Revenue

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

Deferred subscriber acquisition revenue is deferred and recorded as deferred subscriber acquisition revenue on the consolidated balance sheet. Deferred subscriber acquisition revenue is amortized over the estimated life of the customer relationship using an accelerated method into installation and other revenue in the condensed consolidated statement of operations. Amortization of deferred subscriber acquisition revenue was $17 million for the three months ended March 31, 2018.

In transactions in which the security system is sold outright to the customer, the Company’s performance obligations include monitoring and related services as well as the sale and installation of the security systems. For such arrangements, the Company allocates the transaction price to each performance obligation based on a relative standalone selling price. Revenue associated with the sale and installation of security systems is recognized once installation is complete, and is reflected in installation and other revenue in the condensed consolidated statement of operations Revenue associated with monitoring and related services is recognized as those services are provided and reflected in monitoring and related services revenue in the condensed consolidated statement of operations.

Early termination of the contract by the customer results in a termination charge in accordance with the contract terms. Contract termination charges are recognized in revenue when collectability is probable, and are reflected in monitoring and related services revenue in the condensed consolidated statement of operations. Amounts collected from customers for sales and other taxes are reported net of the related amounts remitted.

The Company incurs certain incremental contract costs (referred to as deferred subscriber acquisition costs, net) including selling expenses (primarily commissions) related to acquiring customers. Deferred subscriber acquisition costs, net are presented on the consolidated balance sheet. Commissions paid in connection with acquiring new customers are determined based on the value of the contractual fees. Amortization expense relating to deferred subscriber acquisition costs was $16 million for the three months ended March 31, 2018. Contract assets associated with outright sales are immaterial.

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 on the condensed consolidated balance sheet 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.

The impact from the adoption of the new revenue standard on the Company’s condensed consolidated financial statements as of and for the three months ended March 31, 2018 was as follows:



				Balances without			Effect of Adoption
Statement of Operations (in thousands)	As Reported			Adoption of Standard			Increase / (Decrease)
Monitoring and related services	$	1,017,292		$	1,018,650		$	(1,358	)
Installation and other	99,156			97,277			1,879
Total revenue	1,116,448			1,115,927			521
Cost of revenue (exclusive of depreciation and amortization shown separately below)	248,394			248,394			—
Selling, general and administrative expenses⁽¹⁾	304,970			311,211			(6,241		)
Depreciation and intangible asset amortization	483,676			483,676			—
Merger, restructuring, integration, and other costs	8,023			8,023			—
Operating income	71,385			64,623			6,762
Interest expense, net	(174,333		)	(174,333		)	—
Loss on extinguishment of debt	(61,597		)	(61,597		)	—
Other (expense) income	(460		)	(460		)	—
Loss before income taxes	(165,005		)	(171,767		)	6,762
Income tax benefit	7,568			9,225			(1,657		)
Net loss	$	(157,437	)	$	(162,542	)	$	5,105

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(1)	Included in the effect of adoption is approximately $5 million associated with non-cash amortization expense of deferred subscriber acquisition costs.



				Balances without			Effect of Adoption
Balance Sheet (in thousands)	As Reported			Adoption of Standard			Increase / (Decrease)
Assets
Prepaid expenses and other current assets	$	102,349		$	95,108		$	7,241
Deferred subscriber acquisition costs, net	342,913			302,947			39,966
Other assets	131,988			126,117			5,871

Liabilities
Deferred tax liabilities	1,381,723			1,368,180			13,543

Stockholders' Equity
Accumulated deficit	(1,148,059		)	(1,187,594		)	39,535

Disaggregated Revenue

The following table sets forth the Company’s revenues disaggregated by source:



(in thousands)	For the Three Months Ended March 31, 2018
Monitoring and related services	$	1,017,292
Installation and other	99,156
Total revenue	$	1,116,448