The Company generates revenue primarily through contractual monthly recurring fees received for monitoring and related services provided to customers. In transactions in which the Company provides monitoring and related services but retains ownership of the security system, the Company’s performance obligations primarily include monitoring, related services (such as maintenance agreements), and a material right associated with the non-refundable fees received in connection with the initiation of a monitoring contract (referred to as deferred subscriber acquisition revenue) that the customer will not need to pay upon a renewal of the contract. The portion of the transaction price associated with monitoring and related services revenue is recognized when the services are provided to the customer and is reflected in monitoring and related services revenue in the Condensed Consolidated Statements of Operations.

Deferred subscriber acquisition revenue is deferred and recorded as deferred subscriber acquisition revenue in the Condensed Consolidated Balance Sheets upon initiation of a monitoring contract. Deferred subscriber acquisition revenue is amortized on a pooled basis into installation and other revenue in the Condensed Consolidated Statements of Operations over the estimated life of the customer relationship using an accelerated method consistent with the amortization of subscriber system assets and deferred subscriber acquisition costs associated with the transaction. Amortization of deferred subscriber acquisition revenue was $29 million and $24 million for the three months ended March 31, 2020 and 2019, respectively.

In transactions involving a security system that is sold outright to the customer, the Company’s performance obligations generally include monitoring, related services, and the sale and installation of the security system. For such arrangements, the Company allocates a portion of the transaction price to each performance obligation based on a relative standalone selling price, which is determined using observable internal or external pricing and profitability metrics. Revenue associated with the sale and installation of a security system is recognized either at a point in time or over time based upon the nature of the transaction and contractual terms and is reflected in installation and other revenue in the Condensed Consolidated Statements of Operations. Revenue associated with monitoring and related services is recognized as those services are provided and is reflected in monitoring and related services revenue in the Condensed Consolidated Statements of Operations.

Customer billings for services not yet rendered are deferred and recognized as revenue as services are provided. These fees are recorded as current deferred revenue in the Condensed Consolidated Balance Sheets as the Company expects to satisfy any remaining performance obligations, as well as recognize the related revenue, within the next twelve months. Accordingly, the Company has applied the practical expedient regarding deferred revenue to exclude the value of remaining performance obligations if (i) the contract has an original expected term of one year or less or (ii) the Company recognizes revenue in proportion to the amount it has the right to invoice for services performed.



	For the Three Months Ended
(in thousands)	March 31, 2020		March 31, 2019
Monitoring and related services	$	1,045,957	$	1,070,415
Installation and other	323,795		172,645
Total revenue	$	1,369,752	$	1,243,060

During February 2020, the Company launched a new revenue model initiative for certain residential customers which revised the amount and nature of fees due at installation, introduced a 60 month monitoring contract option, and introduced a new retail installment contract which allows qualifying residential customers to repay the fees due at installation over the course of a 24, 36, or 60 month period. Due to the requirements of the Company’s early third-party consumer financing arrangement, the Company also transitioned its security system ownership model to predominately customer owned (the “Equipment Ownership Model Change”).

During March 2020, the Company entered into an uncommitted receivables financing agreement (the “Securitization Financing Agreement”). The Securitization Financing Agreement provides the Company with an opportunity to obtain financing backed by the sale of retail installment contract receivables from transactions involving a security system that is sold outright to the customer. During April 2020, the Company amended the Securitization Financing Agreement to permit the financing backed by the sale of retail installment contract receivables from transactions in which the Company retains ownership of a security system, consistent with the Company’s historical ownership model. The Company currently expects that its ownership model will transition back to predominately Company-owned by the end of 2020.

Accounts receivable represent unconditional rights to consideration due from customers in the ordinary course of business and are generally due in one year or less. Accounts receivable are recorded at amortized cost less an allowance for credit losses for expected credit losses that are not expected to be recovered. The allowance for credit losses is recognized at inception and is reassessed on a quarterly basis.

The Company’s allowance for credit losses is evaluated on a pooled basis for assets with similar risk characteristics, which is based on customer type. For each pool of customers, the allowance for credit losses is estimated based on the delinquency status of the underlying receivables and the related historical loss experience, as adjusted for current and expected future conditions, if applicable. The allowance for credit losses was not material for the individual customer pools.

During February 2020, the Company launched a new retail installment contract which allows qualifying residential customers to repay the fees due at installation over a 24, 36, or 60 month period. The financing component of a retail installment contract receivable is not significant.

When originating a retail installment contract, the Company utilizes external credit scores to assess credit quality of a customer and to determine eligibility for the retail installment contract. In addition, a customer is required to enroll in the Company’s automated payment process in order to enter into a retail installment contract. Subsequent to the origination of a retail installment contract, the Company monitors the delinquency status of retail installment contract receivables as the key credit quality indicator. As of March 31, 2020, the amount of current and delinquent billed retail installment contract receivables was not material.

Retail installment contract receivables are recorded at amortized cost less an allowance for credit losses for expected credit losses that are not expected to be recovered. The allowance for credit losses is recognized at inception and is reassessed on a quarterly basis. The allowance for credit losses on retail installment contract receivables was not material for the periods presented.



(in thousands)	March 31, 2020			January 1, 2020⁽¹⁾
Retail installment contract receivables, gross	$	39,365		$	9,971
Allowance for credit losses	(3,080		)	(228		)
Retail installment contract receivables, net	$	36,285		$	9,743
Classification:
Accounts receivable, net	$	18,460		$	5,867
Other assets	17,825			3,876
Retail installment contract receivables, net	$	36,285		$	9,743

Contract assets represent rights to consideration in which the Company has transferred goods or services to the customer in the ordinary course of business, however, the Company does not have an unconditional right to such consideration. The contract asset is reclassified to accounts receivable as services are performed and billed, which results in the Company’s unconditional right to the consideration. The Company has the right to bill the customer as service is provided over time, which generally occurs over the course of a 24, 36, or 60 month period.

The Company records an allowance for credit losses against its contract assets for expected credit losses that are not expected to be recovered. The allowance for credit losses is recognized at inception and is reassessed on a quarterly basis. The allowance for credit losses on contract assets was not material for the periods presented.



(in thousands)	March 31, 2020			January 1, 2020⁽¹⁾
Contract assets, gross	$	84,767		$	24,411
Allowance for credit losses	(15,660		)	(3,228		)
Contract assets, net	$	69,107		$	21,183
Classification:
Prepaid expenses and other current assets	$	26,813		$	9,036
Other assets	42,294			12,147
Contract assets, net	$	69,107		$	21,183