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NOTE 1 – 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. Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) have been condensed or omitted pursuant to such rules and regulations. The information as of December 31, 2014 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 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 six months ended June 30, 2015 are not necessarily indicative of the results that may be expected for the year ending December 31, 2015.
These unaudited condensed consolidated financial statements and notes should be read in conjunction with the Company’s audited consolidated financial statements and related notes for the years ended December 31, 2014 and 2013 set forth in Amendment No. 1 on Form 10-K/A to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2014, as filed with the Securities and Exchange Commission (“SEC”) on August 10, 2015, which is available on the SEC’s website at sec.gov.
The direct-to-home component of the sales cycle for the Company is seasonal in nature. The Company makes investments in the recruitment of the sales force and inventory for the summer sales period prior to each summer season. The sales season generally runs from late April to the end of August each year. The Company experiences increases in subscriber acquisition costs, as well as costs to support the sales force around North America, during this time period.
Basis of Presentation—The unaudited condensed consolidated financial statements of the Company are presented for APX Group Holdings, Inc. and its wholly-owned subsidiaries.
During the six months ended June 30, 2015, the Company recorded certain out-of-period adjustments totaling $2.0 million, primarily associated with the timing of the recognition of deferred revenue related to 2014 recurring monitoring services. As a result of these adjustments, recurring revenues increased for the six months ended June 30, 2015 and deferred revenue decreased by $2.0 million, respectively. The Company evaluated the impact of the out-of-period adjustments and determined that they are immaterial to the unaudited condensed consolidated financial statements for the six months ended June 30, 2015.
Changes in Presentation of Comparative Financial Statements—Certain reclassifications have been made to our prior period condensed consolidated financial information in order to conform to the current period presentation. These changes did not have a significant impact on the condensed consolidated financial statements.
Revenue Recognition—The Company recognizes revenue principally on three types of transactions: (i) recurring revenue, which includes revenues for monitoring and other automation services of the Company’s subscriber contracts, certain subscriber contracts that have been sold and recurring monthly revenue associated with Vivint Wireless Inc. (“Wireless Internet” or “Wireless”), (ii) service and other sales, which includes services provided on contracts, contract fulfillment revenue, sales of products that are not part of the basic equipment package and revenue from 2GIG up through the date of the 2GIG Sale, and (iii) activation fees on the Company’s contracts, which are amortized over the expected life of the customer.
Recurring revenue for the Company’s subscriber contracts are billed in advance, generally monthly, pursuant to the terms of subscriber contracts and recognized ratably over the service period. Costs of providing ongoing recurring services are expensed in the period incurred.
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 basic equipment package is recognized upon delivery of products.
Activation fees represent upfront one-time charges billed to subscribers at the time of installation and are deferred. These fees are recognized over the estimated customer life of 12 years using a 150% declining balance method, which converts to a straight-line methodology after approximately five years.
Subscriber Acquisition Costs—A portion of the direct costs of acquiring new subscribers, primarily sales commissions, equipment, and installation costs, are deferred and recognized over a pattern that reflects the estimated life of the subscriber relationships. The Company amortizes these costs over 12 years using a 150% declining balance method, which converts to a straight-line methodology after approximately five years. 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 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.
Included within subscriber acquisition costs on the consolidated balance sheets as of June 30, 2015 were equipment purchases of $9.9 million that have yet to be installed in subscribers’ homes.
Cash and Cash Equivalents—Cash and cash equivalents consists of highly liquid investments with remaining maturities when purchased of three months or less.
Restricted Cash and Cash Equivalents—Restricted cash and cash equivalents is restricted for a specific purpose and cannot be included in the general cash account. At June 30, 2015 and December 31, 2014, the restricted cash and cash equivalents was held by a third-party trustee. Restricted cash and cash equivalents consists of highly liquid investments with remaining maturities when purchased of three months or less.
Accounts Receivable—Accounts receivable consists primarily of amounts due from customers for recurring monthly monitoring services. The accounts receivable are recorded at invoiced amounts and are non-interest bearing. The gross amount of accounts receivable has been reduced by an allowance for doubtful accounts of $3.2 million and $3.4 million at June 30, 2015 and December 31, 2014, 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 June 30, 2015 and December 31, 2014, no accounts receivable were classified as held for sale. Provision for doubtful accounts is included in general and administrative expenses in the accompanying unaudited condensed consolidated statements of operations.
The changes in the Company’s allowance for accounts receivable were as follows for the periods ended (in thousands):
Three Months Ended June 30, |
Six Months Ended June 30, |
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2015 | 2014 | 2015 | 2014 | |||||||||||||
Beginning balance |
$ | 2,908 | $ | 1,637 | $ | 3,373 | $ | 1,901 | ||||||||
Provision for doubtful accounts |
3,538 | 4,760 | 7,115 | 7,259 | ||||||||||||
Write-offs and adjustments |
(3,203 | ) | (1,896 | ) | (7,245 | ) | (4,659 | ) | ||||||||
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Balance at end of period |
$ | 3,243 | $ | 4,501 | $ | 3,243 | $ | 4,501 | ||||||||
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Inventories—Inventories, which comprise home automation and security system equipment and parts are stated at the lower of cost or market with cost determined under the first-in, first-out (FIFO) method. The Company records an allowance for excess and obsolete inventory based on anticipated obsolescence, usage and historical write-offs.
Long-lived Assets and Intangibles—Property 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 2 to 10 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.
Long-term Investments—The Company’s long-term investments are comprised of cost based investments in other companies as discussed in Note 4. The Company performs impairment analyses of its cost based investments annually, as of October 1, or more often 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 June 30, 2015, 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 3. 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 at June 30, 2015 and December 31, 2014 were $51.1 million and $52.2 million, net of accumulated amortization of $25.3 million and $20.0 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 $2.5 million for the three months ended June 30, 2015 and 2014, respectively and $5.3 million and $5.0 million for the six months ended June 30, 2015 and 2014, respectively.
Residual Income Plan—The Company has a program that allows 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 expenses and other current liabilities was $0.4 million at both June 30, 2015 and December 31, 2014, and the amount included in other long-term obligations was $3.0 million at both June 30, 2015 and December 31, 2014, representing the present value of the estimated amounts owed to third-party sales channel partners.
Stock-Based Compensation—The Company measures compensation cost based on the grant-date fair value of the award and recognizes that cost over the requisite service period of the awards (See Note 11).
Advertising Expense—Advertising costs are expensed as incurred. Advertising costs were approximately $6.2 million and $5.8 million for the three months ended June 30, 2015 and 2014, respectively and $11.5 million and $13.4 million for the six months ended June 30, 2015 and 2014, respectively.
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.
Use of Estimates—The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements. Actual results could differ from those estimates.
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 June 30, 2015, approximately 94% of the Company’s installed panels were either 2GIG Go!Control panels or SkyControl panels. On April 1, 2013, the Company completed the sale of 2GIG Technologies, Inc. (“2GIG”) and its subsidiary to Nortek, Inc. (the “2GIG Sale”). In connection with the 2GIG Sale, 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 six months ended June 30, 2015 and 2014.
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 June 30, 2015, no indicators of 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.
Letters of Credit—As of June 30, 2015 and December 31, 2014, the Company had $5.0 million and $3.0 million, respectively, of letters of credit issued in the ordinary course of business, all of which are undrawn.
New Accounting Pronouncement—In July 2015, the Financial Accounting Standards Board issued authoritative guidance to simplify the measurement of inventory. Prior to this update, generally accepted accounting principles required the measurement of inventory at the lower of cost or market, where market could be replacement cost, net realizable value, or net realizable value less an approximately normal profit margin. This update requires that an entity measure inventory at the lower of cost or net realizable value, where net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. This guidance is effective for fiscal years beginning after December 15, 2016, and for interim periods within fiscal years beginning after December 15, 2017 and should be applied prospectively, with early adoption permitted. The Company plans to adopt this update on the effective date and is not expected to impact the consolidated financial statements.
In May 2015, the Financial Accounting Standards Board issued authoritative guidance related to customer’s accounting for fees paid in a cloud computing arrangement and is issued in an attempt to simplify existing generally accepted accounting principles. The update provides guidance to help entities determine whether a cloud computing arrangement includes a software license. This guidance is effective for fiscal years beginning after December 15, 2015, and for interim periods within fiscal years beginning after December 15, 2016 with early adoption permitted. The Company plans to adopt this update on the effective date and is not expected to materially impact the consolidated financial statements.
In April 2015, the Financial Accounting Standards Board issued authoritative guidance to simplify the presentation of debt issuance costs. This update requires debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The guidance is effective for fiscal years beginning after December 15, 2015, and for interim periods within fiscal years beginning after December 15, 2016. Early adoption is permitted. The Company has not determined when this update will be adopted. However, if the Company were to early adopt this update as of June 30, 2015, the impact to the condensed consolidated balance sheets would be a reduction to deferred financing costs, net by $43.7 million and $48.1 million as of June 30, 2015 and December 31, 2014, respectively, with a corresponding decrease to notes payable, net. This update would not impact the condensed consolidated statements of operations, condensed consolidated statements of comprehensive loss or condensed consolidated statements of cash flows.
In February 2015, the Financial Accounting Standards Board issued authoritative guidance which provides guidance on consolidation of certain legal entities. These updates require management to change the analysis that a reporting entity must perform to determine whether it should consolidate certain types of legal entities. The guidance is effective for fiscal years beginning after December 15, 2016, and for interim periods within fiscal years beginning after December 15, 2017. Early adoption is permitted, and the guidance allows for either a retrospective adoption or a “modified retrospective” approach by recording a cumulative-effect adjustment to equity as of the beginning of the fiscal year of adoption. The Company is currently evaluating the impact the adoption of this guidance will have on its consolidated financial statements.
In August 2014, the Financial Accounting Standards Board issued authoritative guidance which provides guidance on determining when and how to disclose going-concern uncertainties in the financial statements. The new standard requires management to perform interim and annual assessments of an entity’s ability to continue as a going concern within one year of the date the financial statements are issued. This update is effective for fiscal years, and interim periods within those years, beginning on or after December 15, 2017, with early adoption permitted. The Company is evaluating the new guidance and plan to provide additional information about its expected impact at a future date.
In May 2014, the FASB issued authoritative guidance which clarifies the principles used to recognize revenue for all entities. The new guidance requires companies to recognize revenue when it transfers goods or services to a customer in an amount that reflects the consideration to which a company expects to be entitled. The guidance is effective for annual and interim periods beginning after December 15, 2016. The guidance allows for either a “full retrospective” adoption or a “modified retrospective” adoption, however early adoption is not permitted. The Company is currently evaluating the impact the adoption of this guidance will have on its consolidated financial statements.
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NOTE 2 – RESTATEMENT OF PRIOR PERIOD CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
The condensed consolidated statement of cash flows for the six months ended June 30, 2014 have been restated to properly reflect cash paid for subscriber acquisition costs – deferred contract costs as an operating activity as opposed to an investing activity as previously reported. The amounts related to subscriber acquisition costs – deferred contract costs were reclassified as operating activities because those costs represent deferred costs associated with creating customer contracts. The restated condensed consolidated statement of cash flows for the six months ended June 30, 2014 also reflects adjustments to properly exclude non-cash transactions related to subscriber acquisition costs.
The effect of the restated presentation of net cash flows used in operating activities and net cash used in investing activities are presented below (in thousands):
Six Months Ended June 30, 2014 |
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Reported | Restated | |||||||
Inventories |
(52,154 | ) | (50,996 | ) | ||||
Subscriber acquisition costs – deferred contract costs |
— | (173,112 | ) | |||||
Accounts payable |
57,816 | 58,396 | ||||||
Accrued expenses and other current liabilities |
37,638 | 37,535 | ||||||
Net cash provided by operating activities |
35,091 | (136,386 | ) | |||||
Subscriber acquisition costs – company owned equipment |
(174,567 | ) | (3,199 | ) | ||||
Capital expenditures |
(12,057 | ) | (11,948 | ) | ||||
Net cash used in investing activities |
(259,125 | ) | (87,648 | ) | ||||
Supplemental non-cash investing and financing activities: |
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Capital expenditures included within accounts payable and accrued expenses and other current assets |
$ | — | $ | 291 | ||||
Subscriber acquisition costs – company owned assets included within accounts payable and accrued expenses and other current assets |
$ | — | $ | 613 |
In addition to the consolidated statements of cash flows, the Company has restated the guarantor and non-guarantor supplemental financial information note to the consolidated financial statements as stated below (in thousands):
Six Months Ended June 30, 2014 | ||||||||||||||||||||||||
Parent | APX Group, Inc. |
Guarantor Subsidiaries |
Non- Guarantor Subsidiaries |
Eliminations | Consolidated | |||||||||||||||||||
Reported: |
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Net cash provided by (used in) operating activities |
— | (413 | ) | 14,750 | 20,754 | — | 35,091 | |||||||||||||||||
Subscriber acquisition costs – company owned equipment |
— | — | (157,770 | ) | (16,797 | ) | — | (174,567 | ) | |||||||||||||||
Capital Expenditures |
— | — | (11,869 | ) | (188 | ) | — | (12,057 | ) | |||||||||||||||
Net cash used in investing activities |
— | (237,897 | ) | (182,145 | ) | (16,980 | ) | 177,897 | (259,125 | ) | ||||||||||||||
Restated: |
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Net cash provided by (used in) operating activities |
— | (413 | ) | (139,930 | ) | 3,957 | — | (136,386 | ) | |||||||||||||||
Subscriber acquisition costs – company owned equipment |
— | — | (3,199 | ) | — | — | (3,199 | ) | ||||||||||||||||
Capital Expenditures |
— | — | (11,760 | ) | (188 | ) | — | (11,948 | ) | |||||||||||||||
Net cash used in investing activities |
— | (237,897 | ) | (27,465 | ) | (183 | ) | 177,897 | (87,648 | ) |
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NOTE 3 – LONG-TERM DEBT
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” and together with the 2019 notes, the “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%.
Interest accrues at the rate of 6.375% per annum for the 2019 notes and 8.75% per annum for the 2020 notes. Interest on the notes is payable semiannually in arrears on each June 1 and December 1. APX may redeem each series of the notes, in whole or part, at any time prior to December 1, 2015 at a redemption price equal to the principal amount of the notes to be redeemed, plus a make-whole premium and any accrued and unpaid interest at the redemption date. In addition, after December 1, 2015, APX may redeem the notes at the prices and on the terms specified in the applicable indenture.
Revolving Credit Facility
On November 16, 2012, APX entered into a $200.0 million senior secured revolving credit facility, with a five year maturity. In addition, APX may request one or more term loan facilities, increased commitments under the revolving credit facility or new revolving credit commitments, in an aggregate amount not to exceed $225.0 million. Availability of such incremental facilities and/or increased or new commitments will be subject to certain customary conditions.
On June 28, 2013, APX amended and restated the credit agreement to provide for a new repriced tranche of revolving credit commitments with a lower interest rate. Nearly all of the existing tranches of revolving credit commitments was terminated and converted into the repriced tranche, with the unterminated portion of the existing tranche continuing to accrue interest at the original rate.
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.
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 $247.5 million and Series C Revolving Commitments of approximately $20.8 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 and Series C 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 and (2) with respect to the extended commitments under the Series A Revolving Credit Facility and Series B Revolving Credit Facility, March 31, 2019.
The Company’s debt at June 30, 2015 consisted of the following (in thousands):
Outstanding Principal |
Unamortized Premium |
Net Carrying Amount |
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Revolving credit facility due 2019 |
159,000 | — | 159,000 | |||||||||
6.375% Senior Secured Notes due 2019 |
925,000 | — | 925,000 | |||||||||
8.75% Senior Notes due 2020 |
930,000 | 7,619 | 937,619 | |||||||||
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Total Notes payable |
$ | 2,014,000 | $ | 7,619 | $ | 2,021,619 | ||||||
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The Company’s debt at December 31, 2014 consisted of the following (in thousands):
Outstanding Principal |
Unamortized Premium |
Net Carrying Amount |
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Revolving credit facility due 2017 |
$ | 20,000 | $ | — | $ | 20,000 | ||||||
6.375% Senior Secured Notes due 2019 |
925,000 | — | 925,000 | |||||||||
8.75% Senior Notes due 2020 |
930,000 | 8,155 | 938,155 | |||||||||
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Total Notes payable |
$ | 1,875,000 | $ | 8,155 | $ | 1,883,155 | ||||||
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NOTE 4 – COST BASED INVESTMENTS
During the year ended December 31, 2014, the Company entered into a project agreement with a privately-held company (the “Investee”), whereby the Investee will develop technology for the Company. The Company is not required to make any payments to the Investee for developing the above technology, however, the Company is required to pay the Investee a royalty for any sales of product that include the technology once developed. In connection with the project agreement, the Company also entered into an investment agreement with the Investee, whereby the Company will purchase up to a predetermined number of shares of the Investee. The amount of the investment by the Company in the Investee was $0.2 million as of June 30, 2015. The Company could make up to $2.7 million in additional investments in the Investee, subject to the achievement of certain technology development milestones. These additional investments are expected to occur through July 1, 2016. The Company has determined that the arrangement with the Investee constitutes a variable interest. The Company is not required to consolidate the results of the Investee as the Company is not the primary beneficiary.
On February 19, 2014, the Company invested $3.0 million in a convertible note (“Convertible Note”) of a privately held company not affiliated with the Company. The Convertible Note had a stated maturity date of February 19, 2015 and bore interest equal to the greater of (a) 0.5% or (b) annual interest rates established for federal income tax purposes by the Internal Revenue Service. The outstanding principal and accrued interest balance of the Convertible Note converted to preferred stock (“preferred stock”) of this privately held company on August 29, 2014, under the terms of the agreement.
The Company performs impairment analyses of its cost based investments annually, or more often, 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 June 30, 2015, no indicators of impairment existed associated with these cost based investments.
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NOTE 5 – BALANCE SHEET COMPONENTS
The following table presents balance sheet component balances (in thousands):
June 30, 2015 |
December 31, 2014 |
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Subscriber acquisition costs |
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Subscriber acquisition costs |
$ | 808,417 | $ | 628,739 | ||||
Accumulated amortization |
(121,350 | ) | (80,666 | ) | ||||
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Subscriber acquisition costs, net |
$ | 687,067 | $ | 548,073 | ||||
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Long-term investments and other assets |
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Security deposit receivable |
$ | 6,321 | $ | 6,606 | ||||
Investments |
3,352 | 3,306 | ||||||
Other |
1,242 | 621 | ||||||
|
|
|
|
|||||
Total long-term investments and other assets, net |
$ | 10,915 | $ | 10,533 | ||||
|
|
|
|
|||||
Accrued payroll and commissions |
||||||||
Accrued payroll |
$ | 19,759 | $ | 16,432 | ||||
Accrued commissions |
54,310 | 21,547 | ||||||
|
|
|
|
|||||
Total accrued payroll and commissions |
$ | 74,069 | $ | 37,979 | ||||
|
|
|
|
|||||
Accrued expenses and other current liabilities |
||||||||
Accrued interest payable |
$ | 11,969 | $ | 11,695 | ||||
Loss contingencies |
5,068 | 9,663 | ||||||
Other |
7,193 | 7,504 | ||||||
|
|
|
|
|||||
Total accrued expenses and other current liabilities |
$ | 24,230 | $ | 28,862 | ||||
|
|
|
|
|
NOTE 6 – PROPERTY AND EQUIPMENT
Property and equipment consisted of the following (in thousands):
June 30, 2015 |
December 31, 2014 |
Estimated Useful Lives |
||||||||
Vehicles |
$ | 20,912 | $ | 20,728 | 3 - 5 years | |||||
Computer equipment and software |
22,250 | 18,069 | 3 - 5 years | |||||||
Leasehold improvements |
16,294 | 13,606 | 2 - 15 years | |||||||
Office furniture, fixtures and equipment |
12,273 | 8,979 | 7 years | |||||||
Wireless Internet infrastructure |
10,183 | 3,866 | 3 - 5 years | |||||||
Buildings |
702 | 702 | 39 years | |||||||
Warehouse equipment |
109 | 110 | 7 years | |||||||
Construction in process |
13,354 | 12,601 | ||||||||
|
|
|
|
|||||||
96,077 | 78,661 | |||||||||
Accumulated depreciation and amortization |
(22,393 | ) | (15,871 | ) | ||||||
|
|
|
|
|||||||
Net property and equipment |
$ | 73,684 | $ | 62,790 | ||||||
|
|
|
|
Property and equipment includes approximately $21.3 million of assets under capital lease obligations at June 30, 2015 and $20.9 million at December 31, 2014, net of accumulated amortization of $5.0 million and $4.1 million at June 30, 2015 and December 31, 2014, respectively. Construction in process includes $9.8 million and $9.8 million of infrastructure associated with the Wireless Internet business as of June 30, 2015 and December 31, 2014, respectively. Depreciation and amortization expense on all property and equipment was $4.4 million and $2.7 million for the three months ended June 30, 2015 and 2014, respectively and $8.1 million and $5.2 million for the six months ended June 30, 2015 and 2014, respectively. Amortization expense relates to assets under capital leases and is included in depreciation and amortization expense.
|
NOTE 7 – GOODWILL AND INTANGIBLE ASSETS
Goodwill
As of June 30, 2015 and December 31, 2014, the Company had a goodwill balance of $839.6 million and $841.5 million, respectively. The change in the carrying amount of goodwill during the six months ended June 30, 2015 was a result in the effect of foreign currency translation.
Intangible assets, net
The following table presents intangible asset balances (in thousands):
June 30, 2015 |
December 31, 2014 |
Estimated Useful Lives |
||||||||
Definite-lived intangible assets: |
||||||||||
Customer contracts |
$ | 973,405 | $ | 978,776 | 10 years | |||||
2GIG 2.0 technology |
17,000 | 17,000 | 8 years | |||||||
CMS and other technology |
7,067 | 7,067 | 5 years | |||||||
Space Monkey technology |
7,100 | 7,100 | 6 years | |||||||
Wireless Internet technologies |
4,690 | 4,690 | 2-3 years | |||||||
Patents |
7,161 | 6,518 | 5 years | |||||||
Non-compete agreements |
2,000 | 2,000 | 2-3 years | |||||||
|
|
|
|
|||||||
1,018,423 | 1,023,151 | |||||||||
Accumulated amortization |
(386,355 | ) | (320,198 | ) | ||||||
|
|
|
|
|||||||
Definite-lived intangible assets, net |
632,068 | 702,953 | ||||||||
Indefinite-lived intangible assets: |
||||||||||
IP addresses |
564 | 214 | ||||||||
Domain names |
59 | 59 | ||||||||
|
|
|
|
|||||||
Total Indefinite-lived intangible assets |
623 | 273 | ||||||||
|
|
|
|
|||||||
Total intangible assets, net |
$ | 632,691 | $ | 703,226 | ||||||
|
|
|
|
The Company recognized amortization expense related to the capitalized software development costs of $0.3 million and $0.3 million during the three months ended June 30, 2015 and 2014, respectively and $0.6 million and $0.6 million during the six months ended June 30, 2015 and 2014, respectively.
During the six months ended June 30, 2015, the Company acquired $1.0 million of intangibles related to patents, domain names and Internet Protocol (“IP”) addresses.
On March 29, 2014, the Company implemented new customer relationship management software (“CRM”). Historically, the Company’s customer management system (“CMS”) technology was used for customer support and inventory tracking. The new CRM software replaced the customer support functionality of the CMS technology. Following the CRM implementation, the CMS technology continued to be used for inventory tracking. Due to the implementation of the new CRM software, as of March 31, 2014, the Company determined there to be a significant change in the extent and manner in which the CMS technology was being used. The Company estimated the fair value of the CMS technology as of March 31, 2014 to be $0.3 million. The associated impairment loss of $1.4 million is included in operating expenses in the accompanying unaudited condensed consolidated statement of operations for the six months ended June 30, 2014. In addition, the estimated remaining useful life of the CMS technology was evaluated and revised to one year from March 31, 2014, based on the intended use of the asset. As such, the CMS technology was fully amortized as of June 30, 2015. The impact on income from continuing operations and net income from the change in the estimated remaining useful life was immaterial.
Amortization expense related to intangible assets was approximately $33.9 million and $37.8 million for the three months ended June 30, 2015 and 2014, respectively and $67.9 million and $75.3 million for the six months ended June 30, 2015 and 2014, respectively.
Estimated future amortization expense of intangible assets, excluding approximately $0.3 million in patents currently in process, is as follows as of June 30, 2015 (in thousands):
2015 - remaining period |
$ | 67,666 | ||
2016 |
118,087 | |||
2017 |
101,840 | |||
2018 |
90,164 | |||
2019 |
78,475 | |||
Thereafter |
175,505 | |||
|
|
|||
Total estimated amortization expense |
$ | 631,737 | ||
|
|
|
NOTE 8 – FAIR VALUE MEASUREMENTS
Cash equivalents and restricted cash equivalents are classified as Level 1 as they have readily available market prices in an active market. The following summarizes the financial instruments of the Company at fair value based on the valuation approach applied to each class of security as of June 30, 2015 and December 31, 2014 (in thousands):
Fair Value Measurement at Reporting Date Using | ||||||||||||||||
Balance at June 30, 2015 |
Quoted Prices in Active Markets for Identical Assets (Level 1) |
Significant Other Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
|||||||||||||
Assets: |
||||||||||||||||
Restricted cash equivalents: |
||||||||||||||||
Money market funds |
$ | 14,214 | $ | 14,214 | $ | — | $ | — | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Total assets |
$ | 14,214 | $ | 14,214 | $ | — | $ | — | ||||||||
|
|
|
|
|
|
|
|
Fair Value Measurement at Reporting Date Using | ||||||||||||||||
Balance at December 31, 2014 |
Quoted Prices in Active Markets for Identical Assets (Level 1) |
Significant Other Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
|||||||||||||
Assets: |
||||||||||||||||
Cash equivalents: |
||||||||||||||||
Money market funds |
$ | 1 | $ | 1 | $ | — | $ | — | ||||||||
Restricted cash equivalents: |
||||||||||||||||
Money market funds |
14,214 | 14,214 | — | — | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total assets |
$ | 14,215 | $ | 14,215 | $ | — | $ | — | ||||||||
|
|
|
|
|
|
|
|
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.
The fair market value of the 2019 notes was approximately $897.3 million and $881.1 million as of June 30, 2015 and December 31, 2014, respectively. The carrying value of the 2019 notes was $925.0 million as of both June 30, 2015 and December 31, 2014. The 2020 notes had a fair market value of approximately $837.0 million and $792.8 as of June 30, 2015 and December 31, 2014, respectively, and a carrying amount of $930.0 million as of both June 30, 2015 and December 31, 2014. The fair value of the 2019 notes and the 2020 notes was considered a Level 2 measurement as the value was determined using observable market inputs, such as current interest rates as well as prices observable from less active markets.
|
NOTE 9 – FACILITY FIRE
On March 18, 2014, a fire occurred at a facility leased by the company in Lindon, Utah. This facility contained the Company’s primary inventory warehouse and call center operations. Through June 30, 2015, the Company recognized gross expenses related to the fire of $8.5 million, which were primarily related to impairment of damaged assets and recovery costs to maintain business continuity. As of June 30, 2015, the Company had also received insurance recoveries of $8.8 million, related to the fire damage, $3.0 million of which related to the reconstruction of the facility damaged by the fire, and is included within the Company’s cash flows from investing activities in the condensed consolidated statement of cash flows for the six months ended June 30, 2015. Insurance recoveries associated with the reconstruction of the damaged facility exceeded its net book value by $0.5 million. These excess insurance recoveries were included in other income as of December 31, 2014. All probable insurance recoveries have been received as of June 30, 2015. Expenses in excess of insurance recoveries during the six months ended June 30, 2015 were immaterial.
|
NOTE 10 – 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 six months ended June 30, 2015 was approximately (0.30) %. In computing income tax expense, the Company estimates its annual effective income tax rate jurisdiction by jurisdiction and entity by entity for which tax attributes must be separately considered for the calendar year ending December 31, 2015, excluding discrete items. Each jurisdictional or entity estimated annual tax rate is applied to actual year-to-date pre-tax book income (loss) of each jurisdiction or entity. The Company had no discrete items that affected the calculated income tax benefit or expense for the six months ended June 30, 2015. Both the 2015 and 2014 effective tax rates are less than the statutory rate primarily due to the combination of not recognizing benefit for expected pre-tax losses of the US jurisdiction and recognizing current state income tax expense for minimum state taxes.
For 2015, the Company expects to realize a loss before income taxes and expects to record a full valuation allowance against the net deferred tax assets of the consolidated group within the US, Canadian and New Zealand jurisdictions. The Company has recorded tax expense for state and local taxes. A valuation allowance is required when there is significant uncertainty as to the ability to realize the deferred tax assets. Because the realization of the deferred tax assets related to the Company’s net operating losses (NOLs) is dependent upon future income related to domestic and foreign jurisdictional operations that have historically generated losses, management determined that the Company continues to not meet the “more likely than not” threshold that those NOLs will be realized. Accordingly, a valuation allowance is required. A similar history of losses is present in the Company’s Canadian and New Zealand jurisdictions. However, as of June 30, 2015, the deferred tax assets related to the Company’s Canadian and New Zealand jurisdictions’ NOLs are offset by existing deferred income tax liabilities resulting in a net deferred tax liability position in both jurisdictions.
|
NOTE 11 – STOCK-BASED COMPENSATION
313 Incentive Units
The Company’s indirect parent, 313 Acquisition LLC (“313”), which is wholly owned by the Investors, 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 June 30, 2015, 73,962,836 Incentive Units had been awarded 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 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 determined using a Monte Carlo simulation valuation approach with the following assumptions: expected volatility of 55% to 65%; expected exercise term from 4 to 6.2 years; and risk-free rate of 0.62% to 2.03%.
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 Blackstone. In connection with this plan, 15,463,185 SARs were outstanding as of June 30, 2015. In addition, 11,488,160 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 insturments. 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 60%, expected dividends of 0%; expected exercise term between 5.90 and 6.50 years; and risk-free rates between 1.40% and 2.07%. 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, 81,000 SARs were outstanding as of June 30, 2015. The Company anticipates making similar grants from time to time.
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 5.97 and 6.50 years; and risk-free rates between 1.51% and 1.81%. 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):
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2015 | 2014 | 2015 | 2014 | |||||||||||||
Operating expenses |
$ | 26 | $ | 21 | $ | 40 | $ | 30 | ||||||||
Selling expenses |
357 | 36 | 389 | 104 | ||||||||||||
General and administrative expenses |
588 | 401 | 1,330 | 769 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total stock-based compensation |
$ | 971 | $ | 458 | $ | 1,759 | $ | 903 | ||||||||
|
|
|
|
|
|
|
|
|
NOTE 12 – 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 $5.1 million and $9.7 million as of June 30, 2015 and December 31, 2014, 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, warehouse space, certain equipment, 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 entered into a lease agreement for its corporate headquarters in 2009. In July 2012, the Company entered into a lease for additional office space for an initial lease term of 15 years. In August 2014, the Company entered into a lease for additional office space for an initial lease term of 11 years.
Total rent expense for operating leases was approximately $2.9 million and $2.9 million for the three months ended June 30, 2015 and 2014, respectively, and $5.8 million and $4.4 million for the six months ended June 30, 2015 and 2014, respectively.
Capital Leases—The Company also leases certain equipment under capital leases with expiration dates through August 2016. 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 25 months as of June 30, 2015. As of June 30, 2015 and December 31, 2014, the capital lease obligation balance was $14.9 million and $16.2 million, respectively.
|
NOTE 13 – 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 June 30, 2015 and 2014, the Company charged $1.8 million and $2.5 million, respectively, and during the six months ended June 30, 2015 and 2014, the Company charged $3.5 and $4.1 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 $2.1 million and $2.3 million at June 30, 2015 and December 31, 2014, respectively, and is included in prepaid expenses and other current assets in the accompanying consolidated balance sheets.
On December 27, 2012, the Company executed a Subordinated Note and Loan Agreement with Solar. The terms of the agreement state that Solar may borrow up to $20.0 million, bearing interest on the outstanding balance at an annual rate of 7.5%, which interest was due and payable semi-annually on June 1 and December 1 of each year commencing on June 1, 2013. On October 10, 2014, in connection with the completion of its initial public offering, Solar repaid loans to APX, the Company’s wholly-owned subsidiary, and to the Company’s parent entity. The Company’s parent entity, in turn, returned a portion of such proceeds to APX as a capital contribution. These transactions resulted in the receipt by APX of an aggregate amount of $55.0 million. These variable interests represent the Company’s maximum exposure to loss from direct involvement with Solar.
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:
• | 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 Product Development and Supply Agreement pursuant to which one of Solar’s wholly owned subsidiaries will, for an initial term of three years, subject to automatic renewal for successive one-year periods unless either party elects otherwise, collaborate with the Company to develop certain monitoring and communications equipment that will be compatible with other equipment used in Solar’s energy systems and will replace equipment Solar currently procures from third parties; |
• | 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. |
On July 20, 2015, Vivint, a subsidiary of the Company, entered into a Letter Agreement (the “Letter Agreement”) with Solar and the other parties thereto terminating or modifying certain of these agreements as described below under “Note 16 - Subsequent Events”.
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 June 30, 2015 and December 31, 2014, amounted to approximately $0.3 million. As of June 30, 2015 and December 31, 2014, this amount was fully reserved.
Prepaid expenses and other current assets at June 30, 2015 and December 31, 2014 included a receivable for $0.1 million and $0.3 million, respectively, from certain members of management in regards to their personal use of the corporate jet.
The Company incurred additional expenses during the three months ended June 30, 2015 and 2014, respectively, of $0.4 million and $0.4 million, and $0.8 million and $1.2 million during the six months ended June 30, 2015 and 2014, 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 June 30, 2015 and December 31, 2014, included a payable to Vivint Gives Back for $0.2 million and $1.3 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”). At the time of the Merger, a portion of the purchase price was placed in escrow to cover potential adjustments to the total purchase consideration associated with certain indemnities and adjustments to tangible net worth. During the three months ended June 30, 2015, the parties to the Merger reached an agreement regarding the amount to be paid from escrow. As the Company had previously recorded expenses related to these pre-merger costs, this agreement resulted in a reduction to general and administrative expenses of $12.2 million, with the offset to additional paid-in capital.
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 of approximately $0.7 million and $1.0 million during the three months ended June 30, 2015 and 2014, and approximately $1.4 million and $1.7 million during the six months ended June 30, 2015 and 2014. Prepaid and other current assets at June 30, 2015 included a prepaid for $1.4 million from BMP in regards to the payment of the 2015 base monitoring fee during Q2.
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.
Transactions involving related parties cannot be presumed to be carried out at an arm’s-length basis.
|
NOTE 14 – EMPLOYEE BENEFIT PLAN
The Company offers eligible employees the opportunity to defer a percentage of their earned income into company-sponsored 401(k) plans. No matching contributions were made to the plans for the three or six months ended June 30, 2015 and 2014.
|
NOTE 15 – GUARANTOR AND NON-GUARANTOR SUPPLEMENTAL FINANCIAL INFORMATION
The 2019 notes and the 2020 notes were issued by APX. The 2019 notes and the 2020 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 June 30, 2015 and December 31, 2014 and for the three and six months ended June 30, 2015 and 2014. 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. The condensed consolidated consolidating statement of cash flow information presented below for the six month period ended June 30, 2014 has been restated (see Note 2).
Supplemental Condensed Consolidating Balance Sheet
June 30, 2015
(In thousands)
(unaudited)
Parent | APX Group, Inc. |
Guarantor Subsidiaries |
Non-Guarantor Subsidiaries |
Eliminations | Consolidated | |||||||||||||||||||
Assets |
||||||||||||||||||||||||
Current assets |
$ | — | $ | 3,080 | $ | 144,870 | $ | 26,426 | $ | (50,249 | ) | $ | 124,127 | |||||||||||
Property and equipment, net |
— | — | 73,268 | 416 | — | 73,684 | ||||||||||||||||||
Subscriber acquisition costs, net |
— | — | 630,713 | 56,354 | — | 687,067 | ||||||||||||||||||
Deferred financing costs, net |
— | 51,146 | — | — | — | 51,146 | ||||||||||||||||||
Investment in subsidiaries |
114,012 | 2,093,266 | — | — | (2,207,278 | ) | — | |||||||||||||||||
Intercompany receivable |
— | — | 42,423 | — | (42,423 | ) | — | |||||||||||||||||
Intangible assets, net |
— | — | 583,802 | 48,889 | — | 632,691 | ||||||||||||||||||
Goodwill |
— | — | 811,947 | 27,697 | — | 839,644 | ||||||||||||||||||
Long-term investments and other assets |
— | 184 | 10,891 | 24 | (184 | ) | 10,915 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total Assets |
$ | 114,012 | $ | 2,147,676 | $ | 2,297,914 | $ | 159,806 | $ | (2,300,134 | ) | $ | 2,419,274 | |||||||||||
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|||||||||||||
Liabilities and Stockholders’ Equity |
||||||||||||||||||||||||
Current liabilities |
$ | — | $ | 12,045 | $ | 196,632 | $ | 58,895 | $ | (50,249 | ) | $ | 217,323 | |||||||||||
Intercompany payable |
— | — | — | 42,423 | (42,423 | ) | — | |||||||||||||||||
Notes payable and revolving line of credit, net of current portion |
— | 2,021,619 | — | — | — | 2,021,619 | ||||||||||||||||||
Capital lease obligations, net of current portion |
— | — | 9,275 | 11 | — | 9,286 | ||||||||||||||||||
Deferred revenue, net of current portion |
— | — | 35,730 | 3,552 | — | 39,282 | ||||||||||||||||||
Other long-term obligations |
— | — | 8,883 | 424 | — | 9,307 | ||||||||||||||||||
Deferred income tax liability |
— | — | 106 | 8,523 | (184 | ) | 8,445 | |||||||||||||||||
Total equity |
114,012 | 114,012 | 2,047,288 | 45,978 | (2,207,278 | ) | 114,012 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total liabilities and stockholders’ equity |
$ | 114,012 | $ | 2,147,676 | $ | 2,297,914 | $ | 159,806 | $ | (2,300,134 | ) | $ | 2,419,274 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Condensed Consolidating Balance Sheet
December 31, 2014
(In thousands)
Parent | APX Group, Inc. |
Guarantor Subsidiaries |
Non-Guarantor Subsidiaries |
Eliminations | Consolidated | |||||||||||||||||||
Assets |
||||||||||||||||||||||||
Current assets |
$ | — | $ | 9,435 | $ | 109,996 | $ | 6,626 | $ | (40,686 | ) | $ | 85,371 | |||||||||||
Property and equipment, net |
— | — | 62,271 | 519 | — | 62,790 | ||||||||||||||||||
Subscriber acquisition costs, net |
— | — | 500,916 | 47,157 | — | 548,073 | ||||||||||||||||||
Deferred financing costs, net |
— | 52,158 | — | — | — | 52,158 | ||||||||||||||||||
Investment in subsidiaries |
224,486 | 2,057,857 | — | — | (2,282,343 | ) | — | |||||||||||||||||
Intercompany receivable |
— | — | 34,000 | — | (34,000 | ) | — | |||||||||||||||||
Intangible assets, net |
— | — | 645,558 | 57,668 | — | 703,226 | ||||||||||||||||||
Goodwill |
— | — | 811,947 | 29,575 | — | 841,522 | ||||||||||||||||||
Long-term investments and other assets |
— | 184 | 10,502 | 31 | (184 | ) | 10,533 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total Assets |
$ | 224,486 | $ | 2,119,634 | $ | 2,175,190 | $ | 141,576 | $ | (2,357,213 | ) | $ | 2,303,673 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Liabilities and Stockholders’ Equity |
||||||||||||||||||||||||
Current liabilities |
$ | — | $ | 11,993 | $ | 119,285 | $ | 46,348 | $ | (40,686 | ) | $ | 136,940 | |||||||||||
Intercompany payable |
— | — | — | 34,000 | (34,000 | ) | — | |||||||||||||||||
Notes payable and revolving line of credit, net of current portion |
— | 1,883,155 | — | — | — | 1,883,155 | ||||||||||||||||||
Capital lease obligations, net of current portion |
— | — | 10,646 | 9 | — | 10,655 | ||||||||||||||||||
Deferred revenue, net of current portion |
— | — | 29,438 | 3,066 | — | 32,504 | ||||||||||||||||||
Other long-term obligations |
— | — | 6,497 | 409 | — | 6,906 | ||||||||||||||||||
Deferred income tax liability |
— | — | 107 | 9,104 | (184 | ) | 9,027 | |||||||||||||||||
Total equity |
224,486 | 224,486 | 2,009,217 | 48,640 | (2,282,343 | ) | 224,486 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total liabilities and stockholders’ equity |
$ | 224,486 | $ | 2,119,634 | $ | 2,175,190 | $ | 141,576 | $ | (2,357,213 | ) | $ | 2,303,673 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Condensed Consolidating Statements of Operations and Comprehensive (Loss) Income
For the Three Months Ended June 30, 2015
(In thousands)
(unaudited)
Parent | APX Group, Inc. |
Guarantor Subsidiaries |
Non-Guarantor Subsidiaries |
Eliminations | Consolidated | |||||||||||||||||||
Revenues |
$ | — | $ | — | $ | 149,770 | $ | 8,823 | $ | (680 | ) | $ | 157,913 | |||||||||||
Costs and expenses |
— | — | 154,904 | 8,577 | (680 | ) | 162,801 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Loss from operations |
— | — | (5,134 | ) | 246 | — | (4,888 | ) | ||||||||||||||||
Loss from subsidiaries |
(43,614 | ) | (4,923 | ) | — | — | 48,537 | — | ||||||||||||||||
Other expense (income), net |
— | 38,691 | (171 | ) | 27 | — | 38,547 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Loss before income tax expenses |
(43,614 | ) | (43,614 | ) | (4,963 | ) | 219 | 48,537 | (43,435 | ) | ||||||||||||||
Income tax expense |
— | — | 53 | 126 | — | 179 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net loss |
$ | (43,614 | ) | $ | (43,614 | ) | $ | (5,016 | ) | $ | 93 | $ | 48,537 | $ | (43,614 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Other comprehensive (loss) income, net of tax effects: |
||||||||||||||||||||||||
Net loss |
$ | (43,614 | ) | $ | (43,614 | ) | $ | (5,016 | ) | $ | 93 | $ | 48,537 | $ | (43,614 | ) | ||||||||
Foreign currency translation adjustment |
— | 2,202 | 5,240 | (3,038 | ) | (2,202 | ) | 2,202 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total other comprehensive income (loss) |
— | 2,202 | 5,240 | (3,038 | ) | (2,202 | ) | 2,202 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Comprehensive loss |
$ | (43,614 | ) | $ | (41,412 | ) | $ | 224 | $ | (2,945 | ) | $ | 46,335 | $ | (41,412 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Condensed Consolidating Statements of Operations and Comprehensive (Loss) Income
For the Three Months Ended June 30, 2014
(In thousands)
(unaudited)
Parent | APX Group, Inc. |
Guarantor Subsidiaries |
Non-Guarantor Subsidiaries |
Eliminations | Consolidated | |||||||||||||||||||
Revenues |
$ | — | $ | — | $ | 127,146 | $ | 7,852 | $ | (799 | ) | $ | 134,199 | |||||||||||
Costs and expenses |
— | — | 155,369 | 10,075 | (799 | ) | 164,645 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
(Loss) income from operations |
— | — | (28,223 | ) | (2,223 | ) | — | (30,446 | ) | |||||||||||||||
Loss from subsidiaries |
(66,271 | ) | (30,932 | ) | — | — | 97,203 | — | ||||||||||||||||
Other (expense) income, net |
— | (35,305 | ) | 149 | 68 | — | (35,088 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Loss before income tax expenses |
(66,271 | ) | (66,237 | ) | (28,074 | ) | (2,155 | ) | 97,203 | (65,534 | ) | |||||||||||||
Income tax expense |
— | 34 | 14 | 689 | — | 737 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net loss |
$ | (66,271 | ) | $ | (66,271 | ) | $ | (28,088 | ) | $ | (2,844 | ) | $ | 97,203 | $ | (66,271 | ) | |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Other comprehensive (loss) income, net of tax effects: |
||||||||||||||||||||||||
Net loss |
$ | (66,271 | ) | $ | (66,271 | ) | $ | (28,088 | ) | $ | (2,844 | ) | $ | 97,203 | $ | (66,271 | ) | |||||||
Foreign currency translation adjustment |
— | 4,676 | 2,769 | 1,908 | (4,676 | ) | 4,677 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total other comprehensive income (loss) |
— | 4,676 | 2,769 | 1,908 | (4,676 | ) | 4,677 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Comprehensive loss |
$ | (66,271 | ) | $ | (61,595 | ) | $ | (25,319 | ) | $ | (936 | ) | $ | 92,527 | $ | (61,594 | ) | |||||||
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Condensed Consolidating Statements of Operations and Comprehensive (Loss) Income
For the Six Months Ended June 30, 2015
(In thousands)
(unaudited)
Parent | APX Group, Inc. |
Guarantor Subsidiaries |
Non-Guarantor Subsidiaries |
Eliminations | Consolidated | |||||||||||||||||||
Revenues |
$ | — | $ | — | $ | 294,505 | $ | 17,053 | $ | (1,450 | ) | $ | 310,108 | |||||||||||
Costs and expenses |
— | — | 309,804 | 16,343 | (1,450 | ) | 324,697 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
(Loss) income from operations |
— | — | (15,299 | ) | 710 | — | (14,589 | ) | ||||||||||||||||
Loss from subsidiaries |
(91,661 | ) | (15,016 | ) | — | — | 106,677 | — | ||||||||||||||||
Other expense , net |
— | 76,645 | 76 | 43 | — | 76,764 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
(Loss) income before income tax expenses |
(91,661 | ) | (91,661 | ) | (15,375 | ) | 667 | 106,677 | (91,353 | ) | ||||||||||||||
Income tax expense |
— | — | 92 | 216 | — | 308 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net loss |
$ | (91,661 | ) | $ | (91,661 | ) | $ | (15,467 | ) | $ | 451 | $ | 106,677 | $ | (91,661 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Other comprehensive loss, net of tax effects: |
||||||||||||||||||||||||
Net loss |
$ | (91,661 | ) | $ | (91,661 | ) | $ | (15,467 | ) | $ | 451 | $ | 106,677 | $ | (91,661 | ) | ||||||||
Foreign currency translation adjustment |
— | (8,376 | ) | (1,096 | ) | (7,280 | ) | 8,376 | (8,376 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total other comprehensive loss |
— | (8,376 | ) | (1,096 | ) | (7,280 | ) | 8,376 | (8,376 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Comprehensive loss |
$ | (91,661 | ) | $ | (100,037 | ) | $ | (16,563 | ) | $ | (6,829 | ) | $ | 115,053 | $ | (100,037 | ) | |||||||
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Condensed Consolidating Statements of Operations and Comprehensive (Loss) Income
For the Six Months Ended June 30, 2014
(In thousands)
(unaudited)
Parent | APX Group, Inc. |
Guarantor Subsidiaries |
Non-Guarantor Subsidiaries |
Eliminations | Consolidated | |||||||||||||||||||
Revenues |
$ | — | $ | — | $ | 249,488 | $ | 16,458 | $ | (1,593 | ) | $ | 264,353 | |||||||||||
Costs and expenses |
— | — | 290,679 | 17,942 | (1,593 | ) | 307,028 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Loss from operations |
— | — | (41,191 | ) | (1,484 | ) | — | (42,675 | ) | |||||||||||||||
Loss from subsidiaries |
(113,551 | ) | (42,945 | ) | — | — | 156,496 | — | ||||||||||||||||
Other (expense) income, net |
— | (70,572 | ) | 659 | (18 | ) | — | (69,931 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Loss before income tax expenses |
(113,551 | ) | (113,517 | ) | (40,532 | ) | (1,502 | ) | 156,496 | (112,606 | ) | |||||||||||||
Income tax expense |
— | 34 | 40 | 871 | — | 945 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net loss |
$ | (113,551 | ) | $ | (113,551 | ) | $ | (40,572 | ) | $ | (2,373 | ) | $ | 156,496 | $ | (113,551 | ) | |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Other comprehensive loss, net of tax effects: |
||||||||||||||||||||||||
Net loss |
$ | (113,551 | ) | $ | (113,551 | ) | $ | (40,572 | ) | $ | (2,373 | ) | $ | 156,496 | $ | (113,551 | ) | |||||||
Foreign currency translation adjustment |
— | 105 | 345 | (240 | ) | (105 | ) | 105 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total other comprehensive income (loss) |
— | 105 | 345 | (240 | ) | (105 | ) | 105 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Comprehensive loss |
$ | (113,551 | ) | $ | (113,446 | ) | $ | (40,227 | ) | $ | (2,613 | ) | $ | 156,391 | $ | (113,446 | ) | |||||||
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Condensed Consolidating Statements of Cash Flows
For the Six Months Ended June 30, 2015
(In thousands)
(unaudited)
Parent | APX Group, Inc. |
Guarantor Subsidiaries |
Non-Guarantor Subsidiaries |
Eliminations | Consolidated | |||||||||||||||||||
Cash flows from operating activities: |
||||||||||||||||||||||||
Net cash (used in) provided by operating activities |
$ | — | $ | (538 | ) | $ | (98,773 | ) | $ | 9,621 | $ | — | $ | (89,690 | ) | |||||||||
Cash flows from investing activities: |
||||||||||||||||||||||||
Subscriber acquisition costs – company owned equipment |
— | — | (14,922 | ) | (644 | ) | — | (15,566 | ) | |||||||||||||||
Capital expenditures |
— | — | (18,023 | ) | (41 | ) | — | (18,064 | ) | |||||||||||||||
Proceeds from sale of assets |
— | — | 408 | — | — | 408 | ||||||||||||||||||
Investment in subsidiary |
— | (140,640 | ) | — | — | 140,640 | — | |||||||||||||||||
Acquisition of intangible assets |
— | — | (1,002 | ) | — | — | (1,002 | ) | ||||||||||||||||
Proceeds from insurance claims |
— | — | 2,984 | — | — | 2,984 | ||||||||||||||||||
Acquisition of other assets |
— | — | (67 | ) | — | — | (67 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net cash used in investing activities |
— | (140,640 | ) | (30,622 | ) | (685 | ) | 140,640 | (31,307 | ) | ||||||||||||||
Cash flows from financing activities: |
||||||||||||||||||||||||
Borrowings from revolving line of credit |
— | 149,000 | — | — | — | 149,000 | ||||||||||||||||||
Repayments on revolving line of credit |
— | (10,000 | ) | — | — | — | (10,000 | ) | ||||||||||||||||
Intercompany receivable |
— | — | (8,423 | ) | — | 8,423 | — | |||||||||||||||||
Intercompany payable |
— | — | 140,640 | 8,423 | (149,063 | ) | — | |||||||||||||||||
Repayments of capital lease obligations |
— | — | (4,045 | ) | (2 | ) | — | (4,047 | ) | |||||||||||||||
Deferred financing costs |
— | (4,233 | ) | — | — | — | (4,233 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net cash provided by financing activities |
— | 134,767 | 128,172 | 8,421 | (140,640 | ) | 130,720 | |||||||||||||||||
Effect of exchange rate changes on cash |
— | — | — | (577 | ) | — | (577 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net (decrease) increase in cash |
— | (6,411 | ) | (1,223 | ) | 16,780 | — | 9,146 | ||||||||||||||||
Cash: |
||||||||||||||||||||||||
Beginning of period |
— | 9,432 | (2,233 | ) | 3,608 | — | 10,807 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
End of period |
$ | — | $ | 3,021 | $ | (3,456 | ) | $ | 20,388 | $ | — | $ | 19,953 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Condensed Consolidating Statements of Cash Flows
For the Six Months Ended June 30, 2014 – Restated
(In thousands)
(unaudited)
Parent | APX Group, Inc. |
Guarantor Subsidiaries |
Non-Guarantor Subsidiaries |
Eliminations | Consolidated | |||||||||||||||||||
Cash flows from operating activities: |
||||||||||||||||||||||||
Net cash (used in) provided by operating activities |
$ | — | $ | (413 | ) | $ | (139,930 | ) | $ | 3,957 | $ | — | $ | (136,386 | ) | |||||||||
Cash flows from investing activities: |
||||||||||||||||||||||||
Subscriber acquisition costs – company owned equipment |
— | — | (3,199 | ) | — | — | (3,199 | ) | ||||||||||||||||
Capital expenditures |
— | — | (11,760 | ) | (188 | ) | — | (11,948 | ) | |||||||||||||||
Investment in subsidiary |
— | (177,897 | ) | — | — | 177,897 | — | |||||||||||||||||
Acquisition of intangible assets |
— | — | (6,127 | ) | — | — | (6,127 | ) | ||||||||||||||||
Net cash used in acquisition |
— | — | (3,500 | ) | — | — | (3,500 | ) | ||||||||||||||||
Change in restricted cash |
— | — | 161 | — | — | 161 | ||||||||||||||||||
Investment in marketable securities |
— | (60,000 | ) | — | — | — | (60,000 | ) | ||||||||||||||||
Investment in convertible note |
— | — | (3,000 | ) | — | — | (3,000 | ) | ||||||||||||||||
Acquisition of other assets |
— | — | (40 | ) | 5 | — | (35 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net cash used in investing activities |
— | (237,897 | ) | (27,465 | ) | (183 | ) | 177,897 | (87,648 | ) | ||||||||||||||
Cash flows from financing activities: |
||||||||||||||||||||||||
Proceeds from issuance of notes |
— | — | — | — | — | — | ||||||||||||||||||
Intercompany receivable |
— | — | (10,969 | ) | — | 10,969 | — | |||||||||||||||||
Intercompany payable |
— | — | 177,897 | 10,969 | (188,866 | ) | — | |||||||||||||||||
Proceeds from contract sales |
— | — | 2,261 | — | — | 2,261 | ||||||||||||||||||
Repayments of capital lease obligations |
— | — | (3,056 | ) | (1 | ) | — | (3,057 | ) | |||||||||||||||
Deferred financing costs |
— | (572 | ) | — | — | — | (572 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net cash (used in) provided by financing activities |
— | (572 | ) | 166,133 | 10,968 | (177,897 | ) | (1,368 | ) | |||||||||||||||
Effect of exchange rate changes on cash |
— | — | — | 458 | — | 458 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net (decrease) increase in cash |
— | (238,882 | ) | (1,262 | ) | 15,200 | — | (224,944 | ) | |||||||||||||||
Cash: |
||||||||||||||||||||||||
Beginning of period |
— | 248,908 | 8,291 | 4,706 | — | 261,905 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
End of period |
$ | — | $ | 10,026 | $ | 7,029 | $ | 19,906 | $ | — | $ | 36,961 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 16 – SUBSEQUENT EVENTS
On July 20, 2015, Vivint entered into the Letter Agreement with Solar and SunEdison, Inc., a Delaware corporation (“SunEdison) in connection with Solar’s entrance into an Agreement and Plan of Merger with SunEdison and the other parties thereto pursuant to which a newly-formed wholly-owned subsidiary of SunEdison will merge with and into Solar, with Solar surviving as a wholly-owned subsidiary of SunEdison (the “Solar Merger”). Pursuant to the Letter Agreement, the parties agreed, among other things, to (i) subject to the finalization and execution of a transitional trademark license regarding Solar’s continued use of the “Vivint Solar” trademark for a limited duration for purposes of phase-out use following the consummation of the Solar Merger, terminate the Trademark License Agreement between Vivint Solar Licensing, LLC and Solar, dated September 30, 2014, (ii) terminate the Product Development and Supply Agreement between Vivint Solar Developer, LLC and Vivint, dated September 30, 2014, (iii) terminate the covenants of non-competition in the Non-Competition Agreement between Solar and Vivint, dated September 30, 2014, in each case effective as of the consummation of the Merger and (iv) terminate Schedule 3 to the Marketing and Customer Relations Agreement between Vivint Solar Developer, LLC and Vivint, dated September 30, 2014. The parties also agreed to negotiate in good faith regarding the termination or amendment of certain other agreements between Solar, Vivint, and certain of their respective subsidiaries. The foregoing summary of the Letter Agreement is qualified in its entirety by reference to the Letter Agreement, a copy of which is filed herewith as Exhibit 99.2. Certain agreements referenced in the Letter Agreement are subject to finalization or negotiation and as a result, the Company is unable to estimate the potential impact as of the date of this Quarterly Report on Form 10-Q.
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Basis of Presentation—The unaudited condensed consolidated financial statements of the Company are presented for APX Group Holdings, Inc. and its wholly-owned subsidiaries.
During the six months ended June 30, 2015, the Company recorded certain out-of-period adjustments totaling $2.0 million, primarily associated with the timing of the recognition of deferred revenue related to 2014 recurring monitoring services. As a result of these adjustments, recurring revenues increased for the six months ended June 30, 2015 and deferred revenue decreased by $2.0 million, respectively. The Company evaluated the impact of the out-of-period adjustments and determined that they are immaterial to the unaudited condensed consolidated financial statements for the six months ended June 30, 2015.
Changes in Presentation of Comparative Financial Statements—Certain reclassifications have been made to our prior period condensed consolidated financial information in order to conform to the current period presentation. These changes did not have a significant impact on the condensed consolidated financial statements.
Revenue Recognition—The Company recognizes revenue principally on three types of transactions: (i) recurring revenue, which includes revenues for monitoring and other automation services of the Company’s subscriber contracts, certain subscriber contracts that have been sold and recurring monthly revenue associated with Vivint Wireless Inc. (“Wireless Internet” or “Wireless”), (ii) service and other sales, which includes services provided on contracts, contract fulfillment revenue, sales of products that are not part of the basic equipment package and revenue from 2GIG up through the date of the 2GIG Sale, and (iii) activation fees on the Company’s contracts, which are amortized over the expected life of the customer.
Recurring revenue for the Company’s subscriber contracts are billed in advance, generally monthly, pursuant to the terms of subscriber contracts and recognized ratably over the service period. Costs of providing ongoing recurring services are expensed in the period incurred.
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 basic equipment package is recognized upon delivery of products.
Activation fees represent upfront one-time charges billed to subscribers at the time of installation and are deferred. These fees are recognized over the estimated customer life of 12 years using a 150% declining balance method, which converts to a straight-line methodology after approximately five years.
Subscriber Acquisition Costs—A portion of the direct costs of acquiring new subscribers, primarily sales commissions, equipment, and installation costs, are deferred and recognized over a pattern that reflects the estimated life of the subscriber relationships. The Company amortizes these costs over 12 years using a 150% declining balance method, which converts to a straight-line methodology after approximately five years. 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.
Cash and Cash Equivalents—Cash and cash equivalents consists of highly liquid investments with remaining maturities when purchased of three months or less.
Restricted Cash and Cash Equivalents—Restricted cash and cash equivalents is restricted for a specific purpose and cannot be included in the general cash account. At June 30, 2015 and December 31, 2014, the restricted cash and cash equivalents was held by a third-party trustee. Restricted cash and cash equivalents consists of highly liquid investments with remaining maturities when purchased of three months or less.
Accounts Receivable—Accounts receivable consists primarily of amounts due from customers for recurring monthly monitoring services. The accounts receivable are recorded at invoiced amounts and are non-interest bearing. The gross amount of accounts receivable has been reduced by an allowance for doubtful accounts of $3.2 million and $3.4 million at June 30, 2015 and December 31, 2014, 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 June 30, 2015 and December 31, 2014, no accounts receivable were classified as held for sale. Provision for doubtful accounts is included in general and administrative expenses in the accompanying unaudited condensed consolidated statements of operations.
The changes in the Company’s allowance for accounts receivable were as follows for the periods ended (in thousands):
Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||||||
2015 | 2014 | 2015 | 2014 | |||||||||||||
Beginning balance |
$ | 2,908 | $ | 1,637 | $ | 3,373 | $ | 1,901 | ||||||||
Provision for doubtful accounts |
3,538 | 4,760 | 7,115 | 7,259 | ||||||||||||
Write-offs and adjustments |
(3,203 | ) | (1,896 | ) | (7,245 | ) | (4,659 | ) | ||||||||
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Balance at end of period |
$ | 3,243 | $ | 4,501 | $ | 3,243 | $ | 4,501 | ||||||||
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Inventories—Inventories, which comprise home automation and security system equipment and parts are stated at the lower of cost or market with cost determined under the first-in, first-out (FIFO) method. The Company records an allowance for excess and obsolete inventory based on anticipated obsolescence, usage and historical write-offs.
Long-lived Assets and Intangibles—Property 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 2 to 10 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.
Long-term Investments—The Company’s long-term investments are comprised of cost based investments in other companies as discussed in Note 4. The Company performs impairment analyses of its cost based investments annually, as of October 1, or more often 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 June 30, 2015, 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 3. 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 at June 30, 2015 and December 31, 2014 were $51.1 million and $52.2 million, net of accumulated amortization of $25.3 million and $20.0 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 $2.5 million for the three months ended June 30, 2015 and 2014, respectively and $5.3 million and $5.0 million for the six months ended June 30, 2015 and 2014, respectively.
Residual Income Plan—The Company has a program that allows 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 expenses and other current liabilities was $0.4 million at both June 30, 2015 and December 31, 2014, and the amount included in other long-term obligations was $3.0 million at both June 30, 2015 and December 31, 2014, representing the present value of the estimated amounts owed to third-party sales channel partners.
Stock-Based Compensation—The Company measures compensation cost based on the grant-date fair value of the award and recognizes that cost over the requisite service period of the awards (See Note 11).
Advertising Expense—Advertising costs are expensed as incurred. Advertising costs were approximately $6.2 million and $5.8 million for the three months ended June 30, 2015 and 2014, respectively and $11.5 million and $13.4 million for the six months ended June 30, 2015 and 2014, respectively.
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.
Use of Estimates—The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements. Actual results could differ from those estimates.
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 June 30, 2015, approximately 94% of the Company’s installed panels were either 2GIG Go!Control panels or SkyControl panels. On April 1, 2013, the Company completed the sale of 2GIG Technologies, Inc. (“2GIG”) and its subsidiary to Nortek, Inc. (the “2GIG Sale”). In connection with the 2GIG Sale, 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 six months ended June 30, 2015 and 2014.
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 June 30, 2015, no indicators of 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.
Letters of Credit—As of June 30, 2015 and December 31, 2014, the Company had $5.0 million and $3.0 million, respectively, of letters of credit issued in the ordinary course of business, all of which are undrawn.
New Accounting Pronouncement—In July 2015, the Financial Accounting Standards Board issued authoritative guidance to simplify the measurement of inventory. Prior to this update, generally accepted accounting principles required the measurement of inventory at the lower of cost or market, where market could be replacement cost, net realizable value, or net realizable value less an approximately normal profit margin. This update requires that an entity measure inventory at the lower of cost or net realizable value, where net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. This guidance is effective for fiscal years beginning after December 15, 2016, and for interim periods within fiscal years beginning after December 15, 2017 and should be applied prospectively, with early adoption permitted. The Company plans to adopt this update on the effective date and is not expected to impact the consolidated financial statements.
In May 2015, the Financial Accounting Standards Board issued authoritative guidance related to customer’s accounting for fees paid in a cloud computing arrangement and is issued in an attempt to simplify existing generally accepted accounting principles. The update provides guidance to help entities determine whether a cloud computing arrangement includes a software license. This guidance is effective for fiscal years beginning after December 15, 2015, and for interim periods within fiscal years beginning after December 15, 2016 with early adoption permitted. The Company plans to adopt this update on the effective date and is not expected to materially impact the consolidated financial statements.
In April 2015, the Financial Accounting Standards Board issued authoritative guidance to simplify the presentation of debt issuance costs. This update requires debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The guidance is effective for fiscal years beginning after December 15, 2015, and for interim periods within fiscal years beginning after December 15, 2016. Early adoption is permitted. The Company has not determined when this update will be adopted. However, if the Company were to early adopt this update as of June 30, 2015, the impact to the condensed consolidated balance sheets would be a reduction to deferred financing costs, net by $43.7 million and $48.1 million as of June 30, 2015 and December 31, 2014, respectively, with a corresponding decrease to notes payable, net. This update would not impact the condensed consolidated statements of operations, condensed consolidated statements of comprehensive loss or condensed consolidated statements of cash flows.
In February 2015, the Financial Accounting Standards Board issued authoritative guidance which provides guidance on consolidation of certain legal entities. These updates require management to change the analysis that a reporting entity must perform to determine whether it should consolidate certain types of legal entities. The guidance is effective for fiscal years beginning after December 15, 2016, and for interim periods within fiscal years beginning after December 15, 2017. Early adoption is permitted, and the guidance allows for either a retrospective adoption or a “modified retrospective” approach by recording a cumulative-effect adjustment to equity as of the beginning of the fiscal year of adoption. The Company is currently evaluating the impact the adoption of this guidance will have on its consolidated financial statements.
In August 2014, the Financial Accounting Standards Board issued authoritative guidance which provides guidance on determining when and how to disclose going-concern uncertainties in the financial statements. The new standard requires management to perform interim and annual assessments of an entity’s ability to continue as a going concern within one year of the date the financial statements are issued. This update is effective for fiscal years, and interim periods within those years, beginning on or after December 15, 2017, with early adoption permitted. The Company is evaluating the new guidance and plan to provide additional information about its expected impact at a future date.
In May 2014, the FASB issued authoritative guidance which clarifies the principles used to recognize revenue for all entities. The new guidance requires companies to recognize revenue when it transfers goods or services to a customer in an amount that reflects the consideration to which a company expects to be entitled. The guidance is effective for annual and interim periods beginning after December 15, 2016. The guidance allows for either a “full retrospective” adoption or a “modified retrospective” adoption, however early adoption is not permitted. The Company is currently evaluating the impact the adoption of this guidance will have on its consolidated financial statements.
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The changes in the Company’s allowance for accounts receivable were as follows for the periods ended (in thousands):
Three Months Ended June 30, |
Six Months Ended June 30, |
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2015 | 2014 | 2015 | 2014 | |||||||||||||
Beginning balance |
$ | 2,908 | $ | 1,637 | $ | 3,373 | $ | 1,901 | ||||||||
Provision for doubtful accounts |
3,538 | 4,760 | 7,115 | 7,259 | ||||||||||||
Write-offs and adjustments |
(3,203 | ) | (1,896 | ) | (7,245 | ) | (4,659 | ) | ||||||||
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Balance at end of period |
$ | 3,243 | $ | 4,501 | $ | 3,243 | $ | 4,501 | ||||||||
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The effect of the restated presentation of net cash flows used in operating activities and net cash used in investing activities are presented below (in thousands):
Six Months Ended June 30, 2014 |
||||||||
Reported | Restated | |||||||
Inventories |
(52,154 | ) | (50,996 | ) | ||||
Subscriber acquisition costs – deferred contract costs |
— | (173,112 | ) | |||||
Accounts payable |
57,816 | 58,396 | ||||||
Accrued expenses and other current liabilities |
37,638 | 37,535 | ||||||
Net cash provided by operating activities |
35,091 | (136,386 | ) | |||||
Subscriber acquisition costs – company owned equipment |
(174,567 | ) | (3,199 | ) | ||||
Capital expenditures |
(12,057 | ) | (11,948 | ) | ||||
Net cash used in investing activities |
(259,125 | ) | (87,648 | ) | ||||
Supplemental non-cash investing and financing activities: |
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Capital expenditures included within accounts payable and accrued expenses and other current assets |
$ | — | $ | 291 | ||||
Subscriber acquisition costs – company owned assets included within accounts payable and accrued expenses and other current assets |
$ | — | $ | 613 |
In addition to the consolidated statements of cash flows, the Company has restated the guarantor and non-guarantor supplemental financial information note to the consolidated financial statements as stated below (in thousands):
Six Months Ended June 30, 2014 | ||||||||||||||||||||||||
Parent | APX Group, Inc. |
Guarantor Subsidiaries |
Non- Guarantor Subsidiaries |
Eliminations | Consolidated | |||||||||||||||||||
Reported: |
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Net cash provided by (used in) operating activities |
— | (413 | ) | 14,750 | 20,754 | — | 35,091 | |||||||||||||||||
Subscriber acquisition costs – company owned equipment |
— | — | (157,770 | ) | (16,797 | ) | — | (174,567 | ) | |||||||||||||||
Capital Expenditures |
— | — | (11,869 | ) | (188 | ) | — | (12,057 | ) | |||||||||||||||
Net cash used in investing activities |
— | (237,897 | ) | (182,145 | ) | (16,980 | ) | 177,897 | (259,125 | ) | ||||||||||||||
Restated: |
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Net cash provided by (used in) operating activities |
— | (413 | ) | (139,930 | ) | 3,957 | — | (136,386 | ) | |||||||||||||||
Subscriber acquisition costs – company owned equipment |
— | — | (3,199 | ) | — | — | (3,199 | ) | ||||||||||||||||
Capital Expenditures |
— | — | (11,760 | ) | (188 | ) | — | (11,948 | ) | |||||||||||||||
Net cash used in investing activities |
— | (237,897 | ) | (27,465 | ) | (183 | ) | 177,897 | (87,648 | ) |
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The Company’s debt at June 30, 2015 consisted of the following (in thousands):
Outstanding Principal |
Unamortized Premium |
Net Carrying Amount |
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Revolving credit facility due 2019 |
159,000 | — | 159,000 | |||||||||
6.375% Senior Secured Notes due 2019 |
925,000 | — | 925,000 | |||||||||
8.75% Senior Notes due 2020 |
930,000 | 7,619 | 937,619 | |||||||||
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Total Notes payable |
$ | 2,014,000 | $ | 7,619 | $ | 2,021,619 | ||||||
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The Company’s debt at December 31, 2014 consisted of the following (in thousands):
Outstanding Principal |
Unamortized Premium |
Net Carrying Amount |
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Revolving credit facility due 2017 |
$ | 20,000 | $ | — | $ | 20,000 | ||||||
6.375% Senior Secured Notes due 2019 |
925,000 | — | 925,000 | |||||||||
8.75% Senior Notes due 2020 |
930,000 | 8,155 | 938,155 | |||||||||
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Total Notes payable |
$ | 1,875,000 | $ | 8,155 | $ | 1,883,155 | ||||||
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The following table presents balance sheet component balances (in thousands):
June 30, 2015 |
December 31, 2014 |
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Subscriber acquisition costs |
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Subscriber acquisition costs |
$ | 808,417 | $ | 628,739 | ||||
Accumulated amortization |
(121,350 | ) | (80,666 | ) | ||||
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Subscriber acquisition costs, net |
$ | 687,067 | $ | 548,073 | ||||
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Long-term investments and other assets |
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Security deposit receivable |
$ | 6,321 | $ | 6,606 | ||||
Investments |
3,352 | 3,306 | ||||||
Other |
1,242 | 621 | ||||||
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Total long-term investments and other assets, net |
$ | 10,915 | $ | 10,533 | ||||
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Accrued payroll and commissions |
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Accrued payroll |
$ | 19,759 | $ | 16,432 | ||||
Accrued commissions |
54,310 | 21,547 | ||||||
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Total accrued payroll and commissions |
$ | 74,069 | $ | 37,979 | ||||
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Accrued expenses and other current liabilities |
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Accrued interest payable |
$ | 11,969 | $ | 11,695 | ||||
Loss contingencies |
5,068 | 9,663 | ||||||
Other |
7,193 | 7,504 | ||||||
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|
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Total accrued expenses and other current liabilities |
$ | 24,230 | $ | 28,862 | ||||
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Property and equipment consisted of the following (in thousands):
June 30, 2015 |
December 31, 2014 |
Estimated Useful Lives |
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Vehicles |
$ | 20,912 | $ | 20,728 | 3 - 5 years | |||||
Computer equipment and software |
22,250 | 18,069 | 3 - 5 years | |||||||
Leasehold improvements |
16,294 | 13,606 | 2 - 15 years | |||||||
Office furniture, fixtures and equipment |
12,273 | 8,979 | 7 years | |||||||
Wireless Internet infrastructure |
10,183 | 3,866 | 3 - 5 years | |||||||
Buildings |
702 | 702 | 39 years | |||||||
Warehouse equipment |
109 | 110 | 7 years | |||||||
Construction in process |
13,354 | 12,601 | ||||||||
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96,077 | 78,661 | |||||||||
Accumulated depreciation and amortization |
(22,393 | ) | (15,871 | ) | ||||||
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Net property and equipment |
$ | 73,684 | $ | 62,790 | ||||||
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The following table presents intangible asset balances (in thousands):
June 30, 2015 |
December 31, 2014 |
Estimated Useful Lives |
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Definite-lived intangible assets: |
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Customer contracts |
$ | 973,405 | $ | 978,776 | 10 years | |||||
2GIG 2.0 technology |
17,000 | 17,000 | 8 years | |||||||
CMS and other technology |
7,067 | 7,067 | 5 years | |||||||
Space Monkey technology |
7,100 | 7,100 | 6 years | |||||||
Wireless Internet technologies |
4,690 | 4,690 | 2-3 years | |||||||
Patents |
7,161 | 6,518 | 5 years | |||||||
Non-compete agreements |
2,000 | 2,000 | 2-3 years | |||||||
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|
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1,018,423 | 1,023,151 | |||||||||
Accumulated amortization |
(386,355 | ) | (320,198 | ) | ||||||
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|
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Definite-lived intangible assets, net |
632,068 | 702,953 | ||||||||
Indefinite-lived intangible assets: |
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IP addresses |
564 | 214 | ||||||||
Domain names |
59 | 59 | ||||||||
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|
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Total Indefinite-lived intangible assets |
623 | 273 | ||||||||
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Total intangible assets, net |
$ | 632,691 | $ | 703,226 | ||||||
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Estimated future amortization expense of intangible assets, excluding approximately $0.3 million in patents currently in process, is as follows as of June 30, 2015 (in thousands):
2015 - remaining period |
$ | 67,666 | ||
2016 |
118,087 | |||
2017 |
101,840 | |||
2018 |
90,164 | |||
2019 |
78,475 | |||
Thereafter |
175,505 | |||
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Total estimated amortization expense |
$ | 631,737 | ||
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The following summarizes the financial instruments of the Company at fair value based on the valuation approach applied to each class of security as of June 30, 2015 and December 31, 2014 (in thousands):
Fair Value Measurement at Reporting Date Using | ||||||||||||||||
Balance at June 30, 2015 |
Quoted Prices in Active Markets for Identical Assets (Level 1) |
Significant Other Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
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Assets: |
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Restricted cash equivalents: |
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Money market funds |
$ | 14,214 | $ | 14,214 | $ | — | $ | — | ||||||||
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Total assets |
$ | 14,214 | $ | 14,214 | $ | — | $ | — | ||||||||
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Fair Value Measurement at Reporting Date Using | ||||||||||||||||
Balance at December 31, 2014 |
Quoted Prices in Active Markets for Identical Assets (Level 1) |
Significant Other Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
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Assets: |
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Cash equivalents: |
||||||||||||||||
Money market funds |
$ | 1 | $ | 1 | $ | — | $ | — | ||||||||
Restricted cash equivalents: |
||||||||||||||||
Money market funds |
14,214 | 14,214 | — | — | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total assets |
$ | 14,215 | $ | 14,215 | $ | — | $ | — | ||||||||
|
|
|
|
|
|
|
|
|
Stock-based compensation expense in connection with all stock-based awards is presented as follows (in thousands):
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2015 | 2014 | 2015 | 2014 | |||||||||||||
Operating expenses |
$ | 26 | $ | 21 | $ | 40 | $ | 30 | ||||||||
Selling expenses |
357 | 36 | 389 | 104 | ||||||||||||
General and administrative expenses |
588 | 401 | 1,330 | 769 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total stock-based compensation |
$ | 971 | $ | 458 | $ | 1,759 | $ | 903 | ||||||||
|
|
|
|
|
|
|
|
|
Supplemental Condensed Consolidating Balance Sheet
June 30, 2015
(In thousands)
(unaudited)
Parent | APX Group, Inc. |
Guarantor Subsidiaries |
Non-Guarantor Subsidiaries |
Eliminations | Consolidated | |||||||||||||||||||
Assets |
||||||||||||||||||||||||
Current assets |
$ | — | $ | 3,080 | $ | 144,870 | $ | 26,426 | $ | (50,249 | ) | $ | 124,127 | |||||||||||
Property and equipment, net |
— | — | 73,268 | 416 | — | 73,684 | ||||||||||||||||||
Subscriber acquisition costs, net |
— | — | 630,713 | 56,354 | — | 687,067 | ||||||||||||||||||
Deferred financing costs, net |
— | 51,146 | — | — | — | 51,146 | ||||||||||||||||||
Investment in subsidiaries |
114,012 | 2,093,266 | — | — | (2,207,278 | ) | — | |||||||||||||||||
Intercompany receivable |
— | — | 42,423 | — | (42,423 | ) | — | |||||||||||||||||
Intangible assets, net |
— | — | 583,802 | 48,889 | — | 632,691 | ||||||||||||||||||
Goodwill |
— | — | 811,947 | 27,697 | — | 839,644 | ||||||||||||||||||
Long-term investments and other assets |
— | 184 | 10,891 | 24 | (184 | ) | 10,915 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total Assets |
$ | 114,012 | $ | 2,147,676 | $ | 2,297,914 | $ | 159,806 | $ | (2,300,134 | ) | $ | 2,419,274 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Liabilities and Stockholders’ Equity |
||||||||||||||||||||||||
Current liabilities |
$ | — | $ | 12,045 | $ | 196,632 | $ | 58,895 | $ | (50,249 | ) | $ | 217,323 | |||||||||||
Intercompany payable |
— | — | — | 42,423 | (42,423 | ) | — | |||||||||||||||||
Notes payable and revolving line of credit, net of current portion |
— | 2,021,619 | — | — | — | 2,021,619 | ||||||||||||||||||
Capital lease obligations, net of current portion |
— | — | 9,275 | 11 | — | 9,286 | ||||||||||||||||||
Deferred revenue, net of current portion |
— | — | 35,730 | 3,552 | — | 39,282 | ||||||||||||||||||
Other long-term obligations |
— | — | 8,883 | 424 | — | 9,307 | ||||||||||||||||||
Deferred income tax liability |
— | — | 106 | 8,523 | (184 | ) | 8,445 | |||||||||||||||||
Total equity |
114,012 | 114,012 | 2,047,288 | 45,978 | (2,207,278 | ) | 114,012 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total liabilities and stockholders’ equity |
$ | 114,012 | $ | 2,147,676 | $ | 2,297,914 | $ | 159,806 | $ | (2,300,134 | ) | $ | 2,419,274 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Condensed Consolidating Balance Sheet
December 31, 2014
(In thousands)
Parent | APX Group, Inc. |
Guarantor Subsidiaries |
Non-Guarantor Subsidiaries |
Eliminations | Consolidated | |||||||||||||||||||
Assets |
||||||||||||||||||||||||
Current assets |
$ | — | $ | 9,435 | $ | 109,996 | $ | 6,626 | $ | (40,686 | ) | $ | 85,371 | |||||||||||
Property and equipment, net |
— | — | 62,271 | 519 | — | 62,790 | ||||||||||||||||||
Subscriber acquisition costs, net |
— | — | 500,916 | 47,157 | — | 548,073 | ||||||||||||||||||
Deferred financing costs, net |
— | 52,158 | — | — | — | 52,158 | ||||||||||||||||||
Investment in subsidiaries |
224,486 | 2,057,857 | — | — | (2,282,343 | ) | — | |||||||||||||||||
Intercompany receivable |
— | — | 34,000 | — | (34,000 | ) | — | |||||||||||||||||
Intangible assets, net |
— | — | 645,558 | 57,668 | — | 703,226 | ||||||||||||||||||
Goodwill |
— | — | 811,947 | 29,575 | — | 841,522 | ||||||||||||||||||
Long-term investments and other assets |
— | 184 | 10,502 | 31 | (184 | ) | 10,533 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total Assets |
$ | 224,486 | $ | 2,119,634 | $ | 2,175,190 | $ | 141,576 | $ | (2,357,213 | ) | $ | 2,303,673 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Liabilities and Stockholders’ Equity |
||||||||||||||||||||||||
Current liabilities |
$ | — | $ | 11,993 | $ | 119,285 | $ | 46,348 | $ | (40,686 | ) | $ | 136,940 | |||||||||||
Intercompany payable |
— | — | — | 34,000 | (34,000 | ) | — | |||||||||||||||||
Notes payable and revolving line of credit, net of current portion |
— | 1,883,155 | — | — | — | 1,883,155 | ||||||||||||||||||
Capital lease obligations, net of current portion |
— | — | 10,646 | 9 | — | 10,655 | ||||||||||||||||||
Deferred revenue, net of current portion |
— | — | 29,438 | 3,066 | — | 32,504 | ||||||||||||||||||
Other long-term obligations |
— | — | 6,497 | 409 | — | 6,906 | ||||||||||||||||||
Deferred income tax liability |
— | — | 107 | 9,104 | (184 | ) | 9,027 | |||||||||||||||||
Total equity |
224,486 | 224,486 | 2,009,217 | 48,640 | (2,282,343 | ) | 224,486 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total liabilities and stockholders’ equity |
$ | 224,486 | $ | 2,119,634 | $ | 2,175,190 | $ | 141,576 | $ | (2,357,213 | ) | $ | 2,303,673 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Condensed Consolidating Statements of Operations and Comprehensive (Loss) Income
For the Three Months Ended June 30, 2015
(In thousands)
(unaudited)
Parent | APX Group, Inc. |
Guarantor Subsidiaries |
Non-Guarantor Subsidiaries |
Eliminations | Consolidated | |||||||||||||||||||
Revenues |
$ | — | $ | — | $ | 149,770 | $ | 8,823 | $ | (680 | ) | $ | 157,913 | |||||||||||
Costs and expenses |
— | — | 154,904 | 8,577 | (680 | ) | 162,801 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Loss from operations |
— | — | (5,134 | ) | 246 | — | (4,888 | ) | ||||||||||||||||
Loss from subsidiaries |
(43,614 | ) | (4,923 | ) | — | — | 48,537 | — | ||||||||||||||||
Other expense (income), net |
— | 38,691 | (171 | ) | 27 | — | 38,547 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Loss before income tax expenses |
(43,614 | ) | (43,614 | ) | (4,963 | ) | 219 | 48,537 | (43,435 | ) | ||||||||||||||
Income tax expense |
— | — | 53 | 126 | — | 179 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net loss |
$ | (43,614 | ) | $ | (43,614 | ) | $ | (5,016 | ) | $ | 93 | $ | 48,537 | $ | (43,614 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Other comprehensive (loss) income, net of tax effects: |
||||||||||||||||||||||||
Net loss |
$ | (43,614 | ) | $ | (43,614 | ) | $ | (5,016 | ) | $ | 93 | $ | 48,537 | $ | (43,614 | ) | ||||||||
Foreign currency translation adjustment |
— | 2,202 | 5,240 | (3,038 | ) | (2,202 | ) | 2,202 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total other comprehensive income (loss) |
— | 2,202 | 5,240 | (3,038 | ) | (2,202 | ) | 2,202 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Comprehensive loss |
$ | (43,614 | ) | $ | (41,412 | ) | $ | 224 | $ | (2,945 | ) | $ | 46,335 | $ | (41,412 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Condensed Consolidating Statements of Operations and Comprehensive (Loss) Income
For the Three Months Ended June 30, 2014
(In thousands)
(unaudited)
Parent | APX Group, Inc. |
Guarantor Subsidiaries |
Non-Guarantor Subsidiaries |
Eliminations | Consolidated | |||||||||||||||||||
Revenues |
$ | — | $ | — | $ | 127,146 | $ | 7,852 | $ | (799 | ) | $ | 134,199 | |||||||||||
Costs and expenses |
— | — | 155,369 | 10,075 | (799 | ) | 164,645 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
(Loss) income from operations |
— | — | (28,223 | ) | (2,223 | ) | — | (30,446 | ) | |||||||||||||||
Loss from subsidiaries |
(66,271 | ) | (30,932 | ) | — | — | 97,203 | — | ||||||||||||||||
Other (expense) income, net |
— | (35,305 | ) | 149 | 68 | — | (35,088 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Loss before income tax expenses |
(66,271 | ) | (66,237 | ) | (28,074 | ) | (2,155 | ) | 97,203 | (65,534 | ) | |||||||||||||
Income tax expense |
— | 34 | 14 | 689 | — | 737 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net loss |
$ | (66,271 | ) | $ | (66,271 | ) | $ | (28,088 | ) | $ | (2,844 | ) | $ | 97,203 | $ | (66,271 | ) | |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Other comprehensive (loss) income, net of tax effects: |
||||||||||||||||||||||||
Net loss |
$ | (66,271 | ) | $ | (66,271 | ) | $ | (28,088 | ) | $ | (2,844 | ) | $ | 97,203 | $ | (66,271 | ) | |||||||
Foreign currency translation adjustment |
— | 4,676 | 2,769 | 1,908 | (4,676 | ) | 4,677 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total other comprehensive income (loss) |
— | 4,676 | 2,769 | 1,908 | (4,676 | ) | 4,677 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Comprehensive loss |
$ | (66,271 | ) | $ | (61,595 | ) | $ | (25,319 | ) | $ | (936 | ) | $ | 92,527 | $ | (61,594 | ) | |||||||
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Condensed Consolidating Statements of Operations and Comprehensive (Loss) Income
For the Six Months Ended June 30, 2015
(In thousands)
(unaudited)
Parent | APX Group, Inc. |
Guarantor Subsidiaries |
Non-Guarantor Subsidiaries |
Eliminations | Consolidated | |||||||||||||||||||
Revenues |
$ | — | $ | — | $ | 294,505 | $ | 17,053 | $ | (1,450 | ) | $ | 310,108 | |||||||||||
Costs and expenses |
— | — | 309,804 | 16,343 | (1,450 | ) | 324,697 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
(Loss) income from operations |
— | — | (15,299 | ) | 710 | — | (14,589 | ) | ||||||||||||||||
Loss from subsidiaries |
(91,661 | ) | (15,016 | ) | — | — | 106,677 | — | ||||||||||||||||
Other expense , net |
— | 76,645 | 76 | 43 | — | 76,764 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
(Loss) income before income tax expenses |
(91,661 | ) | (91,661 | ) | (15,375 | ) | 667 | 106,677 | (91,353 | ) | ||||||||||||||
Income tax expense |
— | — | 92 | 216 | — | 308 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net loss |
$ | (91,661 | ) | $ | (91,661 | ) | $ | (15,467 | ) | $ | 451 | $ | 106,677 | $ | (91,661 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Other comprehensive loss, net of tax effects: |
||||||||||||||||||||||||
Net loss |
$ | (91,661 | ) | $ | (91,661 | ) | $ | (15,467 | ) | $ | 451 | $ | 106,677 | $ | (91,661 | ) | ||||||||
Foreign currency translation adjustment |
— | (8,376 | ) | (1,096 | ) | (7,280 | ) | 8,376 | (8,376 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total other comprehensive loss |
— | (8,376 | ) | (1,096 | ) | (7,280 | ) | 8,376 | (8,376 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Comprehensive loss |
$ | (91,661 | ) | $ | (100,037 | ) | $ | (16,563 | ) | $ | (6,829 | ) | $ | 115,053 | $ | (100,037 | ) | |||||||
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Condensed Consolidating Statements of Operations and Comprehensive (Loss) Income
For the Six Months Ended June 30, 2014
(In thousands)
(unaudited)
Parent | APX Group, Inc. |
Guarantor Subsidiaries |
Non-Guarantor Subsidiaries |
Eliminations | Consolidated | |||||||||||||||||||
Revenues |
$ | — | $ | — | $ | 249,488 | $ | 16,458 | $ | (1,593 | ) | $ | 264,353 | |||||||||||
Costs and expenses |
— | — | 290,679 | 17,942 | (1,593 | ) | 307,028 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Loss from operations |
— | — | (41,191 | ) | (1,484 | ) | — | (42,675 | ) | |||||||||||||||
Loss from subsidiaries |
(113,551 | ) | (42,945 | ) | — | — | 156,496 | — | ||||||||||||||||
Other (expense) income, net |
— | (70,572 | ) | 659 | (18 | ) | — | (69,931 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Loss before income tax expenses |
(113,551 | ) | (113,517 | ) | (40,532 | ) | (1,502 | ) | 156,496 | (112,606 | ) | |||||||||||||
Income tax expense |
— | 34 | 40 | 871 | — | 945 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net loss |
$ | (113,551 | ) | $ | (113,551 | ) | $ | (40,572 | ) | $ | (2,373 | ) | $ | 156,496 | $ | (113,551 | ) | |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Other comprehensive loss, net of tax effects: |
||||||||||||||||||||||||
Net loss |
$ | (113,551 | ) | $ | (113,551 | ) | $ | (40,572 | ) | $ | (2,373 | ) | $ | 156,496 | $ | (113,551 | ) | |||||||
Foreign currency translation adjustment |
— | 105 | 345 | (240 | ) | (105 | ) | 105 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total other comprehensive income (loss) |
— | 105 | 345 | (240 | ) | (105 | ) | 105 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Comprehensive loss |
$ | (113,551 | ) | $ | (113,446 | ) | $ | (40,227 | ) | $ | (2,613 | ) | $ | 156,391 | $ | (113,446 | ) | |||||||
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Condensed Consolidating Statements of Cash Flows
For the Six Months Ended June 30, 2015
(In thousands)
(unaudited)
Parent | APX Group, Inc. |
Guarantor Subsidiaries |
Non-Guarantor Subsidiaries |
Eliminations | Consolidated | |||||||||||||||||||
Cash flows from operating activities: |
||||||||||||||||||||||||
Net cash (used in) provided by operating activities |
$ | — | $ | (538 | ) | $ | (98,773 | ) | $ | 9,621 | $ | — | $ | (89,690 | ) | |||||||||
Cash flows from investing activities: |
||||||||||||||||||||||||
Subscriber acquisition costs – company owned equipment |
— | — | (14,922 | ) | (644 | ) | — | (15,566 | ) | |||||||||||||||
Capital expenditures |
— | — | (18,023 | ) | (41 | ) | — | (18,064 | ) | |||||||||||||||
Proceeds from sale of assets |
— | — | 408 | — | — | 408 | ||||||||||||||||||
Investment in subsidiary |
— | (140,640 | ) | — | — | 140,640 | — | |||||||||||||||||
Acquisition of intangible assets |
— | — | (1,002 | ) | — | — | (1,002 | ) | ||||||||||||||||
Proceeds from insurance claims |
— | — | 2,984 | — | — | 2,984 | ||||||||||||||||||
Acquisition of other assets |
— | — | (67 | ) | — | — | (67 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net cash used in investing activities |
— | (140,640 | ) | (30,622 | ) | (685 | ) | 140,640 | (31,307 | ) | ||||||||||||||
Cash flows from financing activities: |
||||||||||||||||||||||||
Borrowings from revolving line of credit |
— | 149,000 | — | — | — | 149,000 | ||||||||||||||||||
Repayments on revolving line of credit |
— | (10,000 | ) | — | — | — | (10,000 | ) | ||||||||||||||||
Intercompany receivable |
— | — | (8,423 | ) | — | 8,423 | — | |||||||||||||||||
Intercompany payable |
— | — | 140,640 | 8,423 | (149,063 | ) | — | |||||||||||||||||
Repayments of capital lease obligations |
— | — | (4,045 | ) | (2 | ) | — | (4,047 | ) | |||||||||||||||
Deferred financing costs |
— | (4,233 | ) | — | — | — | (4,233 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net cash provided by financing activities |
— | 134,767 | 128,172 | 8,421 | (140,640 | ) | 130,720 | |||||||||||||||||
Effect of exchange rate changes on cash |
— | — | — | (577 | ) | — | (577 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net (decrease) increase in cash |
— | (6,411 | ) | (1,223 | ) | 16,780 | — | 9,146 | ||||||||||||||||
Cash: |
||||||||||||||||||||||||
Beginning of period |
— | 9,432 | (2,233 | ) | 3,608 | — | 10,807 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
End of period |
$ | — | $ | 3,021 | $ | (3,456 | ) | $ | 20,388 | $ | — | $ | 19,953 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Condensed Consolidating Statements of Cash Flows
For the Six Months Ended June 30, 2014 – Restated
(In thousands)
(unaudited)
Parent | APX Group, Inc. |
Guarantor Subsidiaries |
Non-Guarantor Subsidiaries |
Eliminations | Consolidated | |||||||||||||||||||
Cash flows from operating activities: |
||||||||||||||||||||||||
Net cash (used in) provided by operating activities |
$ | — | $ | (413 | ) | $ | (139,930 | ) | $ | 3,957 | $ | — | $ | (136,386 | ) | |||||||||
Cash flows from investing activities: |
||||||||||||||||||||||||
Subscriber acquisition costs – company owned equipment |
— | — | (3,199 | ) | — | — | (3,199 | ) | ||||||||||||||||
Capital expenditures |
— | — | (11,760 | ) | (188 | ) | — | (11,948 | ) | |||||||||||||||
Investment in subsidiary |
— | (177,897 | ) | — | — | 177,897 | — | |||||||||||||||||
Acquisition of intangible assets |
— | — | (6,127 | ) | — | — | (6,127 | ) | ||||||||||||||||
Net cash used in acquisition |
— | — | (3,500 | ) | — | — | (3,500 | ) | ||||||||||||||||
Change in restricted cash |
— | — | 161 | — | — | 161 | ||||||||||||||||||
Investment in marketable securities |
— | (60,000 | ) | — | — | — | (60,000 | ) | ||||||||||||||||
Investment in convertible note |
— | — | (3,000 | ) | — | — | (3,000 | ) | ||||||||||||||||
Acquisition of other assets |
— | — | (40 | ) | 5 | — | (35 | ) | ||||||||||||||||
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Net cash used in investing activities |
— | (237,897 | ) | (27,465 | ) | (183 | ) | 177,897 | (87,648 | ) | ||||||||||||||
Cash flows from financing activities: |
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Proceeds from issuance of notes |
— | — | — | — | — | — | ||||||||||||||||||
Intercompany receivable |
— | — | (10,969 | ) | — | 10,969 | — | |||||||||||||||||
Intercompany payable |
— | — | 177,897 | 10,969 | (188,866 | ) | — | |||||||||||||||||
Proceeds from contract sales |
— | — | 2,261 | — | — | 2,261 | ||||||||||||||||||
Repayments of capital lease obligations |
— | — | (3,056 | ) | (1 | ) | — | (3,057 | ) | |||||||||||||||
Deferred financing costs |
— | (572 | ) | — | — | — | (572 | ) | ||||||||||||||||
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Net cash (used in) provided by financing activities |
— | (572 | ) | 166,133 | 10,968 | (177,897 | ) | (1,368 | ) | |||||||||||||||
Effect of exchange rate changes on cash |
— | — | — | 458 | — | 458 | ||||||||||||||||||
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Net (decrease) increase in cash |
— | (238,882 | ) | (1,262 | ) | 15,200 | — | (224,944 | ) | |||||||||||||||
Cash: |
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Beginning of period |
— | 248,908 | 8,291 | 4,706 | — | 261,905 | ||||||||||||||||||
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End of period |
$ | — | $ | 10,026 | $ | 7,029 | $ | 19,906 | $ | — | $ | 36,961 | ||||||||||||
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