We believe that our unique business model and platform gives us a distinct advantage in the market through:

•a proprietary cloud-based platform,

•a differentiated end-to-end distribution model,

•strong growth with compelling unit economics, and

•multiple levers for sustained profitable growth.

As a result, we believe we can integrate new customer offerings from large adjacent markets that logically link back to our smart home platform, compounding the value that we already deliver to our approximately 1.9 million customers. With the

Total Subscribers is the aggregate number of active smart home and security subscribers at the end of a given period.

Average Monthly Recurring Revenue per User

Average monthly revenue per user, or AMRRU, is Total MRR divided by average monthly Total Subscribers during a given period.

Total monthly service revenue, or MSR, is the contracted recurring monthly service billings to our smart home and security subscribers, based on the Total Subscribers number as of the end of a given period.

Average Monthly Service Revenue per User

Average monthly service revenue per user, or AMSRU, is Total MSR divided by Total Subscribers at the end of a given period.

Average subscriber lifetime, in number of months, is 100% divided by our expected long-term annualized attrition rate multiplied by 12 months.

Net Service Cost per Subscriber

Net service margin is the monthly average MSR for the period, less total average net service costs for the period divided by the monthly average MSR for the period.

New subscribers is the aggregate number of net new smart home and security subscribers originated during a given period. This metric excludes new subscribers acquired by the transfer of a service contract from one subscriber to another.

Net Subscriber Acquisition Costs per New Subscriber

•excludes certain tax expenses that may represent a reduction in cash available to us;

•does not reflect changes in, or cash requirements for, our working capital needs;

•does not reflect the significant interest expense to service our debt;

•does not reflect the monthly financing and loss share fees incurred associated with our obligations under the Consumer Financing Program;

•does not include changes in the fair value of the warrant liabilities; and

•does not include non-cash stock-based employee compensation expense and other non-cash charges.

Net Loss Margin is net loss as a percentage of total revenues for the period.

Adjusted EBITDA Margin is Adjusted EBITDA as a percentage of total revenues for the period.

In December 2019, COVID-19 was first reported and on March 11, 2020, the World Health Organization (WHO) characterized COVID-19 as a pandemic.

•Our ability to generate new subscribers, particularly in our direct-to-home sales channel.

•Limitations on our ability to enter our customer's homes to perform installs or equipment repairs.

•Ability to attract and retain employees due to labor shortages, along with wage inflation resulting from these labor shortages.

We continue to monitor the situation and guidance from international and domestic authorities, including federal, state and local public health authorities, and may be required or elect to take additional actions based on their recommendations.

Critical Accounting Policies and Estimates

To date, revenues from our Smart Insurance business have been immaterial to our overall financial results.

For certain Financing Provider Loans:

•We pay a monthly fee based on either the average daily outstanding balance of the installment loans, or the number of outstanding Loans.

•We incur fees at the time of the Loan origination and receive proceeds that are net of these fees.

•We also share liability for credit losses, with us being responsible for between 2.6% and 100% of lost principal

•We are responsible for reimbursing certain Financing Providers for merchant transaction fees and other fees associated with the Loans.

For certain other Loans, we receive net proceeds (net of fees and expected losses) for which we have no further obligation to the Financing Provider. We record these net proceeds to deferred revenue.

See Note 8 to the accompanying unaudited condensed consolidated financial statements for further information on our CFP derivative arrangement

portfolio of contracts. We update our estimate of the period of benefit periodically and whenever events or circumstances indicate that the period of benefit could change significantly. Such changes, if any, are accounted for prospectively as a change in estimate. Amortization of capitalized contract costs is included in "Depreciation and Amortization" on the condensed consolidated statements of operations.

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 subscriber contracts.

See Note 1 to our accompanying unaudited condensed consolidated financial statements.

Key Factors Affecting Operating Results

Key factors affecting our operating results include the following:

Subscriber Lifetime and Associated Cash Flows

focus in these areas, our Net Service Cost per Subscriber has decreased from $10.77 to $10.18 for the three months ended March 31, 2021 and 2022, respectively, while effectively managing subscriber attrition.

The table below presents our smart home and security subscriber data for the twelve months ended March 31, 2022 and March 31, 2021:

Expand Monetization of Platform and Related Services

We believe that the smart home of the future will be an ecosystem in which businesses seek to deliver products and services to subscribers in a way that addresses the individual subscriber's lifestyle and needs. As smart home technology becomes the setting for the delivery of a wide range of these products and services, including healthcare, entertainment, home

We conduct business through one operating segment, Vivint, and primarily operate in two geographic regions: The United States and Canada. See Note 15 in the accompanying unaudited condensed consolidated financial statements for more information about our geographic regions.

Components of Results of Operations

The revenue related to our smart energy business is primarily from commissions received by operating as a sales dealer for third-party residential solar installers. We invoice the solar installer, and recognize the associated revenue, at the time the solar installation is complete.

Although we expect revenue from our smart insurance to continue to grow, to date, revenue from this business has been immaterial to our overall revenue.

capitalized contract costs. We generally expect our operating expenses to increase in absolute dollars as the total number of subscribers we service continues to grow, but to remain relatively constant in the near to intermediate term as a percentage of our revenue.

Three Months Ended March 31, 2022 Compared to the Three Months Ended March 31, 2021

The following table provides our revenue for the three-month periods ended March 31, 2022 and March 31, 2021 (in thousands, except for percentage):

•$33.3 million resulting from the change in Total Subscribers;

•$7.0 million in non-recurring revenues primarily from our smart energy initiative, and to a lesser extent our smart insurance and other pilot initiatives; and

•$10.2 million from the change in AMRRU.

The following table provides the significant components of our costs and expenses for the three-month periods ended March 31, 2022 and March 31, 2021 (in thousands, except for percentages):

•$5.3 million in personnel and related support costs; which includes increases in cellular network module upgrades; and

•$0.8 million in facility related costs.

These increases were partially offset by a decrease of $1.0 million in customer support costs, comprised primarily of a $2.3 million decrease in personnel related costs, offset by a $1.2 million increase in third-party contracted services.

•$3.8 million in personnel and related support costs;

•$2.2 million in third-party contracted services primarily associated with legal and compliance professional services; and

•$2.0 million in marketing costs, primarily associated with lead generation.

These increases were partially offset by a decrease of $2.2 million in costs associated with building brand awareness.

•$5.6 million in loss contingencies;

•$2.8 million in consulting and legal professional services; and

•$2.1 million in provisions for bad debt and credit losses.

These decreases were offset by an increase of $2.4 million in other personnel and related support costs.

Depreciation and amortization for the three months ended March 31, 2022 increased $7.5 million, or 5%, as compared to the three months ended March 31, 2021, primarily due to increased amortization of capitalized contract costs related to new subscribers.

The following table provides the significant components of our other expenses, net for the three-month periods ended March 31, 2022 and March 31, 2021 (in thousands, except for percentages):

Change in fair value of warrant liabilities for each of the three months ended March 31, 2022 and March 31, 2021 represents the change in fair value measurements of our outstanding stock warrants, primary resulting from the decrease in our stock price.

•$10.5 million loss related to the CFP derivative liability;

•$1.9 million of consideration for sales of certain technologies; and

•$0.4 million foreign currency exchange gain.

The other income, net during the three months ended March 31, 2021 was primarily due to:

•$13.8 million gain related to the CFP derivative liability; and

•$0.6 million foreign currency exchange gain.

Cash Flow and Liquidity Analysis

Cash Flows from Operating Activities

For the three months ended March 31, 2022, net cash used in operating activities was $36.1 million. This cash used was primarily from a net loss of $27.4 million, adjusted for:

•$180.7 million in non-cash amortization, depreciation, and stock-based compensation;

•$9.3 million gain on change in warrant derivative fair value;

•$6.6 million in provisions for doubtful accounts and credit losses; and

•$3.2 million in deferred income taxes.

Cash provided by operating activities resulting from changes in operating assets and liabilities, including:

•a $17.0 million increase in accounts payable;

•a $3.0 million decrease in long-term notes receivables and other assets, net primarily due to decreases in RIC receivables; and

•a $1.2 million decrease in right of use assets.

These sources of operating cash were partially offset by the following changes in operating assets and liabilities:

•a $106.8 million increase in capitalized contract costs;

•a $5.6 million decrease in deferred revenue primarily associated with the sale of Products under the Vivint Flex Pay plan and the increase in Total Subscribers

•a $2.0 million increase in accounts and notes receivable;

•a $17.0 million increase in prepaid expenses and other current assets;

•a $1.5 million decrease in right of use liabilities; and

•a $13.0 million increase in inventories.

For the three months ended March 31, 2021, net cash used in operating activities was $14.2 million. This cash used was primarily from a net loss of $88.8 million, adjusted for:

•$233.1 million in non-cash amortization, depreciation, and stock-based compensation;

•$29.1 million gain on warrant derivative change in fair value;

•$4.7 million in provisions for doubtful accounts and credit losses; and

•$5.0 million in deferred income taxes.

Cash provided by operating activities resulting from changes in operating assets and liabilities, including:

•a $8.9 million decrease in long-term notes receivables and other assets, net primarily due to decreases in RIC receivables; and

•a $2.4 million decrease in right of use assets.

These sources of operating cash were partially offset by the following changes in operating assets and liabilities:

•a $98.9 million increase in capitalized contract costs;

•a $43.5 million decrease in accrued payroll and commissions, accrued expenses, other current and long-term liabilities;

•a $36.5 million increase in accounts payable, primarily due to timing of vendor payments;

•a $33.0 million increase in inventories due to the ramp down of our direct-to-home summer selling season;

•a $7.5 million increase in accounts receivable;

•a $2.7 million decrease in right of use liabilities; and

•a $11.9 million increase in prepaid expenses and other current assets.

Cash Flows from Investing Activities

Historically, our investing activities have primarily consisted of capital expenditures, business combinations and technology acquisitions. Capital expenditures primarily consist of periodic additions to property, plant and equipment to support the growth in our business.

For the three months ended March 31, 2021, net cash used in investing activities was $4.5 million primarily associated with capital expenditures of $4.6 million.

Cash Flows from Financing Activities

The 2029 notes will mature on July 15, 2029.

Guarantees and Security (Senior Secured Credit Facilities and Notes)

The Credit Agreement and the debt agreements governing the Notes contain a number of covenants that, among other things, restrict, subject to certain exceptions, APX Group, Inc. and its restricted subsidiaries' ability to:

•incur or guarantee additional debt or issue disqualified stock or preferred stock;

•pay dividends and make other distributions on, or redeem or repurchase, capital stock;

•enter into transactions with affiliates;

•materially change the nature of their business;

•enter into agreements that restrict the ability of restricted subsidiaries to make dividends or other payments to APX Group, Inc.;

•designate restricted subsidiaries as unrestricted subsidiaries;

•amend, prepay, redeem or purchase certain subordinated debt; and

•transfer or sell certain assets.

Subject to certain exceptions, the Credit Agreement and the debt agreements governing the Notes permit APX Group, Inc. and its restricted subsidiaries to incur additional indebtedness, including secured indebtedness.

Our future liquidity requirements will be significant, primarily due to debt service requirements. The actual amounts of borrowings under the Revolving Credit Facility will fluctuate from time to time.

The following table sets forth a reconciliation of net loss to Covenant Adjusted EBITDA (in thousands):

Other Factors Affecting Liquidity and Capital Resources

"Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies and Estimates - Vivint Flex Pay" for further details.

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