VIVINT SMART HOME, INC., 10-Q filed on 8/6/2020
Quarterly Report
v3.20.2
Document and Entity Information - shares
3 Months Ended 6 Months Ended
Jun. 30, 2020
Jun. 30, 2020
Aug. 04, 2020
Entity Information [Line Items]      
Entity Common Stock, Shares Outstanding     185,771,352
Document Type   10-Q  
Entity Registrant Name   Vivint Smart Home, Inc.  
Amendment Flag   false  
Document Period End Date   Jun. 30, 2020  
Document Fiscal Year Focus   2020  
Document Fiscal Period Focus   Q2  
Entity Central Index Key   0001713952  
Current Fiscal Year End Date   --12-31  
Entity Filer Category   Accelerated Filer  
Entity Small Business   false  
Entity Emerging Growth Company   false  
Entity Current Reporting Status   Yes  
Entity Shell Company   false  
Document Quarterly Report   true  
Document Transition Report   false  
Entity File Number 001-38246    
Entity Incorporation, State or Country Code   DE  
Entity Tax Identification Number   98-1380306  
Entity Address, Address Line One   4931 North 300 West  
Entity Address, City or Town   Provo  
Entity Address, State or Province   UT  
Entity Address, Postal Zip Code   84604  
City Area Code   (801)  
Local Phone Number   377-9111  
Entity Interactive Data Current   Yes  
Common Class A      
Entity Information [Line Items]      
Title of 12(b) Security   Class A common stock, par value $0.0001 per share  
Trading Symbol   VVNT  
Security Exchange Name   NYSE  
Warrants      
Entity Information [Line Items]      
Title of 12(b) Security   Warrants, each exercisable for one share of Class A common stock at an exercise price of $11.50 per share  
Trading Symbol   VVNT WS  
Security Exchange Name   NYSE  
v3.20.2
Condensed Consolidated Balance Sheets (unaudited) - USD ($)
$ in Thousands
Jun. 30, 2020
Dec. 31, 2019
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
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
Deferred revenue 265,283 234,612
Notes Payable, Current 9,500 461,420
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 2,403,831 2,471,659
Notes payable, net - related party 415,271 103,634
Revolving credit facility 105,200 245,000
Finance lease liabilities, net of current portion 3,928 5,474
Deferred revenue, net of current portion 501,743 405,786
Operating lease liabilities 58,830 63,477
Other long-term obligations 108,684 80,540
Deferred income tax liability 959 2,231
Total liabilities 4,234,822 4,391,766
Commitments and contingencies (See Note 12)
Stockholders’ deficit:    
Class A Common stock, $0.0001 par value, 3,000,000,000 shares authorized; 184,349,606 and 94,937,597 shares issued and outstanding as of June 30, 2020 and December 31, 2019, respectively 18 9
Preferred stock, $0.0001 par value, 3,000,000 shares authorized; none issued and outstanding as of June 30, 2020 and December 31, 2019, respectively 0 0
Additional paid-in capital 1,349,158 740,121
Accumulated deficit (2,725,173) (2,500,022)
Accumulated other comprehensive loss (28,877) (27,466)
Total stockholders’ deficit (1,404,874) (1,787,358)
Total liabilities and stockholders’ deficit $ 2,829,948 $ 2,604,408
Common stock, par value (in dollars per share) $ 0.0001 $ 0.0001
Common stock, authorized (in shares) 3,000,000,000 3,000,000,000
Common stock, outstanding (in shares) 94,937,597 94,937,597
Common stock, issued (in shares) 184,349,606 184,349,606
Preferred stock, shares authorized (in shares) 3,000,000 3,000,000
Preferred stock, par value (in dollars per share) $ 0.0001 $ 0.0001
Preferred stock, shares issued (in shares) 0 0
Preferred stock, shares outstanding (in shares) 0 0
v3.20.2
Condensed Consolidated Balance Sheets (unaudited) (Parenthetical) - $ / shares
Jun. 30, 2020
Jan. 17, 2020
Dec. 31, 2019
Statement of Financial Position [Abstract]      
Common stock, par value (in dollars per share) $ 0.0001   $ 0.0001
Common stock, authorized (in shares) 3,000,000,000   3,000,000,000
Common stock, issued (in shares) 184,349,606   184,349,606
Common stock, outstanding (in shares) 94,937,597 154,730,618 94,937,597
Preferred stock, par value (in dollars per share) $ 0.0001   $ 0.0001
Preferred stock, shares authorized (in shares) 3,000,000   3,000,000
Preferred stock, shares outstanding (in shares) 0   0
Preferred stock, shares issued (in shares) 0   0
v3.20.2
Condensed Consolidated Statements of Operations (unaudited) - USD ($)
$ in Thousands
3 Months Ended 6 Months Ended
Jun. 30, 2020
Jun. 30, 2019
Jun. 30, 2020
Jun. 30, 2019
Revenues:        
Recurring and other revenue $ 306,002 $ 281,053 $ 609,234 $ 557,302
Costs and expenses:        
Operating expenses (exclusive of depreciation and amortization shown separately below) 82,011 92,013 165,351 175,089
Selling expenses (exclusive of amortization of deferred commissions of $48,048; $44,756; $95,735 and $88,542, respectively, which are included in depreciation and amortization shown separately below) 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 0 0 20,941 0
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) 0 (261) (23)
Other (income) expense, net (8,638) (198) 17,667 (2,444)
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)
Net loss attributable per share to common stockholders:        
Net loss attributable per share to common stockholders: Basic and diluted (in dollars per share) $ (0.49) $ (1.22) $ (1.37) $ (2.17)
Weighted-average shares used in computing net loss attributable per share to common stockholders:        
Weighted-average shares used in computing net loss attributable per share to common stockholders: Basic and diluted (in shares) 178,411,004 94,709,836 164,782,782 94,703,099
v3.20.2
Condensed Consolidated Statements of Operations (unaudited) (Parenthetical) - USD ($)
$ in Thousands
3 Months Ended 6 Months Ended
Jun. 30, 2020
Jun. 30, 2019
Jun. 30, 2020
Jun. 30, 2019
Income Statement [Abstract]        
Amortization of deferred commissions $ 95,735 $ 88,542 $ 48,048 $ 44,756
v3.20.2
Condensed Consolidated Statements of Comprehensive Loss (unaudited) - USD ($)
$ in Thousands
3 Months Ended 6 Months Ended
Jun. 30, 2020
Jun. 30, 2019
Jun. 30, 2020
Jun. 30, 2019
Statement of Comprehensive Income [Abstract]        
Net loss $ (87,027) $ (115,896) $ (225,151) $ (205,052)
Other comprehensive income (loss), net of tax effects:        
Foreign currency translation adjustment 1,018 504 (1,411) 1,074
Total other comprehensive income (loss) 1,018 504 (1,411) 1,074
Comprehensive loss $ (86,009) $ (115,392) $ (226,562) $ (203,978)
v3.20.2
Condensed Consolidated Statements of Changes in Equity (Deficit) Statement - USD ($)
$ in Thousands
Total
Cumulative Effect, Period of Adoption, Adjustment
Previously Reported
Preferred Stock
Preferred Stock
Previously Reported
Preferred Stock
Retroactive application of recapitalization
Common Stock
Common Stock
Previously Reported
Common Stock
Retroactive application of recapitalization
Additional Paid-In Capital
Additional Paid-In Capital
Previously Reported
Additional Paid-In Capital
Retroactive application of recapitalization
Accumulated Deficit
Accumulated Deficit
Cumulative Effect, Period of Adoption, Adjustment
Accumulated Deficit
Previously Reported
Accumulated Other Comprehensive Loss
Accumulated Other Comprehensive Loss
Previously Reported
Stockholders' equity, beginning balance (in shares) at Dec. 31, 2018       0 79,791 (79,791) 94,696,342 1,006,290 93,690,052                
Stockholders' equity, beginning balance at Dec. 31, 2018 $ (1,397,041) $ 84 $ (1,397,041) $ 0 $ 1 $ (1) $ 9 $ 10 $ (1) $ 735,968 $ 735,966 $ 2 $ (2,104,181) $ 84 $ (2,104,181) $ (28,837) $ (28,837)
Increase (Decrease) in Stockholders' Equity [Roll Forward]                                  
Issuance of common stock upon exercise or vesting of equity awards (in shares)             41,838                    
Net Loss (205,052)                       (205,052)        
Foreign currency translation adjustment 1,074                             1,074  
Stock-based compensation 1,834                 1,834              
Stockholders' equity, ending balance (in shares) at Jun. 30, 2019       0     94,738,180                    
Stockholders' equity, ending balance at Jun. 30, 2019 (1,599,101)     $ 0     $ 9     737,802     (2,309,149)     (27,763)  
Stockholders' equity, beginning balance (in shares) at Mar. 31, 2019       0 79,791 (79,791) 94,696,342 1,006,290 93,690,052                
Stockholders' equity, beginning balance at Mar. 31, 2019 (1,484,686)   (1,484,686) $ 0 $ 1 $ (1) $ 9 $ 10 $ (1) 736,825 736,823 2 (2,193,253)   (2,193,253) (28,267) (28,267)
Increase (Decrease) in Stockholders' Equity [Roll Forward]                                  
Issuance of common stock upon exercise or vesting of equity awards (in shares)             41,838                    
Net Loss (115,896)                       (115,896)        
Foreign currency translation adjustment 504                             504  
Stock-based compensation 977                 977              
Stockholders' equity, ending balance (in shares) at Jun. 30, 2019       0     94,738,180                    
Stockholders' equity, ending balance at Jun. 30, 2019 (1,599,101)     $ 0     $ 9     737,802     (2,309,149)     (27,763)  
Stockholders' equity, beginning balance (in shares) at Dec. 31, 2019       0 79,791 (79,791) 94,937,597 1,009,144 93,928,453                
Stockholders' equity, beginning balance at Dec. 31, 2019 (1,787,358)   (1,787,358) $ 0 $ 1 $ (1) $ 9 $ 10 $ (1) 740,121 740,119 $ 2 (2,500,022)   (2,500,022) (27,466) (27,466)
Increase (Decrease) in Stockholders' Equity [Roll Forward]                                  
Recapitalization transaction (in shares)             59,793,021                    
Recapitalization transaction 461,276           $ 6     461,270              
Issuance of earnout shares (in shares)             23,370,241                    
Issuance of earnout shares             $ 3     (3)              
Tax withholdings related to net share settlement of earnout shares (in shares)             (85,933)                    
Tax withholdings related to net share settlement of equity awards (1,797)                 (1,797)              
Forfeited shares (in shares)             (161,941)                    
Warrants exercised (in shares)             6,490,829                    
Warrants exercised 74,644                 74,644              
Issuance of common stock upon exercise or vesting of equity awards (in shares)             5,792                    
Net Loss (225,151)                       (225,151)        
Foreign currency translation adjustment (1,411)                             (1,411)  
Stock-based compensation 63,817                 63,817              
Restructuring expenses 11,106                 11,106              
Stockholders' equity, ending balance (in shares) at Jun. 30, 2020       0     184,349,606                    
Stockholders' equity, ending balance at Jun. 30, 2020 (1,404,874)     $ 0     $ 18     1,349,158     (2,725,173)     (28,877)  
Stockholders' equity, beginning balance (in shares) at Mar. 31, 2020         0     177,711,910                  
Stockholders' equity, beginning balance at Mar. 31, 2020     $ (1,439,314)   $ 0     $ 18     $ 1,228,709       $ (2,638,146)   $ (29,895)
Increase (Decrease) in Stockholders' Equity [Roll Forward]                                  
Recapitalization transaction (343)                 (343)              
Issuance of earnout shares (in shares)             174,027                    
Tax withholdings related to net share settlement of earnout shares (in shares)             (32,952)                    
Tax withholdings related to net share settlement of equity awards (599)                 (599)              
Warrants exercised (in shares)             6,490,829                    
Warrants exercised 74,644                 74,644              
Issuance of common stock upon exercise or vesting of equity awards (in shares)             5,792                    
Net Loss (87,027)                       (87,027)        
Foreign currency translation adjustment 1,018                             1,018  
Stock-based compensation 46,747                 46,747              
Stockholders' equity, ending balance (in shares) at Jun. 30, 2020       0     184,349,606                    
Stockholders' equity, ending balance at Jun. 30, 2020 $ (1,404,874)     $ 0     $ 18     $ 1,349,158     $ (2,725,173)     $ (28,877)  
v3.20.2
Condensed Consolidated Statements of Changes in Equity (Deficit) (Parenthetical)
6 Months Ended
Jun. 30, 2019
Statement of Stockholders' Equity [Abstract]  
Accounting Standards Update [Extensible List] us-gaap:AccountingStandardsUpdate201602Member
v3.20.2
Condensed Consolidated Statements of Cash Flows (unaudited) - USD ($)
$ in Thousands
6 Months Ended
Jun. 30, 2020
Jun. 30, 2019
Cash flows from operating activities:    
Net loss $ (225,151) $ (205,052)
Adjustments to reconcile net loss to net cash used in operating activities:    
Amortization of capitalized contract costs 233,788 212,276
Amortization of customer relationships 32,911 37,255
Depreciation and amortization of property, plant and equipment and other intangible assets 12,725 16,194
Amortization of deferred financing costs and bond premiums and discounts 2,009 2,339
Gain on fair value changes of equity securities 0 (2,254)
Loss on sale or disposal of assets 558 441
Loss on early extinguishment of debt 12,710 806
Stock-based compensation 63,817 1,834
Provision for doubtful accounts and expected credit losses 13,138 11,636
Deferred income taxes (1,165) (452)
Non-cash restructuring expenses 11,106 0
Changes in operating assets and liabilities:    
Accounts and notes receivable, net (16,928) (29,845)
Inventories (18,067) (88,674)
Prepaid expenses and other current assets (4,117) (5,534)
Capitalized contract costs, net (259,271) (264,554)
Long-term notes receivables, other assets, net 15,556 (5,422)
Right-of-use assets 3,813 3,485
Accounts payable 7,256 66,534
Accrued payroll and commissions, accrued expenses, and other current and long-term liabilities 68,736 30,185
Current and long-term operating lease liabilities (4,176) (3,907)
Deferred revenue 128,248 91,719
Net cash provided by (used in) operating activities 77,496 (130,990)
Cash flows from investing activities:    
Capital expenditures (5,936) (4,653)
Proceeds associated with disposal of capital assets 1,389 19
Acquisition of intangible assets (1,119) (668)
Proceeds from sales of equity securities 0 5,430
Net cash (used in) provided by investing activities (5,666) 128
Cash flows from financing activities:    
Proceeds from notes payable 1,241,000 225,000
Proceeds from notes payable - related party 309,000 0
Repayment of notes payable (1,574,749) (229,050)
Repayment of notes payable - related party (174,800) 0
Borrowings from revolving credit facility 359,200 160,000
Repayments on revolving credit facility (499,000) (26,000)
Proceeds from Mosaic recapitalization 464,953 0
Proceeds from warrant exercises 74,645 0
Repayments of finance lease obligations (4,350) (4,263)
Financing costs (10,977) 0
Deferred financing costs (12,346) (4,036)
Payment of offering costs 0 (441)
Net cash provided by financing activities 172,576 121,210
Effect of exchange rate changes on cash (5) 12
Net increase (decrease) in cash and cash equivalents 244,401 (9,640)
Cash and cash equivalents:    
Beginning of period 4,549 12,773
End of period 248,950 3,133
Supplemental non-cash investing and financing activities:    
Finance lease additions 758 1,567
Intangible asset acquisitions included within accounts payable, accrued expenses and other current liabilities and other long-term obligations 845 2,186
Capital expenditures included within accounts payable 840 1,853
Debt and equity financing costs included within accounts payable 2,365 920
Tax withholding related to issuance of shares $ 1,797 $ 0
v3.20.2
Basis of Presentation and Significant Accounting Policies
6 Months Ended
Jun. 30, 2020
Accounting Policies [Abstract]  
Basis of Presentation and Significant Accounting Policies 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 the Company without audit. The accompanying consolidated financial statements include the accounts of Vivint Smart Home, Inc. and its subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted pursuant to such rules and regulations. The information as of December 31, 2019 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 a 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, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020.
Preparing financial statements requires the Company to make estimates and assumptions that affect the amounts that are reported in the condensed consolidated financial statements and accompanying disclosures. Although these estimates are based on the Company’s best knowledge of current events and actions that the Company may undertake in the future, actual results may be different from the Company’s estimates. The results of operations presented herein are not necessarily indicative of the Company’s results for any future period.
The audited consolidated financial statements of Legacy Vivint Smart Home for the year ending December 31, 2019, which is considered the Company’s accounting predecessor, are included in Amendment No. 2 to the Company’s Current Report on Form 8-K, which was filed with the Securities and Exchange Commission (the “SEC”) on March 13, 2020, and is available on the SEC’s website at www.sec.gov.
Basis of Presentation
On January 17, 2020 (the “Closing Date”), the Company consummated the previously announced merger pursuant to that certain Agreement and Plan of Merger, dated September 15, 2019, by and among the Company, Merger Sub, and Legacy Vivint Smart Home, as amended by Amendment No. 1 to the Agreement and Plan of Merger, dated as of December 18, 2019, by and among the Company, Merger Sub and Legacy Vivint Smart Home. (See Note 5 “Business Combination” for further discussion).
Pursuant to the terms of the Merger Agreement, a business combination between the Company and Legacy Vivint Smart Home was effected through the merger of Merger Sub with and into Legacy Vivint Smart Home, with Legacy Vivint Smart Home surviving as the surviving company (the “Business Combination”). Notwithstanding the legal form of the Business Combination pursuant to the Merger Agreement, the Business Combination is accounted for as a reverse recapitalization in accordance with GAAP. Under this method of accounting, Vivint Smart Home, Inc. is treated as the acquired company and Legacy Vivint Smart Home is treated as the acquirer for financial statement reporting and accounting purposes. Legacy Vivint Smart Home has been determined to be the accounting acquirer based on evaluation of the following facts and circumstances:
Legacy Vivint Smart Home’s shareholders prior to the Business Combination have the greatest voting interest in the combined entity;
the largest individual shareholder of the combined entity was an existing shareholder of Legacy Vivint Smart Home;
Legacy Vivint Smart Home’s directors represent the majority of the Vivint Smart Home board of directors;   
Legacy Vivint Smart Home’s senior management is the senior management of Vivint Smart Home; and   
Legacy Vivint Smart Home is the larger entity based on historical total assets and revenues.
As a result of Legacy Vivint Smart Home being the accounting acquirer, the financial reports filed with the SEC by the Company subsequent to the Business Combination are prepared “as if” Legacy Vivint Smart Home is the predecessor and legal successor to the Company. The historical operations of Legacy Vivint Smart Home are deemed to be those of the Company. Thus, the financial statements included in this report reflect (i) the historical operating results of Legacy Vivint Smart Home prior to the Business Combination; (ii) the combined results of the Company and Legacy Vivint Smart Home following the Business Combination on January 17, 2020; (iii) the assets and liabilities of Legacy Vivint Smart Home at their historical cost; and (iv) the Company’s equity structure for all periods presented. The recapitalization of the number of shares of common stock attributable to the purchase of Legacy Vivint Smart Home in connection with the Business Combination is reflected retroactively to the earliest period presented and will be utilized for calculating earnings per share in all prior periods presented. No step-up basis of intangible assets or goodwill was recorded in the Business Combination transaction consistent with the treatment of the transaction as a reverse recapitalization of Legacy Vivint Smart Home.
In connection with the Business Combination, Mosaic Acquisition Corp. changed its name to Vivint Smart Home, Inc. The Company’s Common Stock is now listed on the NYSE under the symbol “VVNT” and warrants to purchase the Common Stock at an exercise price of $11.50 per share are listed on the NYSE under the symbol “VVNT WS”. Prior to the Business Combination, the Company neither engaged in any operations nor generated any revenue. Until the Business Combination, based on the Company’s business activities, it was a “shell company” as defined under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).
Vivint Flex Pay
The Vivint Flex Pay plan (“Vivint Flex Pay”) became the Company's primary sales model beginning in March 2017. Under Vivint Flex Pay, customers pay separately for the products (including control panel, security peripheral equipment, smart home equipment, and related installation) (“Products”) and Vivint's smart home and security services (“Services”). The customer has the following three ways to pay for the Products: (1) qualified customers in the United States may finance the purchase of Products through third-party financing providers (“Consumer Financing Program”), (2) the Company offers to some customers not eligible for the Consumer Financing Program, but who qualify under the Company's underwriting criteria, the option to enter into a retail installment contract (“RIC”) directly with Vivint, or (3) customers may purchase the Products at the outset of the service contract by check, automatic clearing house payments (“ACH”), credit or debit card.
Although customers pay separately for Products and Services under the Vivint Flex Pay plan, the Company has determined that the sale of Products and Services are one single performance obligation. As a result, all forms of transactions under Vivint Flex Pay create deferred revenue for the gross amount of Products sold. Gross deferred revenues are reduced by imputed interest and estimated write-offs on the RICs and the present value of expected payments due to the third-party financing provider under the Consumer Financing Program.
Under the Consumer Financing Program, qualified customers are eligible for loans provided by third-party financing providers of up to $4,000. The annual percentage rates on these loans range between 0% and 9.99%, and are either installment or revolving loans with a 42 or 60 month term. Most loan terms are determined based on the customer's credit quality.
For certain third-party provider loans, the Company pays a monthly fee based on either the average daily outstanding balance of the loans or the number of outstanding loans, depending on the third-party financing provider and the Company shares liability for credit losses, with the Company being responsible for between 5% and 100% of lost principal balances. Additionally, the Company is responsible for reimbursing certain third-party financing providers for credit card transaction fees associated with the loans. Because of the nature of these provisions, the Company records a derivative liability at its fair value when the third-party financing provider originates loans to customers, which reduces the amount of estimated revenue recognized on the provision of the services. The derivative liability is reduced as payments are made by the Company to the third-party financing provider. Subsequent changes to the fair value of the derivative liability are realized through other expenses (income), net in the unaudited condensed consolidated statement of operations. (see Note 9 “Financial Instruments” for additional information).
For other third-party loans, the Company receives net proceeds (net of fees and expected losses) for which the Company has no further obligation to the third-party. The Company records these net proceeds to deferred revenue.
Retail Installment Contract Receivables
For subscribers that enter into a RIC to finance the purchase of Products and related installation, the Company records a receivable for the amount financed. Gross RIC receivables are reduced for (i) expected write-offs of uncollectible balances over the term of the RIC and (ii) a present value discount of the expected cash flows using a risk adjusted market interest rate.
Therefore, the RIC receivables equal the present value of the expected cash flows to be received by the Company over the term of the RIC, evaluated on a pool basis. RICs are pooled based on customer credit quality, contract length and geography. At the time of installation, the Company records a long-term note receivable within long-term notes receivables and other assets, net on the unaudited condensed consolidated balance sheets for the present value of the receivables that are expected to be collected beyond 12 months of the reporting date. The unbilled receivable amounts that are expected to be collected within 12 months of the reporting date are included as a short-term notes receivable within accounts and notes receivable, net on the unaudited condensed consolidated balance sheets. The billed amounts of notes receivables are included in accounts receivable within accounts and notes receivable, net on the unaudited condensed consolidated balance sheets.
The Company imputes the interest on the RIC receivable using a risk adjusted market interest rate and records it as a reduction to deferred revenue and to the face amount of the related receivable. The risk adjusted interest rate considers a number of factors, including credit quality of the subscriber base and other qualitative considerations such as macro-economic factors. The imputed interest income is recognized over the term of the RIC contract as recurring and other revenue on the unaudited condensed consolidated statements of operations.
When the Company determines that there are RIC receivables that have become uncollectible, it records an adjustment to the allowance and reduces the related note receivable balance. On a regular basis, the Company also assesses the expected remaining cash flows based on historical RIC write-off trends, current market conditions and both Company and third-party forecast data. In accordance with Topic 326 (see Recently Adopted Accounting Standards below), if the Company determines there is a change in expected remaining cash flows, the total amount of this change for all RICs is recorded in the current period to the provision for credit losses, which is included in general and administrative expenses in the accompanying unaudited condensed consolidated statements of operations. The Company recorded a $1.5 million provision for credit losses during the six months ended June 30, 2020, primarily associated with the expected impact of COVID-19. Account balances are written-off if collection efforts are unsuccessful and future collection is unlikely based on the length of time from the day accounts become past due.
Accounts Receivable
Accounts receivable consists primarily of amounts due from subscribers for recurring monthly monitoring Services, amounts due from third-party financing providers and the billed portion of RIC receivables. The accounts receivable are recorded at invoiced amounts and are non-interest bearing and are included within accounts and notes receivable, net on the unaudited condensed consolidated balance sheets. Accounts receivable totaled $27.0 million and $20.5 million at June 30, 2020 and December 31, 2019, respectively, net of the allowance for doubtful accounts of $8.4 million and $8.1 million at June 30, 2020 and December 31, 2019, respectively. In accordance with Topic 326, the Company estimates this allowance based on historical collection experience, subscriber attrition rates, current market conditions and both Company and third-party forecast data. When the Company determines that there are accounts receivable that are uncollectible, they are charged off against the allowance for doubtful accounts. The provision for doubtful accounts is included in general and administrative expenses in the accompanying unaudited condensed consolidated statements of operations and totaled $5.1 million and $5.7 million for the three months ended June 30, 2020 and 2019, respectively and $13.1 million and $11.6 million for the six months ended June 30, 2020 and 2019, respectively.
The changes in the Company’s allowance for accounts receivable were as follows (in thousands): 
 Three Months Ended June 30,Six Months Ended June 30,
 2020201920202019
Beginning balance$8,471  $5,808  $8,118  $5,594  
Provision for doubtful accounts (1)5,055  5,718  13,138  11,636  
Write-offs and adjustments(5,097) (4,889) (12,827) (10,593) 
Balance at end of period$8,429  $6,637  $8,429  $6,637  
(1) The provision for the six months ended June 30, 2020 includes a $1.1 million provision for the expected impact of COVID-19 in accordance with Topic 326.
Revenue Recognition
The Company offers its customers smart home services combining Products, including a proprietary control panel, door and window sensors, door locks, security cameras and smoke alarms; installation; and a proprietary back-end cloud platform software and Services. These together create an integrated system that allows the Company’s customers to monitor, control and protect their home (“Smart Home Services”). The Company’s customers are buying this integrated system that provides them with these Smart Home Services. The number and type of Products purchased by a customer depends on their desired functionality. Because the Products and Services included in the customer’s contract are integrated and highly interdependent, and because they must work together to deliver the Smart Home Services, the Company has concluded that installed Products, related installation and Services contracted for by the customer are generally not distinct within the context of the contract and, therefore, constitute a single, combined performance obligation. Revenues for this single, combined performance obligation are recognized on a straight-line basis over the customer’s contract term, which is the period in which the parties to the contract have enforceable rights and obligations. The Company has determined that certain contracts that do not require a long-term commitment for monitoring services by the customer contain a material right to renew the contract, because the customer does not have to purchase Products upon renewal. Proceeds allocated to the material right are recognized over the period of benefit, which is generally three years.
The majority of the Company’s subscription contracts are between three and five years in length and are generally non-cancelable. These contracts with customers generally convert into month-to-month agreements at the end of the initial term, and some customer contracts are month-to-month from inception. Payment for recurring monitoring and other Smart Home Services is generally due in advance on a monthly basis.
Sales of Products and other one-time fees such as service or installation fees are invoiced to the customer at the time of sale. Revenues for the wireless internet service that were provided by the Company's former wireless internet business (“Wireless”) and any Products or Services that are considered separate performance obligations are recognized when those Products or Services are delivered. Taxes collected from customers and remitted to governmental authorities are not included in revenue. Payments received or amounts billed in advance of revenue recognition are reported as deferred revenue.
Deferred Revenue
The Company's deferred revenues primarily consist of amounts for sales (including upfront proceeds) of Smart Home Services. Deferred revenues are recognized over the term of the related performance obligation, which is generally three to five years.
Capitalized Contract Costs
Capitalized contract costs represent the costs directly related and incremental to the origination of new contracts, modification of existing contracts or to the fulfillment of the related subscriber contracts. These include commissions, other compensation and related costs incurred directly for the origination and installation of new or upgraded customer contracts, as well as the cost of Products installed in the customer home at the commencement or modification of the contract. These costs are deferred and amortized on a straight-line basis over the expected period of benefit that the Company has determined to be five years. The period of benefit of five years is longer than a typical contract term because of anticipated contract renewals. The Company applies this period of benefit to its entire portfolio of contracts. The Company updates its estimate of the period of benefit periodically and whenever events or circumstances indicate that the period of benefit could change significantly. Such changes, if any, are accounted for prospectively as a change in estimate. Amortization of capitalized contract costs is included in “Depreciation and Amortization” on the consolidated statements of operations. These deferred costs are periodically reviewed for impairment. Contract costs not directly related and incremental to the origination of new contracts, modification of existing contracts or to the fulfillment of the related subscriber contracts are expensed as incurred. These costs include those associated with housing, marketing and recruiting, non-direct lead generation costs, certain portions of sales commissions and residuals, overhead and other costs considered not directly and specifically tied to the origination of a particular subscriber.
On the unaudited condensed consolidated statement of cash flows, capitalized contract costs are classified as operating activities and reported as “Capitalized contract costs – deferred contract costs” as these assets represent deferred costs associated with subscriber contracts.
Cash and Cash Equivalents
Cash and cash equivalents consists of highly liquid investments with remaining maturities when purchased of three months or less.
Inventories
Inventories, which are comprised of smart home and security system Products and parts, are stated at the lower of cost or net realizable value with cost determined under the first-in, first-out (“FIFO”) method. Inventories sold to customers as part of a smart home and security system are generally capitalized as contract costs. The Company adjusts the inventory balance based on anticipated obsolescence, usage and historical write-offs.
Property, Plant and Equipment and Long-lived Assets
Property, plant and equipment are stated at cost and depreciated on the straight-line method over the estimated useful lives of the assets or the lease term for assets under finance leases, whichever is shorter. Intangible assets with definite lives are amortized over the remaining estimated economic life of the underlying technology or relationships, which ranges from 2 to 10 years. Definite-lived intangible assets are amortized on the straight-line method over the estimated useful life of the asset or in a pattern in which the economic benefits of the intangible asset are consumed. Amortization expense associated with leased assets is included with depreciation expense. Routine repairs and maintenance are charged to expense as incurred.
The Company reviews long-lived assets, including property, plant and equipment, capitalized contract costs, and definite-lived intangibles for impairment when events or changes in circumstances indicate that the carrying amount may not be recoverable. The Company considers whether or not indicators of impairment exist on a regular basis and as part of each quarterly and annual financial statement close process. Factors the Company considers in determining whether or not indicators of impairment exist include market factors and patterns of customer attrition. If indicators of impairment are identified, the Company estimates the fair value of the assets. An impairment loss is recognized if the carrying amount of a long-lived asset is not recoverable and exceeds its fair value.
The Company conducts an indefinite-lived intangible impairment analysis annually as of October 1, and as necessary if changes in facts and circumstances indicate that the fair value of the Company’s indefinite-lived intangibles may be less than the carrying amount. When indicators of impairment do not exist and certain accounting criteria are met, the Company is able to evaluate indefinite-lived intangible impairment using a qualitative approach. When necessary, the Company’s quantitative impairment test consists of two steps. The first step requires that the Company compare the estimated fair value of its indefinite-lived intangibles to the carrying value. If the fair value is greater than the carrying value, the intangibles are not considered to be impaired and no further testing is required. If the fair value is less than the carrying value, an impairment loss in an amount equal to the difference is recorded.
During the three and six months ended June 30, 2020 and 2019, no impairments to long-lived assets or intangibles were recorded.
The Company’s depreciation and amortization included in the consolidated statements of operations consisted of the following (in thousands):
 Three Months Ended June 30,Six Months Ended June 30,
 2020201920202019
Amortization of capitalized contract costs$117,645  $107,245  $233,786  $212,275  
Amortization of definite-lived intangibles17,368  20,194  34,810  40,466  
Depreciation of property, plant and equipment5,162  7,065  10,828  12,984  
Total depreciation and amortization$140,175  $134,504  $279,424  $265,725  
Leases
Effective January 1, 2019 the Company accounts for leases under Topic 842 (see Recently Adopted Accounting Standards below). Under Topic 842, the Company determines if an arrangement is a lease at inception. Lease right-of-use (“ROU”) assets represent the Company's right to use an underlying asset for the lease term and lease liabilities represent the obligation to make lease payments arising from the lease. Lease ROU assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. In determining the present value of lease payments, the Company uses the implicit rate when available. When implicit rates are not available, the Company uses an incremental borrowing rate based on the information available at commencement date. The lease ROU asset also includes any lease payments made and is reduced by lease incentives. Lease expense for lease payments is recognized on a straight-line basis over the lease term. The Company does not record lease ROU assets and liabilities for leases with terms of 12 months or less.
Leases are classified as either operating or finance at lease inception. Operating lease assets and liabilities and finance lease liabilities are stated separately on the unaudited condensed consolidated balance sheets. Finance lease assets are included in property, plant and equipment, net on the unaudited condensed consolidated balance sheets.
The Company has lease agreements with lease and non-lease components. For facility type leases, the Company separates the lease and non-lease components. Generally, the Company accounts for the lease and non-lease components as a single lease component for all other class of leases.
Prior to the adoption of Topic 842, the Company's leases were classified as either operating or capital leases. Capital lease liabilities were stated separately on the unaudited condensed consolidated balance sheets and capital lease assets were included in property, plant and equipment, net on the unaudited condensed consolidated balance sheets. Operating leases were not recognized in the balance sheet. Capital lease balances are presented on the same lines as finance lease balances for comparative prior periods in the unaudited condensed consolidated financial statements. See Recently Adopted Accounting Standards below and note 13 "Leases" for additional information related to the impact of adopting Topic 842.
Deferred Financing Costs
Certain costs incurred in connection with obtaining debt financing are deferred and amortized utilizing the straight-line method, which approximates the effective-interest method, over the life of the related financing. Deferred financing costs associated with obtaining APX Group, Inc.’s (“APX”) revolving credit facility are amortized over the amended maturity dates discussed in Note 3 “Long-Term Debt.” Deferred financing costs included in the accompanying unaudited condensed consolidated balance sheets within deferred financing costs, net at June 30, 2020 and December 31, 2019 were $1.9 million and $1.1 million, net of accumulated amortization of $10.8 million and $10.6 million, respectively. Deferred financing costs included in the accompanying unaudited condensed consolidated balance sheets within notes payable, net at June 30, 2020 and December 31, 2019 were $30.8 million and $27.0 million, net of accumulated amortization of $67.3 million and $63.5 million, respectively. Amortization expense on deferred financing costs recognized and included in interest expense in the accompanying unaudited condensed consolidated statements of operations, totaled $2.0 million and $2.4 million for the three months ended June 30, 2020 and 2019, respectively and $4.0 million and $4.9 million for the six months ended June 30, 2020 and 2019, respectively (See Note 3 “Long-Term Debt” for additional detail).
Residual Income Plans
The Company has a program that allows certain third-party sales channel partners to receive additional compensation based on the performance of the underlying contracts they create (the “Channel Partner Plan”). The Company also has a residual sales compensation plan (the “Residual Plan”) under which the Company's sales personnel (each, a “Plan Participant”) receive compensation based on the performance of certain underlying contracts they created in prior years.
For both the Channel Partner Plan and Residual Plan, the Company calculates the present value of the expected future residual payments and records a liability for this amount in the period the subscriber account is originated. These costs are recorded to capitalized contract costs. 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 payroll and commissions was $4.0 million and $4.5 million at June 30, 2020 and December 31, 2019, respectively, and the amount included in other long-term obligations was $22.8 million and $22.1 million at June 30, 2020 and December 31, 2019, respectively.
Stock-Based Compensation
The Company measures compensation cost based on the grant-date fair value of the award and recognizes that cost over the requisite service period of the awards (See Note 11 “Stock-Based Compensation and Equity” for additional details).
Advertising Expense
Advertising costs are expensed as incurred. Advertising costs were $14.0 million and $17.3 million for the three months ended June 30, 2020 and 2019, respectively and $26.8 million and $30.0 million for the six months ended June 30, 2020 and 2019, respectively.
Income Taxes
The Company accounts for income taxes based on the asset and liability method. Under the asset and liability method, deferred tax assets and deferred tax liabilities are recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Valuation allowances are established when necessary to reduce deferred tax assets when it is determined that it is more likely than not that some portion, or all, 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.
Changes in tax laws and rates could also affect recorded deferred tax assets and liabilities in the future. The Company records the effect of a tax rate or law change on the Company’s deferred tax assets and liabilities in the period of enactment. Future tax rate or law changes could have a material effect on the Company’s results of operations, financial condition, or cash flows.
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, 2020, approximately 90% of the Company’s installed panels were SkyControl panels and approximately 10% were 2GIG Go!Control panels. During 2018 the Company transitioned to a new panel supplier. The loss of the Company's panel supplier could potentially impact its 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, 2020 and 2019.
The carrying amounts of the Company’s accounts receivable, accounts payable and accrued and other liabilities approximate their fair values due to their short maturities.
Goodwill
The Company conducts a goodwill impairment analysis annually in the fourth fiscal quarter, as of October 1, and as necessary if changes in facts and circumstances indicate that the fair value of the Company’s reporting units may be less than their carrying amounts. 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. The Company’s reporting units are determined based on its current reporting structure, which as
of June 30, 2020 consisted of one reporting unit. As of June 30, 2020, there were no changes in facts and circumstances since the most recent annual impairment analysis to indicate impairment existed.
Foreign Currency Translation and Other Comprehensive Income
The functional currency of Vivint Canada, Inc. is the Canadian dollar. Accordingly, Vivint Canada, Inc. assets and liabilities are translated from their respective functional currencies into U.S. dollars at period-end rates and Vivint Canada, Inc. 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.
When intercompany foreign currency transactions between entities included in the unaudited consolidated financial statements are of a long term investment nature (i.e., those for which settlement is not planned or anticipated in the foreseeable future) foreign currency translation adjustments resulting from those transactions are included in stockholders’ deficit as accumulated other comprehensive loss or income. When intercompany transactions are deemed to be of a short term nature, translation adjustments are required to be included in the condensed consolidated statement of operations. The Company has determined that settlement of Vivint Canada, Inc. intercompany balances is anticipated and therefore such balances are deemed to be of a short term nature. Translation activity included in the statement of operations in other (income) expenses, net related to intercompany balances was as follows: (in thousands)
 Three Months Ended June 30,Six Months Ended June 30,
 2020201920202019
Translation (gain) loss$(2,764) $(1,155) $3,519  $(2,855) 
Letters of Credit
As of each June 30, 2020 and December 31, 2019, the Company had $15.6 million and $11.1 million, respectively, of letters of credit issued in the ordinary course of business, all of which are undrawn.
Restructuring and Asset Impairment Charges
Restructuring and asset impairment charges represent expenses incurred in relation to activities to exit or disposal of portions of the Company's business that do not qualify as discontinued operations. Liabilities associated with restructuring are measured at their fair value when the liability is incurred. Expenses for related termination benefits are recognized at the date the Company notifies the employee, unless the employee must provide future service, in which case the benefits are expensed ratably over the future service period. Liabilities related to termination of a contract are measured and recognized at fair value when the contract does not have any future economic benefit to the entity and the fair value of the liability is determined based on the present value of the remaining obligation. The Company expenses all other costs related to an exit or disposal activity as incurred (See Note 16).
Recently Adopted Accounting Standards
In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2016-13, “Financial Instruments—Credit Losses (Topic 326)” which modifies the measurement of expected credit losses of certain financial instruments. This update is effective for fiscal years, and interim periods within those years, beginning after December 15, 2019 and must be applied using a modified-retrospective approach, with early adoption permitted. The Company adopted ASU 2016-13 as of January 1, 2020. The adoption of the standard did not have a material effect on its consolidated financial statements.
v3.20.2
Revenue and Capitalized Contract Costs
6 Months Ended
Jun. 30, 2020
Revenue from Contract with Customer [Abstract]  
Revenue and Capitalized Contract Costs Revenue and Capitalized Contract Costs
Customers are typically invoiced for Smart Home Services in advance or at the time the Company delivers the related Smart Home Services. The majority of customers pay at the time of invoice via credit card, debit card or ACH. Deferred revenue relates to the advance consideration received from customers, which precedes the Company’s satisfaction of the associated performance obligation. The Company’s deferred revenues primarily result from customer payments received in advance for recurring monthly monitoring and other Smart Home Services, or other one-time fees, because these performance obligations are satisfied over time.  
During the six months ended June 30, 2020 and 2019, the Company recognized revenues of $143.2 million and $135.1 million, respectively, that were included in the deferred revenue balance as of December 31, 2019 and 2018, respectively.
Transaction Price Allocated to the Remaining Performance Obligations
As of June 30, 2020, approximately $2.7 billion of revenue is expected to be recognized from remaining performance obligations for subscription contracts. The Company expects to recognize approximately 61% of the revenue related to these remaining performance obligations over the next 24 months, with the remaining balance recognized over an additional 36 months.
Timing of Revenue Recognition
The Company considers Products, related installation, and its proprietary back-end cloud platform software and services an integrated system that allows the Company’s customers to monitor, control and protect their homes. These Smart Home Services are accounted for as a single performance obligation that is recognized over the customer’s contract term, which is generally three to five years.
Capitalized Contract Costs
Capitalized contract costs generally include commissions, other compensation and related costs paid directly for the generation and installation of new or modified customer contracts, as well as the cost of Products installed in the customer home at the commencement or modification of the contract. The Company defers and amortizes these costs for new or modified subscriber contracts on a straight-line basis over the expected period of benefit of five years.
v3.20.2
Long-Term Debt
6 Months Ended
Jun. 30, 2020
Debt Disclosure [Abstract]  
Long-Term Debt Long-Term Debt
The Company’s debt at June 30, 2020 and December 31, 2019 consisted of the following (in thousands): 
June 30, 2020
Outstanding
Principal
Unamortized
Premium (Discount)
Unamortized Deferred Financing Costs (1)Net Carrying
Amount
Senior Secured Revolving Credit Facilities$105,200  $—  $—  $105,200  
7.875% Senior Secured Notes Due 2022
677,000  9,793  (5,923) 680,870  
7.625% Senior Notes Due 2023
400,000  —  (2,661) 397,339  
8.500% Senior Secured Notes Due 2024
225,000  —  (3,980) 221,020  
6.750% Senior Secured Notes Due 2027
600,000  —  (6,239) 593,761  
Senior Secured Term Loan - noncurrent938,125  —  (12,013) 926,112  
Total Long-Term Debt2,945,325  9,793  (30,816) 2,924,302  
Senior Secured Term Loan - current9,500  —  —  9,500  
Total Debt$2,954,825  $9,793  $(30,816) $2,933,802  

December 31, 2019
Outstanding
Principal
Unamortized
Premium (Discount)
Unamortized Deferred Financing Costs (1)Net Carrying
Amount
Long-Term Debt:
Senior Secured Revolving Credit Facility$245,000  $—  $—  $245,000  
8.875% Senior Secured Notes due 2022
270,000  (1,645) (451) 267,904  
7.875% Senior Secured Notes due 2022
900,000  15,480  (9,532) 905,948  
7.625% Senior Notes Due 2023
400,000  —  (3,081) 396,919  
8.500% Senior Secured Notes Due 2024
225,000  —  (4,431) 220,569  
Senior Secured Term Loan - noncurrent791,775  —  (7,822) 783,953  
Total Long-Term Debt2,831,775  13,835  (25,317) 2,820,293  
Current Debt:
Senior Secured Term Loan - current (2)8,100  —  —  8,100  
8.750% Senior Notes due 2020
454,299  $742  $(1,721) $453,320  
Total Current Debt462,399  742  (1,721) 461,420  
Total Debt$3,294,174  $14,577  $(27,038) $3,281,713  

 
(1)Unamortized deferred financing costs related to the revolving credit facilities included in deferred financing costs, net on the condensed consolidated balance sheets at June 30, 2020 and December 31, 2019 were $1.9 million and $1.1 million, respectively.
(2)The current portion of the Term Loan was included in accrued expenses and other current liabilities on the consolidated balance sheets as reported in our audited consolidated financial statements for the year ended December 31, 2019. The Company has reclassified the amounts reported for December 31, 2019 to be included in the current portion of notes payable, net in the condensed consolidated balance sheets.

Notes Payable
2022 Notes 
As of June 30, 2020, APX had $677.0 million outstanding aggregate principal amount of 7.875% senior secured notes due 2022 (the “2022 notes”). The 2022 notes will mature on December 1, 2022, or on such earlier date when any outstanding pari passu lien indebtedness matures as a result of the operation of any “Springing Maturity” provision set forth in the agreements governing such pari passu lien indebtedness. The 2022 notes are secured, on a pari passu basis, by the collateral
securing obligations under the 2024 notes (as defined below), the 2027 notes (as defined below), the revolving credit facilities and the Term Loan, in each case, subject to certain exceptions and permitted liens.
2023 Notes
As of June 30, 2020, APX had $400.0 million outstanding aggregate principal amount of the 7.625% senior notes due 2023 (the “2023 notes”) with a maturity date of September 1, 2023.
2024 Notes 
As of June 30, 2020, APX had $225.0 million outstanding aggregate principal amount of 8.50% senior secured notes due 2024 (the “2024 notes” and, together with the 2022 notes and the 2027 notes, the “existing senior secured notes”). The 2024 notes will mature on November 1, 2024, unless, under “Springing Maturity” provisions, on June 1, 2023 (the 91st day prior to the maturity of the 2023 notes) more than an aggregate principal amount of $125.0 million of such 2023 notes remain outstanding or have not been refinanced as permitted under the indenture for the 2023 notes, in which case the 2024 Notes will mature on June 1, 2023. The 2024 notes are secured, on a pari passu basis, by the collateral securing obligations under the existing senior secured notes, the revolving credit facilities and the Term Loan, in all each case, subject to certain exceptions and permitted liens.
2027 Notes 
As of June 30, 2020, APX had $600.0 million outstanding aggregate principal amount of 6.75% senior secured notes due 2027 (the “2027 notes” and, together with the 2022 notes, the 2023 notes and the 2024 notes the “Notes”). The 2027 notes will mature on February 15, 2027, unless, under “Springing Maturity” provisions on June 1, 2023 (the 91st day prior to the maturity of the 2023 notes) more than an aggregate principal amount of $125.0 million of such 2023 notes remain outstanding or have not been refinanced as permitted under the note purchase agreement for the 2023 notes, in which case the 2027 Notes will mature on June 1, 2023. The 2027 notes are secured, on a pari passu basis, by the collateral securing obligations under the existing senior secured notes, the revolving credit facility and the Term Loan, in each case, subject to certain exceptions and permitted liens.
Interest accrues at the rate of 7.875% per annum for the 2022 notes, 7.625% per annum for the 2023 notes, 8.50% per annum for the 2024 notes and 6.75% per annum for the 2027 notes. Interest on the 2022 notes is payable semiannually in arrears on June 1 and December 1 of each year. Interest on the 2023 notes is payable semiannually in arrears on March 1 and September 1 of each year. Interest on the 2024 notes is payable semiannually in arrears on May 1 and November 1 each year. Interest on the 2027 notes is payable semiannually in arrears on February 15 and August 15 each year. APX may redeem the Notes at the prices and on the terms specified in the applicable indenture.
Term Loan
As of June 30, 2020, APX had outstanding term loans in an aggregate principal amount of $947.6 million (the “Term Loan”) under its amended and restated credit agreement. APX is required to make quarterly amortization payments under the Term Loan in an amount equal to 0.25% of the aggregate principal amount of the Term Loan outstanding on the closing date thereof. The remaining outstanding principal amount of the Term Loan will be due and payable in full on December 31, 2025, unless, pursuant to a “Springing Maturity” provision on June 1, 2023 (the 91st day prior to the maturity of the 2023 notes) more than an aggregate principal amount of $125.0 million of such 2023 notes remain outstanding or have not been repaid or redeemed, in which case the Term Loan will mature on June 1, 2023.

The Term Loan bears interest at a rate per annum equal to an applicable margin plus, at APX's option, either (1) the base rate determined by reference to the highest of (a) the federal funds rate plus 0.50%, (b) the prime rate of Bank of America, N.A. and (c) the LIBOR rate determined by reference to the costs of funds for U.S. dollar deposits for an interest period of one month, plus 1.00% or (2) the LIBOR rate determined by reference to the London interbank offered rate for dollars for the interest period relevant to such borrowing. The applicable margin for base rate-based borrowings is 4.0% per annum and the applicable margin for LIBOR rate-based borrowings is 5.0% per annum. APX may prepay the Term Loan on the terms specified in the credit agreement covering the Term Loan.
Debt Modifications and Extinguishments
The Company performs analyses on a creditor-by-creditor basis for debt modifications and extinguishments to determine if repurchased debt was substantially different than debt issued to determine the appropriate accounting treatment of associated issuance costs. As a result of these analyses, the following amounts of other expense and loss on extinguishment and deferred financing costs were recorded (in thousands):
Original premium extinguishedPreviously deferred financing costs extinguishedNew financing costsTotal other expense and loss on extinguishmentPreviously deferred financing costs rolled overNew deferred financing costsTotal deferred financing costs remaining after issuance
Six months ended June 30, 2020
2027 Notes issuance - February 2020$(2,749) $4,033  $6,146  $7,430  $205  $6,346  $6,551  
Term Loan issuance - February 2020—  235  5,045  5,280  6,973  5,461  12,434  
Total$(2,749) $4,268  $11,191  $12,710  $7,178  $11,807  $18,985  

Deferred financing costs are amortized to interest expense over the life of the issued debt. The Company had no debt issuances or related modification or extinguishment costs during the three months ended June 30, 2020.
The following table presents deferred financing activity for the six months ended June 30, 2020 and 2019 (in thousands):
Unamortized Deferred Financing Costs
Balance December 31, 2019AdditionsEarly Extinguishment AmortizedBalance June 30, 2020
Revolving Credit Facility$1,123  $1,027  $—  $(283) $1,867  
2020 Notes1,721  —  (1,565) (156) —  
2022 Private Placement Notes451  (205) (221) (25) —  
2022 Notes9,532  —  (2,247) (1,362) 5,923  
2023 Notes3,081  —  —  (420) 2,661  
2024 Notes4,431  —  —  (451) 3,980  
2027 Notes—  6,551  —  (312) 6,239  
Term Loan7,822  5,461  (235) (1,035) 12,013  
Total Deferred Financing Costs$28,161  $12,834  $(4,268) $(4,044) $32,683  

Unamortized Deferred Financing Costs
Balance December 31, 2018AdditionsEarly Extinguishment AmortizedBalance June 30, 2019
Revolving Credit Facility$2,058  $—  $—  $(486) $1,572  
2020 Notes5,380  —  (1,395) (1,326) 2,659  
2022 Private Placement Notes602  —  —  (75) 527  
2022 Notes12,799  —  —  (1,634) 11,165  
2023 Notes3,922  —  —  (420) 3,502  
2024 Notes—  4,956  —  (75) 4,881  
Term Loan9,662  —  —  (920) 8,742  
Total Deferred Financing Costs$34,423  $4,956  $(1,395) $(4,936) $33,048  

        Revolving Credit Facility
During the six months ended June 30, 2020, APX amended and restated the credit agreement governing its existing senior secured revolving credit facility to provide for, among other things, (1) an increase in the aggregate commitments previously available to it to $350.0 million and (2) the extension of the maturity date with respect to certain of the previously available commitments.
Borrowings under the amended and restated revolving credit facility bear interest at a rate per annum equal to an applicable margin plus, at APX’s option, either (1) the base rate determined by reference to the highest of (a) the Federal Funds rate plus 0.50%, (b) the prime rate of Bank of America, N.A. and (c) the LIBOR rate determined by reference to the costs of funds for U.S. dollar deposits for an interest period of one month, plus 1.00% or (2) the LIBOR rate determined by reference to the London interbank offered rate for dollars for the interest period relevant to such borrowing. The applicable margin for base rate-based borrowings (1)(a) under the Series A Revolving Commitments of approximately $10.9 million and the Series C Revolving Commitments of approximately $330.8 million is 2.0% per annum and (b) under the Series B Revolving Commitments of approximately $8.3 million is 3.0% and (2)(a) the applicable margin for LIBOR rate-based borrowings (a) under the Series A Revolving Commitments and the Series C Revolving Commitments is currently 3.0% per annum and (b) under the Series B Revolving Commitments is currently 4.0%. The applicable margin for borrowings under the revolving credit facility is subject to one step-down of 25 basis points based on APX meeting a consolidated first lien net leverage ratio test at the end of each fiscal quarter.
In addition to paying interest on outstanding principal under the revolving credit facility, APX is required to pay a quarterly commitment fee (which is subject to one interest rate step-down of 12.5 basis points, based on APX meeting a consolidated first lien net leverage ratio test) to the lenders under the revolving credit facility in respect of the unutilized commitments thereunder. APX also pays customary letter of credit and agency fees.
APX is not required to make any scheduled amortization payments under the revolving credit facility. The principal amount outstanding under the revolving credit facility will be due and payable in full with respect to commitments under the Series A Revolving Credit Facility and Series B Revolving Credit Facility on March 31, 2021 and on February 14, 2025 with respect to the Series C Revolving Credit Commitments, unless “Springing Maturity” provisions apply. Under the “Springing Maturity” provisions, principal amounts outstanding will be due:
the 91st day prior to the maturity of the 2022 notes, if, on that date, more than an aggregate principal amount of $350.0 million of such 2022 notes remain outstanding or have not been repaid or redeemed with certain qualifying proceeds specified in the revolving credit facility,
the 91st day prior to the maturity of the 2023 notes, if, on that date, more than an aggregate principal amount of $125.0 million of such 2023 notes remain outstanding or have not been repaid or redeemed with certain qualifying proceeds specified in the revolving credit facility,
the 91st day prior to the maturity of the 2024 notes, if, on that date, more than an aggregate principal amount of $125.0 million of such 2024 notes remain outstanding or have not been repaid or redeemed with certain qualifying proceeds specified in the revolving credit facility.
As of June 30, 2020 and December 31, 2019 there was $105.2 million and $245.0 million, respectively of outstanding borrowings under the revolving credit facility. As of June 30, 2020 the Company had $229.2 million of availability under the revolving credit facility (after giving effect to $15.6 million of letters of credit outstanding and $105.2 million of borrowings).

        Guarantees
All of the obligations under the credit agreement governing the revolving credit facility, the credit agreement governing the Term Loan and the debt agreements governing the Notes are guaranteed by APX Group Holdings, Inc. and each of APX Group's existing and future material wholly-owned U.S. restricted subsidiaries (subject to customary exclusions and qualifications). However, such subsidiaries shall only be required to guarantee the obligations under the debt agreements governing the Notes for so long as such entities guarantee the obligations under the revolving credit facility, the credit agreement governing the Term Loan or the Company's other indebtedness. All of the obligations under the Notes are also guarantedd by Vivint Smart Home, Inc.
v3.20.2
Retail Installment Contract Receivables
6 Months Ended
Jun. 30, 2020
Receivables [Abstract]  
Retail Installment Contract Receivables Retail Installment Contract Receivables
Certain subscribers have the option to purchase Products under a RIC, payable over either 42 or 60 months. Short-term RIC receivables are recorded in accounts and notes receivable, net and long-term RIC receivables are recorded in long-term notes receivables and other assets, net in the unaudited condensed consolidated unaudited balance sheets.
The following table summarizes the RIC receivables (in thousands):
 June 30, 2020December 31, 2019
RIC receivables, gross$166,121  $192,058  
RIC allowance(34,733) (39,219) 
Imputed interest(16,145) (20,294) 
RIC receivables, net$115,243  $132,545  
Classified on the unaudited condensed consolidated unaudited balance sheets as:
Accounts and notes receivable, net$43,888  $43,733  
Long-term notes receivables and other assets, net71,355  88,812  
RIC receivables, net$115,243  $132,545  
The changes in the Company’s RIC allowance were as follows (in thousands):
 Six months ended June 30, 2020Six months ended June 30, 2019
RIC allowance, beginning of period$39,219  $22,080  
Write-offs, net of recoveries(9,148) (10,593) 
Additions from RICs originated during the period4,365  11,556  
Change in expected credit losses1,522  (2,299) 
Other Adjustments (1)(1,225) 13  
RIC allowance, end of period$34,733  $20,757  

(1) Other adjustments primarily reflect changes in foreign currency exchange rates related to Canadian RICs.
The amount of RIC imputed interest income recognized in recurring and other revenue was $2.7 million and $3.1 million during the three months ended June 30, 2020 and 2019, respectively and $5.6 million and $6.6 million during the six months ended June 30, 2020 and 2019, respectively.
v3.20.2
Business Combination
6 Months Ended
Jun. 30, 2020
Business Combinations [Abstract]  
Business Combination Business Combination
On January 17, 2020, the Company consummated the previously announced merger pursuant to that certain Agreement and Plan of Merger, dated September 15, 2019, by and among the Company, Merger Sub, and Legacy Vivint Smart Home, as amended by the Merger Agreement, dated as of December 18, 2019, by and among the Company, Maiden Sub and Legacy Vivint Smart Home.
Pursuant to the terms of the Merger Agreement, a business combination between the Company and Legacy Vivint Smart Home was effected through the merger of Merger Sub with and into Legacy Vivint Smart Home, with Legacy Vivint Smart Home surviving as the surviving company. At the effective time of the Business Combination (the “Effective Time”), each stockholder of Legacy Vivint Smart Home received 84.5320916792 shares of the Company’s Class A common stock, par value $0.0001 per share (the “Common Stock”), for each share of Legacy Vivint Smart Home common stock, par value $0.01 per share, that such stockholder owned.
Pursuant in each case to a Subscription Agreement entered into in connection with the Merger Agreement, certain investment funds managed by affiliates of Fortress Investment Group LLC (“Fortress”) and certain investment funds affiliated with The Blackstone Group Inc. (“Blackstone”) purchased, respectively, 12,500,000 and 10,000,000 newly-issued shares of Common Stock (such purchases, the “Fortress PIPE” and the “Blackstone PIPE,” respectively, and together, the “PIPE”) concurrently with the completion of the Business Combination (the “Closing”) on the Closing Date for an aggregate purchase price of $125.0 million and $100.0 million, respectively. In connection with the Merger, each of the issued and outstanding Founder Shares was converted into approximately 1.20 shares of Common Stock of the Company. The private placement warrants will expire five years after the Closing or earlier upon redemption or liquidation.
In connection with the execution of the Amendment, the Company entered into a Subscription and Backstop Agreement (the “Fortress Subscription and Backstop Agreement”). On the Closing Date, pursuant to the Fortress Subscription and Backstop Agreement, Fortress purchased 2,698,753 shares of Common Stock for an aggregate of $27.8 million. In addition, the Company entered into an additional subscription agreement (the “Additional Forward Purchaser Subscription Agreement”) with one of the forward purchasers (the “Forward Purchaser”). Pursuant to the Additional Forward Purchaser Subscription Agreement, immediately prior to the Effective Time, the Forward Purchaser purchased from us 5,000,000 shares of Common Stock at a purchase price of $10.00 per share. As consideration for the additional investment, concurrently with the Closing, 25% of Mosaic Sponsor LLC’s founder shares (“Forward Shares”) and private placement warrants were forfeited to the Company and the Company issued to the Forward Purchaser a number of shares of Common Stock equal to approximately 1.20 times the number of Founder Shares forfeited and a number of warrants equal to the number of private placement warrants forfeited.
At the Closing, certain investors (including an affiliate of Fortress) received an aggregate of 15,789,474 shares of Common Stock at a purchase price of $9.50 per share (the “IPO Forward Purchaser Investment”) pursuant to the terms of the forward purchase agreements the Company entered into in connection with the Company’s initial public offering.
In connection with the Closing, 31,074,592 shares of Common Stock were redeemed at a price per share of approximately $10.29. In addition, in connection with the Closing, each Founder Share issued and outstanding immediately prior to the Closing (other than the Founder Shares forfeited in connection with the Additional Forward Purchaser Subscription Agreement) converted into approximately 1.20 shares of Common Stock of the Company. Immediately prior to the Effective Time, each issued and outstanding share of Legacy Vivint Smart Home preferred stock (other than shares owned by Legacy Vivint Smart Home as treasury stock) converted into approximately 1.43 shares of Legacy Vivint Smart Home common stock in accordance with the certificate of designations of the Legacy Vivint Smart Home preferred stock.
The following table reconciles the elements of the Business Combination to the consolidated statement of cash flows and the consolidated statement of changes in equity for the six months ended June 30, 2020:
Recapitalization
(in thousands)
Cash - Mosaic (net of redemptions)$35,344  
Cash - Subscribers and Forward Purchasers453,221  
Less fees to underwriters and other transaction costs(23,612) 
Net cash received from recapitalization464,953  
Less: non-cash net liabilities assumed from Mosaic(5) 
Less: non-cash settlement of deferred and accrued transaction costs(3,672) 
Net contributions from recapitalization$461,276  
The number of shares of Common Stock of Vivint Smart Home Inc. issued immediately following the consummation of the Business Combination is summarized as follows:

Number of Shares
Common Stock outstanding prior to Business Combination34,500,000
Less redemption of Mosaic Shares(31,074,592)
Common Stock of Mosaic3,425,408
Shares issued from Fortress PIPE12,500,000
Shares from Blackstone PIPE10,000,000
Shares from Additional Forward Purchaser Subscription Agreement5,000,000
Shares from IPO Forward Purchaser Investment15,789,474
Shares from Fortress Subscription and Backstop Agreement2,698,753
Shares from Mosaic Founder Shares10,379,386
Recapitalization shares59,793,021
Legacy Vivint Smart Home equity holders94,937,597
Total shares154,730,618
Earnout consideration
Following the closing of the Merger, holders of Vivint common stock and holders of Rollover Restricted Stock (as defined in the Merger Agreement) and outstanding Rollover Equity Awards (as defined in the Merger Agreement) will have the contingent right to receive, in the aggregate, up to 37,500,000 shares of Common Stock if, from the closing of the Merger until the fifth anniversary thereof, the dollar volume-weighted average price of Common Stock exceeds certain thresholds. The first issuance of 12,500,000 earnout shares will occur if the volume-weighted average price of Common Stock exceeds $12.50 for any 20 trading days within any 30 trading day period (the “First Earnout”). The second issuance of 12,500,000 earnout shares will occur if the volume weighted average price of Common Stock exceeds $15.00 for any 20 trading days within any 30 trading day period (the “Second Earnout”). The third issuance of 12,500,000 earnout shares will occur if the volume weighted average price of Common Stock exceeds $17.50 for any 20 trading days within any 30 trading day period (the “Third Earnout”) (as further described in the Merger Agreement).
Subsequent to the closing of the Merger, the issuance of 11,595,663 and 11,600,551 earnout shares occurred in February 2020 and March 2020, respectively, after attainment of the First Earnout and Second Earnout. The difference in the shares issued in the earnouts and the aggregate amounts defined in the Merger Agreement above are attributable to unissued shares reserved for future issuance to holders of Rollover Equity Awards, which are subject to the same vesting terms and conditions as the underlying Rollover Equity Awards. During the six months ended June 30, 2020, 174,027 additional earnout shares were issued as a result of vesting associated with Rollover Equity Awards. Additionally, shares were withheld from employees to satisfy the mandatory tax withholding requirements. As of June 30, 2020, the Third Earnout has not yet been achieved. The Company has determined that the earnout shares issued to non-employee shareholders and to holders of Vivint common stock, Rollover Restricted Stock, and vested Rollover Equity Awards qualify for the scope exception in ASC 815-10-15-74(a) and meet the criteria for equity classification under ASC 815-40. For the earnout shares associated with unvested Rollover Equity Awards, the Company has determined that they qualify for equity classification and are subject to stock-based compensation expense under ASC 718. The earnout shares were initially measured at fair value at Closing. Upon the attainment of the share price targets, the earnout shares delivered to the equity holders are recorded in equity as shares issued, with the appropriate
allocation to common stock at par and additional paid-in capital. Since all earnout shares have determined to be equity-classified, there is no remeasurement unless reclassification is required.
v3.20.2
Balance Sheet Components
6 Months Ended
Jun. 30, 2020
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Balance Sheet Components Balance Sheet Components
The following table presents material balance sheet component balances (in thousands):

June 30, 2020December 31, 2019
Prepaid expenses and other current assets
Prepaid expenses$14,286  $7,753  
Deposits813  870  
Other908  9,440  
Total prepaid expenses and other current assets$16,007  $18,063  
Capitalized contract costs
Capitalized contract costs$3,153,337  $2,903,389  
Accumulated amortization(1,915,919) (1,688,140) 
Capitalized contract costs, net$1,237,418  $1,215,249  
Long-term notes receivables and other assets
RIC receivables, gross$122,233  $148,325  
RIC Allowance(34,733) (39,219) 
RIC imputed interest(16,145) (20,294) 
Security deposits6,565  6,715  
Other1,328  300  
Total long-term notes receivables and other assets, net$79,248  $95,827  
Accrued payroll and commissions
Accrued commissions$51,979  $36,976  
Accrued payroll23,370  35,666  
Total accrued payroll and commissions$75,349  $72,642  
Accrued expenses and other current liabilities
Accrued interest payable$34,962  $31,327  
Current portion of derivative liability102,764  80,366  
Service warranty accrual8,185  8,680  
Loss contingencies2,831  1,831  
Other29,454  17,185  
Total accrued expenses and other current liabilities$178,196  $139,389  
v3.20.2
Property Plant and Equipment
6 Months Ended
Jun. 30, 2020
Property, Plant and Equipment [Abstract]  
Property Plant and Equipment Property Plant and Equipment
Property, plant and equipment consisted of the following (in thousands):
 
June 30, 2020December 31, 2019Estimated Useful
Lives
Vehicles$41,308  $46,496  
3 - 5 years
Computer equipment and software67,387  63,197  
3 - 5 years
Leasehold improvements28,837  28,593  
2 - 15 years
Office furniture, fixtures and equipment21,199  20,786  
2 - 7 years
Construction in process3,151  3,480  
Property, plant and equipment, gross161,882  162,552  
Accumulated depreciation and amortization(108,364) (101,464) 
Property, plant and equipment, net$53,518  $61,088  

Property, plant and equipment, net includes approximately $20.4 million and $24.3 million of assets under finance lease obligations at June 30, 2020 and December 31, 2019, respectively, net of accumulated amortization of $21.8 million and $22.8 million, respectively. Depreciation and amortization expense on all property, plant and equipment was $5.2 million and $7.1 million during the three months ended June 30, 2020 and 2019, respectively and $10.8 million and $13.0 million during the six months ended June 30, 2020 and 2019, respectively. Amortization expense relates to assets under finance or capital leases and is included in depreciation and amortization expense.
v3.20.2
Goodwill and Intangible Assets
6 Months Ended
Jun. 30, 2020
Goodwill and Intangible Assets Disclosure [Abstract]  
Goodwill and Intangible Assets Goodwill and Intangible Assets
        Goodwill
As of June 30, 2020 and December 31, 2019, the Company had a goodwill balance of $835.2 million and $836.5 million, respectively. The change in the carrying amount of goodwill during the six months ended June 30, 2020 was the result of foreign currency translation adjustments.
        Intangible assets, net
The following table presents intangible asset balances (in thousands):
 
June 30, 2020December 31, 2019
Gross Carrying AmountAccumulated AmortizationNet Carrying AmountGross Carrying AmountAccumulated AmortizationNet Carrying AmountEstimated
Useful Lives
Definite-lived intangible assets: