UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

_______________________________________________


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~September 30, 2021~~March 31, 2022


¨			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 001-38246

__________________________________________________________

Vivint Smart Home, Inc.

(Exact name of Registrant as specified in its charter)

__________________________________________________________


Delaware						98-1380306
(State or Other Jurisdiction of Incorporation or Organization)						(I.R.S. Employer Identification No.)

4931 North 300 West

Provo, UT 84604

(Address of Principal Executive Offices and zip code)

(801) 377-9111

(Registrant’s Telephone Number, Including Area Code)

__________________________________________________________

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading
Symbol(s)

Name of each exchange on which registered

Class A common stock, par value $0.0001 per share

VVNT

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ý No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No ý

As of ~~November 12, 2021,~~May 2, 2022, there were ~~208,728,450~~212,569,131 shares of Class A common stock outstanding.

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Vivint Smart Home, Inc.

FORM 10-Q

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PART I — Financial Information		6
Item 1.	Unaudited Condensed Consolidated Financial Statements	6
	Unaudited Condensed Consolidated Balance Sheets as of ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020~~2021	6
	Unaudited Condensed Consolidated Statements of Operations for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2022 and 2021 ~~and 2020~~	7
	Unaudited Condensed Consolidated Statements of Comprehensive Loss for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2022 and 2021 ~~and 2020~~	8
	Unaudited Condensed Consolidated Statements of Changes in Equity (Deficit) for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2022 and 2021 ~~and 2020~~	9
	Unaudited Condensed Consolidated Statements of Cash Flows for the ~~nine~~three months ended ~~September 30,~~March 31, 2022 and 2021 ~~and 2020~~	1110
	Notes to Unaudited Condensed Consolidated Financial Statements	1211
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	5440
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	8162
Item 4.	Controls and Procedures	8162

PART II — Other Information		8363
Item 1.	Legal Proceedings	8363
Item 1A.	Risk Factors	8464
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	8665
Item 3.	Defaults Upon Senior Securities	8665
Item 4.	Mine Safety Disclosures	8665
Item 5.	Other Information	8665
Item 6.	Exhibits	8766
SIGNATURES		8967

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BASIS OF PRESENTATION AND GLOSSARY

As used in this Quarterly Report on Form 10-Q, unless otherwise noted or the context otherwise requires:

•references to “Vivint,” “we,” “us,” “our” and “the Company” are to Vivint Smart Home, Inc. and its consolidated subsidiaries;

•~~references to “Sponsor” are to certain investment funds affiliated with The Blackstone Group Inc.;~~

•references to the “Reorganization” are to the acquisition of APX Group Inc. and two of its affiliates, Vivint Solar, Inc. and 2GIG Technologies, Inc., on November 16, 2012, by an investor group comprised of certain investment funds affiliated with our Sponsor, and certain co-investors and management investors;

•references to the “Merger” or the “Business Combination” are to the merger, which closed on January 17, 2020, pursuant to an Agreement and Plan of Merger (the “Merger Agreement”), dated as of September 15, 2019, by and among Legacy Vivint Smart Home, Inc. (“Legacy Vivint Smart Home”), Vivint Smart Home, Inc. (f/k/a Mosaic Acquisition Corp.) (the “Company”) and Maiden Merger Sub, Inc., a wholly owned subsidiary of Vivint Smart Home, Inc. (“Merger Sub”), as amended by Amendment No. 1 to the Agreement and Plan of Merger (the “Amendment” and as amended, the “Merger Agreement”), dated as of December 18, 2019, by and among the Company, Merger Sub and Legacy Vivint Smart Home pursuant to which Merger Sub merged with and into Legacy Vivint Smart Home with Legacy Vivint Smart Home surviving the merger as a wholly owned subsidiary of Vivint Smart Home; and

•the terms “subscriber” and “customer” are used interchangeably.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q 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 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. Generally, statements that are not historical facts, including statements concerning our possible or assumed future actions, business strategies, events or results of operations, are forward-looking statements. These statements may be preceded by, followed by or include the words “believes,” “estimates,” “expects,” “projects,” “forecasts,” “may,” “will,” “should,” “seeks,” “plans,” “scheduled,” “anticipates” or “intends” or similar expressions.

Forward-looking statements are not guarantees of performance. You should not put undue reliance on these statements which speak only as of the date hereof. You should understand that the following important factors, in addition to those discussed in “Risk Factors” in ~~Amendment No. 1 to~~ our Annual Report on Form ~~10-K/A~~10-K for the fiscal year ended December 31, ~~2020,~~2021, filed with the Securities and Exchange Commission (the “SEC”) on ~~May 12, 2021~~March 1, 2022 (the “Form ~~10-K/A”~~10-K”) ~~and in this Quarterly Report on Form 10-Q,~~, as such factors may be updated in our periodic reports filed with the SEC, and contained elsewhere in this Quarterly Report, could affect our future results and could cause those results or other outcomes to differ materially from those expressed or implied in our forward-looking statements:

•the duration and scope of the evolving COVID-19 pandemic;

•~~actions governments, the company’s counterparties, and the company’s customers or potential customers take in response to the COVID-19 pandemic;~~

•~~the impact of the pandemic and actions taken in response to the pandemic on the global economies and economic activity;~~

•~~the pace of recovery when the COVID-19 pandemic subsides;~~

•the impact of the COVID-19 pandemic on our liquidity and capital resources, including the impact of the pandemic on our customers and timing of payments, the sufficiency of credit facilities, and the ~~company’s~~Company’s compliance with lender covenants;

•the ineffectiveness of steps we take to reduce operating costs;

•risks of the smart home and security industry, including risks of and publicity surrounding the sales, subscriber origination and retention process;

•the highly competitive nature of the smart home and security industry and product introductions and promotional activity by our competitors;

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•litigation, complaints, product liability claims and/or adverse publicity;

•the impact of changes in consumer spending patterns, consumer preferences, local, regional, and national economic conditions, crime, geopolitical tensions, weather, and demographic trends;

•adverse publicity and product liability claims;

•increases and/or decreases in utility and other energy costs, increased costs related to utility or governmental requirements;

•cost increases or shortages in smart home and security technology products or components including disruptions in our supply chains;

•the introduction of unsuccessful new Smart Home Services;

•privacy and data protection laws, privacy or data breaches, or the loss of data;

•the impact to our business, results of operations, financial condition, regulatory compliance and customer experience of the Vivint Flex Pay plan (as described in Note 1 - Basis of Presentation in the unaudited condensed consolidated financial statements);

•risks related to our exposure to variable rates of interest with respect to our revolving credit facility and term loan facility;

•our inability to maintain effective internal control over financial reporting; and

•our inability to attract and retain employees due to labor shortages.

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In addition, the origination and installation 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 Quarterly Report are more fully described in the “Risk Factors” section of the Form ~~10-K/A and in this Quarterly Report,~~10-K, as such risk factors may be updated from time to time in our periodic filings with the SEC, and are accessible on the SEC’s website at www.sec.gov. The risks described ~~herein or~~ in the “Risk Factors” ~~sections~~section referenced above are not exhaustive. ~~Other~~Certain sections of this Quarterly Report describe additional factors that could adversely affect our business, financial condition or results of operations. New risk factors emerge from time to time and it is not 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 any forward-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, except as required by law.

In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Quarterly Report, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and you are cautioned not to unduly rely upon these statements.

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WEBSITE AND SOCIAL MEDIA DISCLOSURE

We use our website (www.vivint.com), our company blogs (vivint.com/resources, innovation.vivint.com), corporate Twitter and Facebook accounts (@VivintHome), our corporate Instagram account (@Vivint) and our corporate LinkedIn account as channels of distribution of company information. The information we post through these channels may be deemed material. Accordingly, investors should monitor these channels, in addition to following our press releases, SEC filings and public conference calls and webcasts. In addition, you may automatically receive e-mail alerts and other information about the Company when you enroll your e-mail address by visiting the “Email Alerts” section of our website at www.investors.vivint.com. The contents of our website and social media channels are not, however, a part of this report.

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PART I. FINANCIAL INFORMATION


ITEM 1.			UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Vivint Smart Home, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets (unaudited)

(in thousands, except share and per-share amounts)


		September 30, 2021		December 31, 2020
				(As Restated)			March 31, 2022		December 31, 2021
ASSETS	ASSETS					ASSETS
Current Assets:	Current Assets:					Current Assets:
Cash and cash equivalents	Cash and cash equivalents	$	280,152	$	313,799	Cash and cash equivalents	$	153,217	$	208,509

Accounts and notes receivable, net	Accounts and notes receivable, net	71,274		64,697		Accounts and notes receivable, net	58,919		63,671
Inventories	Inventories	54,151		47,299		Inventories	64,221		51,251
Prepaid expenses and other current assets	Prepaid expenses and other current assets	26,624		14,338		Prepaid expenses and other current assets	36,416		19,385
Total current assets	Total current assets	432,201		440,133		Total current assets	312,773		342,816

Property, plant and equipment, net	Property, plant and equipment, net	52,825		52,379		Property, plant and equipment, net	56,170		55,448
Capitalized contract costs, net	Capitalized contract costs, net	1,433,112		1,318,498		Capitalized contract costs, net	1,376,068		1,405,442

Deferred financing costs, net	Deferred financing costs, net	2,201		1,667		Deferred financing costs, net	1,974		2,088
Intangible assets, net	Intangible assets, net	66,808		111,474		Intangible assets, net	38,439		51,928
Goodwill	Goodwill	837,086		837,077		Goodwill	837,577		837,153
Operating lease right-of-use assets	Operating lease right-of-use assets	45,201		52,880		Operating lease right-of-use assets	44,779		46,000
Long-term notes receivables and other non-current assets, net	Long-term notes receivables and other non-current assets, net	46,951		58,317		Long-term notes receivables and other non-current assets, net	45,373		44,753
Total assets	Total assets	$	2,916,385	$	2,872,425	Total assets	$	2,713,153	$	2,785,628
LIABILITIES AND STOCKHOLDERS’ DEFICIT	LIABILITIES AND STOCKHOLDERS’ DEFICIT					LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current Liabilities:	Current Liabilities:					Current Liabilities:
Accounts payable	Accounts payable	$	127,944	$	85,656	Accounts payable	$	112,970	$	96,317
Accrued payroll and commissions	Accrued payroll and commissions	147,302		87,943		Accrued payroll and commissions	55,947		83,347
Accrued expenses and other current liabilities	Accrued expenses and other current liabilities	218,151		247,324		Accrued expenses and other current liabilities	213,875		236,250
Deferred revenue	Deferred revenue	418,718		327,632		Deferred revenue	441,874		429,900
Current portion of notes payable, net	Current portion of notes payable, net	13,500		9,500		Current portion of notes payable, net	13,500		13,500
Current portion of operating lease liabilities	Current portion of operating lease liabilities	11,858		12,135		Current portion of operating lease liabilities	12,396		12,033
Current portion of finance lease liabilities	Current portion of finance lease liabilities	3,272		3,356		Current portion of finance lease liabilities	2,240		2,854
Total current liabilities	Total current liabilities	940,745		773,546		Total current liabilities	852,802		874,201

Notes payable, net	Notes payable, net	2,322,412		2,372,235		Notes payable, net	2,291,651		2,347,765
Notes payable, net - related party	Notes payable, net - related party	378,512		443,865		Notes payable, net - related party	405,115		351,080

Finance lease liabilities, net of current portion	Finance lease liabilities, net of current portion	1,171		2,460		Finance lease liabilities, net of current portion	1,404		1,416
Deferred revenue, net of current portion	Deferred revenue, net of current portion	790,397		621,182		Deferred revenue, net of current portion	760,934		778,214
Operating lease liabilities, net of current portion	Operating lease liabilities, net of current portion	41,422		49,692		Operating lease liabilities, net of current portion	39,848		41,713
Warrant derivative liabilities	Warrant derivative liabilities	24,033		75,531		Warrant derivative liabilities	15,271		24,564
Other long-term obligations	Other long-term obligations	126,411		121,235		Other long-term obligations	99,121		106,135
Deferred income tax liabilities	Deferred income tax liabilities	781		2,168		Deferred income tax liabilities	893		640
Total liabilities	Total liabilities	4,625,884		4,461,914		Total liabilities	4,467,039		4,525,728
Commitments and contingencies (See Note 13)		0		0
Commitments and contingencies (See Note 11)						Commitments and contingencies (See Note 11)	0		0
Stockholders’ deficit:	Stockholders’ deficit:					Stockholders’ deficit:
Class A Common stock, $0.0001 par value, 3,000,000,000 shares authorized; 208,728,450 and 202,216,341 shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively		21		20
Preferred stock, $0.0001 par value, 300,000,000 shares authorized; none issued and outstanding as of September 30, 2021 and December 31, 2020, respectively		—		—
Class A Common stock, $0.0001 par value, 3,000,000,000 shares authorized; 212,561,154 and 208,734,193 shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively						Class A Common stock, $0.0001 par value, 3,000,000,000 shares authorized; 212,561,154 and 208,734,193 shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively	21		21
Preferred stock, $0.0001 par value, 300,000,000 shares authorized; none issued and outstanding as of March 31, 2022 and December 31, 2021, respectively						Preferred stock, $0.0001 par value, 300,000,000 shares authorized; none issued and outstanding as of March 31, 2022 and December 31, 2021, respectively	—		—
Additional paid-in capital	Additional paid-in capital	1,681,001		1,548,786		Additional paid-in capital	1,716,996		1,703,815
Accumulated deficit	Accumulated deficit	(3,363,574)		(3,111,486)		Accumulated deficit	(3,444,469)		(3,417,038)
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(26,947)		(26,809)		Accumulated other comprehensive loss	(26,434)		(26,898)
Total stockholders’ deficit	Total stockholders’ deficit	(1,709,499)		(1,589,489)		Total stockholders’ deficit	(1,753,886)		(1,740,100)
Total liabilities and stockholders’ deficit	Total liabilities and stockholders’ deficit	$	2,916,385	$	2,872,425	Total liabilities and stockholders’ deficit	$	2,713,153	$	2,785,628

See accompanying notes to unaudited condensed consolidated financial statements

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Vivint Smart Home, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations (unaudited)

(in thousands, except share and per share amounts)


		Three Months Ended September 30,				Nine Months Ended September 30,
		2021		2020		2021		2020			Three Months Ended March 31,
				(As Restated)				(As Restated)			2022		2021
Revenues:	Revenues:									Revenues:
Recurring and other revenue	Recurring and other revenue	$	386,710	$	318,717	$	1,083,174	$	921,359	Recurring and other revenue	$	392,748	$	342,327

Costs and expenses:	Costs and expenses:									Costs and expenses:
Operating expenses (exclusive of depreciation and amortization shown separately below)	Operating expenses (exclusive of depreciation and amortization shown separately below)	99,082		92,309		286,353		257,728		Operating expenses (exclusive of depreciation and amortization shown separately below)	95,460		96,531
Selling expenses (exclusive of amortization of deferred commissions of $53,792; $49,429; $158,796 and $145,017, respectively, which are included in depreciation and amortization shown separately below)		96,072		79,680		300,480		195,513
Selling expenses (exclusive of amortization of deferred commissions of $54,906 and $52,078, respectively, which are included in depreciation and amortization shown separately below)										Selling expenses (exclusive of amortization of deferred commissions of $54,906 and $52,078, respectively, which are included in depreciation and amortization shown separately below)	78,037		114,541
General and administrative expenses	General and administrative expenses	64,972		69,130		189,267		180,272		General and administrative expenses	55,515		66,801
Depreciation and amortization	Depreciation and amortization	151,332		143,965		447,863		423,389		Depreciation and amortization	154,394		146,912
Restructuring expenses		—		—		—		20,941

Total costs and expenses	Total costs and expenses	411,458		385,084		1,223,963		1,077,843		Total costs and expenses	383,406		424,785
Loss from operations		(24,748)		(66,367)		(140,789)		(156,484)
Income (Loss) from operations										Income (Loss) from operations	9,342		(82,458)
Other expenses (income):	Other expenses (income):									Other expenses (income):
Interest expense	Interest expense	47,120		50,987		146,981		170,795		Interest expense	37,511		49,803
Interest income	Interest income	(126)		(26)		(280)		(287)		Interest income	(133)		(44)
Change in fair value of warrant liabilities	Change in fair value of warrant liabilities	(15,313)		974		(50,638)		79,893		Change in fair value of warrant liabilities	(9,293)		(29,103)
Other expense (income), net	Other expense (income), net	37,329		(7,099)		14,736		11,341		Other expense (income), net	8,256		(14,559)
Loss before income taxes	Loss before income taxes	(93,758)		(111,203)		(251,588)		(418,226)		Loss before income taxes	(26,999)		(88,555)
Income tax (benefit) expense		(1,014)		230		500		324
Income tax expense										Income tax expense	432		244
Net loss	Net loss	$	(92,744)	$	(111,433)	$	(252,088)	$	(418,550)	Net loss	$	(27,431)	$	(88,799)
Net loss attributable per share to common stockholders:	Net loss attributable per share to common stockholders:									Net loss attributable per share to common stockholders:
Basic	Basic	$	(0.44)	$	(0.59)	$	(1.21)	$	(2.43)	Basic	$	(0.13)	$	(0.43)
Diluted	Diluted	$	(0.52)	$	(0.59)	$	(1.45)	$	(2.43)	Diluted	$	(0.13)	$	(0.57)
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:									Weighted-average shares used in computing net loss attributable per share to common stockholders:
Basic	Basic	208,759,485		187,551,208		208,090,903		172,443,930		Basic	210,739,678		206,791,625
Diluted	Diluted	208,988,137		187,551,208		209,174,284		172,443,930		Diluted	210,739,678		208,989,080

See accompanying notes to unaudited condensed consolidated financial statements

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Vivint Smart Home, Inc. and Subsidiaries

Condensed Consolidated Statements of Comprehensive Loss (unaudited)

(in thousands)


		Three Months Ended September 30,				Nine Months Ended September 30,
		2021		2020		2021		2020			Three Months Ended March 31,
				(As Restated)				(As Restated)			2022		2021
Net loss	Net loss	$	(92,744)	$	(111,433)	$	(252,088)	$	(418,550)	Net loss	$	(27,431)	$	(88,799)
Other comprehensive (loss) income, net of tax effects:
Other comprehensive income, net of tax effects:										Other comprehensive income, net of tax effects:
Foreign currency translation adjustment	Foreign currency translation adjustment	(1,062)		589		(138)		(822)		Foreign currency translation adjustment	464		392

Total other comprehensive (loss) income		(1,062)		589		(138)		(822)
Total other comprehensive income										Total other comprehensive income	464		392
Comprehensive loss	Comprehensive loss	$	(93,806)	$	(110,844)	$	(252,226)	$	(419,372)	Comprehensive loss	$	(26,967)	$	(88,407)

See accompanying notes to unaudited condensed consolidated financial statements

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Vivint Smart Home, Inc. and Subsidiaries

Condensed Consolidated Statements of Changes in Equity (Deficit) (unaudited)

(In thousands, except shares)


																						Three Months Ended March 31, 2022
																					Common Stock		Additional Paid-In Capital			Accumulated Deficit		Accumulated Other Comprehensive Loss			Total Stockholders' Deficit
			Three Months Ended September 30, 2021																			Shares			Amount
		Common Stock		Additional Paid-In Capital			Accumulated Deficit		Accumulated Other Comprehensive Loss				Total Stockholders' Deficit
			Shares			Amount
Balance, beginning of period	Balance, beginning of period		208,707,992	$	21		$	1,651,951			$	(3,270,830)			$	(25,885)		$	(1,644,743)	Balance, beginning of period			208,734,193			21				1,703,815			(3,417,038)		(26,898)	(1,740,100)

Tax withholdings related to net share settlement of equity awards																	Tax withholdings related to net share settlement of equity awards					(1,564,768)	—			(11,701)		—			—		(11,701)

Issuance of common stock upon exercise or vesting of equity awards	Issuance of common stock upon exercise or vesting of equity awards		20,458	—			—		—				—		—		Issuance of common stock upon exercise or vesting of equity awards					5,391,729	—			—		—			—		—

Net Loss	Net Loss		—	—			—		(92,744)				—		(92,744)		Net Loss					—	—			—		(27,431)			—		(27,431)
Foreign currency translation adjustment	Foreign currency translation adjustment		—	—			—		—				(1,062)		(1,062)		Foreign currency translation adjustment					—	—			—		—			464		464
Stock-based compensation	Stock-based compensation		—	—			29,050		—				—		29,050		Stock-based compensation					—	—			24,882		—			—		24,882

Balance, end of period	Balance, end of period		208,728,450	$	21		$	1,681,001	$	(3,363,574)			$	(26,947)	$	(1,709,499)	Balance, end of period					212,561,154	$	21		$	1,716,996	$	(3,444,469)		$	(26,434)	$	(1,753,886)


			Three Months Ended September 30, 2020																				Three Months Ended March 31, 2021
		Common Stock		Additional Paid-In Capital			Accumulated Deficit		Accumulated Other Comprehensive Loss				Total Stockholders' Deficit					Common Stock					Additional Paid-In Capital	Accumulated Deficit			Accumulated Other Comprehensive Loss		Total Stockholders' Deficit
			Shares			Amount																Amount				Total Stockholders' Deficit

			(As Restated)
Balance, beginning of period	Balance, beginning of period		184,349,606	$	18		$	1,335,652			$	(2,815,272)			$	(28,877)			$	(1,508,479)	Balance, beginning of period			202,216,341			$	20	$	1,548,786	$	(3,111,486)	$	(26,809)	$	(1,589,489)

Issuance of earnout shares	Issuance of earnout shares		11,726,753	2			(2)		—				—		—		Issuance of earnout shares						1,237,211	—			—		—		—		—
Tax withholdings related to net share settlement of equity awards	Tax withholdings related to net share settlement of equity awards		(69,088)	—			(1,962)		—				—		(1,962)		Tax withholdings related to net share settlement of equity awards						(1,663,202)	—			(28,735)		—		—		(28,735)
Forfeited shares	Forfeited shares		(27,031)	—			—		—				—		—		Forfeited shares						(17,198)	—			—		—		—		—
Warrants exercised	Warrants exercised		1,658,097	—			28,798		—				—		28,798		Warrants exercised						825,016	—			19,743		—		—		19,743
Issuance of common stock upon exercise or vesting of equity awards	Issuance of common stock upon exercise or vesting of equity awards		433,745	—			—		—				—		—		Issuance of common stock upon exercise or vesting of equity awards						6,072,698	1			—		—		—		1

Net Loss	Net Loss		—	—			—		(111,433)				—		(111,433)		Net Loss						—	—			—		(88,799)		—		(88,799)
Foreign currency translation adjustment	Foreign currency translation adjustment		—	—			—		—				589		589		Foreign currency translation adjustment						—	—			—		—		392		392
Stock-based compensation	Stock-based compensation		—	—			58,530		—				—		58,530		Stock-based compensation						—	—			85,233		—		—		85,233

Balance, end of period	Balance, end of period		198,072,082	$	20		$	1,421,016	$	(2,926,705)			$	(28,288)	$	(1,533,957)	Balance, end of period						208,670,866	$	21		$	1,625,027	$	(3,200,285)	$	(26,417)	$	(1,601,654)

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Nine Months Ended September 30, 2021
Common Stock Additional Paid-In Capital Accumulated Deficit Accumulated Other Comprehensive Loss Total Stockholders' Deficit
Shares Amount
Balance, beginning of period 202,216,341 20 1,548,786 (3,111,486) (26,809) (1,589,489)
Issuance of earnout shares 1,239,818 — — — — —
Tax withholdings related to net share settlement of equity awards (1,675,319) — (29,367) — — (29,367)
Forfeited shares (17,198) — — — — —
Warrants exercised 825,016 — 19,743 — — 19,743
Issuance of common stock upon exercise or vesting of equity awards 6,139,792 1 — — — 1
Net Loss — — — (252,088) — (252,088)
Foreign currency translation adjustment — — — — (138) (138)
Stock-based compensation — — 141,839 — — 141,839
Balance, end of period 208,728,450 $ 21 $ 1,681,001 $ (3,363,574) $ (26,947) $ (1,709,499)

Nine Months Ended September 30, 2020
Common Stock Additional Paid-In Capital Accumulated Deficit Accumulated Other Comprehensive Loss Total Stockholders' Deficit
Shares Amount
(As Restated)
Balance, beginning of period as originally reported 1,009,144 $ 10 $ 740,119 $ (2,508,155) $ (27,466) $ (1,795,491)
Retroactive application of recapitalization 93,928,453 (1) 2 — — —
Adjusted balance, beginning of period 94,937,597 9 740,121 (2,508,155) (27,466) (1,795,491)
Recapitalization transaction 59,793,021 6 421,899 — — 421,905
Issuance of earnout shares 35,096,994 5 (5) — — —
Tax withholdings related to net share settlement of equity awards (155,021) — (3,759) — — (3,759)
Forfeited shares (188,972) — — — — —
Warrants exercised 8,148,926 — 134,375 — — 134,375
Issuance of common stock upon exercise or vesting of equity awards 439,537 — — — — —
Net Loss — — — (418,550) — (418,550)
Foreign currency translation adjustment — — — — (822) (822)
Stock-based compensation — — 117,279 — — 117,279
Restructuring expenses — — 11,106 — — 11,106
Balance, end of period 198,072,082 $ 20 $ 1,421,016 $ (2,926,705) $ (28,288) $ (1,533,957)

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Vivint Smart Home, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows (unaudited)

(in thousands)


		Nine Months Ended September 30,
		2021		2020			Three Months Ended March 31,
				(As Restated)			2022		2021
Cash flows from operating activities:	Cash flows from operating activities:					Cash flows from operating activities:
Net loss	Net loss	$	(252,088)	$	(418,550)	Net loss	$	(27,431)	$	(88,799)
Adjustments to reconcile net loss to net cash provided by operating activities:
Adjustments to reconcile net loss to net cash used in operating activities:						Adjustments to reconcile net loss to net cash used in operating activities:
Amortization of capitalized contract costs	Amortization of capitalized contract costs	390,533		355,471		Amortization of capitalized contract costs	136,584		127,768

Amortization of customer relationships	Amortization of customer relationships	43,607		49,396		Amortization of customer relationships	13,302		14,521
Depreciation and amortization of property, plant and equipment and other intangible assets	Depreciation and amortization of property, plant and equipment and other intangible assets	13,723		18,522		Depreciation and amortization of property, plant and equipment and other intangible assets	4,508		4,623
Amortization of deferred financing costs and bond premiums and discounts	Amortization of deferred financing costs and bond premiums and discounts	3,218		2,988		Amortization of deferred financing costs and bond premiums and discounts	1,410		949

Loss on sale or disposal of assets		309		919
(Gain) loss on changes in fair value of warrant derivative liabilities		(50,638)		79,893
Loss on early extinguishment of debt		30,210		12,710
Expensed issuance costs		—		723
(Gain) loss on sale or disposal of assets						(Gain) loss on sale or disposal of assets	(1,878)		19
Gain on changes in fair value of warrant derivative liabilities						Gain on changes in fair value of warrant derivative liabilities	(9,293)		(29,103)

Stock-based compensation	Stock-based compensation	141,839		117,279		Stock-based compensation	24,872		85,251
Provision for doubtful accounts and expected credit losses		21,589		17,293
Provision for doubtful accounts						Provision for doubtful accounts	6,580		4,712

Deferred income taxes	Deferred income taxes	(4,528)		(1,180)		Deferred income taxes	(3,180)		(4,953)
Non-cash restructuring expenses		—		11,106

Changes in operating assets and liabilities:	Changes in operating assets and liabilities:					Changes in operating assets and liabilities:
Accounts and notes receivable, net	Accounts and notes receivable, net	(28,542)		(23,202)		Accounts and notes receivable, net	(1,986)		(7,454)
Inventories	Inventories	(6,851)		3,750		Inventories	(12,954)		(32,985)
Prepaid expenses and other current assets	Prepaid expenses and other current assets	(12,341)		(1,655)		Prepaid expenses and other current assets	(17,031)		(11,894)
Capitalized contract costs, net	Capitalized contract costs, net	(504,885)		(475,708)		Capitalized contract costs, net	(106,782)		(98,923)

Long-term notes receivables and other non-current assets, net	Long-term notes receivables and other non-current assets, net	14,488		21,521		Long-term notes receivables and other non-current assets, net	2,979		8,947
Right-of-use assets	Right-of-use assets	7,680		5,907		Right-of-use assets	1,221		2,394
Accounts payable	Accounts payable	40,061		(24,157)		Accounts payable	17,008		36,521
Accrued payroll and commissions, accrued expenses, and other current and long-term liabilities	Accrued payroll and commissions, accrued expenses, and other current and long-term liabilities	43,109		187,508		Accrued payroll and commissions, accrued expenses, and other current and long-term liabilities	(56,951)		(43,457)

Current and long-term operating lease liabilities	Current and long-term operating lease liabilities	(8,548)		(6,500)		Current and long-term operating lease liabilities	(1,504)		(2,684)
Deferred revenue	Deferred revenue	260,185		288,775		Deferred revenue	(5,568)		20,391
Net cash provided by operating activities		142,130		222,809
Net cash used in operating activities						Net cash used in operating activities	(36,094)		(14,156)
Cash flows from investing activities:	Cash flows from investing activities:					Cash flows from investing activities:

Capital expenditures	Capital expenditures	(10,199)		(8,620)		Capital expenditures	(5,203)		(4,647)

Proceeds associated with disposal of capital assets		162		1,508
Proceeds associated with sales and disposal of other assets						Proceeds associated with sales and disposal of other assets	2,000		99

Acquisition of intangible assets	Acquisition of intangible assets	—		(1,592)		Acquisition of intangible assets	(79)		—

Net cash used in investing activities	Net cash used in investing activities	(10,037)		(8,704)		Net cash used in investing activities	(3,282)		(4,548)
Cash flows from financing activities:	Cash flows from financing activities:					Cash flows from financing activities:
Proceeds from notes payable		1,758,000		1,241,000
Proceeds from notes payable - related party		392,000		309,000

Repayment of notes payable	Repayment of notes payable	(1,893,575)		(1,577,124)		Repayment of notes payable	(3,375)		(2,375)
Repayment of notes payable - related party		(351,300)		(174,800)
Borrowings from revolving credit facility		—		359,200

Taxes paid related to net share settlements of stock-based compensation awards	Taxes paid related to net share settlements of stock-based compensation awards	(29,372)		(2,769)		Taxes paid related to net share settlements of stock-based compensation awards	(11,701)		(28,701)
Repayments on revolving credit facility		—		(604,200)

Proceeds from warrant exercises	Proceeds from warrant exercises	10,819		93,713		Proceeds from warrant exercises	—		10,819
Proceeds from Mosaic recapitalization		—		463,311

Repayments of finance lease obligations	Repayments of finance lease obligations	(2,549)		(6,285)		Repayments of finance lease obligations	(911)		(500)

Financing costs		(26,260)		(11,191)
Deferred financing costs		(23,474)		(12,894)

Net cash (used in) provided by financing activities		(165,711)		76,961

Net cash used in financing activities						Net cash used in financing activities	(15,987)		(20,757)
Effect of exchange rate changes on cash and cash equivalents	Effect of exchange rate changes on cash and cash equivalents	(29)		67		Effect of exchange rate changes on cash and cash equivalents	71		6
Net (decrease) increase in cash and cash equivalents		(33,647)		291,133
Net decrease in cash and cash equivalents						Net decrease in cash and cash equivalents	(55,292)		(39,455)
Cash and cash equivalents:	Cash and cash equivalents:					Cash and cash equivalents:
Beginning of period	Beginning of period	313,799		4,549		Beginning of period	208,509		313,799
End of period	End of period	$	280,152	$	295,682	End of period	$	153,217	$	274,344
Supplemental non-cash investing and financing activities:	Supplemental non-cash investing and financing activities:					Supplemental non-cash investing and financing activities:
Finance lease additions	Finance lease additions	$	1,394	$	699	Finance lease additions	$	283	$	413

Intangible asset acquisitions included within accounts payable, accrued expenses and other current liabilities and other long-term obligations						Intangible asset acquisitions included within accounts payable, accrued expenses and other current liabilities and other long-term obligations	$	157	$	—
Reclassification of warrant derivative liability for exercised warrants	Reclassification of warrant derivative liability for exercised warrants	$	8,924	$	—	Reclassification of warrant derivative liability for exercised warrants	$	—	$	8,924
Capital expenditures included within accounts payable	Capital expenditures included within accounts payable	$	4,130	$	1,737	Capital expenditures included within accounts payable	$	3,067	$	1,553

Intangible asset acquisitions included within accounts payable, accrued expenses and other current liabilities and other long-term obligations						Intangible asset acquisitions included within accounts payable, accrued expenses and other current liabilities and other long-term obligations	$	—	$	382

See accompanying notes to unaudited condensed consolidated financial statements

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Vivint Smart Home, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

1. 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 condensed 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, ~~2020~~2021 included in the unaudited condensed consolidated balance sheets was derived from the Company’s audited consolidated financial statements ~~except as disclosed in Note 2.~~at that date but does not include all information and footnotes required by GAAP for complete 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 nine~~ months ended ~~September 30, 2021~~March 31, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, ~~2021.~~2022.

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.

These unaudited condensed consolidated financial statements and notes should be read in conjunction with the Company’s audited consolidated financial statements and related notes as set forth in the Company’s Annual Report on Form ~~10-K/A~~10-K for the fiscal year ended December 31, ~~2020,~~2021, as filed with the Securities and Exchange Commission (“SEC”) on ~~May 12, 2021,~~March 1, 2022, which is available on the SEC’s website at www.sec.gov.

Certain prior period balances were conformed to the restated financial statements, as previously disclosed in the Company's Annual Report on Form 10-K/A for the year ended December 31, 2020, due to the accounting for warrant liabilities.

Basis of Presentation

~~On January 17, 2020 (the “Closing Date”),~~The unaudited condensed consolidated financial statements of 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 6 “Business Combination”are presented 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~~and its wholly-owned subsidiaries. The Company has prepared the ~~acquired company~~accompanying unaudited condensed consolidated financial statements pursuant to GAAP. Preparing financial statements requires the Company to make estimates and ~~Legacy Vivint Smart Home is treated as~~assumptions that affect the ~~acquirer for~~amounts that are reported in the condensed consolidated financial ~~statement reporting~~statements and ~~accounting purposes. Legacy Vivint Smart Home has been determined to be the accounting acquirer~~accompanying disclosures. Although these estimates are based on ~~evaluation~~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 ~~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.~~

~~Table of~~ ~~Contents~~

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 operatingCompany’s 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”. Prior to the Business Combination, Mosaic Acquisition Corp. neither engaged in any operations nor generated any revenue. Until the Business Combination, based on Mosaic Acquisition Corp’s business activities, it was a “shell company” as defined under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).future period.

Vivint Flex Pay

The Vivint Flex Pay plan (“Vivint Flex Pay”) became the Company’s primary equipment financing 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 3 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” or “CFP”), (2) the Company generally offers to a limited number of customers not eligible for the CFP, 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.~~card or by obtaining short-term financing (generally, no more than six month installment terms) through the Company).

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. For RICs, gross deferred revenues are reduced by imputed interest and estimated write-offs. For Products financed through the CFP, gross deferred revenues are

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reduced by (i) any fees the third-party financing provider (“Financing Provider”) is contractually entitled to receive at the time of loan origination, and (ii) the present value of expected future payments due to Financing Providers.

Under the CFP, qualified customers are eligible for financing offerings (“Loans”) originated by Financing Providers of between $150 and $6,000. The terms of most Loans are determined based on the customer's credit quality. The annual percentage rates on these Loans is either 0% or 9.99%, depending on the customer's credit quality, and the Loans are issued on either an installment or revolving basis with repayment terms ranging from 6- to 60-months.

For certain Financing Provider ~~Loans,~~ Loans:

•the Company pays a monthly fee based on either the average daily outstanding balance of the installment loans, or the number of outstanding Loans. ~~For certain Loans, the~~

•The Company incurs fees at the time of the loan origination and receives proceeds that are net of these fees. ~~For certain Loans, the~~

•The Company also shares liability for credit losses, with the Company being responsible for between 2.6% and 100% of lost principal balances. ~~Additionally, the~~

•The Company is responsible for reimbursing certain Financing Providers for merchant transaction fees and other fees associated with the Loans.

Because of the nature of these provisions, the Company records a derivative liability at its fair value when the Financing Provider originates ~~loans~~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 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 108 “Financial Instruments” for additional information).

For certain other Loans, the Company receives net proceeds (net of fees and expected losses) for which the Company has no further obligation to the Financing Provider. The Company records these net proceeds to deferred revenue.

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.

~~Table of~~ ~~Contents~~

Retail Installment Contract Receivables

For subscribers that enter into a RIC to finance the purchase of Products, 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 as an adjustment 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. 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. 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. (See Note 4).

Accounts Receivable

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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 ~~$30.7~~$24.6 million and ~~$19.8~~$26.4 million at ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, respectively, net of the allowance for doubtful accounts of ~~$12.2~~$11.7 million and ~~$9.9~~$13.3 million at ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, respectively. 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.

The changes in the Company’s allowance for accounts receivable were as follows for the periods ended (in thousands):
Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 2021 2020
Beginning balance $ 9,621 $ 8,429 $ 9,911 $ 8,118
Provision for doubtful accounts 8,605 4,155 21,589 17,293
Write-offs and adjustments (6,028) (4,113) (19,302) (16,940)
Balance at end of period $ 12,198 $ 8,471 $ 12,198 $ 8,471


	Three Months Ended March 31,
	2022		2021
Beginning balance	$	13,271	$	9,911
Provision for doubtful accounts	6,580		4,712
Write-offs and adjustments	(8,178)		(6,498)
Balance at end of period	$	11,673	$	8,125

Revenue Recognition

The Company offers its customers smart home services combining Products, including a proprietary control panel, door and window sensors, door locks, cameras and smoke alarms; installation; and a proprietary back-end cloud platform

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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 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 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

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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. The Company calculates amortization by accumulating all deferred contract costs into separate portfolios based on the initial month of service and amortizes those deferred contract costs on a straight-line basis over the expected period of benefit that the Company has determined to be five years, consistent with the pattern in which the Company provides services to its customers. The Company believes this pattern of amortization appropriately reduces the carrying value of the capitalized contract costs over time to reflect the decline in the value of the assets as the remaining period of benefit for each monthly portfolio of contracts decreases. 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. No such changes were made for the ~~nine~~three months ended ~~September 30, 2021~~March 31, 2022 and ~~2020.~~2021. Amortization of capitalized contract costs is included in “Depreciation and Amortization” on the consolidated statements of operations.

The carrying amount of the capitalized contract costs is periodically reviewed for impairment. In performing this review, the Company begins by analyzing for impairment indicators. If impairment indicators exist, the Company considers whether the carrying amount of the capitalized contract costs will be recovered. In estimating the amount of consideration the Company expects to receive in the future related to capitalized contract costs, the Company considers factors such as attrition rates, economic factors, and industry developments, among other factors. If it is determined that capitalized contract costs are impaired, an impairment loss is recognized for the amount by which the carrying amount of the capitalized contract costs and the anticipated costs that relate directly to providing the future services exceed the consideration that has been received and that is expected to be received in the future. During the three ~~and nine~~ months ended ~~September 30,~~March 31, 2022 and 2021, ~~and 2020,~~ no impairment losses were recorded.

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with housing, marketing, advertising, 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.

The Company’s depreciation and amortization included in the unaudited condensed consolidated statements of operations consisted of the following (in thousands):


	Three Months Ended March 31,
	2022		2021
Amortization of capitalized contract costs	$	136,584	$	127,769
Amortization of definite-lived intangibles	13,615		15,018
Depreciation and amortization of property, plant and equipment	4,195		4,125
Total depreciation and amortization	$	154,394	$	146,912

Cash and Cash Equivalents

Cash and cash equivalents consist 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 equipment 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 in 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 nine months ended September 30, 2021 and 2020, 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 September 30, Nine Months Ended September 30,
2021 2020 2021 2020
Amortization of capitalized contract costs $ 132,453 $ 121,681 $ 390,533 $ 355,471
Amortization of definite-lived intangibles 14,984 17,358 45,038 52,167
Depreciation of property, plant and equipment 3,895 4,926 12,292 15,751
Total depreciation and amortization $ 151,332 $ 143,965 $ 447,863 $ 423,389

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~~Leases~~

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.

Deferred Financing Costs

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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 43 “Long-Term Debt.” Deferred financing costs associated with the revolving credit facility reported in the accompanying unaudited condensed consolidated balance sheets within deferred financing costs, net at ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020~~2021 were ~~$2.2~~$2.0 million and ~~$1.7~~$2.1 million, net of accumulated amortization of ~~$11.4~~$11.6 million and ~~$11.0~~$11.5 million, respectively. Deferred financing costs included in the accompanying unaudited condensed consolidated balance sheets within notes payable, net at ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020~~2021 were ~~$35.6~~$33.0 million and ~~$27.2~~$34.3 million, net of accumulated amortization of ~~$76.1~~$78.7 million and ~~$70.9~~$77.4 million, respectively. Amortization expense on deferred financing costs recognized and included in interest expense in the accompanying unaudited condensed consolidated statements of operations, totaled ~~$1.6~~$1.4 million and $1.9 million for the three months ended ~~September 30,~~March 31, 2022 and 2021, ~~and 2020, respectively and $5.4 million and $6.0 million for the nine months ended September 30, 2021 and 2020, respectively~~respectively. (See Note 43 “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 current portion of the liability included in accrued payroll and commissions was $4.5 million and $4.3 million ~~and $4.1 million~~ at ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, respectively, and the noncurrent portion included in other long-term obligations was ~~$23.6~~$23.3 million and ~~$23.8~~$23.2 million at ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, 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 1210 “Stock-Based Compensation and Equity” for additional details).

Advertising Expense

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Advertising costs are expensed as incurred. Advertising costs were ~~$25.7~~$16.4 million and ~~$16.4~~$16.8 million for the three months ended ~~September 30,~~March 31, 2022 and 2021, respectively.

Research and ~~2020, respectively~~Development

Research and ~~$69.1~~development costs consist primarily of employee compensation and related expenses, product development expenses, third-party development support costs, facility costs as well as allocated overhead costs and are included in general and administrative expense. The Company incurred $15.0 million and ~~$43.2~~$12.7 million ~~for~~during the ~~nine~~three months ended ~~September 30,~~March 31, 2022 and 2021, ~~and 2020,~~ 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.

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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 ~~September 30, 2021,~~March 31, 2022, approximately ~~94%~~95% of the Company’s installed panels were the Company's proprietary SkyControl or Smart Hub panels and 6%5% were 2GIG Go!Control panels. The loss of the Company's SkyControl or Smart Hub panel suppliers 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 ~~nine~~three months ended ~~September 30, 2021~~March 31, 2022 and ~~2020.~~2021.

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~~tests goodwill at the reporting unit level for impairment ~~analysis~~ annually ~~in the fourth fiscal quarter,~~ as of October 1 and ~~as necessary if changes in facts and~~on an interim basis when events occur or circumstances exist that indicate ~~that~~the carrying value may no longer be recoverable. If impairment indicators exist, the Company compares the fair value of ~~the Company’s~~our reporting units ~~may be less than~~

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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 towith the carrying ~~value of the reporting unit’s net assets,~~amount, 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, theThe Company ~~would be required to recognize~~recognizes an impairment charge for the amount by which the reporting ~~unit's~~unit’s carrying ~~value~~amount exceeds its fair value. The Company’s reporting units are determined based on its current reporting structure, which as of ~~September 30, 2021~~March 31, 2022 consisted of 1one reporting unit. As of ~~September 30, 2021,~~March 31, 2022, 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,

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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 are 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 September 30, Nine Months Ended September 30,
2021 2020 2021 2020
Translation loss (gain) $ 1,093 $ (1,300) $ (324) $ 2,220


	Three Months Ended March 31,
	2022		2021
Translation gain	$	(390)	$	(572)

Letters of Credit

As of both ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, the Company had ~~$15.3~~$11.1 million and $14.0 million of letters of credit issued in the ordinary course of business, all of which are undrawn.

Derivative ~~warrant liabilities~~Warrant Liabilities

The Company does not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks. The Company evaluates all of its financial instruments, including issued stock purchase warrants, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives, pursuant to ASC 480 and ASC 815-15. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is assessed as part of this evaluation.

The Company accounts for its ~~public warrants and~~ private placement warrants as derivative warrant liabilities in accordance with ASC 815-40. Accordingly, the Company recognizes the warrant instruments as liabilities at fair value and adjusts the instruments to fair value at each reporting period. The liabilities are re-measured at each balance sheet date until exercised, and any change in fair value is recognized in the Company’s statement of operations.

~~Restructuring and Asset Impairment Charges~~

Restructuring and asset impairment charges represent expenses incurred in relation to activities to exit or dispose 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 17).

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~~2. Revisions of Previously-Issued Financial Statements~~

During the financial close for the quarter ended September 30, 2021, the Company determined that certain revenue transactions associated with monthly service charge adjustments and contract modifications were not being recognized over the proper period. Consequently, during 2021 and in previous annual and quarterly periods, certain immaterial errors existed in previously reported amounts of revenue.

The Company assessed the materiality of the misstatements both quantitatively and qualitatively and determined the correction of these errors to be immaterial to all prior consolidated financial statements taken as a whole and, therefore, amending previously filed reports to correct the errors was not required. However, the Company concluded that the cumulative effect of correcting the errors in the quarter ended September 30, 2021 would materially misstate the Company’s unaudited condensed consolidated financial statements for the three and nine months ended September 30, 2021. Accordingly, the Company has reflected the corrections in the results for prior periods included in this Quarterly Report on Form 10-Q. In addition, the amounts labeled “Adjustment” include certain other previously identified adjustments that were not previously deemed material to the periods presented. The Company will also revise such information in future filings to reflect the correction of the errors.

The following tables present the revised results for each previously reported period, the adjustments made to each period and the previously reported amounts to summarize the effect of the corrections on the previously reported Balance Sheets and Statements of Operations for the periods presented (in thousands, except per-share amounts). These errors did not impact total cash flows from operating, investing or financing activities as presented in the Statement of Cash Flows for any period.

Unaudited Condensed Consolidated Balance Sheets As of June 30, 2021
As Previously Reported Adjustment As Revised
Deferred revenue $ 373,207 $ 7,888 $ 381,095
Total current liabilities 856,260 7,888 864,148
Deferred revenue, net of current portion 717,423 6,245 723,668
Total liabilities 4,604,412 14,133 4,618,545
Accumulated deficit (3,256,697) (14,133) (3,270,830)
Total stockholders’ deficit (1,630,610) (14,133) (1,644,743)

Unaudited Condensed Consolidated Statements of Operations Three Months Ended June 30, 2021
As Previously Reported Adjustment As Revised
Recurring and other revenue $ 355,231 $ (1,094) $ 354,137
General and administrative expenses 62,140 (4,646) 57,494
Total costs and expenses 392,366 (4,646) 387,720
Loss from operations (37,135) 3,552 (33,583)
Loss before income taxes (72,827) 3,552 (69,275)
Net loss (74,097) 3,552 (70,545)
Comprehensive loss (73,565) 3,552 (70,013)
Net loss attributable per share to common stockholders:
Basic (0.36) 0.02 (0.34)
Diluted (0.38) 0.02 (0.36)

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Unaudited Condensed Consolidated Statements of Operations Six Months Ended June 30, 2021
As Previously Reported Adjustment As Revised
Recurring and other revenue $ 698,524 $ (2,060) $ 696,464
General and administrative expenses 128,488 (4,193) 124,295
Total costs and expenses 816,698 (4,193) 812,505
Loss from operations (118,174) 2,133 (116,041)
Loss before income taxes (159,963) 2,133 (157,830)
Net loss (161,477) 2,133 (159,344)
Comprehensive loss (160,553) 2,133 (158,420)
Net loss attributable per share to common stockholders:
Basic (0.78) 0.01 (0.77)
Diluted (0.94) 0.01 (0.93)

Unaudited Condensed Consolidated Balance Sheets As of March 31, 2021
As Previously Reported Adjustment As Revised
Long-term notes receivables and other assets, net 57,534 (4,646) 52,888
Total assets 2,833,259 (4,646) 2,828,613
Deferred revenue 334,154 7,131 341,285
Total current liabilities 760,512 7,131 767,643
Deferred revenue, net of current portion 622,287 5,908 628,195
Total liabilities 4,417,228 13,039 4,430,267
Accumulated deficit (3,182,600) (17,685) (3,200,285)
Total stockholders’ deficit (1,583,969) (17,685) (1,601,654)
Total liabilities and stockholders’ deficit 2,833,259 (4,646) 2,828,613

Unaudited Condensed Consolidated Statements of Operations Three Months Ended March 31, 2021
As Previously Reported Adjustment As Revised
Recurring and other revenue $ 343,293 $ (966) $ 342,327
General and administrative expenses 66,348 453 66,801
Total costs and expenses 424,332 453 424,785
Loss from operations (81,039) (1,419) (82,458)
Loss before income taxes (87,136) (1,419) (88,555)
Net loss (87,380) (1,419) (88,799)
Comprehensive loss (86,988) (1,419) (88,407)
Net loss attributable per share to common stockholders:
Basic (0.42) (0.01) (0.43)
Diluted (0.56) (0.01) (0.57)

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Consolidated Balance Sheets As of December 31, 2020
As Previously Reported Adjustment As Revised
Long-term notes receivables and other assets, net 62,510 (4,193) 58,317
Total assets 2,876,618 (4,193) 2,872,425
Deferred revenue 321,143 6,489 327,632
Total current liabilities 767,057 6,489 773,546
Deferred revenue, net of current portion 615,598 5,584 621,182
Total liabilities 4,449,841 12,073 4,461,914
Accumulated deficit (3,095,220) (16,266) (3,111,486)
Total stockholders’ deficit (1,573,223) (16,266) (1,589,489)
Total liabilities and stockholders’ deficit 2,876,618 (4,193) 2,872,425

Consolidated Statements of Operations Year Ended December 31, 2020
As Previously Reported Adjustment As Revised
Recurring and other revenue $ 1,260,566 $ (8,299) $ 1,252,267
General and administrative expenses 266,335 1,588 267,923
Total costs and expenses 1,512,737 1,588 1,514,325
Loss from operations (252,171) (9,887) (262,058)
Loss before income taxes (592,361) (9,887) (602,248)
Income tax expense 2,837 (1,754) 1,083
Net loss (595,198) (8,133) (603,331)
Comprehensive loss (594,541) (8,133) (602,674)
Net loss attributable per share to common stockholders:
Basic and diluted (3.32) (0.05) (3.37)

Unaudited Condensed Consolidated Statements of Operations Three Months Ended December 31, 2020
As Previously Reported Adjustment As Revised
Recurring and other revenue $ 332,423 $ (1,515) $ 330,908
General and administrative expenses 87,220 431 87,651
Total costs and expenses 436,051 431 436,482
Loss from operations (103,628) (1,946) (105,574)
Loss before income taxes (182,076) (1,946) (184,022)
Income tax expense 2,513 (1,754) 759
Net loss (184,589) (192) (184,781)
Comprehensive loss (183,110) (192) (183,302)
Net loss attributable per share to common stockholders:
Basic and diluted (0.93) — (0.93)

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Unaudited Condensed Consolidated Balance Sheets As of September 30, 2020
As Previously Reported Adjustment As Revised
Long-term notes receivables and other assets, net 74,827 (3,762) 71,065
Total assets 2,924,302 (3,762) 2,920,540
Deferred revenue 308,471 5,545 314,016
Total current liabilities 744,220 5,545 749,765
Deferred revenue, net of current portion 612,920 5,013 617,933
Deferred income tax liabilities 974 1,754 2,728
Total liabilities 4,442,185 12,312 4,454,497
Accumulated deficit (2,910,631) (16,074) (2,926,705)
Total stockholders’ deficit (1,517,883) (16,074) (1,533,957)
Total liabilities and stockholders’ deficit 2,924,302 (3,762) 2,920,540

Unaudited Condensed Consolidated Statements of Operations Three Months Ended September 30, 2020
As Previously Reported Adjustment As Revised
Recurring and other revenue $ 321,014 $ (2,297) $ 318,717
General and administrative expenses 68,723 407 69,130
Total costs and expenses 384,677 407 385,084
Loss from operations (63,663) (2,704) (66,367)
Loss before income taxes (108,499) (2,704) (111,203)
Net loss (108,729) (2,704) (111,433)
Comprehensive loss (108,140) (2,704) (110,844)
Net loss attributable per share to common stockholders:
Basic and diluted (0.58) (0.01) (0.59)

Unaudited Condensed Consolidated Statements of Operations Nine Months Ended September 30, 2020
As Previously Reported Adjustment As Revised
Recurring and other revenue $ 928,143 $ (6,784) $ 921,359
General and administrative expenses 179,115 1,157 180,272
Total costs and expenses 1,076,686 1,157 1,077,843
Loss from operations (148,543) (7,941) (156,484)
Loss before income taxes (410,285) (7,941) (418,226)
Net loss (410,609) (7,941) (418,550)
Comprehensive loss (411,431) (7,941) (419,372)
Net loss attributable per share to common stockholders:
Basic and diluted (2.38) (0.05) (2.43)

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Unaudited Condensed Consolidated Balance Sheets As of June 30, 2020
As Previously Reported Adjustment As Revised
Long-term notes receivables and other assets, net 79,248 (3,355) 75,893
Total assets 2,829,889 (3,355) 2,826,534
Deferred revenue 267,363 4,004 271,367
Total current liabilities 640,312 4,004 644,316
Deferred revenue, net of current portion 500,354 4,257 504,611
Deferred income tax liabilities 959 1,754 2,713
Total liabilities 4,324,998 10,015 4,335,013
Accumulated deficit (2,801,902) (13,370) (2,815,272)
Total stockholders’ deficit (1,495,109) (13,370) (1,508,479)
Total liabilities and stockholders’ deficit 2,829,889 (3,355) 2,826,534

Unaudited Condensed Consolidated Statements of Operations Three Months Ended June 30, 2020
As Previously Reported Adjustment As Revised
Recurring and other revenue $ 303,897 $ (2,899) $ 300,998
General and administrative expenses 59,969 386 60,355
Total costs and expenses 347,513 386 347,899
Loss from operations (43,616) (3,285) (46,901)
Loss before income taxes (155,902) (3,285) (159,187)
Net loss (156,784) (3,285) (160,069)
Comprehensive loss (155,766) (3,285) (159,051)
Net loss attributable per share to common stockholders:
Basic and diluted (0.88) (0.02) (0.90)

Unaudited Condensed Consolidated Statements of Operations Six Months Ended June 30, 2020
As Previously Reported Adjustment As Revised
Recurring and other revenue $ 607,129 $ (4,487) $ 602,642
General and administrative expenses 110,392 750 111,142
Total costs and expenses 692,009 750 692,759
Loss from operations (84,880) (5,237) (90,117)
Loss before income taxes (301,786) (5,237) (307,023)
Net loss (301,880) (5,237) (307,117)
Comprehensive loss (303,291) (5,237) (308,528)
Net loss attributable per share to common stockholders:
Basic and diluted (1.83) (0.03) (1.86)

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Unaudited Condensed Consolidated Balance Sheets As of March 31, 2020
As Previously Reported Adjustment As Revised
Long-term notes receivables and other assets, net 86,966 (2,969) 83,997
Total assets 2,670,423 (2,969) 2,667,454
Deferred revenue 237,439 2,035 239,474
Total current liabilities 564,203 2,035 566,238
Deferred revenue, net of current portion 409,474 3,327 412,801
Deferred income tax liabilities 1,005 1,754 2,759
Total liabilities 4,162,359 7,116 4,169,475
Accumulated deficit (2,645,118) (10,085) (2,655,203)
Total stockholders’ deficit (1,491,936) (10,085) (1,502,021)
Total liabilities and stockholders’ deficit 2,670,423 (2,969) 2,667,454

Unaudited Condensed Consolidated Statements of Operations Three Months Ended March 31, 2020
As Previously Reported Adjustment As Revised
Recurring and other revenue $ 303,232 $ (1,588) $ 301,644
General and administrative expenses 50,423 364 50,787
Total costs and expenses 344,496 364 344,860
Loss from operations (41,264) (1,952) (43,216)
Loss before income taxes (145,884) (1,952) (147,836)
Net loss (145,096) (1,952) (147,048)
Comprehensive loss (147,525) (1,952) (149,477)
Net loss attributable per share to common stockholders:
Basic and diluted (0.96) (0.01) (0.97)

Consolidated Balance Sheets As of December 31, 2019
As Previously Reported Adjustment As Revised
Long-term notes receivables and other assets, net 95,827 (2,605) 93,222
Total assets 2,604,408 (2,605) 2,601,803
Deferred revenue 234,612 1,361 235,973
Total current liabilities 1,013,965 1,361 1,015,326
Deferred revenue, net of current portion 405,786 2,413 408,199
Deferred income tax liabilities 2,231 1,754 3,985
Total liabilities 4,391,766 5,528 4,397,294
Accumulated deficit (2,500,022) (8,133) (2,508,155)
Total stockholders’ deficit (1,787,358) (8,133) (1,795,491)
Total liabilities and stockholders’ deficit 2,604,408 (2,605) 2,601,803

~~Table of~~ ~~Contents~~

Consolidated Statements of Operations Year Ended December 31, 2019
As Previously Reported Adjustment As Revised
Recurring and other revenue $ 1,155,981 $ (4,881) $ 1,151,100
Selling expenses 193,359 (1,559) 191,800
General and administrative expenses 192,182 1,298 193,480
Depreciation and amortization 543,440 152 543,592
Total costs and expenses 1,298,266 (109) 1,298,157
Loss from operations (142,285) (4,772) (147,057)
Loss before income taxes (394,611) (4,772) (399,383)
Net loss (395,924) (4,772) (400,696)
Comprehensive loss (394,553) (4,772) (399,325)
Net loss attributable per share to common stockholders:
Basic and diluted (4.18) (0.05) (4.23)

Consolidated Statements of Operations Year Ended December 31, 2018
As Previously Reported Adjustment As Revised
Recurring and other revenue $ 1,050,441 $ 1,107 $ 1,051,548
Selling expenses 213,386 1,559 214,945
General and administrative expenses 209,257 985 210,242
Depreciation and amortization 514,082 (152) 513,930
Total costs and expenses 1,297,221 2,392 1,299,613
Loss from operations (246,780) (1,285) (248,065)
Loss before income taxes (474,246) (1,285) (475,531)
Income tax (benefit) expense (1,611) 1,754 143
Net loss (472,635) (3,039) (475,674)
Comprehensive loss (474,851) (3,039) (477,890)
Net loss attributable per share to common stockholders:
Basic and diluted (5.00) (0.03) (5.03)

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3.2. 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.

The Company also provides its customers with service warranties associated with product replacement and related ~~services for the first 30 days after the generation and installation of new or modified customer contracts.~~services. As of ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, the Company had warranty service reserves of ~~$5.8~~$6.2 million and ~~$5.7~~$6.0 million, respectively, which are included in accrued expenses and other current liabilities on the condensed consolidated balance sheets.

During the ~~nine~~three months ended ~~September 30,~~March 31, 2022 and 2021, ~~and 2020,~~ the Company recognized revenues of ~~$254.7~~$146.2 million and ~~$190.1~~$113.9 million, respectively, that were included in the deferred revenue balance as of December 31, 2021 and 2020, ~~and 2019,~~ respectively.

Transaction Price Allocated to the Remaining Performance Obligations

As of ~~September 30, 2021,~~March 31, 2022, approximately ~~$3.5~~$3.3 billion of revenue is expected to be recognized from remaining performance obligations for subscription contracts. The Company expects to recognize approximately ~~61%~~64% 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.

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4.3. Long-Term Debt

The Company’s debt at ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020~~2021 consisted of the following (in thousands):


		September 30, 2021									March 31, 2022
		Outstanding Principal		Unamortized Premium (Discount)		Unamortized Deferred Financing Costs (1)		Net Carrying Amount			Outstanding Principal		Unamortized Deferred Financing Costs (1)		Net Carrying Amount
Long-Term Debt:	Long-Term Debt:									Long-Term Debt:

6.750% Senior Secured Notes Due 2027	6.750% Senior Secured Notes Due 2027	600,000		—		(5,069)		594,931		6.750% Senior Secured Notes Due 2027	$	600,000	$	(4,601)	$	595,399
5.750% Senior Notes Due 2029	5.750% Senior Notes Due 2029	800,000		—		(11,521)		788,479		5.750% Senior Notes Due 2029	800,000		(10,786)		789,214
Senior Secured Term Loan - noncurrent	Senior Secured Term Loan - noncurrent	1,336,500		—		(18,986)		1,317,514		Senior Secured Term Loan - noncurrent	1,329,749		(17,596)		1,312,153
Total Long-Term Debt	Total Long-Term Debt	2,736,500		—		(35,576)		2,700,924		Total Long-Term Debt	2,729,749		(32,983)		2,696,766
Senior Secured Term Loan - current	Senior Secured Term Loan - current	13,500		—		—		13,500		Senior Secured Term Loan - current	13,500		—		13,500
Total Debt	Total Debt	$	2,750,000	$	—	$	(35,576)	$	2,714,424	Total Debt	$	2,743,249	$	(32,983)	$	2,710,266


		December 31, 2020									December 31, 2021
		Outstanding Principal		Unamortized Premium (Discount)		Unamortized Deferred Financing Costs (1)		Net Carrying Amount			Outstanding Principal		Unamortized Deferred Financing Costs (1)		Net Carrying Amount
Long-Term Debt:	Long-Term Debt:									Long-Term Debt:

7.875% Senior Secured Notes due 2022		$	677,000	$	7,885	$	(4,697)	$	680,188
7.625% Senior Notes Due 2023		400,000		—		(2,241)		397,759
8.500% Senior Secured Notes Due 2024		225,000		—		(3,530)		221,470
6.750% Senior Secured Notes Due 2027	6.750% Senior Secured Notes Due 2027	600,000		—		(5,771)		594,229		6.750% Senior Secured Notes Due 2027	$	600,000	$	(4,835)	$	595,165
5.750% Senior Notes Due 2029										5.750% Senior Notes Due 2029	800,000		(11,154)		788,846
Senior Secured Term Loan - noncurrent	Senior Secured Term Loan - noncurrent	933,375		—		(10,921)		922,454		Senior Secured Term Loan - noncurrent	1,333,125		(18,291)		1,314,834
Total Long-Term Debt	Total Long-Term Debt	2,835,375		7,885		(27,160)		2,816,100		Total Long-Term Debt	2,733,125		(34,280)		2,698,845

Senior Secured Term Loan - current	Senior Secured Term Loan - current	9,500		—		—		9,500		Senior Secured Term Loan - current	13,500		—		13,500

Total Debt	Total Debt	$	2,844,875	$	7,885	$	(27,160)	$	2,825,600	Total Debt	$	2,746,625	$	(34,280)	$	2,712,345

(1)Unamortized deferred financing costs related to the revolving credit facilities included in deferred financing costs, net on the condensed consolidated balance sheets at ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020~~2021 were ~~$2.2~~$2.0 million and ~~$1.7~~$2.1 million, respectively.

2027 Notes

As of ~~September 30, 2021,~~March 31, 2022, APX had $600.0 million outstanding aggregate principal amount of 6.75% senior secured notes due 2027 (the “2027 notes”). 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 Facility (as defined below), in each case, subject to certain exceptions and permitted liens. Interest accrues at the rate of 6.75% per annum for the 2027 notes. 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.

2029 Notes

As of ~~September 30, 2021,~~March 31, 2022, APX had $800.0 million outstanding aggregate principal amount of 5.75% senior notes due 2029 (the “2029 notes” and, together with the 2027 notes the “Notes”). The 2029 notes will mature on July 15, 2029. Interest accrues at the rate of 5.75% per annum for the 2029 notes. Interest on the 2029 notes is payable semiannually in arrears on January 15 and July 15 each year. APX may redeem the Notes at the prices and on the terms specified in the applicable indenture.

~~New~~ Senior Secured Credit Facilities

~~In July 2021, APX amended and restated its existing senior secured term loan credit agreement and existing senior secured revolving credit facility with a new~~The Company's senior secured credit ~~agreement (the "Credit Agreement") that~~facilities provides for (i) a term loan facility ~~in an aggregate principal amount of $1,350.0 million~~ (the "Term Loan Facility", and the loans thereunder, the

~~Table of~~ ~~Contents~~

~~"Term~~ "Term Loans") and (ii) a revolving credit facility with commitments in an aggregate principal amount of $370.0 million (the "Revolving Credit Facility", and the loans thereunder, the "Revolving Loans").

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remaining outstanding principal amount of the Term Loans will be due and payable in full on July 9, 2028. APX may prepay the Term Loans on the terms specified in the Credit Agreement. No amortization payments are required under the Revolving Credit Facility

In addition to paying interest on outstanding principal under the Revolving Credit Facility, APX is required to pay a quarterly commitment fee of 50 basis points (which will be subject to 2 interest rate step-downs of 12.5 basis points, based on APX meeting consolidated first lien net leverage ratio tests) 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. The revolving credit commitments outstanding under the Revolving Credit Facility will be due and payable in full on July 9, 2026.

Borrowings under the amended and restated Term Loan Facility and Revolving Credit Facility bear interest, at APX’s option, at a rate per annum equal to either (a)(i) a base rate determined by reference to the highest of (1) the “Prime Rate” in the United States as published in The Wall Street Journal, (2) the federal funds effective rate plus 0.50% and (3) the LIBOR rate for a one month interest period plus 1.00%, plus (ii) 2.50% (or after the delivery of financial statements for the fiscal quarter ~~ending~~ended December 31, 2021, between 2.50% and 2.00%, depending on the first lien net leverage ratio of the applicable fiscal quarter) or (b)(i) a LIBOR rate determined by reference to the applicable page for the LIBOR rate for the interest period relevant to such borrowing plus (ii) 3.50% (or after the delivery of financial statements for the fiscal quarter ~~ending~~ended December 31, 2021, between 3.50% and 3.00%, depending on the first lien net leverage ratio of the applicable fiscal quarter), subject in each case to an agreed interest rate floor.

There were no outstanding borrowings under the Revolving Credit Facility as of ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020.~~2021. As of ~~September 30, 2021,~~March 31, 2022, the Company had ~~$354.7~~$358.9 million of availability under the Revolving Credit Facility (after giving effect to ~~$15.3~~$11.1 million of letters of credit outstanding and no borrowings).

~~Debt Modifications and Extinguishments~~Deferred Financing Costs

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 extinguished Previously deferred financing costs extinguished New financing costs Total other expense and loss on extinguishment Previously deferred financing costs rolled over New deferred financing costs Total deferred financing costs remaining after issuance
Three and nine months ended September 30, 2021
2029 Notes issuance - July 2021 $ (5,656) $ 8,016 $ 17,187 $ 19,547 $ — $ 11,767 $ 11,767
Term Loan issuance - July 2021 — 1,499 9,165 10,664 8,148 11,302 19,450
Total $ (5,656) $ 9,515 $ 26,352 $ 30,211 $ 8,148 $ 23,069 $ 31,217
Nine months ended September 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 September 30, 2020.~~

~~Table of~~ ~~Contents~~

~~The~~ following table presents deferred financing activity for the ~~nine~~three months ended ~~September 30,~~March 31, 2022 and 2021 ~~and 2020~~ (in thousands):


		Unamortized Deferred Financing Costs								Unamortized Deferred Financing Costs
		Balance December 31, 2020		Additions		Early Extinguishment		Amortized			Balance September 30, 2021			Balance December 31, 2021		Amortized		Balance March 31, 2022
Revolving Credit Facility	Revolving Credit Facility	$	1,667	$	843	$	—	$	(309)		$	2,201	Revolving Credit Facility	$	2,088	$	(114)	$	1,974

2022 Notes		4,697		—		(3,314)		(1,383)			—
2023 Notes		2,241		—		(1,681)		(560)			—
2024 Notes		3,530		—		(3,021)		(509)			—

2027 Notes	2027 Notes	5,771		—		—		(702)			5,069		2027 Notes	4,835		(234)		4,601
2029 Notes	2029 Notes	—		11,767		—		(246)			11,521		2029 Notes	11,153		(367)		10,786
Term Loan	Term Loan	10,921		11,302		(1,499)		(1,738)			18,986		Term Loan	18,290		(694)		17,596
Total Deferred Financing Costs	Total Deferred Financing Costs	$	28,827	$	23,912	$	(9,515)	$	(5,447)		$	37,777	Total Deferred Financing Costs	$	36,366	$	(1,409)	$	34,957


		Unamortized Deferred Financing Costs								Unamortized Deferred Financing Costs
		Balance December 31, 2019		Additions		Early Extinguishment		Amortized			Balance September 30, 2020			Balance December 31, 2020		Amortized		Balance March 31, 2021
Revolving Credit Facility	Revolving Credit Facility	$	1,123	$	1,027	$	—	$	(383)		$	1,767	Revolving Credit Facility	$	1,667	$	(100)	$	1,567

2020 Notes		1,721		—		(1,565)		(156)			—
2022 Private Placement Notes		451		(205)		(221)		(25)			—

2022 Notes	2022 Notes	9,532		—		(2,247)		(1,975)			5,310		2022 Notes	4,697		(613)		4,084
2023 Notes	2023 Notes	3,081		—		—		(630)			2,451		2023 Notes	2,241		(210)		2,031
2024 Notes	2024 Notes	4,431		—		—		(676)			3,755		2024 Notes	3,530		(226)		3,304
2027 Notes	2027 Notes	—		6,551		—		(546)			6,005		2027 Notes	5,771		(234)		5,537
Term Loan	Term Loan	7,822		5,461		(235)		(1,581)			11,467		Term Loan	10,921		(546)		10,375
Total Deferred Financing Costs	Total Deferred Financing Costs	$	28,161	$	12,834	$	(4,268)	$	(5,972)		$	30,755	Total Deferred Financing Costs	$	28,827	$	(1,929)	$	26,898

Guarantees

All of the obligations under the Credit Agreement and the debt agreements governing the Notes are guaranteed by APX Group Holdings, Inc., each of APX Group's existing and future material wholly owned U.S. restricted subsidiaries (subject to customary exclusions and qualifications) and solely in the case of the Notes, Vivint Smart Home, Inc. However, such subsidiaries shall only be required to guarantee the obligations under the debt agreements governing the Notes for so long

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as such entities guarantee the obligations under the Revolving Credit Facility, the Term Loan Facility or the Company's other indebtedness.

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5.4. 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):


		September 30, 2021		December 31, 2020			March 31, 2022		December 31, 2021
RIC receivables, gross	RIC receivables, gross	$	99,069	$	138,926	RIC receivables, gross	$	81,092	$	90,204
RIC allowance	RIC allowance	(13,197)		(27,061)		RIC allowance	(11,062)		(12,384)
Imputed interest	Imputed interest	(8,311)		(13,275)		Imputed interest	(6,607)		(7,469)
RIC receivables, net	RIC receivables, net	$	77,561	$	98,590	RIC receivables, net	$	63,423	$	70,351

Classified on the unaudited condensed consolidated balance sheets as:	Classified on the unaudited condensed consolidated balance sheets as:					Classified on the unaudited condensed consolidated balance sheets as:
Accounts and notes receivable, net	Accounts and notes receivable, net	$	40,566	$	44,931	Accounts and notes receivable, net	$	34,332	$	37,270
Long-term notes receivables and other assets, net	Long-term notes receivables and other assets, net	36,995		53,659		Long-term notes receivables and other assets, net	29,091		33,081
RIC receivables, net	RIC receivables, net	$	77,561	$	98,590	RIC receivables, net	$	63,423	$	70,351

The changes in the Company’s RIC allowance were as follows (in thousands):


		Nine months ended September 30, 2021		Nine months ended September 30, 2020			Three months ended March 31, 2022		Three months ended March 31, 2021
RIC allowance, beginning of period	RIC allowance, beginning of period	$	27,061	$	39,219	RIC allowance, beginning of period	$	12,384	$	27,061

Write-offs	Write-offs	(10,230)		(17,230)		Write-offs	(3,336)		(4,057)
Recoveries	Recoveries	2,584		5,437		Recoveries	881		1,134
Additions from RICs originated during the period	Additions from RICs originated during the period	4,248		5,909		Additions from RICs originated during the period	1,434		1,148
Change in expected credit losses	Change in expected credit losses	(10,129)		(2,114)		Change in expected credit losses	(325)		—
Other adjustments (1)	Other adjustments (1)	(337)		(643)		Other adjustments (1)	24		1,069
RIC allowance, end of period	RIC allowance, end of period	$	13,197	$	30,578	RIC allowance, end of period	$	11,062	$	26,355

(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 ~~$1.8~~$1.4 million and ~~$2.5~~$2.2 million during the three months ended ~~September 30,~~March 31, 2022 and 2021, ~~and 2020, respectively and $6.0 million and $8.2 million during the nine months ended September 30, 2021 and 2020,~~ respectively.

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~~6. 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 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.

~~Table of~~ ~~Contents~~

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 nine months ended September 30, 2020:


	~~Recapitalization~~
	~~(in thousands)~~
~~Cash - Mosaic (net of redemptions)~~	$	~~35,344~~
~~Cash - Subscribers and Forward Purchasers~~	~~453,221~~
~~Less fees to underwriters and other transaction costs~~	~~(25,254)~~
~~Net cash received from recapitalization~~	~~463,311~~
~~Less: Warrant derivative liabilities assumed~~	~~(40,094)~~
~~Less: non-cash net liabilities assumed from Mosaic~~	~~(5)~~
~~Less: deferred and accrued transaction costs~~	~~(1,307)~~
~~Net contributions from recapitalization~~	$	~~421,905~~

~~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 Combination~~			~~34,500,000~~
~~Less redemption of Mosaic Shares~~			~~(31,074,592)~~
~~Common Stock of Mosaic~~			~~3,425,408~~
~~Shares issued from Fortress PIPE~~			~~12,500,000~~
~~Shares from Blackstone PIPE~~			~~10,000,000~~
~~Shares from Additional Forward Purchaser Subscription Agreement~~			~~5,000,000~~
~~Shares from IPO Forward Purchaser Investment~~			~~15,789,474~~
~~Shares from Fortress Subscription and Backstop Agreement~~			~~2,698,753~~
~~Shares from Mosaic Founder Shares~~			~~10,379,386~~
~~Recapitalization shares~~			~~59,793,021~~
~~Legacy Vivint Smart Home equity holders~~			~~94,937,597~~
~~Total shares~~			~~154,730,618~~

~~Earnout consideration~~

Following the closing of the Merger, holders of Vivint common stock and holders of rollover restricted stock units (“Rollover RSUs”), the rollover stock appreciation rights (“Rollover SARs”), the shares of rollover restricted stock (“Rollover Restricted Stock”) and any awards granted under the Company rollover long-term incentive program (“Rollover LTIP Plans”) (together, “Rollover Equity Awards”) had 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 exceeded certain thresholds. The first issuance of 12,500,000 earnout shares occurred when the volume-weighted average price of Common Stock exceeded $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 occurred when the volume weighted average price of Common Stock exceeded $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 occurred when the volume weighted average price of Common Stock exceeded $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 cumulative issuance of 37,323,959 shares of Common Stock occurred after attainment of the First Earnout, Second Earnout and Third Earnout in February, March and September 2020, respectively. The difference in the shares issued in the earnouts and the aggregate amounts defined in the Merger Agreement above are primarily 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. Additionally, shares were withheld from employees to satisfy the mandatory tax withholding requirements. The Company has determined that the earnout shares issued to non-employee shareholders and to holders of Vivint common 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. These earnout shares were initially measured at fair value at Closing. Upon the attainment of the share price targets, the earnout shares delivered to the

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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. 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.

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7.5. Balance Sheet Components

The following table presents material balance sheet component balances (in thousands):


		September 30, 2021		December 31, 2020			March 31, 2022		December 31, 2021
Prepaid expenses and other current assets	Prepaid expenses and other current assets					Prepaid expenses and other current assets
Prepaid expenses	Prepaid expenses	$	18,527	$	11,286	Prepaid expenses	$	27,978	$	12,791
Deposits	Deposits	1,849		1,308		Deposits	593		627
Other	Other	6,248		1,744		Other	7,845		5,967
Total prepaid expenses and other current assets	Total prepaid expenses and other current assets	$	26,624	$	14,338	Total prepaid expenses and other current assets	$	36,416	$	19,385
Capitalized contract costs	Capitalized contract costs					Capitalized contract costs
Capitalized contract costs	Capitalized contract costs	$	3,996,534	$	3,491,629	Capitalized contract costs	$	4,213,629	$	4,103,683
Accumulated amortization	Accumulated amortization	(2,563,422)		(2,173,131)		Accumulated amortization	(2,837,561)		(2,698,241)
Capitalized contract costs, net	Capitalized contract costs, net	$	1,433,112	$	1,318,498	Capitalized contract costs, net	$	1,376,068	$	1,405,442
Long-term notes receivables and other assets	Long-term notes receivables and other assets					Long-term notes receivables and other assets
RIC receivables, gross	RIC receivables, gross	$	58,503	$	93,995	RIC receivables, gross	$	46,760	$	52,934
RIC allowance	RIC allowance	(13,197)		(27,061)		RIC allowance	(11,062)		(12,384)
RIC imputed interest	RIC imputed interest	(8,311)		(13,275)		RIC imputed interest	(6,607)		(7,469)

Deferred income tax assets						Deferred income tax assets	5,529		2,022
Other	Other	9,956		4,658		Other	10,753		9,650
Total long-term notes receivables and other assets, net	Total long-term notes receivables and other assets, net	$	46,951	$	58,317	Total long-term notes receivables and other assets, net	$	45,373	$	44,753
Accrued payroll and commissions	Accrued payroll and commissions					Accrued payroll and commissions
Accrued commissions	Accrued commissions	$	112,297	$	46,353	Accrued commissions	$	27,279	$	47,879
Accrued payroll	Accrued payroll	35,005		41,590		Accrued payroll	28,668		35,468
Total accrued payroll and commissions	Total accrued payroll and commissions	$	147,302	$	87,943	Total accrued payroll and commissions	$	55,947	$	83,347
Accrued expenses and other current liabilities	Accrued expenses and other current liabilities					Accrued expenses and other current liabilities
Accrued interest payable	Accrued interest payable	$	19,576	$	33,340	Accrued interest payable	$	17,524	$	40,333
Current portion of derivative liability	Current portion of derivative liability	141,108		142,755		Current portion of derivative liability	139,413		140,394
Service warranty accrual	Service warranty accrual	5,780		5,711		Service warranty accrual	6,220		5,992
Current portion of warrant derivative liabilities		—		8,063

Accrued taxes	Accrued taxes	12,025		8,700		Accrued taxes	13,651		10,758

Accrued payroll taxes and withholdings	Accrued payroll taxes and withholdings	13,030		14,391		Accrued payroll taxes and withholdings	12,540		14,392
Loss contingencies	Loss contingencies	5,400		26,200		Loss contingencies	8,150		8,150

Other	Other	21,232		8,164		Other	16,377		16,231
Total accrued expenses and other current liabilities	Total accrued expenses and other current liabilities	$	218,151	$	247,324	Total accrued expenses and other current liabilities	$	213,875	$	236,250

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8.6. Property Plant and Equipment

Property, plant and equipment consisted of the following (in thousands):


		September 30, 2021		December 31, 2020		Estimated Useful Lives		March 31, 2022		December 31, 2021		Estimated Useful Lives
Vehicles	Vehicles	$	39,791	$	39,735	3 - 5 years	Vehicles	$	39,556	$	40,103	3 - 5 years
Computer equipment and software	Computer equipment and software	78,235		72,616		3 - 5 years	Computer equipment and software	85,383		83,479		3 - 5 years
Leasehold improvements	Leasehold improvements	30,488		29,126		2 - 15 years	Leasehold improvements	29,990		30,087		2 - 15 years
Office furniture, fixtures and equipment	Office furniture, fixtures and equipment	22,276		21,394		2 - 7 years	Office furniture, fixtures and equipment	22,661		22,327		2 - 7 years

Construction in process	Construction in process	10,017		6,180			Construction in process	13,049		11,089
Property, plant and equipment, gross	Property, plant and equipment, gross	180,807		169,051			Property, plant and equipment, gross	190,639		187,085
Accumulated depreciation and amortization	Accumulated depreciation and amortization	(127,982)		(116,672)			Accumulated depreciation and amortization	(134,469)		(131,637)
Property, plant and equipment, net	Property, plant and equipment, net	$	52,825	$	52,379		Property, plant and equipment, net	$	56,170	$	55,448

Property, plant and equipment, net includes approximately ~~$16.7~~$15.9 million and ~~$17.6~~$16.5 million of assets under finance lease obligations at ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, respectively, net of accumulated amortization of ~~$23.9~~$24.5 million and ~~$23.0~~$24.5 million, respectively. Depreciation and amortization expense on all property, plant and equipment was ~~$3.9~~$4.2 million and ~~$4.9~~$4.1 million during the three months ended ~~September 30, 2021~~March 31, 2022 and ~~2020, respectively and $12.3 million and $15.8 million during the nine months ended September 30, 2021 and 2020, respectively.~~2021. Amortization expense related to assets under finance leases is included in depreciation and amortization expense.

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9.7. Goodwill and Intangible Assets

Goodwill

As of ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, the Company had a goodwill balance of ~~$837.1~~$837.6 million and ~~$837.1~~$837.2 million, respectively. The change in the carrying amount of goodwill during the ~~nine~~three months ended ~~September 30, 2021~~March 31, 2022 was the result of foreign currency translation adjustments.

Intangible assets, net

The following table presents intangible asset balances (in thousands):


		September 30, 2021						December 31, 2020								March 31, 2022						December 31, 2021
		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Estimated Useful Lives		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Estimated Useful Lives
Definite-lived intangible assets:	Definite-lived intangible assets:														Definite-lived intangible assets:
Customer contracts	Customer contracts	$	969,185	$	(905,921)	$	63,264	$	969,158	$	(862,352)	$	106,806	10 years	Customer contracts	$	970,589	$	(935,084)	$	35,505	$	969,376	$	(920,617)	$	48,759	10 years
2GIG 2.0 technology	2GIG 2.0 technology	17,000		(17,000)		—		17,000		(17,000)		—		8 years	2GIG 2.0 technology	—		—		—		17,000		(17,000)		—		8 years
Other technology	Other technology	4,725		(4,621)		104		4,725		(4,309)		416		2 - 7 years	Other technology	2,917		(2,917)		—		4,725		(4,725)		—		2 - 7 years
Space Monkey technology	Space Monkey technology	7,100		(7,100)		—		7,100		(7,100)		—		6 years	Space Monkey technology	—		—		—		7,100		(7,100)		—		6 years
Patents	Patents	11,126		(7,751)		3,375		10,843		(6,656)		4,187		5 years	Patents	11,213		(8,344)		2,869		11,180		(8,076)		3,104		5 years
Total definite-lived intangible assets:	Total definite-lived intangible assets:	$	1,009,136	$	(942,393)	$	66,743	$	1,008,826	$	(897,417)	$	111,409		Total definite-lived intangible assets:	984,719		(946,345)		38,374		1,009,381		(957,518)		51,863

Indefinite-lived intangible assets:	Indefinite-lived intangible assets:														Indefinite-lived intangible assets:

Domain names	Domain names	65		—		65		65		—		65			Domain names	65		—		65		65		—		65

Total intangible assets, net	Total intangible assets, net	$	1,009,201	$	(942,393)	$	66,808	$	1,008,891	$	(897,417)	$	111,474		Total intangible assets, net	$	984,784	$	(946,345)	$	38,439	$	1,009,446	$	(957,518)	$	51,928

Amortization expense related to intangible assets was approximately ~~$15.0~~$13.6 million and ~~$17.4~~$15.0 million for the three months ended ~~September 30,~~March 31, 2022 and 2021, ~~and 2020, respectively and $45.0 million and $52.2 million during the nine months ended September 30, 2021 and 2020,~~ respectively.

As of ~~September 30, 2021,~~March 31, 2022, the remaining weighted-average amortization period for definite-lived intangible assets was ~~1.2~~0.7 years. Estimated future amortization expense of intangible assets, excluding approximately $0.1 million in patents currently in process, is as follows as of ~~September 30, 2021~~March 31, 2022 (in thousands):


2021 - Remaining Period		$	14,946
2022		49,853
2022 - Remaining Period				2022 - Remaining Period	$	36,322
2023	2023	773		2023	795
2024	2024	594		2024	610
2025	2025	509		2025	514
2026				2026	4
Thereafter	Thereafter	—		Thereafter	—
Total estimated amortization expense	Total estimated amortization expense	$	66,675	Total estimated amortization expense	$	38,245

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~~10.~~8. Financial Instruments

Cash and Cash Equivalents

Cash and cash equivalents are classified as level 1 assets, as they have readily available market prices in an active market. The Company’s cash and cash equivalents totaled ~~$280.2~~$153.2 million and ~~$313.8~~$208.5 million as of ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, respectively.

The carrying amounts of the Company’s accounts and notes receivable, accounts payable and accrued and other liabilities approximate their fair values.

Debt

Components of the Company's debt including the associated interest rates and related fair values are as follows (in thousands, except interest rates):


		September 30, 2021				December 31, 2020				Stated Interest Rate			March 31, 2022				December 31, 2021				Stated Interest Rate
Issuance	Issuance	Face Value		Estimated Fair Value		Face Value		Estimated Fair Value				Issuance	Face Value		Estimated Fair Value		Face Value		Estimated Fair Value

2022 Notes		—		—		677,000		677,203		7.875	%
2023 Notes		—		—		400,000		415,200		7.625	%
2024 Notes		—		—		225,000		238,545		8.500	%

2027 Notes	2027 Notes	600,000		638,400		600,000		645,300		6.750	%	2027 Notes	600,000		613,500		600,000		633,660		6.750	%
2029 Notes	2029 Notes	800,000		791,280		—		—		5.750	%	2029 Notes	800,000		731,760		800,000		795,680		5.750	%
Term Loan	Term Loan	1,350,000		1,350,000		942,875		942,875		N/A		Term Loan	1,343,249		1,343,249		1,346,625		1,346,625		N/A
Total	Total	$	2,750,000	$	2,779,680	$	2,844,875	$	2,919,123			Total	$	2,743,249	$	2,688,509	$	2,746,625	$	2,775,965

The Notes are fixed-rate debt considered Level 2 fair value measurements as the values were determined using observable market inputs, such as current interest rates, prices observable from less active markets, as well as prices observable from comparable securities. The Term Loan Facility is floating-rate debt and approximates the carrying value as interest accrues at floating rates based on market rates.

Derivative Financial Instruments

Consumer Financing Program

Under the Consumer Financing Program, the Company pays a monthly fee to Financing Providers based on either the average daily outstanding balance of the Loans or the number of outstanding Loans. For certain Loans, the Company incurs fees at the time of the loan origination and receives proceeds that are net of these fees. The Company also shares the liability for credit losses, depending on the credit quality of the customer. Because of the nature of certain provisions under the Consumer Financing Program, the Company records a derivative liability that is not designated as a hedging instrument and is adjusted to fair value, measured using the present value of the estimated future payments. Changes to the fair value are recorded through other income, net in the ~~Consolidated Statement~~condensed consolidated statements of ~~Operations.~~operations. The following represent the contractual future payment obligations with the Financing Providers under the Consumer Financing Program that are components of the derivative:

•The Company pays either a monthly fee based on the average daily outstanding balance of the Loans, or the number of outstanding Loans, depending on the Financing Provider

•The Company shares the liability for credit losses depending on the credit quality of the customer

•The Company pays transactional fees associated with customer payment processing

The derivative is classified as a Level 3 instrument. The derivative positions are valued using a discounted cash flow model, with inputs consisting of available market data, such as market yield discount rates, as well as unobservable internally derived assumptions, such as collateral prepayment rates, collateral default rates and loss severity rates. These derivatives are priced quarterly using a credit valuation adjustment methodology. In summary, the fair value represents an estimate of the present value of the cash flows the Company will be obligated to pay to the Financing Provider for each component of the derivative.

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The following table summarizes the fair value and the notional amount of the Company’s outstanding consumer financing program derivative instrument as of ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020~~2021 (in thousands):

September 30, 2021 December 31, 2020
Consumer Financing Program Contractual Obligations:
Fair value $ 229,228 $ 227,896
Notional amount 1,184,395 912,626
Classified on the condensed consolidated unaudited balance sheets as:
Accrued expenses and other current liabilities 141,108 142,755
Other long-term obligations 88,120 85,141
Total Consumer Financing Program Contractual Obligation $ 229,228 $ 227,896

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	March 31, 2022		December 31, 2021
Consumer Financing Program Contractual Obligations:
Fair value	$	209,089	$	216,795
Notional amount	1,133,976		1,160,278

Classified on the condensed consolidated unaudited balance sheets as:
Accrued expenses and other current liabilities	139,413		140,394
Other long-term obligations	69,676		76,401
Total Consumer Financing Program Contractual Obligation	$	209,089	$	216,795

Changes in Level 3 Fair Value Measurements

The following table summarizes the change in the fair value of the Level 3 outstanding derivative instrument for the ~~nine~~three months ended ~~September 30,~~March 31, 2022 and 2021 ~~and 2020~~ (in thousands):


		Nine months ended September 30, 2021		Nine months ended September 30, 2020			Three months ended March 31, 2022		Three months ended March 31, 2021
Balance, beginning of period	Balance, beginning of period	$	227,896	$	136,863	Balance, beginning of period	$	216,796	$	227,896
Additions	Additions	83,689		136,682		Additions	8,462		26,713
Settlements	Settlements	(67,136)		(46,223)		Settlements	(26,694)		(23,685)
Net gains included in earnings		(15,221)		(5,151)
Net losses (gains) included in earnings						Net losses (gains) included in earnings	10,525		(13,828)
Balance, end of period	Balance, end of period	$	229,228	$	222,171	Balance, end of period	$	209,089	$	217,096

Warrant Liabilities

~~As a result of the Business Combination, the~~The Company ~~assumed~~holds a derivative warrant liability related to previously issued stock warrants consisting of both private placement warrants and public warrants in connection with Mosaic’s initial public offering. The fair value of the Company’s public warrants were measured based on the market price of such warrants and were considered a Level 1 fair value measurement.warrants. As of January 7, 2021, all public warrants were exercised or redeemed and none were outstanding as of ~~September 30,~~March 31, 2022 and December 31, 2021. The Company utilizes a Black-Scholes option pricing model to estimate the fair value of the private placement warrants and are considered a Level 3 fair value measurement. The private placement warrants are measured at each reporting period, with changes in fair value recognized in the statement of operations. (See Note 10 for further details on outstanding private placement warrants)

The change in the fair value of the derivative warrant liabilities for the ~~nine~~three months ended ~~September 30,~~March 31, 2022 and 2021 ~~and 2020~~ is summarized as follows (in thousands):

Nine months ended September 30, 2021
Public Warrants Private Placement Warrants Total Derivative Warrant liability
Balance, beginning of period $ 8,063 $ 75,531 $ 83,594
Change in fair value of warrant liability 1,350 (51,498) (50,148)
Write-off fair value of unexercised expired warrants (490) — (490)
Reclassification of derivative liabilities for exercised warrants (8,923) — (8,923)
Balance, end of period $ — $ 24,033 $ 24,033


	Three months ended March 31, 2022
	Private Placement Warrants
Balance, beginning of period	$	24,564
Change in fair value of warrant liability	(9,293)


Balance, end of period	$	15,271

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		Nine months ended September 30, 2020							Three months ended March 31, 2021
		Public Warrants		Private Placement Warrants		Total Derivative Warrant liability			Public Warrants		Private Placement Warrants		Total Derivative Warrant liability
Warrant liability assumed from the Business Combination		$	9,775	$	30,319	$	40,094
Balance, beginning of period								Balance, beginning of period	$	8,063	$	75,531	$	83,594
Change in fair value of warrant liability	Change in fair value of warrant liability	52,184		27,709		79,893		Change in fair value of warrant liability	1,350		(29,963)		(28,613)

Write-off fair value of unexercised expired warrants								Write-off fair value of unexercised expired warrants	(490)		—		(490)
Reclassification of derivative liabilities for exercised warrants	Reclassification of derivative liabilities for exercised warrants	(40,662)		—		(40,662)		Reclassification of derivative liabilities for exercised warrants	(8,923)		—		(8,923)
Balance, end of period	Balance, end of period	$	21,297	$	58,028	$	79,325	Balance, end of period	$	—	$	45,568	$	45,568

The estimated fair value of the private placement warrant derivative liabilities is determined using Level 3 inputs. Inherent in a Black-Scholes valuation model are assumptions related to expected stock-price volatility, expiration, risk-free

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interest rate and dividend yield. The Company estimates the volatility of its common stock based on historical volatility of select peer companies that matches the expected remaining life of the warrants. The risk-free interest rate is based on the U.S. Treasury zero-coupon yield curve on the grant date for a maturity similar to the expiration of the warrants. The dividend yield is based on the historical rate, which the Company anticipates remaining at zero.

The following table provides quantitative information regarding Level 3 fair value measurements inputs as their measurement dates:


		As of September 30, 2021			As of September 30, 2020				As of March 31, 2022			As of March 31, 2021
Number of private placement warrants	Number of private placement warrants	5,933,334			5,933,334			Number of private placement warrants	5,933,334			5,933,334
Exercise price	Exercise price	$	11.50		$	11.50		Exercise price	$	11.50		$	11.50
Stock price	Stock price	$	9.45		$	17.08		Stock price	$	6.76		$	14.32
Expiration term (in years)	Expiration term (in years)	3.3			4.3			Expiration term (in years)	2.8			3.8
Volatility	Volatility	70		%	60		%	Volatility	80		%	65		%
Risk-free Rate	Risk-free Rate	0.60		%	0.24		%	Risk-free Rate	2.42		%	0.58		%
Dividend yield	Dividend yield	—		%	—		%	Dividend yield	—		%	—		%

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~~11.~~9. Income Taxes

In order to determine the quarterly provision for income taxes, the Company uses an estimated annual effective tax rate, which is based on expected annual income and statutory tax rates in the various jurisdictions in which the Company operates. Certain significant or unusual items are separately recognized in the quarter during which they occur and can be a source of variability in the effective tax rates from quarter to quarter.

The Company’s effective income tax rate for the ~~nine~~three months ended ~~September 30,~~March 31, 2022 and 2021 ~~and 2020~~ was approximately a negative ~~0.20%~~1.60% and ~~0.08%~~0.28%, respectively. The effective tax rates for the ~~nine~~three months ended ~~September 30,~~March 31, 2022 and 2021 ~~and 2020~~ differ from the statutory rate primarily due to not benefiting from expected US losses, US state minimum taxes and Canadian tax ~~expense (benefits).~~expense.

Significant judgment is required in determining the Company’s provision for income taxes, recording valuation allowances against deferred tax assets, and evaluating the Company’s uncertain tax positions. In evaluating the ability to realize its deferred tax assets, in full or in part, the Company considers all available positive and negative evidence, including past operating results, forecasted future earnings, and prudent and feasible tax planning strategies. Due to historical net losses incurred and the uncertainty of realizing the deferred tax assets, for all the periods presented, the Company has maintained a domestic valuation allowance against the deferred tax assets that remain after offset by domestic deferred tax liabilities, and the ~~company~~Company currently does not anticipate recording a valuation allowance against net foreign deferred tax assets by the end of the current year.

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~~12.~~10. Stock-Based Compensation and Equity

The ~~Company grants~~Vivint Smart Home, Inc. 2020 Omnibus Incentive Plan (the “Plan”) provides for the issuance of stock-based incentive awards to attract, motivate and retain qualified employees and non-employee directors, and to align their financial interests with those of company stockholders. ~~In addition to the rollover awards converted as part of the Business Combination, the~~The Company utilizes a combination of time-based and performance-based restricted stock units.

Tracking Units

Compensation expense associated with unvested Company tracking units (“Tracking Units”) is recognized on a ratable straight-line basis over the remaining vesting period. At ~~September 30, 2021,~~March 31, 2022, 1,121,682 Tracking Units were unvested, and there was ~~$1.4~~$1.0 million unrecognized compensation expense related to Tracking Units.

~~Rollover SARs~~

Compensation expense associated with unvested Rollover SARs is recognized on a straight-line basis over the remaining vesting period. At September 30, 2021, there was no unrecognized compensation expense related to Rollover SARs.

Rollover LTIPs

Long-term incentive awards were set aside for funding incentive compensation pools pursuant to long-term sales and installation employee incentive plans established by the Company Rollover LTIPs. In January 2021, the Company made a distribution of Rollover LTIPs to plan participants resulting in the grant of awards and the issuance of 1,609,627 shares of common stock and 847,141 shares of earnouts associated with the LTIPs. At ~~September 30, 2021,~~March 31, 2022, there were no remaining long-term incentive awards outstanding and no unrecognized compensation expense related to Rollover LTIPs.

Restricted Stock Units

During the three months ended ~~September 30, 2021,~~March 31, 2022, the Company approved grants under the Vivint Smart Home, Inc. 2020 Omnibus Incentive Plan (the “Plan”) of time-vesting restricted stock unit (the “RSUs”) awards (each representing the right to receive 1 share of Class A common stock of the Company upon the settlement of each restricted stock unit) to various levels of key employees. The RSUs are generally subject to a ~~four-year~~4-year vesting schedule, and 25% of the units will vest on each of the first ~~four~~4 anniversaries of the grant date. All vesting shall be subject to the recipient’s continued employment with Vivint Smart Home, Inc. or its subsidiaries through the applicable vesting dates, and certain other vesting criteria as applicable. As of ~~September 30, 2021, 9,554,304~~March 31, 2022, 10,265,456 RSUs were outstanding and there was ~~$126.6~~$118.4 million unrecognized compensation expense related to RSUs.

Performance Stock Units

During the three months ended ~~September 30, 2021,~~March 31, 2022, the Company approved grants under the Plan of performance-vesting restricted stock units (the “PSUs”) (each representing the right to receive 1 share of Class A common stock of the Company upon the settlement of each restricted stock unit). The PSUs predominantly vest based upon the achievement of specified performance goals and the passage of time (1-4 years), in each case, subject to continued employment on the applicable vesting date. Compensation expense is not recognized until achievement of the performance goals are deemed probable. As of ~~September 30, 2021, 9,747,295~~March 31, 2022, 10,221,379 PSUs were outstanding and ~~$96.5~~$88.9 million unrecognized compensation expense related to PSUs.

Stock-based compensation expense in connection with all stock-based awards is presented as follows (in thousands):


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
		2021		2020		2021		2020			2022		2021
Operating expenses	Operating expenses	$	2,463	$	6,313	$	13,738	$	11,934	Operating expenses	$	2,005	$	9,633
Selling expenses	Selling expenses	16,108		30,889		94,479		54,809		Selling expenses	11,467		62,796
General and administrative expenses	General and administrative expenses	10,444		21,328		35,390		50,536		General and administrative expenses	12,145		14,608
Total stock-based compensation	Total stock-based compensation	$	29,015	$	58,530	$	143,607	$	117,279	Total stock-based compensation	$	25,617	$	87,037

Equity

~~Table of~~ ~~Contents~~

Class A Common Stock—The Company is authorized to issue 3,000,000,000 shares of Class A common stock with a par value of $0.0001 per share. Holders of the Company’s Class A common stock are entitled to one vote for each share on each matter on which they are entitled to vote. At ~~September 30, 2021,~~March 31, 2022, there were ~~208,728,450~~212,561,154 shares of Class A common stock issued and outstanding.

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Preferred stock—The Company is authorized to issue 300,000,000 shares of preferred stock with a par value of $0.0001 per share. At ~~September 30, 2021,~~March 31, 2022, there are no preferred stock issued or outstanding.

Warrants—As of ~~September 30, 2021, no public~~March 31, 2022, 5,933,334 private placement warrants were outstanding. Each whole private placement warrant ~~entitled~~entitles the holder to purchase 1 Class A common stock at an exercise price of $11.50 per share, subject to adjustment. Warrants ~~could~~can only be exercised for a whole number of shares. ~~No fractional warrants were issued upon separation of the units and only whole warrants were traded.~~ The ~~warrants became exercisable 30 days after the completion of the Business Combination.~~

As of September 30, 2021, 5,933,334 private placement warrants were outstanding. The private placement warrants are identical to the public warrants, except that the private placement warrants and the Class A common stock issuable upon exercise of the private placement warrants were not transferable, assignable or salable until 30 days after the completion of the Business Combination, subject to certain limited exceptions. Additionally, the private placement warrants will be non-redeemable so long as they are held by the initial purchasers or such purchasers’ permitted transferees. If the private placement warrants are held by someone other than the initial stockholders or their permitted transferees, the private placement warrants will be redeemable by the Company and exercisable by such holders on the same basis as the public warrants. The private placement warrants will expire five years after the completion of the Business Combination or earlier upon redemption or liquidation.

~~The Company may call the public warrants for redemption:~~

1.~~For cash:~~

•~~in whole and not in part;~~

•~~at a price of $0.01 per warrant;~~

•~~upon a minimum of 30 days’ prior written notice of redemption; and~~

•if, and only if, the last reported closing price of the common stock equals or exceeds $18.00 per share (as adjusted for share splits, share dividends, reorganizations, reclassifications, recapitalizations and the like) for any 20 trading days within a 30-trading day period ending on the third trading day prior to the date on which the Company sends the notice of redemption to the warrant holders.

2.~~For Class A common stock:~~

•~~in whole and not in part;~~

•at a price equal to a number of Class A common stock to be determined by reference to a table included in the warrant agreement, based on the redemption date and the fair market value of the Class A common stock;

•~~upon a minimum of 30 days’ prior written notice of redemption; and~~

•if, and only if, the last reported closing price of the common stock equals or exceeds $10.00 per share (as adjusted for share splits, share dividends, reorganizations, reclassifications, recapitalizations and the like) on the trading day prior to the date on which the Company sends notice of redemption to the warrant holders.

In December 2020, after meeting the above requirements for redemption, the Company delivered a notice of redemption to redeem all of its outstanding public warrants (“Public Warrants”) for cash, with a redemption date of January 7, 2021 (the “Redemption Date”) for a redemption price of $0.01 per Public Warrant (the “Redemption Price”). Warrants to purchase Common Stock that were issued under the Warrant Agreement in a private placement and still held by the initial holders thereof or their permitted transferees are not subject to this redemption. The Public Warrants could have been exercised by the holders thereof prior to or on the Redemption Date to purchase fully paid and non-assessable shares of Common Stock underlying such warrants, at the exercise price of $11.50 per share. All Public Warrants that remained unexercised at 5:00 p.m., New York City time, on the Redemption Date were void and were no longer exercisable, and the holders of those Public Warrants were entitled to receive only the redemption price of $0.01 per warrant.

The exercise price and number of shares of Class A common stock issuable upon exercise of the warrants may be adjusted in certain circumstances including in the event of a share dividend, or recapitalization, reorganization, merger or consolidation. However, the warrants will not be adjusted for issuance of Class A common stock at a price below its exercise price.

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During the ~~nine~~three months ended ~~September 30,~~March 31, 2022, no warrants were exercised. During the three months ended March 31, 2021, 825,016 public warrants were exercised, ~~for shares of Class A common stock,~~ for which the Company received $10.8 million of cash. ~~During the nine months ended September 30, 2020, 8,148,926 warrants were exercised, for which the Company received $93.7 million of cash.~~

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~~13.~~11. Commitments and Contingencies

Indemnification

Subject to certain limitations, the Company is obligated to indemnify its current and former directors, officers and employees with respect to certain litigation matters and investigations that arise in connection with their service to the Company. These obligations arise under the terms of its certificate of incorporation, its bylaws, applicable contracts, and Delaware and California law. The obligation to indemnify generally means that the Company is required to pay or reimburse these individuals’ reasonable legal expenses and possibly damages and other liabilities incurred in connection with these matters.

Legal

The Company is named from time to time as a party to lawsuits arising in the ordinary course of business related to its sales, marketing, and the provision of its services and equipment. Actions filed against the Company include commercial, intellectual property, customer, and labor and employment related claims, including complaints of alleged wrongful termination and potential class action lawsuits regarding alleged violations of federal and state wage and hour and other laws. In addition, from time to time the Company is subject to examinations, investigations and/or enforcement actions by federal and state licensing and regulatory agencies and may face the risk of penalties for violation of financial services, consumer protections and other applicable laws and regulations. For example, in 2019, the Company received a subpoena in connection with an investigation by the U.S. Department of Justice (“DOJ”) concerning potential violations of the Financial Institutions Reform, Recovery and Enforcement Act (“FIRREA”). In January 2021, the Company entered into a settlement agreement with the DOJ that resolved this investigation. As part of this settlement, the Company paid $3.2 million to the United States. The Company also received a civil investigative demand from the staff of the Federal Trade Commission (“FTC”) concerning potential violations of the Fair Credit Reporting Act (“FCRA”) and the “Red Flags Rule” thereunder, and the Federal Trade Commission Act (“FTC Act”). In April 2021, the Company entered into a settlement with the FTC that resolved this investigation. As part of this settlement, which was approved by a federal court on May 3, 2021, the Company paid a total of $20 million to the United States and agreed to implement various additional compliance-related measures. The Company is currently in the process of administering the terms of this settlement, which include multiple undertakings by the Company. The Company has been endeavoring to comply with these undertakings and the demands on management and costs incurred in connection with these undertakings may be substantial. The Company has been engaged in ongoing discussions with the staff of the FTC regarding the Company’s compliance with the terms of the settlement. In addition, in accordance with the settlement, the Company is required to undergo biennial assessments by an independent third-party assessor who will review the Company’s compliance programs and provide a report to the FTC staff on the Company’s ongoing compliance with the ~~settlement.~~settlement (“Stipulated Order”). During the three months ended March 31, 2022, the Company completed its first biennial assessment required by the Stipulated Order and received a report with no findings of non-compliance by the assessor. U.S. Customs and Border Protection is investigating the Company’s historical compliance with regulations relating to duties and tariffs in connection with its import of certain products from outside the United States. The Department of Justice is also investigating potential violations of the False Claims Act relating to similar issues. The Company is cooperating with these investigations. The Company also receives inquiries, including civil investigative demands (“CIDs”), from various State Attorneys General, typically from their respective consumer protection or consumer affairs divisions. In general, litigation and enforcements by regulatory agencies can be expensive and disruptive to normal business operations. Moreover, the results of legal proceedings and enforcement actions are difficult to predict and the costs incurred can be substantial. The Company believes the amounts accrued in its financial statements to cover these matters, as disclosed in the following paragraph, are adequate in light of the probable and estimated liabilities. Factors that the Company considers in the determination of the likelihood of a loss and the estimate of the range of that loss in respect of legal and enforcement matters include the merits of a particular matter, the nature of the matter, the length of time the matter has been pending, the procedural posture of the matter, how the Company intends to defend the matter, the likelihood of settling the matter and the anticipated range of a possible settlement. Because such matters are subject to many uncertainties, the ultimate outcomes are not predictable and there can be no assurances that the actual amounts required to satisfy alleged liabilities from the matters described above will not exceed the amounts reflected in the Company’s financial statements or that the matters will not have a material adverse effect on the Company’s results of operations, financial condition or cash flows.

The Company regularly reviews outstanding legal claims, actions, and enforcement matters to determine if accruals for expected negative outcomes of such matters are probable and can be reasonably estimated. The Company had accruals for all such matters of approximately ~~$5.4 million and $26.2~~$8.2 million as of ~~September 30, 2021~~each period ended March 31, 2022 and December 31, ~~2020, respectively.~~2021. The Company evaluates its outstanding legal and regulatory proceedings and other matters each quarter to assess its loss contingency accruals, and makes adjustments in such accruals, upward or downward, as appropriate, based on management’s best judgment after consultation with counsel. There is no assurance that the Company’s accruals for loss contingencies will not need to be adjusted in the future or that, in light of the uncertainties involved in such matters, the ultimate resolution of these matters will not significantly exceed the accruals that the Company has recorded.

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~~14.~~12. Leases

The Company has operating leases for corporate offices, warehouse facilities, research and development and other operating facilities, and other operating assets. ~~Prior to its disposal in December 2020, the Company's operating leases also included a corporate aircraft.~~ The Company has finance leases for vehicles, office equipment and other warehouse equipment. The leases have remaining terms of 1 year to 76 years, some of which include options to extend the leases for up to 10 years, and some of which include options to terminate the leases within 1 year.

The components of lease expense were as follows (in thousands):


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
		2021		2020		2021		2020			2022		2021
Operating lease cost	Operating lease cost	$	3,965	$	3,978	$	11,838	$	12,304	Operating lease cost	$	3,843	$	3,940

Finance lease cost:	Finance lease cost:									Finance lease cost:
Amortization of right-of-use assets	Amortization of right-of-use assets	$	560	$	1,330	$	1,777	$	4,136	Amortization of right-of-use assets	$	607	$	661
Interest on lease liabilities	Interest on lease liabilities	30		90		211		379		Interest on lease liabilities	84		39
Total finance lease cost	Total finance lease cost	$	590	$	1,420	$	1,988	$	4,515	Total finance lease cost	$	691	$	700

Supplemental cash flow information related to leases was as follows (in thousands):


		Nine Months Ended September 30,					Three Months Ended March 31,
		2021		2020			2022		2021
Cash paid for amounts included in the measurement of lease liabilities:	Cash paid for amounts included in the measurement of lease liabilities:					Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	Operating cash flows from operating leases	$	(12,730)	$	(12,901)	Operating cash flows from operating leases	$	(4,127)	$	(4,230)
Operating cash flows from finance leases	Operating cash flows from finance leases	(211)		(379)		Operating cash flows from finance leases	(84)		(39)
Financing cash flows from finance leases	Financing cash flows from finance leases	(2,549)		(6,285)		Financing cash flows from finance leases	(911)		(500)

Right-of-use assets obtained in exchange for lease obligations:	Right-of-use assets obtained in exchange for lease obligations:					Right-of-use assets obtained in exchange for lease obligations:
Operating leases	Operating leases	$	2,603	$	7,548	Operating leases	$	1,613	$	405
Finance leases	Finance leases	1,394		699		Finance leases	283		413

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Supplemental balance sheet information related to leases was as follows (in thousands, except lease term and discount rate):


		September 30, 2021			December 31, 2020				March 31, 2022			December 31, 2021
Operating Leases	Operating Leases							Operating Leases
Operating lease right-of-use assets	Operating lease right-of-use assets	$	45,201		$	52,880		Operating lease right-of-use assets	$	44,779		$	46,000

Current operating lease liabilities	Current operating lease liabilities	11,858			12,135			Current operating lease liabilities	12,396			12,033
Operating lease liabilities	Operating lease liabilities	41,422			49,692			Operating lease liabilities	39,848			41,713
Total operating lease liabilities	Total operating lease liabilities	$	53,280		$	61,827		Total operating lease liabilities	$	52,244		$	53,746

Finance Leases	Finance Leases							Finance Leases
Property, plant and equipment, gross	Property, plant and equipment, gross	$	40,627		$	40,571		Property, plant and equipment, gross	$	40,398		$	40,939
Accumulated depreciation	Accumulated depreciation	(23,948)			(22,976)			Accumulated depreciation	(24,520)			(24,465)
Property, plant and equipment, net	Property, plant and equipment, net	$	16,679		$	17,595		Property, plant and equipment, net	$	15,878		$	16,474

Current finance lease liabilities	Current finance lease liabilities	$	3,272		$	3,356		Current finance lease liabilities	$	2,240		$	2,854
Finance lease liabilities	Finance lease liabilities	1,171			2,460			Finance lease liabilities	1,404			1,416
Total finance lease liabilities	Total finance lease liabilities	$	4,443		$	5,816		Total finance lease liabilities	$	3,644		$	4,270

Weighted Average Remaining Lease Term	Weighted Average Remaining Lease Term							Weighted Average Remaining Lease Term
Operating leases	Operating leases	5 years			5 years			Operating leases	4 years			5 years
Finance leases	Finance leases	1.0 years			1.6 years			Finance leases	2.4 years			2.7 years
Weighted Average Discount Rate	Weighted Average Discount Rate							Weighted Average Discount Rate
Operating leases	Operating leases	7		%	7		%	Operating leases	7		%	7		%
Finance leases	Finance leases	4		%	4		%	Finance leases	4		%	4		%

Maturities of lease liabilities were as follows (in thousands):


		Operating Leases		Finance Leases			Operating Leases		Finance Leases
Year Ending December 31,	Year Ending December 31,					Year Ending December 31,
2021 (excluding the nine months ended September 30, 2021)		$	4,140	$	913
2022		15,596		2,786
2022 (excluding the three months ended March 31, 2022)						2022 (excluding the three months ended March 31, 2022)	$	12,112	$	2,147
2023	2023	14,865		609		2023	15,570		946
2024	2024	14,286		325		2024	14,765		604
2025	2025	8,764		—		2025	9,145		43
2026						2026	5,073		—
Thereafter	Thereafter	9,503		—		Thereafter	4,509		—
Total lease payments	Total lease payments	67,154		4,633		Total lease payments	61,174		3,740
Less imputed interest	Less imputed interest	(13,874)		(190)		Less imputed interest	(8,930)		(96)
Total	Total	$	53,280	$	4,443	Total	$	52,244	$	3,644

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~~15.~~13. Related Party Transactions

~~Transactions with Vivint Solar~~

Vivint Solar, Inc. (“Solar”) has historically been considered a related party of the Company due to the Company and Solar being under the common control of our former parent 313 Acquisition LLC ("313"). In October 2020 Solar was acquired by SunRun, Inc. in an all-stock transaction (“SunRun Acquisition”). Upon completion of the SunRun Acquisition, the Company and Solar were no longer under the common control of 313 and therefore the Company and Solar are no longer related parties.

The Company was a party to a number of agreements with Solar. In August 2017, the Company entered into a sales dealer agreement with Solar, pursuant to which each company agreed to act as a non-exclusive dealer for the other party to market, promote and sell each other’s products. Prior to the SunRun Acquisition, net expenses charged to Solar in connection with these agreements was $0.5 million during the three months ended September 30, 2020 and $1.9 million during the nine months ended September 30, 2020.

On March 3, 2020, the Company and Solar amended and restated the sales dealer agreement to, among other things, add exclusivity obligations for both companies in certain territories and jurisdictions, expand the types of services each company is permitted to render thereunder, and to permit use of the services offered by Amigo, a wholly owned subsidiary of the Company, in connection with the submission and processing of leads generated pursuant to the agreement. The amended and restated agreement has a one-year term, which automatically renews for successive one-year terms unless terminated earlier by either party upon 90 days’ prior written notice.

On March 3, 2020, the Company and Solar entered into a recruiting services agreement pursuant to which each company has agreed to assist the other in recruiting sales representatives to its direct-to-home sales force. The parties will pay each other certain fees for these services which will be calculated in accordance with the terms of the agreement. The Company and Vivint Solar have also agreed under the terms of the agreement not to solicit for employment any member of the other’s executive or senior management team, any dealer, or any of the other’s employees who primarily manage sales, installation or services of the other’s products and services. Such obligations will continue throughout the term of the agreement.

On March 3, 2020, Amigo entered into a Subscriber Generation Agreements with Solar and the Company to facilitate the use of the Amigo application for the submission and processing of leads generated pursuant to the amended and restated sales dealer agreement.

In connection with the amendment and restatement of the sales dealer agreement and the execution of the recruiting services agreement, the Company and Solar terminated the Marketing and Customer Relations Agreement, dated September 30, 2014 (as amended from time to time) and the Non-Competition Agreement, dated September 30, 2014 (as amended from time to time), in each case effective as of March 3, 2020.

Other Related-party Transactions

The Company incurred $0.2 million and $0.1 million expenses during the three months ended ~~September 30,~~March 31, 2022 and 2021, ~~and 2020, respectively, and $0.3 million and $0.4 million during the nine months ended September 30, 2021 and 2020,~~ respectively, for other related-party transactions including contributions to the charitable organization Vivint Gives Back and other services. Accrued expenses and other current liabilities included on the Company's balance sheets associated with these related-party transactions ~~was immaterial at September 30, 2021 and~~were $0.1 million at March 31, 2022 and December 31, ~~2020.~~2021.

Transactions with Affiliates of Blackstone Inc. (“Blackstone”)

On November 16, 2012, the Company was acquired by an investor group comprised of certain investment funds affiliated with Blackstone Capital Partners VI L.P., and certain co-investors and management investors through certain mergers and related reorganization transactions (collectively, the “Reorganization”). In connection with the Reorganization, the Company engaged Blackstone Management Partners L.L.C. (“BMP”) to provide monitoring, advisory and consulting services on an ongoing basis. In consideration for these services, the Company agreed to pay an annual monitoring fee equal to the greater of (i) a minimum base fee of $2.7 million, subject to adjustments if the Company engages in a business combination or disposition that is deemed significant and (ii) the amount of the monitoring fee paid in respect of the immediately preceding fiscal year, without regard to any post-fiscal year “true-up” adjustments as determined by the agreement. The Company incurred no expenses for such services ~~of approximately $1.4 million and $2.2 million~~ during the three months ended ~~September 30, 2021~~March 31, 2022, and ~~2020, and $4.2~~approximately $1.4 million ~~and $5.6 million~~of expenses during the ~~nine~~three months ended ~~September 30, 2021 and 2020, respectively.~~March 31, 2021. Accrued expenses and other current liabilities and accounts payable at ~~September 30,~~each period end March 31, 2022 and December 31, 2021 included liabilities of $0.7 million to BMP ~~in regards~~related to the monitoring ~~fee for $12.3 million.~~

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fee.

Under the support and services agreement, the Company also engaged BMP to arrange for Blackstone’s portfolio operations group to provide support services customarily provided by Blackstone’s portfolio operations group to Blackstone’s private equity portfolio companies of a type and amount determined by such portfolio services group to be warranted and appropriate. BMP will invoice the Company for such services based on the time spent by the relevant personnel providing such services during the applicable period but in no event shall the Company be obligated to pay more than $1.5 million during any calendar year. During the three ~~and nine~~ months ended ~~September 30,~~March 31, 2022 and 2021 ~~and 2020~~ the Company incurred no costs associated with such services.

~~In connection with the execution of the Merger Agreement, the~~The Company and the parties to the support and services agreement entered into an amended and restated support and services agreement with BMP. The amended and restated support and services agreement became effective upon the consummation of the ~~Merger~~merger and amended and restated the existing support and services agreement to, upon the consummation of the merger, (a) eliminate the requirement to pay a milestone payment to BMP upon the occurrence of an IPO, (b) for any fiscal year beginning after the consummation of the merger, (i) eliminate the Minimum Annual Fee and (ii) decrease the “true-up” of the annual Monitoring Fee payment to BMP to 1% of consolidated ~~EBITDA and (c) upon~~EBITDA.. Subsequent to the ~~earlier of (1) the completion of Legacy Vivint Smart Home’s fiscal~~ year ~~ending~~ended December 31, 2021, or (2) the date upon which Blackstone owns less than 5% of the voting power of all of the shares of capital stock entitled to vote generally in the election of directors of Vivint Smart Home’s or its direct or indirect controlling parent, and such stake has a fair market value (as determined by Blackstone) of less than $25 million (the “Exit Date”), the annual Monitoring Fee payment to BMP otherwise payable in connection with the agreement ~~will cease~~ceased and no other milestone ~~payment~~payments or other similar payment ~~will be~~are owed by the Company to BMP.

Under the amended and restated support and services agreement, the Company and Legacy Vivint Smart Home have, through the Exit Date (or an earlier date determined by BMP), engaged BMP to arrange for Blackstone’s portfolio operations group to provide support services customarily provided by Blackstone’s portfolio operations group to Blackstone’s private equity portfolio companies of a type and amount determined by such portfolio services group to be warranted and appropriate. BMP may, at any time, choose not to provide any such services. Such services are provided without charge, other than for the reimbursement of out-of-pocket expenses as set forth in the amended and restated support and services agreement.

From time to time, the Company does business with a number of other companies affiliated with Blackstone.

Related Party Debt

Affiliates of Blackstone participated as initial purchasers, arrangers, or creditors of the 2027 notes and term loan facility amendment and restatement in ~~February 2020 and again in the 2029 notes and term loan facility amendment and restatement in~~ July 2021 and received approximately $1.3 million and $3.0 million, respectively, of fees associated with these transactions. As of ~~September 30, 2021,~~March 31, 2022, affiliates of Blackstone held ~~$195.6~~$217.9 million and ~~$21.2~~$9.2 million in the Term Loan Facility and 2029 Notes, respectively. As of December 31, ~~2020,~~2021, affiliates of Blackstone held ~~$166.1~~$201.2 million ~~of outstanding aggregate principal of~~and $18.5 million in the Term Loan ~~Facility.~~Facility and 2029 Notes, respectively.

In ~~February 2020 and~~ July 2021, an affiliate of Fortress participated as a lender in the amended and restated term loan facility and received approximately $0.9 million and $0.8 million in lender fees, respectively. As of ~~September 30, 2021,~~March 31, 2022, Fortress held $11.7 million,

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$13.0 million, and ~~$150.0~~$153.2 million in the 2027 Notes, 2029 Notes, and term loan facility, respectively. As of December 31, ~~2020,~~2021, Fortress held ~~$72.5 million, $19.9 million,~~ $11.7 million and ~~$173.7~~$119.7 million in the ~~2023 Notes, 2024 Notes,~~ 2027 Notes and Term Loan Facility, ~~respectively~~respectively.

Transactions involving related parties cannot be presumed to be carried out at an arm’s-length basis.

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~~16.~~14. Employee Benefit Plan

The Company offers eligible employees the opportunity to contribute a percentage of their earned income into company-sponsored 401(k) plans.

~~From January 1, 2018 through May 2, 2020, participants~~Participants in the 401(k) ~~plans were~~plan are eligible for the Company’s matching program. This matching program was suspended, effective May 2, 2020 and reinstated, effective January 1, 2021. Additionally, at the end of 2020, the Company made a one-time contribution to the matching program. Under this ~~reinstated~~ program, the Company matches an employee’s contributions to the 401(k) savings plan dollar-for-dollar up to 3% of such employee’s eligible earnings and $0.50 for every $1.00 for the next 2% of such employee’s eligible earnings. The maximum match available under the 401(k) plan is 4% of the employee’s eligible earnings. All contributions under the reinstated program vest immediately.

During the three months ended ~~September 30,~~March 31, 2022 and 2021, ~~$3.3~~the Company made $2.4 million and $2.7 million in matching contributions were made to the plans. No matching contributions were made during the three months ended September 30, 2020. During the nine months ended September 30, 2021 and 2020, $7.8 million and $2.3 million in matching contributions were made to the plans, respectively.

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~~17. Restructuring and Asset Impairment Charges~~

In March 2020, the Company announced a number of cost reduction initiatives that are expected to reduce certain of the Company’s General and Administrative, Customer Service, and Sales Support fixed costs. The Company completed the majority of these cost reduction initiatives in the first quarter of 2020. In addition to resulting in meaningful cost reductions, the Company’s initiatives are expected to streamline operations, focus engineering and innovation and provide a better focus on driving customer satisfaction. These actions resulted in one-time cash employee severance and termination benefits expenses of $20.9 million during the nine months ended September 30, 2020. These costs included $11.1 million in stock-based compensation expense associated with the accelerated vesting of stock-based awards to certain executives related to separation agreements.

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~~18.~~15. Segment Reporting and Business Concentrations

For the three ~~and nine~~ months ended ~~September 30,~~March 31, 2022 and 2021, ~~and 2020,~~ the Company conducted business through 1 operating segment, Vivint. The Company primarily operated in 2 geographic regions: United States and Canada. Revenues by geographic region were as follows (in thousands):

   United States Canada Total
Revenue from external customers
Three months ended September 30, 2021    $ 372,076 $ 14,634 $ 386,710
Three months ended September 30, 2020    302,383 16,334 318,717
Nine months ended September 30, 2021 1,036,894 46,280 1,083,174
Nine months ended September 30, 2020 871,165 50,194 921,359


	United States		Canada		Total
Revenue from external customers
Three months ended March 31, 2022	$	379,615	$	13,133	$	392,748
Three months ended March 31, 2021	326,486		15,841		342,327

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1916. Basic and Diluted Net Loss Per Share

The Company computes basic loss per share by dividing loss attributable to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution of securities that could be exercised or converted into common shares and is computed by dividing net earnings available to common stockholders by the weighted-average number of common shares outstanding plus the effect of potentially dilutive shares to purchase common stock. The calculation of diluted loss per share requires that, to the extent the average market price of the underlying shares for the reporting period exceeds the exercise price of the warrants, and the presumed exercise of such securities are dilutive to net loss per share for the period, an adjustment to net loss available to common stockholders used in the calculation is required to remove the change in fair value of the warrants from the numerator for the period. Likewise, an adjustment to the denominator is required to reflect the related dilutive shares, if any, under the treasury stock method. As a result of the Business Combination, the Company has retrospectively adjusted the weighted average number of common shares outstanding prior to January 17, 2020 by multiplying them by the exchange ratio used to determine the number of common shares into which they converted.

The following table sets forth the computation of the Company’s basic and diluted net loss attributable per share to common stockholders for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2022 and 2021 ~~and 2020~~ (in thousands, except share and per-share amounts):


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
		2021		2020		2021		2020			2022		2021
Numerator:	Numerator:									Numerator:
Net loss attributable to common stockholders	Net loss attributable to common stockholders	$	(92,744)	$	(111,433)	$	(252,088)	$	(418,550)	Net loss attributable to common stockholders	$	(27,431)	$	(88,799)
Gain on change in fair value of warrants, diluted	Gain on change in fair value of warrants, diluted	(15,313)		—		(51,498)		—		Gain on change in fair value of warrants, diluted	—		(29,963)
Net loss attributable to common stockholders, diluted	Net loss attributable to common stockholders, diluted	$	(108,057)	$	(111,433)	$	(303,586)	$	(418,550)	Net loss attributable to common stockholders, diluted	$	(27,431)	$	(118,762)
Denominator:	Denominator:									Denominator:
Shares used in computing net loss attributable per share to common stockholders, basic and diluted		208,759,485		187,551,208		208,090,903		172,443,930
Shares used in computing net loss attributable per share to common stockholders, basic										Shares used in computing net loss attributable per share to common stockholders, basic	210,739,678		206,791,625
Weighted-average effect of potentially dilutive shares to purchase common stock	Weighted-average effect of potentially dilutive shares to purchase common stock	228,652		—		1,083,381		—		Weighted-average effect of potentially dilutive shares to purchase common stock	—		2,197,455
Shares used in computing net loss attributable per share to common stockholders, diluted	Shares used in computing net loss attributable per share to common stockholders, diluted	208,988,137		187,551,208		209,174,284		172,443,930		Shares used in computing net loss attributable per share to common stockholders, diluted	210,739,678		208,989,080
Net loss attributable per share to common stockholders:	Net loss attributable per share to common stockholders:									Net loss attributable per share to common stockholders:
Basic	Basic	$	(0.44)	$	(0.59)	$	(1.21)	$	(2.43)	Basic	$	(0.13)	$	(0.43)
Diluted	Diluted	$	(0.52)	$	(0.59)	$	(1.45)	$	(2.43)	Diluted	$	(0.13)	$	(0.57)

The following table discloses securities that could potentially dilute basic net loss per share in the future that were not included in the computation of diluted net loss per share because to do so would have been antidilutive for all periods presented:


		As of September 30,			As of March 31,
		2021	2020		2022	2021
Rollover SARs		2,074,432	2,566,517
Rollover LTIPs		—	3,861,448
Stock Appreciation Rights (SARs)				Stock Appreciation Rights (SARs)	1,864,313	2,452,311

RSUs	RSUs	9,606,233	8,768,852	RSUs	10,265,456	9,324,502
PSUs	PSUs	9,747,295	4,898,351	PSUs	10,221,379	4,692,084
Public warrants		—	3,351,074

Private placement warrants	Private placement warrants	—	5,933,334	Private placement warrants	5,933,334	—
Earnout shares reserved for future issuance	Earnout shares reserved for future issuance	24,060	2,255,651	Earnout shares reserved for future issuance	24,060	26,613

See Note 1210 for additional information regarding the terms of the ~~Rollover SARs, Rollover LTIPs,~~ RSUs, PSUs and ~~public and~~ private placement ~~warrants, and see Note 6 for additional information regarding the earnout shares.~~warrants.

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ITEM 2.			MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Introduction

The following discussion and analysis provides information which management believes is relevant to an assessment and understanding of our consolidated results of operations and financial condition. The discussion should be read in conjunction with the unaudited condensed consolidated financial statements and notes thereto contained herein and the consolidated financial statements and notes thereto for the year ended December 31, ~~2020~~2021 contained in our ~~Amendment No. 1 to the~~ Annual Report on Form ~~10-K/A~~10-K for the fiscal year ended December 31, ~~2020 filed with the SEC on May 12,~~ 2021 (the “Form ~~10-K/A”~~10-K”) and this Quarterly Report on Form 10-Q. This discussion contains forward-looking statements and involves numerous risks and uncertainties, including, but not limited to, those described in the “Risk Factors” section of the Form ~~10-K/A.~~10-K. Actual results may differ materially from those contained in any forward-looking statements. Unless the context otherwise requires, references to “we”, “us”, “our”, and “the Company” are intended to mean the business and operations of Vivint Smart Home, Inc. and its consolidated subsidiaries. The unaudited condensed consolidated financial statements for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2022 and 2021, ~~and 2020,~~ respectively, present the financial position and results of operations of Vivint Smart Home, Inc. and its wholly-owned subsidiaries.

Business Overview

Vivint Smart Home is a leading smart home platform company serving ~~more than 1.8~~approximately 1.9 million subscribers as of ~~September 30, 2021. Our mission is to redefine the home experience through intelligently designed cloud-enabled solutions, delivered to every home by people who care.~~March 31, 2022. Our brand name, Vivint, ~~represents~~means to “to live ~~intelligently,”~~intelligently” and our ~~solutions~~mission is to help our ~~subscribers~~customers do ~~just that.~~exactly that by providing them with technology and services to create a smarter, greener, safer home that saves them money every month.

Although a number of companies offer single devices such as a doorbell camera, smart speaker or thermostat, single offerings do not make a home smart. Rather, a smart home has multiple devices, properly located and installed, all integrated into a single expandable platform that incorporates artificial intelligence (“AI”) and machine-learning in its operating system.

We make creating athis smart home easy and affordable with an integrated platform, ~~best-in-class~~exceptional products, hassle-free professional installation and zero percent annual percentage rate (“APR”) consumer financing for ~~qualified~~most customers. We help consumers create a customized solution for their home by integrating smart cameras (indoor, outdoor, doorbell), locks, lights, thermostats, garage door control, car protection and a host of safety and security sensors. As of ~~September 30, 2021,~~March 31, 2022, on average our subscribers had 15 security and smart home devices in each home.

We provide a fully integrated solution for consumers with our vertically integrated business model ~~which~~that includes hardware, software, sales, installation, support and professional monitoring. This model strengthens our ability to deliver superior experiences at every customer touchpoint and a complete end-to-end smart home experience. This seamless integration of high-quality products and services results in an ~~average subscriber lifetime~~Average Subscriber Lifetime of approximately ~~eight~~nine years, as of ~~September 30, 2021.~~March 31, 2022. This model also facilitates our ability to offer adjacent products and services that leverage our existing platform and infrastructure, which we believe can extend the Average Subscriber Lifetime and increase the lifetime value we derive from our subscribers.

Our cloud-based home platform currently manages more than 2526 million security and smart home devices as of ~~September 30, 2021.~~March 31, 2022. Our subscribers are able to interact with their connected home by using their voice or mobile device—anytime, anywhere. They can engage with ~~visitors~~people at their front door; view live and recorded video inside and outside their home; control ~~their~~ thermostats, locks, lights, and garage doors; and proactively manage the comings and goings of family, friends and visitors. ~~Our~~The average subscriber on our cloud-based home platform engages with our smart home app ~~multiple~~approximately 11 times per day.

Our technology and people are the foundation of our business. Our trained professionals educate consumers on the value and affordability of a smart home, design a customized solution for their homes and their individual needs, teach them how to use our platform to enhance their experience, and provide ongoing tech-enabled services to manage, monitor and secure their home.

~~Our~~We believe that our unique business model and platform gives us a distinct advantage in the market through:

•a proprietary cloud-based platform,

•a differentiated end-to-end distribution model,

•strong growth with compelling unit economics, and

•multiple levers for sustained profitable growth.

As a result, we believe we can integrate new customer offerings from large adjacent markets that logically link back to our smart home platform, compounding the value that we already deliver to our approximately 1.9 million customers. With the

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large number of devices we have installed per home, we own a rich first-party data environment that helps us not only protect our customers, but also improve the efficiency of their homes and increase their peace of mind. We believe our unique focus on the importance of owning the entire technology stack, coupled with an end-to-end distribution model, leads to an exceptional customer experience. By continuously enhancing our platform, we can improve our customers’ experience wherever they interact with it. We believe that as ~~a service, or SHaaS,~~our customers’ satisfaction increases, it creates multiple potential opportunities for sustained profitable growth for years to come.

Our integrated Smart Home business model generates subscription-based, high-margin recurring revenue from subscribers who sign up for our smart home services. More than 95% of our revenue is recurring, which provides long-term visibility and predictability to our business. Despite the many uncertainties pertaining to the COVID-19 pandemic, ~~and the challenges post-pandemic,~~ our recurring revenue model has proven resilient.

Key Performance Measures

In evaluating our results, we review several key performance measures discussed below. We believe that the presentation of such metrics is useful to our investors and lenders because they are used to measure the value of companies such as ours with recurring revenue streams. Management uses these metrics to analyze its continuing operations and to monitor, assess, and identify meaningful trends in the operating and financial performance of the ~~company.~~

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Company.

Total Subscribers

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

Total Monthly Recurring Revenue

Total monthly recurring revenue, or Total MRR, is the average smart home and security total monthly recurring revenue recognized during the period. These revenues exclude non-recurring revenues that are recognized at the time of sale.

Average Monthly Recurring Revenue per User

Average monthly revenue per user, or AMRRU, is Total MRR divided by average monthly Total Subscribers during a given period.

Total Monthly Service Revenue

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

Average Monthly Service Revenue per User

Average monthly service revenue per user, or AMSRU, is Total MSR divided by Total Subscribers at the end of a given period.

Attrition Rate

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

Average Subscriber Lifetime

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

Net Service Cost per Subscriber

Net service cost per subscriber is the average monthly service costs incurred during the period (both period and capitalized service costs), including monitoring, customer service, field service and other service support costs, less total non-recurring smart home services billings and cellular network maintenance fees for the period, divided by average monthly Total Subscribers for the same period.

Net Service Margin

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

New Subscribers

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

Net Subscriber Acquisition Costs per New Subscriber

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

Adjusted EBITDA

Adjusted EBITDA is defined as net income (loss) before interest, taxes, depreciation, amortization, stock-based compensation (or non-cash compensation), certain financing fees, changes in the fair value of the derivative liability associated with our public and private warrants and certain other non-recurring expenses or gains.

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During the first quarter of 2021, in connection with our re-assessment of our accounting for our public and private warrants, we updated our definition of “Adjusted EBITDA” to exclude the impact of changes in the fair value of the derivative liability associated with our public and private warrants. We do not consider changes in the fair value of the warrants to be directly attributable to our operations and we believe that excluding the impact of changes in the fair value of the warrants from our calculation of Adjusted EBITDA results in a metric that better reflects the results of our operations. Prior period disclosure of Adjusted EBITDA were updated to conform to our updated definition of Adjusted EBITDA.

Adjusted EBITDA is not defined under GAAP and is subject to important limitations. Non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information presented in compliance with GAAP, and non-GAAP financial measures as used by the Company may not be comparable to similarly titled amounts used by other companies.

We believe that the presentation of Adjusted EBITDA is useful to investors because it is frequently used by securities analysts, investors, and other interested parties in their evaluation of the operating performance of companies in industries similar to ours. In addition, targets based on Adjusted EBITDA are among the measures we use to evaluate our management’s performance for purposes of determining their compensation under our incentive plans.

Adjusted EBITDA and other non-GAAP financial measures have important limitations as analytical tools and you should not consider them in isolation or as substitutes for analysis of our results as reported under GAAP. For example, Adjusted EBITDA:

•excludes certain tax expenses that may represent a reduction in cash available to us;

•does not reflect any cash capital expenditure requirements for the assets being depreciated and amortized, including capitalized contract costs, that may have to be replaced in the future;

•does not reflect changes in, or cash requirements for, our working capital needs;

•does not reflect the significant interest expense to service our debt;

•does not reflect the monthly financing and loss share fees incurred associated with our obligations under the Consumer Financing Program;

•does not include changes in the fair value of the warrant liabilities; and

•does not include non-cash stock-based employee compensation expense and other non-cash charges.

We believe that the most directly comparable GAAP measure to Adjusted EBITDA is net income (loss). We have included the calculation of Adjusted EBITDA and reconciliation of Adjusted EBITDA to net loss for the periods presented below under Key Operating Metrics - Adjusted EBITDA.

Net Loss Margin

Net Loss Margin is net loss as a percentage of total revenues for the period.

Adjusted EBITDA Margin

Adjusted EBITDA Margin is Adjusted EBITDA as a percentage of total revenues for the period.

COVID-19 update

In December 2019, COVID-19 was first reported and on March 11, 2020, the World Health Organization (WHO) characterized COVID-19 as a pandemic.

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Operational update. ~~We continue to maintain~~During 2020, we implemented a number of operational changes ~~we implemented in response to the pandemic in order~~ to continue to provide the same level of service our customers have come to rely on, while caring for the well-being of our customers and employees. These changes ~~include~~included transitioning our customer care professionals and corporate employees to work-from-home environments while maintaining our geographically dispersed central monitoring stations to provide 24/7 professional monitoring services for all emergencies, performing operating and safety procedures based on the latest CDC guidelines, providing ~~up to 14 days of~~ paid time off for any employee who has contracted COVID-19 or is required to be quarantined by a public health authority and encouraging our employees to receive COVID-19 vaccinations by offering incentives to customer facing employees and by providing vaccines at our onsite clinic located at our Provo, Utah headquarters. We ~~have~~are also ~~developed~~developing a plan for employees to return to the office in ~~early~~ 2022, utilizing a hybrid model in which employees split their time between working from the office and from home.

The United States has experienced ~~an increase~~multiple spikes in new COVID-19 cases since the beginning of ~~2021.~~the pandemic, primarily driven by new variants of the COVID-19 virus. The full impact of the pandemic on our business and results of operations will depend on the ultimate duration of the pandemic as well as the severity of the current and any future resurgences in COVID-19 cases. While, to date, we ~~did~~have not ~~experience~~experienced a significant adverse financial impact from the COVID-19 pandemic, ~~in 2020 or through the first nine months of 2021,~~ our business could be adversely impacted in the future if the COVID-19 pandemic continues for an extended period of time and regions of the country are forced to roll back plans for reopening their economies.

Financial update. ~~During2020, w~~e implemented business continuity plans intended to continue to ensure the health, safety, and well-being of our customers, employees and communities, and to protect the financial and operational strength of

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the company. These plans included reduced discretionary spending, temporarily suspending certain employee benefit programs for a portion of 2020 and we received pricing concessions from certain of our key vendors, some of which are short-term in nature, in each case to preserve cash and improve our cost structure. This reduced spending may not be sustainable over time without negatively impacting our results of operations.

Although the COVID-19 pandemic ~~did~~has not ~~have~~had a material impact on our results of operations, ~~for fiscal year 2020 or for the nine months ended September 30, 2021,~~ as discussed above with respect to the operational challenges posed by the pandemic the broader implications of COVID-19 on our future results of operations and overall financial performance remain uncertain. Depending on the ~~breadth and duration~~occurrence of ~~the ongoing outbreak~~future outbreaks or new variants of the virus, which we are not currently able to predict, the adverse impact could be material. Our future business could be adversely affected by COVID-19, including our ability to maintain compliance with our debt covenants, due to the following:

•Our ability to generate new subscribers, particularly in our direct-to-home sales channel.

•Increases in customer attrition and deferment or forgiveness of our customers’ monthly service fees, due to the increased unemployment rates and reduced wages. These could increase our allowance for bad debt, provision for credit losses, and losses on our derivative liability associated with the consumer financing program.

•The impact of the pandemic and actions taken in response thereto on global and regional economies and economic activity, including the duration and magnitude of ~~its~~increased inflation rates and the associated impact on ~~unemployment rates and~~ consumer discretionary spending.

•Ability to obtain the equipment necessary to ~~originate~~generate new subscriber accounts or service our existing subscriber base, due to potential supply chain disruption. For example, although it has not yet had a significant impact on our business, some technology companies are facing shortages of certain components used in our Products, which if prolonged could impact our ability to obtain the equipment needed to support our operations and ~~could~~would likely increase Product costs. Such shortages ~~will also likely require~~are requiring us to purchase components on the spot market at elevated prices and utilize expedited shipping methods to maintain adequate supply, which ~~would~~ result in increased ~~transportation~~ costs for ~~this~~the components and equipment.

•Limitations on our ability to enter our customer’s homes to perform installs or equipment repairs.

•~~Inefficiencies and potential incremental costs resulting from the requirement for many of our employees to work from home.~~

•Ability to attract and retain employees due to labor shortages, along with wage inflation resulting from these labor shortages.

These factors could become indicators of asset impairments in the future, depending on the significance and duration of the disruption. While short-term, temporary disruptions may not indicate an impairment; the effects of a prolonged outbreak may cause asset impairments.

We continue to monitor the situation and guidance from international and domestic authorities, including federal, state and local public health authorities, and may be required or elect to take additional actions based on their recommendations.

In September, President Biden issued an order, directing the Occupational Safety and Health Administration to issue an emergency temporary standard (“ETS”),requiring vaccination or weekly COVID-19 testing for certain organizations, including employers with 100 or more employees. Under the current ETS, by January 4, 2022, employers with 100 or more employees must ensure that all employees have received one dose of a single-shot vaccine, both shots of a two-dose vaccine, or they must begin weekly testing. This order is currently being challenged in federal court, and a federal appeals court has placed a temporary hold on the order. Therefore, it is uncertain if and when we will be required to comply with this order. If we are required to comply, monitoring vaccine and testing status for all employees could be costly to us and time-consuming and challenging to implement, especially in a short period of time.

Critical Accounting Policies and Estimates

In preparing our unaudited ~~Condensed Consolidated Financial Statements,~~condensed consolidated financial statements, we make assumptions, judgments and estimates that can have a significant impact on our revenue, loss from operations and net loss, as well as on the value of certain assets and liabilities on our ~~unaudited Condensed Consolidated Balance Sheets.~~condensed consolidated balance sheets. We base our assumptions, judgments and estimates on historical experience and various other factors that we believe to be reasonable under the circumstances. Actual results could differ materially from these estimates under different assumptions or conditions. At least quarterly, we evaluate our assumptions, judgments and estimates and make changes accordingly. Historically, our assumptions, judgments and estimates relative to our critical accounting estimates have not differed materially from actual results. We believe that the assumptions, judgments and estimates involved in the accounting for revenue recognition, ~~deferred revenue, capitalized contract costs, derivatives,~~Consumer Financing Program, retail installment contract receivables, ~~allowance for doubtful accounts,~~capitalized contract costs, and loss contingencies ~~valuation of intangible assets, impairment of long-lived assets, fair value and income taxes~~ have the greatest potential impact on our ~~unaudited Condensed Consolidated Financial Statements;~~condensed consolidated financial statements; therefore, we consider these to be our critical accounting estimates.

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For information on our significant accounting policies, see Note 1 to ~~our~~the accompanying unaudited ~~Condensed Consolidated Financial Statements.~~condensed consolidated financial statements.

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Revenue Recognition

We offer our customers smart home services combining Products, including our proprietary Vivint smart hub control panel, door and window sensors, door locks, cameras and smoke alarms; installation; and a proprietary ~~back-end~~backend cloud platform software and Services. These together create an integrated system that allows our customers to monitor, control and protect their home. Our 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, we have 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. We have 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 our 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. 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.

~~We consider Products, related~~Beginning in late 2020, we began operating as a third-party dealer for residential solar installers in several states throughout the U.S., whereby we earn a commission from the installer for selling their solar services. Because we have no further performance obligations once the installation ~~and~~is complete, we recognize the commissions we receive as revenue at that time.

To date, revenues from our ~~proprietary back-end cloud platform software and services an integrated system that allows~~Smart Insurance business have been immaterial to our overall financial results.

Consumer Financing Program

Vivint Flex Pay became our primary equipment financing model beginning in March 2017. Under Vivint Flex Pay, customers ~~to monitor,~~pay separately for the products (including control ~~and protect their homes. These~~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 our consumer financing program (“CFP”), (2) we generally offer to a limited number of customers not eligible for the CFP, but who qualify under our underwriting criteria, the option to enter into a RIC directly with Vivint, or (3) customers may purchase the Products at the outset of the service contract either by paying the full amount at that time via check, automated clearing house payments (“ACH”), credit or debit card or by obtaining short-term financing (generally no more than six month installment terms) through us.

Although customers pay separately for Products and Services under the Vivint Flex Pay plan, we have determined that the sale of Products and Services are ~~accounted~~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. For RICs, gross deferred revenues are reduced by imputed interest and estimated write-offs. For Products financed through the CFP, gross deferred revenues are reduced by (i) any fees or estimated credit losses the third-party financing provider (“Financing Provider”) is contractually entitled to receive at the time of loan origination, and (ii) the present value of expected future payments due to Financing Providers.

Under the CFP, qualified customers are eligible for financing offerings (“Loans”) originated by Financing Providers of between $150 and $6,000. The terms of most Loans are determined based on the customer’s credit quality. The annual percentage rates on these loans is either 0% or 9.99%, depending on the customer's credit quality, and the Loans are issued on either an installment or revolving basis with repayment terms ranging from with a 6- to 60-months.

For certain Financing Provider Loans:

•We pay a monthly fee based on either the average daily outstanding balance of the installment loans, or the number of outstanding Loans.

•We incur fees at the time of the Loan origination and receive proceeds that are net of these fees.

•We also share liability for credit losses, with us being responsible for between 2.6% and 100% of lost principal

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balances.

•We are responsible for reimbursing certain Financing Providers for merchant transaction fees and other fees associated with the Loans.

Because of the nature of these provisions, we record a derivative liability that is not designated as a ~~single performance~~hedging instrument and is adjusted to fair value, measured using the present value of the estimated future payments when the Financing Provider originates Loans to customers, which reduces the amount of estimated revenue recognized on the provision of the services.

The derivative positions are valued using a discounted cash flow model, with inputs consisting of available market data, such as market yield discount rates, as well as unobservable internally derived assumptions, such as collateral prepayment rates, collateral default rates and loss severity rates. These derivatives are priced quarterly using a credit valuation adjustment methodology. In summary, the fair value represents an estimate of the present value of the cash flows we will be obligated to pay to the Financing Provider for each component of the derivative.

The derivative liability is reduced as payments are made by us to the Financing Provider. Subsequent changes to the fair value of the derivative liability are realized through other expenses (income), net in the condensed consolidated statement of operations.

For certain other Loans, we receive net proceeds (net of fees and expected losses) for which we have no further obligation to the Financing Provider. We record these net proceeds to deferred revenue.

See Note 8 to the accompanying unaudited condensed consolidated financial statements for further information on our CFP derivative arrangement

Retail Installment Contract Receivables

For subscribers that ~~is recognized~~enter into a retail installment contract (“RIC”) to finance the purchase of Products, we record a receivable for the amount financed. Gross RIC receivables are reduced for (i) expected write-offs of uncollectible balances over the ~~customer’s~~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 us over the term of the RIC, evaluated on a pool basis. RICs are pooled based on customer credit quality, contract ~~term, which~~length and geography. At the time of installation, we record a long-term note receivable within long-term notes receivables and other assets, net on the 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 condensed consolidated balance sheets. The billed amounts of notes receivables are included in accounts receivable within accounts and notes receivable, net on the condensed consolidated balance sheets.

We impute the interest on the RIC receivable using a risk adjusted market interest rate and record it as a reduction to deferred revenue and as an adjustment 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 ~~generally three to five years.~~

~~Deferred Revenue~~

~~Our deferred revenues primarily consist of amounts for sales (including upfront proceeds) of smart home services. Deferred revenues are~~ recognized over the term of the RIC contract as recurring and other revenue on the unaudited condensed consolidated statements of operations.

When we determine that there are RIC receivables that have become uncollectible, we record an adjustment to the allowance and reduce the related ~~performance obligation,~~note receivable balance. On a regular basis, we also reassess the expected remaining cash flows, based on historical RIC write-off trends, current market conditions and both Company and third-party forecast data. If we determine 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 ~~generally three to five years.~~included in general and administrative expenses in the accompanying consolidated statements of operations. 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.

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. We calculate amortization by accumulating all deferred contract costs into separate portfolios based on the initial month of service and amortize those deferred contract costs on a straight-line basis over the expected period of benefit that we have determined to be five years, consistent with the pattern in which we provide services to our customers. We believe this pattern of amortization appropriately reduces the carrying value of the capitalized contract costs over time to reflect the decline in the value of the assets as the remaining period of benefit for each monthly portfolio of contracts decreases. The period of benefit of five years is longer than a typical contract term because of anticipated contract renewals. We apply this period of benefit to our entire

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portfolio of contracts. We update our 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 condensed consolidated statements of operations.

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The carrying amount of the capitalized contract costs is periodically reviewed for impairment. In performing this review, we consider whether the carrying amount of the capitalized contract costs will be recovered. In estimating the amount of consideration we expect to receive in the future related to capitalized contract costs, we consider factors such as attrition rates, economic factors, and industry developments, among other factors. If it is determined that capitalized contract costs are impaired, an impairment loss is recognized for the amount by which the carrying amount of the capitalized contract costs and the anticipated costs that relate directly to providing the future services exceed the consideration that has been received and that is expected to be received in the future.

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, advertising, 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.

~~Consumer Financing Program~~

Vivint Flex Pay became our primary equipment financing 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” or “CFP”), (2) we offer to a limited number of customers not eligible for the CFP, but who qualify under our 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, we have 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. For RICs, gross deferred revenues are reduced by imputed interest and estimated write-offs. For Products financed through the CFP, gross deferred revenues are reduced by (i) any fees the third-party financing provider (“Financing Provider”) is contractually entitled to receive at the time of loan origination, and (ii) the present value of expected future payments due to Financing Providers.

Under the CFP, qualified customers are eligible for financing offerings (“Loans”) originated by Financing Providers of between $150 and $6,000. The terms of most Loans are determined based on the customer’s credit quality. The annual percentage rates on these Loans is either 0% or 9.99%, depending on the customer’s credit quality, and the Loans are issued on either an installment or revolving basis with repayment terms ranging from 6- to 60-months.

For certain Financing Provider Loans, we pay a monthly fee based on either the average daily outstanding balance of the installment loans, or the number of outstanding Loans. For certain Loans, we incur fees at the time of the Loan origination and receive proceeds that are net of these fees. For certain Loans, we also share liability for credit losses, with us being responsible for between 2.6% and 100% of lost principal balances. Additionally, we are responsible for reimbursing certain Financing Providers for merchant transaction fees and other fees associated with the Loans. Because of the nature of these provisions, we record a derivative liability at its fair value when the 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 us to the 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.

~~For certain other Loans, we receive net proceeds (net of fees and expected losses) for which we have no further obligation to the Financing Provider. We record these net proceeds to deferred revenue.~~

~~Retail Installment Contract Receivables~~

For subscribers that enter into a RIC to finance the purchase of Products, we record 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

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equal the present value of the expected cash flows to be received by us 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, we record 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.

When we determine that there are RIC receivables that have become uncollectible, we record an adjustment to the allowance and reduce the related note receivable balance. On a regular basis, we also reassess the expected remaining cash flows, based on historical RIC write-off trends, current market conditions and both Company and third-party forecast data. If we determine 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. 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. We estimate this allowance based on historical collection experience, subscriber attrition rates, current market conditions and both Company and third-party forecast data. When we determine 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.

Loss Contingencies

We record accruals for various contingencies including legal and regulatory proceedings and other matters that arise in the normal course of business. The accruals are based on judgment, the probability of losses and, where applicable, the consideration of opinions of legal counsel. We record an accrual when a loss is deemed probable to occur and is reasonably estimable. We evaluate these matters each quarter to assess our loss contingency accruals, and make adjustments in such accruals, upward or downward, as appropriate, based on our management’s best judgment after consultation with counsel. Factors that we consider in the determination of the likelihood of a loss and the estimate of the range of that loss in respect of legal and regulatory matters include the merits of a particular matter, the nature of the litigation or claim, the length of time the matter has been pending, the procedural posture of the matter, whether we intend to defend the matter, the likelihood of settling for an insignificant amount and the likelihood of the plaintiff or regulator accepting an amount in this range. However, the outcome of such legal and regulatory matters is inherently unpredictable and subject to significant uncertainties. There is no assurance that these accruals for loss contingencies will not need to be adjusted in the future or that, in light of the uncertainties involved in such matters, the ultimate resolution of these matters will not significantly exceed the accruals that we have recorded.

~~Goodwill and Intangible Assets~~

Purchase accounting requires that all assets and liabilities acquired in a transaction be recorded at fair value on the acquisition date, including identifiable intangible assets separate from goodwill. For significant acquisitions, we obtain independent appraisals and valuations of the intangible (and certain tangible) assets acquired and certain assumed obligations as well as equity. Identifiable intangible assets include customer relationships and other purchased and internally developed technology. Goodwill represents the excess of cost over the fair value of net assets acquired.

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The estimated fair values and useful lives of identified intangible assets are based on many factors, including estimates and assumptions of future operating performance and cash flows of the acquired business, estimates of cost avoidance, the nature of the business acquired, the specific characteristics of the identified intangible assets and our historical experience and that of the acquired business. The estimates and assumptions used to determine the fair values and useful lives of identified intangible assets could change due to numerous factors, including product demand, market conditions, regulations affecting the business model of our operations, technological developments, economic conditions and competition.

We conduct 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 our reporting units may be less than their carrying amounts. When indicators of impairment do not exist and certain accounting criteria are met, we are able to evaluate goodwill impairment using a qualitative approach. When necessary, our quantitative goodwill impairment test consists of two steps. The first step requires that we compare the estimated fair value of our 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, we would be required to recognize an impairment charge for the amount by which the reporting unit's carrying value exceeds its fair value. Our reporting units are determined based on our current reporting structure, which as of September 30, 2021 consisted of one reporting unit. As of September 30, 2021, there were no changes in facts and circumstances since the most recent annual impairment analysis to indicate impairment existed.

~~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 two to ten 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 in depreciation expense. Routine repairs and maintenance are charged to expense as incurred.

We review 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. We consider whether or not indicators of impairment exist on a regular basis and as part of each quarterly and annual financial statement close process. Factors we consider in determining whether or not indicators of impairment exist include market factors and patterns of customer attrition. If indicators of impairment are identified, we estimate 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.

We conduct 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 our indefinite-lived intangibles may be less than the carrying amount. When indicators of impairment do not exist and certain accounting criteria are met, we are able to evaluate indefinite-lived intangible impairment using a qualitative approach. When necessary, our quantitative impairment test consists of two steps. The first step requires that we compare the estimated fair value of our 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.

~~Derivative Warrant Liabilities~~

We do not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks. We evaluate all of our financial instruments, including issued stock purchase warrants, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives, pursuant to ASC 480 and ASC 815-15. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is assessed as part of this evaluation.

We have private placement warrants to purchase common stock outstanding that we account for as a derivative warrant liability in accordance with ASC 815-40. Accordingly, we recognize the warrant instruments as a liability at fair value and adjust the liability's fair value at each reporting period. The liability is re-measured at each balance sheet date until exercised, and any change in fair value is recognized in our statement of operations.

~~Income Taxes~~

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We account 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.

We recognize 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. Our 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. We record the effect of a tax rate or law change on our deferred tax assets and liabilities in the period of enactment. Future tax rate or law changes could have a material effect on our results of operations, financial condition, or cash flows.

Recent Accounting Pronouncements

See Note 1 to our accompanying unaudited ~~Condensed Consolidated Financial Statements.~~condensed consolidated financial statements.

Key Factors Affecting Operating Results

Our future operating results and cash flows are dependent upon a number of opportunities, challenges and other factors, including our ability to grow our subscriber base in a cost-effective manner, expand our Product and Service offerings to generate increased revenue per user, provide high quality Products and Services to maximize subscriber lifetime value and improve the leverage of our business model.

Key factors affecting our operating results include the following:

Subscriber Lifetime and Associated Cash Flows

Our subscribers are the foundation of our recurring revenue-based model. Our operating results are significantly affected by the level of our Net Acquisition Costs per New Subscriber and the value of Products and Services purchased by those New Subscribers. A reduction in Net Subscriber Acquisition Costs per New Subscriber or an increase in the total value of Products or Services purchased by a New Subscriber increases the life-time value of that subscriber, which in turn, improves our operating results and cash flows over time.

The net upfront cost of adding subscribers is a key factor impacting our ability to scale and our operating cash flows. Vivint Flex Pay, which became our primary equipment financing model in early 2017, has significantly improved our cash flows associated with originating New Subscribers. Prior to Vivint Flex Pay, we recovered the cost of equipment installed in

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subscribers’ homes over time through their monthly service billings. We offer to a limited number of customers who are not eligible for the CFP, or do not choose to Pay-in-Full at the time of origination, but who qualify under our underwriting criteria, the option to enter into a RIC directly with us, which we fund through our balance sheet. Under Vivint Flex Pay, we've experienced the following financing mix for New Subscribers:


		Nine Months Ended September 30,					Three Months Ended March 31,
		2021		2020			2022		2021
New Subscribers (U.S. only):	New Subscribers (U.S. only):					New Subscribers (U.S. only):
Financed through CFP	Financed through CFP	77	%	77	%	Financed through CFP	65	%	67	%
Paid in Full (ACH, credit or debit card)	Paid in Full (ACH, credit or debit card)	22	%	20	%	Paid in Full (ACH, credit or debit card)	34	%	31	%
Purchased through RICs	Purchased through RICs	1	%	3	%	Purchased through RICs	1	%	2	%

~~This~~The shift in financing from RICs to the CFP since the inception of Vivint Flex Pay has significantly reduced our Net Subscriber Acquisition Cost per New Subscriber, as well as the cash required to acquire New Subscribers. ~~Our Net Subscriber Acquisition Cost per New Subscriber has decreased from $1,594 as of December 31, 2017 to $100 as of September 30, 2021, a reduction of 94%.~~ Going forward, we expect the percentage of subscriber contracts financed through RICs to ~~be minimal.~~remain a very small percentage of our financing mix. We will also continue to explore ways of growing our subscriber base in a cost-effective manner through our existing sales and marketing channels, through the growth of our financing programs, as well as through strategic partnerships and new channels, as these opportunities arise.

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Existing subscribers are also able to use Vivint Flex Pay to upgrade their systems or to add new Products, which we believe further increases subscriber lifetime value. This positively impacts our operating performance, and we anticipate that adding ~~additional~~new financing options to the CFP will generate additional opportunities for revenue growth and a subsequent increase in subscriber lifetime value.

We seek to increase our average monthly revenue per user, or AMRRU, by continually innovating and offering new smart home solutions that further leverage the investments made to date in our existing platform and sales channels. Since 2010, we have successfully expanded our smart home platform, which has allowed us to generate higher AMRRU and in turn realize higher smart home device revenue from new subscribers for these additional offerings. For example, the introduction of our proprietary Vivint Smart Hub, Vivint SkyControl Panel, Vivint ~~Glance Display, Vivint~~ Doorbell Camera Pro, Vivint Indoor Camera, Vivint Outdoor Camera Pro, and Vivint Smart Thermostat ~~Vivint Smart Sensor and Vivint Motion Sensor~~ has expanded our smart home platform. Due to the high rate of adoption of additional smart home devices and tech-enabled services, our AMRRU has increased from $56.14 in 2013 to $66.39 for the three months ended September 30, 2021, an increase of 18%. We believe that ~~continuing to grow~~growing our AMRRU will improve our operating results and operating cash flows over time. Our ability to improve our operating results and cash flows, however, is subject to a number of risks and uncertainties as described in greater detail elsewhere in this filing and there can be no assurance that we will achieve such improvements. To the extent that we do not scale our business efficiently, we will continue to incur losses and require a significant amount of cash to fund our operations, which in turn could have a material adverse effect on our business, cash flows, operating results and financial condition.

Our ability to retain our subscribers also has a significant impact on our financial results, including revenues, operating income, and operating cash flows. Because we operate a business built on recurring revenues, subscriber lifetime is a key determinant of our operating success. Our Average Subscriber Lifetime is approximately 92106 months (or approximately 89 years) as of ~~September 30, 2021.~~March 31, 2022. If our expected long-term annualized attrition rate increased by 1% to ~~14%~~12%, Average Subscriber Lifetime would decrease to approximately 8698 months. Conversely, if our expected attrition decreased by 1% to ~~12%~~10%, our Average Subscriber Lifetime would increase to approximately ~~100~~117 months. Our ability to increase overall revenue growth and extend our Average Subscriber Lifetime depends, in part, on our ability to successfully expand into new adjacent products and services, such as smart energy and smart insurance. This success is dependent on our ability to scale these adjacent businesses in a cost-effective manner and integrate them into our existing smart home platform, where appropriate.

The operating margins from smart energy and smart insurance are lower than for our smart home business. Therefore, while we expect total Adjusted EBITDA dollars to increase as a result of smart energy and smart insurance, they will reduce our overall Adjusted EBITDA Margin percentage.

Our ability to service our existing customer base in a cost-effective manner, while minimizing customer attrition, also has a significant impact on our financial results and operating cash flows. Critical to managing the cost of servicing our subscribers is limiting the number of calls into our customer care call centers, and in turn, limiting the number of calls requiring the deployment of a smart home professional (“Smart Home Pro”) to the customer’s home to resolve the issue. We believe that our proprietary end-to-end solution allows us to proactively manage the costs to service our customers by directly controlling the design, interoperability and quality of our Products. It also provides us the ability to identify and resolve potential product issues through remote software or firmware updates, typically before the customer is even aware of an issue. Through continued

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focus in these areas, our Net Service Cost per Subscriber has decreased from ~~$14.43~~$10.77 to ~~$10.49~~$10.18 for the three months ended ~~September 30, 2019~~March 31, 2021 and ~~2021,~~2022, respectively, while effectively managing subscriber attrition. ~~For the full year 2021, we anticipate service activity returning to more normal levels and therefore expect Net Service Cost per Subscriber to increase compared to 2020.~~

A portion of the subscriber base can be expected to cancel its service every year. Subscribers may choose not to renew or may terminate their contracts for a variety of reasons, including, but not limited to, relocation, cost, switching to a competitor’s service or service issues. We analyze our attrition by tracking the number of subscribers who cancel their service as a percentage of the monthly average number of subscribers at the end of each 12-month period. We caution investors that not all companies, investors and analysts in our industry define attrition in this manner.

The table below presents our smart home and security subscriber data for the twelve months ended ~~September 30, 2021~~March 31, 2022 and ~~September 30, 2020:~~March 31, 2021:


		Twelve months ended September 30, 2021		Twelve months ended September 30, 2020			Twelve months ended March 31, 2022		Twelve months ended March 31, 2021
Beginning balance of subscribers	Beginning balance of subscribers	1,687,892		1,560,063		Beginning balance of subscribers	1,706,069		1,548,201
New subscribers	New subscribers	354,660		330,741		New subscribers	367,116		353,508

Attrition	Attrition	(198,808)		(202,912)		Attrition	(202,745)		(195,640)
Ending balance of subscribers	Ending balance of subscribers	1,843,744		1,687,892		Ending balance of subscribers	1,870,440		1,706,069
Monthly average subscribers	Monthly average subscribers	1,737,924		1,581,662		Monthly average subscribers	1,817,213		1,653,982
Attrition rate	Attrition rate	11.4	%	12.8	%	Attrition rate	11.2	%	11.8	%

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Historically, we have experienced an increased level of subscriber cancellations in the months surrounding the expiration of such subscribers’ initial contract term. Attrition in any twelve-month period may be impacted by the number of subscriber contracts reaching the end of their initial term in such period. Attrition in the twelve-months ended ~~September 30,~~March 31, 2022 includes the effect of the 2016 60-month and 2017 42-month contracts reaching the end of their initial contract term. Attrition in the twelve months ended March 31, 2021 includes the effect of the 2015 60-month and 2016 42-month contracts reaching the end of their initial contract term. ~~Attrition in the twelve months ended September 30, 2020 includes the effect of the 2014 60-month and 2015 42-month contracts reaching the end of their initial contract term.~~

Sales and Marketing Efficiency

As discussed above, our continued ability to attract and sign new subscribers in a cost-effective manner will be a key determinant of our future operating performance. Because our direct-to-home and national inside sales channels are currently our primary means of subscriber acquisition, we have invested heavily in scaling these channels. ~~There is~~Our sales representatives generally become more productive as they gain more experience. As a ~~lag in~~result, the ~~productivity~~tenure mix among our sales teams, and our ability to retain experienced sales representatives, impacts our level of new ~~hires, which we anticipate will improve over the course of their tenure, impacting our~~ subscriber ~~acquisition rates~~acquisitions and overall operating success. The continued productivity of our sales teams is instrumental to our subscriber growth and vital to our future success.

Originating subscriber growth through these investments in our sales teams depends, in part, on our ability to launch cost-effective marketing campaigns, both online and offline. This is particularly true for our national inside sales channel, because national inside sales fields inbound requests from subscribers who find us using online search and submitting our online contact form. Our marketing campaigns are created to attract potential subscribers and build awareness of our brand across all our sales channels. We also believe that building brand awareness is important to countering the competition we face from other companies selling their solutions in the geographies we serve, particularly in those markets where our direct-to-home sales representatives are present. ~~As a result, we expect to continue to invest in building our brand awareness and also expect advertising costs to increase.~~

Expand Monetization of Platform and Related Services

To date, we have made significant investments in our smart home platform and the development of our organization, and expect to leverage these investments to continue expanding the breadth and depth of our Product and Service offerings over time, including integration with third party products and expanding into adjacent products and services to drive future revenue. As smart home technology develops, we will continue expanding these offerings to reflect the growing needs of our subscriber base and focus on expanding our platform through the addition of new smart home Products, experiences and use cases. As a result of our investments to date, we have ~~more than 1.8~~approximately 1.9 million active customers on our smart home platform. We intend to continue developing this platform to include new automation capabilities, use case scenarios, and comprehensive device integrations. Our platform supports over 2526 million connected devices, as of ~~September 30, 2021.~~March 31, 2022.

We believe that the smart home of the future will be an ecosystem in which businesses seek to deliver products and services to subscribers in a way that addresses the individual subscriber’s lifestyle and needs. As smart home technology becomes the setting for the delivery of a wide range of these products and services, including healthcare, entertainment, home

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maintenance, aging in place and consumer goods, we hope to become the hub of this ecosystem and the strategic partner of choice for the businesses delivering these products and services. Our success in connecting with business partners who integrate with our smart home platform in order to reach and interact with our subscriber base is expected to be a part of our continued operating success. We expect that additional partnerships will generate incremental revenue by increasing the value of Products purchased by our customers as a result of integration of these partners' products with our smart home platform. If we are able to continue expanding our partnerships with influential companies, as we already have with Google, Amazon, Chamberlain and Philips, we believe that this will help us to further increase our revenue and resulting profitability.

Any new Products, Services, or features we add to our ecosystem creates an opportunity to generate revenue, either through sales to our existing subscribers or through the acquisition of New Subscribers. Furthermore, we believe that by vertically integrating the development and design of our Products and Services with our existing sales and subscriber service activities allows us to quickly respond to market needs, and better understand our subscribers’ interactions and engagement with our Products and Services. This provides critical data that we expect will enable us to continue improving the power, usability and intelligence of these Products and Services. As a result, we anticipate that continuing to invest in technologies that make our platform more engaging for subscribers, and by offering a broader range of smart home experiences and adjacent in-home services such as smart insurance and smart energy, will allow us to grow revenue and further monetize our subscriber base, because it improves our ability to offer tailored service packages to subscribers with different needs.

Basis of Presentation

We conduct business through one operating segment, Vivint, and primarily operate in two geographic regions: The United States and Canada. See Note 1815 in the accompanying unaudited condensed consolidated financial statements for more information about our geographic regions.

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Components of Results of Operations

Total Revenues

Recurring and other revenue. Our revenues are primarily generated through the sale and installation of our smart home services contracted for by our subscribers. Recurring smart home services for our subscriber contracts are billed directly to the subscriber in advance, generally monthly, pursuant to the terms of subscriber contracts and recognized ratably over the service period. Revenues from Products are deferred and generally recognized on a straight-line basis over the customer contract term, the amount of which is dependent on the total sales price of Products sold. Imputed interest associated with RIC receivables is recognized over the initial term of the RIC. The amount of revenue from Services is dependent upon which of our service offerings is included in the subscriber contracts. Our smart home and video offerings generally provide higher service revenue than our base smart home service offering. Historically, we have generally offered contracts to subscribers that range in length from 36 to 60 months, which are subject to automatic monthly renewal after the expiration of the initial term. In addition, to a lesser extent, we offer month-to-month contracts to subscribers who pay-in-full for their Products at the time of contract origination. At the end of each monthly period, the portion of recurring fees related to services not yet provided are deferred and recognized as these services are provided. To a lesser extent, our revenues are generated through the sales of products and other one-time fees such as service or installation fees, which are invoiced to the customer at the time of sale.

The revenue related to our smart energy business is primarily from commissions received by operating as a sales dealer for third-party residential solar installers. We invoice the solar installer, and recognize the associated revenue, at the time the solar installation is complete.

Although we expect revenue from our smart insurance to continue to grow, to date, revenue from this business has been immaterial to our overall revenue.

Total Costs and Expenses

Operating expenses. Operating expenses primarily consists of labor associated with monitoring and servicing subscribers, costs associated with Products used in service repairs, stock-based compensation and housing for our Smart Home Pros who perform subscriber ~~installations for our direct-to-home sales channel.~~installations. We also incur equipment costs associated with excess and obsolete inventory and rework costs related to Products removed from subscribers' homes. In addition, a portion of general and administrative expenses, primarily comprised of certain human resources, facilities and information technology costs are allocated to operating expenses. This allocation is primarily based on employee headcount and facility square footage occupied. Because our full-time Smart Home Pros perform most subscriber installations related to customer moves, customer upgrades or those generated through our national inside sales channels, the costs incurred within field service associated with these installations are allocated to

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capitalized contract costs. We generally expect our operating expenses to increase in absolute dollars as the total number of subscribers we service continues to grow, but to remain relatively constant in the near to intermediate term as a percentage of our revenue.

Selling expenses. Selling expenses are primarily comprised of costs associated with housing for our ~~direct-to-home~~Smart Home Pros sales representatives, advertising and lead generation, marketing and recruiting, sales commissions related to our smart energy and smart insurance businesses, certain portions of sales commissions associated with our direct-to-home sales channel (residuals), stock-based compensation, overhead (including allocation of certain general and administrative expenses as discussed above) and other costs not directly tied to a specific subscriber origination. These costs are expensed as incurred. We generally expect our selling expenses to increase in the near to intermediate term, both in absolute dollars and as a percentage of our revenue, resulting from increases in the total number of subscriber ~~originations and our investments in brand marketing.~~originations.

General and administrative expenses. General and administrative expenses consist largely of research and development, or R&D, finance, legal, information technology, human resources, facilities and executive management expenses, including stock-based compensation expense. Stock-based compensation expense is recorded within various components of our costs and expenses. General and administrative expenses also include the provision for doubtful accounts. We allocate between one-fourth and one-third of our gross general and administrative expenses, excluding stock-based compensation and the provision for doubtful accounts, into operating and selling expenses in order to reflect the overall costs of those components of the business. We generally expect our general and administrative expenses to ~~decrease~~remain relatively flat in the near to intermediate term ~~both~~ in absolute dollars, ~~and~~but decrease as a percentage of our revenues, resulting from economies of scale as we grow our business.

Depreciation and amortization. Depreciation and amortization consist of depreciation from property, plant and equipment, amortization of equipment leased under finance leases, capitalized contract costs and intangible assets. We generally expect our depreciation and amortization expenses to increase in absolute dollars as we grow our business and increase the number of new subscribers originated on an annual basis, but to remain relatively constant in the near to intermediate term as a percentage of our revenue.

~~Restructuring Expenses.~~

Results of operations

Restructuring expenses are comprised of costs incurred in relation to activities to exit or dispose of portions of our business that do not qualify as discontinued operations. Expenses for related termination benefits are recognized at the date we notify 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


	Three Months Ended March 31,
	2022		2021
	(in thousands)
Total revenues	$	392,748	$	342,327
Total costs and expenses	383,406		424,785
Income (loss) from operations	9,342		(82,458)
Other expenses	36,341		6,097
Loss before taxes	(26,999)		(88,555)
Income tax expense	432		244
Net loss	$	(27,431)	$	(88,799)

Key performance measures


	As of March 31,
	2022		2021
Total Subscribers (in thousands)	1,870.4		1,706.1
Total MSR (in thousands)	$	87,374	$	82,101
AMSRU	$	46.71	$	48.12
Net subscriber acquisition costs per new subscriber	$	618	$	577
Average subscriber lifetime (months)	106		92

6550

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~~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.~~

~~Results of operations~~

Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 2021 2020
(in thousands)
Total revenues $ 386,710 $ 318,717 $ 1,083,174 $ 921,359
Total costs and expenses 411,458 385,084 1,223,963 1,077,843
Loss from operations (24,748) (66,367) (140,789) (156,484)
Other expenses 69,010 44,836 110,799 261,742
Loss before taxes (93,758) (111,203) (251,588) (418,226)
Income tax (benefit) expense (1,014) 230 500 324
Net loss $ (92,744) $ (111,433) $ (252,088) $ (418,550)

~~Key performance measures~~

As of September 30,
2021 2020
Total Subscribers (in thousands) 1,843.7 1,687.9
Total MSR (in thousands) $ 86,430 $ 82,813
AMSRU $ 46.88 $ 49.06
Net subscriber acquisition costs per new subscriber $ 100 $ 209
Average subscriber lifetime (months) 92 92


		Three Months Ended September 30,						Nine Months Ended September 30,							Three Months Ended March 31,
		2021			2020			2021			2020				2022			2021

Total MRR (in thousands)	Total MRR (in thousands)	$	121,478		$	105,646		$	115,986		$	102,026		Total MRR (in thousands)	$	126,527		$	112,049

AMRRU	AMRRU	$	66.39		$	63.39		$	65.88		$	63.86		AMRRU	$	67.87		$	65.84

Net service cost per subscriber	Net service cost per subscriber	$	10.49		$	9.82		$	10.43		$	10.53		Net service cost per subscriber	$	10.18		$	10.77
Net service margin	Net service margin	78		%	80		%	78		%	79		%	Net service margin	78		%	78		%

Adjusted EBITDA

The following table sets forth a reconciliation of net loss to Adjusted EBITDA (in millions):

~~Table of~~ ~~Contents~~


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
		2021		2020		2021		2020			2022			2021
Net loss	Net loss	$	(92.7)	$	(111.4)	$	(252.0)	$	(418.5)	Net loss	$	(27.4)		$	(88.8)
Interest expense, net	Interest expense, net	47.0		51.0		146.7		170.6		Interest expense, net	37.4			49.8
Income tax expense, net	Income tax expense, net	(1.0)		0.2		0.5		0.3		Income tax expense, net	0.4			0.2
Depreciation	Depreciation	3.9		4.9		12.3		15.8		Depreciation	4.2			4.1
Amortization (1)	Amortization (1)	147.4		139.1		435.5		407.7		Amortization (1)	150.2			142.8
Stock-based compensation (2)	Stock-based compensation (2)	29.0		58.5		143.6		117.2		Stock-based compensation (2)	25.6			87.0
MDR fee (3)		11.8		7.7		31.3		19.0
Restructuring expenses (4)		—		—		—		20.9
Loss contingency (5)		—		10.0		—		10.0
CEO transition (6)		3.0		—		8.8		—
Consumer financing fees (3)										Consumer financing fees (3)	12.9			9.3

Change in fair value of warrant derivative liabilities ~~(7)~~(4)	Change in fair value of warrant derivative liabilities ~~(7)~~(4)	(15.3)		1.0		(50.6)		79.9		Change in fair value of warrant derivative liabilities ~~(7)~~(4)	(9.3)			(29.1)
Other expense (income), net ~~(8)~~(5)	Other expense (income), net ~~(8)~~(5)	37.3		(7.1)		14.6		11.3		Other expense (income), net ~~(8)~~(5)	8.3			(14.6)
Adjusted EBITDA	Adjusted EBITDA	$	170.4	$	153.9	$	490.7	$	434.2	Adjusted EBITDA	$	202.3		$	160.7
Net Loss Margin										Net Loss Margin	(7)		%	(26)		%
Adjusted EBITDA Margin										Adjusted EBITDA Margin	52		%	47		%

____________________

(1)Excludes loan amortization costs that are included in interest expense.

(2)Reflects stock-based compensation costs related to employee and director stock incentive plans.

(3)~~Costs~~Reflects the reduction to revenue related to ~~certain~~the amortization of ~~the~~certain financing fees incurred under the Vivint Flex Pay program.

(4)~~Employee severance and termination benefits expenses associated with restructuring plans.~~

~~(5)Loss contingency accrual relating to regulatory matters.~~

~~(6)Hiring and severance expenses associated with CEO transition in June 2021.~~

~~(7)~~Reflects the change in fair value of the derivative liability associated with our public and private warrants.

~~(8)~~(5)Primarily consists of changes in our consumer financing program derivative instrument, foreign currency exchange and other gains and losses associated with financing and other transactions.

Three Months Ended ~~September 30, 2021~~March 31, 2022 Compared to the Three Months Ended ~~September 30, 2020~~March 31, 2021

Revenues

The following table provides our revenue for the three-month periods ended ~~September 30,~~March 31, 2022 and March 31, 2021 ~~and September 30, 2020~~ (in thousands, except for percentage):

Three Months Ended September 30,
2021 2020 % Change
Recurring and other revenue $ 386,710 $ 318,717 21 %


	Three Months Ended March 31,
	2022		2021		% Change
Recurring and other revenue	$	392,748	$	342,327	15	%

Recurring and other revenue for the three months ended ~~September 30, 2021~~March 31, 2022 increased ~~$68.0~~$50.4 million, or ~~21%~~15%, as compared to the three months ended ~~September 30, 2020.~~March 31, 2021. The increase was primarily a result of:

•$~~32.2~~33.3 million resulting from the change in Total Subscribers;

•$~~20.5~~7.0 million in non-recurring revenues primarily from our smart energy initiative, and to a lesser extent our smart insurance and other pilot initiatives; and

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•$~~14.5~~10.2 million from the change in ~~AMRRU;~~

•~~$0.8 million positive impact from foreign currency translation as computed on a constant currency basis.~~AMRRU.

Costs and Expenses

The following table provides the significant components of our costs and expenses for the three-month periods ended ~~September 30,~~March 31, 2022 and March 31, 2021 ~~and September 30, 2020~~ (in thousands, except for percentages):

~~Table of~~ ~~Contents~~


		Three Months Ended September 30,							Three Months Ended March 31,
		2021		2020		% Change			2022		2021		% Change
Operating expenses	Operating expenses	$	99,082	$	92,309	7	%	Operating expenses	$	95,460	$	96,531	(1)	%
Selling expenses	Selling expenses	96,072		79,680		21	%	Selling expenses	78,037		114,541		(32)	%
General and administrative	General and administrative	64,972		69,130		(6)	%	General and administrative	55,515		66,801		(17)	%
Depreciation and amortization	Depreciation and amortization	151,332		143,965		5	%	Depreciation and amortization	154,394		146,912		5	%

Total costs and expenses	Total costs and expenses	$	411,458	$	385,084	7	%	Total costs and expenses	$	383,406	$	424,785	(10)	%

Operating expenses for the three months ended ~~September 30, 2021 increased~~March 31, 2022 decreased by ~~$6.8~~$1.1 million, or 7%1%, as compared to the three months ended ~~September 30, 2020.~~March 31, 2021. Excluding a decrease in stock-based compensation of ~~$3.9~~$7.6 million, operating expenses increased by ~~$10.7~~$6.5 million, or ~~12%~~8%, primarily due to increases of:

•$~~4.8~~5.3 million in personnel and related support costs;

•~~$3.3 million~~ which includes increases in ~~third-party contracted customer servicing costs;~~

•~~$1.5 million in information technology costs;~~cellular network module upgrades; and

•$~~1.3~~0.8 million in ~~inventory~~facility related costs.

These increases were partially offset by a decrease of $1.0 million in customer support costs, comprised primarily of a $2.3 million decrease in personnel related costs, offset by a $1.2 million increase in third-party contracted services.

Selling expenses, excluding capitalized contract costs, ~~increased~~decreased by ~~$16.4~~$36.5 million, or ~~21%~~32%, for the three months ended ~~September 30, 2021~~March 31, 2022 as compared to the three months ended ~~September 30, 2020.~~March 31, 2021. Excluding a decrease in stock-based compensation of ~~$14.8~~$51.3 million, selling expenses increased by ~~$31.2~~$14.8 million, or ~~64%~~29%. This increase was primarily due to increases of:

•$~~19.6~~9.1 million in commissions, recruiting and other costs associated with scaling of our smart energy initiative and to a lesser extent our smart insurance and other pilot initiatives;

•$~~5.9 million in marketing costs, partly related to costs associated with building brand awareness;~~

•~~$4.8~~3.8 million in personnel and related support costs;

•$~~1.8~~2.2 million in ~~information technology costs;~~third-party contracted services primarily associated with legal and compliance professional services; and

•$~~1.1~~2.0 million in ~~third-party contracted services.~~marketing costs, primarily associated with lead generation.

These increases were partially offset by a decrease of ~~$1.4~~$2.2 million in ~~facility and housing related~~ costs ~~primarily due to the delayed deployment of our summer direct-to-home sales in 2020.~~associated with building brand awareness.

General and administrative expenses decreased ~~$4.2~~$11.3 million, or 6%17%, for the three months ended ~~September 30, 2021~~March 31, 2022 as compared to the three months ended ~~September 30, 2020.~~March 31, 2021. Excluding a decrease in stock-based compensation of ~~$13.4~~$2.5 million, general and administrative expenses ~~increased~~decreased by ~~$9.2~~$8.8 million, or ~~20%~~17%. This ~~increase~~decrease was primarily due to ~~increases~~decreases of:

•$~~9.8~~5.6 million in ~~other personnel and related support costs;~~loss contingencies;

•$~~6.8~~2.8 million in consulting and legal professional services; and

•$2.1 million in provisions for bad debt and credit ~~losses; and~~

•~~$0.9 million in marketing costs primarily related to costs associated with building brand awareness.~~losses.

These ~~increases~~decreases were offset by ~~a decrease~~an increase of $2.4 million in ~~the loss contingency accrual of $10.0 million recorded in the three months ended September 30, 2020 relating to regulatory matters.~~other personnel and related support costs.

Depreciation and amortization for the three months ended ~~September 30, 2021~~March 31, 2022 increased ~~$7.4~~$7.5 million, or 5%, as compared to the three months ended ~~September 30, 2020,~~March 31, 2021, primarily due to increased amortization of capitalized contract costs related to new subscribers.

Other Expenses, net

The following table provides the significant components of our other expenses, net for the three-month periods ended ~~September 30,~~March 31, 2022 and March 31, 2021 ~~and September 30, 2020~~ (in thousands, except for percentages):

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		Three Months Ended September 30,							Three Months Ended March 31,
		2021		2020		% Change			2022		2021		% Change
Interest expense	Interest expense	$	47,120	$	50,987	(8)	%	Interest expense	$	37,511	$	49,803	(25)	%
Interest income	Interest income	(126)		(26)		NM		Interest income	(133)		(44)		NM
Change in fair value of warrant liabilities	Change in fair value of warrant liabilities	(15,313)		974		NM		Change in fair value of warrant liabilities	(9,293)		(29,103)		NM
Other expense (income), net	Other expense (income), net	37,329		(7,099)		NM		Other expense (income), net	8,256		(14,559)		NM
Total other expenses, net	Total other expenses, net	$	69,010	$	44,836	54	%	Total other expenses, net	$	36,341	$	6,097	496	%

Interest expense decreased ~~$3.9~~$12.3 million, or 8%25%, for the three months ended ~~September 30, 2021,~~March 31, 2022, as compared with the three months ended ~~September 30, 2020,~~March 31, 2021, primarily due to lower outstanding debt principal and interest rates associated with the July 2021 debt refinance (See Note 43 to the accompanying unaudited condensed consolidated financial statements).

Change in fair value of warrant liabilities for each of the three months ended ~~September 30,~~March 31, 2022 and March 31, 2021 ~~and September 30, 2020~~ represents the change in fair value measurements of our outstanding stock ~~warrants.~~warrants, primary resulting from the decrease in our stock price.

Other expense (income), net resulted in net expense of ~~$37.3~~$8.3 million for the three months ended ~~September 30, 2021~~March 31, 2022 compared to net income of ~~$7.1~~$14.6 million for the three months ended ~~September 30, 2020.~~March 31, 2021. The ~~other~~net expense ~~net~~ during the three months ended ~~September 30, 2021~~March 31, 2022 was primarily due to:

•$~~30.2 million loss on debt modification and extinguishment,~~

•~~$5.9~~10.5 million loss related to the CFP derivative liability;

•$1.9 million of consideration for sales of certain technologies; and

•$~~1.1~~0.4 million foreign currency exchange ~~loss.~~gain.

The other income, net during the three months ended ~~September 30, 2020~~March 31, 2021 was primarily due to:

•$~~6.2~~13.8 million gain related to the CFP derivative liability; and

•$~~1.3~~0.6 million foreign currency exchange gain.

Income Taxes

The following table provides the ~~significant components of our~~ income tax ~~(benefit)~~ expense for the three-month periods ended ~~September 30,~~March 31, 2022 and March 31, 2021 ~~and September 30, 2020~~ (in thousands, except for percentages):

Three Months Ended September 30,
2021 2020 % Change
Income tax (benefit) expense $ (1,014) $ 230 NM


	Three Months Ended March 31,
	2022		2021		% Change
Income tax expense	$	432	$	244	NM

Income tax provision resulted in a tax ~~benefit~~expense of ~~$1.0~~$0.4 million for the three months ended ~~September 30, 2021~~March 31, 2022 and a tax expense of $0.2 million for the three months ended ~~September 30, 2020. The income tax benefit for the three months ended September 30, 2021 resulted primarily from a reduction in estimated US state income taxes.~~March 31, 2021. The income tax expense for ~~the three months ended September 30, 2020~~each period resulted primarily from US State minimum taxes ~~offset by losses~~and taxes from our Canadian subsidiary.

~~Nine Months Ended September 30, 2021 Compared to the Nine Months Ended September 30, 2020~~

~~Revenues~~

~~The following table provides the significant components of our revenue for the nine-month periods ended September 30, 2021 and September 30, 2020 (in thousands, except for percentages):~~

Nine Months Ended September 30,
2021 2020 % Change
Recurring and other revenue $ 1,083,174 $ 921,359 18 %

Recurring and other revenue increased $161.8 million, or 18% for the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020. The increase was primarily a result of:

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•~~$97.4 million resulting from the change in Total Subscribers;~~

•~~$36.2 million in non-recurring revenues from smart energy, smart insurance and other pilot initiatives;~~

•~~$24.8 million from the change in AMRRU;~~

•~~$3.5 million positive impact from foreign currency translation as computed on a constant currency basis.~~

~~Costs and Expenses~~

~~The following table provides the significant components of our costs and expenses for the nine-month periods ended September 30, 2021 and September 30, 2020 (in thousands, except for percentages):~~

Nine Months Ended September 30,
2021 2020 % Change
Operating expenses $ 286,353 $ 257,728 11 %
Selling expenses 300,480 195,513 54 %
General and administrative 189,267 180,272 5 %
Depreciation and amortization 447,863 423,389 6 %
Restructuring expenses — 20,941 NM
Total costs and expenses $ 1,223,963 $ 1,077,843 14 %

Operating expenses for the nine months ended September 30, 2021 increased $28.6 million, or 11%, as compared to the nine months ended September 30, 2020. Excluding an increase in stock-based compensation of $1.8 million, operating expenses increased by $26.8 million, or 11%, primarily due to increases of:

•~~$10.8 million in third-party contracted customer servicing costs;~~

•~~$7.9 million in personnel and related support costs;~~

•~~$4.6 million in information technology costs;~~

•~~$2.5 million in equipment and related costs; and~~

•~~$1.9 million in payment processing fees.~~

~~These increases were offset by a decrease of $1.2 million in costs incurred to support other pilot programs.~~

Selling expenses, excluding capitalized contract costs, increased by $105.0 million, or 54%, for the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020. Excluding an increase in stock-based compensation of $39.7 million primarily associated with equity awards granted during the nine months ended September 30, 2020, selling expenses increased by $65.3 million, or 46%. This increase was primarily due to increases of:

•~~$35.6 million in commissions, recruiting and other costs associated with scaling of our smart energy and smart insurance initiatives;~~

•~~$19.7 million in marketing costs, partly related to costs associated with building brand awareness;~~

•~~$5.7 million in other personnel and related support costs;~~

•~~$3.1 million in third-party contracted servicing costs;~~

•~~$2.2 million in information technology costs; and~~

•~~$2.0 million in facility and housing related costs.~~

~~These increases were offset by a decrease of $4.6 million in costs associated with other pilot programs.~~

General and administrative expenses increased $9.0 million, or 5%, for the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020. This included a $15.1 million decrease in stock-based compensation. Excluding stock-based compensation, general and administrative expenses increased by $24.1 million, or 19%. This increase was primarily due to increases of:

•~~$10.7 million in other personnel and related support costs;~~

•~~$8.7 million in severance costs incurred from the departure of certain corporate executives;~~

•~~$6.1 million in third-party legal services;~~

•~~$3.4 million in marketing costs primarily related to costs associated with building brand awareness; and~~

•~~$2.9 million in certain insurance related costs.~~

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~~These increases were offset by decrease of:~~

•~~$4.4 million in the loss contingency accrual; and~~

•~~$4.3 million in provisions for bad debt and credit losses.~~

Depreciation and amortization for the nine months ended September 30, 2021 increased $24.5 million, or 6%, as compared to the nine months ended September 30, 2020, primarily due to increased amortization of capitalized contract costs related to new subscribers.

Restructuring expenses for the nine months ended September 30, 2020 related to employee severance and termination benefits expenses (See Note 17 to the accompanying unaudited condensed consolidated financial statements).

~~Other Expenses, net~~

~~The following table provides the significant components of our other expenses, net for the nine-month periods ended September 30, 2021 and September 30, 2020 (in thousands, except for percentages):~~

Nine Months Ended September 30,
2021 2020 % Change
Interest expense $ 146,981 $ 170,795 (14) %
Interest income (280) (287) (2) %
Change in fair value of warrant liabilities (50,638) 79,893 NM
Other expense, net 14,736 11,341 30 %
Total other expenses, net $ 110,799 $ 261,742 (58) %

Interest expense decreased $23.8 million, or 14%, for the nine months ended September 30, 2021, as compared with the nine months ended September 30, 2020, primarily due primarily to lower outstanding debt principal (See Note 4 to the accompanying unaudited condensed consolidated financial statements).

Change in fair value of warrant liabilities for each of the nine months ended September 30, 2021 and September 30, 2020 represents the change in fair value measurements of our outstanding public and private placement warrants.

~~Other expense, net resulted in net expense of $14.7 million for the nine months ended September 30, 2021, as compared to net expenses of $11.3 million for the nine months ended September 30, 2020.~~

~~The other expense, net during the nine months ended September 30, 2021 was primarily due to:~~

•~~$30.2 million loss on debt modification and extinguishment in July 2021;~~

•~~$15.2 million gain related to the CFP derivative liability; and~~

•~~$0.3 million foreign currency exchange gain.~~

~~The other expense, net during the nine months ended September 30, 2020 was primarily due to:~~

•~~$12.7 million loss on debt modification and extinguishment in February 2020;~~

•~~$2.2 million foreign currency exchange loss; and~~

•~~$3.9 million loss related to the CFP derivative liability.~~

~~Income Taxes~~

~~The following table provides the significant components of our income tax expense for the nine-month periods ended September 30, 2021 and September 30, 2020 (in thousands, except for percentages):~~

Nine Months Ended September 30,
2021 2020 % Change
Income tax expense $ 500 $ 324 NM

Income tax expense was $0.5 million for the nine months ended September 30, 2021, as compared to an expense of $0.3 million for the nine months ended September 30, 2020. The income tax expense for the nine months ended September 30, 2021 resulted primarily from US state minimum taxes and income taxes from our Canadian subsidiary. The income tax expense

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~~for the nine months ended September 30, 2020 resulted primarily from US state minimum taxes, offset by losses in our Canadian subsidiary.~~

Liquidity and Capital Resources

Cash from operations may be affected by various risks and uncertainties, including, but not limited to, the continued effects of the COVID-19 pandemic and other risks detailed in the Risk Factors section of ~~Amendment No. 1 to~~ our Annual Report on Form ~~10-K/A~~10-K for the ~~fiscal~~ year ended December 31, ~~2020.~~2021. Despite the challenging economic environment caused by the pandemic, based on our current business plan and revenue prospects, we continue to believe that our existing cash and cash equivalents, our anticipated cash flows from operating activities and our available credit facility will be sufficient to meet our working capital and operating resource expenditure requirements for at least the next twelve months from the date of this filing.

Our primary source of liquidity has historically been cash from operating activities, proceeds from issuances of debt securities, borrowings under our credit facilities and, to a lesser extent, capital contributions and issuances of equity. As of ~~September 30, 2021,~~March 31, 2022, we had ~~$280.2~~$153.2 million of cash and cash equivalents and ~~$354.7~~$358.9 million of availability under our Revolving Credit Facility (after giving effect to ~~$15.3~~$11.1 million of letters of credit outstanding and no borrowings).

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As market conditions warrant, we and our equity holders, ~~including the Sponsor,~~ its affiliates, and members of our management, may from time to time, seek to purchase our outstanding debt securities or loans in privately negotiated or open market transactions, by tender offer or otherwise. Subject to any applicable limitations contained in the agreements governing our indebtedness, any purchases made by us may be funded by the use of cash on our balance sheet or the incurrence of new secured or unsecured debt, including additional borrowings under our Revolving Credit Facility. The amounts involved in any such purchase transactions, individually or in the aggregate, may be material. Any such purchases may be with respect to a substantial amount of a particular class or series of debt, with the attendant reduction in the trading liquidity of such class or series. In addition, any such purchases made at prices below the “adjusted issue price” (as defined for U.S. federal income tax purposes) may result in taxable cancellation of indebtedness income to us, which amounts may be material, and in related adverse tax consequences to us. Depending on conditions in the credit and capital markets and other factors, we will, from time to time, consider various financing transactions, the proceeds of which could be used to refinance our indebtedness or for other purposes.

Cash Flow and Liquidity Analysis

Our cash flows provided by operating activities include recurring monthly billings, cash received from the sale of Products to our customers that either pay-in-full at the time of installation or finance their purchase of Products under the CFP, commissions we receive related to our smart energy and smart insurance businesses and other fees received from the customers we service. Cash used in operating activities includes the cash costs to monitor and service our subscribers, a portion of subscriber acquisition costs, interest associated with our debt, ~~and~~ general and administrative ~~costs.~~costs and smart energy and smart insurance commissions paid to our sales staff. Historically, we financed subscriber acquisition costs through our operating cash flows, the issuance of debt, and to a lesser extent, through the issuance of equity. Currently, the upfront proceeds from the CFP, and subscribers that pay-in-full at the time of the sale of Products, offset a significant portion of the upfront investment associated with subscriber acquisition costs.

Sales from our direct-to-home channel are seasonal in nature. We make investments in the recruitment of our direct-to-home sales representatives, inventory and other support costs for the April through August sales period prior to each sales season. We experience increases in capitalized contract costs, as well as costs to support the sales force throughout the U.S., prior to and during this time period. The incremental inventory purchased to support the direct-to-home sales season is generally consumed prior to the end of the calendar year in which it is purchased.

The following table provides a summary of cash flow data (in thousands, except for percentages):

Nine Months Ended September 30,
2021 2020 % Change
Net cash provided by operating activities $ 142,130 $ 222,809 (36) %
Net cash used in investing activities (10,037) (8,704) 15 %
Net cash (used in) provided by financing activities (165,711) 76,961 NM


	Three Months Ended March 31,
	2022		2021		% Change
Net cash used in operating activities	$	(36,094)	$	(14,156)	155	%
Net cash used in investing activities	(3,282)		(4,548)		(28)	%
Net cash used in financing activities	(15,987)		(20,757)		(23)	%

Cash Flows from Operating Activities

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We generally reinvest the cash flows from our recurring monthly billings and cash received from the sale of Products through the Vivint Flex Pay Program associated with the initial installation of the customer's equipment, primarily to (1) maintain and grow our subscriber base, (2) expand our infrastructure to support this growth, (3) enhance our existing smart home services offering, (4) develop new smart home Product and Service offerings and (5) expand into products and services that are adjacent to our current offerings. These investments are focused on generating new subscribers, increasing the revenue from our existing subscriber base, enhancing the overall quality of service provided to our subscribers, and increasing the productivity and efficiency of our workforce and back-office functions necessary to scale our business.

For the ~~nine~~three months ended ~~September 30, 2021,~~March 31, 2022, net cash ~~provided~~used in operating activities was ~~$142.1~~$36.1 million. This cash ~~provided~~used was primarily from a net loss of ~~$252.1~~$27.4 million, adjusted for:

•$~~592.9~~180.7 million in non-cash amortization, depreciation, and stock-based compensation;

•$~~50.6~~9.3 million gain on change in warrant derivative ~~change in~~ fair value;

•$~~21.6~~6.6 million in provisions for doubtful accounts and credit losses; and

•$~~4.5~~3.2 million in deferred income taxes.

Cash provided by operating activities resulting from changes in operating assets and liabilities, including:

•~~a $260.2 million increase in deferred revenue primarily associated with the sale~~Table of ~~Products under the Vivint Flex Pay plan and the increase in Total Subscribers;~~Contents

•a ~~$40.1~~$17.0 million increase in accounts payable;

•a ~~$43.1 million increase in accrued payroll and commissions, accrued expenses, other current and long-term liabilities;~~

•~~a $14.5~~$3.0 million decrease in long-term notes receivables and other assets, net primarily due to decreases in RIC receivables; and

•a ~~$7.7~~$1.2 million decrease in right of use assets.

These sources of operating cash were partially offset by the following changes in operating assets and liabilities:

•a ~~$504.9~~$106.8 million increase in capitalized contract costs;

•a ~~$28.5~~$5.6 million decrease in deferred revenue primarily associated with the sale of Products under the Vivint Flex Pay plan and the increase in Total Subscribers

•a $2.0 million increase in accounts and notes receivable;

•a ~~$12.3~~$17.0 million increase in prepaid expenses and other current assets;

•a ~~$8.5~~$1.5 million decrease in right of use liabilities; and

•a ~~$6.9~~$13.0 million increase in inventories.

For the ~~nine~~three months ended ~~September 30, 2020,~~March 31, 2021, net cash ~~provided by~~used in operating activities was ~~$222.8~~$14.2 million. This cash ~~provided~~used was primarily from a net loss of ~~$418.6~~$88.8 million, adjusted for:

•$~~543.7~~233.1 million in non-cash amortization, depreciation, and stock-based compensation;

•$~~79.9~~29.1 million ~~loss~~gain on warrant derivative change in fair ~~value~~

•~~a $12.7 million loss on early extinguishment of debt;~~value;

•$~~11.1 million in non-cash restructuring expenses; and~~

•~~$17.3~~4.7 million in provisions for doubtful accounts and credit ~~losses.~~losses; and

•$5.0 million in deferred income taxes.

Cash provided by operating activities resulting from changes in operating assets and liabilities, including:

•a ~~$288.8~~$20.4 million increase in deferred revenue due primarily to the growth in deferred revenues associated with the sale of Products under the Vivint Flex Pay plan and the increased subscriber base;

•a $187.5 million increase in accrued payroll and commissions, accrued expenses, other current and long-term liabilities primarily due to an increase in the derivative liability associated with the Consumer Financing Program of $85.3 million, an increase in accrued payroll and commissions of $66.3 million, an increase in accrued payroll, sales and use taxes of $15.8 million, an increase in accrued loss contingencies of $10.3 million and an increase in accrued interest of $3.0 million;

•~~a $21.5~~$8.9 million decrease in long-term notes receivables and other assets, net primarily due to decreases in RIC receivables; and

•a ~~$5.9~~$2.4 million decrease in right of use ~~assets; and~~

•~~a $3.8 million decrease in inventories due to the ramp down of our direct-to-home summer selling season.~~assets.

These sources of operating cash were partially offset by the following changes in operating assets and liabilities:

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•��a ~~$475.7~~$98.9 million increase in capitalized contract costs;

•a ~~$24.2~~$43.5 million decrease in accrued payroll and commissions, accrued expenses, other current and long-term liabilities;

•a $36.5 million increase in accounts payable, primarily due to timing of vendor payments;

•a ~~$23.2~~$33.0 million increase in inventories due to the ramp down of our direct-to-home summer selling season;

•a $7.5 million increase in accounts ~~and notes~~ receivable;

•a ~~$6.5~~$2.7 million decrease in right of use liabilities; and

•a ~~$1.7~~$11.9 million increase in prepaid expenses and other current assets.

Net cash interest paid for the ~~nine~~three months ended ~~September 30,~~March 31, 2022 and 2021 ~~and 2020~~ related to our indebtedness (excluding finance leases) totaled ~~$155.4~~$58.3 million and ~~$162.8~~$48.0 million, respectively. Our net cash flows from operating activities for the ~~nine~~three months ended ~~September 30,~~March 31, 2022 and 2021, ~~and 2020,~~ before these interest payments, were cash inflows of ~~$297.5~~$22.2 million and ~~$385.6~~$33.9 million, respectively. Accordingly, our net cash provided by operating activities were ~~sufficient~~insufficient to cover interest payments for the ~~nine~~three months ended ~~September 30, 2021~~March 31, 2022 and ~~2020.~~2021.

Cash Flows from Investing Activities

Historically, our investing activities have primarily consisted of capital expenditures, business combinations and technology acquisitions. Capital expenditures primarily consist of periodic additions to property, plant and equipment to support the growth in our business.

For the ~~nine~~three months ended ~~September 30,~~March 31, 2022, net cash used in investing activities was $3.3 million primarily associated with capital expenditures of $5.2 million, offset by proceeds of $2.0 million from the sale of certain assets.

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For the three months ended March 31, 2021, net cash used in investing activities was ~~$10.0~~$4.5 million primarily associated with capital expenditures of ~~$10.2 million.~~

For the nine months ended September 30, 2020, net cash used in investing activities was $8.7 million primarily associated with capital expenditures of $8.6 million and acquisition of intangible assets of $1.6 million, offset by proceeds from the sale of assets of $1.5$4.6 million.

Cash Flows from Financing Activities

Historically, our cash flows provided by financing activities primarily related to the issuance of equity securities and debt, primarily to fund the portion of upfront costs associated with generating new subscribers that are not covered through our operating cash flows or through our Vivint Flex Pay program. Uses of cash for financing activities are generally associated with the return of capital to our stockholders, the repayment of debt and the payment of financing costs associated with the issuance of debt.

For the ~~nine~~three months ended ~~September 30, 2021,~~March 31, 2022, net cash used in financing activities was ~~$165.7 million. Repayments~~$16.0 million, consisting of outstanding debt consisted of $938.1 million, $677.0 million, $400.0 million and $225.0 million aggregate principal amounts of term loans, 2022 Notes, 2023 Notes and 2024 Notes, respectively. Additionally, we incurred $49.7 million in related debt financing costs, $29.4$11.7 million for taxes paid related to net share settlements of stock-based compensation awards and $2.5 million of repayments under our finance lease obligations. These cash uses were offset by proceeds from the issuance of $800.0 million aggregate principal amount of 2029 Notes, $1,350.0 million in borrowings under Term Loan Facility and $10.8 million from the exercise of warrants.

For the nine months ended September 30, 2020, net cash provided by financing activities was $77.0 million, consisting of proceeds from the issuance of $600.0 million aggregate principal amount of 2027 Notes and $950.0 million in borrowings under Term Loans, $463.3 million capital contribution associated with the Merger, $359.2 million in borrowings on our revolving credit facility and $93.7 million from the exercise of warrants. These cash proceeds were offset by $1,751.9$3.4 million of repayments on existing notes ~~$604.2~~

For the three months ended March 31, 2021, net cash used by financing activities was $20.8 million, consisting of ~~repayments on our revolving credit facility, $12.9 million in financing costs, $6.3 million of repayments under our finance lease obligations, and $2.8~~$28.7 million for taxes paid related to net share settlements of stock-based compensation ~~awards.~~awards and $2.4 million of repayments on existing notes. These cash uses were offset by $10.8 million from the exercise of warrants.

Long-Term Debt

We are a highly leveraged company with significant debt service requirements. As of ~~September 30, 2021,~~March 31, 2022, we had ~~$2.75~~$2.74 billion of total debt outstanding, consisting of $600.0 million of outstanding 6.75% senior secured notes due 2027 (the “2027 notes”), $800.0 million of outstanding 5.75% senior notes due 2029 (the “2029 notes” and together with the 2027 notes, the “Notes”), ~~$1,350.0~~$1,343.2 million of borrowings outstanding under the Term Loan Facility and no borrowings outstanding under our Revolving Credit Facility (with ~~$354.7~~$358.9 million of additional availability under the Revolving Credit Facility after giving effect to ~~$15.3~~$11.1 million of letters of credit outstanding).

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~~Debt Refinance 2021~~

On July 9, 2021, APX Group, Inc. (the “Issuer” or “APX”), our indirect, wholly owned subsidiary, issued $800.0 million aggregate principal amount of 5.75% Senior Notes due 2029 (the “2029 Notes”), pursuant to an indenture, dated as of July 9, 2021, among the Issuer, the guarantors party thereto and Wilmington Trust, National Association, as trustee and collateral agent.

Concurrently with the Notes offering, the Issuer refinanced its existing credit facilities with (i) a new $1,350.0 million first lien senior secured term loan facility (the “Term Loan Facility”) and (ii) a new $370.0 million senior secured revolving credit facility (together with the Term Loan Facility, the “New Senior Secured Credit Facilities”), with the lenders party thereto and Bank of America, N.A. as a lender, administrative agent and collateral agent. The Issuer is the borrower under the New Senior Secured Credit Facilities.

The net proceeds from the 2029 Notes offering, together with the borrowings under the New Senior Secured Credit Facilities and cash on hand, were used to (i) redeem (the “2022 Notes Redemption”) all of the Issuer’s outstanding 7.875% Senior Secured Notes due 2022, (ii) redeem (the “2023 Notes Redemption”) all of the Issuer’s outstanding 7.625% Senior Notes due 2023, (iii) redeem (the “2024 Notes Redemption” and together with the 2022 Notes Redemption and the 2023 Notes Redemption, the “Redemptions”) all of the Issuer’s outstanding 8.50% Senior Secured Notes due 2024, (iv) repay amounts outstanding, and to terminate all commitments, under its existing revolving credit facility and term loan facility and (v) pay the related redemption premiums and all fees and expenses related thereto.

2027 Notes

As of ~~September 30, 2021,~~March 31, 2022, APX had $600.0 million outstanding aggregate principal amount of its 2027 notes. Interest on the 2027 notes is payable semiannually in arrears on February 15 and August 15 each year.

We may, at our option, redeem at any time and from time to time prior to February 15, 2023, some or all of the 2027 notes at 100% of the principal amount thereof plus accrued and unpaid interest to the redemption date plus the applicable “make-whole premium.” From and after February 15, 2023, we may, at our option, redeem at any time and from time to time some or all of the 2027 notes at 103.375%, declining to par from and after May 1, 2025, in each case, plus any accrued and unpaid interest to the date of redemption. In addition, on or prior to February 15, 2023, we may, at our option, redeem up to 40% of the aggregate principal amount of the 2027 notes with the proceeds from certain equity offerings at 100% plus an applicable premium, plus accrued and unpaid interest to the date of redemption. In addition, on or prior to February 15, 2023, during any 12-month period, we also may, at our option, redeem at any time and from time to time up to 10% of the aggregate principal amount of the 2027 notes at a price equal to 103% of the principal amount thereof, plus accrued and unpaid interest, to but excluding the redemption date.

The 2027 notes will mature on February 15, 2027. 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 Facility, in each case, subject to certain exceptions and permitted liens.

2029 Notes

As of ~~September 30, 2021,~~March 31, 2022, APX had $800.0 million outstanding aggregate principal amount of its 2029 notes. Interest on the 2029 notes is payable semiannually in arrears on January 15 and July 15 each year.

We may, at our option, redeem at any time and from time to time prior to July 15, 2024, some or all of the 2029 notes at 100% of the principal amount thereof plus accrued and unpaid interest to the redemption date plus the applicable “make-whole premium.” From and after July 15, 2024, we may, at our option, redeem at any time and from time to time some or all of the 2029 notes at 102.875%, declining to par from and after July 15, 2026, in each case, plus any accrued and unpaid interest to the date of redemption. In addition, on or prior to July 15, 2024, we may, at our option, redeem up to 40% of the aggregate principal amount of the 2029 notes with the proceeds from certain equity offerings at 100% plus an applicable premium, plus

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accrued and unpaid interest to the date of redemption. In addition, on or prior to July 15, 2024, we may redeem the 2029 notes, in whole or in part, at a redemption price equal to the sum of (A) 100.0% of the principal amount of the 2029 notes redeemed, plus (B) the applicable premium as of the redemption date, plus (C) accrued and unpaid interest, if any.

The 2029 notes will mature on July 15, 2029.

~~New~~ Senior Secured Credit Facilities

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In July 2021, APX amended and restated its existing senior secured term loan credit agreement and existing senior secured revolving credit facility with a new senior secured credit agreement (the “Credit Agreement”) that provides for (i) a term loan facility in an aggregate principal amount of $1,350.0 million (the “Term Loan Facility”, and the loans thereunder, the “Term Loans”) and (ii) a revolving credit facility with commitments in an aggregate principal amount of $370.0 million (the “Revolving Credit Facility”, and the loans thereunder, the “Revolving Loans”).

As of ~~September 30, 2021,~~March 31, 2022, APX had outstanding term loans under the Term Loan Facility in an aggregate principal amount of ~~$1,350.0~~$1,343.2 million. APX is required to make quarterly amortization payments under the Term Loan Facility in an amount equal to 0.25% of the aggregate principal amount of the Term Loans outstanding on the closing date thereof. The remaining outstanding principal amount of the Term Loans will be due and payable in full on July 9, 2028. APX may prepay the Term Loans on the terms specified in the Credit Agreement. No amortization payments are required under the Revolving Credit Facility.

In addition to paying interest on outstanding principal under the Revolving Credit Facility, APX is required to pay a quarterly commitment fee of 50 basis points (which will be subject to two interest rate step-downs of 12.5 basis points, based on APX meeting consolidated first lien net leverage ratio tests) 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. The revolving credit commitments outstanding under the Revolving Credit Facility will be due and payable in full on July 9, 2026.

Borrowings under the amended and restated Term Loan Facility and Revolving Credit Facility bear interest, at APX’s option, at a rate per annum equal to either (a)(i) a base rate determined by reference to the highest of (1) the “Prime Rate” in the United States as published in The Wall Street Journal, (2) the federal funds effective rate plus 0.50% and (3) the LIBO rate for a one month interest period plus 1.00%, plus (ii) 2.50% (or after the delivery of financial statements for the fiscal quarter ending December 31, 2021, between 2.50% and 2.00%, depending on the first lien net leverage ratio of the applicable fiscal quarter) or (b)(i) a LIBO rate determined by reference to the applicable page for the LIBO rate for the interest period relevant to such borrowing plus (ii) 3.50% (or after the delivery of financial statements for the fiscal quarter ending December 31, 2021, between 3.50% and 3.00%, depending on the first lien net leverage ratio of the applicable fiscal quarter), subject in each case to an agreed interest rate floor.

There were no outstanding borrowings under the Revolving Credit Facility as of ~~September 30, 2021 and December~~March 31, ~~2020. As of September 30, 2021 we had $354.7~~2022 with $358.9 million of availability under our revolving credit facility (after giving effect to ~~$15.3~~$11.1 million of letters of credit outstanding and no borrowings).

Guarantees and Security ~~(New Senior~~(Senior Secured Credit Facilities and Notes)

The obligations under the ~~Revolving~~Senior Secured Credit ~~Facility, the Term Loan Facility~~Facilities and the 2027 notes are secured by a security interest in (1) substantially all of the present and future tangible and intangible assets of APX Group, Inc., and the subsidiary guarantors, including without limitation equipment, subscriber contracts and communication paths, intellectual property, material fee-owned real property, general intangibles, investment property, material intercompany notes and proceeds of the foregoing, subject to permitted liens and other customary exceptions, (2) substantially all personal property of APX Group, Inc. and the subsidiary guarantors consisting of accounts receivable arising from the sale of inventory and other goods and services (including related contracts and contract rights, inventory, cash, deposit accounts, other bank accounts and securities accounts), inventory and intangible assets to the extent attached to the foregoing books and records of APX Group, Inc. and the subsidiary guarantors, and the proceeds thereof, subject to permitted liens and other customary exceptions, in each case held by APX Group, Inc. and the subsidiary guarantors and (3) a pledge of all of the capital stock of APX Group, Inc., each of its subsidiary guarantors and each restricted subsidiary of APX Group, Inc. and its subsidiary guarantors, in each case other than excluded assets and subject to the limitations and exclusions provided in the applicable collateral documents.

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Guarantor Summarized Financial Information

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~~In May 2020,~~Vivint Smart Home, Inc. is the ~~Company provided a~~ parent ~~guarantee~~guarantor of APX Group’s obligations under the indentures governing the ~~Notes, in each case, in order to enable APX Group to satisfy its reporting obligations under the indentures governing the Notes by furnishing financial information relating to the Company.~~

Notes. We are providing the following information with respect to the Revolving Credit Facility, the Term Loan Facility and the Notes. The financial information of Vivint Smart Home, Inc., APX Group Holdings, Inc., APX Group, Inc. and each guarantor subsidiary (collectively the “Guarantors”) is presented on a combined basis with intercompany balances and transactions between the Guarantors eliminated. The Guarantors' amounts due from, amounts due to, and transactions with non-guarantor subsidiaries are separately disclosed.


		Nine months ended September 30, 2021		Twelve months ended December 31, 2020			Three months ended March 31, 2022		Twelve months ended December 31, 2021
		(in thousands)					(in thousands)
Recurring and other revenues	Recurring and other revenues	$	1,036,893	$	1,186,264	Recurring and other revenues	$	379,615	$	1,418,698
Intercompany revenues	Intercompany revenues	15,466		24,000		Intercompany revenues	4,877		20,454
Total revenues	Total revenues	1,052,359		1,210,264		Total revenues	384,492		1,439,152
Total costs and expenses	Total costs and expenses	1,193,904		1,471,254		Total costs and expenses	375,134		1,593,414
Loss from operations	Loss from operations	(141,545)		(260,990)		Loss from operations	9,358		(154,262)
Other expenses	Other expenses	111,052		340,628		Other expenses	36,685		149,154
Income tax expense	Income tax expense	713		1,282		Income tax expense	310		2,096
Net loss	Net loss	$	(253,310)	$	(602,900)	Net loss	$	(27,637)	$	(305,512)


		September 30, 2021		December 31, 2020			March 31, 2022		December 31, 2021
		(in thousands)					(in thousands)
Current assets	Current assets	$	418,428	$	425,165	Current assets	$	300,715	$	330,680
Amounts due from Non-Guarantor Subsidiaries	Amounts due from Non-Guarantor Subsidiaries	272,052		251,853		Amounts due from Non-Guarantor Subsidiaries	289,162		283,319
Non-current assets:	Non-current assets:					Non-current assets:
Capitalized contract costs	Capitalized contract costs	1,398,987		1,270,678		Capitalized contract costs	1,349,136		1,375,031
Goodwill	Goodwill	810,130		810,130		Goodwill	810,130		810,130
Intangible assets, net	Intangible assets, net	61,776		102,981		Intangible assets, net	35,567		48,041
Other non-current assets	Other non-current assets	133,609		149,888		Other non-current assets	135,463		137,387
Total non-current assets	Total non-current assets	2,404,502		2,333,677		Total non-current assets	2,330,296		2,370,589

Current liabilities	Current liabilities	923,954		758,194		Current liabilities	835,559		858,616
Amounts due to Non-Guarantor Subsidiaries	Amounts due to Non-Guarantor Subsidiaries	236,875		199,381		Amounts due to Non-Guarantor Subsidiaries	262,289		253,208
Non-current liabilities	Non-current liabilities	$	3,674,644	$	3,672,266	Non-current liabilities	$	3,606,756	$	3,642,698

Debt Covenants

The Credit Agreement and the debt agreements governing the Notes contain a number of covenants that, among other things, restrict, subject to certain exceptions, APX Group, Inc. and its restricted subsidiaries’ ability to:

•incur or guarantee additional debt or issue disqualified stock or preferred stock;

•pay dividends and make other distributions on, or redeem or repurchase, capital stock;

•make certain investments;

•incur certain liens;

•enter into transactions with affiliates;

•merge or consolidate;

•materially change the nature of their business;

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•enter into agreements that restrict the ability of restricted subsidiaries to make dividends or other payments to APX Group, Inc.;

•designate restricted subsidiaries as unrestricted subsidiaries;

•amend, prepay, redeem or purchase certain subordinated debt; and

•transfer or sell certain assets.

The Credit Agreement and the debt agreements governing the Notes contain change of control provisions and certain customary affirmative covenants and events of default. As of ~~September 30, 2021,~~March 31, 2022, APX Group, Inc. was in compliance with all covenants related to its long-term obligations.

Subject to certain exceptions, the Credit Agreement and the debt agreements governing the Notes permit APX Group, Inc. and its restricted subsidiaries to incur additional indebtedness, including secured indebtedness.

Our future liquidity requirements will be significant, primarily due to debt service requirements. The actual amounts of borrowings under the Revolving Credit Facility will fluctuate from time to time.

Our liquidity and our ability to fund our capital requirements is dependent on our future financial performance, which is subject to general economic, financial and other factors that are beyond our control and many of which are described under “Part I. Item 1A—Risk Factors” in ~~Amendment No. 1 to~~ the Annual Report on Form ~~10-K/A~~10-K for the ~~fiscal~~ year ended December 31, ~~2020.~~2021. If those factors significantly change or other unexpected factors adversely affect us, our business may not generate sufficient cash flow from operations or we may not be able to obtain future financings to meet our liquidity needs. We anticipate that to the extent additional liquidity is necessary to fund our operations, it would be funded through borrowings under the Revolving Credit Facility, incurring other indebtedness, additional equity or other financings or a combination of these potential sources of liquidity. We may not be able to obtain this additional liquidity on terms acceptable to us or at all.

Covenant Compliance

Under the Credit Agreement and the debt agreements governing the Notes, our subsidiary, APX Group's ability to engage in activities such as incurring additional indebtedness, making investments, refinancing certain indebtedness, paying dividends and entering into certain merger transactions is governed, in part, by our ability to satisfy tests based on Covenant Adjusted EBITDA (which measure is defined as “Consolidated EBITDA” in the Credit Agreement and “EBITDA” in the debt agreements governing the existing notes) for the applicable four-quarter period. Such tests include an incurrence-based maximum consolidated secured debt ratio and first lien secured debt ratio of 4.25 to 1.0, a consolidated total debt ratio of 5.50 to 1.0, an incurrence-based minimum fixed charge coverage ratio of 2.00 to 1.0, and, solely in the case of the Revolving Credit Facility, a quarterly maintenance-based maximum consolidated first lien secured debt ratio of 4.99 to 1.0 (subject to certain conditions set forth in the Credit Agreement being satisfied), each as determined in accordance with the Credit Agreement and the debt agreements governing the Notes, as applicable. Non-compliance with these covenants could restrict our ability to undertake certain activities or result in a default under the Credit Agreement and the debt agreements governing the Notes.

“Covenant Adjusted EBITDA” is defined as net income (loss) before interest expense (net of interest income), income and franchise taxes and depreciation and amortization (including amortization of capitalized subscriber acquisition costs), further adjusted to exclude the effects of certain contract sales to third parties, non-capitalized subscriber acquisition costs, stock based compensation, changes in the fair value of the derivative liability associated with our public and private warrants and certain unusual, non-cash, non-recurring and other items permitted in certain covenant calculations under the agreements governing our Notes and the Credit Agreement.

We believe that the presentation of Covenant Adjusted EBITDA is appropriate to provide additional information to investors about the calculation of, and compliance with, certain financial covenants contained in the agreements governing the Notes and the Credit Agreement governing the Revolving Credit Facility and the Term Loan Facility. We caution investors that amounts presented in accordance with our definition of Covenant Adjusted EBITDA may not be comparable to similar measures disclosed by other issuers, because not all issuers and analysts calculate Covenant Adjusted EBITDA in the same manner.

Covenant Adjusted EBITDA is not a measurement of our financial performance under GAAP and should not be considered as an alternative to net loss or any other performance measures derived in accordance with GAAP or as an alternative to cash flows from operating activities as a measure of our liquidity.

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The following table sets forth a reconciliation of net loss to Covenant Adjusted EBITDA (in thousands):

Twelve months ended ~~September 30, 2021~~March 31, 2022

Net loss

~~(436,869)~~(244,184)

Interest expense, net

~~196,660~~172,080

Other ~~income,~~expense, net

~~13,868~~37,304

Income tax expense, net

~~1,259~~2,659

Depreciation and amortization (1)

~~79,031~~75,138

Amortization of capitalized contract costs

~~516,274~~533,796

Non-capitalized contract costs (2)

~~333,676~~358,300

Stock-based compensation (3)

~~224,540~~105,014

Change in fair value of warrant derivative liabilities (4)

~~(21,281)~~(30,297)

Other adjustments (5)

~~96,901~~96,919

Covenant Adjusted EBITDA

~~1,004,059~~1,106,729

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(1)Excludes loan amortization costs that are included in interest expense.

(2)Reflects subscriber acquisition costs that are expensed as incurred because they are not directly related to the acquisition of specific subscribers. Certain other industry participants purchase subscribers through subscriber contract purchases, and as a result, may capitalize the full cost to purchase these subscriber contracts, as compared to our organic generation of new subscribers, which requires us to expense a portion of our subscriber acquisition costs under GAAP. (See Note 1 to the accompanying unaudited condensed consolidated financial statements)

(3)Reflects stock-based compensation costs related to employee and director stock and stock incentive plans.

(4)Reflects the change in fair value of the derivative liability associated with our public and private warrants.

(5)Other adjustments represent primarily the following items (in thousands):

Twelve months ended ~~September 30, 2021~~March 31, 2022

Consumer financing fees (a)

~~39,706~~47,410

Product development (b)

~~15,876~~17,253

Hiring, retention and termination payments (c)

~~14,347~~19,247

~~Loss contingency~~Monitoring fee (d)

~~13,200~~

~~Monitoring fee (e)~~

~~6,861~~5,154

Certain legal and professional fees ~~(f)~~(e)

~~6,151~~7,398

All other adjustments (g)

~~760~~457

Total other adjustments

~~96,901~~96,919

____________________

(a)Monthly financing fees incurred under the Consumer Financing Program.

(b)Costs related to the development of control panels, including associated software, and peripheral devices.

(c)Expenses associated with retention bonus, relocation and severance payments to management.

(d)~~Reflects an increase to the loss contingency accrual relating to the regulatory matters described in Note 12 to the accompanying consolidated financial statements.~~

~~(e)~~BMP monitoring fee (See Note 1513 to the accompanying unaudited condensed consolidated financial statements).

~~(f)~~(e)Legal and professional fees associated with strategic initiatives and financing transactions.

~~(g)~~(f)Other adjustments primarily reflect costs associated with various strategic, legal and financing activities.

Other Factors Affecting Liquidity and Capital Resources

Vivint Flex Pay. Vivint Flex Pay became our primary equipment financing model beginning in March 2017. Under Vivint Flex Pay, customers pay separately for Products through the CFP. Under the CFP, qualified customers are eligible for

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Loans originated by Financing Providers of between $150 and $6,000. The terms of most Loans are determined based on the customer’s credit quality. The annual percentage rates on these Loans is either 0% or 9.99%, depending on the customer’s credit quality, and are either installment or revolving loans with repayment terms ranging from 6- to 60-months. See

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“Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies and Estimates — Vivint Flex Pay” for further details.

Vehicle Leases. Since 2010, we have leased, and expect to continue leasing, vehicles primarily for use by our Smart Home Pros. For the most part, these leases have 36-month durations and we account for them as finance leases. At the end of the lease term for each vehicle we have the option to either (i) purchase it for the estimated end-of-lease fair market value established at the beginning of the lease term; or (ii) return the vehicle to the lessor to be sold by them and in the event the sale price is less than the estimated end-of-lease fair market value we are responsible for such deficiency. As of ~~September 30, 2021,~~March 31, 2022, our total finance lease obligations were ~~$4.4~~$3.6 million, of which ~~$3.3~~$2.2 million is due within the next 12 months.

~~Off-Balance Sheet Arrangements~~

~~Currently we do not engage in off-balance sheet financing arrangements, as defined in Item 303(a)(4)(ii) of Regulation S-K.~~

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ITEM 3.			QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our operations include activities in the United States and Canada. These operations expose us to a variety of market risks, including the effects of changes in interest rates and foreign currency exchange rates. We monitor and manage these financial exposures as an integral part of our overall risk management program.

Interest Rate Risk

Our Revolving Credit Facility and Term Loan Facility bear interest at a floating rate. As a result, we may be exposed to fluctuations in interest rates to the extent of our borrowings under these credit facilities. To help manage borrowing costs, we may from time to time enter into interest rate swap transactions with financial institutions acting as principal counterparties. We consider changes in the 30-day LIBOR rate to be most indicative of our interest rate exposure as it is a function of the base rate for our credit facilities and is reasonably correlated to changes in our earnings rate on our cash investments. Assuming the borrowing of all amounts available under our Revolving Credit Facility, if the 30-day LIBOR rate increases by 1% due to normal market conditions, our interest expense will increase by approximately ~~$17.2~~$17.1 million per annum.

We had no borrowings under the Revolving Credit Facility as of ~~September 30, 2021.~~March 31, 2022.

Foreign Currency Risk

We have exposure to the effects of foreign currency exchange rate fluctuations on the results of our Canadian operations. Our Canadian operations use the Canadian dollar to conduct business but our results are reported in U.S. dollars. We are exposed periodically to the foreign currency rate fluctuations that affect transactions not denominated in the functional currency of our U.S. and Canadian operations. Based on results of our Canadian operations for the ~~nine~~three months ended ~~September 30, 2021,~~March 31, 2022, if foreign currency exchange rates had decreased 10% throughout the period, our revenues would have decreased by approximately ~~$4.6~~$1.3 million, our total assets would have decreased by ~~$33.0~~$34.5 million, and our total liabilities would have decreased by ~~$29.9~~$30.8 million. We do not currently use derivative financial instruments to hedge investments in foreign subsidiaries. For the ~~nine~~three months ended ~~September 30, 2021,~~March 31, 2022, before intercompany eliminations, approximately ~~$46.3~~$13.1 million of our revenues, ~~$330.4~~$345.4 million of our total assets and ~~$299.5~~$307.8 million of our total liabilities were denominated in Canadian Dollars.


ITEM 4.			CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

~~Disclosure~~We maintain disclosure controls and procedures ~~are controls~~(as that term is defined in Rules 13a-15(e) and ~~other procedures~~15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.

As required by Rules 13a-15 and 15d-15 under the Exchange Act, our Chief Executive Officer and Chief Financial Officer carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures. Based upon their evaluation, our Chief Executive Officer and Chief Financial Officer concluded that as September 30, 2021, due to the existence of the material weakness in our internal controls over financial reporting described below, our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) were not effective to provide reasonable assurance that the information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required ~~disclosure.~~disclosures. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.

~~In conjunction~~Internal Control Procedures

Our management, with the review of certain customer contract transactions during the quarter ended September 30, 2021, we identified a material weakness in our controls over the timing of revenue recognition. Specifically, the Company did not properly design and maintain effective controls over revenue in the current and prior periods to accurately determine the

~~Table of~~ ~~Contents~~

appropriate period to recognize revenue associated with certain transactions. These transactions primarily related to specific monthly service charge adjustments and modifications that created a material right to the customer.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.

~~This control deficiency did not result in a material misstatement~~participation of our ~~prior period consolidated annual or interim~~principal executive officer and principal financial ~~statements. However,~~officer, has evaluated the control deficiency could have resulted in material misstatements to the annual or interim consolidated financial statements that would not have been prevented or detected. Accordingly, management has concluded that this control deficiency constitutes a material weakness.

Notwithstanding the material weakness described above, the Company’s management has concluded that the consolidated financial statements included in this Form 10-Q, present fairly, in all material respects, the Company’s financial position, resultseffectiveness of ~~operations and cash flow for the periods presented, in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP).~~

~~Remediation Plan~~

To remediate the material weakness in the Company’s internal control over revenue, management intends to supplement our system of internal controls over financial reporting with the following actions:

•~~Provide additional training on the importance of accurate financial information effecting revenue recognition;~~

•~~Enhance~~ the design and operation of our ~~internal~~disclosure controls ~~related to~~and procedures as of March 31, 2022, the ~~review~~end of the period covered by this report. Based upon that evaluation, our principal executive officer and ~~approvals over~~principal financial officer concluded that, as of the ~~inputs into~~end of the ~~computation of revenues;~~

•~~Improve~~period covered by this report, the design and operation of our ~~internal~~disclosure controls ~~related to~~and procedures were effective at the ~~testing of customer contracts; and~~reasonable assurance level.

•~~Develop and implement additional testing and review procedures over the system settings that determine the period over which revenue is recognized.~~

We believe that our remediation plan will be sufficient to remediate the identified material weakness and strengthen our internal control over financial reporting. However, as we continue to evaluate and work to improve our internal control over financial reporting, management may determine that additional measures to address control deficiencies or modifications to the remediation plan are necessary. Therefore, we cannot assure you when the Company will remediate such weakness, nor can we be certain that additional actions will not be required or what the costs of any such additional actions may be. Moreover, we cannot assure you that additional material weaknesses will not arise in the future.

Changes in Internal Control Over Financial Reporting

~~Other than the changes made to as part of the remediation plan described above, there~~There has been no change in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the quarter ended ~~September 30, 2021~~March 31, 2022 that have materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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Part II. OTHER INFORMATION


ITEM 1.			LEGAL PROCEEDINGS

The information required with respect to this item can be found under “Legal” in Note ~~13,~~11, Commitments and Contingencies, of the notes to our unaudited condensed consolidated financial statements contained in this Quarterly Report, and such information is incorporated by reference into this Item 1.

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ITEM 1A.			RISK FACTORS

For a discussion of the Company’s potential risks or uncertainties, please see “Risk Factors” in our ~~Amendment No. 1 to our~~ Annual Report on Form ~~10-K/A~~10-K for our fiscal year ~~2020. Except as set forth below, there~~2021. There have been no material changes to the risk factors disclosed in ~~Amendment No. 1 to~~ our Annual Report on Form ~~10-K/A~~10-K for our fiscal year ~~2020.~~

During the quarter ended September 30, 2021, we identified a material weakness in our internal control over financial reporting and if our remediation of this material weakness is not effective, or if we fail to maintain an effective system of internal control over financial reporting in the future, we may not be able to accurately or timely report our financial condition or operating results, which may adversely affect our business.

In the course of reviewing certain customer contract transactions during the quarter ended September 30, 2021, we identified a material weakness in our internal control over financial reporting relating to the timing of revenue recognition. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim consolidated financial statements will not be prevented or detected on a timely basis. Effective internal controls are necessary for us to provide reliable financial reports and prevent fraud. Specifically, we found that we did not properly design and maintain effective controls over in the quarter ended September 30, 2021 and prior reporting periods to accurately determine the appropriate period to recognize revenue associated with certain transactions. These transactions primarily related to specific monthly service charge adjustments and modifications that created a material right to the customer, which resulted in errors in the reporting of revenue and other income statement and balance sheet items in certain prior periods.

The Company assessed the materiality of the misstatements both quantitatively and qualitatively and determined the correction of these errors to be immaterial to all prior consolidated financial statements taken as a whole and, therefore, amending previously filed reports to correct the errors was not required. However, the Company concluded that the cumulative effect of correcting the errors in the quarter ended September 30, 2021 would materially misstate the Company’s unaudited condensed consolidated financial statements for the three and nine months ended September 30, 2021. Accordingly, the Company has reflected the corrections in the results for prior periods included in this Quarterly Report on Form 10-Q. The Company will also revise such information in future filings to reflect the correction of the errors.

This material weakness, however, could have resulted, and in the future could result, in additional misstatement to the accounts and disclosures that would result in a material misstatement of our consolidated financial statements that would not be prevented or detected. Because of this material weakness in our internal control over financial reporting, management has concluded that, as of September 30, 2021, our disclosure controls and procedures were not effective.

We are developing and will be implementing a remediation plan to address the material weakness related to our revenue recognition, as described in Part I, Item 4. Controls and Procedures of this Quarterly Report on Form 10-Q, and we believe that our remediation plan will be sufficient to remediate the identified material weakness and strengthen our internal control over financial reporting. Our plan will entail implementation of additional training related to the classification of service charge adjustments, enhancing preventative controls over the approval of service charge adjustments and performing regular reviews of material charge types for proper classification. Additionally, the Company intends to implement additional testing and review procedures over the system settings that determine the period over which revenue is recognized, and enhancing its controls over the testing of customer contracts, including those that give rise to a contract modification. Such remediation measures may be time consuming and costly and there is no assurance that these initiatives will ultimately have the intended effects. As we continue to evaluate and work to improve our internal control over financial reporting, management may determine that additional measures to address control deficiencies or modifications to the remediation plan are necessary. Therefore, we cannot assure you when the Company will remediate such weakness, nor can we be certain that additional actions will not be required or what the costs of any such additional actions may be.

Moreover, as previously disclosed in our Annual Report on Form 10-K/A for the year ended December 31, 2020 and our Quarterly Report on Form 10-Q for the quarter ended March 31, 2021, we identified a material weakness in our internal controls over financial reporting related to the Company’s control to review the evaluation of the accounting for complex financial instruments, such as for warrants issued by Mosaic Acquisition Corp., which did not operate effectively to appropriately apply the provisions of Financial Accounting Standards Board Accounting Standards Codification 815-40. After implementing certain changes to our processes to improve our internal control over financial reporting to remediate the control deficiency that gave rise to this material weakness, our management concluded that the previously identified material weakness was remediated. However, we cannot assure you that additional material weaknesses will not arise in the future or that management has identified all material weaknesses. If we identify any new material weaknesses in the future, any such newly identified material weakness could limit our ability to prevent or detect a misstatement of our accounts or disclosures that could result in a material misstatement of our annual or interim financial statements. In such case, we may be unable to maintain

~~Table of~~ ~~Contents~~

compliance with securities law requirements regarding timely filing of periodic reports in addition to applicable stock exchange listing requirements, investors may lose confidence in our financial reporting and our stock price may decline as a result, and we could be subject to litigation or regulatory enforcement actions. We cannot assure you that the measures we have taken to date, or any measures we may take in the future, will be sufficient to avoid potential future material weaknesses. The potential consequences of any material weakness could have a material adverse effect on our business, results of operations and financial condition.

~~We are subject to various risks in connection with the ongoing settlement administration process involving the Federal Trade Commission (“FTC”), and may be subject to FTC Actions in the future.~~

As previously disclosed, in 2019, we received a civil investigative demand from the staff of the FTC concerning potential violations of the Fair Credit Reporting Act and the “Red Flags Rule” thereunder, and the Federal Trade Commission Act. In April 2021, the Company entered into a settlement with the FTC that resolved this investigation. As part of this settlement, which was approved by a federal court on May 3, 2021, the Company paid a total of $20 million to the United States and agreed to implement various additional compliance-related measures.

We are currently in the process of administering the terms of this settlement, which include multiple undertakings by the Company. The Company has been endeavoring to comply with these undertakings and the demands on management and costs incurred in connection with these undertakings may be substantial. We have been engaged in ongoing discussions with the staff of the FTC regarding the Company’s compliance with the terms of the settlement. In addition, in accordance with the settlement, the Company is required to undergo biennial assessments by an independent third-party assessor who will review the Company’s compliance programs and provide a report to the FTC staff on our ongoing compliance with the settlement. Under the terms of the settlement, the first of these assessments is required to start during the fourth quarter of 2021. In connection with this and any subsequent assessment performed pursuant to the settlement, the assessor may identify deficiencies in the Company’s efforts to comply with the settlement and, should the FTC at any time make a determination that we are not in full compliance with the settlement, it could take further action against the Company such as seeking judicial remedies against us for any noncompliance, and we could be subject to additional sanctions and restrictions on our operations, which may seriously harm our financial position and results of operations and lead to other materially adverse consequences for our business. In addition, the filing of an application with the court against us for noncompliance with the settlement could lead to regulatory actions by other regulatory agencies or private litigation against us, could impact our ability to obtain regulatory approvals necessary to carry out our present or future plans and operations, and could result in negative publicity that might adversely affect our business.

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ITEM 2.			UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Sales of Unregistered Securities

None.

Issuer Purchases of Equity Securities

The following table provides information about purchases of shares of our Class A Common Stock during the periods indicated, which related to shares withheld upon settlement of vested and exercised equity awards to satisfy tax withholding obligations:

~~Date~~

~~Total Number of Shares Purchased (1)~~

~~Average Price Paid Per Share~~

~~Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs~~

~~Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs~~

~~July 1 - 31, 2021~~

—

~~August 1 - 31, 2021~~

—

~~September 1 - 30, 2021~~

—


Date	Total Number of Shares Purchased (1)	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs
January 1 - 31, 2022	—	$	—	—	—
February 1 - 28, 2022	—	—		—	—
March 1 - 31, 2022	1,564,768	7.52		—	—

(1) Total number of shares delivered to us by employees to satisfy ~~the mandatory~~ tax withholding ~~requirements.~~requirements .


ITEM 3.			DEFAULTS UPON SENIOR SECURITIES

None.


ITEM 4.			MINE SAFETY DISCLOSURES

Not applicable.


ITEM 5.			OTHER INFORMATION

None.

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ITEM 6.			EXHIBITS

Exhibits

Incorporated by Reference

Exhibit
Number

Exhibit Title

Form

File No.

Exhibit
No.

Filing Date

Provided
Herewith

Exhibit
Number

Exhibit Title

Form

File No.

Exhibit
No.

Filing Date

Provided
Herewith

2.1

Agreement and Plan of Merger dated as of September 15, 2019, by and among Mosaic Acquisition Corp., Maiden Merger Sub, Inc. and Vivint Smart Home, Inc.

8-K

001-38246

2.1

9/16/2019

2.1

Agreement and Plan of Merger dated as of September 15, 2019, by and among Mosaic Acquisition Corp., Maiden Merger Sub, Inc. and Vivint Smart Home, Inc.

8-K

001-38246

2.1

9/16/2019

10.1

Indenture, dated as of July 9, 2021, between APX Group, Inc., as the Issuer, the guarantors party hereto, and Wilmington Trust, National Association, as trustee, payment agent and registrar, relating to the Company's 5.75% Senior Notes due 2029

8-K

001-38246

10.1

7/12/2021

10.2

Second Amended and Restated Credit Agreement, dated as of July 9, 2021, among APX Group Holdings, Inc., as Holdings, APX Group, Inc., as the borrower, the guarantors party hereto from time to time, Bank of America, N.A., as administrative agent, swing line lender and an L/C issuer

8-K

001-38246

10.2

7/12/2021

31.1

Certification of the Registrant’s Chief Executive Officer, David Bywater, pursuant to Rule 13a-14 of the Securities Exchange Act of 1934

31.1

Certification of the Registrant’s Chief Executive Officer, David Bywater, pursuant to Rule 13a-14 of the Securities Exchange Act of 1934

31.2

Certification of the Registrant’s Principal Financial Officer, Dale R. Gerard, pursuant to Rule 13a-14 of the Securities Exchange Act of 1934

31.2

Certification of the Registrant’s Principal Financial Officer, Dale R. Gerard, pursuant to Rule 13a-14 of the Securities Exchange Act of 1934

32.1

Certification of the Registrant’s Chief Executive Officer, David Bywater, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.1

Certification of the Registrant’s Chief Executive Officer, David Bywater, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2

Certification of the Registrant’s Principal Financial Officer, Dale R. Gerard, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2

Certification of the Registrant’s Principal Financial Officer, Dale R. Gerard, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS

Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.INS

Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH

Inline XBRL Taxonomy Extension Schema Document.

101.SCH

Inline XBRL Taxonomy Extension Schema Document.

101.CAL

Inline XBRL Taxonomy Extension Calculation Linkbase Document.

101.CAL

Inline XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF

Inline XBRL Taxonomy Extension Definition Linkbase Document.

101.DEF

Inline XBRL Taxonomy Extension Definition Linkbase Document.

101.LAB

Inline XBRL Taxonomy Extension Label Linkbase Document.

101.LAB

Inline XBRL Taxonomy Extension Label Linkbase Document.

101.PRE

Inline XBRL Taxonomy Extension Presentation Linkbase Document.

101.PRE

Inline XBRL Taxonomy Extension Presentation Linkbase Document.

104

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

104

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

* Portions of this exhibit have been omitted pursuant to Item 601(b)(10)(iv) of Regulation S-K. The omitted information (i) is not material and (ii) would likely cause competitive harm to Vivint Smart Home, Inc. if publicly disclosed.

~~Table of~~ ~~Contents~~

The agreements and other documents filed as exhibits to this report are not intended to provide factual information or other disclosure other than with respect to the terms of the agreements or other documents themselves, and you should not rely on them other than for that purpose. In particular, any representations and warranties made by us in these agreements or other documents were made solely within the specific context of the relevant agreement or document and may not describe the actual state of affairs as of the date they were made or at any other time.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Vivint Smart Home, Inc.

Date:

~~November 15, 2021~~May 3, 2022

By:

/s/ David Bywater

David Bywater

Chief Executive Officer and Director
(Principal Executive Officer)

Date:

~~November 15, 2021~~May 3, 2022

By:

/s/ Dale R. Gerard

Dale R. Gerard

Chief Financial Officer
(Principal Financial Officer)

8967


Unaudited Condensed Consolidated Balance Sheets	As of June 30, 2021
	As Previously Reported		Adjustment		As Revised























Deferred revenue	$	373,207	$	7,888	$	381,095



Total current liabilities	856,260		7,888		864,148





Deferred revenue, net of current portion	717,423		6,245		723,668




Total liabilities	4,604,412		14,133		4,618,545





Accumulated deficit	(3,256,697)		(14,133)		(3,270,830)

Total stockholders’ deficit	(1,630,610)		(14,133)		(1,644,743)


Unaudited Condensed Consolidated Statements of Operations	Three Months Ended June 30, 2021
	As Previously Reported		Adjustment		As Revised

Recurring and other revenue	$	355,231	$	(1,094)	$	354,137






General and administrative expenses	62,140		(4,646)		57,494


Total costs and expenses	392,366		(4,646)		387,720
Loss from operations	(37,135)		3,552		(33,583)





Loss before income taxes	(72,827)		3,552		(69,275)

Net loss	(74,097)		3,552		(70,545)
Comprehensive loss	(73,565)		3,552		(70,013)
Net loss attributable per share to common stockholders:
Basic	(0.36)		0.02		(0.34)
Diluted	(0.38)		0.02		(0.36)


Unaudited Condensed Consolidated Statements of Operations	Six Months Ended June 30, 2021
	As Previously Reported		Adjustment		As Revised

Recurring and other revenue	$	698,524	$	(2,060)	$	696,464






General and administrative expenses	128,488		(4,193)		124,295


Total costs and expenses	816,698		(4,193)		812,505
Loss from operations	(118,174)		2,133		(116,041)





Loss before income taxes	(159,963)		2,133		(157,830)

Net loss	(161,477)		2,133		(159,344)
Comprehensive loss	(160,553)		2,133		(158,420)
Net loss attributable per share to common stockholders:
Basic	(0.78)		0.01		(0.77)
Diluted	(0.94)		0.01		(0.93)


Consolidated Balance Sheets	As of December 31, 2020
	As Previously Reported	Adjustment	As Revised
















Long-term notes receivables and other assets, net	62,510	(4,193)	58,317
Total assets	2,876,618	(4,193)	2,872,425





Deferred revenue	321,143	6,489	327,632



Total current liabilities	767,057	6,489	773,546





Deferred revenue, net of current portion	615,598	5,584	621,182




Total liabilities	4,449,841	12,073	4,461,914





Accumulated deficit	(3,095,220)	(16,266)	(3,111,486)

Total stockholders’ deficit	(1,573,223)	(16,266)	(1,589,489)
Total liabilities and stockholders’ deficit	2,876,618	(4,193)	2,872,425


Consolidated Statements of Operations	Year Ended December 31, 2020
	As Previously Reported		Adjustment		As Revised

Recurring and other revenue	$	1,260,566	$	(8,299)	$	1,252,267






General and administrative expenses	266,335		1,588		267,923


Total costs and expenses	1,512,737		1,588		1,514,325
Loss from operations	(252,171)		(9,887)		(262,058)





Loss before income taxes	(592,361)		(9,887)		(602,248)
Income tax expense	2,837		(1,754)		1,083
Net loss	(595,198)		(8,133)		(603,331)
Comprehensive loss	(594,541)		(8,133)		(602,674)
Net loss attributable per share to common stockholders:
Basic and diluted	(3.32)		(0.05)		(3.37)


Unaudited Condensed Consolidated Statements of Operations	Three Months Ended December 31, 2020
	As Previously Reported		Adjustment		As Revised

Recurring and other revenue	$	332,423	$	(1,515)	$	330,908






General and administrative expenses	87,220		431		87,651


Total costs and expenses	436,051		431		436,482
Loss from operations	(103,628)		(1,946)		(105,574)





Loss before income taxes	(182,076)		(1,946)		(184,022)
Income tax expense	2,513		(1,754)		759
Net loss	(184,589)		(192)		(184,781)
Comprehensive loss	(183,110)		(192)		(183,302)
Net loss attributable per share to common stockholders:
Basic and diluted	(0.93)		—		(0.93)


Unaudited Condensed Consolidated Balance Sheets	As of June 30, 2020
	As Previously Reported	Adjustment	As Revised















Long-term notes receivables and other assets, net	79,248	(3,355)	75,893
Total assets	2,829,889	(3,355)	2,826,534





Deferred revenue	267,363	4,004	271,367



Total current liabilities	640,312	4,004	644,316





Deferred revenue, net of current portion	500,354	4,257	504,611



Deferred income tax liabilities	959	1,754	2,713
Total liabilities	4,324,998	10,015	4,335,013





Accumulated deficit	(2,801,902)	(13,370)	(2,815,272)

Total stockholders’ deficit	(1,495,109)	(13,370)	(1,508,479)
Total liabilities and stockholders’ deficit	2,829,889	(3,355)	2,826,534


Unaudited Condensed Consolidated Statements of Operations	Three Months Ended June 30, 2020
	As Previously Reported		Adjustment		As Revised

Recurring and other revenue	$	303,897	$	(2,899)	$	300,998






General and administrative expenses	59,969		386		60,355


Total costs and expenses	347,513		386		347,899
Loss from operations	(43,616)		(3,285)		(46,901)





Loss before income taxes	(155,902)		(3,285)		(159,187)

Net loss	(156,784)		(3,285)		(160,069)
Comprehensive loss	(155,766)		(3,285)		(159,051)
Net loss attributable per share to common stockholders:
Basic and diluted	(0.88)		(0.02)		(0.90)


Unaudited Condensed Consolidated Statements of Operations	Six Months Ended June 30, 2020
	As Previously Reported		Adjustment		As Revised

Recurring and other revenue	$	607,129	$	(4,487)	$	602,642






General and administrative expenses	110,392		750		111,142


Total costs and expenses	692,009		750		692,759
Loss from operations	(84,880)		(5,237)		(90,117)





Loss before income taxes	(301,786)		(5,237)		(307,023)

Net loss	(301,880)		(5,237)		(307,117)
Comprehensive loss	(303,291)		(5,237)		(308,528)
Net loss attributable per share to common stockholders:
Basic and diluted	(1.83)		(0.03)		(1.86)


Unaudited Condensed Consolidated Balance Sheets	As of March 31, 2020
	As Previously Reported	Adjustment	As Revised
















Long-term notes receivables and other assets, net	86,966	(2,969)	83,997
Total assets	2,670,423	(2,969)	2,667,454





Deferred revenue	237,439	2,035	239,474



Total current liabilities	564,203	2,035	566,238





Deferred revenue, net of current portion	409,474	3,327	412,801



Deferred income tax liabilities	1,005	1,754	2,759
Total liabilities	4,162,359	7,116	4,169,475





Accumulated deficit	(2,645,118)	(10,085)	(2,655,203)

Total stockholders’ deficit	(1,491,936)	(10,085)	(1,502,021)
Total liabilities and stockholders’ deficit	2,670,423	(2,969)	2,667,454


Unaudited Condensed Consolidated Statements of Operations	Three Months Ended March 31, 2020
	As Previously Reported		Adjustment		As Revised

Recurring and other revenue	$	303,232	$	(1,588)	$	301,644






General and administrative expenses	50,423		364		50,787


Total costs and expenses	344,496		364		344,860
Loss from operations	(41,264)		(1,952)		(43,216)





Loss before income taxes	(145,884)		(1,952)		(147,836)

Net loss	(145,096)		(1,952)		(147,048)
Comprehensive loss	(147,525)		(1,952)		(149,477)
Net loss attributable per share to common stockholders:
Basic and diluted	(0.96)		(0.01)		(0.97)


Consolidated Balance Sheets	As of December 31, 2019
	As Previously Reported	Adjustment	As Revised
















Long-term notes receivables and other assets, net	95,827	(2,605)	93,222
Total assets	2,604,408	(2,605)	2,601,803





Deferred revenue	234,612	1,361	235,973



Total current liabilities	1,013,965	1,361	1,015,326





Deferred revenue, net of current portion	405,786	2,413	408,199



Deferred income tax liabilities	2,231	1,754	3,985
Total liabilities	4,391,766	5,528	4,397,294





Accumulated deficit	(2,500,022)	(8,133)	(2,508,155)

Total stockholders’ deficit	(1,787,358)	(8,133)	(1,795,491)
Total liabilities and stockholders’ deficit	2,604,408	(2,605)	2,601,803


Consolidated Statements of Operations	Year Ended December 31, 2019
	As Previously Reported		Adjustment		As Revised

Recurring and other revenue	$	1,155,981	$	(4,881)	$	1,151,100





Selling expenses	193,359		(1,559)		191,800
General and administrative expenses	192,182		1,298		193,480
Depreciation and amortization	543,440		152		543,592

Total costs and expenses	1,298,266		(109)		1,298,157
Loss from operations	(142,285)		(4,772)		(147,057)





Loss before income taxes	(394,611)		(4,772)		(399,383)

Net loss	(395,924)		(4,772)		(400,696)
Comprehensive loss	(394,553)		(4,772)		(399,325)
Net loss attributable per share to common stockholders:
Basic and diluted	(4.18)		(0.05)		(4.23)


Consolidated Statements of Operations	Year Ended December 31, 2018
	As Previously Reported		Adjustment		As Revised

Recurring and other revenue	$	1,050,441	$	1,107	$	1,051,548





Selling expenses	213,386		1,559		214,945
General and administrative expenses	209,257		985		210,242
Depreciation and amortization	514,082		(152)		513,930

Total costs and expenses	1,297,221		2,392		1,299,613
Loss from operations	(246,780)		(1,285)		(248,065)





Loss before income taxes	(474,246)		(1,285)		(475,531)
Income tax (benefit) expense	(1,611)		1,754		143
Net loss	(472,635)		(3,039)		(475,674)
Comprehensive loss	(474,851)		(3,039)		(477,890)
Net loss attributable per share to common stockholders:
Basic and diluted	(5.00)		(0.03)		(5.03)


	Original premium extinguished		Previously deferred financing costs extinguished		New financing costs		Total other expense and loss on extinguishment		Previously deferred financing costs rolled over		New deferred financing costs		Total deferred financing costs remaining after issuance
Three and nine months ended September 30, 2021
2029 Notes issuance - July 2021	$	(5,656)	$	8,016	$	17,187	$	19,547	$	—	$	11,767	$	11,767
Term Loan issuance - July 2021	—		1,499		9,165		10,664		8,148		11,302		19,450
Total	$	(5,656)	$	9,515	$	26,352	$	30,211	$	8,148	$	23,069	$	31,217

Nine months ended September 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