months ended September 30, 2017 and 2016 the Company incurred no costs associated with such services. Blackstone Advisory Partners L.P. participated as one of the initial purchasers in the issuance of 2022 notes in May 2016, the issuance of additional 2022 Notes in August 2016 and February 2017, and the issuance of the 2023 notes in August 2017 and received fees at the time of closing of such issuances aggregating approximately $0.7 million. In 2016, Parent issued and sold to certain investors shares of a series of preferred stock and contributed the net proceeds from such issuances of $100.4 million to the Company as equity contributions. These issuances were private placements exempt from registration under the Securities Act. From time to time, the Company does business with a number of other companies affiliated with Blackstone. Transactions involving related parties cannot be presumed to be carried out at an arm’s-length basis. |
Employee Benefit Plan |
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Postemployment Benefits [Abstract] | |
Employee Benefit Plan | EMPLOYEE BENEFIT PLAN The Company offers eligible employees the opportunity to contribute a percentage of their earned income into company-sponsored 401(k) plans. No matching contributions were made to the plans for the three and nine months ended September 30, 2017 and 2016. |
Restructuring and Asset Impairment Charges |
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Restructuring and Related Activities [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Restructuring and Asset Impairment Charges | RESTRUCTURING AND ASSET IMPAIRMENT CHARGES During the year ended December 31, 2015, the board of directors approved a plan to transition the Company’s Wireless Internet business from a 5Ghz to a 60Ghz-based network technology (the “Wireless Restructuring”) and the Company ceased the build-out of 5Ghz networks and stopped the installation of new customers. During 2016, the Company shifted to test installations of the new 60Ghz technology. In connection with the Wireless Restructuring, the Company recorded restructuring and asset impairment charges consisting of asset impairments, the costs of employee severance, and other contract termination charges. During the three months ended September 30, 2016, the Company sold all of its New Zealand and Puerto Rico subscriber contracts and ceased operations in these geographical regions (“2016 Contract Sales”). As a result, during the three and nine months ended September 30, 2016 the Company recorded the impact of these transactions in restructuring and asset impairment. The calculation of the net loss recorded included the expensing of all unamortized deferred subscriber acquisition costs associated with the sales of the New Zealand and Puerto Rico subscriber contracts in the amount of $7.6 million, the realization of outstanding amounts of accumulated other comprehensive loss associated with the New Zealand foreign currency translation process of $1.1 million upon the substantial sale of the subsidiary, offset by cash proceeds of $6.2 million for a total net loss on the 2016 Contract Sales of $2.6 million. Restructuring and asset impairment charges and recoveries for the three and nine months ended September 30, 2017 and 2016 were as follows (in thousands):
The following table presents accrued restructuring activity for the nine months ended September 30, 2017 (in thousands):
Additional charges may be incurred in the future for facility-related or other restructuring activities as the Company continues to align resources to meet the needs of the business. |
Segment Reporting and Business Concentrations |
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Segment Reporting and Business Concentrations | SEGMENT REPORTING AND BUSINESS CONCENTRATIONS For the three and nine months ended September 30, 2017 and 2016, the Company conducted business through one operating segment, Vivint. Historically, the Company primarily operated in three geographic regions: United States, Canada and New Zealand. During the three months ended September 30, 2016, the Company sold all of its New Zealand subscriber contracts and ceased operations in that geographical region. Historically, the Company's operations in New Zealand were considered immaterial and reported in conjunction with the United States. Revenues and long-lived assets by geographic region were as follows (in thousands):
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Guarantor and Non-Guarantor Supplemental Financial Information |
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Guarantor And Non Guarantor Supplemental Financial Information [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Guarantor and Non-Guarantor Supplemental Financial Information | GUARANTOR AND NON-GUARANTOR SUPPLEMENTAL FINANCIAL INFORMATION The 2019 notes, 2020 notes, 2022 private placement notes, 2022 notes and 2023 notes were issued by APX. The 2019 notes, 2020 notes, 2022 private placement notes, 2022 notes and 2023 notes are fully and unconditionally guaranteed, jointly and severally by Holdings and each of APX’s existing and future material wholly-owned U.S. restricted subsidiaries. APX’s existing and future foreign subsidiaries are not expected to guarantee the notes. Presented below is the condensed consolidating financial information of APX, subsidiaries of APX that are guarantors (the “Guarantor Subsidiaries”), and APX’s subsidiaries that are not guarantors (the “Non-Guarantor Subsidiaries”) as of September 30, 2017 and December 31, 2016 and for the three and nine months ended September 30, 2017 and 2016. The unaudited condensed consolidating financial information reflects the investments of APX in the Guarantor Subsidiaries and the Non-Guarantor Subsidiaries using the equity method of accounting. Supplemental Condensed Consolidating Balance Sheet September 30, 2017 (in thousands) (unaudited)
Supplemental Condensed Consolidating Balance Sheet December 31, 2016 (in thousands)
Supplemental Condensed Consolidating Statements of Operations and Comprehensive Loss For the Three Months Ended September 30, 2017 (in thousands) (unaudited)
Supplemental Condensed Consolidating Statements of Operations and Comprehensive Loss For the Three Months Ended September 30, 2016 (in thousands) (unaudited)
Supplemental Condensed Consolidating Statements of Operations and Comprehensive Loss For the Nine Months Ended September 30, 2017 (in thousands) (unaudited)
Supplemental Condensed Consolidating Statements of Operations and Comprehensive Loss For the Nine Months Ended September 30, 2016 (in thousands) (unaudited)
Supplemental Condensed Consolidating Statements of Cash Flows For the Nine Months Ended September 30, 2017 (in thousands) (unaudited)
Supplemental Condensed Consolidating Statements of Cash Flows For the Nine Months Ended September 30, 2016 (in thousands) (unaudited)
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Basis of Presentation and Significant Accounting Policies (Policies) |
9 Months Ended |
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Sep. 30, 2017 | |
Accounting Policies [Abstract] | |
Basis of Presentation | Basis of Presentation —The unaudited condensed consolidated financial statements of the Company are presented for APX Group Holdings, Inc. (“Holdings") and its wholly-owned subsidiaries. The Company has prepared the accompanying unaudited condensed consolidated financial statements pursuant to GAAP. Preparing financial statements requires the Company to make estimates and assumptions that affect the amounts that are reported in the consolidated financial statements and accompanying disclosures. Although these estimates are based on the Company’s best knowledge of current events and actions that the Company may undertake in the future, actual results may be different from the Company’s estimates. The results of operations presented herein are not necessarily indicative of the Company’s results for any future period. |
Vivint Flex Pay | Vivint Flex Pay—On January 3, 2017, the Company announced the introduction of the Vivint Flex Pay plan (“Vivint Flex Pay”), which became the Company's primary sales model beginning in March 2017. Under Vivint Flex Pay, customers pay separately for the products and related installation (“Products”) and Vivint's smart home and security services (“Services”). The customer has the following three options to pay for the Products: (i) qualified customers in the United States may finance the purchase of Products through a third-party financing provider (“Consumer Financing Program”) (ii) customers not eligible for the Consumer Financing Program, but who qualify under the Company's underwriting criteria, may enter into a retail installment contract (“RIC”) directly with Vivint, or (iii) customers may purchase the Products at the outset of the service contract with cash, ACH, credit or debit card. Although customers pay separately for the Products and Services under the Vivint Flex Pay plan, the Company has determined that the shift in model does not change the Company's conclusion that the Product sales and Services are one combined unit of accounting. As a result, all forms of transactions under Vivint Flex Pay create deferred revenue for the gross amount of Products sold. Gross deferred revenues are reduced by imputed interest on the RICs and the present value of expected payments due to the third-party financing provider under the Consumer Financing Program. These deferred revenues are recognized in a pattern that reflects the estimated life of the subscriber relationships. The Company amortizes these deferred revenues over 15 years using a 240% declining balance method, which converts to a straight-line methodology after approximately nine years when the resulting amortization exceeds that from the accelerated method. Under the Consumer Financing Program, qualified customers are eligible for installment loans provided by a third-party financing provider of up to $4,000 for either 42 or 60 months. The Company pays a monthly fee to the third-party financing provider based on the average daily outstanding balance of the installment loans. Additionally, the Company shares liability for credit losses depending on the credit quality of the customer. Because of the nature of these provisions under the Consumer Financing Program, the Company records a derivative liability at its fair value when the third-party financing provider originates installment loans to customers, which reduces the amount of revenue recognized on the provision of the services. The derivative liability is reduced as payments are made from the Company to the third-party financing provider. Subsequent changes to the fair value of the derivative liability are realized through other loss/(income), net in the Condensed Consolidated Statement of Operations. (See Note 7). |
Retail Installment Contract Receivables | Retail Installment Contract Receivables—For customers that enter into a RIC under the Vivint Flex Pay plan, the Company records a receivable for the amount financed. The RIC receivables are recorded at their present value, net of the imputed interest. At the time of installation, the Company records a long-term note receivable within long-term investments and other assets, net on the condensed consolidated balance sheets for the present value of the receivables that are expected to be collected beyond 12 months of the reporting date. The unbilled receivable amounts that are expected to be collected within 12 months of the reporting date are included as a short-term notes receivable within accounts and notes receivable, net on the condensed consolidated balance sheets. The billed amounts of notes receivables are included in accounts receivable within accounts and notes receivable, net on the condensed consolidated balance sheets. The Company imputes the interest on the RIC receivable using a risk adjusted market interest rate and records it as an adjustment to deferred revenue and as an adjustment to the face amount of the related receivable. The imputed interest income is recognized over the term of the RIC contract as recurring and other revenue on the condensed consolidated statement of operations. When the Company determines that there are RIC receivables that have become uncollectible, the Company records an allowance for credit losses and bad debt expense. The estimate of allowance for credit losses considers a number of factors, including collection experience, aging of the remaining RIC receivable portfolios, credit quality of the subscriber base and other qualitative considerations, including macro-economic factors. Account balances are written-off if collection efforts are unsuccessful and future collection is unlikely based on the length of time from the day accounts become past due. As of September 30, 2017 and December 31, 2016 there was no allowance for credit losses associated with RIC receivables (See Note 3) |
Accounts Receivable | Accounts Receivable —Accounts receivable consists primarily of amounts due from customers for recurring monthly monitoring services and the billed portion of RIC receivables. The accounts receivable are recorded at invoiced amounts and are non-interest bearing and are included within accounts and notes receivable, net on the condensed consolidated balance sheets. Accounts receivable totaled $20.7 million and $12.9 million at September 30, 2017 and December 31, 2016, respectively net of the allowance for doubtful accounts of $4.5 million and $4.1 million at September 30, 2017 and December 31, 2016, respectively. The Company estimates this allowance based on historical collection experience and subscriber attrition rates. When the Company determines that there are accounts receivable that are uncollectible, they are charged off against the allowance for doubtful accounts. As of September 30, 2017 and December 31, 2016, no accounts receivable were classified as held for sale. The provision for doubtful accounts is included in general and administrative expenses in the accompanying unaudited condensed consolidated statements of operations and totaled $5.0 million and $5.6 million for the three months ended September 30, 2017 and 2016, respectively. |
Revenue Recognition | Revenue Recognition— The Company recognizes revenue principally on three types of transactions: (i) recurring and other revenue, which includes revenues for monitoring and other smart home services, recognition of deferred revenue associated with the sales of Products at the time of installation, imputed interest associated with the RIC receivables and recurring monthly revenue associated with Vivint Wireless Inc. (“Wireless Internet” or “Wireless”), (ii) service and other sales, which includes non-recurring service fees charged to subscribers provided on contracts, contract fulfillment revenues and sales of products that are not part of the Company's service offerings, and (iii) activation fees on subscriber contracts, which are amortized over the expected life of the customer. Recurring and other revenue includes (i) the Company’s subscriber contracts associated with Services, which are billed directly to the subscriber in advance, generally monthly, pursuant to the terms of subscriber contracts and recognized ratably over the service period, (ii) monthly recognition of deferred Product revenue and (iii) imputed interest associated with the RIC receivables, which is recognized over the initial term of the RIC. Service and other sales revenue is recognized as services are provided or when title to the products and equipment sold transfers to the customer. Contract fulfillment revenue, included in service and other sales, is recognized when payment is received from customers who cancel their contract in-term. Revenue from sales of products that are not part of the service offering and sold after the initial point of installation is generally recognized upon delivery of products. Activation fees represent upfront one-time charges billed to subscribers at the time of installation and are deferred. The Company amortizes deferred activation fees over 15 years using a 240% declining balance method, which converts to a straight-line methodology after approximately nine years when the resulting amortization exceeds that from the accelerated method. The Company evaluates subscriber account attrition on a periodic basis, utilizing observed attrition rates for the Company’s subscriber contracts and industry information and, when necessary, makes adjustments to the estimated subscriber relationship period and amortization method. Activation fees are no longer charged under Vivint Flex Pay, as these fees will no longer be billed separately to subscribers at the time of installation. |
Deferred Revenue | Deferred Revenue— The Company's deferred revenues primarily consist of amounts for sales of Products and Services. Deferred Product revenues are recorded at the time of sale and deferred in a pattern that reflects the estimated life of the subscriber relationships. The Company amortizes these deferred revenues over 15 years using a 240% declining balance method, which converts to a straight-line methodology after approximately nine years when the resulting amortization exceeds that from the accelerated method. Deferred Service revenues represent the amounts billed, generally monthly, in advance and collected from customers for services yet to be performed. |
Subscriber Acquisition Costs | Subscriber Acquisition Costs —Subscriber acquisition costs represent the costs related to the origination of new subscribers. A portion of subscriber acquisition costs is expensed as incurred, which includes costs associated with the direct-to-home sale housing, marketing and recruiting, certain portions of sales commissions (residuals), overhead and other costs, considered not directly and specifically tied to the origination of a particular subscriber. The remaining portion of the costs is considered to be directly tied to subscriber acquisition and consists primarily of certain portions of sales commissions, equipment and installation costs. These costs are deferred and recognized in a pattern that reflects the estimated life of the subscriber relationships. The Company amortizes subscriber acquisition costs over 15 years using a 240% declining balance method, which converts to a straight-line methodology after approximately nine years when the resulting amortization exceeds that from the accelerated method. The Company evaluates subscriber account attrition on a periodic basis, utilizing observed attrition rates for the Company’s subscriber contracts and industry information and, when necessary, makes adjustments to the estimated subscriber relationship period and amortization method. On the condensed consolidated statement of cash flows, subscriber acquisition costs that are comprised of equipment and related installation costs purchased for or used in subscriber contracts in which the Company retains ownership to the equipment are classified as investing activities and reported as “Subscriber acquisition costs – company owned equipment”. All other subscriber acquisition costs are classified as operating activities and reported as “Subscriber acquisition costs – deferred contract costs” on the condensed consolidated statements of cash flows as these assets represent deferred costs associated with customer contracts. |
Cash and Cash Equivalents | Cash and Cash Equivalents— Cash and cash equivalents consists of highly liquid investments with remaining maturities when purchased of three months or less. |
Inventories | Inventories —Inventories, which are comprised of smart home and security system equipment and parts, are stated at the lower of cost or net realizable value with cost determined under the first-in, first-out (FIFO) method. The Company adjusts the inventory balance based on anticipated obsolescence, usage and historical write-offs. |
Long-lived Assets and Intangibles | Long-lived Assets and Intangibles —Property, plant and equipment are stated at cost and depreciated on the straight-line method over the estimated useful lives of the assets or the lease term for assets under capital leases, whichever is shorter. Intangible assets with definite lives are amortized over the remaining estimated economic life of the underlying technology or relationships, which ranges from five to ten years. Definite-lived intangible assets are amortized on the straight-line method over the estimated useful life of the asset or in a pattern in which the economic benefits of the intangible asset are consumed. Amortization expense associated with leased assets is included with depreciation expense. Routine repairs and maintenance are charged to expense as incurred. The Company periodically assesses potential impairment of its long-lived assets and intangibles and performs an impairment review whenever events or changes in circumstances indicate that the carrying value may not be recoverable. In addition, the Company periodically assesses whether events or changes in circumstance continue to support an indefinite life of certain intangible assets or warrant a revision to the estimated useful life of definite-lived intangible assets. Wireless Spectrum Licenses—The Company has capitalized, as an intangible asset, wireless spectrum licenses that its subsidiary acquired from a third party. The cost basis of the wireless spectrum asset includes the purchase price paid for the licenses at the time of acquisition, plus costs incurred to acquire the licenses. The asset and related liability were recorded at the net present value of future cash outflows using the Company's incremental borrowing rate at the time of acquisition. The Company has determined that the wireless spectrum licenses meet the definition of indefinite-lived intangible assets because the licenses may be renewed periodically for a nominal fee, provided that the Company continues to meet the service and geographic coverage provisions. The Company has also determined that there are currently no legal, regulatory, contractual, competitive, economic or other factors that limit the useful lives of these wireless spectrum licenses. |
Long-term Investments | Long-term Investments —The Company’s long-term investments are comprised of available-for-sale securities and cost-based investments in other companies. As of September 30, 2017 and December 31, 2016, cost-based investments totaled $0.6 million and $0.4 million and available-for-sale securities totaled $3.7 million and $4.0 million, respectively. The Company’s marketable equity securities have been classified and accounted for as available-for-sale. Management determines the appropriate classification of its investments at the time of purchase and reevaluates the classifications at each balance sheet date. Marketable equity securities, are classified as either short-term or long-term, based on the nature of each security and its availability for use in current operations. The Company’s marketable equity securities are carried at fair value, with unrealized gains and losses, reported as a component of accumulated other comprehensive income (“AOCI”) in equity, with the exception of unrealized losses believed to be other-than-temporary which are reported in earnings in the current period. The cost of securities sold is based upon the specific identification method. The Company performs impairment analyses of its cost based investments when events occur or circumstances change that would, more likely than not, reduce the fair value of the investment below its carrying value. When indicators of impairment do not exist and certain accounting criteria are met, the Company evaluates impairment using a qualitative approach. As of September 30, 2017 and December 31, 2016, no indicators of impairment existed associated with these cost based investments. |
Deferred Financing Costs | Deferred Financing Costs —Costs incurred in connection with obtaining debt financing are deferred and amortized utilizing the straight-line method, which approximates the effective-interest method, over the life of the related financing. Deferred financing costs incurred with draw downs on APX Group, Inc.’s (“APX”) revolving credit facility will be amortized over the amended maturity dates discussed in Note 2. If such financing is paid off or replaced prior to maturity with debt instruments that have substantially different terms, the unamortized costs are charged to expense. |
Residual Income Plan | Residual Income Plan —The Company has a program that allows certain third-party sales channel partners to receive additional compensation based on the performance of the underlying contracts they create. The Company calculates the present value of the expected future payments and recognizes this amount in the period the commissions are earned. Subsequent accretion and adjustments to the estimated liability are recorded as interest and operating expense, respectively. The Company monitors actual payments and customer attrition on a periodic basis and, when necessary, makes adjustments to the liability. |
Stock-Based Compensation | Stock-Based Compensation —The Company measures compensation costs based on the grant-date fair value of the award and recognizes that cost over the requisite service period of the awards (See Note 9). During the first quarter of 2017, the Company adopted Accounting Standard Update (“ASU”) 2016-09. Under the provisions of ASU 2016-09, the Company has elected to recognize the impact of forfeitures when they occur with no adjustment for estimated forfeitures and recognizes excess tax benefits as a reduction of income tax expense regardless of whether the benefit reduces income taxes payable. Additionally, the Company recognizes the cash flow impact of such excess tax benefits in operating activities in the condensed consolidated statements of cash flows. The Company adopted ASU 2016-09 on a modified retrospective basis for the income statement impact of forfeitures and income taxes and have retrospectively applied ASU 2016-09 to its condensed consolidated statements of cash flows for the impact of excess tax benefits. Accordingly, the Company recognized an immaterial cumulative adjustment charge for the adoption of the impact of forfeitures to beginning retained earnings as of January 1, 2017. |
Advertising Expense | Advertising Expense —Advertising costs are expensed as incurred. |
Income Taxes | Income Taxes —The Company accounts for income taxes based on the asset and liability method. Under the asset and liability method, deferred tax assets and deferred tax liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Valuation allowances are established when necessary to reduce deferred tax assets when it is determined that it is more likely than not that some portion of the deferred tax asset will not be realized. The Company recognizes the effect of an uncertain income tax position on the income tax return at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant taxing authority. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. The Company’s policy for recording interest and penalties is to record such items as a component of the provision for income taxes. |
Concentrations of Credit Risk | Concentrations of Credit Risk —Financial instruments that potentially subject the Company to concentration of credit risk consist principally of receivables and cash. At times during the year, the Company maintains cash balances in excess of insured limits. The Company is not dependent on any single customer or geographic location. The loss of a customer would not adversely impact the Company’s operating results or financial position. |
Concentrations of Supply Risk | Concentrations of Supply Risk —As of September 30, 2017, approximately 68% of the Company’s installed panels were SkyControl panels and 30% were 2GIG Go!Control panels. In connection with the 2GIG Sale in April 2013, the Company entered into a five-year supply agreement with 2GIG, pursuant to which they will be the exclusive provider of the Company’s control panel requirements, subject to certain exceptions as provided in the supply agreement. The loss of 2GIG as a supplier could potentially impact the Company’s operating results or financial position. |
Fair Value Measurement | Fair Value Measurement —Fair value is based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Assets and liabilities subject to on-going fair value measurement are categorized and disclosed into one of three categories depending on observable or unobservable inputs employed in the measurement. These two types of inputs have created the following fair value hierarchy: Level 1: Quoted prices in active markets that are accessible at the measurement date for assets and liabilities. Level 2: Observable prices that are based on inputs not quoted in active markets, but corroborated by market data. Level 3: Unobservable inputs are used when little or no market data is available. This hierarchy requires the Company to minimize the use of unobservable inputs and to use observable market data, if available, when determining fair value. The Company recognizes transfers between levels of the hierarchy based on the fair values of the respective financial measurements at the end of the reporting period in which the transfer occurred. There were no transfers between levels of the fair value hierarchy during the nine months ended September 30, 2017 and 2016. The carrying amounts of the Company’s accounts receivable, accounts payable and accrued and other liabilities approximate their fair values due to their short maturities. |
Goodwill | Goodwill —The Company conducts a goodwill impairment analysis annually in the fourth fiscal quarter, as of October 1, and as necessary if changes in facts and circumstances indicate that the fair value of the Company’s reporting units may be less than its carrying amount. When indicators of impairment do not exist and certain accounting criteria are met, the Company is able to evaluate goodwill impairment using a qualitative approach. When necessary, the Company’s quantitative goodwill impairment test consists of two steps. The first step requires that the Company compare the estimated fair value of its reporting units to the carrying value of the reporting unit’s net assets, including goodwill. If the fair value of the reporting unit is greater than the carrying value of its net assets, goodwill is not considered to be impaired and no further testing is required. If the fair value of the reporting unit is less than the carrying value of its net assets, the Company would be required to complete the second step of the test by analyzing the fair value of its goodwill. If the carrying value of the goodwill exceeds its fair value, an impairment charge is recorded. As of September 30, 2017, there were no changes in facts and circumstances since the most recent annual impairment analysis to indicate impairment existed. |
Foreign Currency Translation and Other Comprehensive Income | Foreign Currency Translation and Other Comprehensive Income —The functional currencies of Vivint Canada, Inc. and Vivint New Zealand, Ltd. are the Canadian and New Zealand dollars, respectively. Accordingly, assets and liabilities are translated from their respective functional currencies into U.S. dollars at period-end rates and revenue and expenses are translated at the weighted-average exchange rates for the period. Adjustments resulting from this translation process are classified as other comprehensive income (loss) and shown as a separate component of equity. During the three months ended September 30, 2016, the Company sold all of its New Zealand and Puerto Rico subscriber contracts and ceased operations in these geographical regions (“2016 Contract Sales”). See Note 13 for further information on the 2016 Contract Sales. When intercompany foreign currency transactions between entities included in the consolidated financial statements are of a long term investment nature (i.e., those for which settlement is not planned or anticipated in the foreseeable future) foreign currency translation adjustments resulting from those transactions are included in stockholders’ deficit as accumulated other comprehensive loss. When intercompany transactions are deemed to be of a short term nature, translation adjustments are required to be included in the condensed consolidated statement of operations. |
Letters of Credit | Letters of Credit —As of September 30, 2017 and December 31, 2016, the Company had $8.7 million and $5.7 million, respectively, of letters of credit issued in the ordinary course of business, all of which are undrawn. |
Restructuring and Asset Impairment Charges | Restructuring and Asset Impairment Charges —Restructuring and asset impairment charges represent expenses incurred in relation to activities to exit or dispose of portions of the Company's business that do not qualify as discontinued operations. Liabilities associated with restructuring are measured at their fair value when the liability is incurred. Expenses for related termination benefits are recognized at the date the Company notifies the employee, unless the employee must provide future service, in which case the benefits are expensed ratably over the future service period. Liabilities related to termination of a contract are measured and recognized at fair value when the contract does not have any future economic benefit to the entity and the fair value of the liability is determined based on the present value of the remaining obligation. The Company expenses all other costs related to an exit or disposal activity as incurred (See Note 13). |
New Accounting Pronouncements | New Accounting Pronouncements —In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606),” which supersedes the revenue recognition requirements in “Revenue Recognition (Topic 605).” Under Topic 606, revenue is recognized when a customer obtains control of promised goods or services and is recognized in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. In addition, Topic 606 requires enhanced disclosures, including disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The FASB has recently issued several amendments to the standard, including clarification on accounting for licenses of intellectual property and identifying performance obligations. Topic 606 will be effective for the Company beginning with the first quarter of fiscal 2018. The Company offers its customers a smart home service combining its proprietary control panel; equipment in the home that interfaces with the control panel, including door and window sensors, door locks, security cameras and smoke alarms (“Interfacing Equipment”); installation; and its proprietary back end cloud platform software and services. These combined elements together create an integrated system that allows the Company’s customers to monitor, control and protect their home (“Smart Home Service”). Based on the Company’s assessment of the potential impacts of Topic 606, it expects to continue to recognize most revenue over time for its Smart Home contracts based on the life of the contract, which is included in Recurring and other revenue on the Company’s Statement of Operations. The Company has preliminarily concluded that, while certain equipment provided to its customers may be capable of being distinct, its customers are buying an integrated system that provides them Smart Home Services. The equipment and services contracted for by the customer are necessary to provide the integrated system the customer has contracted for. Because the equipment and services included in the customer’s contract are integrated and highly interdependent, and because they must work together to deliver the Smart Home Services, the Company has preliminarily concluded that the Interfacing Equipment, control panel, related installation and Smart Home Services contracted for by the customer are generally not distinct within the context of the contract and, therefore, constitute a single, combined performance obligation. This single, combined performance obligation will be recognized over the customer’s contract term, whereas under Topic 605 the revenue was recorded over the expected customer life. Interfacing Equipment purchased subsequent to the purchase of the initial system and the related installation services will be treated as a contract modification. If the Company determines that certain equipment is capable of being distinct, and distinct within the context of the contract, revenue for that equipment will be recognized upon delivery. Discounts and other concessions will be estimated and accrued for on a monthly basis based on the Company’s historical trends of offering discounts and concessions to its customers. Service and other sales revenue will continue to be recognized at the time the Company performs services for its customers. More judgment and estimates will be required under Topic 606 than are required under Topic 605, including estimating the SSP for each performance obligation identified within the Company’s contracts. The Company is currently performing analyses to determine the SSP for each of the performance obligations that have been identified. The Company is currently calculating its SSPs based on its historical pricing practices. Due to the complexity of certain contracts, the actual revenue recognition treatment required under Topic 606 for these arrangements may depend on contract- specific terms and vary in some instances. Topic 606 permits two methods of adoption: retrospectively to each prior reporting period presented (full retrospective method), or modified retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application (the cumulative catch-up transition method). The Company currently anticipates adopting the standard using the cumulative catch-up transition method. Under the cumulative catch-up transition method, the Company will evaluate each contract that is effective on the adoption date as if that contract had been accounted for under Topic 606 from contract inception. Some revenue related to customer Smart Home contracts that would have been recognized in future periods under Topic 605 (based on expected customer life) will be recast under Topic 606 (based on contract term) as if the revenue had been recognized in prior periods. As this transition method requires that the Company not adjust historical reported revenue amounts, the revenue that would have been recognized under this method prior to the adoption date will be an adjustment to retained earnings and will not be recognized as revenue in future periods as previously planned. Topic 606 also requires the deferral of incremental costs of obtaining a contract with a customer. The Company is deferring these same costs under Topic 605. It does not anticipate any significant change in contract costs that are capitalized or the period over which they are expensed. Refer to Subscriber Acquisition Costs in Note 2 for further detail. In June 2016, the FASB issued ASU 2016-13 which modifies the measurement of expected credit losses of certain financial instruments. This update is effective for fiscal years, and interim periods within those years, beginning after December 15, 2019 and must be applied using a modified-retrospective approach, with early adoption permitted. The Company does not believe the adoption of ASU 2016-13 will have a material impact on the consolidated financial statements. In February 2016, the FASB issued ASU 2016-02 to increase transparency and comparability among organizations as it relates to lease assets and lease liabilities. The update requires that lease assets and lease liabilities be recognized on the balance sheet, and that key information about leasing arrangements be disclosed. Prior to this update, GAAP did not require operating leases to be recognized as lease assets and lease liabilities on the balance sheet. This update is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018 and must be applied using a modified retrospective approach, with early adoption permitted. The Company is in the initial stages of evaluating the impact of ASU 2016-02 on its accounting policies, processes, and system requirements. The Company’s current operating lease portfolio is primarily comprised of network, real estate, and equipment leases. Upon adoption of this standard, the Company expects the balance sheet to include a right of use asset and liability related to substantially all operating lease arrangements. The Company has assigned internal resources to perform the evaluation. Furthermore, the Company has made and will continue to make investments in systems to enable timely and accurate reporting under the new standard. While the Company continues to assess the potential impacts of ASU 2016-02, including the areas described above, and anticipate this standard could have a material impact on the consolidated financial statements, the Company does not know or cannot reasonably estimate quantitative information related to the impact of the new standard on the financial statements at this time. |
Basis of Presentation and Significant Accounting Policies (Tables) |
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Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Changes in Company's Allowance for Accounts Receivable | The changes in the Company’s allowance for accounts receivable were as follows for the periods ended (in thousands):
The following table summarizes the installment receivables (in thousands):
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Long-Term Debt (Tables) |
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Debt Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Other Expense and Loss on Extinguishment and Deferred Financing Costs | As a result of these analyses the company recorded the following amounts of other expense and loss on extinguishment and deferred financing costs during the three and nine months ended September 30, 2017 and 2016 (in thousands):
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Schedule of Deferred Financing Activity | The following table presents deferred financing cost activity for the nine months ended September 30, 2017 (in thousands):
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Summary of Debt | The Company’s debt at September 30, 2017 and December 31, 2016 consisted of the following (in thousands):
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Retail Installment Contract Receivables (Tables) |
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Receivables [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Installment Receivables | The changes in the Company’s allowance for accounts receivable were as follows for the periods ended (in thousands):
The following table summarizes the installment receivables (in thousands):
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Allowance for Credit Losses on Financing Receivables | Activity in the deferred interest for the RIC receivables was as follows (in thousands):
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Balance Sheet Components (Tables) |
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Organization, Consolidation and Presentation of Financial Statements [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Company's Balance Sheet Components | The following table presents material balance sheet component balances (in thousands):
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Property and Equipment (Tables) |
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Property, Plant and Equipment [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Components of Property Plant and Equipment | Property, plant and equipment consisted of the following (in thousands):
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Goodwill and Intangible Assets (Tables) |
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Goodwill and Intangible Assets Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Indefinite-Lived Intangible Assets | The following table presents intangible asset balances (in thousands):
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Schedule of Definite-Lived Intangible Assets | The following table presents intangible asset balances (in thousands):
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Schedule of Estimated Future Amortization Expense of Intangible Assets Excluding Patents Currently in Process | Estimated future amortization expense of intangible assets, excluding approximately $0.9 million in patents currently in process, is as follows as of September 30, 2017 (in thousands):
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Financial Instruments (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value Disclosures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value, by Balance Sheet Grouping | The following tables set forth the Company’s cash and cash equivalents and available-for-sale securities’ adjusted cost, gross unrealized gains, gross unrealized losses and fair value by significant investment category recorded as cash and cash equivalents or long-term investments and other assets, net as of September 30, 2017 and December 31, 2016 (in thousands):
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Schedule of Long-term Debt Instruments | Components of long-term debt including the associated interest rates and related fair values are as follows (in thousands, except interest rates):
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Schedule of Derivative Liabilities at Fair Value | The following table summarizes the fair value, measured using Level 2 fair value inputs, and the notional amount of the Company’s outstanding derivative instrument as of September 30, 2017 (in thousands):
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Stock-Based Compensation and Equity (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock-Based Compensation Expense | Stock-based compensation expense in connection with all stock-based awards is presented as follows (in thousands):
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Commitments and Contingencies (Tables) |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2017 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Commitments and Contingencies Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Operating Leases of Lessee Disclosure | The Company's operating lease arrangements and related terms consisted of the following (in thousands):
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Restructuring and Asset Impairment Charges (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Restructuring and Related Activities [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Restructuring and Asset Impairment Charges | Restructuring and asset impairment charges and recoveries for the three and nine months ended September 30, 2017 and 2016 were as follows (in thousands):
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Summary of Restructuring Activity | The following table presents accrued restructuring activity for the nine months ended September 30, 2017 (in thousands):
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Segment Reporting and Business Concentrations (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Segment Reporting [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Revenue from External Customers and Long-Lived Assets, by Geographical Areas | Revenues and long-lived assets by geographic region were as follows (in thousands):
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Guarantor and Non-Guarantor Supplemental Financial Information (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Guarantor And Non Guarantor Supplemental Financial Information [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Supplemental Condensed Consolidating Balance Sheet | Supplemental Condensed Consolidating Balance Sheet September 30, 2017 (in thousands) (unaudited)
Supplemental Condensed Consolidating Balance Sheet December 31, 2016 (in thousands)
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Supplemental Condensed Consolidating Statements of Operations and Comprehensive (Loss) Income | Supplemental Condensed Consolidating Statements of Operations and Comprehensive Loss For the Three Months Ended September 30, 2017 (in thousands) (unaudited)
Supplemental Condensed Consolidating Statements of Operations and Comprehensive Loss For the Three Months Ended September 30, 2016 (in thousands) (unaudited)
Supplemental Condensed Consolidating Statements of Operations and Comprehensive Loss For the Nine Months Ended September 30, 2017 (in thousands) (unaudited)
Supplemental Condensed Consolidating Statements of Operations and Comprehensive Loss For the Nine Months Ended September 30, 2016 (in thousands) (unaudited)
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Supplemental Condensed Consolidating Statements of Cash Flows | Supplemental Condensed Consolidating Statements of Cash Flows For the Nine Months Ended September 30, 2017 (in thousands) (unaudited)
Supplemental Condensed Consolidating Statements of Cash Flows For the Nine Months Ended September 30, 2016 (in thousands) (unaudited)
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Basis of Presentation and Significant Accounting Policies - Accounts Receivable (Detail) - USD ($) |
3 Months Ended | 9 Months Ended | |||
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Sep. 30, 2017 |
Sep. 30, 2016 |
Sep. 30, 2017 |
Sep. 30, 2016 |
Dec. 31, 2016 |
|
Accounting Policies [Abstract] | |||||
Accounts receivable classified as held for sale | $ 0 | $ 0 | $ 0 | ||
Allowance for Doubtful Accounts Receivable [Roll Forward] | |||||
Beginning balance | 3,799,000 | $ 3,097,000 | 4,138,000 | $ 3,541,000 | |
Provision for doubtful accounts | 4,997,000 | 5,585,000 | 14,723,000 | 13,302,000 | |
Write-offs and adjustments | (4,316,000) | (4,952,000) | (14,381,000) | (13,113,000) | |
Balance at end of period | $ 4,480,000 | $ 3,730,000 | $ 4,480,000 | $ 3,730,000 |
Retail Installment Contract Receivables - Installment Receivables (Details) $ in Thousands |
3 Months Ended | 9 Months Ended |
---|---|---|
Sep. 30, 2017
USD ($)
|
Sep. 30, 2017
USD ($)
|
|
Retail Installment Contracts | ||
Accounts, Notes, Loans and Financing Receivable [Line Items] | ||
RIC receivables, gross | $ 121,836 | $ 121,836 |
Deferred interest | (36,237) | (36,237) |
RIC receivables, net of deferred interest | 85,599 | 85,599 |
Classified on the condensed consolidated unaudited balance sheets as: | ||
Accounts and notes receivable, net | 13,715 | 13,715 |
Long-term investments and other assets, net | 71,884 | 71,884 |
RIC receivables, net | 85,599 | 85,599 |
Interest income | $ (2,800) | $ (4,000) |
Minimum | Vivint Flex Pay | ||
Accounts, Notes, Loans and Financing Receivable [Line Items] | ||
Installment loans available to qualified customers, term | 42 months | |
Maximum | Vivint Flex Pay | ||
Accounts, Notes, Loans and Financing Receivable [Line Items] | ||
Installment loans available to qualified customers, term | 60 months |
Retail Installment Contract Receivables - Allowance for Credit Losses (Details) - Retail Installment Contracts $ in Thousands |
9 Months Ended |
---|---|
Sep. 30, 2017
USD ($)
| |
Financing Receivable, Allowance for Credit Losses [Roll Forward] | |
Deferred interest, beginning of period | $ 0 |
Bad debt expense | 0 |
Write-offs, net of recoveries | (2,114) |
Change in deferred interest on short-term and long-term RIC receivables | 38,351 |
Deferred interest, end of period | $ 36,237 |
Property Plant and Equipment - Additional Information (Detail) - USD ($) |
3 Months Ended | 9 Months Ended | |||
---|---|---|---|---|---|
Sep. 30, 2017 |
Sep. 30, 2016 |
Sep. 30, 2017 |
Sep. 30, 2016 |
Dec. 31, 2016 |
|
Property, Plant and Equipment [Line Items] | |||||
Property plant and equipment, gross | $ 128,216,000 | $ 128,216,000 | $ 105,261,000 | ||
Accumulated amortization | 55,296,000 | 55,296,000 | 41,635,000 | ||
Depreciation and amortization expense | 5,200,000 | $ 4,200,000 | 14,900,000 | $ 12,400,000 | |
Property, plant and equipment, net | 72,920,000 | 72,920,000 | 63,626,000 | ||
Assets Under Capital Lease Obligations | |||||
Property, Plant and Equipment [Line Items] | |||||
Property plant and equipment, gross | 17,200,000 | 17,200,000 | 21,200,000 | ||
Accumulated amortization | 14,700,000 | 14,700,000 | 10,900,000 | ||
Build-to-suit lease building | |||||
Property, Plant and Equipment [Line Items] | |||||
Accumulated amortization | 300,000 | 300,000 | 0 | ||
Property, plant and equipment, net | $ 8,247,000 | $ 8,247,000 | $ 5,004,000 |
Goodwill and Intangible Assets - Additional Information (Detail) $ in Thousands |
3 Months Ended | 9 Months Ended | 12 Months Ended | ||
---|---|---|---|---|---|
Sep. 30, 2017
USD ($)
|
Sep. 30, 2016
USD ($)
|
Sep. 30, 2017
USD ($)
|
Sep. 30, 2016
USD ($)
|
Dec. 31, 2016
USD ($)
market
|
|
Finite-Lived Intangible Assets [Line Items] | |||||
Goodwill | $ 837,210 | $ 837,210 | $ 835,233 | ||
Indefinite-lived intangible assets | 31,876 | 31,876 | $ 31,876 | ||
Amortization expense | 71,108 | $ 81,150 | |||
Amortization expense related to intangible assets | 25,500 | $ 29,300 | 76,300 | $ 87,700 | |
Patents | 900 | $ 900 | |||
Weighted-average amortization period for definite-lived intangible assets | 5 years 3 months 18 days | ||||
Spectrum Licenses | |||||
Finite-Lived Intangible Assets [Line Items] | |||||
Number of mid-sized metropolitan markets | market | 40 | ||||
Lease agreements term | 7 years | 7 years | |||
Indefinite-lived intangible assets | $ 31,253 | $ 31,253 | $ 31,253 |
Goodwill and Intangible Assets - Future Amortization Expense (Detail) $ in Thousands |
Sep. 30, 2017
USD ($)
|
---|---|
Goodwill and Intangible Assets Disclosure [Abstract] | |
2017 - Remaining Period | $ 25,563 |
2018 | 90,617 |
2019 | 78,746 |
2020 | 67,772 |
2021 | 58,658 |
Thereafter | 48,833 |
Total estimated amortization expense | $ 370,189 |
Financial Instruments - Derivative Fair Value (Details) - Level 2 $ in Thousands |
Sep. 30, 2017
USD ($)
|
---|---|
Derivatives, Fair Value [Line Items] | |
Fair Value | $ 35,096 |
Notional Amount | 141,554 |
Accrued expenses and other current liabilities | |
Derivatives, Fair Value [Line Items] | |
Fair Value | 16,896 |
Other long-term obligations | |
Derivatives, Fair Value [Line Items] | |
Fair Value | $ 18,200 |
Income Taxes (Detail) |
9 Months Ended | |
---|---|---|
Sep. 30, 2017 |
Sep. 30, 2016 |
|
Income Tax Disclosure [Abstract] | ||
Effective income tax rate | (0.85%) | (0.27%) |
Stock-Based Compensation and Equity - Stock-Based Compensation Expense (Detail) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2017 |
Sep. 30, 2016 |
Sep. 30, 2017 |
Sep. 30, 2016 |
|
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||||
Total stock-based compensation | $ 401 | $ 508 | $ 1,287 | $ 3,338 |
Operating expenses | ||||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||||
Total stock-based compensation | 9 | 11 | 49 | 42 |
Selling expenses | ||||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||||
Total stock-based compensation | 55 | 49 | 165 | (190) |
General and administrative expenses | ||||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||||
Total stock-based compensation | $ 337 | $ 448 | $ 1,073 | $ 3,486 |
Employee Benefit Plan (Detail) - USD ($) |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2017 |
Sep. 30, 2016 |
Sep. 30, 2017 |
Sep. 30, 2016 |
|
Postemployment Benefits [Abstract] | ||||
Matching contributions to the plan | $ 0 | $ 0 | $ 0 | $ 0 |
Restructuring and Asset Impairment Charges - Disposal (Details) - Subscriber Contracts In New Zealand And Puerto Rico $ in Millions |
3 Months Ended |
---|---|
Sep. 30, 2016
USD ($)
| |
Restructuring Cost and Reserve [Line Items] | |
Write-off of deferred acquisition costs | $ 7.6 |
Foreign currency translation loss | 1.1 |
Proceeds from sale of other assets | 6.2 |
Loss on disposal | $ 2.6 |
Restructuring and Asset Impairment Charges - Summary of Restructuring Activity (Detail) - Contract termination costs $ in Thousands |
9 Months Ended |
---|---|
Sep. 30, 2017
USD ($)
| |
Restructuring Reserve [Roll Forward] | |
Accrued restructuring, beginning balance | $ 649 |
Cash payments | (68) |
Accrued restructuring, ending balance | $ 581 |
Segment Reporting and Business Concentrations (Details) $ in Thousands |
3 Months Ended | 9 Months Ended | |||
---|---|---|---|---|---|
Sep. 30, 2017
USD ($)
segment
|
Sep. 30, 2016
USD ($)
segment
|
Sep. 30, 2017
USD ($)
region
segment
|
Sep. 30, 2016
USD ($)
segment
|
Dec. 31, 2016
USD ($)
|
|
Revenues from External Customers and Long-Lived Assets [Line Items] | |||||
Number of operating segments | segment | 1 | 1 | 1 | 1 | |
Number of geographic regions | region | 3 | ||||
Revenue from external customers | $ 228,658 | $ 198,335 | $ 646,137 | $ 553,395 | |
Property, plant and equipment, net | 72,920 | 72,920 | $ 63,626 | ||
United States | |||||
Revenues from External Customers and Long-Lived Assets [Line Items] | |||||
Revenue from external customers | 211,077 | 183,144 | 597,842 | 511,325 | |
Property, plant and equipment, net | 72,124 | 72,124 | 62,781 | ||
Canada | |||||
Revenues from External Customers and Long-Lived Assets [Line Items] | |||||
Revenue from external customers | 17,581 | $ 15,191 | 48,295 | $ 42,070 | |
Property, plant and equipment, net | $ 796 | $ 796 | $ 845 |
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