Vivint Smart Home, Inc. (NYSE: VVNT) recently reported its financial and operating results for the first quarter ended March 31, 2021. Thanks to a strong end of 2020, Vivint has been able to carry over some momentum into 2021, including a 20% increase in its subscriber base. The news has excited traders on the stock market today, as Vivint stock is up 19% in morning trading.
In addition to subscriber growth, other revenue for the three months increased $40.1 million, or 13%, as compared to Q1 2020. The increase was primarily a result of:
- $31.2 million increase resulting from the change in total subscribers
- $6.2 million increase from certain pilot programs
- $1.8 million increase from the change in AMRU
- The company added 60,127 new subscribers during the first quarter of 2021, an increase of 20% compared to 50,053 new subscribers during the same period in 2020.
“Last year’s business momentum has carried into a good start to 2021, and we are pleased to report solid improvements in our key metrics year over year,” says Todd Pedersen, CEO of Vivint.
“…We originated over 60,000 new smart home subscribers during the quarter which represented a growth rate of 20% vs. the previous year, driven by positive contributions from each of our major sales channels. As of March 31, Vivint had more than 1.7 million total subscribers, up more than 10% vs. the prior year. Notably, the last 12-month attrition rate improved for the fourth consecutive quarter and continues to exceed our expectations.”
Operating and Selling Expenses Increase in 2021
While subscribers are up and yearly attrition rates improve, operating expenses for Q1 2021 increased significantly. Operating expenses increased by $13.4 million, or 16%, as compared to Q1 2020. Excluding an increase in stock-based compensation of $8.3 million, operating expenses increased by $5.1 million, or 6%, primarily due to increases of:
- $2.9 million in third-party contracted servicing costs
- $2.4 million in equipment and related costs
- $1.2 million in information technology costs
However, these increases were partially offset by a decrease of $1.7 million in personnel and related support costs.
Net service cost per subscriber was $10.77 for the first quarter of 2021, which produced a net service margin of 77.7%, as compared to net service cost per subscriber and net service margin of $11.76 and 77.0%, respectively, for the same period in 2020.
Selling expenses, excluding capitalized contract costs, increased by $63.8 million, or 126% for Q1 2021 as compared to the same period last year. Excluding an increase in stock-based compensation of $58.5 million associated with equity awards granted during the three months ended March 31, 2021, selling expenses increased by $5.3 million, or 11%. This increase was primarily due to increases of $3.3 million in marketing costs and $2.3 million in personnel and related support costs. This increase was also partially offset by a decrease of $1.4 million in information technology costs.
Cost of Acquiring New Subscribers Goes Way Down in Q1
One boon for Vivint this year comes in the form of the cost it takes to acquire new subscribers. According to the company, its net subscriber acquisition costs (per new subscriber) were $66 for the last twelve months ended March 31, 2021, as compared to $960 for the same period in 2020. The average proceeds collected at point of sale during those twelve months increased to $2,067 per new subscriber as compared to $1,174 for the same period in 2020.
In addition, general and administrative expenses increased $15.9 million, or 32%, for the three months ended March 31, 2021 as compared to the three months ended March 31, 2020. This included a $9.1 million increase in stock-based compensation primarily associated with grants of equity awards during 2020.
Excluding stock-based compensation, general and administrative expenses increased by $6.8 million, or 15%. This increase was primarily due to increases of: $5.6 million in the loss contingency accrual recorded in the three months ended March 31, 2021 relating to certain legal matters, and $4.9 million in third-party contracted costs primarily for legal and finance services.
These increases were partially offset by decreases of $4.9 million in provisions for bad debt and credit losses and $1.3 million in personnel and related support costs.
Net loss improved by $57.7 million to $87.4 million for the three months ended March 31, 2021, as compared to a net loss of $145.1 million for the same period in 2020. Adjusted EBITDA was up by $27.2 million to $162.1 million for the three months ended March 31, 2021, as compared to Adjusted EBITDA of $134.9 million for the same period in 2020. Covenant Adjusted EBITDA was $823.8 million for the LTM period ended March 31, 2021, as compared to Covenant Adjusted EBITDA of $683.5 million for the LTM period ended March 31, 2020.
“Our LTM attrition rate for Q1 was the lowest in the past nine quarters, and I believe it speaks to the fact that our core value proposition, proven over two decades of reliably taking care of our customers and their families, is as relevant today as ever,” says Pedersen.
Vivint’s Future Outlook, Liquidity Position in Q1
As of March 31, 2021, Vivint’s liquidity position on a consolidated basis, defined as cash on hand, short-term marketable securities and available borrowing capacity under the company’s revolving credit facility was approximately $590 million.
The company received $10.8 million of proceeds from the exercise of approximately 0.9 million warrants during Q1 2021. Vivint’s net leverage ratio, defined as the ratio of net debt to LTM Covenant Adjusted EBITDA, was 3.1x as of March 31, 2021.
“The fundamental characteristics of our financial model remain highly attractive, particularly the contractual, recurring revenue that provides long-term visibility and predictability to our business,” says Dale R. Gerard, CFO of Vivint.
“We are pleased with the strong start to the year, and we are reaffirming our original guidance for the full year as follows: We still expect to end 2021 with 1.80 to 1.85 million total subscribers; Our estimate for 2021 revenue continues to be $1.38 to $1.42 billion; And finally, we are affirming our 2021 Adjusted EBITDA guidance of between $640 and $655 million.”