APX GROUP HOLDINGS, INC., 10-Q filed on 8/8/2014
Quarterly Report
Document and Entity Information
6 Months Ended
Jun. 30, 2014
Aug. 8, 2014
Document And Entity Information [Abstract]
 
 
Document Type
10-Q 
 
Amendment Flag
false 
 
Document Period End Date
Jun. 30, 2014 
 
Document Fiscal Year Focus
2014 
 
Document Fiscal Period Focus
Q2 
 
Entity Registrant Name
APX Group Holdings, Inc. 
 
Entity Central Index Key
0001584423 
 
Current Fiscal Year End Date
--12-31 
 
Entity Filer Category
Non-accelerated Filer 
 
Entity Common Stock, Shares Outstanding
 
100 
Condensed Consolidated Balance Sheets (USD $)
In Thousands, unless otherwise specified
Jun. 30, 2014
Dec. 31, 2013
Current Assets:
 
 
Cash and cash equivalents
$ 36,961 
$ 261,905 
Short-term investments-other
60,058 
 
Restricted cash and cash equivalents
14,214 
14,375 
Accounts receivable, net
10,720 
2,593 
Inventories, net
81,305 
29,260 
Prepaid expenses and other current assets
25,423 
13,870 
Total current assets
228,681 
322,003 
Property and equipment, net
44,841 
35,818 
Subscriber contract costs, net
440,059 
288,316 
Deferred financing costs, net
54,952 
59,375 
Intangible assets, net
772,663 
840,714 
Goodwill
836,702 
836,318 
Restricted cash and cash equivalents, net of current portion
14,214 
14,214 
Long-term investments and other assets, net
32,513 
27,676 
Total assets
2,424,625 
2,424,434 
Current Liabilities:
 
 
Accounts payable
81,822 
24,004 
Accrued payroll and commissions
83,239 
46,007 
Accrued expenses and other current liabilities
33,409 
33,118 
Deferred revenue
31,727 
26,894 
Current portion of capital lease obligations
4,302 
4,199 
Total current liabilities
234,499 
134,222 
Notes payable, net
1,761,636 
1,762,049 
Liability-contracts sold, net of current portion
1,824 
 
Capital lease obligations, net of current portion
7,869 
6,268 
Deferred revenue, net of current portion
26,284 
18,533 
Other long-term obligations
5,678 
3,905 
Deferred income tax liabilities
9,135 
9,214 
Total liabilities
2,046,925 
1,934,191 
Commitments and contingencies (See Note 13)
   
   
Stockholders' equity:
 
 
Common stock
   
   
Additional paid-in capital
653,391 
652,488 
Accumulated deficit
(268,166)
(154,615)
Accumulated other comprehensive loss
(7,525)
(7,630)
Total stockholders' equity
377,700 
490,243 
Total liabilities and stockholders' equity
$ 2,424,625 
$ 2,424,434 
Condensed Consolidated Statements of Operations (USD $)
In Thousands, unless otherwise specified
3 Months Ended 6 Months Ended
Jun. 30, 2014
Jun. 30, 2013
Jun. 30, 2014
Jun. 30, 2013
Revenues:
 
 
 
 
Monitoring revenue
$ 128,602 
$ 108,646 
$ 253,156 
$ 211,015 
Service and other sales revenue
4,719 
5,322 
9,553 
27,315 
Activation fees
878 
284 
1,644 
364 
Total revenues
134,199 
114,252 
264,353 
238,694 
Costs and expenses:
 
 
 
 
Operating expenses (exclusive of depreciation and amortization shown separately below)
47,216 
38,435 
88,533 
84,128 
Selling expenses
28,739 
28,298 
54,318 
48,906 
General and administrative expenses
35,326 
24,910 
60,461 
45,249 
Depreciation and amortization
53,364 
46,338 
103,716 
92,132 
Total costs and expenses
164,645 
137,981 
307,028 
270,415 
Loss from operations
(30,446)
(23,729)
(42,675)
(31,721)
Other expenses (income):
 
 
 
 
Interest expense
35,712 
27,381 
71,352 
53,254 
Interest income
(572)
(396)
(1,124)
(676)
Other (income) expenses, net
(52)
(33)
(297)
317 
Gain on 2GIG Sale
 
(46,643)
 
(46,643)
Loss before income taxes
(65,534)
(4,038)
(112,606)
(37,973)
Inocme tax expense
737 
17,489 
945 
14,463 
Net loss
$ (66,271)
$ (21,527)
$ (113,551)
$ (52,436)
Condensed Consolidated Statements of Comprehensive Loss (USD $)
In Thousands, unless otherwise specified
3 Months Ended 6 Months Ended
Jun. 30, 2014
Jun. 30, 2013
Jun. 30, 2014
Jun. 30, 2013
Statement Of Income And Comprehensive Income [Abstract]
 
 
 
 
Net loss
$ (66,271)
$ (21,527)
$ (113,551)
$ (52,436)
Other comprehensive loss, net of tax effects:
 
 
 
 
Foreign currency translation adjustment
4,677 
(4,368)
105 
(6,987)
Total other comprehensive loss
4,677 
(4,368)
105 
(6,987)
Comprehensive loss
$ (61,594)
$ (25,895)
$ (113,446)
$ (59,423)
Condensed Consolidated Statements of Cash Flows (USD $)
In Thousands, unless otherwise specified
6 Months Ended
Jun. 30, 2014
Jun. 30, 2013
Cash flows from operating activities:
 
 
Net loss
$ (113,551)
$ (52,436)
Adjustments to reconcile net loss to net cash provided by operating activities:
 
 
Amortization of intangible assets
75,300 
82,700 
Depreciation and amortization of other intangible assets
8,672 
6,947 
Amortization of deferred financing costs
4,581 
4,233 
Fire related asset losses
2,846 
 
Loss on asset impairment
1,351 
 
Gain on sale of 2GIG
 
(46,643)
Loss on sale or disposal of assets
10 
293 
Stock-based compensation
903 
673 
Provision for doubtful accounts
7,259 
5,439 
Paid-in-kind interest income
(910)
(530)
Non-cash adjustments to deferred revenue
117 
905 
Deferred income taxes
761 
9,582 
Changes in operating assets and liabilities, net of acquisitions and divestiture:
 
 
Accounts receivable
(15,358)
(6,616)
Inventories
(52,154)
(25,874)
Prepaid expenses and other current assets
(12,361)
(4,492)
Accounts payable
57,816 
6,008 
Accrued expenses and other liabilities
37,638 
45,031 
Deferred revenue
12,427 
15,368 
Net cash provided by operating activities
35,091 
43,073 
Cash flows from investing activities:
 
 
Subscriber acquisition costs
(174,567)
(156,742)
Capital expenditures
(12,057)
(3,781)
Proceeds from the sale of 2GIG, net of cash sold
 
143,262 
Proceeds from the sale of property & equipment
 
Acquisition of intangible assets
(6,127)
 
Net cash used in acquisition
(3,500)
(4,272)
Investment in short-term investments-other
(60,000)
 
Investment in convertible note
(3,000)
 
Other assets
(35)
(5,660)
Net cash provided by (used in) investing activities
(259,286)
(27,184)
Cash flows from financing activities:
 
 
Proceeds from notes payable
 
203,500 
Repayments of revolving line of credit
 
(50,500)
Borrowings from revolving line of credit
 
22,500 
Proceeds from contract sales
2,261 
 
Change in restricted cash
161 
 
Repayments of capital lease obligations
(3,057)
(3,881)
Deferred financing costs
(572)
(4,749)
Payments of dividends
 
(60,000)
Net cash (used in) provided by financing activities
(1,207)
106,870 
Effect of exchange rate changes on cash
458 
(19)
Net (decrease) increase in cash
(224,944)
122,740 
Cash:
 
 
Beginning of period
261,905 
8,090 
End of period
36,961 
130,830 
Supplemental non-cash flow disclosure:
 
 
Capital lease additions
4,746 
1,629 
Customer Contracts [Member]
 
 
Adjustments to reconcile net loss to net cash provided by operating activities:
 
 
Amortization of intangible assets
23,238 
4,866 
Customer Relationships [Member]
 
 
Adjustments to reconcile net loss to net cash provided by operating activities:
 
 
Amortization of intangible assets
$ 71,806 
$ 80,319 
Basis of Presentation and Significant Accounting Policies
Basis of Presentation and Significant Accounting Policies

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, 2013 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, 2014 are not necessarily indicative of the results that may be expected for the year ending December 31, 2014.

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, 2013 and 2012 set forth in the Company’s Annual Report on Form 10-K dated March 24, 2014, as filed with the Securities and Exchange Commission (“SEC”), 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. On April 1, 2013, the Company completed the sale of 2GIG Technologies, Inc. (“2GIG”) and its subsidiary to Nortek, Inc. (the “2GIG Sale”). Therefore, its results of operations are excluded following the sale and the results of operations prior to and subsequent to the 2GIG Sale are not necessarily comparable.

Revenue Recognition—The Company recognizes revenue principally on three types of transactions: (i) monitoring, which includes revenues for monitoring and other automation services of the Company’s subscriber contracts and certain subscriber contracts that have been sold, (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, and (iii) activation fees on the Company’s contracts, which are amortized over the expected life of the customer.

Monitoring services 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. Revenue from monitoring contracts that have been sold is recognized monthly as services are provided based on rates negotiated as part of the contract sales. Costs of providing ongoing monitoring 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 are generally charged to a customer when a new account is opened. This revenue is deferred and recognized using a 150% declining balance method over 12 years and converts to a straight-line methodology when the resulting revenue recognition is greater than that from the accelerated method for the remaining estimated life.

Through the date of the 2GIG Sale, service and other sales revenue included net recurring services revenue, which was based on back-end services, provided by Alarm.com, for all panels sold to distributors and direct-sell dealers and subsequently placed in service at end-user locations. The Company received a fixed monthly amount from Alarm.com for each system installed with non-Vivint customers that used the Alarm.com platform.

Revenue from the sale of subscriber contracts is recognized when ownership of the contracts has transferred to the purchaser. Any unamortized deferred revenue and costs related to contract sales are recognized at the time of the sale. 

Subscriber Contract 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 using a 150% declining balance method over 12 years and converts to a straight-line methodology when the resulting amortization charge is greater than that from the accelerated method for the remaining estimated life. 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.

Short-term Investments—Other—Short-term investments—other consists of a certificate of deposit with a remaining maturity when purchased of twelve 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, 2014 and December 31, 2013, 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 $4.5 million and $1.9 million at June 30, 2014 and December 31, 2013, respectively. The Company estimates this allowance based on historical collection rates, subscriber attrition rates, and contractual obligations underlying the sale of the subscriber contracts to third parties. 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, 2014 and December 31, 2013, 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

 

Six Months Ended

 

June 30,

 

June 30,

 

2014

 

2013

 

2014

 

2013

 

 

 

 

 

 

 

 

Beginning balance

$
1,637 

 

$                  1,939 

 

$
1,901 

 

$                  2,301 

Provision for doubtful accounts

4,760 

 

3,023 

 

7,259 

 

5,439 

Write-offs and adjustments

(1,896)

 

(2,337)

 

(4,659)

 

(5,115)

Balance at end of period

$                  4,501

 

$                  2,625 

 

$                  4,501 

 

$                  2,625 

 

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. The allowance for excess and obsolete inventory was $9.1 million and $3.2 million as of June 30, 2014 and December 31, 2013, respectively.

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, 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. Amortization expense associated with leased assets is included with depreciation expense. Routine repairs and maintenance are charged to expense as incurred. 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. 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. 

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. 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, 2014 and December 31, 2013 were $55.0 million and $59.4 million, net of accumulated amortization of $14.9 million and $9.9 million, respectively. Amortization expense on deferred financing costs recognized and included in interest expense in the accompanying unaudited condensed consolidated statements of operations, totaled $2.5 million and $2.1 million for the three months ended June 30, 2014 and 2013, respectively and $5.0 million and $4.2 million for the six months ended June 30, 2014 and 2013, 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 other 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 $0.3 million as of both June 30, 2014 and December 31, 2013, and the amount included in other long-term obligations was $2.4 million at both June 30, 2014 and December 31, 2013, 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 12).

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. 

Liability—Contracts Sold—On March 31, 2014, the Company received approximately $2.3 million in proceeds from the sale of certain subscriber contracts to a third-party. Concurrently, the Company entered into an agreement with the buyer to continue providing billing, monitoring and support services for the contracts that were sold for a period of ten years. As a result of this continuing involvement on the part of the Company in the servicing of the contracts, accounting guidance precluded gain recognition at the time of the sale. Accordingly, the Company has treated this transaction as a secured borrowing and recorded a liability for the proceeds received at the time of the sale. The amount included in accrued expenses and other current liabilities related to this liability was $0.3 million and the amount included in contracts sold, net of current portion was $1.8 million as of June 30, 2014. These amounts are being amortized using the effective interest method over twelve years, the expected term of these subscriber contracts. 

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, 2014, approximately 80% of the Company’s installed panels were 2GIG Go!Control panels. On April 1, 2013, the Company completed 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, 2014 and the fiscal year 2013.

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 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. 

Foreign Currency Translation and Other Comprehensive Income—The functional currencies of Vivint Canada, Inc. and Vivint New Zealand, Ltd. are the Canadian dollar and the New Zealand dollar, 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, 2014 and December 31, 2013, the Company had $3.0 million and $2.2 million, respectively, of letters of credit issued in the ordinary course of business, all of which are unused.

New Accounting Pronouncement—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 our consolidated financial statements.

In February 2013, the FASB issued authoritative guidance which expands the disclosure requirements for amounts reclassified out of accumulated other comprehensive income (“AOCI”). The guidance requires an entity to provide information about the amounts reclassified out of AOCI by component and present, either on the face of the income statement or in the notes to financial statements, significant amounts reclassified out of AOCI by the respective line items of net income but only if the amount reclassified is required under GAAP to be reclassified to net income in its entirety in the same reporting period. For other amounts, an entity is required to cross-reference to other disclosures required under GAAP that provide additional detail about those amounts. This guidance does not change the current requirements for reporting net income or OCI in financial statements. The guidance became effective for us in the first quarter of fiscal year 2014. The adoption of this guidance did not have a material impact on our financial position, results of operations or cash flows.

In July 2013, the FASB issued authoritative guidance which amends the guidance related to the presentation of unrecognized tax benefits and allows for the reduction of a deferred tax asset for a net operating loss carryforward whenever the net operating loss carryforward or tax credit carryforward would be available to reduce the additional taxable income or tax due if the tax position is disallowed. This guidance became effective for us for annual and interim periods beginning in fiscal year 2014. The adoption of this guidance did not have a material impact on our financial position, results of operations or cash flows.

 

Business Combinations
Business Combinations

NOTE 2 – BUSINESS COMBINATIONS

Wildfire Acquisition

On January 31, 2014, a wholly-owned subsidiary of the Company completed the purchase of certain assets, and assumed certain liabilities, of Wildfire Broadband, LLC (“Wildfire”). Pursuant to the terms of the asset purchase agreement the Company paid aggregate cash consideration of $3.5 million, of which $0.4 million is held in escrow for indemnification obligations and will be released no later than January 31, 2015. This strategic acquisition was made to provide the Company access to Wildfire’s existing customers, wireless internet infrastructure and know-how. The accompanying condensed consolidated financial statements include the financial position and results of operations associated with the Wildfire assets acquired and liabilities assumed from January 31, 2014. The pro forma impact of Wildfire on the Company’s financial position and results of operations for the six months ended June 30, 2014 is immaterial. The associated goodwill is deductible for income tax purposes.

The following table summarizes the estimated fair value of the assets acquired and liabilities assumed at the time of acquisition (in thousands):

 

 

 

 

 

 

Net assets acquired from Wildfire

$                       96 

Intangible assets (See Note 9)

2,900 

Goodwill

504 

Total cash consideration

3,500 

 

 

Estimated net working capital adjustment

(61)

Total fair value of the assets acquired and liabilities assumed

$                 3,439 

 

During the three and six months ended June 30, 2014, the Company incurred costs associated with the Wildfire acquisition, which were not material, consisting of accounting, legal and professional fees and payments to employees directly associated with the acquisition. These costs are included in general and administrative expenses in the accompanying unaudited condensed consolidated statements of operations.

Divestiture of Subsidiary
Divestiture of Subsidiary

NOTE 3 — DIVESTITURE OF SUBSIDIARY

On April 1, 2013, the Company completed the 2GIG Sale. Pursuant to the terms of the 2GIG Sale, Nortek, Inc. acquired all of the outstanding common stock of 2GIG for aggregate cash consideration of approximately $148.9 million, including cash, working capital and indebtedness adjustments as provided in the stock purchase agreement. 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. A portion of the net proceeds from the 2GIG Sale was used to repay $44.0 million of outstanding borrowings under the Company’s revolving credit facility. The terms of the indenture governing the existing senior unsecured notes, the indenture governing the existing senior secured notes and the credit agreement governing the revolving credit facility, permit the Company, subject to certain conditions, to distribute all or a portion of the net proceeds from the 2GIG Sale to the Company’s stockholders. In May 2013, the Company distributed a dividend of $60.0 million from such proceeds to stockholders. Subject to the applicable conditions, the Company may distribute the remaining proceeds in the future. The Company’s financial position and results of operations include 2GIG through March 31, 2013.

The following table summarizes the net gain recognized in connection with this divestiture (in thousands):

 

 

 

Adjusted net sale price

$
148,378 

2GIG assets (including cash of $3,383), net of liabilities

(108,797)

2.0 technology, net of amortization

16,903 

Other

(9,841)

Net gain on divestiture

$
46,643 

 

Variable Interest Entity
Variable Interest Entity

NOTE 4 — VARIABLE INTEREST ENTITY 

Accounting rules require the primary beneficiary of a variable interest entity (“VIE”) to include the financial position and results of operations of the VIE in its condensed consolidated financial statements. Vivint Solar, Inc. (“Solar”), formed by the Company in April 2011, installs solar panels on the roofs of customers’ homes and enters into agreements for customers to purchase the electricity generated by the panels. Solar also takes advantage of local government and federal incentive programs that offer assistance in generating green power. Solar was consolidated as a VIE by APX Group, Inc. from April 2011 through November 15, 2012. On November 16, 2012, an investor group comprised of certain investment funds affiliated with Blackstone Capital Partners VI L.P., and certain co-investors and management investors (collectively, the “Investors”) purchased Solar for $75.0 million and became its primary beneficiary and, as a result, the Solar financial position and results of operations are not consolidated by the Company subsequent to November 16, 2012. The assets of Solar are restricted in that they are only available to settle the obligations of Solar and not of the Company and similarly, the creditors of Solar have no recourse to the general assets of the Company.

The Company and Solar have entered into an agreement under which the Company subleases corporate office space, and provides certain other administrative services, to Solar. During the three months ended June 30, 2014 and 2013, the Company charged $2.5 million and $0.3 million, respectively, and during the six months ended June 30, 2014 and 2013, the Company charged $4.1 million and $0.6 million, respectively, of general and administrative expenses to Solar in connection with this agreement. The balance due from Solar in connection with this agreement and other expenses paid on Solar’s behalf was $2.3 million and $3.1 million at June 30, 2014 and December 31, 2013, respectively, and is included in prepaid expenses and other current assets in the accompanying unaudited condensed 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 is due and payable semi-annually on June 1 and December 1 of each year commencing on June 1, 2013. The balance outstanding on June 30, 2014, representing principal of $20.0 million and payment-in-kind interest of $2.2 million, and on December 31, 2013, representing principal of $20.0 million and payment-in-kind interest of $1.3 million, is included in long-term investments and other assets, net in the accompanying unaudited condensed consolidated balance sheets. In addition, accrued interest of $0.2 million and $0.1 million on June 30, 2014 and December 31, 2013, respectively, is included in prepaid expenses and other current assets in the accompanying unaudited condensed consolidated balance sheets. These variable interests represent the Company’s maximum exposure to loss from direct involvement with Solar.

Long-Term Debt
Long-Term Debt

NOTE 5 – 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 “outstanding 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 “outstanding 2020 notes” and together with the outstanding 2019 notes, the “notes”), mature on December 1, 2020.

During 2013, the Company completed two offerings of additional 8.75% senior notes due 2020 under the indenture dated November 16, 2012 (the “2020 notes”). On May 31, 2013, the Company issued $200.0 million of 2020 notes at a price of 101.75% and on December 13, 2013, the Company issued an additional $250.0 million of 2020 notes at a price of 101.50%.  Blackstone Advisory Partners L.P. participated as one of the initial purchasers of the 2020 notes in each of the May 31, 2013 and December 31, 2013 offerings and received approximately $0.2 million and $0.2 million in fees, respectively, at the time of closing.

Interest on the notes accrues at the rate of 6.375% per annum for the outstanding 2019 notes and 8.75% per annum for the outstanding 2020 notes. Interest on the notes is payable semiannually in arrears on each June 1 and December 1. The Company may redeem each series of the notes, in whole or part, at any time 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, APX may redeem the notes at the prices and on the terms specified in the applicable indenture.

In connection with each issuance of the notes, the Company entered into Exchange and Registration Rights Agreements (each a “Registration Rights Agreement”) with the initial purchasers of the notes, dated November 16, 2012, May 8, 2013 and December 13, 2013, respectively.

In connection with the issuance of the initial notes on November 16, 2012 and the subsequent offering on May 31, 2013, in accordance with the applicable Registration Rights Agreements, the Company filed a registration statement on Form S-4 with the Securities and Exchange Commission with respect to an exchange offer to exchange the notes of each series for an issue of Notes (except the Exchange Notes do not contain transfer restrictions). The exchange offer was completed on October 29, 2013.

In connection with the issuance of the subsequent offering on December 13, 2013, under the applicable Registration Rights Agreement, the Company filed a registration statement on Form S-4 with the Securities and Exchange Commission with respect to an exchange offer to exchange the Notes of each series for an issue of Notes (except the Exchange Notes do not contain transfer restrictions). This exchange offer was completed on March 7, 2014.

Revolving Credit Facility

On November 16, 2012, APX, the Company and the other guarantors entered into a revolving credit facility in the aggregate principal amount of $200.0 million. Borrowings bear interest based on the London Interbank Offered Rate (“LIBOR”) or, at the Company’s option, an alternative base rate, plus spread, based upon the Company’s consolidated first lien leverage ratio at the end of each fiscal quarter and a commitment fee of 0.50% on unused portions of the revolving credit facility. The borrowings are due November 16, 2017, which may be repaid at any time without penalty.

 

The Company’s outstanding debt at June 30, 2014 had maturity dates of 2019 and beyond and consisted of the following (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding
Principal

 

Unamortized
Premium

 

Net Carrying
Amount

Revolving credit facility

$                        - 

 

$                        - 

 

$                         - 

6.375% Senior Secured Notes due 2019

925,000 

 

 -

 

925,000 

8.75% Senior Notes due 2020

830,000 

 

6,636 

 

836,636 

Total Notes payable

$          1,755,000 

 

$                 6,636 

 

$          1,761,636 

 

The Company’s outstanding debt at December 31, 2013 consisted of the following (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding
Principal

 

Unamortized
Premium

 

Net Carrying
Amount

Revolving credit facility

$                        - 

 

$                        - 

 

$                        - 

6.375% Senior Secured Notes due 2019

925,000 

 

 -

 

925,000 

8.75% Senior Notes due 2020

830,000 

 

7,049 

 

837,049 

Total Notes payable

$          1,755,000 

 

$                 7,049 

 

$          1,762,049 

 

Balance Sheet Components
Balance Sheet Components

NOTE 6 – BALANCE SHEET COMPONENTS

The following table presents balance sheet component balances (in thousands):

 

 

 

 

 

 

 

 

 

 

 

June 30,
2014

 

December 31,
2013

Subscriber contract costs

 

 

 

Subscriber contract costs

$
485,696 

 

$              310,666 

Accumulated amortization

(45,637)

 

(22,350)

Subscriber contract costs, net

$              440,059 

 

$              288,316 

 

 

 

 

Long-term investments and other assets

 

 

 

Notes receivable from related parties, net of allowance (See Note 4)

$
22,233 

 

$                21,323 

Security deposit receivable

6,947 

 

6,261 

Other

3,333 

 

92 

Total long-term investments and other assets, net

$                32,513 

 

$                27,676 

 

 

 

 

Accrued payroll and commissions

 

 

 

Accrued payroll

$
17,055 

 

$                15,475 

Accrued commissions

66,184 

 

30,532 

Total accrued payroll and commissions

$                83,239 

 

$                46,007 

 

 

 

 

Accrued expenses and other current liabilities

 

 

 

Accrued interest payable

$
10,972 

 

$                10,982 

Loss contingencies

8,463 

 

9,263 

Other

13,974 

 

12,873 

Total accrued expenses and other current liabilities

$                33,409 

 

$                33,118 

 

Property and Equipment
Property and Equipment

NOTE 7 – PROPERTY AND EQUIPMENT 

Property and equipment consisted of the following (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30,
2014

 

December 31,
2013

 

Estimated
Useful Lives

Vehicles

$
17,140 

 

$                13,851 

 

3 - 5 years

Computer equipment and software

14,658 

 

6,742 

 

3 - 5 years

Leasehold improvements

11,096 

 

13,345 

 

2 - 15 years

Office furniture, fixtures and equipment

7,316 

 

6,472 

 

7 years

Warehouse equipment

133 

 

123 

 

7 years

Buildings

702 

 

702 

 

39 years

Construction in process

6,174 

 

3,119 

 

 

 

57,219 

 

44,354 

 

 

 

 

 

 

 

 

Accumulated depreciation and amortization

(12,378)

 

(8,536)

 

 

Net property and equipment

$                44,841 

 

$                35,818 

 

 

 

Property and equipment includes approximately $13.0 million and $13.7 million of assets under capital lease obligations, net of accumulated amortization of $4.2 million and $2.7 million at June 30, 2014 and December 31, 2013, respectively. Depreciation and amortization expense on all property and equipment was $2.7 million and $2.1 million for the three months ended June 30, 2014 and 2013, respectively and $5.2 million and $4.5 million for the six months ended June 30, 2014 and 2013, respectively. Amortization expense relates to assets under capital leases and is included in depreciation and amortization expense.

Intangible Assets
Intangible Assets

NOTE 8 – INTANGIBLE ASSETS

The following table presents intangible asset balances (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30,
2014

 

December 31,
2013

 

Estimated
Useful Lives

Definite-lived intangible assets:

 

 

 

 

 

Customer contracts

$
986,159 

 

$              984,403 

 

10 years

2.0 technology

17,000 

 

17,000 

 

8 years

Smartrove technology

4,040 

 

4,040 

 

3 years

Skypanel technology

3,813 

 

3,814 

 

3 years

Patents

5,964 

 

 -

 

5 years

Non-compete agreements

800 

 

 -

 

3 years

Other intellectual property

650 

 

650 

 

2 years

CMS technology

337 

 

2,300 

 

1 year

 

1,018,763 

 

1,012,207 

 

 

Accumulated amortization

(246,323)

 

(171,493)

 

 

Definite-lived intangible assets, net

772,440 

 

840,714 

 

 

 

 

 

 

 

 

Indefinite-lived intangible assets:

 

 

 

 

 

IP addresses

164 

 

 -

 

 

Domain names

59 

 

 -

 

 

Total Indefinite-lived intangible assets

223 

 

 -

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total intangible assets, net

$              772,663 

 

$              840,714 

 

 

 

Identifiable intangible assets acquired by the Company in connection with the Wildfire acquisition were $2.1 million of customer contracts and $0.8 million associated with non-compete agreements entered into by certain former members of Wildfire management. In addition, during the six months ended June 30, 2014, the Company acquired $6.2 million of other intangible assets 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 based on management experience, inquiry and assessment of the remaining functionality of this technology as it related to inventory tracking. 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. 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 $37.8 million and $40.5 million for the three months ended June 30, 2014 and 2013, respectively. Amortization expense related to intangible assets was approximately $75.3 million and $82.7 million for the six months ended June 30, 2014 and 2013, respectively.

 

Estimated future amortization expense of intangible assets, excluding patents currently in process, is as follows as of June 30, 2014 (in thousands):

 

 

 

 

 

 

2014 - remaining period

$                75,983 

2015

135,222 

2016

116,984 

2017

100,670 

2018

88,961 

Thereafter

254,446 

 

 

Future amortization associated with patents currently in process

174 

 

 

Total estimated amortization expense

$              772,440 

 

Fair Value Measurements
Fair Value Measurements

NOTE 9 – 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. Short-term investments—other are classified as Level 2 and their cost basis plus accrued interest at June 30, 2014 approximates fair value. The Convertible Note, as defined below, is classified as Level 3 and is valued using its cost basis, which approximates fair value. 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, 2014 and December 31, 2013 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value Measurement at Reporting Date Using

 

Balance at
June 30,
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

$
10,009 

 

$
10,009 

 

$                          -

 

$                         -

Short-term investments—other:

 

 

 

 

 

 

 

Certificate of deposit

60,058 

 

 -

 

60,058 

 

 -

Restricted cash equivalents:

 

 

 

 

 

 

 

Money market funds

14,214 

 

14,214 

 

 -

 

 -

Restricted cash equivalents, net of current portion:

 

 

 

 

 

 

 

Money market funds

14,214 

 

14,214 

 

 -

 

 -

Long-term investments and other assets, net

 

 

 

 

 

 

 

Convertible note

3,000 

 

 -

 

 -

 

3,000 

Total assets

$              101,495 

 

$                38,437 

 

$                60,058 

 

$                  3,000 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value Measurement at Reporting Date Using

 

Balance at
December 31,
2013

 

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

$                10,002 

 

$                10,002 

 

$                         - 

 

$                         - 

Restricted cash equivalents:

 

 

 

 

 

 

 

Money market funds

14,214 

 

14,214 

 

 -

 

 -

Restricted cash equivalents, net of current portion:

 

 

 

 

 

 

 

Money market funds

14,214 

 

14,214 

 

 -

 

 -

Total assets

$                38,430 

 

$                38,430 

 

$                         - 

 

$                         - 

 

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.

On February 19, 2014, the Company invested $3.0 million in a convertible note (“Convertible Note”) of a privately held company (“Investee”) not affiliated with the Company. The Convertible Note has a stated maturity date of February 19, 2015 and bears 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 converts to preferred stock of the Investee no later than August 19, 2014. The Convertible Note has been classified as available-for-sale and measured at fair value in accordance with ASC 320, Investments—Debt and Equity Securities, with remeasurement occurring at the end of each reporting period and any changes in fair value included in other comprehensive income until the Convertible Note converts or matures. As of June 30, 2014, the estimated aggregate fair value of the Convertible Note was equal to its cost of $3.0 million and was considered a Level 3 measurement and is included in long-term investments and other assets, net in the accompanying unaudited condensed consolidated balance sheet as of June 30, 2014.

The fair market value of the Company’s Senior Secured Notes was approximately $957.4 million and $941.2 million as of June 30, 2014 and December 31, 2013, respectively. The carrying value of the Company’s Senior Secured Notes was $925.0 million as of June 30, 2014 and December 31, 2013. The Company’s Senior Notes had a fair market value of approximately $848.7 million and $844.5 million as of June 30, 2014 and December 31, 2013, respectively, and a carrying amount of $830.0 million as of both June 30, 2014 and December 31, 2013. The fair value of the Senior Secured Notes and the Senior 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.

In connection with the Wildfire acquisition, the fair value of intangible assets was considered a Level 3 measurement and was determined using the income and market approach. Key assumptions used in the determination of the fair value include estimated earnings and discount rates between 12% and 20%.  

Facility Fire
Facility Fire

NOTE 10 – 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, 2014, the Company recognized gross expenses of $5.7 million, less probable insurance recoveries of $3.0 million, related to the fire damage. Of the $3.0 million in probable insurance recoveries, $1.8 million were received by the Company prior to June 30, 2014. The expenses associated with the fire primarily related to impairment of damaged assets and recovery costs to maintain business continuity. The Company is seeking additional insurance recoveries and will recognize those when receipt becomes probable. The net expenses of approximately $1.7 million and $2.7 million for the three and six months ended June 30, 2014, respectively, are included in general and administrative costs on the unaudited condensed consolidated statements of operations. The $1.2 million of probable insurance recoveries not yet received from the Company’s insurance provider are included in prepaid expenses and other current assets in the accompanying unaudited condensed consolidated balance sheet at June 30, 2014.

Income Taxes
Income Taxes

NOTE 11 – INCOME TAXES

In order to determine the quarterly provision (benefit) 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, 2014 was approximately (0.84)%. In computing income tax expense (benefit), 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, 2014, 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 three and six months ended June 30, 2014. Both the 2014 and 2013 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 2014, 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, 2014, 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.

Stock-Based Compensation
Stock-Based Compensation

NOTE 12 – STOCK-BASED COMPENSATION

313 Incentive Units

The Company’s indirect parent, 313 Acquisition LLC, 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 Acquisition LLC (“Incentive Units”). As of June 30, 2014, a total of 75,181,252 Incentive Units had been awarded to members of senior management and a board member, of which 46,484,562 were issued 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. The Company anticipates making comparable equity incentive grants at 313 Acquisition LLC to other members of senior management and adopting other equity and cash-based incentive programs for other members of management from time to time. 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 5 years; and risk-free rate of 0.62% to 1.18%.  

Vivint Stock Appreciation Rights

The Company’s subsidiary, Vivint, has awarded Stock Appreciation Rights (“SARs”) to various levels of key employees. The purpose of the SARs is to attract and retain personnel and provide an opportunity to acquire an equity interest of Vivint. 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 The Blackstone Group, L.P. and its affiliates. In connection with this plan, 8,221,250 SARs were outstanding as of June 30, 2014. In addition, 36,065,303 SARs have been set aside for funding incentive compensation pools pursuant to long-term incentive plans established by the Company.

The fair value of the Vivint 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 6.01 and 6.50 years; and risk-free rates between 1.72% and 1.77%. Due to the lack of historical exercise data, the Company used the simplified method in determining the estimated exercise term, for all Vivint awards.

Wireless Stock Appreciation Rights

The Company’s subsidiary, Vivint Wireless, has awarded SARs to various key employees. 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, 70,000 SARs were outstanding as of June 30, 2014. 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 of 6.50 years; and risk-free rate of 1.51%. 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 stock awards is presented by entity as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

2014

 

2013

 

2014

 

2013

 

 

 

 

 

 

 

 

Operating expenses

$
21 

 

$                        -

 

$
30 

 

$                        -

Selling expenses

36 

 

 -

 

104 

 

 -

General and administrative expenses

401 

 

445 

 

769 

 

673 

Total stock-based compensation

$                    458 

 

$                    445 

 

$                    903 

 

$                    673 

 

Commitments and Contingencies
Commitments and Contingencies

NOTE 13 – 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. 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 litigation, the length of time the matter has been pending, the procedural posture of the matter, whether the Company intends to defend the matter, the likelihood of settling for an insignificant amount and the likelihood of the plaintiff accepting an amount in this range. 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 is party to claims, legal actions and complaints arising in the ordinary course of business related to its sales, marketing, the provision of its services and equipment claims. 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 $8.5 million and $9.3 million as of June 30, 2014 and December 31, 2013, 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.

Total rent expense for operating leases was approximately $2.9 million and $1.3 million for the three months ended June 30, 2014 and 2013, respectively, and $4.4 million and $2.7 million for the six months ended June 30, 2014 and 2013, 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 26 months as of June 30, 2014. As of June 30, 2014 and December 31, 2013, the capital lease obligation balance was $12.2 million and $10.5 million, respectively.

Related Party Transactions
Related Party Transactions

NOTE 14 – 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 related parties as of both June 30, 2014 and December 31, 2013, amounted to approximately $0.3 million. As of June 30, 2014 and December 31, 2013, this amount was fully reserved.

Prepaid expenses and other current assets at June 30, 2014 and December 31, 2013 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 of $0.4 million and $0.2 million during the three months ended June 30, 2014 and 2013, respectively, and $1.2 million and $0.3 million during the six months ended June 30, 2014 and 2013, 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, 2014 and December 31, 2013, included a payable to Vivint Gives Back for $0.2 million and $1.1 million, respectively. In addition, transactions with Solar, as described in Note 4, are considered to be related party transactions.

On November 16, 2012, the Company entered into a support and services agreement with Blackstone Management Partners L.L.C. (“BMP”), an affiliate of Blackstone. Under the support and services agreement, the Company engaged 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 $1.0 million and $0.7 million during both the three months ended June 30, 2014 and 2013, respectively, and approximately $1.7 million and $1.6 million during the six months ended June 30, 2014 and 2013, respectively.

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 Surviving 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.

Segment Reporting
Segment Reporting

NOTE 15 – SEGMENT REPORTING

Prior to the 2GIG Sale on April 1, 2013, the Company conducted business through two operating segments, Vivint and 2GIG. These segments were managed and evaluated separately by management due to the differences in their products and services. The primary source of revenue for the Vivint segment is generated through monitoring services provided to subscribers, in accordance with their subscriber contracts. The primary source of revenue for the 2GIG segment was through the sale of electronic security and automation systems to security dealers and distributors, including Vivint. Fees and expenses charged by 2GIG to Vivint, related to intercompany purchases, were eliminated in consolidation.

For the three months ended June 30, 2014 and 2013 and the six months ended June 30, 2014, the Company conducted business through one operating segment, Vivint. The following table presents a summary of revenue, costs and expenses for the six months ended June 30, 2013 and assets as of June 30, 2013 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Vivint

 

2GIG

 

Eliminations

 

Consolidated
Total

Revenues

$              221,187 

 

$                60,220 

 

$              (42,713)

 

$              238,694 

All other costs and expenses

251,129 

 

52,200 

 

(32,914)

 

270,415 

(Loss) income from operations

$              (29,942)

 

$                  8,020 

 

$                (9,799)

 

$              (31,721)

Intangible assets, including goodwill

$           1,754,104 

 

$                         - 

 

$                         - 

 

$           1,754,104 

Total assets

$           2,260,977 

 

$                         - 

 

$                         - 

 

$           2,260,977 

 

Employee Benefit Plans
Employee Benefit Plans

NOTE 16 – EMPLOYEE BENEFIT PLANS

Beginning March 1, 2010, Vivint and 2GIG offered eligible employees the opportunity to defer a percentage of their earned income into company-sponsored 401(k) plans. 2GIG made matching contributions to the plan in the amount of $36,000 for the six months ended June 30, 2013. No matching contributions were made to the plans for the three or six months ended June 30, 2014 or the three months ended June 30, 2013.

Guarantor and Non-Guarantor Supplemental Financial Information
Guarantor and Non-Guarantor Supplemental Financial Information

NOTE 17 – GUARANTOR AND NON-GUARANTOR SUPPLEMENTAL FINANCIAL INFORMATION

The Senior Secured Notes due 2019 and the Senior Notes due 2020 were issued by APX. The Senior Secured Notes due 2019 and the Senior Notes due 2020 are fully and unconditionally guaranteed, jointly and severally by APX Group Holdings, Inc. (“Parent Guarantor”) 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, 2014 and December 31, 2013 and for the three and six months ended June 30, 2014 and 2013. The unaudited condensed consolidating financial information reflects the investments of Holdings in the Guarantor Subsidiaries and the Non-Guarantor Subsidiaries using the equity method of accounting.

 

 

Supplemental Condensed Consolidating Balance Sheet

June 30, 2014

(In thousands)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Parent

 

APX Group, Inc.

 

Guarantor
Subsidiaries

 

Non-Guarantor
Subsidiaries

 

Eliminations

 

Consolidated

Assets

 

 

 

 

 

 

 

 

 

 

 

Current assets

$                      -

 

$
70,084 

 

$
171,666 

 

$
24,598 

 

$
(37,667)

 

$
228,681 

Property and equipment, net

 -

 

 -

 

44,149 

 

692 

 

 -

 

44,841 

Subscriber acquisition costs, net

 -

 

 -

 

398,635 

 

41,424 

 

 -

 

440,059 

Deferred financing costs, net

 -

 

54,952 

 

 -

 

 -

 

 -

 

54,952 

Investment in subsidiaries

377,700 

 

2,025,166 

 

 -

 

 -

 

(2,402,866)

 

 -

Intercompany receivable

 -

 

 -

 

55,627 

 

 -

 

(55,627)

 

 -

Intangible assets, net

 -

 

 -

 

703,245 

 

69,418 

 

 -

 

772,663 

Goodwill

 -

 

 -

 

804,545 

 

32,157 

 

 -

 

836,702 

Restricted cash

 -

 

 -

 

14,214 

 

 -

 

 -

 

14,214 

Long-term investments and other assets

 -

 

 -

 

32,494 

 

19 

 

 -

 

32,513 

Total Assets

$         377,700 

 

$        2,150,202 

 

$           2,224,575

 

$              168,308 

 

$         (2,496,160)

 

$           2,424,625 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

 

 

 

Current liabilities

$                     -

 

$
10,972 

 

$
213,513 

 

$
47,681 

 

$
(37,667)

 

$
234,499 

Intercompany payable

 -

 

 -

 

 -

 

55,627 

 

(55,627)

 

 -

Notes payable and revolving line of credit, net of current portion

 -

 

1,761,636 

 

 -

 

 -

 

 -

 

1,761,636 

Liability-contracts sold, net of current portion

 -

 

 -

 

1,824 

 

 -

 

 -

 

1,824 

Capital lease obligations, net of current portion

 -

 

 -

 

7,857 

 

12 

 

 -

 

7,869 

Deferred revenue, net of current portion

 -

 

 -

 

23,634 

 

2,650 

 

 -

 

26,284 

Other long-term obligations

 -

 

 -

 

5,313 

 

365 

 

 -

 

5,678 

Deferred income tax liability

 -

 

(106)

 

242 

 

8,999 

 

 -

 

9,135 

Total equity

377,700 

 

377,700 

 

1,972,192 

 

52,974 

 

(2,402,866)

 

377,700 

Total liabilities and stockholders’ equity

$         377,700 

 

$        2,150,202 

 

$           2,224,575 

 

$              168,308 

 

$         (2,496,160)

 

$           2,424,625 

 

 

 

Supplemental Condensed Consolidating Balance Sheet

December 31, 2013

(In thousands)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Parent

 

APX Group, Inc.

 

Guarantor
Subsidiaries

 

Non-Guarantor
Subsidiaries

 

Eliminations

 

Consolidated

Assets

 

 

 

 

 

 

 

 

 

 

 

Current assets

$                        - 

 

$            249,209 

 

$             89,768 

 

$                7,163 

 

$          (24,137)

 

$            322,003 

Property and equipment, net

 -

 

 -

 

35,218 

 

600 

 

 -

 

35,818 

Subscriber acquisition costs, net

 -

 

 -

 

262,064 

 

26,252 

 

 -

 

288,316 

Deferred financing costs, net

 -

 

59,375 

 

 -

 

 -

 

 -

 

59,375 

Investment in subsidiaries

490,243 

 

1,953,465 

 

 -

 

 -

 

(2,443,708)

 

 -

Intercompany receivable

 -

 

 -

 

44,658 

 

 -

 

(44,658)

 

 -

Intangible assets, net

 -

 

 -

 

764,296 

 

76,418 

 

 -

 

840,714 

Goodwill

 -

 

 -

 

804,041 

 

32,277 

 

 -

 

836,318 

Restricted cash

 -

 

 -

 

14,214 

 

 -

 

 -

 

14,214 

Long-term investments and other assets

 -

 

(302)

 

27,954 

 

24 

 

 -

 

27,676 

Total Assets

$            490,243 

 

$         2,261,747 

 

$         2,042,213 

 

$            142,734 

 

$     (2,512,503)

 

$         2,424,434 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

 

 

 

Current liabilities

$                        - 

 

$                9,561 

 

$            117,544 

 

$               31,254 

 

$          (24,137)

 

$             134,222 

Intercompany payable

 -

 

 -

 

 -

 

44,658 

 

(44,658)

 

 -

 Notes payable and revolving line of credit, net of current portion

 -

 

1,762,049 

 

 -

 

 -

 

 -

 

1,762,049 

 Capital lease obligations, net of current portion

 

 -

 

 -

 

6,268 

 

 -

 

 -

 

6,268 

Deferred revenue, net of current portion

 -

 

 -

 

16,676 

 

1,857 

 

 -

 

18,533 

Other long-term obligations

 -

 

 -

 

3,559 

 

346 

 

 -

 

3,905 

Deferred income tax liability

 -

 

(106)

 

289 

 

9,031 

 

 -

 

9,214 

Total equity

490,243 

 

490,243 

 

1,897,877 

 

55,588 

 

(2,443,708)

 

490,243 

Total liabilities and stockholders’ equity

$            490,243 

 

$         2,261,747 

 

$         2,042,213 

 

$            142,734 

 

$     (2,512,503)

 

$         2,424,434 

 

 

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 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, 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

 -

 

4,676 

 

2,769 

 

1,908 

 

(4,676)

 

4,677 

Comprehensive loss

$              (66,271)

 

$              (61,595)

 

$              (25,319)

 

$                   (936)

 

$                92,527 

 

$              (61,594)

 

Condensed Consolidating Statements of Operations and Comprehensive Loss

For the Three Months Ended June 30, 2013

(In thousands)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Parent

 

APX Group, Inc.

 

Guarantor
Subsidiaries

 

Non-Guarantor
Subsidiaries

 

Eliminations

 

Consolidated

Revenues

$                        - 

 

$                        - 

 

$             107,797 

 

$                 7,216 

 

$                  (761)

 

$             114,252 

Costs and expenses

 -

 

 -

 

131,100 

 

7,642 

 

(761)

 

137,981 

Loss from operations

 -

 

 -

 

(23,303)

 

(426)

 

 -

 

(23,729)

Loss from subsidiaries

(21,527)

 

(41,002)

 

 -

 

 -

 

62,529 

 

 -

Other expense, net

60,000 

 

19,475 

 

233 

 

(17)

 

(60,000)

 

19,691 

Income (loss) before income tax expenses

38,473 

 

(21,527)

 

(23,070)

 

(443)

 

2,529 

 

(4,038)

Income tax expense (benefit)

 -

 

 -

 

17,569 

 

(80)

 

 -

 

17,489 

Net income (loss)

$               38,473 

 

$             (21,527)

 

$             (40,639)

 

$                  (363)

 

$                 2,529 

 

$             (21,527)

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss), net of tax effects:

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

$               38,473 

 

$             (21,527)

 

$             (40,639)

 

$                  (363)

 

$                 2,529 

 

$             (21,527)

Foreign currency translation adjustment

 -

 

(4,368)

 

(2,367)

 

(2,001)

 

4,368 

 

(4,368)

Total other comprehensive loss

 -

 

(4,368)

 

(2,367)

 

(2,001)

 

4,368 

 

(4,368)

Comprehensive income (loss)

$               38,473 

 

$             (25,895)

 

$             (43,006)

 

$               (2,364)

 

$                 6,897 

 

$             (25,895)

 

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) income, 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) loss

 -

 

105 

 

345 

 

(240)

 

(105)

 

105 

Comprehensive loss

$            (113,551)

 

$            (113,446)

 

$              (40,227)

 

$                (2,613)

 

$              156,391 

 

$            (113,446)

Condensed Consolidating Statements of Operations and Comprehensive Loss

For the Six Months Ended June 30, 2013

(In thousands)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Parent

 

APX Group, Inc.

 

Guarantor
Subsidiaries

 

Non-Guarantor
Subsidiaries

 

Eliminations

 

Consolidated

Revenues

$                        - 

 

$                        - 

 

$             227,328 

 

$               12,885 

 

$               (1,519)

 

$             238,694 

Costs and expenses

 -

 

 -

 

257,203 

 

14,731 

 

(1,519)

 

270,415 

Loss from operations

 -

 

 -

 

(29,875)

 

(1,846)

 

 -

 

(31,721)

Loss from subsidiaries

(52,436)

 

(46,230)

 

 -

 

 -

 

98,666 

 

 -

Other expense, net

60,000 

 

(6,206)

 

(23)

 

(23)

 

(60,000)

 

(6,252)

Income (loss) before income tax expenses

7,564 

 

(52,436)

 

(29,898)

 

(1,869)

 

38,666 

 

(37,973)

Income tax expense (benefit)

 -

 

 -

 

14,933 

 

(470)

 

 -

 

14,463 

Net income (loss )

$                 7,564 

 

$             (52,436)

 

$             (44,831)

 

$               (1,399)

 

$               38,666 

 

$             (52,436)

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss), net of tax effects:

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

$                 7,564 

 

$             (52,436)

 

$             (44,831)

 

$               (1,399)

 

$               38,666 

 

$             (52,436)

Foreign currency translation adjustment

 -

 

(6,987)

 

(3,722)

 

(3,265)

 

6,987 

 

(6,987)

Total other comprehensive loss

 -

 

(6,987)

 

(3,722)

 

(3,265)

 

6,987 

 

(6,987)

Comprehensive income (loss)

$                 7,564 

 

$             (59,423)

 

$             (48,553)

 

$               (4,664)

 

$               45,653 

 

$             (59,423)

 

 

Supplemental Condensed Consolidating Statements of Cash Flows

For the Six Months Ended June 30, 2014

(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)

 

$               14,750 

 

$               20,754 

 

$                      - 

 

$               35,091 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

 

 

 

Subscriber contract costs

 -

 

 -

 

(157,770)

 

(16,797)

 

 -

 

(174,567)

Capital expenditures

 -

 

 -

 

(11,869)

 

(188)

 

 -

 

(12,057)

Investment in subsidiary

 -

 

(177,897)

 

 -

 

 -

 

177,897 

 

 -

Acquisition of intangible assets

 -

 

 -

 

(6,127)

 

 -

 

 -

 

(6,127)

Net cash used in acquisition

 -

 

 -

 

(3,500)

 

 -

 

 -

 

(3,500)

Investment in marketable securities

 -

 

(60,000)

 

 -

 

 -

 

 -

 

(60,000)

Investment in convertible note

 -

 

 -

 

(3,000)

 

 -

 

 -

 

(3,000)

Other assets

 -

 

 -

 

(40)

 

 

 

 

(35)

Net cash used in investing

activities

 -

 

(237,897)

 

(182,306)

 

(16,980)

 

177,897 

 

(259,286)

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 

Change in restricted cash

 -

 

 -

 

161 

 

 -

 

 -

 

161 

Repayments of capital lease

obligations

 -

 

 -

 

(3,056)

 

(1)

 

 -

 

(3,057)

Deferred financing costs

 -

 

(572)

 

 -

 

 -

 

 -

 

(572)

Net cash (used in) provided by financing activities

 -

 

(572)

 

166,294 

 

10,968 

 

(177,897)

 

(1,207)

 

 

 

 

 

 

 

 

 

 

 

 

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 

 

 

 

Supplemental Condensed Consolidating Statements of Cash Flows

For the Six Months Ended June 30, 2013

(In thousands)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Parent

 

APX Group, Inc.

 

Guarantor
Subsidiaries

 

Non-Guarantor
Subsidiaries

 

Eliminations

 

Consolidated

Cash flows from operating

activities:

 

 

 

 

 

 

 

 

 

 

 

Net cash provided by (used in) operating activities

$                60,000 

 

$                     (38)

 

$                22,606 

 

$                20,505 

 

$              (60,000)

 

$                43,073 

Cash flows from investing

activities:

 

 

 

 

 

 

 

 

 

 

 

Subscriber contract costs

 -

 

 -

 

(142,134)

 

(14,608)

 

 -

 

(156,742)

Capital expenditures

 -

 

 -

 

(3,756)

 

(25)

 

 -

 

(3,781)

Proceeds from the sale of

subsidiary

 -

 

143,262 

 

 -

 

 -

 

 -

 

143,262 

Investment in subsidiary

 -

 

(136,649)

 

 -

 

 -

 

136,649 

 

 -

Proceeds from the sale of

capital assets

 -

 

 -

 

 

 -

 

 -

 

Net cash used in acquisition

 -

 

 -

 

(4,272)

 

 -

 

 -

 

(4,272)

Other assets

 -

 

 -

 

(5,660)

 

 -

 

 -

 

(5,660)

Net cash provided by (used in) investing

activities

 -

 

6,613 

 

(155,813)

 

(14,633)

 

136,649 

 

(27,184)

Cash flows from financing

activities:

 

 

 

 

 

 

 

 

 

 

 

Proceeds from note payable

 -

 

203,500 

 

 -

 

 -

 

 -

 

203,500 

Intercompany receivable

 -

 

 -

 

(2,522)

 

 -

 

2,522 

 

 -

Intercompany payable

 -

 

 -

 

136,649 

 

2,522 

 

(139,171)

 

 -

Repayments of revolving line of credit

 -

 

(50,500)

 

 -

 

 -

 

 -

 

(50,500)

Borrowings from revolving

line of credit

 -

 

22,500 

 

 -

 

 -

 

 -

 

22,500 

Repayments of capital lease obligations

 -

 

 -

 

(3,881)

 

 -

 

 -

 

(3,881)

Deferred financing costs

 

 

(4,749)

 

 -

 

 -

 

 -

 

(4,749)

Payment of dividends

(60,000)

 

(60,000)

 

 -

 

 -

 

60,000 

 

(60,000)

Net cash (used in) provided by financing activities

(60,000)

 

110,751 

 

130,246 

 

2,522 

 

(76,649)

 

106,870 

 

 

 

 

 

 

 

 

 

 

 

 

Effect of exchange rate changes on cash

 -

 

 -

 

 -

 

(19)

 

 -

 

(19)

Net increase in cash

 -

 

117,326 

 

(2,961)

 

8,375 

 

 -

 

122,740 

Cash:

 

 

 

 

 

 

 

 

 

 

 

Beginning of period

 -

 

399 

 

4,188 

 

3503 

 

 -

 

8,090 

End of period

$                         - 

 

$              117,725 

 

$                  1,227 

 

$                11,878 

 

$                         - 

 

$              130,830 

 

Subsequent Event
Subsequent Event

 

 

NOTE 18 – SUBSEQUENT EVENT

On July 1, 2014, APX Group, Inc. issued an additional $100.0 million of 2020 notes. In connection with the issuance, Blackstone Advisory Partners L.P. participated as one of the initial purchasers of the 2020 notes and received approximately $0.1 million in fees at the time of closing.

In connection with the issuance of the notes, the Company entered into an Exchange and Registration Rights Agreement, dated July 1, 2014, with the original purchasers of the notes.

 

 

 

Basis of Presentation and Significant Accounting Policies (Policies)

Basis of Presentation –The unaudited condensed consolidated financial statements of the Company are presented for APX Group Holdings, Inc. and its wholly-owned subsidiaries. On April 1, 2013, the Company completed the sale of 2GIG Technologies, Inc. (“2GIG”) and its subsidiary to Nortek, Inc. (the “2GIG Sale”). Therefore, its results of operations are excluded following the sale and the results of operations prior to and subsequent to the 2GIG Sale are not necessarily comparable.

Revenue Recognition—The Company recognizes revenue principally on three types of transactions: (i) monitoring, which includes revenues for monitoring and other automation services of the Company’s subscriber contracts and certain subscriber contracts that have been sold, (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, and (iii) activation fees on the Company’s contracts, which are amortized over the expected life of the customer.

Monitoring services 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. Revenue from monitoring contracts that have been sold is recognized monthly as services are provided based on rates negotiated as part of the contract sales. Costs of providing ongoing monitoring 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 are generally charged to a customer when a new account is opened. This revenue is deferred and recognized using a 150% declining balance method over 12 years and converts to a straight-line methodology when the resulting revenue recognition is greater than that from the accelerated method for the remaining estimated life.

Through the date of the 2GIG Sale, service and other sales revenue included net recurring services revenue, which was based on back-end services, provided by Alarm.com, for all panels sold to distributors and direct-sell dealers and subsequently placed in service at end-user locations. The Company received a fixed monthly amount from Alarm.com for each system installed with non-Vivint customers that used the Alarm.com platform.

Revenue from the sale of subscriber contracts is recognized when ownership of the contracts has transferred to the purchaser. Any unamortized deferred revenue and costs related to contract sales are recognized at the time of the sale.

Subscriber Contract 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 using a 150% declining balance method over 12 years and converts to a straight-line methodology when the resulting amortization charge is greater than that from the accelerated method for the remaining estimated life. 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.

Short-term Investments—Other—Short-term investments—other consists of a certificate of deposit with a remaining maturity when purchased of twelve 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, 2014 and December 31, 2013, 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 $4.5 million and $1.9 million at June 30, 2014 and December 31, 2013, respectively. The Company estimates this allowance based on historical collection rates, subscriber attrition rates, and contractual obligations underlying the sale of the subscriber contracts to third parties. 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, 2014 and December 31, 2013, 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

 

Six Months Ended

 

June 30,

 

June 30,

 

2014

 

2013

 

2014

 

2013

 

 

 

 

 

 

 

 

Beginning balance

$
1,637 

 

$                  1,939 

 

$
1,901 

 

$                  2,301 

Provision for doubtful accounts

4,760 

 

3,023 

 

7,259 

 

5,439 

Write-offs and adjustments

(1,896)

 

(2,337)

 

(4,659)

 

(5,115)

Balance at end of period

$                  4,501

 

$                  2,625 

 

$                  4,501 

 

$                  2,625 

 

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. The allowance for excess and obsolete inventory was $9.1 million and $3.2 million as of June 30, 2014 and December 31, 2013, respectively.

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, 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. Amortization expense associated with leased assets is included with depreciation expense. Routine repairs and maintenance are charged to expense as incurred. 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. 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.

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. 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, 2014 and December 31, 2013 were $55.0 million and $59.4 million, net of accumulated amortization of $14.9 million and $9.9 million, respectively. Amortization expense on deferred financing costs recognized and included in interest expense in the accompanying unaudited condensed consolidated statements of operations, totaled $2.5 million and $2.1 million for the three months ended June 30, 2014 and 2013, respectively and $5.0 million and $4.2 million for the six months ended June 30, 2014 and 2013, 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 other 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 $0.3 million as of both June 30, 2014 and December 31, 2013, and the amount included in other long-term obligations was $2.4 million at both June 30, 2014 and December 31, 2013, 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 12).

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.

Liability—Contracts Sold—On March 31, 2014, the Company received approximately $2.3 million in proceeds from the sale of certain subscriber contracts to a third-party. Concurrently, the Company entered into an agreement with the buyer to continue providing billing, monitoring and support services for the contracts that were sold for a period of ten years. As a result of this continuing involvement on the part of the Company in the servicing of the contracts, accounting guidance precluded gain recognition at the time of the sale. Accordingly, the Company has treated this transaction as a secured borrowing and recorded a liability for the proceeds received at the time of the sale. The amount included in accrued expenses and other current liabilities related to this liability was $0.3 million and the amount included in contracts sold, net of current portion was $1.8 million as of June 30, 2014. These amounts are being amortized using the effective interest method over twelve years, the expected term of these subscriber contracts.

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, 2014, approximately 80% of the Company’s installed panels were 2GIG Go!Control panels. On April 1, 2013, the Company completed 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, 2014 and the fiscal year 2013.

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 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.

Foreign Currency Translation and Other Comprehensive Income—The functional currencies of Vivint Canada, Inc. and Vivint New Zealand, Ltd. are the Canadian dollar and the New Zealand dollar, 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, 2014 and December 31, 2013, the Company had $3.0 million and $2.2 million, respectively, of letters of credit issued in the ordinary course of business, all of which are unused.

New Accounting Pronouncement—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 our consolidated financial statements.

In February 2013, the FASB issued authoritative guidance which expands the disclosure requirements for amounts reclassified out of accumulated other comprehensive income (“AOCI”). The guidance requires an entity to provide information about the amounts reclassified out of AOCI by component and present, either on the face of the income statement or in the notes to financial statements, significant amounts reclassified out of AOCI by the respective line items of net income but only if the amount reclassified is required under GAAP to be reclassified to net income in its entirety in the same reporting period. For other amounts, an entity is required to cross-reference to other disclosures required under GAAP that provide additional detail about those amounts. This guidance does not change the current requirements for reporting net income or OCI in financial statements. The guidance became effective for us in the first quarter of fiscal year 2014. The adoption of this guidance did not have a material impact on our financial position, results of operations or cash flows.

In July 2013, the FASB issued authoritative guidance which amends the guidance related to the presentation of unrecognized tax benefits and allows for the reduction of a deferred tax asset for a net operating loss carryforward whenever the net operating loss carryforward or tax credit carryforward would be available to reduce the additional taxable income or tax due if the tax position is disallowed. This guidance became effective for us for annual and interim periods beginning in fiscal year 2014. The adoption of this guidance did not have a material impact on our financial position, results of operations or cash flows.

Basis of Presentation and Significant Accounting Policies (Tables)
Changes in Company's Allowance for Accounts Receivable

The changes in the Company’s allowance for accounts receivable were as follows for the periods ended (in thousands):

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

June 30,

 

June 30,

 

2014

 

2013

 

2014

 

2013

 

 

 

 

 

 

 

 

Beginning balance

$
1,637 

 

$                  1,939 

 

$
1,901 

 

$                  2,301 

Provision for doubtful accounts

4,760 

 

3,023 

 

7,259 

 

5,439 

Write-offs and adjustments

(1,896)

 

(2,337)

 

(4,659)

 

(5,115)

Balance at end of period

$                  4,501

 

$                  2,625 

 

$                  4,501 

 

$                  2,625 

 

Business Combinations (Tables) (Wildfire Acquisition [Member])
Summary of Estimated Fair Value of Assets Acquired and Liabilities Assumed

 

The following table summarizes the estimated fair value of the assets acquired and liabilities assumed at the time of acquisition (in thousands):

 

 

 

 

 

 

Net assets acquired from Wildfire

$                       96 

Intangible assets (See Note 9)

2,900 

Goodwill

504 

Total cash consideration

3,500 

 

 

Estimated net working capital adjustment

(61)

Total fair value of the assets acquired and liabilities assumed

$                 3,439 

 

Divestiture of Subsidiary (Tables)
Summary of Net Gain Recognized in Connection with Divestiture

The following table summarizes the net gain recognized in connection with this divestiture (in thousands):

 

 

 

Adjusted net sale price

$
148,378 

2GIG assets (including cash of $3,383), net of liabilities

(108,797)

2.0 technology, net of amortization

16,903 

Other

(9,841)

Net gain on divestiture

$
46,643 

 

Long-Term Debt (Tables)
Summary of Outstanding Debt

The Company’s outstanding debt at June 30, 2014 had maturity dates of 2019 and beyond and consisted of the following (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding
Principal

 

Unamortized
Premium

 

Net Carrying
Amount

Revolving credit facility

$                        - 

 

$                        - 

 

$                         - 

6.375% Senior Secured Notes due 2019

925,000 

 

 -

 

925,000 

8.75% Senior Notes due 2020

830,000 

 

6,636 

 

836,636 

Total Notes payable

$          1,755,000 

 

$                 6,636 

 

$          1,761,636 

 

The Company’s outstanding debt at December 31, 2013 consisted of the following (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding
Principal

 

Unamortized
Premium

 

Net Carrying
Amount

Revolving credit facility

$                        - 

 

$                        - 

 

$                        - 

6.375% Senior Secured Notes due 2019

925,000 

 

 -

 

925,000 

8.75% Senior Notes due 2020

830,000 

 

7,049 

 

837,049 

Total Notes payable

$          1,755,000 

 

$                 7,049 

 

$          1,762,049 

 

Balance Sheet Components (Tables)
Schedule of Balance Sheet Component Balances

The following table presents balance sheet component balances (in thousands):

 

 

 

 

 

 

 

 

 

 

 

June 30,
2014

 

December 31,
2013

Subscriber contract costs

 

 

 

Subscriber contract costs

$
485,696 

 

$              310,666 

Accumulated amortization

(45,637)

 

(22,350)

Subscriber contract costs, net

$              440,059 

 

$              288,316 

 

 

 

 

Long-term investments and other assets

 

 

 

Notes receivable from related parties, net of allowance (See Note 4)

$
22,233 

 

$                21,323 

Security deposit receivable

6,947 

 

6,261 

Other

3,333 

 

92 

Total long-term investments and other assets, net

$                32,513 

 

$                27,676 

 

 

 

 

Accrued payroll and commissions

 

 

 

Accrued payroll

$
17,055 

 

$                15,475 

Accrued commissions

66,184 

 

30,532 

Total accrued payroll and commissions

$                83,239 

 

$                46,007 

 

 

 

 

Accrued expenses and other current liabilities

 

 

 

Accrued interest payable

$
10,972 

 

$                10,982 

Loss contingencies

8,463 

 

9,263 

Other

13,974 

 

12,873 

Total accrued expenses and other current liabilities

$                33,409 

 

$                33,118 

 

Property and Equipment (Tables)
Components of Property and Equipment

Property and equipment consisted of the following (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30,
2014

 

December 31,
2013

 

Estimated
Useful Lives

Vehicles

$
17,140 

 

$                13,851 

 

3 - 5 years

Computer equipment and software

14,658 

 

6,742 

 

3 - 5 years

Leasehold improvements

11,096 

 

13,345 

 

2 - 15 years

Office furniture, fixtures and equipment

7,316 

 

6,472 

 

7 years

Warehouse equipment

133 

 

123 

 

7 years

Buildings

702 

 

702 

 

39 years

Construction in process

6,174 

 

3,119 

 

 

 

57,219 

 

44,354 

 

 

 

 

 

 

 

 

Accumulated depreciation and amortization

(12,378)

 

(8,536)

 

 

Net property and equipment

$                44,841 

 

$                35,818 

 

 

 

Intangible Assets (Tables)

The following table presents intangible asset balances (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30,
2014

 

December 31,
2013

 

Estimated
Useful Lives

Definite-lived intangible assets:

 

 

 

 

 

Customer contracts

$
986,159 

 

$              984,403 

 

10 years

2.0 technology

17,000 

 

17,000 

 

8 years

Smartrove technology

4,040 

 

4,040 

 

3 years

Skypanel technology

3,813 

 

3,814 

 

3 years

Patents

5,964 

 

 -

 

5 years

Non-compete agreements

800 

 

 -

 

3 years

Other intellectual property

650 

 

650 

 

2 years

CMS technology

337 

 

2,300 

 

1 year

 

1,018,763 

 

1,012,207 

 

 

Accumulated amortization

(246,323)

 

(171,493)

 

 

Definite-lived intangible assets, net

772,440 

 

840,714 

 

 

 

 

 

 

 

 

Indefinite-lived intangible assets:

 

 

 

 

 

IP addresses

164 

 

 -

 

 

Domain names

59 

 

 -

 

 

Total Indefinite-lived intangible assets

223 

 

 -

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total intangible assets, net

$              772,663 

 

$              840,714 

 

 

 

 

 

Estimated future amortization expense of intangible assets, excluding patents currently in process, is as follows as of June 30, 2014 (in thousands):

 

 

 

 

 

 

2014 - remaining period

$                75,983 

2015

135,222 

2016

116,984 

2017

100,670 

2018

88,961 

Thereafter

254,446 

 

 

Future amortization associated with patents currently in process

174 

 

 

Total estimated amortization expense

$              772,440 

 

Fair Value Measurements (Tables)
Financial Instruments at Fair Value Based on Valuation Approach Applied to Each Class of Security

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, 2014 and December 31, 2013 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value Measurement at Reporting Date Using

 

Balance at
June 30,
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

$
10,009 

 

$
10,009 

 

$                          -

 

$                         -

Short-term investments—other:

 

 

 

 

 

 

 

Certificate of deposit

60,058 

 

 -

 

60,058 

 

 -

Restricted cash equivalents:

 

 

 

 

 

 

 

Money market funds

14,214 

 

14,214 

 

 -

 

 -

Restricted cash equivalents, net of current portion:

 

 

 

 

 

 

 

Money market funds

14,214 

 

14,214 

 

 -

 

 -

Long-term investments and other assets, net

 

 

 

 

 

 

 

Convertible note

3,000 

 

 -

 

 -

 

3,000 

Total assets

$              101,495 

 

$                38,437 

 

$                60,058 

 

$                  3,000 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value Measurement at Reporting Date Using

 

Balance at
December 31,
2013

 

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

$                10,002 

 

$                10,002 

 

$                         - 

 

$                         - 

Restricted cash equivalents:

 

 

 

 

 

 

 

Money market funds

14,214 

 

14,214 

 

 -

 

 -

Restricted cash equivalents, net of current portion:

 

 

 

 

 

 

 

Money market funds

14,214 

 

14,214 

 

 -

 

 -

Total assets

$                38,430 

 

$                38,430 

 

$                         - 

 

$                         - 

 

Stock-Based Compensation (Tables)
Stock-Based Compensation Expense

Stock-based compensation expense in connection with stock awards is presented by entity as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

2014

 

2013

 

2014

 

2013

 

 

 

 

 

 

 

 

Operating expenses

$
21 

 

$                        -

 

$
30 

 

$                        -

Selling expenses

36 

 

 -

 

104 

 

 -

General and administrative expenses

401 

 

445 

 

769 

 

673 

Total stock-based compensation

$                    458 

 

$                    445 

 

$                    903 

 

$                    673 

 

Segment Reporting (Tables)
Summary of Revenue, Costs and Expenses and Assets

The following table presents a summary of revenue, costs and expenses for the six months ended June 30, 2013 and assets as of June 30, 2013 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Vivint

 

2GIG

 

Eliminations

 

Consolidated
Total

Revenues

$              221,187 

 

$                60,220 

 

$              (42,713)

 

$              238,694 

All other costs and expenses

251,129 

 

52,200 

 

(32,914)

 

270,415 

(Loss) income from operations

$              (29,942)

 

$                  8,020 

 

$                (9,799)

 

$              (31,721)

Intangible assets, including goodwill

$           1,754,104 

 

$                         - 

 

$                         - 

 

$           1,754,104 

Total assets

$           2,260,977 

 

$                         - 

 

$                         - 

 

$           2,260,977 

 

Guarantor and Non-Guarantor Supplemental Financial Information (Tables)

Supplemental Condensed Consolidating Balance Sheet

June 30, 2014

(In thousands)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Parent

 

APX Group, Inc.

 

Guarantor
Subsidiaries

 

Non-Guarantor
Subsidiaries

 

Eliminations

 

Consolidated

Assets

 

 

 

 

 

 

 

 

 

 

 

Current assets

$                      -

 

$
70,084 

 

$
171,666 

 

$
24,598 

 

$
(37,667)

 

$
228,681 

Property and equipment, net

 -

 

 -

 

44,149 

 

692 

 

 -

 

44,841 

Subscriber acquisition costs, net

 -

 

 -

 

398,635 

 

41,424 

 

 -

 

440,059 

Deferred financing costs, net

 -

 

54,952 

 

 -

 

 -

 

 -

 

54,952 

Investment in subsidiaries

377,700 

 

2,025,166 

 

 -

 

 -

 

(2,402,866)

 

 -

Intercompany receivable

 -

 

 -

 

55,627 

 

 -

 

(55,627)

 

 -

Intangible assets, net

 -

 

 -

 

703,245 

 

69,418 

 

 -

 

772,663 

Goodwill

 -

 

 -

 

804,545 

 

32,157 

 

 -

 

836,702 

Restricted cash

 -

 

 -

 

14,214 

 

 -

 

 -

 

14,214 

Long-term investments and other assets

 -

 

 -

 

32,494 

 

19 

 

 -

 

32,513 

Total Assets

$         377,700 

 

$        2,150,202 

 

$           2,224,575

 

$              168,308 

 

$         (2,496,160)

 

$           2,424,625 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

 

 

 

Current liabilities

$                     -

 

$
10,972 

 

$
213,513 

 

$
47,681 

 

$
(37,667)

 

$
234,499 

Intercompany payable

 -

 

 -

 

 -

 

55,627 

 

(55,627)

 

 -

Notes payable and revolving line of credit, net of current portion

 -

 

1,761,636 

 

 -

 

 -

 

 -

 

1,761,636 

Liability-contracts sold, net of current portion

 -

 

 -

 

1,824 

 

 -

 

 -

 

1,824 

Capital lease obligations, net of current portion

 -

 

 -

 

7,857 

 

12 

 

 -

 

7,869 

Deferred revenue, net of current portion

 -

 

 -

 

23,634 

 

2,650 

 

 -

 

26,284 

Other long-term obligations

 -

 

 -

 

5,313 

 

365 

 

 -

 

5,678 

Deferred income tax liability

 -

 

(106)

 

242 

 

8,999 

 

 -

 

9,135 

Total equity

377,700 

 

377,700 

 

1,972,192 

 

52,974 

 

(2,402,866)

 

377,700 

Total liabilities and stockholders’ equity

$         377,700 

 

$        2,150,202 

 

$           2,224,575 

 

$              168,308 

 

$         (2,496,160)

 

$           2,424,625 

 

 

 

Supplemental Condensed Consolidating Balance Sheet

December 31, 2013

(In thousands)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Parent

 

APX Group, Inc.

 

Guarantor
Subsidiaries

 

Non-Guarantor
Subsidiaries

 

Eliminations

 

Consolidated

Assets

 

 

 

 

 

 

 

 

 

 

 

Current assets

$                        - 

 

$            249,209 

 

$             89,768 

 

$                7,163 

 

$          (24,137)

 

$            322,003 

Property and equipment, net

 -

 

 -

 

35,218 

 

600 

 

 -

 

35,818 

Subscriber acquisition costs, net

 -

 

 -

 

262,064 

 

26,252 

 

 -

 

288,316 

Deferred financing costs, net

 -

 

59,375 

 

 -

 

 -

 

 -

 

59,375 

Investment in subsidiaries

490,243 

 

1,953,465 

 

 -

 

 -

 

(2,443,708)

 

 -

Intercompany receivable

 -

 

 -

 

44,658 

 

 -

 

(44,658)

 

 -

Intangible assets, net

 -

 

 -

 

764,296 

 

76,418 

 

 -

 

840,714 

Goodwill

 -

 

 -

 

804,041 

 

32,277 

 

 -

 

836,318 

Restricted cash

 -

 

 -

 

14,214 

 

 -

 

 -

 

14,214 

Long-term investments and other assets

 -

 

(302)

 

27,954 

 

24 

 

 -

 

27,676 

Total Assets

$            490,243 

 

$         2,261,747 

 

$         2,042,213 

 

$            142,734 

 

$     (2,512,503)

 

$         2,424,434 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

 

 

 

Current liabilities

$                        - 

 

$                9,561 

 

$            117,544 

 

$               31,254 

 

$          (24,137)

 

$             134,222 

Intercompany payable

 -

 

 -

 

 -

 

44,658 

 

(44,658)

 

 -

 Notes payable and revolving line of credit, net of current portion

 -

 

1,762,049 

 

 -

 

 -

 

 -

 

1,762,049 

 Capital lease obligations, net of current portion

 

 -

 

 -

 

6,268 

 

 -

 

 -

 

6,268 

Deferred revenue, net of current portion

 -

 

 -

 

16,676 

 

1,857 

 

 -

 

18,533 

Other long-term obligations

 -

 

 -

 

3,559 

 

346 

 

 -

 

3,905 

Deferred income tax liability

 -

 

(106)

 

289 

 

9,031 

 

 -

 

9,214 

Total equity

490,243 

 

490,243 

 

1,897,877 

 

55,588 

 

(2,443,708)

 

490,243 

Total liabilities and stockholders’ equity

$            490,243 

 

$         2,261,747 

 

$         2,042,213 

 

$            142,734 

 

$     (2,512,503)

 

$         2,424,434 

 

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 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, 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

 -

 

4,676 

 

2,769 

 

1,908 

 

(4,676)

 

4,677 

Comprehensive loss

$              (66,271)

 

$              (61,595)

 

$              (25,319)

 

$                   (936)

 

$                92,527 

 

$              (61,594)

 

Condensed Consolidating Statements of Operations and Comprehensive Loss

For the Three Months Ended June 30, 2013

(In thousands)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Parent

 

APX Group, Inc.

 

Guarantor
Subsidiaries

 

Non-Guarantor
Subsidiaries

 

Eliminations

 

Consolidated

Revenues

$                        - 

 

$                        - 

 

$             107,797 

 

$                 7,216 

 

$                  (761)

 

$             114,252 

Costs and expenses

 -

 

 -

 

131,100 

 

7,642 

 

(761)

 

137,981 

Loss from operations

 -

 

 -

 

(23,303)

 

(426)

 

 -

 

(23,729)

Loss from subsidiaries

(21,527)

 

(41,002)

 

 -

 

 -

 

62,529 

 

 -

Other expense, net

60,000 

 

19,475 

 

233 

 

(17)

 

(60,000)

 

19,691 

Income (loss) before income tax expenses

38,473 

 

(21,527)

 

(23,070)

 

(443)

 

2,529 

 

(4,038)

Income tax expense (benefit)

 -

 

 -

 

17,569 

 

(80)

 

 -

 

17,489 

Net income (loss)

$               38,473 

 

$             (21,527)

 

$             (40,639)

 

$                  (363)

 

$                 2,529 

 

$             (21,527)

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss), net of tax effects:

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

$               38,473 

 

$             (21,527)

 

$             (40,639)

 

$                  (363)

 

$                 2,529 

 

$             (21,527)

Foreign currency translation adjustment

 -

 

(4,368)

 

(2,367)

 

(2,001)

 

4,368 

 

(4,368)

Total other comprehensive loss

 -

 

(4,368)

 

(2,367)

 

(2,001)

 

4,368 

 

(4,368)

Comprehensive income (loss)

$               38,473 

 

$             (25,895)

 

$             (43,006)

 

$               (2,364)

 

$                 6,897 

 

$             (25,895)

 

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) income, 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) loss

 -

 

105 

 

345 

 

(240)

 

(105)

 

105 

Comprehensive loss

$            (113,551)

 

$            (113,446)

 

$              (40,227)

 

$                (2,613)

 

$              156,391 

 

$            (113,446)

Condensed Consolidating Statements of Operations and Comprehensive Loss

For the Six Months Ended June 30, 2013

(In thousands)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Parent

 

APX Group, Inc.

 

Guarantor
Subsidiaries

 

Non-Guarantor
Subsidiaries

 

Eliminations

 

Consolidated

Revenues

$                        - 

 

$                        - 

 

$             227,328 

 

$               12,885 

 

$               (1,519)

 

$             238,694 

Costs and expenses

 -

 

 -

 

257,203 

 

14,731 

 

(1,519)

 

270,415 

Loss from operations

 -

 

 -

 

(29,875)

 

(1,846)

 

 -

 

(31,721)

Loss from subsidiaries

(52,436)

 

(46,230)

 

 -

 

 -

 

98,666 

 

 -

Other expense, net

60,000 

 

(6,206)

 

(23)

 

(23)

 

(60,000)

 

(6,252)

Income (loss) before income tax expenses

7,564 

 

(52,436)

 

(29,898)

 

(1,869)

 

38,666 

 

(37,973)

Income tax expense (benefit)

 -

 

 -

 

14,933 

 

(470)

 

 -

 

14,463 

Net income (loss )

$                 7,564 

 

$             (52,436)

 

$             (44,831)

 

$               (1,399)

 

$               38,666 

 

$             (52,436)

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss), net of tax effects:

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

$                 7,564 

 

$             (52,436)

 

$             (44,831)

 

$               (1,399)

 

$               38,666 

 

$             (52,436)

Foreign currency translation adjustment

 -

 

(6,987)

 

(3,722)

 

(3,265)

 

6,987 

 

(6,987)

Total other comprehensive loss

 -

 

(6,987)

 

(3,722)

 

(3,265)

 

6,987 

 

(6,987)

Comprehensive income (loss)

$                 7,564 

 

$             (59,423)

 

$             (48,553)

 

$               (4,664)

 

$               45,653 

 

$             (59,423)

 

Supplemental Condensed Consolidating Statements of Cash Flows

For the Six Months Ended June 30, 2014

(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)

 

$               14,750 

 

$               20,754 

 

$                      - 

 

$               35,091 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

 

 

 

Subscriber contract costs

 -

 

 -

 

(157,770)

 

(16,797)

 

 -

 

(174,567)

Capital expenditures

 -

 

 -

 

(11,869)

 

(188)

 

 -

 

(12,057)

Investment in subsidiary

 -

 

(177,897)

 

 -

 

 -

 

177,897 

 

 -

Acquisition of intangible assets

 -

 

 -

 

(6,127)

 

 -

 

 -

 

(6,127)

Net cash used in acquisition

 -

 

 -

 

(3,500)

 

 -

 

 -

 

(3,500)

Investment in marketable securities

 -

 

(60,000)

 

 -

 

 -

 

 -

 

(60,000)

Investment in convertible note

 -

 

 -

 

(3,000)

 

 -

 

 -

 

(3,000)

Other assets

 -

 

 -

 

(40)

 

 

 

 

(35)

Net cash used in investing

activities

 -

 

(237,897)

 

(182,306)

 

(16,980)

 

177,897 

 

(259,286)

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 

Change in restricted cash

 -

 

 -

 

161 

 

 -

 

 -

 

161 

Repayments of capital lease

obligations

 -

 

 -

 

(3,056)

 

(1)

 

 -

 

(3,057)

Deferred financing costs

 -

 

(572)

 

 -

 

 -

 

 -

 

(572)

Net cash (used in) provided by financing activities

 -

 

(572)

 

166,294 

 

10,968 

 

(177,897)

 

(1,207)

 

 

 

 

 

 

 

 

 

 

 

 

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 

 

 

 

Supplemental Condensed Consolidating Statements of Cash Flows

For the Six Months Ended June 30, 2013

(In thousands)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Parent

 

APX Group, Inc.

 

Guarantor
Subsidiaries

 

Non-Guarantor
Subsidiaries

 

Eliminations

 

Consolidated

Cash flows from operating

activities:

 

 

 

 

 

 

 

 

 

 

 

Net cash provided by (used in) operating activities

$                60,000 

 

$                     (38)

 

$                22,606 

 

$                20,505 

 

$              (60,000)

 

$                43,073 

Cash flows from investing

activities:

 

 

 

 

 

 

 

 

 

 

 

Subscriber contract costs

 -

 

 -

 

(142,134)

 

(14,608)

 

 -

 

(156,742)

Capital expenditures

 -

 

 -

 

(3,756)

 

(25)

 

 -

 

(3,781)

Proceeds from the sale of

subsidiary

 -

 

143,262 

 

 -

 

 -

 

 -

 

143,262 

Investment in subsidiary

 -

 

(136,649)

 

 -

 

 -

 

136,649 

 

 -

Proceeds from the sale of

capital assets

 -

 

 -

 

 

 -

 

 -

 

Net cash used in acquisition

 -

 

 -

 

(4,272)

 

 -

 

 -

 

(4,272)

Other assets

 -

 

 -

 

(5,660)

 

 -

 

 -

 

(5,660)

Net cash provided by (used in) investing

activities

 -

 

6,613 

 

(155,813)

 

(14,633)

 

136,649 

 

(27,184)

Cash flows from financing

activities:

 

 

 

 

 

 

 

 

 

 

 

Proceeds from note payable

 -

 

203,500 

 

 -

 

 -

 

 -

 

203,500 

Intercompany receivable

 -

 

 -

 

(2,522)

 

 -

 

2,522 

 

 -

Intercompany payable

 -

 

 -

 

136,649 

 

2,522 

 

(139,171)

 

 -

Repayments of revolving line of credit

 -

 

(50,500)

 

 -

 

 -

 

 -

 

(50,500)

Borrowings from revolving

line of credit

 -

 

22,500 

 

 -

 

 -

 

 -

 

22,500 

Repayments of capital lease obligations

 -

 

 -

 

(3,881)

 

 -

 

 -

 

(3,881)

Deferred financing costs

 

 

(4,749)

 

 -

 

 -

 

 -

 

(4,749)

Payment of dividends

(60,000)

 

(60,000)

 

 -

 

 -

 

60,000 

 

(60,000)

Net cash (used in) provided by financing activities

(60,000)

 

110,751 

 

130,246 

 

2,522 

 

(76,649)

 

106,870 

 

 

 

 

 

 

 

 

 

 

 

 

Effect of exchange rate changes on cash

 -

 

 -

 

 -

 

(19)

 

 -

 

(19)

Net increase in cash

 -

 

117,326 

 

(2,961)

 

8,375 

 

 -

 

122,740 

Cash:

 

 

 

 

 

 

 

 

 

 

 

Beginning of period

 -

 

399 

 

4,188 

 

3503 

 

 -

 

8,090 

End of period

$                         - 

 

$              117,725 

 

$                  1,227 

 

$                11,878 

 

$                         - 

 

$              130,830 

 

Basis of Presentation and Significant Accounting Policies (Narrative) (Details) (USD $)
3 Months Ended 6 Months Ended 0 Months Ended 6 Months Ended
Jun. 30, 2014
Mar. 31, 2014
Jun. 30, 2013
Jun. 30, 2014
Jun. 30, 2013
Dec. 31, 2013
Mar. 31, 2013
Dec. 31, 2012
Apr. 2, 2014
2GIG [Member]
Jun. 30, 2014
2GIG [Member]
Jun. 30, 2014
Minimum [Member]
Jun. 30, 2014
Maximum [Member]
Basis Of Presentation And Significant Accounting Policies [Line Items]
 
 
 
 
 
 
 
 
 
 
 
 
Deferred revenue recognition, declining balance method percentage
 
 
 
150.00% 
 
 
 
 
 
 
 
 
Deferred revenue recognition, declining balance method period
 
 
 
12 years 
 
 
 
 
 
 
 
 
Amortization percentage on subscriber contract costs
 
 
 
150.00% 
 
 
 
 
 
 
 
 
Amortization duration of declining balance method
 
 
 
12 years 
 
 
 
 
 
 
 
 
Allowance for doubtful accounts
$ 4,501,000 
$ 1,637,000 
$ 2,625,000 
$ 4,501,000 
$ 2,625,000 
$ 1,901,000 
$ 1,939,000 
$ 2,301,000 
 
 
 
 
Accounts receivable classified as held for sale
 
 
 
 
 
 
 
 
 
Allowance for excess and obsolete inventory
9,100,000 
 
 
9,100,000 
 
3,200,000 
 
 
 
 
 
 
Estimated useful life of intangible assets
 
 
 
 
 
 
 
 
 
 
2 years 
10 years 
Deferred financing costs, net
55,000,000 
 
 
55,000,000 
 
59,400,000 
 
 
 
 
 
 
Deferred financing costs, accumulated amortization
14,900,000 
 
 
14,900,000 
 
9,900,000 
 
 
 
 
 
 
Amortization expenses included in interest expense
2,500,000 
 
2,100,000 
4,581,000 
4,233,000 
 
 
 
 
 
 
 
Sales commission included in accrued expenses and other liabilities
300,000 
 
 
300,000 
 
300,000 
 
 
 
 
 
 
Other long-term obligations
2,400,000 
 
 
2,400,000 
 
2,400,000 
 
 
 
 
 
 
Proceeds from sale of contracts
 
2,300,000 
 
 
 
 
 
 
 
 
 
 
Agreement with buyer to provide services for the contracts sold, period
 
10 years 
 
 
 
 
 
 
 
 
 
 
Amortization period of liability - contracts sold
 
 
 
12 years 
 
 
 
 
 
 
 
 
Liability-contracts sold, current
300,000 
 
 
300,000 
 
 
 
 
 
 
 
 
Liability-contracts sold, net of current portion
1,824,000 
 
 
1,824,000 
 
 
 
 
 
 
 
 
Percentage of installed panels
 
 
 
 
 
 
 
 
 
80.00% 
 
 
Supply agreement period
 
 
 
 
 
 
 
 
5 years 
 
 
 
Issued and unused letters of credit
$ 3,000,000 
 
 
$ 3,000,000 
 
$ 2,200,000 
 
 
 
 
 
 
Basis of Presentation and Significant Accounting Policies (Changes in Company's Allowance for Accounts Receivable) (Details) (USD $)
In Thousands, unless otherwise specified
3 Months Ended 6 Months Ended
Jun. 30, 2014
Jun. 30, 2013
Jun. 30, 2014
Jun. 30, 2013
Basis of Presentation and Significant Accounting Policies [Abstract]
 
 
 
 
Beginning balance
$ 1,637 
$ 1,939 
$ 1,901 
$ 2,301 
Provision for doubtful accounts
4,760 
3,023 
7,259 
5,439 
Write-offs and adjustments
(1,896)
(2,337)
(4,659)
(5,115)
Balance at end of period
$ 4,501 
$ 2,625 
$ 4,501 
$ 2,625 
Business Combinations (Narrative) (Details) (Subsidiaries [Member], Wildfire Acquisition [Member], USD $)
6 Months Ended
Jun. 30, 2014
Jan. 31, 2014
Subsidiaries [Member] |
Wildfire Acquisition [Member]
 
 
Business Acquisition [Line Items]
 
 
Date of acquisition
Jan. 31, 2014 
 
Aggregate cash consideration
 
$ 3,439,000 
Escrow for indemnification obligations
$ 400,000 
 
Business Combinations (Summary of Estimated Fair Value of Assets Acquired and Liabilities Assumed) (Details) (USD $)
In Thousands, unless otherwise specified
Jun. 30, 2014
Dec. 31, 2013
Jan. 31, 2014
Subsidiaries [Member]
Wildfire Acquisition [Member]
Business Acquisition [Line Items]
 
 
 
Net assets acquired from Wildfire
 
 
$ 96 
Intangible assets (See Note 9)
 
 
2,900 
Goodwill
836,702 
836,318 
504 
Total cash consideration
 
 
3,500 
Estimated net working capital adjustment
 
 
(61)
Total fair value of the assets acquired and liabilities assumed
 
 
$ 3,439 
Divestiture of Subsidiary (Narrative) (Details) (USD $)
0 Months Ended 3 Months Ended 6 Months Ended 0 Months Ended 1 Months Ended
Apr. 2, 2013
Mar. 31, 2013
Jun. 30, 2013
Apr. 2, 2013
Revolving Credit Facility [Member]
May 31, 2013
2GIG [Member]
Proceeds from divestiture of businesses
 
$ 148,378,000 
 
 
 
Supply agreement duration
5 years 
 
 
 
 
Repayments of Lines of Credit
 
 
50,500,000 
44,000,000 
 
Distribution of dividend from proceeds to stockholders
 
 
 
 
$ 60,000,000 
Divestiture of Subsidiary (Summary of Net Gain in Connection with Divestiture) (Details) (USD $)
In Thousands, unless otherwise specified
3 Months Ended
Mar. 31, 2013
Jun. 30, 2014
Dec. 31, 2013
Adjusted net sale price
$ 148,378 
 
 
2.0 technology, net of amortization
 
772,440 
840,714 
Other
(9,841)
 
 
Net gain on divestiture
46,643 
 
 
2.0 Technology [Member]
 
 
 
2.0 technology, net of amortization
16,903 
 
 
2GIG [Member]
 
 
 
2GIG assets (including cash of $3,383), net of liabilities
(108,797)
 
 
Cash
$ 3,383 
 
 
Variable Interest Entity (Narrative) (Details) (USD $)
3 Months Ended 6 Months Ended 0 Months Ended 3 Months Ended 6 Months Ended 12 Months Ended
Mar. 31, 2013
Jun. 30, 2014
Jun. 30, 2013
Dec. 27, 2012
Solar [Member]
Nov. 16, 2012
Solar [Member]
Jun. 30, 2014
Solar [Member]
Jun. 30, 2013
Solar [Member]
Jun. 30, 2014
Solar [Member]
Jun. 30, 2013
Solar [Member]
Dec. 31, 2013
Solar [Member]
Variable Interest Entities [Line Items]
 
 
 
 
 
 
 
 
 
 
Proceeds from divestiture of businesses
$ 148,378,000 
 
 
 
$ 75,000,000 
 
 
 
 
 
Sublease and other administrative expenses
 
 
 
 
 
2,500,000 
300,000 
4,100,000 
600,000 
 
Other expenses
 
 
 
 
 
 
 
2,300,000 
 
3,100,000 
Line of credit, financing receivable, maximum borrowing capacity
 
 
 
20,000,000 
 
 
 
 
 
 
Interest on outstanding balance
 
 
 
7.50% 
 
 
 
 
 
 
Notes receivable, related parties, current
 
 
 
 
 
20,000,000 
 
20,000,000 
 
20,000,000 
Payment-in-kind interest
 
910,000 
530,000 
 
 
 
 
2,200,000 
 
1,300,000 
Interest receivable
 
 
 
 
 
$ 200,000 
 
$ 200,000 
 
$ 100,000 
Long-Term Debt (Narrative) (Details) (USD $)
0 Months Ended 1 Months Ended 0 Months Ended 6 Months Ended 0 Months Ended 6 Months Ended 0 Months Ended 6 Months Ended
May 31, 2013
Dec. 31, 2013
Jun. 30, 2014
Nov. 16, 2012
Nov. 16, 2012
Revolving Credit Facility [Member]
Jun. 30, 2014
Revolving Credit Facility [Member]
Dec. 31, 2013
Revolving Credit Facility [Member]
Nov. 16, 2012
6.375% Senior Secured Notes due 2019 [Member]
Jun. 30, 2014
6.375% Senior Secured Notes due 2019 [Member]
Dec. 31, 2013
6.375% Senior Secured Notes due 2019 [Member]
Jun. 30, 2014
6.375% Senior Secured Notes due 2019 [Member]
Revolving Credit Facility [Member]
Dec. 13, 2013
8.75% Senior Notes due 2020 [Member]
May 31, 2013
8.75% Senior Notes due 2020 [Member]
Nov. 16, 2012
8.75% Senior Notes due 2020 [Member]
Jun. 30, 2014
8.75% Senior Notes due 2020 [Member]
Dec. 31, 2013
8.75% Senior Notes due 2020 [Member]
Jun. 30, 2014
8.75% Senior Notes due 2020 [Member]
Revolving Credit Facility [Member]
Debt Instrument [Line Items]
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Senior secured notes issued
 
$ 1,762,049,000 
$ 1,761,636,000 
$ 1,300,000,000 
 
    
    
$ 925,000,000 
$ 925,000,000 
$ 925,000,000 
 
$ 250,000,000 
$ 200,000,000 
$ 380,000,000 
$ 836,636,000 
$ 837,049,000 
 
Debt instrument interest rate
 
 
 
 
 
 
 
6.375% 
 
 
6.375% 
 
 
8.75% 
 
 
8.75% 
Debt instrument maturity year
 
 
 
 
 
 
 
Dec. 01, 2019 
 
 
Dec. 01, 2019 
 
Dec. 01, 2020 
Dec. 01, 2020 
 
 
Dec. 01, 2020 
Debt instrument, redemption price, percentage
 
 
 
 
 
 
 
 
 
 
 
101.50% 
101.75% 
 
 
 
 
Debt issuance fees
200,000 
200,000 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Credit facility, interest rate description
 
 
 
 
 
Borrowings bear interest based on the London Interbank Offered Rate ("LIBOR") or, at the Company's option, an alternative base rate, plus spread, based upon the Company's consolidated first lien leverage ratio at the end of each fiscal quarter 
 
 
 
 
 
 
 
 
 
 
 
Credit facility, aggregate principal amount
 
 
 
 
$ 200,000,000 
 
 
 
 
 
 
 
 
 
 
 
 
Credit facility, commitment fee
 
 
 
 
0.50% 
 
 
 
 
 
 
 
 
 
 
 
 
Credit facility, due date
 
 
 
 
Nov. 16, 2017 
 
 
 
 
 
 
 
 
 
 
 
 
Long-Term Debt (Summary of Outstanding Debt) (Details) (USD $)
In Thousands, unless otherwise specified
0 Months Ended 0 Months Ended 6 Months Ended
Jun. 30, 2014
Dec. 31, 2013
Nov. 16, 2012
Nov. 16, 2012
6.375% Senior Secured Notes due 2019 [Member]
Jun. 30, 2014
6.375% Senior Secured Notes due 2019 [Member]
Dec. 31, 2013
6.375% Senior Secured Notes due 2019 [Member]
May 31, 2013
8.75% Senior Notes due 2020 [Member]
Nov. 16, 2012
8.75% Senior Notes due 2020 [Member]
Jun. 30, 2014
8.75% Senior Notes due 2020 [Member]
Dec. 31, 2013
8.75% Senior Notes due 2020 [Member]
Dec. 13, 2013
8.75% Senior Notes due 2020 [Member]
Jun. 30, 2014
Revolving Credit Facility [Member]
Dec. 31, 2013
Revolving Credit Facility [Member]
Jun. 30, 2014
Revolving Credit Facility [Member]
6.375% Senior Secured Notes due 2019 [Member]
Jun. 30, 2014
Revolving Credit Facility [Member]
8.75% Senior Notes due 2020 [Member]
Debt Instrument [Line Items]
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Outstanding principal
$ 1,755,000 
$ 1,755,000 
 
 
$ 925,000 
$ 925,000 
 
 
$ 830,000 
$ 830,000 
 
    
    
 
 
Unamortized Premium
6,636 
7,049 
 
 
 
 
 
 
6,636 
7,049 
 
   
   
 
 
Net Carrying Amount
$ 1,761,636 
$ 1,762,049 
$ 1,300,000 
$ 925,000 
$ 925,000 
$ 925,000 
$ 200,000 
$ 380,000 
$ 836,636 
$ 837,049 
$ 250,000 
    
    
 
 
Debt instrument interest rate
 
 
 
6.375% 
 
 
 
8.75% 
 
 
 
 
 
6.375% 
8.75% 
Debt instrument maturity year
 
 
 
Dec. 01, 2019 
 
 
Dec. 01, 2020 
Dec. 01, 2020 
 
 
 
 
 
Dec. 01, 2019 
Dec. 01, 2020 
Balance Sheet Components (Schedule of Balance Sheet Component Balances) (Details) (USD $)
In Thousands, unless otherwise specified
Jun. 30, 2014
Dec. 31, 2013
Subscriber contract costs
 
 
Subscriber contract costs
$ 485,696 
$ 310,666 
Accumulated amortization
(45,637)
(22,350)
Subscriber contract costs, net
440,059 
288,316 
Long-term investments and other assets
 
 
Notes receivable from related parties, net of allowance (See Note 4)
22,233 
21,323 
Security deposit receivable
6,947 
6,261 
Other
3,333 
92 
Total long-term investments and other assets, net
32,513 
27,676 
Accrued payroll and commissions
 
 
Accrued payroll
17,055 
15,475 
Accrued commissions
66,184 
30,532 
Total accrued payroll and commissions
83,239 
46,007 
Accrued expenses and other current liabilities
 
 
Accrued interest payable
10,972 
10,982 
Loss contingencies
8,463 
9,263 
Other
13,974 
12,873 
Total accrued expenses and other current liabilities
$ 33,409 
$ 33,118 
Property and Equipment (Narrative) (Details) (USD $)
3 Months Ended 6 Months Ended
Jun. 30, 2014
Dec. 31, 2013
Jun. 30, 2014
Assets Under Capital Lease Obligations [Member]
Dec. 31, 2013
Assets Under Capital Lease Obligations [Member]
Jun. 30, 2014
Property and Equipment [Member]
Jun. 30, 2013
Property and Equipment [Member]
Jun. 30, 2014
Property and Equipment [Member]
Jun. 30, 2013
Property and Equipment [Member]
Property, Plant and Equipment [Line Items]
 
 
 
 
 
 
 
 
Property and equipment, gross
$ 57,219,000 
$ 44,354,000 
$ 13,000,000 
$ 13,700,000 
 
 
 
 
Accumulated amortization
12,378,000 
8,536,000 
4,200,000 
2,700,000 
 
 
 
 
Depreciation and amortization expense
 
 
 
 
$ 2,700,000 
$ 2,100,000 
$ 5,200,000 
$ 4,500,000 
Property and Equipment (Components of Property and Equipment) (Details) (USD $)
In Thousands, unless otherwise specified
6 Months Ended 12 Months Ended
Jun. 30, 2014
Dec. 31, 2013
Property, Plant and Equipment [Line Items]
 
 
Property and equipment, gross
$ 57,219 
$ 44,354 
Accumulated depreciation and amortization
(12,378)
(8,536)
Net property and equipment
44,841 
35,818 
Vehicles [Member]
 
 
Property, Plant and Equipment [Line Items]
 
 
Property and equipment, gross
17,140 
13,851 
Vehicles [Member] |
Minimum [Member]
 
 
Property, Plant and Equipment [Line Items]
 
 
Property and Equipment, Estimated Useful Lives
3 years 
3 years 
Vehicles [Member] |
Maximum [Member]
 
 
Property, Plant and Equipment [Line Items]
 
 
Property and Equipment, Estimated Useful Lives
5 years 
5 years 
Computer Equipment and Software [Member]
 
 
Property, Plant and Equipment [Line Items]
 
 
Property and equipment, gross
14,658 
6,742 
Computer Equipment and Software [Member] |
Minimum [Member]
 
 
Property, Plant and Equipment [Line Items]
 
 
Property and Equipment, Estimated Useful Lives
3 years 
3 years 
Computer Equipment and Software [Member] |
Maximum [Member]
 
 
Property, Plant and Equipment [Line Items]
 
 
Property and Equipment, Estimated Useful Lives
5 years 
5 years 
Leasehold Improvements [Member]
 
 
Property, Plant and Equipment [Line Items]
 
 
Property and equipment, gross
11,096 
13,345 
Leasehold Improvements [Member] |
Minimum [Member]
 
 
Property, Plant and Equipment [Line Items]
 
 
Property and Equipment, Estimated Useful Lives
2 years 
2 years 
Leasehold Improvements [Member] |
Maximum [Member]
 
 
Property, Plant and Equipment [Line Items]
 
 
Property and Equipment, Estimated Useful Lives
15 years 
15 years 
Office Furniture, Fixtures and Equipment [Member]
 
 
Property, Plant and Equipment [Line Items]
 
 
Property and equipment, gross
7,316 
6,472 
Property and Equipment, Estimated Useful Lives
7 years 
7 years 
Warehouse Equipment [Member]
 
 
Property, Plant and Equipment [Line Items]
 
 
Property and equipment, gross
133 
123 
Property and Equipment, Estimated Useful Lives
7 years 
7 years 
Buildings [Member]
 
 
Property, Plant and Equipment [Line Items]
 
 
Property and equipment, gross
702 
702 
Property and Equipment, Estimated Useful Lives
39 years 
39 years 
Construction in Process [Member]
 
 
Property, Plant and Equipment [Line Items]
 
 
Property and equipment, gross
$ 6,174 
$ 3,119 
Intangible Assets (Narrative) (Details) (USD $)
3 Months Ended 6 Months Ended 0 Months Ended 6 Months Ended
Jun. 30, 2014
Jun. 30, 2013
Jun. 30, 2014
Jun. 30, 2013
Jun. 30, 2014
Customer Contracts [Member]
Jun. 30, 2013
Customer Contracts [Member]
Jan. 31, 2014
Customer Contracts [Member]
Wildfire Acquisition [Member]
Jan. 31, 2014
Non-Compete Agreements [Member]
Wildfire Acquisition [Member]
Jun. 30, 2014
Patents [Member]
Wildfire Acquisition [Member]
Jun. 30, 2014
CMS Technology [Member]
Mar. 31, 2014
CMS Technology [Member]
Finite-Lived Intangible Assets [Line Items]
 
 
 
 
 
 
 
 
 
 
 
Acquisition of intangible assets
 
 
 
 
 
 
$ 2,100,000 
$ 800,000 
$ 6,200,000 
 
 
Estimated fair value of intangible asset
 
 
 
 
 
 
 
 
 
 
300,000 
Impairment loss of intangible asset
 
 
 
 
 
 
 
 
 
1,400,000 
 
Estimated remaining useful life of intangible asset
 
 
 
 
 
 
 
 
 
1 year 
 
Amortization expense
$ 37,800,000 
$ 40,500,000 
$ 75,300,000 
$ 82,700,000 
$ 23,238,000 
$ 4,866,000 
 
 
 
 
 
Intangible Assets (Schedule of Intangible Asset Balances) (Details) (USD $)
In Thousands, unless otherwise specified
6 Months Ended 12 Months Ended
Jun. 30, 2014
Dec. 31, 2013
Definite-lived intangible assets:
 
 
Definite-lived intangible assets, gross
$ 1,018,763 
$ 1,012,207 
Accumulated amortization
(246,323)
(171,493)
Definite-lived intangible assets, net
772,440 
840,714 
Indefinite-lived intangible assets:
 
 
Indefinite-lived intangible assets
223 
 
Total intangible assets, net
772,663 
840,714 
IP Addresses [Member]
 
 
Indefinite-lived intangible assets:
 
 
Indefinite-lived intangible assets
164 
 
Domain Names [Member]
 
 
Indefinite-lived intangible assets:
 
 
Indefinite-lived intangible assets
59 
 
Customer Contracts [Member]
 
 
Definite-lived intangible assets:
 
 
Definite-lived intangible assets, gross
986,159 
984,403 
Estimated useful lives of intangible asset
10 years 
10 years 
2.0 Technology [Member]
 
 
Definite-lived intangible assets:
 
 
Definite-lived intangible assets, gross
17,000 
17,000 
Estimated useful lives of intangible asset
8 years 
8 years 
Smartrove Technology [Member]
 
 
Definite-lived intangible assets:
 
 
Definite-lived intangible assets, gross
4,040 
4,040 
Estimated useful lives of intangible asset
3 years 
3 years 
Skypanel Technology [Member]
 
 
Definite-lived intangible assets:
 
 
Definite-lived intangible assets, gross
3,813 
3,814 
Estimated useful lives of intangible asset
3 years 
3 years 
Patents [Member]
 
 
Definite-lived intangible assets:
 
 
Definite-lived intangible assets, gross
5,964 
 
Estimated useful lives of intangible asset
5 years 
5 years 
Non-Compete Agreements [Member]
 
 
Definite-lived intangible assets:
 
 
Definite-lived intangible assets, gross
800 
 
Estimated useful lives of intangible asset
3 years 
3 years 
Other Intellectual Property [Member]
 
 
Definite-lived intangible assets:
 
 
Definite-lived intangible assets, gross
650 
650 
Estimated useful lives of intangible asset
2 years 
2 years 
CMS Technology [Member]
 
 
Definite-lived intangible assets:
 
 
Definite-lived intangible assets, gross
$ 337 
$ 2,300 
Estimated useful lives of intangible asset
1 year 
1 year 
Intangible Assets (Schedule of Estimated Future Amortization Expense of Intangible Assets Excluding Patents Currently in Process) (Details) (USD $)
In Thousands, unless otherwise specified
Jun. 30, 2014
Dec. 31, 2013
Intangible Assets [Abstract]
 
 
2014 - remaining period
$ 75,983 
 
2015
135,222 
 
2016
116,984 
 
2017
100,670 
 
2018
88,961 
 
Thereafter
254,446 
 
Future amortization associated with patents currently in process
174 
 
Definite-lived intangible assets, net
$ 772,440 
$ 840,714 
Fair Value Measurements (Narrative) (Details) (USD $)
0 Months Ended 6 Months Ended 0 Months Ended 0 Months Ended 6 Months Ended
Jun. 30, 2014
Dec. 31, 2013
Nov. 16, 2012
Feb. 19, 2014
Convertible Debt Securities [Member]
Jun. 30, 2014
Convertible Debt Securities [Member]
Jun. 30, 2014
Significant Unobservable Inputs (Level 3) [Member]
Convertible Debt Securities [Member]
Nov. 16, 2012
6.375% Senior Secured Notes due 2019 [Member]
Jun. 30, 2014
6.375% Senior Secured Notes due 2019 [Member]
Dec. 31, 2013
6.375% Senior Secured Notes due 2019 [Member]
May 31, 2013
8.75% Senior Notes due 2020 [Member]
Nov. 16, 2012
8.75% Senior Notes due 2020 [Member]
Jun. 30, 2014
8.75% Senior Notes due 2020 [Member]
Dec. 31, 2013
8.75% Senior Notes due 2020 [Member]
Dec. 13, 2013
8.75% Senior Notes due 2020 [Member]
Jun. 30, 2014
Minimum [Member]
Wildfire Acquisition [Member]
Jun. 30, 2014
Maximum [Member]
Wildfire Acquisition [Member]
Fair Value, Estimate Not Practicable, Financial Statement Captions [Line Items]
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Convertible note
 
 
 
$ 3,000,000 
$ 3,000,000 
$ 3,000,000 
 
 
 
 
 
 
 
 
 
 
Convertible note, stated maturity date
 
 
 
Feb. 19, 2015 
 
 
Dec. 01, 2019 
 
 
Dec. 01, 2020 
Dec. 01, 2020 
 
 
 
 
 
Convertible note interest rate terms
 
 
 
 
bears interest equal to the greater of (a) 0.5% or (b) annual interest rates 
 
 
 
 
 
 
 
 
 
 
 
Convertible note interest rate
 
 
 
0.50% 
 
 
6.375% 
 
 
 
8.75% 
 
 
 
 
 
Notes receivable, fair value disclosure
 
 
 
 
3,000,000 
 
 
 
 
 
 
 
 
 
 
 
Notes payable, fair value disclosure
 
 
 
 
 
 
 
957,400,000 
941,200,000 
 
 
848,700,000 
844,500,000 
 
 
 
Outstanding principal
1,755,000,000 
1,755,000,000 
 
 
 
 
 
925,000,000 
925,000,000 
 
 
830,000,000 
830,000,000 
 
 
 
Senior Notes
$ 1,761,636,000 
$ 1,762,049,000 
$ 1,300,000,000 
 
 
 
$ 925,000,000 
$ 925,000,000 
$ 925,000,000 
$ 200,000,000 
$ 380,000,000 
$ 836,636,000 
$ 837,049,000 
$ 250,000,000 
 
 
Estimated earnings and discount rates
 
 
 
 
 
 
 
 
 
 
 
 
 
 
12.00% 
20.00% 
Fair Value Measurements (Financial Instruments at Fair Value Based on Valuation Approach Applied to Each Class of Security) (Details) (USD $)
In Thousands, unless otherwise specified
Jun. 30, 2014
Dec. 31, 2013
Jun. 30, 2014
Convertible Debt Securities [Member]
Feb. 19, 2014
Convertible Debt Securities [Member]
Jun. 30, 2014
Money Market Funds [Member]
Dec. 31, 2013
Money Market Funds [Member]
Jun. 30, 2014
Certificates of Deposit [Member]
Jun. 30, 2014
Quoted Prices in Active Markets for Identical Assets (Level 1) [Member]
Jun. 30, 2014
Quoted Prices in Active Markets for Identical Assets (Level 1) [Member]
Money Market Funds [Member]
Jun. 30, 2014
Significant Other Observable Inputs (Level 2) [Member]
Jun. 30, 2014
Significant Other Observable Inputs (Level 2) [Member]
Certificates of Deposit [Member]
Jun. 30, 2014
Significant Unobservable Inputs (Level 3) [Member]
Jun. 30, 2014
Significant Unobservable Inputs (Level 3) [Member]
Convertible Debt Securities [Member]
Assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash equivalents
 
 
 
 
$ 10,009 
$ 10,002 
 
 
$ 10,009 
 
 
 
 
Certificate of deposit
 
 
 
 
 
 
60,058 
 
 
 
60,058 
 
 
Restricted cash equivalents
 
 
 
 
14,214 
14,214 
 
 
14,214 
 
 
 
 
Restricted cash equivalents, net of current portion
 
 
 
 
14,214 
14,214 
 
 
14,214 
 
 
 
 
Convertible note
 
 
3,000 
3,000 
 
 
 
 
 
 
 
 
3,000 
Total assets
$ 101,495 
$ 38,430 
 
 
 
 
 
$ 38,437 
 
$ 60,058 
 
$ 3,000 
 
Facility Fire (Narrative) (Details) (USD $)
In Millions, unless otherwise specified
0 Months Ended 3 Months Ended 6 Months Ended
Mar. 18, 2014
Jun. 30, 2014
Jun. 30, 2014
Jun. 29, 2014
Fire damage, recognized gross expenses
$ 5.7 
 
 
 
Fire damage, approximate net expenses
 
1.7 
2.7 
 
Probable insurance recoveries
 
3.0 
3.0 
1.8 
Scenario, Forecast [Member]
 
 
 
 
Probable insurance recoveries
 
$ 1.2 
$ 1.2 
 
Income Taxes (Narrative) (Details)
6 Months Ended
Jun. 30, 2014
Income Taxes [Abstract]
 
Effective income tax rate
(0.84%)
Stock-Based Compensation (Narrative) (Details)
6 Months Ended
Jun. 30, 2014
Incentive Units [Member]
 
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
 
Stock compensation award, method of measurement
Monte Carlo simulation valuation approach 
Stock Appreciation Rights (SARs) [Member]
 
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
 
Stock compensation award, method of measurement
Black-Scholes option valuation model 
Shares reserved for issuance
36,065,303 
Vivint Wireless [Member] |
Stock Appreciation Rights (SARs) [Member]
 
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
 
Incentive units issued as share-based compensation awards, outstanding
70,000 
Expected volatility
65.00% 
Expected exercise term
6 years 6 months 
Risk-free rate
1.51% 
Expected dividends
0.00% 
Stock compensation award, vesting period
5 years 
313 Acquisition LLC [Member] |
Incentive Units [Member]
 
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
 
Share-based compensation awards, description
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 
313 Acquisition LLC [Member] |
Incentive Units [Member] |
Chief Executive Officer and President [Member]
 
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
 
Incentive units issued as share-based compensation awards
46,484,562 
313 Acquisition LLC [Member] |
Incentive Units [Member] |
Senior Management and Board Member [Member]
 
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
 
Incentive units issued as share-based compensation awards
75,181,252 
313 Acquisition LLC [Member] |
Incentive Units [Member] |
Minimum [Member]
 
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
 
Expected volatility
55.00% 
Expected exercise term
4 years 
Risk-free rate
0.62% 
313 Acquisition LLC [Member] |
Incentive Units [Member] |
Maximum [Member]
 
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
 
Expected volatility
65.00% 
Expected exercise term
5 years 
Risk-free rate
1.18% 
313 Acquisition LLC [Member] |
Incentive Units Time Based Awards [Member]
 
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
 
Stock compensation award, vesting percentage
33.50% 
Stock compensation award, vesting period
5 years 
313 Acquisition LLC [Member] |
Incentive Units Performance Based Awards [Member]
 
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
 
Stock compensation award, vesting percentage
66.50% 
Vivint [Member] |
Stock Appreciation Rights (SARs) [Member]
 
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
 
Share-based compensation awards, description
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 The Blackstone Group, L.P. and its affiliates 
Incentive units issued as share-based compensation awards, outstanding
8,221,250 
Expected dividends
0.00% 
Vivint [Member] |
Stock Appreciation Rights (SARs) [Member] |
Minimum [Member]
 
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
 
Expected volatility
55.00% 
Expected exercise term
6 years 4 days 
Risk-free rate
1.72% 
Vivint [Member] |
Stock Appreciation Rights (SARs) [Member] |
Maximum [Member]
 
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
 
Expected volatility
60.00% 
Expected exercise term
6 years 6 months 
Risk-free rate
1.77% 
Vivint [Member] |
Stock Appreciation Rights Time Based Awards [Member]
 
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
 
Stock compensation award, vesting percentage
33.50% 
Stock compensation award, vesting period
5 years 
Vivint [Member] |
Stock Appreciation Rights Performance Based Awards [Member]
 
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
 
Stock compensation award, vesting percentage
66.50% 
Stock-Based Compensation (Stock-Based Compensation Expense) (Details) (USD $)
In Thousands, unless otherwise specified
3 Months Ended 6 Months Ended
Jun. 30, 2014
Jun. 30, 2013
Jun. 30, 2014
Jun. 30, 2013
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
 
 
 
 
Total stock-based compensation
$ 458 
$ 445 
$ 903 
$ 673 
Operating Expenses [Member]
 
 
 
 
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
 
 
 
 
Total stock-based compensation
21 
 
30 
 
Selling Expenses [Member]
 
 
 
 
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
 
 
 
 
Total stock-based compensation
36 
 
104 
 
General and Administrative Expenses [Member]
 
 
 
 
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
 
 
 
 
Total stock-based compensation
$ 401 
$ 445 
$ 769 
$ 673 
Commitments and Contingencies (Narrative) (Details) (USD $)
In Millions, unless otherwise specified
3 Months Ended 6 Months Ended
Jun. 30, 2014
Jun. 30, 2013
Jun. 30, 2014
Jun. 30, 2013
Dec. 31, 2013
Commitments And Contingencies [Line Items]
 
 
 
 
 
Loss contingency accrual
$ 8.5 
 
$ 8.5 
 
$ 9.3 
Operating leases with related and unrelated parties expiring year
 
 
2028 
 
 
Initial lease term
 
 
15 years 
 
 
Rent expense for operating leases
2.9 
1.3 
4.4 
2.7 
 
Lease expiration date
 
 
2016-08 
 
 
Capital lease obligation
$ 12.2 
 
$ 12.2 
 
$ 10.5 
Vehicles [Member]
 
 
 
 
 
Commitments And Contingencies [Line Items]
 
 
 
 
 
Lease agreements term
 
 
36 months 
 
 
Average remaining life for fleet
 
 
26 months 
 
 
Related Party Transactions (Narrative) (Details) (USD $)
In Millions, unless otherwise specified
3 Months Ended 6 Months Ended
Jun. 30, 2014
Jun. 30, 2013
Jun. 30, 2014
Jun. 30, 2013
Dec. 31, 2013
Related Party Transaction [Line Items]
 
 
 
 
 
Expected repayment period
 
 
1 year 
 
 
Amounts due from related parties
$ 0.3 
 
$ 0.3 
 
$ 0.3 
Prepaid expenses and other current assets
0.1 
 
0.1 
 
0.3 
Additional expenses incurred for other related-party transactions
0.4 
0.2 
1.2 
0.3 
 
Accrued expenses
0.2 
 
0.2 
 
0.2 
Other current liabilities
1.1 
 
1.1 
 
1.1 
Fee paid for support services by BMP to Company
 
 
1.5 
 
 
Blackstone Management Partners L.L.C. [Member]
 
 
 
 
 
Related Party Transaction [Line Items]
 
 
 
 
 
Payment of annual monitoring fee description
 
 
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 
 
 
Expenses related to agreement
1.0 
0.7 
1.7 
1.6 
 
Blackstone Management Partners L.L.C. [Member] |
Minimum [Member]
 
 
 
 
 
Related Party Transaction [Line Items]
 
 
 
 
 
Annual monitoring base fee, minimum
 
 
$ 2.7 
 
 
Segment Reporting (Narrative) (Details)
3 Months Ended 6 Months Ended
Jun. 30, 2014
segment
Jun. 30, 2013
segment
Mar. 31, 2013
segment
Jun. 30, 2014
segment
Segment Reporting [Abstract]
 
 
 
 
Number of operating segments
Segment Reporting (Summary of Revenue, Costs and Expenses and Assets) (Details) (USD $)
In Thousands, unless otherwise specified
3 Months Ended 6 Months Ended
Jun. 30, 2014
Jun. 30, 2013
Jun. 30, 2014
Jun. 30, 2013
Dec. 31, 2013
Segment Reporting Information [Line Items]
 
 
 
 
 
Revenues
$ 134,199 
$ 114,252 
$ 264,353 
$ 238,694 
 
All other costs and expenses
 
 
 
270,415 
 
Loss from operations
(30,446)
(23,729)
(42,675)
(31,721)
 
Intangible assets, including goodwill
 
1,754,104 
 
1,754,104 
 
Total assets
2,424,625 
2,260,977 
2,424,625 
2,260,977 
2,424,434 
Operating Segments [Member] |
Vivint [Member]
 
 
 
 
 
Segment Reporting Information [Line Items]
 
 
 
 
 
Revenues
 
 
 
221,187 
 
All other costs and expenses
 
 
 
251,129 
 
Loss from operations
 
 
 
(29,942)
 
Intangible assets, including goodwill
 
1,754,104 
 
1,754,104 
 
Total assets
 
2,260,977 
 
2,260,977 
 
Operating Segments [Member] |
2GIG [Member]
 
 
 
 
 
Segment Reporting Information [Line Items]
 
 
 
 
 
Revenues
 
 
 
60,220 
 
All other costs and expenses
 
 
 
52,200 
 
Loss from operations
 
 
 
8,020 
 
Eliminations [Member]
 
 
 
 
 
Segment Reporting Information [Line Items]
 
 
 
 
 
Revenues
 
 
 
(42,713)
 
All other costs and expenses
 
 
 
(32,914)
 
Loss from operations
 
 
 
$ (9,799)
 
Employee Benefit Plans (Narrative) (Details) (USD $)
3 Months Ended 6 Months Ended
Jun. 30, 2014
Jun. 30, 2014
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
 
 
Matching contributions to the plan
$ 0 
$ 0 
2GIG [Member]
 
 
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
 
 
Matching contributions to the plan
 
$ 36,000 
Guarantor and Non-Guarantor Supplemental Financial Information (Narrative) (Details)
0 Months Ended
May 31, 2013
Nov. 16, 2012
6.375% Senior Secured Notes due 2019 [Member]
 
 
Condensed Balance Sheet Statements, Captions [Line Items]
 
 
Debt instrument maturity year
 
Dec. 01, 2019 
8.75% Senior Notes due 2020 [Member]
 
 
Condensed Balance Sheet Statements, Captions [Line Items]
 
 
Debt instrument maturity year
Dec. 01, 2020 
Dec. 01, 2020 
Guarantor and Non-Guarantor Supplemental Financial Information (Condensed Consolidating Balance Sheet) (Details) (USD $)
In Thousands, unless otherwise specified
Jun. 30, 2014
Dec. 31, 2013
Jun. 30, 2013
Assets
 
 
 
Current assets
$ 228,681 
$ 322,003 
 
Property and equipment, net
44,841 
35,818 
 
Subscriber acquisition costs, net
440,059 
288,316 
 
Deferred financing costs, net
54,952 
59,375 
 
Intangible assets, net
772,663 
840,714 
 
Goodwill
836,702 
836,318 
 
Restricted cash
14,214 
14,214 
 
Long-term investments and other assets
32,513 
27,676 
 
Total assets
2,424,625 
2,424,434 
2,260,977 
Liabilities and Stockholders' Equity
 
 
 
Current liabilities
234,499 
134,222 
 
Notes payable and revolving line of credit, net of current portion
1,761,636 
1,762,049 
 
Liability-contracts sold, net of current portion
1,824 
 
 
Capital lease obligations, net of current portion
7,869 
6,268 
 
Deferred revenue, net of current portion
26,284 
18,533 
 
Other long-term obligations
5,678 
3,905 
 
Deferred income tax liability
9,135 
9,214 
 
Total equity
377,700 
490,243 
 
Total liabilities and stockholders' equity
2,424,625 
2,424,434 
 
Elimination [Member]
 
 
 
Assets
 
 
 
Current assets
(37,667)
(24,137)
 
Investment in subsidiaries
(2,402,866)
(2,443,708)
 
Intercompany receivable
(55,627)
(44,658)
 
Total assets
(2,496,160)
(2,512,503)
 
Liabilities and Stockholders' Equity
 
 
 
Current liabilities
(37,667)
(24,137)
 
Intercompany payable
(55,627)
(44,658)
 
Total equity
(2,402,866)
(2,443,708)
 
Total liabilities and stockholders' equity
(2,496,160)
(2,512,503)
 
Parent [Member]
 
 
 
Assets
 
 
 
Investment in subsidiaries
377,700 
490,243 
 
Total assets
377,700 
490,243 
 
Liabilities and Stockholders' Equity
 
 
 
Total equity
377,700 
490,243 
 
Total liabilities and stockholders' equity
377,700 
490,243 
 
APX Group, Inc. [Member]
 
 
 
Assets
 
 
 
Current assets
70,084 
249,209 
 
Deferred financing costs, net
54,952 
59,375 
 
Investment in subsidiaries
2,025,166 
1,953,465 
 
Long-term investments and other assets
 
(302)
 
Total assets
2,150,202 
2,261,747 
 
Liabilities and Stockholders' Equity
 
 
 
Current liabilities
10,972 
9,561 
 
Notes payable and revolving line of credit, net of current portion
1,761,636 
1,762,049 
 
Deferred income tax liability
(106)
(106)
 
Total equity
377,700 
490,243 
 
Total liabilities and stockholders' equity
2,150,202 
2,261,747 
 
Guarantor Subsidiaries [Member]
 
 
 
Assets
 
 
 
Current assets
171,666 
89,768 
 
Property and equipment, net
44,149 
35,218 
 
Subscriber acquisition costs, net
398,635 
262,064 
 
Intercompany receivable
55,627 
44,658 
 
Intangible assets, net
703,245 
764,296 
 
Goodwill
804,545 
804,041 
 
Restricted cash
14,214 
14,214 
 
Long-term investments and other assets
32,494 
27,954 
 
Total assets
2,224,575 
2,042,213 
 
Liabilities and Stockholders' Equity
 
 
 
Current liabilities
213,513 
117,544 
 
Liability-contracts sold, net of current portion
1,824 
 
 
Capital lease obligations, net of current portion
7,857 
6,268 
 
Deferred revenue, net of current portion
23,634 
16,676 
 
Other long-term obligations
5,313 
3,559 
 
Deferred income tax liability
242 
289 
 
Total equity
1,972,192 
1,897,877 
 
Total liabilities and stockholders' equity
2,224,575 
2,042,213 
 
Non-Guarantor Subsidiaries [Member]
 
 
 
Assets
 
 
 
Current assets
24,598 
7,163 
 
Property and equipment, net
692 
600 
 
Subscriber acquisition costs, net
41,424 
26,252 
 
Intangible assets, net
69,418 
76,418 
 
Goodwill
32,157 
32,277 
 
Long-term investments and other assets
19 
24 
 
Total assets
168,308 
142,734 
 
Liabilities and Stockholders' Equity
 
 
 
Current liabilities
47,681 
31,254 
 
Intercompany payable
55,627 
44,658 
 
Capital lease obligations, net of current portion
12 
 
 
Deferred revenue, net of current portion
2,650 
1,857 
 
Other long-term obligations
365 
346 
 
Deferred income tax liability
8,999 
9,031 
 
Total equity
52,974 
55,588 
 
Total liabilities and stockholders' equity
$ 168,308 
$ 142,734 
 
Guarantor and Non-Guarantor Supplemental Financial Information (Condensed Consolidating Statements of Operations and Comprehensive (Loss) Income) (Details) (USD $)
In Thousands, unless otherwise specified
3 Months Ended 6 Months Ended
Jun. 30, 2014
Jun. 30, 2013
Jun. 30, 2014
Jun. 30, 2013
Condensed Income Statements, Captions [Line Items]
 
 
 
 
Revenues
$ 134,199 
$ 114,252 
$ 264,353 
$ 238,694 
Costs and expenses
164,645 
137,981 
307,028 
270,415 
(Loss) income from operations
(30,446)
(23,729)
(42,675)
(31,721)
Other (expense) income, net
(35,088)
19,691 
(69,931)
(6,252)
Loss before income taxes
(65,534)
(4,038)
(112,606)
(37,973)
Income tax expense (benefit)
737 
17,489 
945 
14,463 
Net (loss) income
(66,271)
(21,527)
(113,551)
(52,436)
Other comprehensive (loss) income, net of tax effects:
 
 
 
 
Net (loss) income
(66,271)
(21,527)
(113,551)
(52,436)
Foreign currency translation adjustment
4,677 
(4,368)
105 
(6,987)
Total other comprehensive income (loss)
4,677 
(4,368)
105 
(6,987)
Comprehensive loss
(61,594)
(25,895)
(113,446)
(59,423)
Parent [Member]
 
 
 
 
Condensed Income Statements, Captions [Line Items]
 
 
 
 
Loss from subsidiaries
(66,271)
(21,527)
(113,551)
(52,436)
Other (expense) income, net
 
60,000 
 
60,000 
Loss before income taxes
(66,271)
38,473 
(113,551)
7,564 
Net (loss) income
(66,271)
38,473 
(113,551)
7,564 
Other comprehensive (loss) income, net of tax effects:
 
 
 
 
Net (loss) income
(66,271)
38,473 
(113,551)
7,564 
Comprehensive loss
(66,271)
38,473 
(113,551)
7,564 
APX Group, Inc. [Member]
 
 
 
 
Condensed Income Statements, Captions [Line Items]
 
 
 
 
Loss from subsidiaries
(30,932)
(41,002)
(42,945)
(46,230)
Other (expense) income, net
(35,305)
19,475 
(70,572)
(6,206)
Loss before income taxes
(66,237)
(21,527)
(113,517)
(52,436)
Income tax expense (benefit)
34 
 
34 
 
Net (loss) income
(66,271)
(21,527)
(113,551)
(52,436)
Other comprehensive (loss) income, net of tax effects:
 
 
 
 
Net (loss) income
(66,271)
(21,527)
(113,551)
(52,436)
Foreign currency translation adjustment
4,676 
(4,368)
105 
(6,987)
Total other comprehensive income (loss)
4,676 
(4,368)
105 
(6,987)
Comprehensive loss
(61,595)
(25,895)
(113,446)
(59,423)
Guarantor Subsidiaries [Member]
 
 
 
 
Condensed Income Statements, Captions [Line Items]
 
 
 
 
Revenues
127,146 
107,797 
249,488 
227,328 
Costs and expenses
155,369 
131,100 
290,679 
257,203 
(Loss) income from operations
(28,223)
(23,303)
(41,191)
(29,875)
Other (expense) income, net
149 
233 
659 
(23)
Loss before income taxes
(28,074)
(23,070)
(40,532)
(29,898)
Income tax expense (benefit)
14 
17,569 
40 
14,933 
Net (loss) income
(28,088)
(40,639)
(40,572)
(44,831)
Other comprehensive (loss) income, net of tax effects:
 
 
 
 
Net (loss) income
(28,088)
(40,639)
(40,572)
(44,831)
Foreign currency translation adjustment
2,769 
(2,367)
345 
(3,722)
Total other comprehensive income (loss)
2,769 
(2,367)
345 
(3,722)
Comprehensive loss
(25,319)
(43,006)
(40,227)
(48,553)
Non-Guarantor Subsidiaries [Member]
 
 
 
 
Condensed Income Statements, Captions [Line Items]
 
 
 
 
Revenues
7,852 
7,216 
16,458 
12,885 
Costs and expenses
10,075 
7,642 
17,942 
14,731 
(Loss) income from operations
(2,223)
(426)
(1,484)
(1,846)
Other (expense) income, net
68 
(17)
(18)
(23)
Loss before income taxes
(2,155)
(443)
(1,502)
(1,869)
Income tax expense (benefit)
689 
(80)
871 
(470)
Net (loss) income
(2,844)
(363)
(2,373)
(1,399)
Other comprehensive (loss) income, net of tax effects:
 
 
 
 
Net (loss) income
(2,844)
(363)
(2,373)
(1,399)
Foreign currency translation adjustment
1,908 
(2,001)
(240)
(3,265)
Total other comprehensive income (loss)
1,908 
(2,001)
(240)
(3,265)
Comprehensive loss
(936)
(2,364)
(2,613)
(4,664)
Elimination [Member]
 
 
 
 
Condensed Income Statements, Captions [Line Items]
 
 
 
 
Revenues
(799)
(761)
(1,593)
(1,519)
Costs and expenses
(799)
(761)
(1,593)
(1,519)
Loss from subsidiaries
97,203 
62,529 
156,496 
98,666 
Other (expense) income, net
 
(60,000)
 
(60,000)
Loss before income taxes
97,203 
2,529 
156,496 
38,666 
Net (loss) income
97,203 
2,529 
156,496 
38,666 
Other comprehensive (loss) income, net of tax effects:
 
 
 
 
Net (loss) income
97,203 
2,529 
156,496 
38,666 
Foreign currency translation adjustment
(4,676)
4,368 
(105)
6,987 
Total other comprehensive income (loss)
(4,676)
4,368 
(105)
6,987 
Comprehensive loss
$ 92,527 
$ 6,897 
$ 156,391 
$ 45,653 
Guarantor and Non-Guarantor Supplemental Financial Information (Condensed Consolidating Statements of Cash Flows) (Details) (USD $)
In Thousands, unless otherwise specified
6 Months Ended
Jun. 30, 2014
Jun. 30, 2013
Cash flows from operating activities:
 
 
Net cash provided by (used in) operating activities
$ 35,091 
$ 43,073 
Cash flows from investing activities:
 
 
Subscriber contract costs
(174,567)
(156,742)
Proceeds from the sale of 2GIG, net of cash sold
 
143,262 
Capital expenditures
(12,057)
(3,781)
Acquisition of intangible assets
(6,127)
 
Proceeds from the sale of capital assets
 
Net cash used in acquisition
(3,500)
(4,272)
Other assets
(35)
(5,660)
Investment in marketable securities
(60,000)
 
Investment in convertible note
(3,000)
 
Net cash provided by (used in) investing activities
(259,286)
(27,184)
Cash flows from financing activities:
 
 
Proceeds from issuance of notes
 
203,500 
Proceeds from contract sales
2,261 
 
Repayments of revolving line of credit
 
(50,500)
Borrowings from revolving line of credit
 
22,500 
Change in restricted cash
161 
 
Repayments of capital lease obligations
(3,057)
(3,881)
Deferred financing costs
(572)
(4,749)
Payments of dividends
 
(60,000)
Net cash (used in) provided by financing activities
(1,207)
106,870 
Effect of exchange rate changes on cash
458 
(19)
Net (decrease) increase in cash
(224,944)
122,740 
Cash:
 
 
Beginning of period
261,905 
8,090 
End of period
36,961 
130,830 
Parent [Member]
 
 
Cash flows from operating activities:
 
 
Net cash provided by (used in) operating activities
 
60,000 
Cash flows from financing activities:
 
 
Payments of dividends
 
(60,000)
Net cash (used in) provided by financing activities
 
(60,000)
APX Group, Inc. [Member]
 
 
Cash flows from operating activities:
 
 
Net cash provided by (used in) operating activities
(413)
(38)
Cash flows from investing activities:
 
 
Proceeds from the sale of 2GIG, net of cash sold
 
143,262 
Investment in subsidiary
(177,897)
(136,649)
Investment in marketable securities
(60,000)
 
Net cash provided by (used in) investing activities
(237,897)
6,613 
Cash flows from financing activities:
 
 
Proceeds from issuance of notes
 
203,500 
Repayments of revolving line of credit
 
(50,500)
Borrowings from revolving line of credit
 
22,500 
Deferred financing costs
(572)
(4,749)
Payments of dividends
 
(60,000)
Net cash (used in) provided by financing activities
(572)
110,751 
Net (decrease) increase in cash
(238,882)
117,326 
Cash:
 
 
Beginning of period
248,908 
399 
End of period
10,026 
117,725 
Guarantor Subsidiaries [Member]
 
 
Cash flows from operating activities:
 
 
Net cash provided by (used in) operating activities
14,750 
22,606 
Cash flows from investing activities:
 
 
Subscriber contract costs
(157,770)
(142,134)
Capital expenditures
(11,869)
(3,756)
Acquisition of intangible assets
(6,127)
 
Proceeds from the sale of capital assets
 
Net cash used in acquisition
(3,500)
(4,272)
Other assets
(40)
(5,660)
Investment in convertible note
(3,000)
 
Net cash provided by (used in) investing activities
(182,306)
(155,813)
Cash flows from financing activities:
 
 
Intercompany receivable
(10,969)
(2,522)
Intercompany payable
177,897 
136,649 
Proceeds from contract sales
2,261 
 
Change in restricted cash
161 
 
Repayments of capital lease obligations
(3,056)
(3,881)
Net cash (used in) provided by financing activities
166,294 
130,246 
Net (decrease) increase in cash
(1,262)
(2,961)
Cash:
 
 
Beginning of period
8,291 
4,188 
End of period
7,029 
1,227 
Non-Guarantor Subsidiaries [Member]
 
 
Cash flows from operating activities:
 
 
Net cash provided by (used in) operating activities
20,754 
20,505 
Cash flows from investing activities:
 
 
Subscriber contract costs
(16,797)
(14,608)
Capital expenditures
(188)
(25)
Other assets
 
Net cash provided by (used in) investing activities
(16,980)
(14,633)
Cash flows from financing activities:
 
 
Intercompany payable
10,969 
2,522 
Repayments of capital lease obligations
(1)
 
Net cash (used in) provided by financing activities
10,968 
2,522 
Effect of exchange rate changes on cash
458 
(19)
Net (decrease) increase in cash
15,200 
8,375 
Cash:
 
 
Beginning of period
4,706 
3,503 
End of period
19,906 
11,878 
Elimination [Member]
 
 
Cash flows from operating activities:
 
 
Net cash provided by (used in) operating activities
 
(60,000)
Cash flows from investing activities:
 
 
Investment in subsidiary
177,897 
136,649 
Net cash provided by (used in) investing activities
177,897 
136,649 
Cash flows from financing activities:
 
 
Intercompany receivable
10,969 
2,522 
Intercompany payable
(188,866)
(139,171)
Payments of dividends
 
60,000 
Net cash (used in) provided by financing activities
$ (177,897)
$ (76,649)
Subsequent Event (Details) (USD $)
0 Months Ended 1 Months Ended 0 Months Ended 0 Months Ended 0 Months Ended
May 31, 2013
Dec. 31, 2013
Jun. 30, 2014
Nov. 16, 2012
Nov. 16, 2012
6.375% Senior Secured Notes due 2019 [Member]
Jun. 30, 2014
6.375% Senior Secured Notes due 2019 [Member]
Dec. 31, 2013
6.375% Senior Secured Notes due 2019 [Member]
Dec. 13, 2013
8.75% Senior Notes due 2020 [Member]
May 31, 2013
8.75% Senior Notes due 2020 [Member]
Nov. 16, 2012
8.75% Senior Notes due 2020 [Member]
Jun. 30, 2014
8.75% Senior Notes due 2020 [Member]
Dec. 31, 2013
8.75% Senior Notes due 2020 [Member]
Jul. 1, 2014
8.75% Senior Notes due 2020 [Member]
Subsequent Event [Member]
Debt Instrument [Line Items]
 
 
 
 
 
 
 
 
 
 
 
 
 
Senior secured notes issued
 
$ 1,762,049,000 
$ 1,761,636,000 
$ 1,300,000,000 
$ 925,000,000 
$ 925,000,000 
$ 925,000,000 
$ 250,000,000 
$ 200,000,000 
$ 380,000,000 
$ 836,636,000 
$ 837,049,000 
$ 100,000,000 
Debt instrument interest rate
 
 
 
 
6.375% 
 
 
 
 
8.75% 
 
 
 
Debt instrument maturity year
 
 
 
 
Dec. 01, 2019 
 
 
 
Dec. 01, 2020 
Dec. 01, 2020 
 
 
 
Debt instrument, redemption price, percentage
 
 
 
 
 
 
 
101.50% 
101.75% 
 
 
 
 
Debt issuance fees
$ 200,000 
$ 200,000 
 
 
 
 
 
 
 
 
 
 
$ 100,000