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TRANSCRIPT
APX Group Holdings, Inc. 1st Quarter 2017 Results
May 10, 2017
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APX Group Holdings, Inc. (the ”Company”, “Vivint”, “we”, “our”, or “us”) obtained the industry, market and competitive position data included in this presentation from its estimates and research
as well as from industry publications, surveys and studies conducted by third parties. Industry publication studies and surveys generally state that the information contained therein has been
obtained from sources believed to be reliable but there can be no assurance as to the accuracy or completeness of such information. While APX Group, Inc. believes that each of the
publications, studies and surveys is reliable, We have not independently verified industry, market and competitive position data from third-party sources. While we believe our internal business
research is reliable and the market definitions are appropriate, neither such research nor these definitions have been verified by any independent sources. Accordingly, you should not place
undue weight on the industry and market share data in this presentation.
This presentation includes forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995, including but not limited to, statements related to the performance of our
business, our financial results, our liquidity and capital resources, our plans, strategies and prospects, both business and financial and other non-historical statements. Forward-looking
statements convey the Company’s current expectations or forecasts of future events. All statements contained in this presentation other than statements of historical fact are forward-looking
statements. These statements are based on the beliefs and assumptions of our management. Although we believe that our plans, intentions and expectations reflected in or suggested by these
forward-looking statements are reasonable, we cannot assure you that we will achieve or realize these plans, intentions or expectations. Forward-looking statements are inherently subject to
risks, uncertainties and assumptions. These statements may be preceded by, followed by or include the words “believes,” “estimates,” “expects,” “projects,” “forecasts,” “may,” “will,” “should,”
“seeks,” “plans,” “scheduled,” “anticipates” or “intends” or similar expressions.
Forward-looking statements are not guarantees of performance. You should not put undue reliance on these statements which speak only as of this date hereof. You should understand that the
following important factors, in addition to those discussed in “Risk Factors” in our most recent annual report on Form 10K, and other reports filed with the Securities Exchange Commission
(“SEC”), could affect our future results and could cause those results or other outcomes to differ materially from those expressed or implied in our forward-looking statements: (1) risks of the
security and smart home industry, including risks of and publicity surrounding the sales, subscriber origination and retention process; (2) the highly competitive nature of the security and smart
home industry and product introductions and promotional activity by our competitors; (3) litigation, complaints or adverse publicity; (4) the impact of changes in consumer spending patterns,
consumer preferences, local, regional, and national economic conditions, crime, weather, demographic trends and employee availability; (5) adverse publicity and product liability claims; (6)
increases and/or decreases in utility and other energy costs, increased costs related to utility or governmental requirements; (7) cost increases or shortages in security and smart home
technology products or components; and (8) the introduction of unsuccessful new products and services; (9) privacy and data protection laws, privacy or data breaches, or the loss of data; and
(10) the impact to our business, results of operations, financial condition, regulatory compliance and customer experience of the Vivint Flex Pay plan. In addition, the origination and retention of
new subscribers will depend on various factors, including, but not limited to, market availability, subscriber interest, the availability of suitable components, the negotiation of acceptable contract
terms with subscribers, local permitting, licensing and regulatory compliance, and our ability to manage anticipated expansion and to hire, train and retain personnel, the financial viability of
subscribers and general economic conditions. These and other factors that could cause actual results to differ from those implied by the forward-looking statements in this presentation are more
fully described in the “Risk Factors” section of our most recent annual report on Form 10-K, as such factors may be updated from time to time in our periodic filings with the SEC. These risk
factors should not be construed as exhaustive. We disclaim any obligations to and do not intend to update the above list or to announce publicly the results of any revisions to any of the forward-
looking statements to reflect future events or developments. All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the
foregoing cautionary statements. We undertake no obligations to update or revise publicly any forward-looking statements, whether a result of new information, future events, or otherwise.
forward-looking statements
2
non-GAAP financial measuresThis presentation includes Adjusted EBITDA which is a supplemental measure that is not required by, or presented in accordance with, accounting principles generally accepted in the United
States (“GAAP”). Adjusted EBITDA is not a measurement of our financial performance under GAAP and should not be considered as an alternative to net income or any other measure derived in
accordance with GAAP or as an alternative to cash flows from operating activities as a measure of our liquidity. We believe the presentation of Adjusted EBITDA is appropriate to provide useful
information about the flexibility we have under our covenants to investors, lenders, financial analysts and rating agencies since these groups have historically used EBITDA-related measures in
our industry, along with other measures, to estimate the value of a company, to make informed investment decisions, and to evaluate a company’s ability to meet its debt service requirements.
Adjusted EBITDA eliminates the effect of non-cash depreciation of tangible assets and amortization of intangible assets, much of which results from acquisitions accounted for under the purchase
method of accounting. Adjusted EBITDA also eliminates the effects of interest rates and changes in capitalization which management believes may not necessarily be indicative of a company’s
underlying operating performance. Adjusted EBITDA is also used by us to measure covenant compliance under the indenture governing our senior secured notes, the indenture governing our
senior unsecured notes and the credit agreement governing our revolving credit facility.
We caution investors that amounts presented in accordance with our definition of Adjusted EBITDA may not be comparable to similar measures disclosed by other issuers, because not all issuers
and analysts calculate Adjusted EBITDA in the same manner.
See Annex A of this presentation for a reconciliation of Adjusted EBITDA to net loss for the Company, which we believe is the most closely comparable financial measure calculated in accordance
with GAAP. Adjusted EBITDA should be considered in addition to and not as a substitute for, or superior to, financial measures presented in accordance with GAAP.
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participants
Todd Pedersen
Chief Executive Officer
Alex Dunn
President
Mark Davies
Chief Financial Officer
Dale R. Gerard
SVP, Finance & Treasurer
4
first quarter 2017 company overview
Business Model Transition – Vivint Flex Pay
Separating the purchase of equipment and installation from service offerings
Customer optionality on smart home configuration with zero-percent financing
Citizens Bank, N.A. consumer funding provides incremental cash flow to Vivint
Channel Expansion – Buy Best Strategic Partnership
Broad scale big box retail format… initial rollout of approximately 400 stores
Co-branded partnership... Access to millions of customers, brand awareness
Favorable subscriber economics… IRR, SAC Multiple, and breakeven months
Operational Focus
Increased run-rate in Engineering to focus on product reliability and continued cloud
capabilities in order to drive customer experience and service cost scaling
IT and process development for Flex Pay and retail/BBY capabilities
New channel expansion… Sales, start-up and capital resources for BBY partnership
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$89.5
$102.8
$115.4
2015 2016 2017
$152.2
$174.3
$205.4
2015 2016 2017
revenue and adjusted EBITDA(1)
Quarters Ended March 31, ($ in Millions)
Adjusted EBITDA (1)
Growth: 14.5% 17.8% Growth: 14.9% 12.3%
Total Revenues
(1) A reconciliation of Adjusted EBITDA to GAAP Net Loss is included in Annex A of this presentation
Total RPU represented 95.9% of Q1 2017 Total Revenues
6
$14.41
$15.95
2016 2017
service and subscriber acquisition costs(1)
Net Subscriber Acquisition Cost MultipleLTM Ended March 31,
Net Service Cost and Margin per SubscriberQuarter Ended March 31,
(1) Excludes wireless internet business
Ne
tS
erv
ice
Co
sts
Net Service Margin 73.8% 72.3%
30.9x
29.8x
2016 2017
7
2017: Includes $1.8 million of equipment cost for 2G to 3G upgrades 2017: Lower SAC multiple driven by higher ARPNU and higher upfront collections
$61.46 $62.01
$67.99
2015 2016 2017
13,921
19,377 14,794
11,888
22,453
24,498
2015 2016 2017
IS
DTH
25,809
new smart home subscriber originations(1)
(1) All subscriber portfolio data presented excludes wireless internet business
(2) RPU is stated as of the end of each period
As of March 31,
New Subscribers Avg. RPU Per New
Subscriber(2)
Smart Home Adoption Rate
Growth: 0.9% 9.6% Growth: 1,440bps 440bpsGrowth: 62.1% (6.1%)
39,29241,830
66.9%
81.3%85.7%
2015 2016 2017
8
$54.26 $55.27
$57.49
2015 2016 2017
$48.3
$56.3
$66.2
2015 2016 2017
smart home subscriber portfolio data(1)
(1) All subscriber portfolio data presented excludes wireless internet business
(2) RPU is stated as of the end of each period
As of March 31,
($ in Millions)
Total RPU(2)
Total Subscribers Avg. Revenue Per User(2)
Growth: 16.5% 17.6% Growth: 14.4% 13.1% Growth: 1.9% 4.0%
890,125
1,018,397
1,151,453
2015 2016 2017
9
12.0%
Annualized
Attrition
13.6%
Annualized
Attrition
(# of Subscriber Accounts)
12.6%
Annualized
Attrition
subscriber account attrition(1)
~ 6% of portfolio reaching initial end of
contract term in 2017
2013 42-mo contracts (4Q16 – 1Q17)
2014 42-mo contracts (4Q17 – 1Q18)
(1) All subscriber attrition data presented excludes the wireless internet business for all periods presented
LTM Quarterly Attrition
12.0% 12.0%
12.2%
12.6%
12.9% 12.9%
12.6%
12.0%
Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017
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vivint flex pay & BBY status
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Vivint Flex Pay
Customers have two options when purchasing the products and related installation
Pay-in-Full: customers pay with credit card or check at time of installation
Consumer Credit: Citizens installment loan or Vivint Retail Installment Contract (RIC)… 42 or 60 month terms, 0% interest
Significant IT and process changes required for implementation
RIC offered to all new customers beginning late-February
Citizens initial implementation late-March
Customers appear to readily accept the new pricing model… similar to recently promoted cell phone plans
Both sales channels have shown an initial drop in productivity as training and experience is internalized at the representative level
Financial / Operation Metrics: too early to provide details, but key metrics appear to be in-line with relevant range of estimated results
Financial statement impact included in Appendix
Best Buy Program
Initial plan is to open approximately 400 stores, with as many as possible prior to holiday sales season
Product package and service offering is consistent with existing channels
Infrastructure, sales and management are currently being developed and acquired. Rollout expected end-of-summer.
Sales productivity is expected to follow a typical experience curve, including a pre-opening hiring and training phase
Q&A
12
APX Group Holdings, Inc.
Quarters Ended March 31, 2017 and 2016
Consolidated Financial Statements
13
condensed consolidated balance sheetsAPX Group Holdings, Inc. and Subsidiaries
(In thousands)
(Unaudited)
14
March 31, December 31,
2017 2016
ASSETS
Current Assets:
Cash and cash equivalents 37,225$ 43,520$
Accounts and notes receivable, net 11,759 12,891
Inventories 80,845 38,452
Prepaid expenses and other current assets 12,426 10,158
Total current assets 142,255 105,021
Property and equipment, net 67,258 63,626
Subscriber acquisition costs, net 1,064,050 1,052,434
Deferred financing costs, net 3,914 4,420
Intangible assets, net 450,788 475,392
Goodwill 835,491 835,233
Long-term investments and other assets, net 24,654 11,536
Total assets 2,588,410$ 2,547,662$
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current Liabilities:
Accounts payable 92,757$ 49,119$
Accrued payroll and commissions 30,027 46,288
Accrued expenses and other current liabilities 87,322 34,265
Deferred revenue 48,820 45,722
Current portion of capital lease obligations 9,134 9,797
Total current liabilities 268,060 185,191
Notes payable, net 2,510,210 2,486,700
Capital lease obligations, net of current portion 6,039 7,935
Deferred revenue, net of current portion 73,715 58,734
Other long-term obligations 49,945 47,080
Deferred income tax liabilities 7,277 7,204
Total liabilities 2,915,246 2,792,844
Total stockholders’ deficit (326,836) (245,182)
Total liabilities and stockholders’ deficit 2,588,410$ 2,547,662$
consolidated statements of operationsAPX Group Holdings, Inc. and Subsidiaries
(In thousands)
(Unaudited)
15
2017 2016
Revenues:
Recurring and other revenue 196,858$ 167,446$
Service and other sales revenue 5,391 5,011
Activation fees 3,104 1,796
Total revenues 205,353 174,253
Costs and expenses:
Operating expenses 71,352 57,991
Selling expenses 34,798 28,880
General and administrative expenses 38,861 30,441
Depreciation and amortization 76,869 60,571
Restructuring and asset impairment charges - 45
Total costs and expenses 221,880 177,928
Loss from operations (16,527) (3,675)
Other expenses (income):
Interest expense 53,681 45,418
Interest income (57) (12)
Other loss (income), net 12,066 (5,108)
Total other expenses 65,690 40,298
Loss before income taxes (82,217) (43,973)
Income tax expense 419 1,120
Net loss (82,636)$ (45,093)$
Three Months Ended March 31,
summary of consolidated statements of cash flowsAPX Group Holdings, Inc. and Subsidiaries
(In thousands)
(Unaudited)
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2017 2016
Net cash used in operating activities (6,153)$ (12,505)$
Net cash used in investing activities (8,036) (2,442)
Net cash provided by financing activities 7,901 14,026
Effect of exchange rate changes on cash (7) (1,126)
Net decrease in cash (6,295)$ (2,047)$
Cash:
Beginning of period 43,520 2,559
End of period 37,225$ 512$
Three Months Ended March 31,
APX Group Holdings, Inc.
Annex A
17
reconciliation of non-GAAP financial measures – APX Group($ in Millions)
18
i. Reflects costs associated with the restructuring charges and asset impairments related to the transition of our Wireless Internet
business and the 2016 Contracts Sales
ii. Excludes loan amortization costs that are included in interest expense
iii. Reflects subscriber acquisition costs that are expensed as incurred because they are not directly related to the acquisition of
specific subscribers. Certain other industry participants purchase subscribers through subscriber contract purchases, and as a
result, may capitalize the full cost to purchase these subscribers contracts, as compared to our organic generation of new
subscribers, which requires us to expense a portion of our subscriber acquisition costs under GAAP.
iv. Reflects non-cash compensation costs related to employee and director stock and stock option plans
v. Other adjustments including items such as product development costs, subcontracted monitoring fee savings, non-recurring gain,
and other similar adjustments
2017 2016 2015
Net loss (82.6) (45.1) (48.0)
Interest expense, net 53.6 45.4 38.3
Other expense, net 12.0 (5.1) -
Income tax expense 0.4 1.1 0.1
Restructuring and asset impairment (i)
- - -
Depreciation and amortization (ii)
30.0 33.2 37.7
Amortization of capitalized creation costs 46.9 27.4 19.4
Non-capitalized subscriber acquisition costs (iii)
43.3 36.0 34.9
Non-cash compensation (iv)
0.4 0.4 0.8
Other Adjustments (v)
11.4 9.5 6.5
Adjusted EBITDA $ 115.4 $ 102.8 $ 89.5
Three Months Ended March 31,
% of New Subscribers Service RPU Equipment Total RPU Service Margin Equipment
Blended
Margin /
Contribution SAC$ SACx
10% Smart Home $39.99 $0.00 $39.99 $24.99 N/A $24.99 $800 20.0x
Margin % 62.5% 62.5%
90% Smart Home + Video $49.99 $0.00 $49.99 $34.99 N/A $34.99 $750 15.0x
Margin % 70.0% 70.0%
Blended $48.99 $0.00 $48.99 $33.99 N/A $33.99 $755 15.5x
Margin % 69.4% 69.4%
Monthly Amount Billed to
Subscriber (Cash Received)
Margin per User during Initial
Contract Term
Subscriber
Acquisition Cost
Blended Total Retail Sale (1)
1,315$
Blended Service RPU 48.99$
Monthly Service Cost/Sub 15.00$
Initial Term (months) 60
Recurring and Other Revenue - P & L Monthly Yr 1 Yr 2 Yr 3 Yr 4 Yr 5
Monthly Service RPU 48.99$ 588$ 588$ 588$ 588$ 588$
Equipment Revenue 17.53$ 210$ 177$ 148$ 125$ 105$
Total Recurring and Other Revenue 66.52$ 798$ 765$ 736$ 713$ 693$
paid-in-full contract (for illustration purposes only)
19
Assumptions Balance Sheet ViewIncome Statement View – Initial 5-years
(a)
(a)
(a)
(1) Includes all the equipment and installation paid for
at installation
Company receives cash for the full amount of the purchase of products and related installation
Revenue from the purchase of the products and related installation is deferred (reference item a)
Deferred revenues (equipment revenue) are amortized 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
NOTE: Actual results and accounting treatment may differ from the above Illustration
Payment from Customer is
netted against gross SAC
*
Assets
Time of
Installation
Cash $1,315
Total Assets $1,315
Liabilities
Deferred revenue (Current Liabilities) $210
Deferred revenue, net of current portion $1,105
Total Liabilities $1,315
* Monthly amounts shown are for year 1 only
% of New Subscribers Service RPU
Customer
Payment to
Citizens Total RPU
Service
Margin
Citizens
Contribution
Blended
Margin /
Contribution SAC SACx
10% Smart Home $39.99 $16.67 $56.66 $24.99 N/A $24.99 $800 20.0x
Margin % 62.5% 62.5%
90% Smart Home + Video $49.99 $22.50 $72.49 $34.99 N/A $34.99 $750 15.0x
Margin % 70.0% 48.3%
Blended $48.99 $21.92 $70.91 $33.99 N/A $33.99 $755 15.5x
Margin % 69.4% 69.4%
Monthly Amount Billed to
Subscriber (Cash Received)
Margin per User during Initial
Contract Term
Subscriber
Acquisition Cost
Assets
Time of
Installation
Cash $1,315
Total Assets $1,315
Liabilities
Deferred revenue (Current) $168
Accrued Expenses and other current liabilities $53
Deferred revenue, net of current portion $884
Other Long-term Obligations $210
Total Liabilities $1,315
Recurring and Other Revenue - P & L Monthly Yr 1 Yr 2 Yr 3 Yr 4 Yr 5
Monthly Service RPU 48.99$ 588$ 588$ 588$ 588$ 588$
Equipment Revenue 14.03$ 168$ 141$ 119$ 100$ 84$
Total Recurring and Other Revenue 63.02$ 756$ 729$ 707$ 688$ 672$
consumer financing: Citizens (for illustration purposes only)
20
Assumptions Balance Sheet ViewIncome Statement View – Initial 5-years
(a)
(a)
(a)
(a)
Company receives cash from Citizens for the full amount of the customer’s purchase of products and related installation
Revenue from the purchase of the products and related installation, less the present value expected amount to be paid to Citizens for MDR
fees and loss share is deferred (reference item a)
Deferred revenues (equipment revenue) are amortized 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
NOTE: Actual results and accounting treatment may differ from the above Illustration
Payment from Citizens is
netted against gross SAC
Blended Total Retail Sale (1) 1,315$
Derivative (263)$
Blended Total Revenue - Deferred 1,052$
Blended Service RPU 48.99$
Monthly Service Cost/Sub 15.00$
Initial Term (months) 60
*
(1) Includes all the equipment and installation paid for
at installation ($21.92 x 60 months)* Monthly amounts shown are for year 1 only
Recurring and Other Revenue - P & L Monthly Yr 1 Yr 2 Yr 3 Yr 4 Yr 5
Monthly Service RPU $48.99 $588 $588 $588 $588 $588
RIC Revenue Components
Interest revenue $8.31 $100 $83 $65 $46 $24
Equipment Revenue $13.29 $160 $134 $113 $95 $79
Total RIC Revenue $21.60 $259 $217 $178 $140 $103
Total Recurring and Other Revenue $70.59 $847 $805 $766 $728 $691
retail installment contract (for illustration purposes only)
21
Assumptions Balance Sheet ViewIncome Statement View – Initial 5-years
(1) Includes all the equipment and installation paid for
at installation ($21.92 x 60 months)
(a)
(a)
(b)
(b)
(b)
(a)
Company records a notes receivable from the customer for the purchase of products and related installation less the imputed interest
Revenue from the purchase of the products and related installation less the imputed interest is deferred (reference item a and b)
Deferred revenues (equipment revenue – refer to item b) are amortized 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 imputed interest (interest revenue – refer to item a) are amortized over the initial term of the RIC
No Customer bad debt assumption in example
Loan discount amount is subject to market interest rates changes and the customer credit profile
NOTE: Actual results and accounting treatment may differ from the above Illustration
(a) (b)+
(1) RIC Contribution excludes SAC
*
* Monthly amounts shown are for year 1 only
Assets
Time of
Installation
Accts and notes rec, net (Current Assets) $163
Long-Term investments and other assets, net $834
Total Assets $997
Liabilities
Deferred revenue (Current Liabilities) $160
Deferred revenue, net of current portion $837
Total Liabilities $997
Blended Total Retail Sale (1) 1,315$
Loan Discount (318)$
Blended Total Revenue - Deferred 997$
Blended Service RPU 48.99$
Monthly Service Cost/Sub 15.00$
Initial Term (months) 60
Discount Rate (imputed interest) 10%
% of New Subscribers Service RPU RIC Total RPU Service Margin
RIC (1)
Contribution
Blended
Margin /
Contribution SAC$ SACx
10% Smart Home $39.99 $16.67 $56.66 $24.99 $16.67 $41.66 $1,800 31.8x
Margin % 62.5% 100.0% 73.5%
90% Smart Home + Video $49.99 $22.50 $72.49 $34.99 $22.50 $57.49 $2,100 29.0x
Margin % 70.0% 100.0% 79.3%
Blended $48.99 $21.92 $70.91 $33.99 $21.92 $55.91 $2,070 29.2x
Margin % 69.4% 100.0% 78.8%
Monthly Amount Billed to
Subscriber (Cash Received)
Margin per User during Initial
Contract Term
Subscriber
Acquisition Cost
certain definitions
Total Subscribers - The aggregate number of active smart home and security subscribers at the end of a given period.
Monthly Revenue per User ("RPU") - The recurring monthly revenue billed to a smart home and security subscriber.
Total RPU - The aggregate RPU billed to all smart home and security subscribers.
Average RPU ("ARPU") - The total RPU divided by total subscribers.
Average Revenue per New User ("ARPNU") - The aggregate RPU for new subscribers originated during a period divided by the number of new subscribers originated during
such period.
Attrition - The aggregate number of canceled smart home and security subscribers during a period divided by the monthly weighted average number of total smart home and
security subscribers for such period. Subscribers are considered canceled when they terminate in accordance with the terms of their contract, are terminated by us or if payment
from such subscribers is deemed uncollectible (when at least four monthly billings become past due). Sales of contracts to third parties, certain moves and takeovers are
excluded from the attrition calculation.
Net Subscriber Acquisition Costs - The direct and indirect costs to create a new smart home and security subscriber. These include commissions, equipment, installation,
marketing and other allocations (general and administrative and overhead); less activation fees, installation fees and upsell revenue. These costs exclude residuals and long-
term equity expenses associated with the direct-to-home sales channel.
Net Subscriber Acquisition Cost Multiple - The total net subscriber acquisition costs, divided by the number of new subscribers originated, and then divided by the ARPNU.
Net Service Cost per Subscriber- The total service costs for the period, including monitoring, customer service, field service and other allocations (general and administrative
and overhead) costs, less total service revenue for the period divided by total subscribers.
Net Service Margin - The ARPU for the period less net service costs divided by the ARPU for the period.
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