Vivint Smart Home, Inc. Reports Second Quarter 2020 Results; Raises Outlook for Full Year 2020

Key Highlights

  • Total revenues increased 8.9% year over year to $306.0 million
  • Net loss improved by $28.9 million year over year (loss of $87.0 million compared to $115.9 million in the prior year period)
  • Adjusted EBITDAa increased by $64.4 million year over year ($152.7 million compared to $88.3 million in the prior year period)
  • Attrition rate improved by 40 basis points sequentially to 13.7%

PROVO, Utah–(BUSINESS WIRE)–Vivint Smart Home, Inc. (NYSE: VVNT), a leading smart home company, today reported financial and operational results for the second quarter ended June 30, 2020.

Vivint Smart Home now delivers smart home and security services to more than 1.6 million customers across North America,” said CEO, Todd Pedersen. “Our strong results demonstrate that our customers value the peace of mind and security that we provide, particularly during extremely challenging times like those we find ourselves in today. Our high-margin, recurring revenue model is built to not only be resilient, but also to thrive in the current environment where people are spending much more time in their homes. During this time, when people are reconnecting with their homes, we believe that Vivint is perfectly positioned for what could be a lasting change.”

As an organization, we have worked to navigate the challenges and uncertainties encountered during the first half of 2020, and we are pleased with the significant improvements across all of our key metrics in Q2,” continued Pedersen. “Revenue and total subscribers continue to grow at a steady pace, reflecting healthy demand for our smart home products and services, while Adjusted EBITDA margins continue to expand meaningfully. Because of the actions we’ve taken during the first half of the year, I’m pleased to note that we now expect to be cash flow positive in 2020.”

Revenue and Subscriber Data

The Company reported total revenues of $306.0 million for the three-month period ended June 30, 2020, an increase of $24.9 million or 8.9%, as compared to the same period in 2019. Total Subscribers increased by 6.8% during the three-month period ended June 30, 2020, which accounted for approximately $19.2 million of the increase, while Average Monthly Revenue per User grew by $1.31, providing an increase of approximately $7.5 million in total revenues. These increases were offset by a decrease of $1.2 million associated with the Company’s former wireless internet business, which was spun out in July 2019. When compared to the three months ended June 30, 2019, foreign currency translation had an immaterial impact on total revenues.

The Company added 107,980 New Subscribers during the second quarter of 2020, a decrease of 3.2% compared to 111,581 New Subscribers during the same period in 2019. New Subscriber growth in the quarter was impacted by a pause in sales activity in the Direct to Home sales channel for approximately six weeks, the discontinuation of Direct to Home sales activities in Canada, and the focus on reducing retail installment contracts.

Summary of Quarterly Key Financial and Portfolio Metrics

($ in millions, except for subscriber data)

 

June 30,

 

September 30,

 

December 31,

 

March 31,

 

June 30,

 

2019

 

2019

 

2019

 

2020

 

2020

Total Revenues

$

281.1

 

$

290.8

 

$

307.8

 

$

303.2

 

$

306.0

 

Net Loss

$

(115.9

)

$

(102.4

)

$

(88.5

)

$

(138.1

)

$

(87.0

)

Adjusted EBITDA(a)

$

88.3

 

$

100.7

 

$

125.1

 

$

134.9

 

$

152.7

 

Adjusted EBITDA Margin

31.4

%

34.6

%

40.6

%

44.5

%

49.9

%

LTM Covenant Adjusted EBITDA(a)

$

582.6

 

$

612.7

 

$

643.2

 

$

683.5

 

$

728.7

 

LTM Covenant Adjusted EBITDA Margin

52.7

%

54.5

%

55.6

%

57.8

%

60.3

%

New Subscribers(1)

111,581

 

111,425

 

45,861

 

50,053

 

107,980

 

Total Subscribers(1)

1,507,664

 

1,560,063

 

1,552,541

 

1,548,201

 

1,610,642

 

Total Monthly Service Revenue

$

79.3

 

$

81.2

 

$

79.9

 

$

78.6

 

$

80.3

 

Average Monthly Service Revenue per User

$

52.63

 

$

52.03

 

$

51.44

 

$

50.75

 

$

49.83

 

Total Monthly Revenue

$

93.7

 

$

100.0

 

$

102.6

 

$

101.1

 

$

102.0

 

Average Monthly Revenue per User

$

63.35

 

$

64.53

 

$

65.98

 

$

65.27

 

$

64.66

 

Attrition Rate(2)

13.4

%

13.9

%

13.9

%

14.1

%

13.7

%

(1) New Subscribers from sales pilots are not included

(2) Attrition Rate is reported on an LTM basis for each period end and excludes wireless internet business and pilot programs

Costs and Expenses

Operating expenses for the three months ended June 30, 2020 decreased by $10.0 million, or 10.9%, as compared to the three months ended June 30, 2019. This decrease included a $4.0 million increase in stock-based compensation, primarily associated with grants of equity awards in the first and second quarter of 2020. Excluding stock-based compensation, operating expenses decreased by $14.0 million, or 15.2%, primarily due to decreases of $13.2 million in personnel and related support costs, $2.5 million in costs associated with our former wireless internet business (which was spun out in July 2019) and $1.4 million in costs associated with our sales pilot programs. These decreases were partially offset by increases of $2.0 million in third-party contracted servicing costs and $0.7 million in equipment and related costs.

Net Service Cost per Subscriber was $9.93 for the second quarter of 2020, which led to a Net Service Margin of 80.2%, as compared to Net Service Cost per Subscriber and Net Service Margin of $13.13 and 75.2%, respectively, for the same period in 2019.

Selling expenses, excluding capitalized contract costs, increased by $6.8 million, or 11.8%, for the three months ended June 30, 2020, as compared to the three months ended June 30, 2019. This included a $19.5 million increase in stock-based compensation primarily associated with grants of equity awards in the first and second quarter of 2020. Excluding stock-based compensation, selling expenses decreased by $12.7 million, or 21.9%, primarily due to decreases of $3.7 million in facility and housing related costs associated with the delayed deployment of our summer Direct to Home sales teams, $3.3 million in costs associated with sales pilot programs, personnel and related costs of $3.0 million, $1.1 million in marketing costs and $0.7 million in customer credit reporting costs.

The Company’s Net Subscriber Acquisition Costs per New Subscriber were $630 for the last twelve months ended June 30, 2020, as compared to $1,064 for the same period in 2019. The average proceeds collected at point of sale during the last twelve months ended June 30, 2020 increased to approximately $1,485 per New Subscriber as compared to $1,081 for the same period in 2019.

General and administrative (“G&A”) expenses, net of allocations, increased $11.9 million, or 25.2%, for the three months ended June 30, 2020 as compared to the three months ended June 30, 2019. This included a $22.3 million increase in stock-based compensation primarily associated with grants of equity awards in the first and second quarter of 2020. Excluding stock-based compensation, G&A expenses decreased by $10.4 million, or 22.3%, primarily due to decreases of $6.1 million in personnel and related support costs, $2.4 million in costs associated with the Company’s former wireless internet business which was spun out in July 2019, $0.7 million in research and development costs and $0.7 million in provisions for bad debt and credit losses.

Net Loss, Adjusted EBITDA and Covenant Adjusted EBITDA

Net loss was $87.0 million for the three months ended June 30, 2020, an improvement of $28.9 million, as compared to a net loss of $115.9 million for the same period in 2019. Adjusted EBITDA was up by $64.4 million to $152.7 million for the three months ended June 30, 2020, as compared to Adjusted EBITDA of $88.3 million for the same period in 2019. Covenant Adjusted EBITDA was $200.5 million for the second quarter of 2020, as compared to Covenant Adjusted EBITDA of $155.3 million for the same period in 2019.

Financial Outlook

We believe that the fundamental characteristics of Vivint’s high-margin, recurring service revenue model are compelling. More than 95% of our revenue is recurring, which provides long-term visibility and predictability to our business. Most of our new subscribers enter into five-year contracts and continue on the platform for approximately eight years, driving significant lifetime margin dollars,” said CFO, Dale R. Gerard. “Despite the many uncertainties pertaining to the COVID-19 pandemic, our recurring model has proven to be resilient, and we are comfortable with upgrading our guidance for subscribers and revenue. Meanwhile, our strong unit economics and scale have contributed to our ability to drive meaningful Adjusted EBITDA improvement, and that is reflected in our significantly upgraded guidance range. We are updating our full year outlook as follows: We now expect to end 2020 with approximately 1.62 to 1.68 million subscribers vs. previous guidance of 1.55 to 1.62 million. Our estimate for 2020 revenue is $1.23 to $1.28 billion vs. previous guidance of $1.20 to $1.25 billion. Finally, we expect our 2020 Adjusted EBITDA to be between $555 and $565 million vs. previous guidance of between $525 and $535 million.”

Liquidity

The Company received $74.6 million of proceeds from the exercise of warrants during the three-month period ended June 30, 2020.

As of June 30, 2020, the Company’s liquidity position on a consolidated basis, defined as cash on hand, short-term marketable securities and available borrowing capacity under the Company’s revolving credit facility, was approximately $478 million.

Certain Credit Statistics

The Company’s net leverage ratio, defined as the ratio of net debt to LTM Covenant Adjusted EBITDA, was 3.7x as of June 30, 2020.

Conference Call

Vivint Smart Home will host a conference call and webcast to discuss the quarterly results at 6:00 p.m. ET / 4:00 p.m. MT today, August 6, 2020. To join the live webcast and conference call, please visit the Investor Relations section of the Vivint website, http://investors.vivint.com/events-presentations/events/default.aspx.

Investors and participants can register for the call in advance by visiting http://www.directeventreg.com/registration/event/3997994. After registering, instructions will be shared on how to join the call including dial-in information, as well as a unique passcode and registrant ID. At the time of the call, registered participants will dial in using the numbers from the confirmation email, and upon entering their unique passcode and ID, will be entered directly into the conference.

A financial results presentation and online access to join the webcast will be available immediately before the call on the Investor Relations section of the Company’s website at http://investors.vivint.com/events-presentations/events/default.aspx. A replay of the webcast will be available for 30 days on the Investor Relations section of the Company’s website at http://investors.vivint.com/company-overview/default.aspx following the completion of the webcast and conference call.

About the Company

Vivint Smart Home is a leading smart home company in North America. Vivint delivers an integrated smart home system 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 1.6 million customers. For more information, visit https://www.vivint.com.

Forward-Looking Statements

This earnings release and accompanying conference call include certain forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995, including statements regarding, among other things, the Company’s plans, strategies and prospects, both business and financial, including without limitation statements regarding the potential impact of the COVID-19 pandemic on the Company’s business and results of operations and the information under the heading “Financial Outlook” in this press release. These statements are based on the beliefs and assumptions of the Company’s management. Although the Company believes that its plans, intentions and expectations reflected in or suggested by these forward-looking statements are reasonable, the Company cannot assure you that it will achieve or realize these plans, intentions or expectations. Forward-looking statements are inherently subject to risks, uncertainties and assumptions. Generally, statements that are not historical facts, including statements concerning our possible or assumed future actions, business strategies, events or results of operations, are forward-looking statements. 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 the date hereof. You should understand that the following important factors, in addition to those discussed in our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2020, as filed on May 11, 2020, and our Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2020, which is expected to be filed on or about the date of this earnings release, as such factors may be updated from time to time in the Company’s periodic filings with the SEC, could affect our future results and could cause those results or other outcomes to differ materially from those expressed or implied in our forward-looking statements:

  • the duration and scope of the COVID-19 pandemic;
  • actions governments, the company’s counterparties, and the company’s customers or potential customers take in response to the COVID-19 pandemic;
  • the impact of the pandemic and actions taken in response to the pandemic on the global economies and economic activity;
  • the pace of recovery when the COVID-19 pandemic subsides;
  • the impact of the COVID-19 pandemic on our liquidity and capital resources, including the impact of the pandemic on our customers and timing of payments, the sufficiency of credit facilities, and the company’s compliance with lender covenants;
  • the ineffectiveness of steps we take to reduce operating costs;
  • risks of the smart home and security industry, including risks of and publicity surrounding the sales, subscriber origination and retention process;
  • the highly competitive nature of the smart home and security industry and product introductions and promotional activity by our competitors;
  • litigation, complaints, product liability claims and/or adverse publicity;
  • the impact of changes in consumer spending patterns, consumer preferences, local, regional, and national economic conditions, crime, weather, demographic trends and employee availability;
  • adverse publicity and product liability claims;
  • increases and/or decreases in utility and other energy costs, increased costs related to utility or governmental requirements;
  • cost increases or shortages in smart home and security technology products or components;
  • the introduction of unsuccessful new Smart Home Services;
  • privacy and data protection laws, privacy or data breaches, or the loss of data;
  • the impact to our business, results of operations, financial condition, regulatory compliance and customer experience of the Vivint Flex Pay plan and our ability to successfully compete in retail sales channels; and
  • risks related to our exposure to variable rates of interest with respect to its revolving credit facility and term loan facility.

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.

The Company undertakes 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

Total Subscribers – is the aggregate number of active smart home and security subscribers at the end of a given period.

Total Monthly Revenue – or Total MR, is the average monthly total revenue recognized during the period.

Average Monthly Revenue per User – or AMRU, is Total MR divided by average monthly Total Subscribers during a given period.

Total Monthly Service Revenue – or MSR, is the contracted recurring monthly service billings to our smart home and security subscribers, based on the Total Subscribers number as of the end of a given period.

Average Monthly Service Revenue per User – or AMSRU, is Total MSR divided by Total Subscribers at the end of a given period.

Adjusted EBITDA Margin – is Adjusted EBITDA as a percent of revenue.

Covenant Adjusted EBITDA Margin – is Covenant Adjusted EBITDA as a percent of revenue.

Attrition Rate – is the aggregate number of canceled smart home and security subscribers during the prior 12 month period divided by the monthly weighted average number of Total Subscribers based on the Total Subscribers at the beginning and end of each month of a given period. Subscribers are considered canceled when they terminate in accordance with the terms of their contract, are terminated by us or if payment from such subscribers is deemed uncollectible (when at least four monthly billings become past due). If a sale of a service contract to third parties occurs, or a subscriber relocates but continues their service, we do not consider this as a cancellation. If a subscriber transfers their service contract to a new subscriber, we do not consider this a cancellation.

Average Subscriber Lifetime – in number of months, is 100% divided by our expected long-term annualized attrition rate (which is currently estimated at 13%) multiplied by 12 months.

Net Service Cost per Subscriber – is the average monthly service costs incurred during the period (both period and capitalized service costs), including monitoring, customer service, field service and other service support costs, less total non-recurring smart home services billings for the period divided by average monthly Total Subscribers for the same period.

Net Service Margin – is the monthly average MSR for the period, less total average net service costs for the period divided by the monthly average MSR for the period.

New Subscribers – is the aggregate number of net new smart home and security subscribers originated during a given period. This metric excludes new subscribers acquired by the transfer of a service contract from one subscriber to another.

Net Subscriber Acquisition Costs per New Subscriber – is the net cash cost to create new smart home and security subscribers during a given 12-month period divided by New Subscribers for that period. These costs include commissions, Products, installation, marketing, sales support and other allocations (general and administrative and overhead) less upfront payment received from the sale of Products associated with the initial installation, and installation fees. These costs exclude capitalized contract costs and upfront proceeds associated with contract modifications.

Total Monthly Service Revenue for New Subscribers – is the contracted recurring monthly service billings to our New Subscribers during the prior 12-month period.

Average Monthly Service Revenue per New Subscriber – is the Total Monthly Service Revenue for New Subscribers divided by New Subscribers during the prior 12-month period.

VIVINT SMART HOME, INC. and SUBSIDIARIES

Condensed Consolidated Statements of Operations

(In thousands)

(Unaudited)

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

2020

 

2019

 

2020

 

2019

Revenues:

 

 

 

 

 

 

 

Recurring and other revenue

$

306,002

 

 

$

281,053

 

 

$

609,234

 

 

$

557,302

 

Costs and expenses:

 

 

 

 

 

 

 

Operating expenses

82,011

 

 

92,013

 

 

165,351

 

 

175,089

 

Selling expenses

64,733

 

 

57,926

 

 

118,960

 

 

101,517

 

General and administrative expenses

59,383

 

 

47,439

 

 

112,401

 

 

93,778

 

Depreciation and amortization

140,175

 

 

134,504

 

 

279,424

 

 

265,725

 

Restructuring expenses

 

 

 

 

20,941

 

 

 

Total costs and expenses

346,302

 

 

331,882

 

 

697,077

 

 

636,109

 

Loss from operations

(40,300

)

 

(50,829

)

 

$

(87,843

)

 

$

(78,807

)

Other expenses (income):

 

 

 

 

 

 

 

Interest expense

54,515

 

 

65,817

 

 

119,808

 

 

129,565

 

Interest income

(32

)

 

 

 

(261

)

 

(23

)

Other (income) expense, net

(8,638

)

 

(198

)

 

17,667

 

 

(2,444

)

Total other expenses

45,845

 

 

65,619

 

 

137,214

 

 

127,098

 

Loss before income taxes

(86,145

)

 

(116,448

)

 

(225,057

)

 

(205,905

)

Income tax expense (benefit)

882

 

 

(552

)

 

94

 

 

(853

)

Net loss

$

(87,027

)

 

$

(115,896

)

 

$

(225,151

)

 

$

(205,052

)

VIVINT SMART HOME, INC. and SUBSIDIARIES

Condensed Consolidated Balance Sheets

(In thousands)

(Unaudited)

 

 

June 30, 2020

 

December 31, 2019

ASSETS

 

 

 

Current Assets:

 

 

 

Cash and cash equivalents

$

248,950

 

 

$

4,549

 

Accounts and notes receivable, net

70,879

 

 

64,216

 

Inventories

82,570

 

 

64,622

 

Prepaid expenses and other current assets

16,007

 

 

18,063

 

Total current assets

418,406

 

 

151,450

 

 

 

 

 

Property, plant and equipment, net

53,518

 

 

61,088

 

Capitalized contract costs, net

1,237,418

 

 

1,215,249

 

Deferred financing costs, net

1,867

 

 

1,123

 

Intangible assets, net

142,768

 

 

177,811

 

Goodwill

835,227

 

 

836,540

 

Operating lease right-of-use assets

61,496

 

 

65,320

 

Long-term notes receivables and other assets, net

79,248

 

 

95,827

 

Total assets

2,829,948

 

 

2,604,408

 

LIABILITIES AND STOCKHOLDERS’ DEFICIT

 

 

 

Current Liabilities:

 

 

 

Accounts payable

90,708

 

 

86,554

 

Accrued payroll and commissions

75,349

 

 

72,642

 

Accrued expenses and other current liabilities

178,196

 

 

139,389

 

Current portion of notes payable, net

9,500

 

 

461,420

 

Deferred revenue

265,283

 

 

234,612

 

Current portion of operating lease liabilities

12,099

 

 

11,640

 

Current portion of finance lease liabilities

5,241

 

 

7,708

 

Total current liabilities

636,376

 

 

1,013,965

 

 

 

 

 

Notes payable, net

2,819,102

 

 

2,575,293

 

Revolving credit facility

105,200

 

 

245,000

 

Finance lease liabilities, net of current portion

3,928

 

 

5,474

 

Operating lease liabilities

58,830

 

 

63,477

 

Deferred revenue, net of current portion

501,743

 

 

405,786

 

Other long-term obligations

108,684

 

 

80,540

 

Deferred income tax liabilities

959

 

 

2,231

 

Total liabilities

4,234,822

 

 

4,391,766

 

Total stockholders’ deficit

(1,404,874

)

 

(1,787,358

)

Total liabilities and stockholders’ deficit

2,829,948

 

 

2,604,408

 

VIVINT SMART HOME, INC. and SUBSIDIARIES

Summary Cash Flow Data

(In thousands)

(Unaudited)

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

2020

 

2019

 

2020

 

2019

Net cash provided by (used in) operating activities

$

111,027

 

 

$

(87,973

)

 

$

77,496

 

 

$

(130,990

)

Net cash (used in) provided by investing activities

(3,411

)

 

1,939

 

 

(5,666

)

 

128

 

Net cash provided by financing activities

9,904

 

 

85,489

 

 

172,576

 

 

121,210

 

Effect of exchange rate changes on cash

341

 

 

(13

)

 

(5

)

 

12

 

Net increase (decrease) in cash and cash equivalents

117,861

 

 

(558

)

 

244,401

 

 

(9,640

)

 

 

 

 

 

 

 

 

Cash and cash equivalents:

 

 

 

 

 

 

 

Beginning of period

131,089

 

 

3,691

 

 

4,549

 

 

12,773

 

End of period

$

248,950

 

 

$

3,133

 

 

$

248,950

 

 

$

3,133

 

Statement Regarding Non-GAAP Financial

Contacts

Nate Stubbs

VP, Investor Relations

801-221-6724

ir@vivint.com

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