UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

__________________________________________________________________________

FORM 10-Q

_______________________________________________

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

For the quarterly period ended September 30, 2018

or

¨ 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 333-191132-02

__________________________________________________________

APX Group Holdings, Inc.

(Exact name of Registrant as specified in its charter)

__________________________________________________________

Delaware	46-1304852
(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)	(Zip Code)

Registrant’s Telephone Number, Including Area Code: (801) 377-9111

__________________________________________________________

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  ¨    No  ý

(Note: From January 1, 2018, the registrant has been a voluntary filer not subject to the filing requirements of Section 13 or 15(d) of the Exchange Act; as a voluntary filer the registrant filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant would have been required to file such reports) as if it were subject to such filing requirements.)

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	x	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 1, 2018, there were 100 shares of the issuer’s common stock, par value $0.01 per share, issued and outstanding.

APX Group Holdings Inc.

FORM 10-Q

TABLE OF CONTENTS

PART I — Financial Information		6
Item 1.	Unaudited Condensed Consolidated Financial Statements	6
	Unaudited Condensed Consolidated Balance Sheets as of September 30, 2018 and December 31, 2017	6
	Unaudited Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2018 and 2017	8
	Unaudited Condensed Consolidated Statements of Comprehensive Loss for the three and nine months ended September 30, 2018 and 2017	9
	Unaudited Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2018 and 2017	10
	Notes to Unaudited Condensed Consolidated Financial Statements	11
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	53
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	77
Item 4.	Controls and Procedures	77
PART II — Other Information		78
Item 1.	Legal Proceedings	78
Item 1A.	Risk Factors	78
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	78
Item 3.	Defaults Upon Senior Securities	78
Item 4.	Mine Safety Disclosures	78
Item 5.	Other Information	78
Item 6.	Exhibits	79
SIGNATURES		81

2

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 APX Group Holdings, Inc. and its consolidated subsidiaries;

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

• references to the “Merger” are to the acquisition of APX Group 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; 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 contained in this Quarterly Report include, but are not limited to, statements about our ability to:

• accelerate adoption of our smart home solution;

• establish and grow through new customer acquisition channels;

• increase brand awareness;

• meet customer expectations and address key friction points for smart home adoption and use;

• expand our ecosystem with third-party and proprietary devices;

• reduce customer attrition;

• lower net customer acquisition costs;

• improve unit economics and grow subscription revenues per customer over time;

• increase new customer originations, customer usage, and customer satisfaction;

• develop, design, and sell our own Smart Home Services that are differentiated from those of our competitors;

• attract, train and retain an effective sales force and other key personnel;

• upgrade and maintain our information technology systems;

• acquire and protect intellectual property;

• meet future liquidity requirements and comply with restrictive covenants related to our long-term indebtedness;

• enhance our future operating and financial results;

• comply with laws and regulations applicable to our business; and

• successfully defend litigation brought against us.

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 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:

3

• 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;

• litigation, complaints or adverse publicity;

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

• 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;

• the introduction of unsuccessful new Smart Home Services;

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

• the impact to our business, results of operations, financial condition, regulatory compliance and customer experience of the Vivint Flex Pay plan (as defined in Note 1 - Basis of Presentation in the unaudited condensed consolidated financial statements) and our ability to successfully compete in retail sales channels.

In addition, the origination and retention of new subscribers will depend on various factors, including, but not limited to, market availability, subscriber interest, the availability of suitable components, the negotiation of acceptable contract terms with subscribers, 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 Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2017, as filed with the Securities and Exchange Commission (the “SEC”) (the “Form 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” section of the 10-K are not exhaustive. Other 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.

4

WEBSITE AND SOCIAL MEDIA DISCLOSURE

We use our website (www.vivint.com), our company blog (blog.vivint.com), corporate Twitter and Instagram accounts (@VivintHome), and our corporate Facebook account (VivintHome) 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.

5

PART I. FINANCIAL INFORMATION

ITEM 1. UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

APX Group Holdings, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets (unaudited)

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

	September 30, 2018			December 31, 2017
ASSETS
Current Assets:
Cash and cash equivalents	$	112,966		$	3,872
Accounts and notes receivable, net	51,996			40,721
Inventories	73,086			115,222
Prepaid expenses and other current assets	17,475			16,150
Total current assets	255,523			175,965
Property, plant and equipment, net	75,882			78,081
Capitalized contract costs, net	1,163,480			—
Subscriber acquisition costs, net	—			1,308,558
Deferred financing costs, net	2,318			3,099
Intangible assets, net	278,494			377,451
Goodwill	836,290			836,970
Long-term notes receivables and other assets, net	122,766			88,723
Total assets	$	2,734,753		$	2,868,847
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current Liabilities:
Accounts payable	$	71,364		$	107,347
Accrued payroll and commissions	118,913			57,752
Accrued expenses and other current liabilities	155,818			74,321
Deferred revenue	184,226			88,337
Current portion of capital lease obligations	8,511			10,614
Total current liabilities	538,832			338,371
Notes payable, net	2,979,268			2,760,297
Notes payable, net - related party	58,905			—
Revolving credit facility	—			60,000
Capital lease obligations, net of current portion	7,325			11,089
Deferred revenue, net of current portion	328,168			264,555
Other long-term obligations	95,553			79,020
Deferred income tax liabilities	8,816			9,041
Total liabilities	4,016,867			3,522,373
Commitments and contingencies (See Note 11)
Stockholders’ deficit:
Common stock, $0.01 par value, 100 shares authorized; 100 shares issued and outstanding	—			—
Additional paid-in capital	736,328			732,346
Accumulated deficit	(1,991,153		)	(1,358,571		)
Accumulated other comprehensive loss	(27,289		)	(27,301		)
Total stockholders’ deficit	(1,282,114		)	(653,526		)
Total liabilities and stockholders’ deficit	$	2,734,753		$	2,868,847

6

See accompanying notes to unaudited condensed consolidated financial statements

7

APX Group Holdings, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations (unaudited)

(in thousands)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017
Revenues:
Recurring and other revenue	$	272,335		$	219,111		$	773,899		$	618,752
Service and other sales revenue	—			6,764			—			18,513
Activation fees	—			2,783			—			8,872
Total revenues	272,335			228,658			773,899			646,137
Costs and expenses:
Operating expenses (exclusive of depreciation and amortization shown separately below)	92,703			81,108			265,784			229,776
Selling expenses (exclusive of amortization of deferred commissions of $40,030; $21,769; $121,609; and $61,193, respectively, which are included in depreciation and amortization shown separately below)	41,970			53,821			166,872			134,894
General and administrative expenses	50,542			49,416			150,715			127,179
Depreciation and amortization	130,636			84,460			381,767			241,425
Restructuring expenses	542			—			4,683			—
Total costs and expenses	316,393			268,805			969,821			733,274
Loss from operations	(44,058		)	(40,147		)	(195,922		)	(87,137		)
Other expenses (income):
Interest expense	61,881			58,005			180,998			166,644
Interest income	—			—			(31		)	(104		)
Other loss (income), net	14,510			8,611			(25,999		)	18,808
Loss before income taxes	(120,449		)	(106,763		)	(350,890		)	(272,485		)
Income tax (benefit) expense	(223		)	1,157			(1,562		)	2,308
Net loss	$	(120,226	)	$	(107,920	)	$	(349,328	)	$	(274,793	)

See accompanying notes to unaudited condensed consolidated financial statements

8

APX Group Holdings, Inc. and Subsidiaries

Condensed Consolidated Statements of Comprehensive Loss (unaudited)

(in thousands)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017
Net loss	$	(120,226	)	$	(107,920	)	$	(349,328	)	$	(274,793	)
Other comprehensive income (loss), net of tax effects:
Foreign currency translation adjustment	406			1,967			(670		)	3,543
Unrealized gain on marketable securities	—			(413		)	—			(671		)
Total other comprehensive income (loss)	406			1,554			(670		)	2,872
Comprehensive loss	$	(119,820	)	$	(106,366	)	$	(349,998	)	$	(271,921	)

See accompanying notes to unaudited condensed consolidated financial statements

9

APX Group Holdings, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows (unaudited)

(in thousands)

	Nine Months Ended September 30,
	2018			2017
Cash flows from operating activities:
Net loss	$	(349,328	)	$	(274,793	)
Adjustments to reconcile net loss to net cash used in operating activities:
Amortization of capitalized contract costs	294,802			—
Amortization of subscriber acquisition costs	—			149,933
Amortization of customer relationships	63,163			71,108
Depreciation and amortization of property, plant and equipment and other intangible assets	23,802			20,384
Amortization of deferred financing costs and bond premiums and discounts	3,944			5,201
Gain on fair value changes of equity securities	(1,385		)	—
(Gain) loss on sale or disposal of assets	(49,942		)	338
Loss on early extinguishment of debt	14,571			23,040
Stock-based compensation	1,651			1,287
Provision for doubtful accounts	14,318			14,723
Deferred income taxes	—			(378		)
Changes in operating assets and liabilities:
Accounts and notes receivable, net	(26,830		)	(35,578		)
Inventories	42,053			(59,500		)
Prepaid expenses and other current assets	(1,327		)	(9,792		)
Capitalized contract costs, net	(439,711		)	—
Subscriber acquisition costs, net	—			(367,300		)
Long-term notes receivables and other assets, net	(30,231		)	(68,117		)
Accounts payable	(31,781		)	42,435
Accrued payroll and commissions, expenses and other current and long-term liabilities	168,953			132,649
Deferred revenue	173,255			205,092
Net cash used in operating activities	(130,023		)	(149,268		)
Cash flows from investing activities:
Capital expenditures	(15,355		)	(14,842		)
Proceeds from the sale of intangible assets	53,693			—
Proceeds from the sale of capital assets	185			275
Acquisition of intangible assets	(1,068		)	(1,057		)
Acquisition of other assets	—			(156		)
Net cash provided by (used in) investing activities	37,455			(15,780		)
Cash flows from financing activities:
Proceeds from notes payable	759,000			724,750
Proceeds from notes payable - related party	51,000			—
Repayment of notes payable	(520,166		)	(450,000		)
Borrowings from revolving credit facility	201,000			124,000
Repayments on revolving credit facility	(261,000		)	(124,000		)
Proceeds from capital contribution	4,700			—
Repayments of capital lease obligations	(9,882		)	(7,161		)
Payments of other long-term obligations	—			(2,065		)
Financing costs	(11,317		)	(17,771		)
Deferred financing costs	(9,302		)	(10,730		)
Return of capital	(2,369		)	—
Net cash provided by financing activities	201,664			237,023
Effect of exchange rate changes on cash	(2		)	72
Net increase in cash and cash equivalents	109,094			72,047
Cash and cash equivalents:
Beginning of period	3,872			43,520
End of period	$	112,966		$	115,567
Supplemental non-cash investing and financing activities:
Capital lease additions	$	4,432		$	8,285
Intangible assets acquisitions included within accounts payable	$	424		$	923
Capital expenditures included within accounts payable and accrued expenses and other current liabilities	$	352		$	2,502
Change in fair value of equity securities	$	—		$	293
Financing costs included within accounts payable and accrued expenses and other current liabilities	$	974		$	982

See accompanying notes to unaudited condensed consolidated financial statements

10

APX Group Holdings, 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 APX Group Holdings, Inc. and subsidiaries (the “Company”) without audit. The accompanying consolidated financial statements include the accounts of APX Group Holdings, 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, 2017 included in the unaudited condensed consolidated balance sheets was derived from the Company’s audited consolidated 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, 2018 are not necessarily indicative of the results that may be expected for the year ending December 31, 2018.

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 for the fiscal year ended December 31, 2017, as filed with the Securities and Exchange Commission (“SEC”) on March 6, 2018, which is available on the SEC’s website at www.sec.gov.

Basis of Presentation

The unaudited condensed consolidated financial statements of the Company are presented for APX Group Holdings, Inc. (“Holdings") and its wholly-owned subsidiaries. The Company has prepared the accompanying unaudited condensed consolidated financial statements pursuant to GAAP. Preparing financial statements requires the Company to make estimates and assumptions that affect the amounts that are reported in the 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.

Vivint Flex Pay

In January 2017, the Company announced the introduction of the Vivint Flex Pay plan (“Vivint Flex Pay”), which became the Company's primary sales 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 options to pay for the Products: (1) qualified customers in the United States may finance the purchase of Products through a third-party financing provider (“Consumer Financing Program”), (2) customers not eligible for the Consumer Financing Program, but who qualify under the Company's underwriting criteria, may 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, the Company has determined that the shift in model does not change the Company's conclusion 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. Gross deferred revenues are reduced by imputed interest on the RICs and the present value of expected payments due to the third-party financing provider under the Consumer Financing Program.

Under the Consumer Financing Program, qualified customers are eligible for installment loans provided by a third-party financing provider of up to$4,000 for either 42 or 60 months. The Company pays a monthly fee to the third-party financing provider based on the average daily outstanding balance of the installment loans. Additionally, the Company shares liability for credit losses depending on the credit quality of the customer. Because of the nature of these provisions under the Consumer Financing Program, the Company records a derivative liability at its fair value when the third-party financing

11

provider originates installment 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 from the Company to the third-party financing provider. Subsequent changes to the fair value of the derivative liability are realized through other loss/(income), net in the Condensed Consolidated Statement of Operations. (See Note 8).

Retail Installment Contract Receivables

For customers that enter into a RIC under the Vivint Flex Pay plan, the Company records a receivable for the amount financed. The RIC receivables are recorded at their present value, net of the imputed interest. At the time of installation, the Company records 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.

The Company imputes the interest on the RIC receivable using a risk adjusted market interest rate and records it as an adjustment to deferred revenue and as an adjustment to the face amount of the related receivable. The imputed interest discount considers a number of factors, including collection experience, aging of the remaining RIC receivable portfolios, credit quality of the subscriber base and other qualitative considerations, including macro-economic factors. The imputed interest income is recognized over the term of the RIC contract as recurring and other revenue on the condensed consolidated statement of operations.

When the Company determines that there are RIC receivables that have become uncollectible, the Company records an adjustment to the imputed interest discount and reduce the related note receivable balance. 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 customers for recurring monthly monitoring Services 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 condensed consolidated balance sheets. Accounts receivable totaled$22.6 million and $24.3 million at September 30, 2018 and December 31, 2017, respectively net of the allowance for doubtful accounts of$5.6 million and $5.4 million at September 30, 2018 and December 31, 2017, respectively. The Company estimates this allowance based on historical collection experience and subscriber attrition rates. When the Company determines that there are accounts receivable that are uncollectible, they are charged off against the allowance for doubtful accounts. As ofSeptember 30, 2018 and December 31, 2017, noaccounts receivable were classified as held for sale. The provision for doubtful accounts is included in general and administrative expenses in the accompanying unaudited condensed consolidated statements of operations and totaled$5.9 million and $5.0 million for the three months ended September 30, 2018 and 2017, respectively, and $14.3 million and $14.7 million for the nine months ended September 30, 2018 and 2017, respectively.

The changes in the Company’s allowance for accounts receivable were as follows for the periods ended (in thousands):

	Nine Months Ended September 30, 2018			Twelve Months Ended December 31, 2017
Beginning balance	$	5,356		$	4,138
Provision for doubtful accounts	14,318			22,465
Write-offs and adjustments	(14,026		)	(21,247		)
Balance at end of period	$	5,648		$	5,356

Revenue Recognition

The Company offers its customers smart home services combining Products, including a proprietary control panel, door and window sensors, door locks, security cameras and smoke alarms; installation; and a proprietary back-end cloud platform software and Services. These together create an integrated system that allows the Company’s customers to monitor,

12

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. 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 benefit, which is generally three years.

The majority of the Company’s subscription contracts are between three and five years in length and are 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 fees or installation fees are invoiced to the customer at the time of sale. Revenues for wireless internet service provided by Vivint Wireless Inc. (“Wireless Internet” or “Wireless”) and 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.

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 customer contracts. These include commissions, other compensation and related costs paid 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. These costs are deferred and amortized on a straight-line basis over the expected period of benefit that the Company has determined to befive years. Amortization of capitalized contract costs is included in “Depreciation and Amortization” on the consolidated statements of operations. These deferred costs are periodically reviewed for impairment. Contract costs not directly related and incremental to the origination of new contracts, modification of existing contracts or to the fulfillment of the related customer contracts are expensed as incurred. These costs include those associated with housing, marketing and 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 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 customer contracts.

Cash and Cash Equivalents

Cash and cash equivalents consists 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 Products and parts, are stated at the lower of cost or net realizable value with cost determined under the first-in, first-out (FIFO) method. The Company adjusts the inventory balance based on anticipated obsolescence, usage and historical write-offs.

Long-lived Assets and Intangibles

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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 capital 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 fromfive 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 with 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, 2018 and 2017, 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,
	2018		2017		2018		2017
Amortization of capitalized contract costs	$	101,498	$	—	$	294,802	$	—
Amortization of subscriber acquisition costs	—		53,730		—		149,933
Amortization of definite-lived intangibles	22,741		25,547		68,193		76,267
Depreciation of property, plant and equipment	6,397		5,183		18,772		15,225
Total depreciation and amortization	$	130,636	$	84,460	$	381,767	$	241,425

Wireless Spectrum Licenses

The Company had capitalized, as an intangible asset, wireless spectrum licenses that its subsidiary, Vivint Wireless, acquired from a third party. The cost basis of the wireless spectrum asset included the purchase price paid for the licenses at the time of acquisition, plus costs incurred to acquire the licenses. The asset and related liability were recorded at the net present value of future cash outflows using the Company's incremental borrowing rate at the time of acquisition.

 The Company determined that the wireless spectrum licenses met the definition of indefinite-lived intangible assets because the licenses were able to be renewed periodically for a nominal fee, provided that the Company continued to meet the service and geographic coverage provisions. In January 2018, the Company terminated the wireless spectrum licenses for cash consideration. See Note 7 for further discussion.

Long-term Investments

The Company’s long-term investments are comprised of equity securities in both privately held and public companies. As of September 30, 2018 and December 31, 2017, the Company's equity investments totaled $4.8 million and $3.4 million, respectively.

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Management determines the appropriate fair value measurement of its investments at the time of purchase and reevaluates the fair value measurement at each balance sheet date. Equity securities are classified as either short-term or long-term, based on the nature of each security and its availability for use in current operations. The Company’s equity securities are carried at fair value, with gains and losses reported in other income or loss within the statement of operations.

The Company's equity investments without readily determinable fair values totaled $0.7 million as of September 30, 2018 and December 31, 2017, respectively. The Company performs impairment analyses of its investments without readily determinable fair values when events occur or circumstances change that would, more likely than not, reduce the fair value of the investment below its carrying value. When indicators of impairment do not exist, the Company evaluates impairment using a qualitative approach. Additionally, increases or decreases in the carrying amount resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer are adjusted through the statement of operations as needed. As of September 30, 2018 and December 31, 2017, no indicators of impairment or changes in observable prices existed associated with investments without readily determinable fair values.

Deferred Financing Costs

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 3. Deferred financing costs included in the accompanying unaudited condensed consolidated balance sheets within deferred financing costs, net at September 30, 2018 and December 31, 2017 were $2.3 million and $3.1 million, net of accumulated amortization of $9.4 million and $8.6 million, respectively. Deferred financing costs included in the accompanying unaudited condensed consolidated balance sheets within notes payable, net at September 30, 2018 and December 31, 2017 were $34.6 million and $35.7 million, net of accumulated amortization of $52.4 million and $45.2 million, respectively. Amortization expense on deferred financing costs recognized and included in interest expense in the accompanying unaudited condensed consolidated statements of operations, totaled $2.6 million and $2.8 million for the three months ended September 30, 2018 and 2017, respectively and $7.9 million and $8.7 million for the nine months ended September 30, 2018 and 2017, respectively (See Note 3).

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”). In addition, during the three months ended June 30, 2018, the Company introduced a new residual sales compensation plan (the “Residual Plan”). Under the Residual Plan, the Company's sales personnel (each, a “Plan Participant”) have the option to convert up to a specified portion of their earnings (as defined in the Residual Plan) into the right to receive monthly residual compensation payable over the life of the subscriber accounts sold by such Plan Participant.

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 amount included in accrued payroll and commissions for these plans was $4.4 million and $3.3 million at September 30, 2018 and December 31, 2017, respectively, and the amount included in other long-term obligations was $24.9 million and $18.5 million at September 30, 2018 and December 31, 2017, respectively, representing the present value of the estimated amounts owed to third-party sales channel partners.

Stock-Based Compensation

The Company measures compensation costs based on the grant-date fair value of the award and recognizes that cost over the requisite service period of the awards (See Note 10).

Advertising Expense

Advertising costs are expensed as incurred. Advertising costs were $13.1 million and $12.6 million for the three months ended September 30, 2018 and 2017, respectively and $34.8 million and $33.7 million for the nine months ended September 30, 2018 and 2017, respectively.

Income Taxes

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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 a50%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.

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, 2018, approximately 78% of the Company’s installed panels were SkyControl panels and 20% were 2GIG Go!Control panels. During the three months ended March 31, 2018 the Company transitioned to a new panel supplier. The loss of the Company's panel supplier 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 months ended September 30, 2018 and 2017.

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 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 the Company’s reporting units may be less than 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 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, the Company would be required to complete the second step of the test by analyzing the fair value of its goodwill. If the carrying value of the goodwill exceeds its fair value, an impairment charge is recorded. The Company’s reporting units are determined based on its current reporting structure, which as of December 31, 2017 and September 30, 2018consisted of two reporting units. As ofSeptember 30, 2018, there were no changes in facts and circumstances since the most recent annual impairment analysis to indicate impairment existed.

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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 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, 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 is anticipated and therefore such balances are deemed to be of a short term nature. Translation activity included in the statement of operations in other loss, net related to intercompany balances was as follows: (in thousands)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018		2017
Translation (gain) loss	$	(1,459	)	$	(3,076	)	$	2,175	$	(5,545	)

Letters of Credit

As of September 30, 2018 and December 31, 2017, the Company had $11.3 million and $9.5 million, respectively, of letters of credit issued in the ordinary course of business, all of which are undrawn.

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 14).

Recent Accounting Pronouncements

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2016-13, “Financial Instruments—Credit Losses (Topic 326)” which modifies the measurement of expected credit losses of certain financial instruments. This update is effective for fiscal years, and interim periods within those years, beginning after December 15, 2019 and must be applied using a modified-retrospective approach, with early adoption permitted. The Company is evaluating the adoption of ASU 2016-13 and plans to provide additional information about its expected impact at a future date.

In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 326)” to increase transparency and comparability among organizations as it relates to lease assets and lease liabilities. The update requires that lease assets and lease liabilities be recognized on the balance sheet, and that key information about leasing arrangements be disclosed. Prior to this update, GAAP did not require operating leases to be recognized as lease assets and lease liabilities on the balance sheet. This update is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018, with early adoption permitted. In July 2018, the FASB issued ASU 2018-11 which provides companies the option to adopt using a modified retrospective approach or a prospective adoption approach.

The Company is continuing its evaluation of the impact of ASU 2016-02 on its accounting policies, processes, and system requirements. The Company’s current operating lease portfolio is primarily comprised of network, real estate, and equipment leases. Upon adoption of this standard, the Company expects the balance sheet to include a right of use asset and liability related to substantially all operating lease arrangements. The Company has assigned internal resources to perform the

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evaluation. Furthermore, the Company has made and will continue to make investments in systems to enable timely and accurate reporting under the new standard.

While the Company continues to assess the potential impacts of ASU 2016-02, including the areas described above, and anticipates this standard could have a material impact on the consolidated financial statements, the Company does not know or cannot reasonably estimate quantitative information related to the impact of the new standard on the financial statements at this time. The Company anticipates adopting this standard on January 1, 2019 using the prospective adoption approach and electing substantially all the practical expedients allowed under the standard.

Recently Adopted Accounting Standards

ASU 2016-01

In January 2016, the FASB issued ASU 2016-01, "Financial Instruments-Overall (Subtopic 825-10)" which enhances the reporting model for financial instruments by addressing certain aspects of the recognition, measurement, presentation and disclosure of financial instruments. Key provisions require equity investments (except those accounted for under the equity method of accounting) to be measured at fair value with changes in fair value recognized in net income (loss). In addition, the exit price notion must be used when measuring the fair value of financial instruments for disclosure purposes. ASU 2016-01 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. The Company adopted ASU 2016-01 on January 1, 2018, with a cumulative-effect adjustment to increase accumulated deficit by $0.7 million for the net unrealized losses within accumulated other comprehensive income related to equity investments. During the three and nine months ended September 30, 2018, the Company recorded a net gain of $0.6 million and $1.4 million, respectively, to other income associated with the change in fair value of equity investments.

ASU 2014-09

In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606),” which supersedes the revenue recognition requirements in “Revenue Recognition (Topic 605).” Under Topic 606, revenue is recognized when a customer obtains control of promised goods or services and is recognized in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. In addition, Topic 606 requires enhanced disclosures, including disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. Topic 606 also includes Subtopic 340-40, Other Assets and Deferred Costs - Contracts with Customers, which requires the deferral of incremental costs of obtaining a contract with a customer. Collectively, the Company refers to Topic 606 and Subtopic 340-40 as the “new standard”.

The Company adopted the new standard as of January 1, 2018, utilizing the modified retrospective method of transition (the cumulative catch-up transition method). Adoption of the new standard resulted in changes to the accounting policies for revenue recognition, deferred revenue, and capitalized contract costs (formerly subscriber acquisition costs). The cumulative effect of applying the new standard to all contracts with customers that were not completed as of January 1, 2018 was recorded as an adjustment to accumulated deficit as of the adoption date. The comparative information has not been adjusted and continues to be reported under Topic 605. See Note 2 "Revenue and Capitalized Contract Costs" for additional information related to the impact of adopting this standard and a discussion of the Company's updated policies related to revenue recognition and accounting for costs to obtain and fulfill a customer contract.

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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. The Company does not generally record any contract assets. 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 records deferred revenues when cash payments are received or due in advance of performance of the Company's obligations, including amounts which are refundable. The increase in the deferred revenue balance during the nine months ended September 30, 2018 is primarily driven by cash payments received or due in advance of satisfying the Company's performance obligations, offset by $132.4 million of revenues recognized that were included in the deferred revenue balance as of December 31, 2017.

Transaction Price Allocated to the Remaining Performance Obligations

As of September 30, 2018, approximately $2.3 billion of revenue is expected to be recognized from remaining performance obligations for subscription contracts. The Company expects to recognize approximately 62% of the revenue related to these remaining performance obligations over the next 24 months, with the remaining balance recognized over an additional 36 months.

Financial Statement Impact of Adopting Topic 606

The Company adopted Topic 606 using the cumulative catch-up transition method. The cumulative effect of applying the new standard to all contracts with customers that were not completed as of January 1, 2018 was recorded as an adjustment to accumulated deficit as of the adoption date. As a result of applying the modified retrospective method to adopt the new revenue guidance, the following adjustments were made to select consolidated balance sheet line items as of January 1, 2018 (in thousands):

Condensed Consolidated Balance Sheets (unaudited)
	As Reported			Adjustments			Adjusted
	December 31, 2017						January 1, 2018
Assets
Capitalized contract costs, net	$	—		$	1,020,408		$	1,020,408
Subscriber acquisition costs, net	1,308,558			(1,308,558		)	—
Long-term notes receivables and other assets, net	88,723			2,713			91,436
Liabilities and Stockholders' Deficit
Accrued expenses and other current liabilities	74,321			10,329			84,650
Deferred revenue	88,337			39,868			128,205
Deferred revenue, net of current portion	264,555			(53,062		)	211,493
Accumulated deficit	(1,358,571		)	(282,572		)	(1,641,143		)

The following tables compare the select reported condensed consolidated balance sheets, statements of operations and cash flows line items to the amounts had the previous guidance been in effect (in thousands):

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Condensed Consolidated Balance Sheets (unaudited)
	September 30, 2018
	As Reported			Balances Without Adoption of Topic 606			Effect of Change Higher/(Lower)
Assets
Capitalized contract costs, net	$	1,163,480		$	—		$	1,163,480
Subscriber acquisition costs, net	—			1,540,097			(1,540,097		)
Liabilities and Stockholders' Deficit
Accrued expenses and other current liabilities	155,818			145,680			10,138
Deferred revenue	184,226			126,797			57,429
Deferred revenue, net of current portion	328,168			429,248			(101,080		)
Accumulated deficit	(1,991,153		)	(1,647,493		)	(343,660		)
Accumulated other comprehensive loss	(27,289		)	(27,845		)	556

Condensed Consolidated Statements of Operations and Comprehensive Loss (unaudited)
	Three months ended September 30, 2018									Nine months ended September 30, 2018
	As Reported			Balances Without Adoption of Topic 606			Effect of Change Higher/(Lower)			As Reported			Balances Without Adoption of Topic 606			Effect of Change Higher/(Lower)
Revenues:
Recurring and other revenue	$	272,335		$	243,733		$	28,602		$	773,899		$	703,807		$	70,092
Service and other sales revenue	—			15,200			(15,200		)	—			31,998			(31,998		)
Activation fees	—			2,314			(2,314		)	—			7,455			(7,455		)
Costs and expenses:
Operating expenses	92,703			103,199			(10,496		)	265,784			286,214			(20,430		)
Depreciation and amortization	130,636			94,509			36,127			381,767			272,319			109,448
Loss before income taxes	(120,449		)	(105,906		)	(14,543		)	(350,890		)	(292,511		)	(58,379		)
Net loss	(120,226		)	(105,683		)	(14,543		)	(349,328		)	(290,949		)	(58,379		)
Other comprehensive loss, net of tax effects:
Foreign currency translation adjustment	406			(150		)	556			(670		)	(1,226		)	556
Total other comprehensive income (loss)	406			(150		)	556			(670		)	(1,226		)	556
Comprehensive loss	(119,820		)	(105,833		)	(13,987		)	(349,998		)	(292,175		)	(57,823		)

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Condensed Consolidated Statements of Cashflows (unaudited)
	Nine Months Ended September 30, 2018
	As Reported			Balances Without Adoption of Topic 606			Effect of Change Higher/(Lower)
Cash flows from operating activities:
Net loss	$	(349,328	)	$	(290,949	)	$	(58,379	)
Adjustments to reconcile net loss to net cash used in operating activities:
Amortization of capitalized contract costs	294,802			—			294,802
Amortization of subscriber acquisition costs	—			185,354			(185,354		)
Changes in operating assets and liabilities:
Capitalized contract costs – deferred contract costs	(439,711		)	—			(439,711		)
Subscriber acquisition costs – deferred contract costs	—			(419,281		)	419,281
Deferred revenue	173,255			203,894			(30,639		)
Net cash used in operating activities	(130,023		)	(130,023		)	—

Timing of Revenue Recognition

The Company previously recognized certain service and other sales revenue when the Services were provided or when title to Products sold transferred to the customer. Revenue from the sale of Products that were not part of the service offering (i.e., those Products sold subsequent to the date of the initial installation) were also generally recognized upon delivery of Products. Under the new standard, 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. Accordingly, the Company now defers a larger portion of certain Smart Home Services revenue, as prior to the adoption of Topic 606 certain of this revenue was recognized at the time services were provided or upon delivery.

The Company previously amortized deferred revenues related to sales of Products and activation fees on subscriber contracts over the expected life of the customer, which was15 yearsusing a240%declining balance method. Under the new standard, activation fees are included in the transaction price allocated to the single Smart Home Service performance obligation and recognized straight-line over the customer’s contract term, which is generallythree 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 previously deferred and amortized these costs for new customer contracts in a pattern that reflected the estimated life of subscriber relationships and generally expensed all costs associated with modified customer contracts. Under the new standard, the Company defers and amortizes these costs for new or modified customer contracts on a straight-line basis over the expected period of benefit of five years.

3. Long-Term Debt

Notes Payable

2019 Notes

On November 16, 2012, APX issued $925.0 million aggregate principal amount of 6.375% senior secured notes due 2019 (the “2019 notes”) with a maturity date of December 1, 2019 which were secured on a first-priority lien basis by substantially all of the tangible and intangible assets whether now owned or hereafter acquired by the Company, subject to permitted liens and exceptions.

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The Company repurchased $205.5 million, $300.0 million and $150.0 million aggregate principal amount of the outstanding 2019 notes in May 2016, February 2017, and August 2017, respectively. In September 2018, the Company redeemed in full the entire remaining $269.5 million outstanding aggregate principal amount of the 2019 notes.

2020 Notes

On November 16, 2012, APX issued $380.0 million aggregate principal amount of 8.75% senior notes due 2020 (the “2020 notes”) with a maturity date of December 1, 2020 which are secured on a first-priority lien basis by substantially all of the tangible and intangible assets whether now owned or hereafter acquired by the Company, subject to permitted liens and exceptions.

During 2013, APX completed two offerings of additional 2020 notes under the indenture dated November 16, 2012. On May 31, 2013, APX issued $200.0 million of 2020 notes at a price of 101.75% and on December 13, 2013, APX issued an additional $250.0 million of 2020 notes at a price of 101.50%.

During 2014, APX issued an additional $100.0 million of 2020 notes at a price of 102.00%.

In September 2018, the Company repurchased $250.7 million outstanding aggregate principal amount of the 2020 notes.

2022 Private Placement Notes

In October 2015, APX issued $300.0 million aggregate principal amount of 8.875% senior secured notes due 2022 (the “2022 private placement notes”), pursuant to a note purchase agreement dated as of October 19, 2015 in a private placement exempt from registration under the Securities Act. The 2022 private placement notes will mature on December 1, 2022, unless on September 1, 2020 (the 91st day prior to the maturity of the 2020 notes) more than an aggregate principal amount of $190.0 million of such 2020 notes remain outstanding or have not been refinanced as permitted under the note purchase agreement for the 2022 private placement notes, in which case the 2022 private placement notes will mature on September 1, 2020. The 2022 private placement notes are secured, on a pari passu basis, by the collateral securing obligations under the 2019 notes, the 2022 private placement notes, the 2022 notes (as defined below), and the 2023 notes (as defined below), and the revolving credit facilities and the Term Loan (as defined below), in each case, subject to certain exceptions and permitted liens.

In May 2016, the Company repurchased $29.5 million outstanding aggregate principal amount of the 2022 private placement notes.

2022 Notes

In May 2016, APX issued $500.0 million aggregate principal amount of 7.875% senior secured notes due 2022 (the “2022 notes”), pursuant to an indenture dated as of May 26, 2016 among APX, the guarantors party thereto and Wilmington Trust, National Association, as trustee and collateral agent. The 2022 notes will mature on December 1, 2022, or on such earlier date when any outstanding pari passu lien indebtedness matures as a result of the operation of any “Springing Maturity” provision set forth in the agreements governing such pari passu lien indebtedness. The 2022 notes are secured, on a pari passu basis, by the collateral securing obligations under the 2019 notes and 2022 private placement notes, the revolving credit facilities and the Term Loan, in all cases, subject to certain exceptions and permitted liens. APX used a portion of the net proceeds from the issuance of the 2022 notes to repurchase approximately $235 million aggregate principal amount of the outstanding 2019 notes and 2022 private placement notes in privately negotiated transactions and repaid borrowings under the existing revolving credit facility.

In August 2016, APX issued an additional $100.0 million aggregate principal amount of the 2022 notes at a price of 104.00%.

In February 2017, APX issued an additional $300.0 million aggregate principal amount of the 2022 notes at a price of 108.25% (“February 2017 issuance”). A portion of the net proceeds from the offering of these 2022 notes were used to redeem $300.0 million aggregate principal amount of the existing 2019 notes and pay the related accrued interest and redemption premium, and to pay all fees and expenses related thereto and any remaining proceeds will be used for general corporate purposes.

2023 Notes

In August 2017, APX issued $400.0 million aggregate principal amount of the 7.625% senior notes due 2023 (the “2023 notes” and, together with the 2019 notes, the 2020 notes and the 2022 private placement notes, the “Notes”) (“August 2017 issuance”). The proceeds from the outstanding 2023 notes offering were used to redeem $150.0 million aggregate principal amount of the outstanding 2019 notes and pay the related accrued interest and redemption premium, and to pay all fees and expenses related thereto. Any remaining net proceeds have been or will be used for general corporate purposes, which may include the repayment of outstanding borrowings under the revolving credit facility.

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The Notes are fully and unconditionally guaranteed, jointly and severally by APX and each of APX’s existing restricted subsidiaries that guarantee indebtedness under APX’s revolving credit facility or the Company's other indebtedness. Interest accrues at the rate of 8.75% per annum for the 2020 notes, 8.875% per annum for the 2022 private placement notes, 7.875% per annum for the 2022 notes and 7.625% per annum for the 2023 notes. Interest on the 2020 notes, 2022 private placement notes and 2022 notes is payable semiannually in arrears on each June 1 and December 1. Interest on the 2023 notes is payable semiannually in arrears on each March 1 and September 1. APX may redeem the Notes at the prices and on the terms specified in the applicable indenture, note purchase agreement or credit agreement.

Term Loan

In September 2018, APX entered into a credit agreement (the “September 2018 issuance”) for total term loans of $810.0 million (the “Term Loan”). The Company is required to make quarterly amortization payments under the Term Loan in an amount equal to 0.25% of the aggregate principal amount of Term Loan outstanding on the closing date thereof. The remaining principal amount outstanding under the Term Loan will be due and payable in full on March 31, 2024, or earlier if certain springing maturity conditions apply. The net proceeds from the Term Loan were used in-part to redeem in full the entire $269.5 million outstanding aggregate principal amount of the 2019 Notes and pay the related accrued interest and redemption premium, to repurchase approximately $250.7 million aggregate principal amount of the outstanding 2020 Notes, to repay the outstanding borrowings under the revolving credit facility and to pay fees and expenses related to the Term Loan and the transactions described above.

Borrowings under the Term Loan bear interest at a rate per annum equal to an applicable margin plus, at the Company's option, either (1) the base rate determined by reference to the highest of (a) the federal funds rate plus 0.50%, (b) the prime rate of Bank of America, N.A. and (c) the LIBOR rate determined by reference to the costs of funds for U.S. dollar deposits for an interest period of one month, plus 1.00% or (2) the LIBOR rate determined by reference to the London interbank offered rate for dollars for the interest period relevant to such borrowing. The applicable margin for base rate-based borrowings is 4.0% per annum and the applicable margin for LIBOR rate-based borrowings is 5.0% per annum. APX may prepay the Term Loan at the prices and on the terms specified in the credit agreement covering the Term Loan.

Debt Modifications and Extinguishments

In accordance with ASC 470-50 Debt – Modifications and Extinguishments, the Company performed analyses for the September 2018, August 2017 and February 2017 issuances to determine if the repurchased notes were substantially different than the notes issued to determine the appropriate accounting treatment of associated issuance fees. As a result of these analyses the company recorded the following amounts of other expense and loss on extinguishment and deferred financing costs (in thousands):

	Other expense and loss on extinguishment									Deferred financing costs
	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
Three and nine months ended September 30, 2018
September 2018 issuance	$	(953	)	$	4,207	$	11,317	$	14,571	$	—	$	10,275	$	10,275
Three months ended September 30, 2017
August 2017 issuance	$	—		$	1,408	$	8,881	$	10,289	$	473	$	4,556	$	5,029
Nine months ended September 30, 2017
August 2017 issuance	$	—		$	1,408	$	8,881	$	10,289	$	473	$	4,556	$	5,029
February 2017 issuance	—			3,259		9,491		12,750		1,476		6,077		7,553
Total	$	—		$	4,667	$	18,372	$	23,039	$	1,949	$	10,633	$	12,582

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Deferred financing costs are amortized to interest expense over the life of the issued debt.    The following table presents deferred financing activity for the nine months ended September 30, 2018 and year ended December 31, 2017 (in thousands):

	Unamortized Deferred Financing Costs
	Balance December 31, 2017		Additions		Refinances		Early Extinguishment			Amortized			Balance September 30, 2018
Revolving Credit Facility	$	3,099	$	—	$	—	$	—		$	(781	)	$	2,318
2019 Notes	2,877		—		—		(1,876		)	(1,001		)	—
2020 Notes	11,209		—		—		(2,331		)	(2,796		)	6,082
2022 Private Placement Notes	752		—		—		—			(113		)	639
2022 Notes	16,067		—		—		—			(2,451		)	13,616
2023 Notes	4,762		—		—		—			(630		)	4,132
Term Loan	—		10,275		—		—			(153		)	10,122
Total Deferred Financing Costs	$	38,766	$	10,275	$	—	$	(4,207	)	$	(7,925	)	$	36,909

	Unamortized Deferred Financing Costs
	Balance December 31, 2016		Additions		Refinances			Early Extinguishment			Amortized			Balance December 31, 2017
Revolving Credit Facility	$	4,420	$	399	$	—		$	—		$	(1,720	)	$	3,099
2019 Notes	11,693		—		(1,949		)	(4,667		)	(2,200		)	2,877
2020 Notes	15,053		—		—			—			(3,844		)	11,209
2022 Private Placement Notes	903		—		—			—			(151		)	752
2022 Notes	11,714		6,076		1,476			—			(3,199		)	16,067
2023 Notes	—		4,569		473			—			(280		)	4,762
Total Deferred Financing Costs	$	43,783	$	11,044	$	—		$	(4,667	)	$	(11,394	)	$	38,766

Revolving Credit Facility

On November 16, 2012, APX entered into a $200.0 million senior secured revolving credit facility, with a five year maturity. On March 6, 2015, APX amended and restated the credit agreement governing the revolving credit facility to provide for, among other things, (1) an increase in the aggregate commitments previously available to APX thereunder from $200.0 million to $289.4 million (“Revolving Commitments”) and (2) the extension of the maturity date with respect to certain of the previously available commitments. On August 10, 2017, APX further amended and restated the credit agreement governing the revolving credit facility to provide for, among other things, (1) an increase in the aggregate commitments previously available to the Company from $289.4 million to $324.3 million and (2) the extension of the maturity date with respect to certain of the previously available commitments.

Borrowings under the amended and restated revolving credit facility bear interest at a rate per annum equal to an applicable margin plus, at APX’s option, either (1) the base rate determined by reference to the highest of (a) the Federal Funds rate plus 0.50%, (b) the prime rate of Bank of America, N.A. and (c) the LIBOR rate determined by reference to the costs of funds for U.S. dollar deposits for an interest period of one month, plus 1.00% or (2) the LIBOR rate determined by reference to the London interbank offered rate for dollars for the interest period relevant to such borrowing. The applicable margin for base rate-based borrowings (1)(a) under the Series A Revolving Commitments of approximately $267.0 million and Series D Revolving Commitments of approximately $15.4 million is currently 2.0% per annum and (b) under the Series B Revolving Commitments of approximately $21.2 million is currently 3.0% and (2)(a) the applicable margin for LIBOR rate-based borrowings (a) under the Series A Revolving Commitments, Series C Revolving Commitments, and Series D Revolving Commitments is currently 3.0% per annum and (b) under the Series B Revolving Commitments is currently 4.0%. The applicable margin for borrowings under the revolving credit facility is subject to one step-down of 25 basis points based on

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APX meeting a consolidated first lien net leverage ratio test at the end of each fiscal quarter. In November 2017, previous commitments of $20.8 million under the Series C Revolving Commitments had expired. Outstanding borrowings under the amended and restated revolving credit facility are allocated on a pro-rata basis between each Series based on the total Revolving Commitments.

In addition to paying interest on outstanding principal under the revolving credit facility, APX is required to pay a quarterly commitment fee (which will be subject to one interest rate step-down of 12.5 basis points, based on APX meeting a consolidated first lien net leverage ratio test) 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.

APX is not required to make any scheduled amortization payments under the revolving credit facility. The principal amount outstanding under the revolving credit facility will be due and payable in full on (1) with respect to the non-extended commitments under the Series D, March 31, 2019 and (2) with respect to the extended commitments under the Series A Revolving Credit Facility and Series B Revolving Credit Facility, March 31, 2021.

As of September 30, 2018 there were no outstanding borrowings under the credit facility. As of December 31, 2017, there was $60.0 million of outstanding borrowings under the credit facility. As of September 30, 2018 the Company had $292.3 million of availability under our revolving credit facility (after giving effect to $11.3 million of letters of credit outstanding and no borrowings).

The Company’s debt at September 30, 2018 and December 31, 2017 consisted of the following (in thousands):

	September 30, 2018
	Outstanding Principal		Unamortized Premium (Discount)			Unamortized Deferred Financing Costs (1)			Net Carrying Amount
8.75% Senior Notes due 2020	679,299		2,495			(6,082		)	675,712
8.875% Senior Secured Notes Due 2022	270,000		(2,234		)	(639		)	267,127
7.875% Senior Secured Notes Due 2022	900,000		21,304			(13,616		)	907,688
7.625% Senior Notes Due 2023	400,000		—			(4,132		)	395,868
Term Loan	801,900		—			(10,122		)	791,778
Total Long-Term Debt	$	3,051,199	$	21,565		$	(34,591	)	$	3,038,173

	December 31, 2017
	Outstanding Principal		Unamortized Premium (Discount)			Unamortized Deferred Financing Costs (1)			Net Carrying Amount
Series D Revolving Credit Facility Due 2019	$	3,000	$	—		$	—		$	3,000
Series A, B Revolving Credit Facilities Due 2021	57,000		—			—			57,000
6.375% Senior Secured Notes due 2019	269,465		—			(2,877		)	266,588
8.75% Senior Notes due 2020	930,000		4,465			(11,209		)	923,256
8.875% Senior Secured Notes due 2022	270,000		(2,559		)	(752		)	266,689
7.875% Senior Secured Notes due 2022	900,000		24,593			(16,067		)	908,526
7.625% Senior Secured Notes Due 2023	400,000		—			(4,762		)	395,238
Total Long-Term Debt	$	2,829,465	$	26,499		$	(35,667	)	$	2,820,297

(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, 2018 and December 31, 2017 was $2.3 million and $3.1 million, respectively.

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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 condensed consolidated unaudited balance sheets.

The following table summarizes the installment receivables (in thousands):

	September 30, 2018			December 31, 2017
RIC receivables, gross	$	181,353		$	131,024
Deferred interest	(41,006		)	(36,048		)
RIC receivables, net of deferred interest	$	140,347		$	94,976
Classified on the condensed consolidated unaudited balance sheets as:
Accounts and notes receivable, net	$	29,350		$	16,469
Long-term notes receivables and other assets, net	110,997			78,507
RIC receivables, net	$	140,347		$	94,976

Activity in the deferred interest for the RIC receivables was as follows (in thousands):

	Nine months ended September 30, 2018			Twelve months ended December 31, 2017
Deferred interest, beginning of period	$	36,048		$	—
Write-offs, net of recoveries	(19,105		)	(6,055		)
Change in deferred interest on short-term and long-term RIC receivables	24,063			42,103
Deferred interest, end of period	$	41,006		$	36,048

The amount of RIC imputed interest income recognized in recurring and other revenue was $4.1 million and $2.8 million during the three months ended September 30, 2018 and 2017, respectively, and $10.9 million and $4.0 million during the nine months ended September 30, 2018 and 2017, respectively.

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5. Balance Sheet Components

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

	September 30, 2018			December 31, 2017
Prepaid expenses and other current assets
Prepaid expenses	$	9,021		$	8,000
Deposits	1,976			1,596
Other	6,478			6,554
Total prepaid expenses and other current assets	$	17,475		$	16,150
Capitalized contract costs
Capitalized contract costs	$	2,310,922		$	—
Accumulated amortization	(1,147,442		)	—
Capitalized contract costs, net	$	1,163,480		$	—
Subscriber acquisition costs
Subscriber acquisition costs	$	—		$	1,837,388
Accumulated amortization	—			(528,830		)
Subscriber acquisition costs, net	$	—		$	1,308,558
Long-term notes receivables and other assets
RIC receivables, gross	$	152,003		$	114,556
RIC deferred interest	(41,006		)	(36,049		)
Security deposits	6,652			6,427
Investments	4,800			3,429
Other	317			360
Total long-term notes receivables and other assets, net	$	122,766		$	88,723
Accrued payroll and commissions
Accrued commissions	$	86,398		$	27,485
Accrued payroll	32,515			30,267
Total accrued payroll and commissions	$	118,913		$	57,752
Accrued expenses and other current liabilities
Accrued interest payable	$	60,496		$	28,737
Current portion of derivative liability	58,864			25,473
Service warranty accrual	8,938			—
Current portion of notes payable	8,100			—
Accrued taxes	2,854			4,585
Spectrum license obligation	—			3,861
Accrued payroll taxes and withholdings	3,542			3,185
Loss contingencies	3,131			2,156
Blackstone monitoring fee, a related party	4,000			933
Other	5,893			5,391
Total accrued expenses and other current liabilities	$	155,818		$	74,321

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6. Property Plant and Equipment

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

	September 30, 2018			December 31, 2017			Estimated Useful Lives
Vehicles	$	45,448		$	42,008		3 - 5 years
Computer equipment and software	51,384			46,651			3 - 5 years
Leasehold improvements	25,950			20,783			2 - 15 years
Office furniture, fixtures and equipment	19,000			17,202			7 years
Build-to-suit lease building	8,268			8,268			10.5 years
Construction in process	2,671			4,299
Property, plant and equipment, gross	152,721			139,211
Accumulated depreciation and amortization	(76,839		)	(61,130		)
Property, plant and equipment, net	$	75,882		$	78,081

Property, plant and equipment, net includes approximately $25.5 million and $26.2 million of assets under capital lease obligations at September 30, 2018 and December 31, 2017, respectively, net of accumulated amortization of $20.8 million and $16.6 million at September 30, 2018 and December 31, 2017, respectively. Depreciation and amortization expense on all property, plant and equipment was $6.4 million and $5.2 million for the three months ended September 30, 2018 and 2017, respectively, and $18.8 million and $14.9 million for the nine months ended September 30, 2018 and 2017, respectively. Amortization expense relates to assets under capital leases and is included in depreciation and amortization expense.

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7. Goodwill and Intangible Assets

Goodwill

As of September 30, 2018 and December 31, 2017, the Company had a goodwill balance of $836.3 million and $837.0 million, respectively. The change in the carrying amount of goodwill during the nine months ended September 30, 2018 was the result of foreign currency translation adjustments.

Intangible assets, net

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

	September 30, 2018							December 31, 2017
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Estimated Useful Lives
Definite-lived intangible assets:
Customer contracts	$	968,203	$	(699,652	)	$	268,551	$	970,147	$	(637,780	)	$	332,367	10 years
2GIG 2.0 technology	17,000		(14,788		)	2,212		17,000		(13,274		)	3,726		8 years
Other technology	2,917		(1,563		)	1,354		2,917		(1,250		)	1,667		5 - 7 years
Space Monkey technology	7,100		(5,333		)	1,767		7,100		(4,066		)	3,034		6 years
Patents	11,720		(7,733		)	3,987		10,616		(5,835		)	4,781		5 years
Total definite-lived intangible assets:	$	1,006,940	$	(729,069	)	$	277,871	$	1,007,780	$	(662,205	)	$	345,575
Indefinite-lived intangible assets:
Spectrum licenses	$	—	$	—		$	—	$	31,253	$	—		$	31,253
IP addresses	564		—			564		564		—			564
Domain names	59		—			59		59		—			59
Total Indefinite-lived intangible assets	623		—			623		31,876		—			31,876
Total intangible assets, net	$	1,007,563	$	(729,069	)	$	278,494	$	1,039,656	$	(662,205	)	$	377,451

During the year ended December 31, 2016, Vivint Wireless entered into leasing agreements with Nextlink Wireless, LLC (“Nextlink”) for designated radio frequency spectrum in 40 mid-sized metropolitan markets. The lease term was for seven years, with an option to become the licensor of record with the Federal Communications Commission (“FCC”) with respect to the applicable spectrum licenses at the end of this term for a nominal fee. The Company acquired $31.3 million of spectrum licenses, measured using the present value of the lease payments, and recorded an intangible asset and a corresponding liability within other long-term obligations. While licenses are issued for only a fixed time, such licenses are subject to renewal by the FCC.

On January 10, 2018, Vivint Wireless and Verizon consummated the transactions contemplated by a termination agreement to which the parties agreed, among other things, to terminate the spectrum leases between Vivint Wireless and Nextlink, a subsidiary of Verizon, in exchange for a cash payment by Verizon to Vivint Wireless. The calculation of the gain recorded included cash proceeds of $55.0 million, extinguishment of the spectrum license liability of $27.9 million, offset by the write-off of the spectrum license asset in the amount of $31.3 million and regulatory costs associated with the sale of $1.3 million for a total net gain on sale of $50.4 million which is included in other income, net in the condensed consolidated statement of operations.

Amortization expense related to intangible assets was approximately $22.7 million and $25.5 million for the three months ended September 30, 2018 and 2017, respectively, and $68.2 million and $76.3 million during the nine months ended September 30, 2018 and 2017, respectively.

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As of September 30, 2018, the remaining weighted-average amortization period for definite-lived intangible assets was 4.1 years. Estimated future amortization expense of intangible assets, excluding approximately $0.2 million in patents currently in process, is as follows as of September 30, 2018 (in thousands):

2018 - Remaining Period	$	22,791
2019	79,218
2020	67,980
2021	58,765
2022	48,844
Thereafter	69
Total estimated amortization expense	$	277,667

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8. Financial Instruments

Cash, Cash Equivalents and Equity Securities

Cash equivalents and equity securities with readily available determinable fair values (“Corporate Securities”) are classified as level 1 assets, as they have readily available market prices in an active market. As of September 30, 2018 and December 31, 2017, the Company held an immaterial amount of money market funds. As of September 30, 2018 and December 31, 2017, the company held $4.1 million and $2.7 million, respectively, of Corporate Securities classified as level 1 investments.

The following tables set forth the Company’s cash and cash equivalents and Corporate Securities’ adjusted cost, gross unrealized gains, gross unrealized losses, gross realized gains, gross realized losses and fair value by significant investment category recorded as cash and cash equivalents or long-term notes receivables and other assets, net as of September 30, 2018 and December 31, 2017 (in thousands):

	September 30, 2018
	Adjusted Cost		Unrealized Gains		Unrealized Losses		Fair Value		Cash and Cash Equivalents		Long-Term Notes Receivables and Other Assets, net
Cash	$	7,960	$	—	$	—	$	7,960	$	7,960	$	—
Level 1:
Money market funds	105,006		—		—		105,006		105,006		—
Corporate securities	2,703		1,385		—		4,088		—		4,088
Subtotal	107,709		1,385		—		109,094		105,006		4,088
Total	$	115,669	$	1,385	$	—	$	117,054	$	112,966	$	4,088

	December 31, 2017
	Adjusted Cost		Unrealized Gains		Unrealized Losses			Fair Value		Cash and Cash Equivalents		Long-Term Notes Receivables and Other Assets, net
Cash	$	3,866	$	—	$	—		$	3,866	$	3,866	$	—
Level 1:
Money market funds	6		—		—			6		6		—
Corporate securities	4,018		—		(1,315		)	2,703		—		2,703
Subtotal	4,024		—		(1,315		)	2,709		6		2,703
Total	$	7,890	$	—	$	(1,315	)	$	6,575	$	3,872	$	2,703

The Corporate Securities represents the Company's investment of $3.0 million in publicly traded common stock of a non-affiliated company (“investee”). During the three months ended September 30, 2018 and 2017, the Company recorded an unrealized gain of $0.6 million and an unrealized loss of $0.5 million, respectively, associated with the change in fair value of the investee's stock. During the nine months ended September 30, 2018 and 2017, the Company recorded an unrealized gain of $1.4 million and an unrealized loss of $0.3 million, respectively, associated with the change in fair value of the investee's stock. As of September 30, 2018 the Company had no accumulated other comprehensive income associated with unrealized gains and losses for the change in fair value of the investment as a result of the adoption of ASU 2016-01. The balance of accumulated other comprehensive income associated with unrealized gains and losses for the change in fair value totaled net losses of $0.3 million at December 31, 2017.

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

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Long-Term Debt

Components of long-term debt including the associated interest rates and related fair values are as follows (in thousands, except interest rates):

	September 30, 2018				December 31, 2017				Stated Interest Rate
Issuance	Face Value		Estimated Fair Value		Face Value		Estimated Fair Value
2019 Notes	$	—	$	—	$	269,465	$	273,507	6.375	%
2020 Notes	679,299		680,114		930,000		952,134		8.75	%
2022 Private Placement Notes	270,000		276,692		270,000		276,486		8.875	%
2022 Notes	900,000		920,250		900,000		966,420		7.875	%
2023 Notes	400,000		370,000		400,000		425,000		7.625	%
Term Loan	801,900