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APX Group Holdings, Inc. Reports First Quarter 2016 ResultsAPX Group Holdings, Inc. ("APX Group," "Vivint" or the "Company") today reported results for the quarter ended March 31, 2016. "We are pleased with our first quarter 2016 operating results, and I believe Vivint has carried the momentum we had in 2015 into calendar-year 2016," said Todd Pedersen, CEO of APX Group. "Our Inside Sales Team had a strong quarter, and our direct-to-home preseason indicators are trending nicely. Inside sales have been a particular focus, as we work to drive subscriber growth to this lower creation cost channel. We continue to move forward with our strategic initiatives, our product and service platform is growing, and I'm optimistic on the overall market trends within the Smart Home space." Mr. Pedersen continued, "We're excited to have Peter Thiel and Solamere Capital onboard as strategic equity investors. This strategic investment will enhance our efforts to establish tech-based partnerships, and further validates our vision, technology and competitive position. We have much work to do in 2016, but we're off to a good start." APX Group reported total revenues of $174.3 million for the quarter ended March 31, 2016, an increase of 14.5%, as compared to $152.2 million for the same quarter ended March 31, 2015. The $22.1 million increase in total revenues was driven primarily by a 14.4% increase in the Company's smart home subscriber base and a 1.9% increase in Average RMR per Subscriber to $55.27. The Company continues to drive higher adoption rates of additional Smart Home services. For the quarter ended March 31, 2016 the Smart Home adoption rate was 81.3%, up from 66.9% in the quarter ending March 31, 2015. The Company's first quarter 2016 revenues also included a $1.6 million year-over-year increase in revenues from its wireless internet business. Revenue growth was partially offset by a $1.4 million negative impact from foreign exchange rates. "We continue to execute on key operating metrics," said Mark Davies, CFO of APX Group. "Our twelve-month Creation Cost Multiple declined 0.5x from 31.4x in first quarter 2015 to 30.9x in first quarter 2016. Service Cost per Subscriber remained within our target range, coming in at $14.41, and we managed our service margins to 74% for the quarter. Scaling G&A remains a priority and we chose to scale G&A at approximately half the rate of revenue growth, with most of the growth related to R&D." Mr. Davies continued, "We're pleased with the return on our R&D investment, which has provided the catalyst for revenue growth, Smart Home adoption and an increasing RMR. We did have a slight rise in the twelve-month attrition rate during the first quarter; however, we believe this is primarily due to the 2012 42-month contracts which came to end of term during the quarter. Lastly, the shift to Inside Sales is changing the quarterly seasonality of sales, but we don't expect our first quarter growth rate to continue throughout the course of the year."
(1) Total Subscribers and RMR data excludes wireless Internet
business and are provided as of each period end. Costs and Expenses Operating expenses were $58.0 million for the quarter ended March 31, 2016, compared to $51.3 million for the same period in 2015. The 13.1% increase was a result of a 14.4% growth in the subscriber base which resulted in increased personnel expenses associated with monitoring, customer support and field service functions, offset by a reduction in wireless internet operating expense. Net Service Cost per Subscriber for the period ended March 31, 2016, was $14.41, up 4.3%, compared to $13.82 for the period ended March 31, 2015. The year over year increase was primarily due to: Management's decision to invest more in service costs to improve timeliness and quality of the customer experience; and first quarter 2015 recorded abnormally low service costs as a result of hiring challenges in our field service and customer care departments. Vivint's Net Service Margin was 73.8% for the quarter, excluding operating expenses associated with the Company's wireless internet service. Selling expenses, net of capitalized subscriber acquisition costs, were $28.9 million for the quarter ended March 31, 2016, compared to $25.3 million for the quarter ended March 31, 2015. The 14.2% year-over-year increase was primarily attributable to higher lead generation costs in our Inside Sales channel to support the growth in new subscribers during the quarter. Vivint's twelve-month Net Creation Cost Multiple as of March 31, 2016, improved 0.5x to 30.9x, excluding its wireless Internet service. General and administrative ("G&A") expenses were $30.4 million for the quarter ended March 31, 2016, compared to $28.2 million for the same period in 2015. The 7.8% increase was primarily associated with an increase in R&D personnel to support our product, cloud and other technology initiatives. The Company's net loss for the quarter ended March 31, 2016, was $45.1 million compared to a net loss of $48.0 million for the same period in 2015. Adjusted EBITDA1 for the Company was $102.8 million for the quarter ended March 31, 2016, up 14.9% as compared to $89.5 million for the same period in 2015. Liquidity As of March 31, 2016, the Company's liquidity position on a consolidated basis, defined as cash on hand, marketable securities and available borrowing capacity under the Company's revolving credit facility, was approximately $248 million. Subsequent to the quarter, on April 25, 2016, the Company's parent completed the issuance and sale to certain investors, co-led by Peter Thiel and strategic investment firm Solamere Capital, of a series of preferred stock in a private placement exempt from registration under the Securities Act. On April 29, 2016, the Company's parent contributed the net proceeds of $69.8 million from such issuance and sale to us as an equity contribution. As this issuance is the first installment of a total equity capital raise that is expected to be in the aggregate amount of $100 million, the Company's parent intends to issue and sell additional shares of preferred stock in one or more private placements exempt from registration under the Securities Act and to use proceeds from such additional issuances to make additional capital contribution(s) to us of up to $30 million in 2016. No assurances may be given that these additional transactions will be completed on the timeline contemplated, in the amount contemplated or at all, or that any resulting net proceeds would be contributed to us. The Company's pro-forma liquidity would have been $318 million including the $69.8 million equity contribution. Certain Credit Statistics Our net leverage ratio, defined as the ratio of net debt to LTM Adjusted EBITDA, was 5.5x at March 31, 2016, improved 0.3x from the quarter ending March 31, 2015. The Company's pro-forma net leverage ratio would have been 5.3x including the $69.8 million equity contribution. Conference Call Vivint will host a conference call and webcast to discuss the quarterly results at 5:00 p.m. EDT today, May 3, 2016. To access the conference call, please dial (877) 201-0168 from the United States and Canada or (647) 788-4901 from outside the United States and Canada and use the conference ID 99728283. A financial results presentation and online access to join the webcast will be made available immediately prior to the call on the Investor Relations section of the Company's website at http://investors.vivint.com/events-presentations/events. A replay of the webcast will be made available on the Investor Relations section of the Company's website at www.investors.vivint.com following the call. About Vivint Vivint Smart Home is a leading provider of smart home technology. Vivint combines innovative products and services to offer homeowners the best smart home experience. As the only vertically integrated smart home company, Vivint delivers its integrated platform and products with in-home consultation, professional installation and support delivered by its Smart Home Pros, as well as 24-7 customer care and monitoring. Dedicated to redefining the home experience with intelligent products and services, Vivint serves more than one million customers throughout the U.S. and Canada. For more information, visit www.vivint.com. Forward-Looking Statements This earnings release includes certain forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995, including statements regarding, among other things, our plans, strategies and prospects, both business and financial. Forward-looking statements convey the Company's current expectations or forecasts of future events. All statements contained in this earnings release other than statements of historical fact are forward-looking statements. These statements are based on the beliefs and assumptions of our management. Although we believe that our plans, intentions and expectations reflected in or suggested by these forward-looking statements are reasonable, we cannot assure you that we will achieve or realize these plans, intentions or expectations. Forward-looking statements are inherently subject to risks, uncertainties and assumptions. These statements may be preceded by, followed by or include the words "believes," "estimates," "expects," "projects," "forecasts," "may," "will," "should," "seeks," "plans," "scheduled," "anticipates" or "intends" or similar expressions. Forward-looking statements are not guarantees of performance. You should not put undue reliance on these statements which speak only as of this date hereof. You should understand that the following important factors, in addition to those discussed in "Risk Factors" in our most recent annual report on Form 10-K, and other reports filed with the Securities Exchange Commission ("SEC"), as such factors may be updated from time to time in our periodic filings with the SEC, which are available on the SEC's website at www.sec.gov, could affect our future results and could cause those results or other outcomes to differ materially from those expressed or implied in our forward-looking statements:
In addition, the origination and retention of new subscribers will depend on various factors, including, but not limited to, market availability, subscriber interest, the availability of suitable components, the negotiation of acceptable contract terms with subscribers, local permitting, licensing and regulatory compliance, and our ability to manage anticipated expansion and to hire, train and retain personnel, the financial viability of subscribers and general economic conditions. These and other factors that could cause actual results to differ from those implied by the forward-looking statements in this press release are more fully described in the "Risk Factors" section in our most recent annual report on Form 10-K, and other reports as such factors may be updated from time to time in our periodic filings with the SEC. These risk factors should not be construed as exhaustive. We undertake no obligations to update or revise publicly any forward-looking statements, whether a result of new information, future events, or otherwise, except as required by law. Certain Definitions The following definitions are used in this press release for purposes of describing the results in our home security and automation business and except where noted, exclude our wireless internet business. "Total Subscribers" means the aggregate number of active smart home and security subscribers at the end of a given period. "RMR" means the recurring monthly revenue billed to a smart home and security subscriber. "Total RMR" means the aggregate RMR billed to all smart home and security subscribers. "Average RMR per Subscriber" means the Total RMR divided by Total Subscribers. This is also commonly referred to as Average Revenue per User, or "ARPU." "Average RMR per New Subscriber" means the aggregate RMR for new subscribers originated during a period divided by the number of new subscribers originated during such period. "Attrition" means the aggregate number of canceled smart home and security subscribers during a period divided by the monthly weighted average number of total smart home and security subscribers for such period. Subscribers are considered canceled when they terminate in accordance with the terms of their contract, are terminated by the Company, or if payment from such subscribers is deemed uncollectible (when at least four monthly billings become past due). Sales of contracts to third parties and certain moves are excluded from the attrition calculation. "Net Subscriber Acquisition Costs" means direct and indirect costs to create a new smart home and security subscriber. These include commissions, equipment, installation, marketing and other allocations (G&A and overhead), less activation fees and up sell revenue. These costs also exclude residuals and long-term equity expenses associated with the direct-to-home sales channel. "Net Creation Cost Multiple" means total Net Subscriber Acquisition Costs, divided by the number of new subscribers originated, and then divided by the Average RMR per New Subscriber. "Net Service Cost per Subscriber" means total service costs for the period, including monitoring, customer service, field service and other allocations (G&A and overhead) costs, less total service revenue for the period divided by total service subscribers. "Net Service Margin" means the average RMR per subscriber for the period less Net Service Costs divided by the average RMR per subscriber for the period. 1 This earning release includes Adjusted EBITDA, a metric that is not calculated in accordance with Generally Accepted Accounting Principles in the U.S. ("GAAP"). See the "Statement Regarding Non-GAAP Financial Measures" section at the end of this earnings release for the definition of Adjusted EBITDA and a reconciliation to its most directly comparable financial measure calculated in accordance with GAAP.
Statement Regarding Non-GAAP Financial Measures Non-GAAP Financial Measures This earnings release includes Adjusted EBITDA, which is a supplemental measure that is not required by, or presented in accordance with, accounting principles generally accepted in the United States ("GAAP"). "Adjusted EBITDA" is defined as net income (loss) before interest expense (net of interest income), income and franchise taxes and depreciation and amortization (including amortization of capitalized subscriber acquisition costs), further adjusted to exclude the effects of certain contract sales to third parties, non-capitalized subscriber acquisition costs, stock based compensation, the historical results of Solar and certain unusual, non-cash, non-recurring and other items permitted in certain covenant calculations under the indentures governing our notes and the credit agreement governing our revolving credit facility. We believe that the presentation of Adjusted EBITDA is appropriate to provide additional information to investors about the calculation of, and compliance with, certain financial covenants in the indentures governing our notes and the credit agreement governing our revolving credit facility. We caution investors that amounts presented in accordance with our definition of Adjusted EBITDA may not be comparable to similar measures disclosed by other issuers, because not all issuers and analysts calculate Adjusted EBITDA in the same manner. Adjusted EBITDA is not a measurement of our financial performance under GAAP and should not be considered as an alternative to net income (loss) or any other performance measures derived in accordance with GAAP or as an alternative to cash flows from operating activities as a measure of our liquidity. See the following table for a quantitative reconciliation of Adjusted EBITDA to Net Loss, which we believe is the most comparable financial measure calculated in accordance with GAAP.
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