General form of registration statement for all companies including face-amount certificate companies

Revenue Recognition

v3.19.3.a.u2
Revenue Recognition
9 Months Ended 12 Months Ended
Sep. 30, 2019
Dec. 31, 2018
Revenue from Contract with Customer [Abstract]    
Revenue Recognition
Revenue Recognition

Disaggregation of Revenue

Revenue is disaggregated by source of revenue as follows (in thousands):
 
Successor Company
 
 
Predecessor Company
 
Period from September 1, 2019 through September 30,
 
 
Period from July 1, 2019 through August 31,
 
Three Months Ended September 30,
 
2019
 
 
2019
 
2018
Alarm monitoring revenue
$
33,594

 
 
$
78,608

 
125,004

Product and installation revenue
2,224

 
 
4,993

 
11,360

Other revenue
471

 
 
988

 
792

Total Net revenue
$
36,289

 
 
$
84,589

 
137,156



 
Successor Company
 
 
Predecessor Company
 
Period from September 1, 2019 through September 30,
 
 
Period from January 1, 2019 through August 31,
 
Nine Months Ended September 30,
 
2019
 
 
2019
 
2018
Alarm monitoring revenue
$
33,594

 
 
$
319,172

 
374,689

Product and installation revenue
2,224

 
 
19,111

 
28,984

Other revenue
471

 
 
4,003

 
2,249

Total Net revenue
$
36,289

 
 
$
342,286

 
405,922



Contract Balances

The following table provides information about receivables, contract assets and contract liabilities from contracts with customers (in thousands):
 
Successor Company
 
Predecessor Company
 
September 30,
2019
 
December 31,
2018
Trade receivables, net
$
12,105

 
13,121

Contract assets, net - current portion (a)
10,952

 
13,452

Contract assets, net - long-term portion (b)
12,600

 
16,154

Deferred revenue
13,309

 
13,060

 
(a)        Amount is included in Prepaid and other current assets in the unaudited condensed consolidated balance sheets.
(b)        Amount is included in Other assets in the unaudited condensed consolidated balance sheets.
Revenue Recognition

Topic 606 amends and supersedes FASB Accounting Standards Codification ("ASC") Topic 605, Revenue Recognition ("Topic 605"). The core principle of Topic 606 is that revenue will be recognized when the transfer of promised goods or services to customers is made in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

Accounting Policy for Periods Commencing January 1, 2018

The Company offers its subscribers professional alarm monitoring services, as well as interactive and home automation services, through equipment at the subscriber's site that communicates with the Company’s alarm monitoring station and interfaces with other equipment at the site and third party technology companies for interactive and home automation services. These services are typically provided under alarm monitoring agreements (“AMAs”) between the Company and the subscriber. The equipment at the site is either obtained independently from the Company’s network of third party Authorized Dealers or directly from the Company, via our Direct to Consumer Channel. The Company also offers equipment sales and installation services and, to our existing subscribers, maintenance services on existing alarm equipment. Additionally, the Company collects fees for contract monitoring, which are services provided to other security alarm companies for monitoring their accounts on a wholesale basis and other fees from subscribers for late fee or insufficient fund charges.

Revenue under subscriber AMAs is allocated to alarm monitoring revenue and, if applicable, product and installation revenue based on the stand alone selling prices (“SSP”) of each performance obligation as a percentage of the total SSP of all performance obligations. Allocated alarm monitoring revenue is recognized as the monthly service is provided. Allocated product and installation revenue is recognized when the product sale is complete or shipped and the installation service is provided, typically at inception of the AMA. Product and installation revenue is not applicable to AMA's acquired from Authorized Dealers in their initial term. Any cash not received from the subscriber at the time of product sale and installation is recognized as a contract asset at inception of the AMA and is subsequently amortized over the subscriber contract term as a reduction of the amounts billed for professional alarm monitoring, interactive and home automation services. If a subscriber cancels the AMA within the negotiated term, any existing contract asset is determined to be impaired and is immediately expensed in full to Selling, general and administrative expense on the condensed consolidated statement of operations.

Maintenance services are billed and recognized as revenue when the services are completed in the home and agreed to by the subscriber under the subscriber AMA. Contract monitoring fees are recognized as alarm monitoring revenue as the monitoring service is provided. Other fees are recognized as other revenue when billed to the subscriber which coincides with the timing of when the services are provided.

Disaggregation of Revenue

Revenue is disaggregated by source of revenue as follows (in thousands):
 
Year Ended December 31,
 
2018
 
2017
 
2016
Alarm monitoring revenue
$
498,236

 
537,399

 
552,590

Product and installation revenue
38,455

 
12,308

 
13,264

Other revenue
3,667

 
3,748

 
4,518

Total Net revenue
$
540,358

 
553,455

 
570,372



Contract Balances

The following table provides information about receivables, contract assets and contract liabilities from contracts with customers (in thousands):
 
December 31, 2018
 
At adoption
Trade receivables, net
$
13,121

 
12,645

Contract assets, net - current portion (a)
13,452

 
14,197

Contract assets, net - long-term portion (b)
16,154

 
10,377

Deferred revenue
13,060

 
12,892

 
(a)        Amount is included in Prepaid and other current assets in the consolidated balance sheets.
(b)        Amount is included in Other assets in the consolidated balance sheets.

Changes in Accounting Policies

The Company adopted Topic 606, effective January 1, 2018, using the modified retrospective transition method. Under the modified retrospective transition method, the Company evaluated active AMAs on the adoption date as if each AMA had been accounted for under Topic 606 from its inception. Some revenue related to AMAs originated through our Direct to Consumer Channel or through extensions that would have been recognized in future periods under Topic 605 were recast under Topic 606 as if revenue had been accelerated and recognized in prior periods, as it was allocated to product and installation performance obligations. A contract asset was recorded as of the adoption date for any cash that has yet to be collected on the accelerated revenue. As this transition method requires that the Company not adjust historical reported revenue amounts, the accelerated revenue that would have been recognized under this method prior to the adoption date was recorded as an adjustment to opening retained earnings and, thus, will not be recognized as revenue in future periods as previously required under Topic 605. Therefore, the comparative information has not been adjusted and continues to be reported under Topic 605.

Under Topic 605, revenue provided under the AMA was recognized as the services were provided, based on the recurring monthly revenue amount billed for each month under contract. Product, installation and service revenue generally was recognized as billed and incurred. Under Topic 606, the Company concluded that certain product and installation services sold or provided to our customers at AMA inception are capable of being distinct and are distinct within the context of the contract. As such, when the Company initiates an AMA with a customer directly and provides equipment and installation services, each component is considered a performance obligation that must have revenue allocated accordingly. The allocation is based on the SSP of each performance obligation as a percentage of the total SSP of all performance obligations multiplied by the total consideration, or cash, expected to be received over the contract term. These AMAs may relate to new customers originated by the Company through our Direct to Consumer Channel or existing customers who agree to new contract terms through customer service offerings. For AMAs with multiple performance obligations, management notes that a certain amount of the revenue billed on a recurring monthly basis is recognized earlier under Topic 606 than it was recognized under Topic 605, as a portion of that revenue is allocated to the equipment sale and installation, which is satisfied upon delivery of the product and performance of the installation services at AMA inception.

Revenue on AMAs originated through the Authorized Dealer program are not impacted by Topic 606 in their initial term, as the customer contracts for the equipment sale and installation separately with the Authorized Dealer prior to the Company purchasing the AMA from the Authorized Dealer. Revenue on these customers is recognized as the service is provided based on the recurring monthly revenue amount billed for each month of the AMA. Maintenance service revenue for repair of existing alarm equipment at the subscribers' premises will continue to be billed and recognized based on their SSP at the time the Company performs the services.

Topic 606 also requires the deferral of incremental costs of obtaining a contract with a customer. Certain direct and incremental costs were capitalized under Topic 605, including on new AMAs obtained in connection with Moves Costs. Under Topic 606, Moves Costs are expensed as incurred to accompany the allocated revenue recognized upon product and installation performance obligations recognized at the AMA inception. There are no other significant changes in contract costs that are capitalized or the period over which they are expensed.

Impacts on Consolidated Financial Statements

The significant effects of adopting Topic 606 are changes to Prepaid and other current assets, Subscriber accounts, net, Other assets, net, Net revenue, Cost of services, Selling, general and administrative and Amortization of subscriber accounts for the period beginning January 1, 2018 for AMAs initiated by the Company with the customer directly with multiple performance obligations, as a portion of that revenue is allocated to the equipment sale and installation, which is satisfied upon delivery of the product and performance of the installation services at AMA inception.

The following tables summarize the impacts of adopting Topic 606 on the Company’s consolidated financial statements as of and for the year ended December 31, 2018 (in thousands):




i. Consolidated balance sheets
 
Impact of changes in accounting policies
 
As reported
December 31, 2018
 
Adjustments
 
Balances without adoption of Topic 606
Assets
 
 
 
 
 
Current assets:
 
 
 
 
 
Cash and cash equivalents
$
2,188

 

 
2,188

Restricted cash
189

 

 
189

Trade receivables, net of allowance for doubtful accounts
13,121

 

 
13,121

Prepaid and other current assets
28,178

 
(13,452
)
 
14,726

Total current assets
43,676

 
(13,452
)
 
30,224

Property and equipment, net of accumulated depreciation
36,539

 

 
36,539

Subscriber accounts and deferred contract acquisition costs, net of accumulated amortization
1,195,463

 
45,970

 
1,241,433

Deferred income tax asset, net
783

 

 
783

Other assets, net
29,307

 
(16,154
)
 
13,153

Total assets
$
1,305,768

 
16,364

 
1,322,132

Liabilities and Stockholders’ (Deficit) Equity
 

 
 
 
 
Current liabilities:
 
 
 
 
 
Accounts payable
$
12,099

 

 
12,099

Other accrued liabilities
31,085

 

 
31,085

Deferred revenue
13,060

 
1,347

 
14,407

Holdback liability
11,513

 

 
11,513

Current portion of long-term debt
1,816,450

 

 
1,816,450

Total current liabilities
1,884,207

 
1,347

 
1,885,554

Non-current liabilities:
 

 
 
 
 
Long-term debt

 

 

Long-term holdback liability
1,770

 

 
1,770

Derivative financial instruments
6,039

 

 
6,039

Other liabilities
2,727

 

 
2,727

Total liabilities
1,894,743

 
1,347

 
1,896,090

Commitments and contingencies


 


 


Stockholders’ (deficit) equity:
 
 
 
 
 
Common stock

 

 

Additional paid-in capital
439,711

 

 
439,711

Accumulated deficit
(1,036,294
)
 
15,017

 
(1,021,277
)
Accumulated other comprehensive income, net
7,608

 

 
7,608

Total stockholders’ (deficit) equity
(588,975
)
 
15,017

 
(573,958
)
Total liabilities and stockholders’ (deficit) equity
$
1,305,768

 
16,364

 
1,322,132


ii. Consolidated statements of operations and comprehensive income (loss)
 
Impact of changes in accounting policies
 
As reported
year ended
December 31, 2018
 
Adjustments
 
Balances without adoption of Topic 606
Net revenue
$
540,358

 
(8,149
)
 
532,209

Operating expenses:
 

 
 
 
 
Cost of services
128,939

 
(6,263
)
 
122,676

Selling, general and administrative, including stock-based and long-term incentive compensation
118,940

 
(1,670
)
 
117,270

Amortization of subscriber accounts, deferred contract acquisition costs and other intangible assets
211,639

 
7,487

 
219,126

Depreciation
11,434

 

 
11,434

Loss on goodwill impairment
563,549

 

 
563,549

 
1,034,501

 
(446
)
 
1,034,055

Operating loss
(494,143
)
 
(7,703
)
 
(501,846
)
Other expense, net:
 

 
 
 
 
Interest expense
180,770

 

 
180,770

Unrealized loss on derivative financial instruments
3,151

 

 
3,151

Refinancing expense
12,238

 

 
12,238

 
196,159

 

 
196,159

Loss before income taxes
(690,302
)
 
(7,703
)
 
(698,005
)
Income tax expense
(11,552
)
 

 
(11,552
)
Net loss
(678,750
)
 
(7,703
)
 
(686,453
)
Other comprehensive income (loss):
 
 
 
 
 
Unrealized gain on derivative contracts, net
14,378

 

 
14,378

Total other comprehensive income, net of tax
14,378

 

 
14,378

Comprehensive loss
$
(664,372
)
 
(7,703
)
 
(672,075
)

iii. Consolidated statements of cash flows
 
Impact of changes in accounting policies
 
As reported
year ended
December 31, 2018
 
Adjustments
 
Balances without adoption of Topic 606
Cash flows from operating activities:
 
 
 
 
 
Net loss
$
(678,750
)
 
(7,703
)
 
(686,453
)
Adjustments to reconcile net loss to net cash provided by operating activities:
 

 
 
 
 
Amortization of subscriber accounts, deferred contract acquisition costs and other intangible assets
211,639

 
7,487

 
219,126

Depreciation
11,434

 

 
11,434

Stock-based and long-term incentive compensation
310

 

 
310

Deferred income tax expense
(14,087
)
 

 
(14,087
)
Non-cash legal settlement reserve (related insurance recovery)
(2,750
)
 

 
(2,750
)
Amortization of debt discount and deferred debt costs
33,452

 

 
33,452

Refinancing expense
12,238

 

 
12,238

Unrealized loss on derivative financial instruments
3,151

 

 
3,151

Bad debt expense
12,300

 

 
12,300

Goodwill impairment
563,549

 

 
563,549

Other non-cash activity, net
24

 

 
24

Changes in assets and liabilities:
 
 
 
 
 
Trade receivables
(12,776
)
 

 
(12,776
)
Prepaid expenses and other assets
(11,046
)
 
6,379

 
(4,667
)
Subscriber accounts - deferred contract acquisition costs
(5,418
)
 
89

 
(5,329
)
Payables and other liabilities
(18,767
)
 
(581
)
 
(19,348
)
Net cash provided by operating activities
104,503

 
5,671

 
110,174

Cash flows from investing activities:
 

 
 
 
 
Capital expenditures
(14,903
)
 

 
(14,903
)
Cost of subscriber accounts acquired
(140,450
)
 
(5,671
)
 
(146,121
)
Net cash used in investing activities
(155,353
)
 
(5,671
)
 
(161,024
)
Cash flows from financing activities:
 

 
 
 
 
Proceeds from long-term debt
248,800

 

 
248,800

Payments on long-term debt
(184,100
)
 

 
(184,100
)
Payments of financing costs
(9,682
)
 

 
(9,682
)
Value of shares withheld for share-based compensation
(93
)
 

 
(93
)
Dividend to Ascent Capital
(5,000
)
 

 
(5,000
)
Net cash provided by financing activities
49,925

 

 
49,925

Net decrease in cash, cash equivalents and restricted cash
(925
)
 

 
(925
)
Cash, cash equivalents and restricted cash at beginning of period
3,302

 

 
3,302

Cash, cash equivalents and restricted cash at end of period
$
2,377

 

 
2,377