2013 North American Credit Conferences2.q4cdn.com/226156452/files/doc_presentations/... · Home...

22
2013 North American Credit Conference November 5, 2013

Transcript of 2013 North American Credit Conferences2.q4cdn.com/226156452/files/doc_presentations/... · Home...

Page 1: 2013 North American Credit Conferences2.q4cdn.com/226156452/files/doc_presentations/... · Home Security stay safe with advanced security 1 automatic door lock 1 fixed camera + Security

2013 North American Credit ConferenceNovember 5, 2013

Page 2: 2013 North American Credit Conferences2.q4cdn.com/226156452/files/doc_presentations/... · Home Security stay safe with advanced security 1 automatic door lock 1 fixed camera + Security

preliminary statement

2

APX Group, Inc. (the ”Company”, “we”, “our”, or “us”) obtained the industry, market and competitive position data included in this presentation from its estimates and research as well as from industry publications, surveys and studies conducted by thirdparties. Industry publication studies and surveys generally state that the information contained therein has been obtained from sources believed to be reliable but there can be no assurance as to the accuracy or completeness of such information. While APXGroup, Inc. believes that each of the publications, studies and surveys is reliable, APX Group, Inc. has not independently verified industry, market and competitive position data from third-party sources. While APX Group, Inc. believes its internal businessresearch is reliable and the market definitions are appropriate, neither such research nor these definitions have been verified by any independent sources. Accordingly, the Rating Agency should not place undue weight on the industry and market share data inthis presentation.This presentation includes forward-looking statements regarding, among other things, our plans, strategies and prospects, both business and financial. These statements are based on the beliefs and assumptions of our management. Although we believe thatour 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 subjectto risks, uncertainties and assumptions. Generally, statements that are not historical facts, including statements concerning our possible or assumed future actions, business strategies, events or results of operations, are forward-looking statements. Thesestatements 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 arenot guarantees of performance. You should not put undue reliance on these statements which speak only as of the date hereof. You should understand that the following important factors, in addition to those discussed in “Risk Factors” in our prospectusdated September 24, 2013, filed with the Securities and Exchange Commission in accordance with Rule 424(b)(3) of the Securities Act on September 24, 2013 and subsequently filed quarterly reports on Form 10-Q and annual reports on Form 10-K couldaffect our future results and could cause those results or other outcomes to differ materially from those expressed or implied in our forward-looking statements: (1) risks of the security and home automation industry, including risks of and publicitysurrounding the sales, subscriber origination and retention process; (2) the highly competitive nature of the security and home automation industry and product introductions and promotional activity by our competitors; (3) litigation, complaints or adversepublicity; (4) the impact of changes in consumer spending patterns, consumer preferences, local, regional, and national economic conditions, crime, weather, demographic trends and employee availability; (5) adverse publicity and product liability claims; (6)increases and/or decreases in utility and other energy costs, increased costs related to utility or governmental requirements; and (7)cost increases or shortages in security and home automation technology products or components. In addition, theorigination 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, localpermitting, licensing and regulatory compliance, our ability to manage anticipated expansion and to hire, train and retain personnel, the financial viability of subscribers and general economic conditions. New risk factors emerge from time to time and it isnot possible for us to predict all such risk factors, nor can we assess the impact of all such risk factors on our business or the extent to which any factor or combination of factors may cause actual results to differ materially from those contained in anyforward-looking statements. All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the foregoing cautionary statements. We undertake no obligations to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise.This presentation includes certain financial measures (“Non-GAAP Financial Measures”), including Adjusted EBITDA, that are presented in accordance with accounting principles generally accepted in the United States (“GAAP”). Non-GAAP financialmeasures should be considered only as a supplement to, and not as a superior measure to, financial measures prepared in accordance with GAAP. Please refer to the Appendix of this presentation for a reconciliation of such non-GAAP financial measures tothe most directly comparable financial measure prepared in accordance with GAAP. Please refer to the Appendix of this presentation for the definitions of certain terms used herein.

Page 3: 2013 North American Credit Conferences2.q4cdn.com/226156452/files/doc_presentations/... · Home Security stay safe with advanced security 1 automatic door lock 1 fixed camera + Security

vivint presenters

3

Chief Operating Officer since July 2005; named President in February 2013 Served as Deputy Chief of Staff to Governor Mitt Romney in Massachusetts prior to joining Vivint Served as entrepreneur-in-residence at the venture capital firm General Catalyst, where he started m-Qube, a mobile media management

company

AlexDunn

President

Page 4: 2013 North American Credit Conferences2.q4cdn.com/226156452/files/doc_presentations/... · Home Security stay safe with advanced security 1 automatic door lock 1 fixed camera + Security

$0.1 $0.6 $2.0$4.5

$9.9$15.0

$20.7

$27.3

$34.3

$42.6

1999 2004 2005 2006 2007 2008 2009 2010 2011 2012 20130

10

20

30

40

50April 2013: Sold 2GIG

4

history Founded in 1999 by CEO Todd Pedersen, who saw an opportunity in the residential security market to sell high-quality services using a direct sales approach

Early in its history, Vivint acted as a dealer, originating and then selling its contracts to larger market participants such as ADT and Monitronics As Vivint refined its originations strategy and expanded its financing capabilities, the Company made the strategic decision to retain and service the majority of its accounts

In October 2009, 2GIG, in partnership with Vivint, revolutionized the industry with the release of the Go!Control® panel, the first self-contained, all-in-one security and home automation system Launched the Energy Management service in June 2010 to allow customers to conserve energy by remotely controlling HVAC usage In April 2011, Vivint further expanded its service offering to include Home Automation and less than a year later, received SDM Magazine’s “2011 Dealer of the Year” award Completed acquisition by Blackstone in November 2012

RMR $ in millions

December 2007 and December 2008: Sold $117 million of accounts to Royal Bank of Scotland. Vivint continues as the

servicer

July 2006: Equity investment by Goldman Sachs, Jupiter Partners and Peterson Partners

June 2010: Launched Energy Management

April 2011: Launched Home

Automation

February 2011: Rebranded as Vivint (“live intelligently”)

March 1999: Todd Pedersen founded APX Alarm

December 2009: New headquarters opened in Provo, Utah

January 2006: Developed integrated information system, “CMS”

April 2006: Initiated sales in Canada

November 2012 Completed Blackstone acquisition / New

Capital Structure

(1)

(1) As of September 30, 2013

September 2007: Launched 2GIG

Page 5: 2013 North American Credit Conferences2.q4cdn.com/226156452/files/doc_presentations/... · Home Security stay safe with advanced security 1 automatic door lock 1 fixed camera + Security

5

update since Blackstone acquisition On November 16, 2012, Blackstone acquired Vivint, Inc., 2GIG and their respective subsidiaries for approximately $1.9 billion

Update since the close of the acquisition:

Announced creation of the Vivint Innovation Center

On April 1, 2013, Company completed the sale of 2GIG Technologies for $148.9 million

On May 14, 2013, the Company distributed $60.0 million of proceeds from this sale to its stockholders

Enhanced the Management Team

Matt Eyring – Chief Strategy and Innovation Officer

Todd Santiago – Chief Sales Officer

Todd Thompson – Chief Information Officer

David Bywater – Chief Operating Officer

Mark Davies – Chief Financial Officer

Completed S-4 filing and Exchange Offer

Page 6: 2013 North American Credit Conferences2.q4cdn.com/226156452/files/doc_presentations/... · Home Security stay safe with advanced security 1 automatic door lock 1 fixed camera + Security

subscribers

$135.6$175.2

$244.0 $231.3$276.2

2010 2011 2012 LTM Q3'12 LTM Q3'130

50100150200250300

456.4562.0

671.8 681.8803.4

2010 2011 2012 Sep-12 Sep-130

500

1000

6

platform overview

revenue

Adjusted EBITDA

Vivint’s platform has been developed around building a highly effective sales force,delivering innovative technology and focusing on high-quality customer service, and thisapproach has resulted in Vivint quickly becoming the largest and fastest-growing homeautomation services provider in North America

Installed subscriber base of more than 803,000 accounts across the UnitedStates and Canada as of September 30, 2013

Provides residential customers with a fully integrated and remotely accessible homeservices platform that includes wireless Home Automation, Energy Management andInteractive Security Systems

Originates, installs, services and monitors all its subscribers, controlling the entireprocess to ensure a consistent and high-quality customer experience

Two monitoring locations and one customer call center to address customer needs

For LTM September 30, 2013, Vivint had revenues of $457.4 million and Adjusted EBITDA of $275.5 million

Vivint’s revenue is contractual and highly predictable

$42.6 million Recurring Monthly Revenue (“RMR”) as of September 30, 2013 ($511.2 million annualized)

$238.9$339.9

$455.2 $428.0$489.0

2010 2011 2012 LTM Q3'12 LTM Q3'130

200

400

$ in millions

thousands

Note: Financials shown on a consolidated basis for Vivint and 2GIG.

% growth 29.2% 39.5% 19.4%

% growth 42.3% 33.9% 14.3%

$ in millions

% growth 23.1% 19.5% 17.8%

Page 7: 2013 North American Credit Conferences2.q4cdn.com/226156452/files/doc_presentations/... · Home Security stay safe with advanced security 1 automatic door lock 1 fixed camera + Security

value proposition

7

Motion Detectors

RemoteAccess

Smoke Detectors

Glass BreakDetectors Carbon

Monoxide Detectors

Motion Detectors

Lighting Control

Smart Thermostat

Automatic DoorLocks Surveillance

Video Key Fob

Small ApplianceControl Recessed

DoorSensors

- all-in-one wireless security and home management solutions

- color touchscreen display

- “On-Star™” type direct talk technology

- remote-control capabilities, 2-way voice, automatic updates, custom notifications

Home Automation

control your home from anywhere

1 video camera1 automatic door lock+ Security System+ Energy Management

$68.99

conserve energy and save money

1 smart thermostat1 lamp/appliance control12 efficient light bulbs+ Security System

$57.99

Energy Management

protect your home and family

1 Go!Control2 door/window sensors1 motion detector1 key fob

$49.99

Home Security

stay safe withadvanced security

1 automatic door lock1 fixed camera+ Security System

Security Plus

$60.99

Go!Control Panel

connectivity and remote access All sensors connected wirelessly

Systems monitored and controlled from smart phone and Internet-enabled devices

Integrated management interface

Page 8: 2013 North American Credit Conferences2.q4cdn.com/226156452/files/doc_presentations/... · Home Security stay safe with advanced security 1 automatic door lock 1 fixed camera + Security

nationwide presence in U.S. and Canada

>10,0005,000–10,0001,000–5,000<1,000

Note: As of June 30, 2013.

8

NY006XFY_1.wor

PR

3,066

FL31,956

DC1,698

MD17,972

DE5,377

NJ9,782

RI383

CT5,363

MA6,605

NS3,733

AR18,811

MS14,532LA

3,182

MI9,009

WV5,668

OH19,708

WI5,348

IN15,425

IL22,892

NY17,866

PA21,189

NH216

VT8

VA20,314

NC21,824SC

12,445

KY14,370

BC11,017

AB40,773

MB5,678

MN8,097

OK14,095

TX105,390

SD1,983

MT3,840

ID3,955

OR5,256

WA12,044

NV10,021 UT

13,802CA46,490

ON3,115

NU0

NT427

YT271

AL17,201

AZ11,108

CO10,734

GA23,310

IA5,030

KS11,973

ME70

MO16,672

NE5,568

NM17,348

ND5,308

TN15,850

WY8,917

NB1,789

PE188

QC0

SK9,078

NL3,673

AK9,558

HI

7,321

Page 9: 2013 North American Credit Conferences2.q4cdn.com/226156452/files/doc_presentations/... · Home Security stay safe with advanced security 1 automatic door lock 1 fixed camera + Security

large, growing and recession-resistant industry

9

residential M&S revenues (3)market overview

Market Characteristics

Total revenues in the residential monitoring and servicing (“M&S”) market have grown every year for the past 12 years

Penetration rate for this market is ~19% as of 2012 (1)

Vivint’s addressable market has expanded significantly with the introduction of home automation

Number of home automation subscribers is expected to grow at a CAGR of 60.6% from 2010 to 2016 to a market size of $3.9 billion of revenue (2)

Highly fragmented market Over 10,000 companies primarily comprised of small operators

Industry Drivers

Stable revenues from contractually committed payments

Improving product capabilities given technology advances

Penetration expected to increase with enhanced products

Pricing has been favorable with price increases implemented, particularly with new services

(1) Management estimates based on third-party research. (2) ABI Research as of 2011.(3) BarnesAssociates. (4) Market share based on total RMR.

2012 estimated market share (3)(4)

Others, 48%

ADT, 22%

Tyco, 5%

Vivint, 3%

Stanley, 3%

Monitronics, 3%

6-100, 16%

$8.3 $9.3 $9.7

$11.4 $11.5 $13.0

$14.4 $14.5 $15.9 $16.3 $17.2 $18.0

$19.4

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 20120.0

4.0

8.0

12.0

16.0

20.0

recession year

($ in billions)

Page 10: 2013 North American Credit Conferences2.q4cdn.com/226156452/files/doc_presentations/... · Home Security stay safe with advanced security 1 automatic door lock 1 fixed camera + Security

Customer satisfaction is reflected in significantly higher Net Promoter Scores (“NPS”) than the industry average (+27% vs. -3% for competitors)(2)

Award-winning Customer Service with more than 90% resolution of technical issues over the phone

Approximately 10 second average alarm response time

leading industry player with best-in-class operational performance

10

Vivint’s subscriber growth is the highest among major competitors

Low net subscriber acquisition costs compared to major competitors at ~28x versus ~32x for ADT and ~34x for Monitronics (1)

Highest take rate in the industry for services beyond Interactive Security; 61% of new subscribers purchased additional services LTM 9/30/13

Highest average RMR per subscriber among major competitors

(1) As of December 31, 2012. Based on public filings and presentations.(2) Management analysis based on third-party research.(3) BarnesAssociates.

awards and recognition

Sales Model

Technology

Attrition

Vivint’s unique and innovative technology platform drives usage, which results in higher retention rates

83% of Vivint’s subscribers use the system multiple times per week

Vivint panel technology is an innovator in the industry

Two fully redundant UL-listed monitoring stations located in Provo, Utah and South St. Paul, Minnesota

Recently opened Vivint Innovation Center to focus on building the Company’s next generation of products and technology

Historical attrition rates have been consistently lower than the industry average (11.2% in 2012 vs. industry average of 11.9% (3))

Service

Page 11: 2013 North American Credit Conferences2.q4cdn.com/226156452/files/doc_presentations/... · Home Security stay safe with advanced security 1 automatic door lock 1 fixed camera + Security

16.6%

12.2% 11.2%

ADT Monitronics Vivint

$53 $51

$39 $31

Vivint Vivint ADT Monitronics

21.3% 17.8%

10.1% 8.7%

1.1%

Vivint Vivint Monitronics Alarm Force ADT

28x32x 34x

Vivint ADT Monitronics

11

Vivint has established itself as a leader among home services players by consistently achieving industry leading metrics

(1) Based on public filings and presentations.(2) Based on subscribers at fiscal years ending September 24, 2010 and September 28, 2012.

average RMR per subscriber (’12) (1)subscriber growth (’10-’12) (1)

estimated net creation cost multiple (’12) (1)annual portfolio attrition (’12) (1)

leading industry player with best-in-class operational performance (cont’d)

’10-’12 9/30/2013 2012YTD 9/30/2013(Y-o-Y)

(2)

Page 12: 2013 North American Credit Conferences2.q4cdn.com/226156452/files/doc_presentations/... · Home Security stay safe with advanced security 1 automatic door lock 1 fixed camera + Security

135,367 132,855 144,268 143,299 165,137

15,702 18,235 36,079 30,947

48,798 151,069 151,090

180,347 174,246

213,935

2010 2011 2012 LTM Sep 2012 LTM Sep 2013-8,000

32,000

72,000

112,000

152,000

192,000

232,000

unique and differentiated sales model

12

Includes internal-sales call center, TV, internet and other media advertising and third-party lead generators

Year-round with low net subscriber acquisition costs

Increases brand recognition

Provides significant growth opportunities going forward

More than 2,000 sales representatives in more than 100 locations deployed from April through August

Sales representatives have prior direct-to-home experience

Direct-to-home sales model offers a flexible strategy that can be quickly and efficiently altered

Commission structure aligns incentives of sales representatives with long-term Company goals

direct-to-home sales (~77% of total LTM adds) (1)

inside sales (~23% of total LTM adds) (1)

(1) As of September 30, 2013

2.6% 2.3% 2.7%5.7%

20.8% 21.1%19.5%

14.9%

3.6%1.9% 2.4% 2.5%

0.0%

10.0%

20.0%

30.0%

Jan Feb Mar

Apr

May Jun Jul Aug

Sept

Oct

Nov

Dec

April – August: 82.0%September – March: 18.0%

(% of total sales)

average total sales per month (2010-2012)

total net subscriber additions by channel

% direct sales: 89.6% 87.9% 80.0% 82.2% 77.2%% inside sales: 10.4% 12.1% 20.0% 17.8% 22.8%

inside salesdirect-to-home sales

Page 13: 2013 North American Credit Conferences2.q4cdn.com/226156452/files/doc_presentations/... · Home Security stay safe with advanced security 1 automatic door lock 1 fixed camera + Security

Jan-10 Aug-10 Mar-11 Oct-11 May-12 Dec-12 Jul-13$0.0

$5.0

$10.0

$15.0

$20.0

$25.0

$30.0

$35.0

$40.0

$45.0

Highly effective direct-to-home sales model and control over the sales and installation functions provide the ability to redirect the sales force’s geographic or product focus Hiring sales force on a seasonal basis avoids a large fixed cost base and permanent office infrastructure

unique and differentiated sales model (cont’d)

13

historical total RMR (january 2010 – september 2013)($ in millions)

Step function with growth in total RMR during every April through August sales season

Flexibility

Scalability

Efficiency

Predictability

Primarily comprised of seasonal hires that generate on average ~90% of direct-to-home sales between April and August With ~150,000 college students in the Salt Lake metropolitan area, Vivint has a large pool from which to recruit

The efficiency of Vivint’s sales model allows it to originate subscribers at a lower creation cost multiple than competitors, and its consultative approach limits price shopping Sales strategy increases density of subscribers, which reduces installation and ongoing field service costs

Proven track record of selling new services to subscribers results in total RMR growing in a very predictable, step-function pattern over the April through August sales season

Page 14: 2013 North American Credit Conferences2.q4cdn.com/226156452/files/doc_presentations/... · Home Security stay safe with advanced security 1 automatic door lock 1 fixed camera + Security

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

2007 2008 2009 2010 2011 2012

unique and differentiated sales model (cont’d)

14

Sales force ‘ramps up’

percentage of new accounts sold each week over the summer season (the “summer curve”)

Vivint’s effective management of the summer sales model results in a highly predictable summer sales pattern that enables it to predict the year’s results by the fifth week of the 20-week summer season

Peak selling season and peak number of sales reps

Sales force ‘winds down’

Recently introduced incentives towards the end of the summer have improved sales in

outer weeks

% of summer season sales

weeks

Page 15: 2013 North American Credit Conferences2.q4cdn.com/226156452/files/doc_presentations/... · Home Security stay safe with advanced security 1 automatic door lock 1 fixed camera + Security

highly variable cost structure

15

acquisition costs per subscriber

The largest cost for Vivint is associated with the acquisition of a subscriber at installation

Capex is associated with new subscriber acquisition, and minimal infrastructure capex is required

These costs are entirely discretionary and can be moderated to generate significant free cash flow

Due to the lower net subscriber acquisition costs associated with inside sales, net creation cost multiples are expected to decline as Vivint begins to generate more subscribers through inside sales

Cost Component Fixed / VariableCommission VariableEquipment VariableInstallation VariableOverhead SemiMarketing VariableAllocation Fixed

Management estimates that their net subscriber acquisition cost is in the range of $1,600-$1,650 per subscriber (~28x RMR), a large portion of which is variable

Page 16: 2013 North American Credit Conferences2.q4cdn.com/226156452/files/doc_presentations/... · Home Security stay safe with advanced security 1 automatic door lock 1 fixed camera + Security

-$2,000

-$1,500

-$1,000

-$500

$0

$500

$1,000

$1,500

$2,000

$2,500

0 6 12 18 24 30 36 42 48 54 60 66 72 78 84 90 96 102 108 114 120 126 132 138 144

attractive subscriber economics

16

illustrative annual returns analysis (1)

(1) Assumes attrition curve of a typical 42-month contract.

New installations are subsidized by the Company, requiring upfront cash outlays per installation

For each new installation, Vivint incurs a “net subscriber acquisition cost” of ~$1,600 per subscriber or ~28x RMR

Vivint spends ~$15 per subscriber each month to service an account

New subscriber pays ~$58 RMR on average

Based on these assumptions, Vivint estimates its unlevered IRR is approximately 24%

Vivint organically generates subscribers at the equivalent of ~3.5x Adjusted EBITDA

months

cumulative net recovery

steadily increasing return on investment post net acquisitionand servicing costs recovery

cumulative net recovery

~24% unlevered IRR~$1,600 net subscriber acquisition cost (28x RMR)

Page 17: 2013 North American Credit Conferences2.q4cdn.com/226156452/files/doc_presentations/... · Home Security stay safe with advanced security 1 automatic door lock 1 fixed camera + Security

robust cash flow characteristics

17

Contractually committed recurring revenues – ~$511 million of pro forma LTM September 30, 2013 recurring revenues

Direct-to-home sales model with highly variable cost structure – allows Vivint to scale its sales effort for free cash flow if needed

Minimal capital expenditures – 1%-2% of revenues historically (less than $5-$10 million per year)

Negative net working capital – generates cash as it grows

Low attrition – results in lower costs to replace RMR

Not expected to be a taxpayer in the near term – Vivint has approximately $845 million of U.S. NOLs (1)

High gross margins – ~65% for pro forma LTM 9/30/2013

operating cash flow

(1) As of December 31, 2012

Vivint generates a considerable amount of free cash flow, which is used to reinvest in subscriber acquisitions to yield ~24% unlevered returns

total RMR growth

($ in millions)

$20.7$27.1

$34.3$42.6

2010 2011 2012 9/30/2013$0

$10

$20

$30

$40

$50

LTM

($ in Millions) 2010 2011 2012 9/30/2013

Adjusted EBITDA $ 135.6 $ 175.2 $ 244.0 $ 276.2

Less: Capex 1.9 6.5 9.8 8.8

Operating Cash Flow $ 133.7 $ 168.7 $ 234.2 $ 267.4

% Conversion 98.6% 96.3% 96.0% 96.8%

New Subscriber IRR of ~24% Driving Consistent RMR Growth

Page 18: 2013 North American Credit Conferences2.q4cdn.com/226156452/files/doc_presentations/... · Home Security stay safe with advanced security 1 automatic door lock 1 fixed camera + Security

strong platform for growth

18

Vivint has a track record of leveraging its platform to offer new products and service packages as evidenced by its launch of the Go!Control® panel in late 2009 and full home automation services in 2011

The introduction of Home Automation services has allowed Vivint to successfully increase average RMR per new subscriber from $44.50 in 2009 to $58.45 for LTM September 30, 2013

Vivint has a significant “whitespace” opportunity to further penetrate its core security monitoring servicesContinued Market

Penetration

Increasing inside sales through internal-sales call center, TV, internet and other media advertising and third-party lead generators, which results in lower net subscriber acquisition costs and lower attritionInside Sales

Enter commercial segment by leveraging existing sales representatives, installation technicians, monitoring centers, technology platform and new Go!2.0 panel Commercial End Market

Vivint panels can support home health-related functionalities including reminders for medications, motion and occupancy sensors, creating a significant new market opportunityHome Health

Leverage technology to offer wireless data into the homeWireless

Expansion opportunities in countries such as New Zealand and Australia, which the Company has initially identified as attractive geographies in which to replicate Vivint’s sales model International Expansion

Page 19: 2013 North American Credit Conferences2.q4cdn.com/226156452/files/doc_presentations/... · Home Security stay safe with advanced security 1 automatic door lock 1 fixed camera + Security

19

key credit highlights

large, growing and recession-resistant industry

unique and differentiated sales model

highly variable cost structure

leading industry player with best-in-class operational performance

high-quality subscribers and offerings drive low attrition

attractive customer economics

strong platform for growth

robust cash flow characteristics

proven and experienced management team

Page 20: 2013 North American Credit Conferences2.q4cdn.com/226156452/files/doc_presentations/... · Home Security stay safe with advanced security 1 automatic door lock 1 fixed camera + Security

Appendix

Page 21: 2013 North American Credit Conferences2.q4cdn.com/226156452/files/doc_presentations/... · Home Security stay safe with advanced security 1 automatic door lock 1 fixed camera + Security

reconciliation of non-GAAP financial measures

21

2010 2011 2012 2012 2013

Net loss before non-controlling interests (29.0)$ (62.4)$ (184.9)$ (50.8)$ (232.4)$

Interest expense, net 69.5 101.8 119.2 120.1 111.5

Other (income) expense 0.2 2.6

Gain on 2GIG Sale (i) - ( 47.1 )

Income tax (benefit ) expense 4.3 ( 3.7 ) ( 6.0 ) 5.8 0.4

Depreciat ion and amort izat ion (ii) 45.3 68.5 91.1 86.1 167.3

Transact ion related costs (iii) 132.4 4.1 129.1

Transact ion costs related to 2GIG Sale (iv) - 5.5

Non-capitalized subscriber acquisit ion costs (v) 37.0 51.4 70.4 52.5 102.7

Non-cash compensation (vi) 0.6 0.5 0.9 0.6 1.7

Adjustment for Solar business (vii) - 0.4 7.1 2.2 5.1

Other Adjustments (viii) 7.9 18.7 13.8 10.5 29.8

Adjusted EBITDA 135.6$ 175.2$ 244.0$ 231.3$ 276.2$

LTM September 30,FYE December 31,

Page 22: 2013 North American Credit Conferences2.q4cdn.com/226156452/files/doc_presentations/... · Home Security stay safe with advanced security 1 automatic door lock 1 fixed camera + Security

certain definitions

22

Total Subscribers – The aggregate number of active subscribers at the end of a given periodRMR – The recurring monthly revenue billed to a subscriberTotal RMR – The aggregate RMR billed for all subscribersAve. RMR per Subscriber – The Total RMR divided by Total Subscribers. This is also commonly referred to as Average Revenue per User, or ARPUAve. RMR per New Subscriber – The aggregate RMR for new subscribers originated during a period divided by the number of new subscribers originated during such periodAttrition – 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 us, or if payment from such subscribers is deemed uncollectible (120 dayspast due). Sales of contracts to third parties and moves are excluded from the attrition calculation

Net Subscriber Acquisition Cost – Gross cost to generate and install a subscriber net of any fees collected at the time of the contract signing. A portion of subscriber acquisition cost isexpensed as incurred. The remaining portion of the costs is considered to be directly tied to subscriber creation and consists primarily of certain portions of sales commissions,equipment, and installation costs. These costs are deferred and recognized in a pattern that reflects the estimated life of the subscriber relationships. Vivint amortizes these costs usinga 150% declining balance method over 12 years.

Net Creation Cost Multiple – Defined as total Net Subscriber Acquisition Costs, divided by the number of new subscribers originated, and then divided by the Average RMR per NewSubscriber

Adjusted EBITDA – Net Income (loss) before interest expense (net of interest income), income and franchise taxes and depreciation and amortization (including amortization ofcapitalized subscriber acquisition costs), further adjusted to exclude the effects of certain contract sales to third parties, non-capitalized subscriber acquisition costs, stock-basedcompensation, the historical results of the Company’s Solar variable interest entity and certain unusual, non-cash, non-recurring and other items permitted in certain covenantcalculations under the indentures governing the notes