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APX Group Holdings, Inc. Reports First Quarter 2014 Financial Results

  APX Group Holdings, Inc. Reports First Quarter 2014 Financial Results

Business Wire

PROVO, Utah -- May 6, 2014

APX Group Holdings, Inc.

1st Quarter Financial Highlights

  *Total revenues of $130.2 million for the first quarter 2014, an increase
    of 21.8%, compared to $106.9 million for the same period in 2013,
    excluding 2GIG Technologies, Inc. (“2GIG”) revenue of $17.5 million in the
    quarter last year
  *Net loss of $47.3 million for the quarter ended March 31, 2014, compared
    to a net loss of $30.9 million for the same quarter last year
  *Adjusted EBITDA^1 of $77.9 million, an increase of 19.1%, compared to
    $65.4 million, excluding $0.5 million attributed to 2GIG for the first
    quarter 2013

1st Quarter Portfolio Highlights

  *Total Recurring Monthly Revenue (“Total RMR”) at March 31, 2014 of $42.1
    million, a 20.3% increase compared to Total RMR of $35.0 million at March
    31, 2013
  *793,816 Total Subscribers at March 31, 2014 with 25,004 net new
    subscribers in the first quarter 2014, compared to 25,891 net new
    subscribers in the first quarter of 2013
  *Average Recurring Monthly Revenue (“RMR”) per subscriber of $53.05 in the
    first quarter of 2014, up from $51.35 for the same quarter last year

APX Group Holdings, Inc. (“APX Group” or the “Company”), one of the largest
home automation services providers in North America, today reported financial
results for the first quarter of 2014.

“Q1 2014 was a strong quarter from both a financial and operational
performance. We’re confident that we’ve assembled a team which will drive
value for customers and investors, alike”, said Todd Pedersen, CEO of APX
Group. Mr. Pedersen continued, “Customers continue to choose Vivint for their
security and home automation needs, further validating the confidence
consumers place in our service and brand. Vivint continues to strengthen its
position as an industry leader by developing innovative products and services
such as our new SkyControl Panel and the new Vivint.Sky cloud operating system
which were launched in Q1. We’re excited for the future and believe we are
competitively positioned for 2014 and beyond.“

“We believe the Vivint platform, which is continually expanding to include new
and improved offerings, was the catalyst which delivered another all-time high
for average RMR per customer. To this point, we saw good growth this quarter
in adoption of our broader home automation and security services such as
energy management, lighting control, cameras and remote door locks,” said Mark
Davies, CFO of APX Group.

Mr. Davies added, “We have made good progress this quarter in our efforts to
improve Vivint’s information technology and process infrastructure. In
particular, we have implemented new CRM and billing systems, which will allow
us to expand our service offerings and provide an enhanced customer
experience.”

First Quarter 2014 Results

Vivint, Inc.

Key Metrics at March 31, 2014
  Total Subscriber base greater than 793,000
    $42.1 million in Total RMR
    Average RMR per New Subscriber of $58.21
    Subscriber Account Attrition Rate for the LTM of 13.6%
    

Revenue

The Company’s Vivint segment (“Vivint”) reported total revenues of $130.2
million for the three months ended March 31, 2014, an increase of 21.8%, as
compared to $106.9 million for the three month period ended March 31, 2013.
The year over year increase was primarily due to growth in monitoring revenue
as the subscriber base increased to more than 793,000 along with higher
average RMR per subscriber. The increase in average RMR was driven by an
increase in the growth in the number of subscribers signing up for additional
service offerings.

Costs and Expenses

Operating expenses for the three months ended March 31, 2014 were $41.3
million, an increase of 21.5%, as compared to $34.0 million. The principal
drivers behind the increase for the three months ended March 31, 2014 were
personnel cost within our monitoring, customer service and field service
departments driven by the larger subscriber base, along with an increase in
the cellular communication cost associated with the monitoring of our
subscribers.

Selling expenses, net of capitalized subscriber acquisition costs, for Vivint
were $25.6 million for the three months ended March 31, 2014, an increase of
24.3%, as compared to $20.6 million for the three months ended March 31, 2013.
The increases were primarily attributable to the allocation of facility,
administrative and information technology costs as well as personnel costs,
all to support the expected increase in our subscriber contract organizations.

Vivint’s general and administrative (“G&A”) expenses were $25.1 million for
the three months ended March 31, 2014, an increase of 68.5%, as compared to
$14.9 million for the three months ended March 31, 2013. The increases were
primarily driven by higher personnel cost to support the Company’s innovation
and research and development initiatives along with approximately $1.6 million
of net expense accrued for the remediation efforts of our Lindon facility
damaged by fire in the quarter.

Adjusted EBITDA for Vivint was $77.9 million for the three months ended March
31, 2014, as compared to $65.4 million for the three months ended March 31,
2013.

Liquidity

As of March 31, 2014, our liquidity position on a consolidated basis, defined
as cash on hand, marketable securities and available borrowing capacity under
the Company’s revolving credit facility totaled approximately $432 million.

Certain Credit Statistics

Our net leverage ratio, defined as the ratio of net debt to LTM Adjusted
EBITDA, was 5.0x at March 31, 2014.

Conference Call

Vivint will host a conference call and webcast to discuss the quarterly
results at 5:00 p.m. ET today, May 6, 2014. To access the conference call,
please dial (866) 963-1218 from the United States and Canada or (913) 312-9300
from outside the United States and Canada and use the conference ID 1853728. A
financial results presentation and access to join the webcast will be made
available immediately prior to the call on the Investor Relations section of
the Company’s website at www.vivint.com/en/investors/events.

A replay of the webcast will be made available on the Investor Relations
section of the Company’s website at www.vivint.com/en/investors for 30 days
following the call.

About Vivint

Vivint is a leading provider of home technology services. Vivint services are
delivered through a technology-based platform that integrates a wide range of
wireless features and components to provide simple, affordable home security,
energy management, home automation, and solar solutions. In 2011, Vivint's
Home Automation package and Advanced Security package received a Consumers
Digest "Best Buy" rating. Dedicated to protecting families, increasing energy
efficiency, and simplifying lives, Vivint has over 13 years of experience and
supports nearly 800,000 customers throughout the United States, Canada and New
Zealand. For more information, visit the company’s website at www.vivint.com.

Forward Looking Statements

This earnings release and accompanying conference call may include certain
forward-looking statements as defined by the Private Securities Litigation
Reform Act of 1995, including statements regarding, among other things, our
plans, strategies and prospects, both business and financial. Forward-looking
statements convey the Company’s current expectations or forecasts of future
events. All statements contained in this earnings release other than
statements of historical fact are forward-looking statements. These statements
are based on the beliefs and assumptions of our management. Although we
believe that our plans, intentions and expectations reflected in or suggested
by these forward-looking statements are reasonable, we cannot assure you that
we will achieve or realize these plans, intentions or expectations.
Forward-looking statements are inherently subject to risks, uncertainties and
assumptions. These statements may be preceded by, followed by or include the
words “believes,” “estimates,” “expects,” “projects,” “forecasts,” “may,”
“will,” “should,” “seeks,” “plans,” “scheduled,” “anticipates” or “intends” or
similar expressions.

Forward-looking statements are not guarantees of performance. You should not
put undue reliance on these statements which speak only as of this date
hereof. You should understand that the following important factors in addition
to those discussed in “Risk Factors” in the Company’s annual report on Form
10-K for the year ended December 31, 2013, filed with the Securities Exchange
Commission, as such factors may be updated from time to time in our periodic
filings with the SEC, which are available on the SEC’s website at www.sec.gov,
could affect our future results and could cause those results or other
outcomes to differ materially from those expressed or implied in our
forward-looking statements:

  *risks of the security and home automation industry, including risks of and
    publicity surrounding the sales, subscriber origination and retention
    process;
  *the highly competitive nature of the security and home automation industry
    and product introductions and promotional activity by our competitors;
  *litigation, complaints or adverse publicity;
  *the impact of changes in consumer spending patterns, consumer preferences,
    local, regional, and national economic conditions, crime, weather,
    demographic trends and employee availability;
  *adverse publicity and product liability claims;
  *increases and/or decreases in utility and other energy costs, increased
    costs related to utility or governmental requirements; and
  *cost increases or shortages in security and home automation technology
    products or components.

In addition, the origination and retention of new subscribers will depend on
various factors, including, but not limited to, market availability,
subscriber interest, the availability of suitable components, the negotiation
of acceptable contract terms with subscribers, local permitting, licensing and
regulatory compliance, and our ability to manage anticipated expansion and to
hire, train and retain personnel, the financial viability of subscribers and
general economic conditions.

These and other factors that could cause actual results to differ from those
implied by the forward-looking statements in this press release are more fully
described in the “Risk Factors” section of our annual report on Form 10-K for
the year ended December 31, 2013. These risk factors should not be construed
as exhaustive. We disclaim any obligations to and do not intend to update the
above list or to announce publicly the results of any revisions to any of the
forward-looking statements to reflect future events or developments. All
forward-looking statements attributable to us or persons acting on our behalf
are expressly qualified in their entirety by the foregoing cautionary
statements.

Certain Definitions

“Total Subscribers” means the aggregate number of active subscribers at the
end of a given period

“RMR” means the recurring monthly revenue billed to a subscriber

“Total RMR” means the aggregate RMR billed for all subscribers

“Average RMR per Subscriber” means the Total RMR divided by Total Subscribers.
This is also commonly referred to as Average Revenue per User, or “ARPU.”

“Average RMR per New Subscriber” means the aggregate RMR for new subscribers
originated during a period divided by the number of new subscribers originated
during such period

“Attrition" means the aggregate number of canceled subscribers during a period
divided by the monthly weighted average number of total subscribers for such
period. Subscribers are considered canceled when they terminate in accordance
with the terms of their contract, are terminated by the Company, or if payment
from such subscribers is deemed uncollectible (120 days past due). Sales of
contracts to third parties and certain moves are excluded from the attrition
calculation

“Net Subscriber Acquisition Cost” means the gross costs to generate and
install a subscriber net of any fees collected at the time of the contract
signing

“Last Quarter Annualized Adjusted EBITDA or “LQA Adjusted EBITDA” is
calculated by multiplying Adjusted EBITDA for the most recent fiscal quarter
by four. LQA Adjusted EBITDA is a common industry measure used to reflect the
step-function in earnings during the sales season related to the subscribers
generated from April to August. LQA Adjusted EBITDA, represents the ongoing
earnings power of Vivint’s current subscriber base and is potentially a more
relevant metric than LTM due to the recurring nature of the revenue and
expected earnings

APX Group Holdings, Inc. and Subsidiaries
Consolidated Statements of Operations
(Amounts in thousands)
(unaudited)
                                                     
                                          Three Months Ended March 31,
                                          2014             2013
                                                           
Revenues:
  Monitoring revenue                      $  124,554       $ 102,369
  Service and other sales revenue            4,834           21,993
  Activation fees                           766           80      
Total revenues                               130,154         124,442
                                                           
Costs and expenses:
  Operating expenses                         41,317          45,693
  Selling expenses                           25,579          20,608
  General and administrative expenses        25,135          20,339
  Depreciation and amortization             50,352        45,794  
Total costs and expenses                    142,383       132,434 
                                                           
Loss from operations                         (12,229 )       (7,992  )
                                                           
Other expenses (income):
  Interest expense                           35,640          25,873
  Interest income                            (552    )       (280    )
  Other (income) expenses, net              (245    )      350     
Total other expenses                         34,843          25,943
                                                           
Loss before income taxes                     (47,072 )       (33,935 )
                                                           
  Income tax expense (benefit)              208           (3,026  )
                                                           
Net loss                                  $  (47,280 )     $ (30,909 )
                                                                     
                                                                     

APX Group Holdings, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(Amounts in thousands)
(Unaudited)
                                                        
                                                             
                                                             
                                          March 31, 2014     December 31, 2013
ASSETS
Current assets:
Cash and cash equivalants                 $   174,062        $    261,905
Short-term investments--other                 60,023              -
Restricted cash and cash equivalants          14,214              14,375
Accounts receivable, net                      2,222               2,593
Inventories, net                              44,352              29,260
Prepaid expenses and other current           19,745             13,870
assets
Total current assets                          314,618             322,003
                                                             
Property and equipment, net                   41,341              35,818
Subscriber contract costs, net                312,446             288,316
Deferred financing costs, net                 57,192              59,375
Intangible assets, net                        804,050             840,714
Goodwill                                      835,527             836,318
Restricted cash and cash equivalants,         14,214              14,214
net of current portion
Long-term investments and other              31,698             27,676
assets
Total assets                              $   2,411,086      $    2,424,434
                                                             
                                                             
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable                          $   40,364         $    24,004
Accrued payroll and commissions               30,813              46,007
Accrued expenses and other current            65,065              33,118
liabilities
Deferred revenue                              26,879              26,894
Current portion of capital lease             4,455              4,199
obligations
Total current liabilities                     167,576             134,222
                                                             
Notes payable, net                            1,761,843           1,762,049
Liability--contracts sold, net of             2,057               -
current portion
Capital lease obligations, net of             7,468               6,268
current portion
Deferred revenue, net of current              20,079              18,533
portion
Other long-term obligations                   4,359               3,905
Deferred income tax liabilities              8,868              9,214
Total liabilities                            1,972,250          1,934,191
                                                             
Total stockholders' equity                   438,836            490,243
Total liabilities & stockholders'         $   2,411,086      $    2,424,434
equity
                                                                  
                                                                  

APX Group Holdings, Inc. and Subsidiaries
Summary Cash Flow Data
(amounts in thousands)
(unaudited)
                                                         
                                              Three Months Ended March 31,
                                              2014             2013
                                                               
Net cash provided by operating activities     $  23,241        $ 26,970
Net cash used in investing activities            (111,050  )     (36,923 )
Net cash provided by financing activities        140             13,045
Effect of exchange rate changes on cash         (174      )    303     
Net (decrease) increase in cash                  (87,843   )     3,395
                                                               
Cash:
          Beginning of period                   261,905       8,090   
          End of period                       $  174,062      $ 11,485  
                                                                         
                                                                         

Reconciliation of Non-GAAP Financial Measures
APX Group Holdings, Inc.
(In Millions)
(Unaudited)
                                                           
                              Three Months     Three Months     Twelve Months
                              Ended            Ended            Ended
                              March 31, 2014   March 31, 2013   March 31, 2014
                                                                
Net loss                      $    (47.3  )    $    (30.9  )    $    (140.9 )
Interest expense, net              35.1             25.6             122.5
Other (income) expense,            (0.3   )         0.4              (0.7   )
net
Income tax expense                 0.2              (3.0   )         6.8
(benefit)
Depreciation and                   40.0             44.7             168.7
amortization (i)
Amortization of
capitalized creation               10.3             1.1              31.4
costs
Non-capitalized
subscriber acquisition             26.9             21.2             106.6
costs (ii)
Non-cash compensation              0.5              0.2              2.1
(iii)
Gain on 2GIG Sale (iv)             -                -                (46.9  )
Transaction costs related          -                0.2              5.3
to 2GIG Sale (v)
Other Adjustments                 12.5           6.4            49.4   
                                                                
Adjusted EBITDA               $    77.9       $    65.9       $    304.3  
                                                                            

(i)    Excludes loan amortization costs that are included in interest
        expense.
        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
(ii)    through subscriber contract purchases, and as a result, may capitalize
        the full cost to purchase these subscriber contracts, as compared to
        our organic generation of new subscribers, which requires us to
        expense a portion of our subscriber acquisition costs under GAAP.
(iii)   Reflects non-cash compensation costs related to employee and director
        stock and stock option plans.
(iv)    Non-recurring gain on the 2GIG Sale.
(v)     Bonuses and transaction related costs associated with the 2GIG Sale.

Reconciliation of Non-GAAP Financial Measures
Vivint, Inc.
(In Millions)
(Unaudited)
                                                            
                                   Three Months   Three Months   Twelve Months
                                   Ended          Ended          Ended
                                   March 31,      March 31,      March 31,
                                   2014           2013           2014
Income (loss) from operations      $  (12.3  )    $   (6.2  )    $   (59.2  )
Amortization of capitalized           10.3            1.1            31.4
creation costs
Depreciation and amortization         40.0            42.5           168.7
(i)
Non-capitalized subscriber            26.9            21.2           106.6
acquisition costs (ii)
Non-cash compensation (iii)           0.5             0.2            2.1
Transaction costs related to          -               0.2            5.3
2GIG Sale (iv)
Other Adjustments                    12.5          6.4          49.4   
                                                                 
Adjusted EBITDA                    $  77.9       $   65.4      $   304.3  

(i)    Excludes loan amortization costs that are included in interest
        expense.
        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
(ii)    through subscriber contract purchases, and as a result, may capitalize
        the full cost to purchase these subscriber contracts, as compared to
        our organic generation of new subscribers, which requires us to
        expense a portion of our subscriber acquisition costs under GAAP.
(iii)   Reflects non-cash compensation costs related to employee and director
        stock and stock option plans.
(iv)    Bonuses and transaction related costs associated with the 2GIG Sale.

Statement Regarding Non-GAAP Financial Measures

Non-GAAP Financial Measures

This earnings release includes Adjusted EBITDA, which is a supplemental
measure that is not required by, or presented in accordance with, accounting
principles generally accepted in the United States (“GAAP”). Adjusted EBITDA
is not a measurement of our financial performance under GAAP and should not be
considered as an alternative to net income or any other measure derived in
accordance with GAAP or as an alternative to cash flows from operating
activities as a measure of our liquidity. We define “Adjusted EBITDA” as net
income (loss) before interest expense (net of interest income), income and
franchise taxes and depreciation and amortization (including amortization of
capitalized subscriber acquisition costs), further adjusted to exclude the
effects of certain contract sales to third parties, non-capitalized subscriber
acquisition costs, stock based compensation, the historical results of Solar
and certain unusual, non-cash, non-recurring and other items permitted in
certain covenant calculations under the indenture governing our existing
senior secured notes, the indenture governing our existing senior unsecured
notes and the credit agreement governing the Company’s revolving credit
facility. We believe that Adjusted EBITDA provides useful information about
flexibility under our covenants to investors, lenders, financial analysts and
rating agencies since these groups have historically used EBITDA-related
measures in our industry, along with other measures, to estimate the value of
a company, to make informed investment decisions, and to evaluate a company’s
ability to meet its debt service requirements. Adjusted EBITDA eliminates the
effect of non-cash depreciation of tangible assets and amortization of
intangible assets, much of which results from acquisitions accounted for under
the purchase method of accounting. Adjusted EBITDA also eliminates the effects
of interest rates and changes in capitalization which management believes may
not necessarily be indicative of a company’s underlying operating performance.
Adjusted EBITDA is also used by us to measure covenant compliance under the
indenture governing our existing senior secured notes, the indenture governing
our existing senior unsecured notes and the credit agreement governing the
Company’s revolving credit facility.

We caution investors that amounts presented in accordance with our definition
of Adjusted EBITDA may not be comparable to similar measures disclosed by
other issuers, because not all issuers and analysts calculate Adjusted EBITDA
in the same manner.

A reconciliation of Adjusted EBITDA to net loss included in this earnings
release should be considered in addition to and not as a substitute for, or
superior to, financial measures presented in accordance with GAAP.

^1 See the “Statement Regarding Non-GAAP Financial Measures and Certain
Definitions” section at the end of this Earnings release for the definition of
Adjusted EBITDA and a reconciliation to net loss.

Contact:

APX Group Holdings, Inc.
Dale R. Gerard, 801-705-8011
Vice President of Finance and Treasurer
dgerard@vivint.com
 
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