Variable Interest Entity
|12 Months Ended|
Dec. 31, 2020
|Organization, Consolidation and Presentation of Financial Statements [Abstract]|
|Variable Interest Entity||Variable Interest Entity
On December 23, 2020, the Company completed a transaction (the "Select Security Transaction") in which it will acquire approximately 40,000 alarm monitoring contracts from Kourt Security Partners, LLC, doing business as Select Security (the "Seller"). The Company will take ownership of the alarm monitoring contracts through an earnout structure that includes a $10,914,000 upfront payment and a 50-month earnout period (the "Earnout Period"). Per the terms of the Select Security Transaction, the Seller transferred title of the monitoring contracts and other certain business assets to GS Security Alarm LLC ("GSSA"). GSSA is a bankruptcy-remote special purpose vehicle designed only to transact the sale of subscriber accounts and related assets to the Company. The Company was significantly involved in the design of GSSA; however, the Company does not own any equity interest in GSSA. GSSA transferred the specified business assets to the Company immediately after close as well as a certain subset of the monitoring contracts. Title to the remaining monitoring contracts will transfer from GSSA to the Company during the Earnout Period with title to all of the monitoring contracts transferred by month 50. For 90 days after the close, the Seller will provide transition services to the Company.
The Company also signed a monitoring services agreement with GSSA that establishes the Company as the sole and exclusive service provider for all of the subscriber accounts regardless of legal ownership during the 50-month period. Through this contract, the Company is responsible for all aspects of servicing the subscriber accounts and for making all operating and management decisions regarding these accounts in a manner in the Company’s sole discretion. The Company is also responsible for incurring all costs to serve the accounts and is entitled to the revenues generated by the accounts.
We determined that GSSA is a variable interest entity ("VIE") because the equity holder lacks the power to direct the activities that most significantly impact GSSA's economic performance. This conclusion is based upon GSSA’s legally restricted and limited purpose as designed by the Company as well as the monitoring services agreement that conveys all operating decisions and responsibilities to the Company. Further, we determined that the Company is the primary beneficiary of GSSA as we have both the power to direct the activities that most significantly impact GSSA’s economic performance and the obligation to absorb profits and/or losses of GSSA that could potentially be significant to GSSA.
We determined that GSSA does not meet the definition of a business as per FASB Topic ASC 810, Consolidation (Topic 810) ("ASC 810"), and therefore we applied the guidance in ASC 810 for initial consolidation of a VIE that is not a business when consolidating GSSA’s financial statements for the year ended December 31, 2020. No gain or loss was generated as a result of
the initial consolidation as the fair value of the consideration paid was consistent with the $42,214,000 fair value of net assets acquired.
At December 31, 2020, GSSA holds $35,171,000 of assets, of which $35,148,000 is the subscriber accounts intangible asset. This asset is presented in Subscriber accounts and deferred contract acquisition costs, net on the consolidated balance sheets. The remaining asset held by GSSA at December 31, 2020 consists of an immaterial amount of accounts receivable. GSSA does not hold any other assets or liabilities at December 31, 2020.
Notwithstanding its legal form, the Company’s transaction with GSSA has substantive characteristics of a financing arrangement with an obligation for the residual interest in GSSA. Accordingly, the noncontrolling interest in GSSA is presented as a liability within the Company’s consolidated financial statements.The initial cash payment made at closing to GSSA’s equity holder is presented within cash outflows for investing activities in our consolidated statements of cash flows. As of December 31, 2020, cash earnout payments to GSSA’s equity holder have not yet commenced.