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Revenue and Receivables
 12 Months Ended
Dec. 31, 2021
Revenue from Contract with Customer [Abstract]  
Revenue and Receivables Revenue and Receivables
Revenue
The Company generates revenue primarily through contractual monthly recurring fees received for monitoring and related services provided to customers. For CSB and Commercial, the Company’s performance obligations generally include monitoring, related services (such as maintenance agreements), and the sale and installation of a security system or a material right in transactions in which the Company retains ownership of the security system (as discussed below). For Solar, the Company’s performance obligations generally include the sale and installation of a solar system, and may include additional performance obligations such as roofing services or the sale and installation of additional products such as batteries.
The transaction price is allocated to each performance obligation based on relative standalone selling price, which is determined using observable internal and external pricing, profitability, and operational metrics.
The following table presents the Company’s disaggregated revenue:
Years Ended December 31,
(in thousands)202120202019
CSB:
Monitoring and related services$3,873,285 $3,760,614 $3,891,075 
Installation and other272,743 564,575 189,272 
Total CSB4,146,028 4,325,189 4,080,347 
Commercial:
Monitoring and related services474,428 426,373 416,507 
Installation and other639,304 563,225 628,803 
Total Commercial1,113,732 989,598 1,045,310 
Solar:
Installation and other47,351 — — 
Total Solar47,351 — — 
Total revenue$5,307,111 $5,314,787 $5,125,657 
Revenue is recognized in the Consolidated Statements of Operations, net of sales and other taxes. Amounts collected from customers for sales and other taxes are reported as a liability net of the related amounts remitted.
Termination charges are assessed in accordance with the terms of the contract when customers terminate a contract early. Contract termination charges are recognized in revenue when collectability is probable and are reflected in monitoring and related services revenue in the Consolidated Statements of Operations.
Company-Owned - In transactions in which the Company provides monitoring and related services but retains ownership of the security system (referred to as Company-owned transactions), the Company’s performance obligations primarily include monitoring and related services, as well as a material right associated with the one-time non-refundable fees in connection with the initiation of a monitoring contract which the customer will not be required to pay again upon a renewal of the contract (referred to as deferred subscriber acquisition revenue).
The portion of the transaction price associated with monitoring and related services is recognized when the services are provided to the customer and is reflected in monitoring and related services revenue in the Consolidated Statements of Operations.
The portion of the transaction price associated with the material right is deferred upon initiation of a monitoring contract and reflected as deferred subscriber acquisition revenue in the Consolidated Balance Sheets. Deferred subscriber acquisition revenue is amortized on a pooled basis over the estimated life of the customer relationship using an accelerated method consistent with the treatment of subscriber system assets and deferred subscriber acquisition costs.
Amortization of deferred subscriber acquisition revenue is reflected in installation and other revenue in the Consolidated Statements of Operations as follows:
Years Ended December 31,
(in thousands)
202120202019
Amortization of deferred subscriber acquisition revenue$172,061 $124,804 $107,284 
Customer-Owned - In transactions involving security systems sold outright to the customer (referred to as outright sales), the Company’s performance obligations generally include the sale and installation of the system as well as any monitoring and related services.
The portion of the transaction price associated with the sale and installation of a 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 Consolidated Statements of Operations. For revenue recognized over time, progress toward complete satisfaction of the performance obligation is primarily measured using a cost-to-cost measure of progress method. The cost input driving revenue recognition for contracts where revenue is recognized over time is based primarily on contract cost incurred to date compared to total estimated contract cost. This measure of progress method includes forecasts based on the best information available and reflects the Company’s judgment to faithfully depict the value of the services transferred to the customer. Approximately half of installation and other revenue generated by the Commercial segment is recognized over time.
The portion of the transaction price associated with monitoring and related services is recognized when services are provided to the customer and is reflected in monitoring and related services revenue in the Consolidated Statements of Operations.
Solar - In transactions within our Solar business, the Company’s performance obligations generally include the sale and installation of a solar system, and may include additional performance obligations such as roofing services or the sale and installation of additional products such as batteries. Revenue is recognized when control over the products and services are transferred to the customer and is reflected in installation and other revenue in the Consolidated Statements of Operations.
The Company also enters into agreements with third-party lenders in order to access loan products for the Company’s Solar customers. The lender has the exclusive right to determine if a loan application will be accepted or rejected, and the Company is not a party to the loan agreement. There are no guarantees related to the repayment of the loan, and as such, there is no liability associated with these arrangements. Once a loan is approved, the lender will pay the Company the loan amount upfront or upon installation, net of fees. These fees are recorded as a reduction of installation and other revenue and were not material during 2021.
Product Sales
Revenue and cost of revenue from products in outright sales were as follows:
Years Ended December 31,
(in thousands)
202120202019
Revenue from product sales$777,611 $997,876 $709,242 
Cost of revenue from product sales$635,518 $726,622 $573,691 
Deferred Revenue
Deferred revenue represents customer billings for services not yet rendered and is primarily related to recurring monitoring and related services. In addition, payments received for the installation of a solar system after the agreement is signed but before performance obligations are satisfied are recorded as deferred revenue.
These fees are recorded as current deferred revenue in the 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 when performance obligations are satisfied. 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.
Revenue Model Initiative and Equipment Ownership Model Change
In February 2020, the Company launched a new revenue model initiative for certain residential customers, which (i) revised the amount and nature of fees due at installation, (ii) introduced a 60-month monitoring contract option, and (iii) introduced a new retail installment contract option (as discussed below).
Due to the requirements of the Company’s initial third-party consumer financing program, the Company transitioned its security system ownership model from a predominately Company-owned model to a predominately customer-owned model in February 2020. In March 2020, the Company entered into an uncommitted receivables securitization financing agreement (the “Receivables Facility”), which allowed the Company to receive financing secured by its retail installment contract receivables from transactions under a customer-owned model.
In April 2020, the Company further amended the Receivables Facility to also permit financing secured by retail installment contract receivables from transactions occurring under a Company-owned model, and as a result, the Company began transitioning to a predominately Company-owned model in May 2020.
Substantially all new CSB transactions since March 2021 take place under a Company-owned model.
Refer to Note 6 “Debt” for further discussion regarding the Receivables Facility.
Receivables and Contract Assets
The Company’s accounts receivable, retail installment contract receivables, and contract assets are recorded at amortized cost less an allowance for credit losses not expected to be recovered. The allowance for credit losses is recognized at inception and reassessed each reporting period.
Accounts Receivable
Accounts receivable represent unconditional rights to consideration from customers in the ordinary course of business and are generally due in one year or less.
The Company evaluates its allowance for credit losses on accounts receivable in pools based on customer type. For each customer pool, 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 is not material for the individual pools of customers.
Changes in the allowance for credit losses on accounts receivable were as follows:
Years Ended December 31,
(in thousands)2021
2020(1)
2019
Beginning balance $68,342 $42,960 $39,765 
Provision for credit losses(2)
51,877 81,713 56,060 
Write-offs, net of recoveries(3)
(66,187)(56,331)(51,488)
Ending balance$54,032 $68,342 $44,337 
________________
(1)Beginning balance reflected is subsequent to the adoption of ASU 2016-13, Measurement of Credit Losses on Financial Instruments, and related amendments on January 1, 2020. The impact of adoption was not material.
(2)The provision for credit losses during 2020 includes an increase related to the COVID-19 Pandemic.
(3)The amount of recoveries was not material for the periods presented. As such, the Company presented write-offs, net of recoveries.
Retail Installment Contract Receivables, net
The Company’s retail installment contract option allows qualifying residential customers to pay the fees due at installation over a 24-, 36-, or 60-month interest-free period and is available for transactions occurring under both Company-owned and customer-owned models. The financing component of retail installment contract receivables is not significant.
Upon origination of a retail installment contract, the Company utilizes external credit scores to assess customer credit quality and determine eligibility. Subsequent to origination, the Company monitors the delinquency status of retail installment contract receivables as the key credit quality indicator. In addition, customers are required to enroll in the Company’s automated payment process in order to enter into a retail installment contract. As of December 31, 2021, the current and delinquent billed retail installment contract receivables were not material.
Unbilled retail installment contract receivables reflected in the Consolidated Balance Sheets were as follows:
December 31,
(in thousands)20212020
Retail installment contract receivables, gross$331,512 $145,957 
Allowance for credit losses(907)(4,366)
Retail installment contract receivables, net$330,605 $141,591 
Classification:
Accounts receivable, net$100,385 $47,023 
Other assets230,220 94,568 
Retail installment contract receivables, net$330,605 $141,591 
As of December 31, 2021, and 2020, retail installment contract receivables, net, used as collateral for borrowings under the Receivables Facility were $299 million and $109 million, respectively. The allowance for credit losses relates to retail installment contract receivables from outright sales transactions and is not material.
Contract Assets, net
Contract assets represent the Company’s right to consideration in exchange for goods or services transferred to the customer. The contract asset is reclassified to accounts receivable when the Company has an unconditional right to the consideration as additional services are performed and billed. The Company has the right to bill customers as services are provided over time, which generally occurs over the course of a 24-, 36-, or 60-month period. The financing component of contract assets is not significant.
Contract assets for residential transactions reflected in the Consolidated Balance Sheets were as follows:
December 31,
(in thousands)20212020
Contract assets, gross$106,810 $161,563 
Allowance for credit losses(12,300)(29,558)
Contract assets, net$94,510 $132,005 
Classification:
Prepaid expenses and other current assets$58,452 $59,382 
Other assets36,058 72,623 
Contract assets, net$94,510 $132,005 
The Company recognized approximately $26 million, $183 million, and $27 million of gross contract assets during 2021, 2020, and 2019, respectively.
The allowance for credit losses on contract assets is not material.