VIVINT SMART HOME, INC. Item 2.02 Results of Operations and Financial Condition.
In connection with a proposed financing transaction byAPX Group Holdings, Inc. ("APX"), the direct, wholly owned subsidiary ofVivint Smart Home, Inc. (the "Company" or "Vivint"), and certain of APX's subsidiaries, the following preliminary unaudited financial results of APX for the quarter and fiscal year endedDecember 31, 2019 will be provided to potential investors.
For the quarter ended
For the year endedDecember 31, 2019 , the Company's total revenues are estimated to be between$1,148 million and$1,163 million , net loss is estimated to be between$387 million and$402 million , and Covenant Adjusted EBITDA is estimated to be between$632 million and$647 million . The selected preliminary financial data in this Current Report on Form 8-K has been prepared by, and is the responsibility of, the management of the Company. The information and estimates have not been compiled or examined by the Company's independent auditors and are subject to revision as the Company prepares its financial statements as of and for the quarter and year endedDecember 31, 2019 . Because the Company has not completed its normal quarterly closing and review procedures for the quarter and year endedDecember 31, 2019 , and subsequent events may occur that require adjustments to these results, there can be no assurance that the final results for the quarter and year endedDecember 31, 2019 will not differ materially from these estimates. These estimates should not be viewed as a substitute for financial statements prepared in accordance withU.S. GAAP or as a measure of performance. In addition, these estimated results for the quarter and year endedDecember 31, 2019 are not necessarily indicative of the results to be achieved for any future period. The information in this Current Report on Form 8-K is being furnished pursuant to Items 2.02 and 7.01 of Form 8-K and shall not be deemed to be "filed" for purposes of Section 18 of the Securities Exchange Act of 1934 (the "Exchange Act"), or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing made by the Company under the Securities Act of 1933 or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing.
Forward-Looking Statements
This Current Report on Form 8-K includes forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995 regarding, among other things, statements with respect to certain preliminary unaudited financial results for the Company's quarter and year endedDecember 31, 2019 , which are subject to finalization and contingencies associated with the Company's quarterly financial and accounting procedures. These statements are based on the beliefs and assumptions of 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 the Company's 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. 1
-------------------------------------------------------------------------------- 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, among others, could affect the Company's future results and could cause those results or other outcomes to differ materially from those expressed or implied in the Company's forward-looking statements:
• the risk that the recently consummated merger with Mosaic Acquisition
Corp. (the "Merger") disrupts the Company's plans and operations;
• the ability to recognize the anticipated benefits of the Merger, which
may be affected by, among other things, competition and the ability of
the combined business to grow and manage growth profitably;
• costs related to the Merger;
• 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 the Company's
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;
• 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 the Company's business, results of operations, financial
condition, regulatory compliance and customer experience of the
Flex Pay plan and the Company's ability to successfully compete in retail
sales channels; and
• risks related to the Company's exposure to variable rates of interest
with respect to the Company's 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 the Company's 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 Current Report on Form 8-K are
more fully described in the "Risk Factors" section in the Company's proxy
statement/consent solicitation statement/prospectus dated December 26, 2019 ,
filed with the Securities Exchange Commission (SEC), as such factors may be
updated from time to
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-------------------------------------------------------------------------------- time in the Company's periodic filings with theSEC , which are available on theSEC's website at www.sec.gov. The risks described in "Risk Factors" are not exhaustive. New risk factors emerge from time to time and it is not possible for us to predict all such risk factors, nor can the Company assess the impact of all such risk factors on its business or the extent to which any factor or combination of factors may cause actual results to differ materially from those contained in any forward-looking statements. All forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by the foregoing cautionary statements. The Company undertakes no obligations to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
Non-GAAP Financial Measures
Covenant Adjusted EBITDA is a supplemental measure that is not required by, or presented in accordance with, accounting principles generally accepted inthe United States ("GAAP"). "Covenant 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 and certain unusual, non-cash, nonrecurring and other items permitted in certain covenant calculations under the debt agreements governing the Company's existing indebtedness. The Company believes that the presentation of Covenant Adjusted EBITDA is appropriate to provide additional information to investors about the calculation of, and compliance with, certain financial covenants under the agreements governing the Company's existing indebtedness. The Company cautions investors that amounts presented in accordance with the Company's definition of Covenant Adjusted EBITDA may not be comparable to similar measures disclosed by other issuers, because not all issuers and analysts calculate Covenant Adjusted EBITDA in the same manner. Covenant Adjusted EBITDA is not a measurement of the Company's 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 the Company's liquidity. 3
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See the following table for a quantitative reconciliation of Covenant Adjusted
EBITDA to Net Loss, which the Company believes is the most comparable financial
measure calculated in accordance with GAAP.
Three Months Ended Twelve Months Ended
December 31, 2019 December 31, 2019
($ in millions) ($ in millions)
Low Range High Range Low Range High Range
Net loss $ (95 ) $ (80 ) $ (402 ) $ (387 )
Interest expense, net 66 64 261 259
Other (income) expense, net 3 (2 ) (6 ) 11
Income tax expense 4 1 3 -
Depreciation and amortization (1) 27 25 107 105
Amortization of capitalized contract costs 115 113 438
436
Non-capitalized contract costs (2) 66 60 276 270 Non-cash compensation (3) 3 - 6 3 Other adjustments (4) 5 20 44 59 Adjustment for a change in accounting principle (Topic 606) (5) (36 ) (28 ) (95 ) (87 ) Covenant Adjusted EBITDA$ 158 $ 173$ 632 $ 647
(1) Excludes loan amortization costs that are included in interest expense.
(2) Reflects subscriber acquisition costs that are expensed as incurred because
they are not directly related to the acquisition of specific subscribers.
Certain other industry participants purchase subscribers through subscriber
contract purchases, and as a result, may capitalize the full cost to purchase
these subscriber contracts, as compared to the Company's organic generation
of new subscribers, which requires the Company to expense a portion of its
subscriber acquisition costs under GAAP.
(3) Reflects non-cash compensation costs related to employee and director stock
option plans. Excludes non-cash compensation costs included in
non-capitalized subscriber acquisition costs.
(4) Other adjustments including items such as product development costs, consumer
financing fees, hiring, retention and termination payments, certain legal and
professional fees, monitoring fee and other adjustments.
(5) Reflects adjustments to eliminate the impact of the Company's adoption of
Topic 606.
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