Q3 2019 Earnings Call

Ladies and gentlemen, thank you for standing by and welcome to the alarm Dot Com Q3, 2019 earnings conference call.

As time, all participants are in listen only mode. After the speakers presentation. There will be a question and answer session tougher question. During session. Please press star one on the telephone please be advised that todays conference is being recorded if you require further assistance. Please press star one zero I would now lets you do cirrhosis conference call Mr., David Trone, Vice President Investor Relations you may begin.

Thank you good afternoon, everyone and welcome to alarmed Dot Coms third quarter 2019 earnings conference call.

As a reminder, this call is being recorded.

Joining us today from alarm dot com or Steve Trundle, President and CEO and see Valensuela CFO .

Well, we began a quick reminder to our listeners.

Management's discussion during the call today will include forward looking statements which include.

Projected financial performance for the fourth quarter and full year 2019 and for 2020.

Anticipated timing.

Payments of certain liabilities.

The impact of certain investments in our business.

Our business strategies continued enhancements to our platform.

Dissipated market demand for our offerings.

Opportunities for growth in our current markets where to expand into new markets.

And other forward looking statements.

These forward looking statements are based on our current expectations and beliefs.

And on information currently available to us.

Statements containing words, such as anticipate believe continue estimate expect intend may well and other similar statements.

Are intended to identify such forward looking statement.

These statements are subject to risks and uncertainties, including those contained in our updated risk factor section of our most recent quarterly report on Form 10-Q filed with the Securities and Exchange Commission.

Subsequent reports that we filed with the Securities and Exchange Commission from time to time that could cause actual results to differ materially from those contained in the forward looking statements.

Please note that these forward looking statements made during this conference call speak only as of today's date and alarmed Dot Com undertakes no obligation to update these statements to reflect subsequent events or circumstances, except to the extent required by law.

Also during this call managements commentary will include non-GAAP financial measures and provide non-GAAP guidance.

Management believes that the use of these non-GAAP financial measures provides an additional tool for investors to use in understanding the company's performance and trends, but note that the presentation of non-GAAP financial information is not meant to be considered in isolation, where as a substitute for the directly comparable financial measures prepared in accordance with gap.

Reconciliations between GAAP and non-GAAP metrics were reported results.

Can be found in the financial statement tables of our earnings press release, which we have posted to our Investor relations website at investors that alarmed dot com.

This conference call is being webcast and is also available on our Investor Relations website.

A webcast of this call will be archived and a telephone replay will also be available on our website.

These formalities out of the way I'd now like to turn the call over to Steve Trundle, you may begin.

Thanks, David and welcome to everyone joining our call today, we're pleased to report another solid quarter that exceeded our expectations.

Fastened license revenue in the third quarter grew to $84.9 million up 14.3% year over year.

Our non-GAAP adjusted EBITDA in the third quarter was $26.3 million.

We've had an active quarter an early fall we introduced a number of smart home solutions on devices.

In September we Gotta, then power company together over the course of several days to review, our long term strategy product roadmap and progress against our goals and to better connect as a team.

We also recently hosted a number of our service provider partners here in Washington, D.C., where our annual partner summit to present, our latest products and R&D priorities.

And in late October we announced the acquisition of open API.

Leading provider of video management software for commercial applications.

On today's call I'll focus on the new Smart home products, we launched and the acquisition of opened I.

I'll close by providing some initial thoughts on our planning process for 2020.

Starting with our product pipeline, we launched two new residential video cameras that significantly upgrade our indoor and outdoor lineup.

Both cameras present sleep industrial designs offer increased field of view and provide enhanced picture quality, even in highly variable lighting conditions.

They also have substantially increased onboard compute capacity.

This improves their overall performance and gives us an edge computing environment that we can use to support the more advanced video analytics capabilities that we plan to deploy in the future.

A common challenge with deployment supporting most video cameras or other IP devices.

Their dependence on the subscribers, we find that work.

Our two new cameras have ISO tropic antennas that create a more uniform and efficient wireless connection.

We also recently launched the smart Gateway a device that provides a private and secure Wi Fi network dedicated to alarm dot com video cameras.

The smart gateway makes installations easier and faster and reduces the likelihood of subsequent support issues caused by changes to the subscribers Wi Fi network.

These new products are examples of our ongoing goal to minimize inefficiencies associated with unmet that's why I find that works and to make it as easy as possible for service provider partners to deploy our video services.

Energy management also remains an important smart home category and opportunity for us.

During the quarter building 36 launch them innovative new age back monitoring service.

It's enabled by a new device called alarm Dot com link that directly connects with the H. bass system.

With the rich set of remote monitoring diagnostic and home automation capabilities service providers can proactively support and service to their customers.

One of trouble condition occurs they can remotely access air codes and deploy a technician to the Homer business with the necessary parts equipment and training to service the system in a single visit.

With this new solution building 36 offers h. subcontractors are unique opportunity to leverage smart home technology that can transform their customer relationships.

Shifting to our commercial business I want to focus on our very recent acquisition of open <unk>, a leading commercial video management software company.

Opened I has licensed over 200000 cameras at more than 14000 different sites through a go to market channel of servicing partners that complements our own service provider network.

They have approximately 110 employees that their headquarters and Liberty Lake Washington near Spokane.

Let me explain how we're thinking about this opportunity.

First opened I expands our overall opportunity on the commercial market and complements the alarm dot com for business platform.

Open I solutions and its commercial partners address the unique requirements of large enterprise commercial customers and national accounts.

Their customer base includes universities banks national retail chains and property management companies.

These applications require unique software capabilities like advanced frenzy video search.

Caught up sell system integration and customer site mapping.

The open I user is often located in a guard station or other setting where video from a large number of cameras is viewed on a secure workstation rather than on a mobile app.

Opened eyes focused on addressing these unique needs and they have developed a refined and proven set of capabilities for this market segment.

Second the market that opened I serves is in the very early days of a significant transformation.

Enterprise class video deployments are shifting from an on premise solution to increasingly include cloud enabled architectures referred to as video surveillance as a service or be SAS.

We believe we can help opened I lead that transformation and built a strong durable recurring revenue business model.

We like markets, where emerging technology is generating growth opportunities by creating new value propositions for users and recurring revenue for our service provider partners.

Third we see an opportunity to further leverage some of the technologies created by a long dot com.

In the open I channel.

As an example, we've invested heavily in advanced video analytics over the last couple of years and much of the work, we have dawn and that domain.

Allow us to enhance the open I software stack and drive even more value from each deployment.

Lastly, we like the open I team and see an opportunity to further scale our R&D program.

In the near term open I will continue to focus first and foremost on continuing to exceed the expectations of their current and prospective customers and partners.

As we build up the open I team, we see a number of opportunities to accelerate differentiation in the commercial space and to build new value through integrations with our existing technology assets like the video analytics integration that I just mentioned.

We also plan to introduce elements of the open I platform to the alarm dot com platform to strengthen our video offerings.

Open I'd seasoned management team brings to the experience an offer little attitude continue to continue to scale operations and grow the business and the kind of disciplined customer centric matter that we like.

I want to welcome to the entire open I team too alarmed dot com.

Before I turn things over to Steve Valensuela I'll share some current thoughts on our strategic plan.

We have an opportunity to define the predominant I O T solution sets and applications to expand our leadership position in existing markets and build durable positions and new ones and to continue to deliver solid growth over the next decade.

As we look at both our core security market and the broader Aiotv enabled intelligent property markets, we see more opportunities than we can pursue with our current capacity.

I believe we need to accelerate our level of investments in a number of areas.

We are beginning to make plans to do that.

Our recent acquisition of open I guess as a platform at an established team to accelerate the development of our suite of smart business services.

This is good but can be further scale with better capitalization.

Similarly, we are organically expanding the teams and programs across our portfolio of market opportunities.

To accelerate these growth initiatives.

Our continued progress internationally necessitates additional field staff and engineering resources.

The next year as a significant year for international team based on the pipeline of opportunities we are tracking.

Our points Central business is expanding its markets to include multifamily dwelling units and is developing a more channel oriented business model.

Energyhub has proven its business model and is in the process and scaling up.

Our video products are being well received by the market and our investments and analytics have paid off.

With continued development, we have an opportunity to be the leader and intelligent video solutions across a number of market segments.

Our existing service providers in the North American security channel are performing well.

We continue to invest in expanding our platform. So they can deliver more services to more customers and the most efficient manner possible.

And lastly, our R&D program has produced some exciting new technologies that we're planning to commercialize in the second half of next year.

I've been considering whether we are investing the right amount back into our business to sufficiently cultivate all of our longer term growth opportunities.

I have concluded that we should likely move to increase our investments back into the business. So that we can more fully pursue the wide set of opportunities that we see and continue to expand our business.

I look forward to updating you more on our strategies after the fourth quarter when we present our plan for 2020.

To conclude I'm pleased with our third quarter results.

I want to banks, our service provider partners and our team for their hard work and to our investors for their continued trust in our business.

And with that let me turn things over to Steve Valensuela do.

Thanks, Steve I will begin with a review of our third quarter 2019 financial result, and they provide guidance for the fourth quarter and our raised outlook for the full year of 2019 before opening the call for questions.

Sasson license revenue in the third quarter grew 14.3% from the same quarter last year to 84.9 million.

This includes connect software license revenue of approximately 10.8 million for the third quarter compared to 10.5 million for Q3 2018.

Our SaaS and license revenue renewal rate was 94% in the third quarter at the high end of our historical range of 92 did 94%.

Hardware and other revenue in the third quarter was 43 million up 14.4% over Q3 2018.

The increase in hardware revenue was primarily due to an increase in sales over video cameras.

Total revenue for the third quarter was 127.9 million up 14.3% over the same quarter last year.

That's a license gross margin for the third quarter was 85.4% up approximately 90 basis points from the prior quarter, mainly due to improved efficiencies, we've been able to achieve in our network operation centers.

Hardware gross margin was 18.3% for the third quarter compared to 18.8% for the same quarter last year, primarily due to product mix.

Total gross margin was 62.8% for the third quarter.

Slightly better than gross margin for Q3 2018 of 62.5%.

Turning to operating expenses R&D expenses in the third quarter were 29.5 million compared to 22.9 million in the third quarter 2018.

As we continued our planned investments in R&D to support the opportunities we see in our markets.

We ended the third quarter with 582 employees in R&D up from 496 employees in the same quarter last year.

Total head count increased to 1043 employees compared to 866 employees at the end of Q3 2018.

Sales and marketing expenses in the third quarter were 14.5 million or 11.4% of total revenue compared to 14.1 million or 12.6% of revenue in the same quarter last year.

Our Gina expenses in the third quarter were 18.7 million compared to 43.7 million in the same quarter last year.

Last year's DNA expense included a charge of 28 million for the TCPA settlement.

Gina expense in the third quarter includes non ordinary course litigation expense of 2 million.

Compared to 33.2 million for Q3, 2018, which included the 28 million provision for the TCPA settlement.

DNA expense in the third quarter also includes 1.6 million an acquisition related expenses.

Non ordinary course litigation and acquisition expenses are part of our adjusted measures and are excluded from our measurement of our non-GAAP financial performance.

non-GAAP adjusted EBITDA in the third quarter was 26.3 million.

In the third quarter GAAP net income was 17.7 million compared to a loss of 7.7 million in Q3 2018.

non-GAAP adjusted net income increased to 18.6 million in the third quarter.

Compared to 18.2 million for the third quarter of 2018.

Turning to our balance sheet, we ended the third quarter with $164.3 million of cash and cash equivalent.

In the third quarter, we made the final payment of 23 million for the TCPA settlement.

And with our initial payment of 5 million in Q1 2019.

We have now satisfied the settlement agreement.

In the third quarter, our cash flow and free cash flows were reduced by our final payment of 23 million for the TCPA settlement.

Including this payment.

Cash flow from operations was 1 million compared to 19.8 million for the third quarter of 2018.

Our free cash flow was negative 4 million compared to 16.6 million for the same quarter last year.

In the fourth quarter, we acquired 85% of open night for 61.3 million in cash plus 2.8 million in hold backs.

Subject to post closing conditions.

With an additional potential payment of up to 11 million in 2021.

Based on their 2020 financial performance.

Opened I will be included in our alarmed dot com segment.

Now, let's turn to guidance for the fourth quarter and for the full year of 2019.

We expect Sasson license revenue of 87.3 to 87.5 million for the fourth quarter.

For the full year, we expect SaaS and license revenue to be between 334.6 to 334.8 million.

Up from our prior guidance of 333.2 to 333.7 million.

We are raising our guidance for total revenue for 2019 to 472.6 to 476.8 million.

Up from our prior guidance of 460.2 to 465.7 million.

This includes our increased guidance for hardware and other revenue of 138 to 142 million.

We expect non-GAAP adjusted EBITDA for 2019 to be between 101.5 to 103 million.

non-GAAP net income to be 72 to 72.6 million or $1.43 to $1.44 per diluted share.

We expect our non-GAAP tax rate to remain at 21% for 2019.

S is based on an estimate of 50.4 million weighted average diluted shares outstanding.

We expect full year 2019 stock based compensation expense of 20 to 21 million.

Finally, I will provide some early thoughts in 2020.

As we are currently in our planning process.

At this time, we are anticipating total revenue of 540 to 515 million.

Approximately 40 million higher than current consensus.

Mainly attributable to expected higher revenue from our acquisition of opened I.

To be included in hardware and other revenue on our PNM.

We plan to include the majority of open as revenue in our hardware and other revenue line item on our piano.

As their solution today is mostly on premises software and hardware.

We currently believe that open ice das revenue in 2020 will not be material. However, we expect that their SAS contribution will increase in future years as more of their solution will be delivered as a SaaS offering.

We will provide our initial guidance and plan for 2020, when we report our fourth quarter 2019 results in February next year.

Solution. We are excited to welcome the open I team too alarmed dot com and we look forward to working together to expand our growth opportunities in the commercial space.

We are focused on closing out a strong 2019.

And on investing in a number of growth opportunities that Steve mentioned to build for the future.

Thank you for joining us on our call today and with that operator, Please open the call for Q anyway.

Ladies and gentlemen, if you have a question or comment at this time. Please press the star than the one key on your Touchtone telephone. If your question has been answered you receive yourself from the Q. Please press the pound <unk>.

First question comes from Adam Tindle with Raymond James.

Hey, good afternoon. This is not as shown on for Adam and Thanks for taking my question I know you've been expanding your presence internationally in areas such as Brazil, Chile, and also adding staff could just be marchex. As this has expanded recently I was hoping you could talk about how this is progress relative to your expectations in any early learnings that you can.

Share with us thanks.

Sure.

Medicine. This is Steve Steve Tunnel speaking I would say that.

Generally the progress we've made internationally has been inline with our expectations at this point we've had a few.

Positives and a few bumps here and there, but I think we're probably.

More excited about the way it's shaping up for the next 12 to 15 months then you got any period in the past its growing it's growing at a faster rate than the rest of the business.

We're I think closing the gap on small.

On the set of.

We're closing the gap on all the little things that you have to get right to really deploy at scale and an international markets. So in general we're pleased and.

I feel like it's tracking about where we expected to begin a year.

Okay. Thanks, that's helpful. And then just on the hardware revenue it looks like guidance implies a pretty meaningful decline on a sequential basis I know, there's a little bit of seasonality there, but it's obviously above what we've seen historically can you just talked to some of the drivers on the hardware revenue guidance anything outside of just typical kind of conservatism there.

Be helpful. Thanks.

Sure. This is Steve Jones will it typically Q4 is seasonably.

The weakest quarter for hardware. If you look at past Q4 as is typically the lowest hardware contribution in the quarter for the year.

And Thats typically tie to the holiday season people focus on a number of other things and so it's just typically a seasonably weaker quarter four of the year for hardware.

I think your next question comes from Mr., My beloved with Bank of America.

Hi, Thanks for taking my questions.

When you guys look at your business for next 12 months I know you still doing to plant will 2020 and look at the incremental business.

Is there way, we used to stack rank pull out the major competitive it there's but by sites with incremental subscription that having us over the next 12 months.

And I'm reporting so maybe the dealer just signed up expansion with existing doors International commercial just go down the key revenue drivers that'll be helpful watching.

Sure I don't know if I can give you a.

Absolutely discrete breakdown by each of those domains, but I can give you some thoughts on how we think about it.

And you you got it some of the first parts right. So we have the.

The core North American business, that's growing at a certain.

Certain club or one of the big drivers there really has been really at a couple of drivers that also play internationally, but especially in North America. The.

Success, we've had with the video offering and the recent addition of analytics to the package.

As is helping the commercial piece in North America growing a little bit faster.

Even this year than the residential piece for us in terms of.

Percentage growth and still is growing off a small base, but is becoming increasingly relevant. So it will be a focus next year and obviously with the acquisition of of open eyewear.

We're increasing our focus on in that domain and even moving a bit further up the food chain to what's called the enterprise space.

The.

International itself is a driver and growing growing at a nice clip than I think probably will accelerate.

More next year than any year in the past us feel like lot of things are sort of a about ready at the moment and.

And then we have the points central business, where I would think our as a growth driver will be sort of steady state.

Next year continue to grow up there that team is moving into a couple of new segments. The biggest one being the multi dwelling units segment, I guess I forgot energyhub as the other driver where.

Energyhub those benefits from scale the larger they become the more relevant say becomes a more utilities that are on the network. The more relevant they are told the device makers. So.

That also as a growth driver for us. So those are kind of the key components of the picture that we look out and.

We do a lot of bottom up modeling and then we do some top down analysis on the segments on.

And.

Those are the segments that were really focused on.

And my second question is about margins EBITDA margins will 2020 in light of the investments Steve you talk about showing modest EBITDA, let margins next year should we model EBITDA margins down can you give us some directional sense.

Directionally, so I I definitely wanted to cover that.

This quarter as we start thinking about next year and.

I think the way I'm thinking about it Nikolai is I am speaking basically about.

Where we are today, good solid cash flow I think solid EBITDA and I'm happy with the level we're at today.

If I think about the contribution that would come from incremental growth.

Start you know so we do plan to grow next year that will generate some incremental contribution.

And I think about basically accelerating some of our growth investments by filing that incremental contribution back into the business is sort of the way on thinking about it.

Thank you.

Our next question comes from Kevin Mcveigh with credit Suisse.

Great Hey.

Steve any sense of how much are opened I impacted the corner and then ultimately.

The rest of 2019.

So this is Steve you made correctly here this is due to bundle.

I had no impact on Q3 on the results, we just reported because when we close it toward the end of October . This is Steve elsewhere, So I didnt impact Q3 at all.

And then and then in terms of how we look to Q4 I think.

And we don't really sort of been in there for a couple of weeks so modest very very modest.

Impact on our model as we look at Q4 or maybe a couple of million dollars were sprenkle down on the hardware and other side, but.

But not much so so really not much there and then I think as Steve We said.

When we when we kind of think about the initial picture for 2020, we did model then.

Some meaningful revenue from opened I on the hardware and other line.

Into our into our 2020 initial launch.

Got it and then obviously there would you think of kind of EBITDA impact would that be reinvested as well or that would be kind of growth in 2020, Oh. Good question. Yeah. Currently sort of as you know it's a business that is well run and has been run to conserve.

Cash and some ways that drives a focus on selling.

Software licenses as opposed to selling fast because you get your cash upfront. So it's sort of a nice breakeven business at the moment I think the way we think about it as we would say, it's probably a little undercapitalized.

We would prefer to capitalize the business better try to accelerate the growth and try to accelerate a shift.

To an economic model that drives down the upfront cost for the service providers and or the end customer by shifting some of the software cost into a SaaS model, that's more reflective of the way alarmed dot com work. So the led the way we're looking at it as is while.

Good healthy kind of could be a no impact type business, where we're likely to accelerate investment into the business and would not be a massive headwind to EBITDA, but would be one of the things when I talked about.

In some incremental profits back into the business every one of the areas where wed expect to.

To be filing.

Got it and then just to finish it out how should we think about this within the context of.

The Stanley partnership earlier in the year and you know how has that been scaling on on the commercial side.

Yes. Good question I don't know that we've sort of matched.

Those two initiatives just yet I think.

You know and the case of open API. There there are about 400 existing service providers and system integrators, who are their partners.

And there's very little overlap in that group. So the great thing is similar business model to us, but but very little overlap and the in the actual.

Established partnerships and I honestly can't remember whether.

Stanley as one or not but what I would say is as we think about our our our service providers we feel like.

And this is inclusive of all of them we feel like.

The product that we're adding to our stock with opened I will be relevant, particularly to those on the high end of the space and you've identified one.

Where they're they're needing to install in some cases, a couple of hundred cameras.

On a on a given customer site, so that's where it's particularly relevant and there may be a fit there, but I don't think we've.

We've connected that just yet.

Great. Thanks, so much.

Thanks.

Our next question comes from David Gearhart with first analysis.

Hi, Good afternoon. Thank you for taking my questions I wanted to come back to open I'd just briefly.

Instead of a mix between hardware in licensed should we expect a directionally a lift.

Hardware and other pump gross margin side as we go forward into Q4 and maybe into next year.

Yeah. Good question, Steve do you want to take them I think.

The gross margins of for open I for hardware are higher than our typical gross margins. So there would be a little bit of a lift in the overall gross margin for a loan dot com.

Yes, it but basically I think you know it's around 25% of what we're going to be.

Taking from open I or whats contributing there as software, which in turn is pretty high margin revenue relative to what we see untypical hardware revenue. So their contribution would would would provide a bit of a tailwind on the gross margins on the hardware and other line item because such a meaningful component of it is actually software that's right.

Okay got it and then you know I wanted to ask Steve you in terms of the tariff issue that's been talked about the last couple of quarters.

What are you seeing on that front and and would you say directionally, you're more positive on guidance or or you're maintaining your expectations on the terror front and in your current outlook.

Well, we certainly have as we've talked about in the past, we certainly have been incurring costs related to terrorism.

We've been in Zohr being some of those we've been able to pass some of that on.

So we still take a cautious view on terrorists. We don't know when the next tweet is going to come out. So we have to be careful yes, but I would say, we're just we're being cautious when it comes the tariffs I would add a little color, though which is.

It hasn't quite then the big event.

That maybe we expected it can be getting there are material additional cost were incurring some of those costs, but does not seem to have affected demand and I think that's probably because.

We had our service provider sort of figured out the right amount of these incremental costs that we should should absorb and what sort of the right amount that the customer may be willing to absorb without without materially altering demand. So so while there are still relevant and we look forward to them potentially going away has.

It really been that big events that I think maybe we were fearful of.

Three six months ago.

Okay, and then last for me litigation expense, roughly 2 million from the quarter down sequentially can you give us any any sense of what we should expect just in absolute dollars for for litigation should we model roughly flat for for the next year on 2020.

Thats It from me thank you.

Yes, it's really hard to predict litigation expense as you said for Q3 was 2 billion down compared to.

5 million Q3, 2018, if you exclude the TCPA settlement.

It does kind of bump around at around three to 5 million dollar per quarter level, depending upon when events concur. So it's always hard to predict when litigation matters come to the higher level of this.

The case.

But I would say if you look at the if you look at in 2018 litigation expense.

As around.

17 million.

That kills not including the TCP a settlement in 2017, it was 7 million.

And then the 2016 it was newest the ROE 14 billion. So.

Going forward I think if you if you're modeling around the historical range around the 14 to 17 million, but again, that's caveat it with its very hard to predict when cases will come forward, it's hard to predict when the cost will be incurred.

Got it thank you.

Sure.

Our next question comes from Darren Aftahi with Roth capital.

Hey, guys. Thanks for taking my questions if I may.

First I guess for see turned off.

Your talk about investments.

Hi, strategically is now the right time to kind of reinvested and all these areas of the business kind of mentioned.

Yeah I think.

Hey, it's it's because we have tipped our toes in the water at a number of domains I think.

You know one being commercial one being international.

I can say the same thing about the age HVAC segment.

So in a few cases and energy hub for that matter we have.

We have been.

Kind of playing delicately and not fully committing but I think you do that and you basically wait for the business to show you that its worthy of being sale that I think we're at a point now where we feel more confident that a number of these efforts are worthy of capital allocation and.

Will drive positive results with some additional scale. So that's one thing the second.

I would say is is.

Feel like we've gotten to a healthy level of cash production.

That allows us to do you sort of forward Lena with our Corp, Dev activities and and I don't want to go to the point that we are entirely driving growth with port of when we have so many great organic initiatives that are.

Also worthy of of capital allocation so.

I think we're headed at a nice point in terms of.

A mix of cash production in a sort of positive points with a number of these efforts and and therefore I thought now as a good time too.

We're not saying tomorrow by the way we still have three four months of this year to go through and then we'll we'll really get into the details of planning out next year, but I felt like now's a good time for us to begin to think about how we're going to operate the business.

Next couple of years in terms of.

The EBITDA piece.

I would add to that we've we've built a very good balance sheet. We have strong Steve talked about strong cash flows and again if you looked at last year for 2019, the EBITDA is.

I think at around the guide as of over 100 million of 100 $102 million about which is a good amount of EBITDA. This year. If you exclude the TCPA payments, we're going to probably generate about 65 million of cash flow, which is very good amount of cash generation. So I think we're at the point, where we've got the business.

The good cash could balance sheet, good cash flow generation and so the opportunity there's given all the opportunities with commercial with video ventilation with international.

Energyhub airplane central all of those are really coming to the forefront of being ready for four for investment that we think will yield growth for the future.

Great. That's helpful couple more if I may I'm, just what's the integration.

Oh the open I.

How do we think about your surface provider base or if you're going to pass you've talked about I think it's well over a thousand to be sure Spider that trained on your core commercial but when you integrate these two platforms together dog in a 2020 like and deal and how do we think about your search Spider base the.

Commercial strategy.

Yes so.

I think that.

By early part of next year, we will be providing that path for a set of service providers to become certified in the open I solution.

As efficiently as possible and.

Will enable.

Those folks who service markets that are relevant to open I too to become opened I service providers will make that easy for them.

We'll do some integrations with various parts of our offering back into the open I platform and vice versa. So again, a couple of things.

There are some fairly low hanging fruit so that we can go after initially in terms of.

Simple integrations and then then we'll get to work on probably the more sophisticated integrations on things like the video analytics piece, but.

So the night and I think theres not a ton of overlap right now I think there will be some service providers that we enable by the first quarter second quarter, assuming that they're interested in and adding the the open I offering to their solution set and.

That's kind of how we're thinking about it the same time, we think the business is good on its own and we want to avoid sort of interfering with the business are doing things that would would cause it to change trajectory on on where it is other than maybe what I discussed a moment ago, where I talked about the.

The value, we see and driving down some of the upfront costs by shifting to a bit more of a SaaS model.

That's helpful. Thank you and then lastly, just what was the others.

Revenue in the quarter.

It was up 5 million up about 45% year over year for for other south for the other segment.

Great. Thank you guys.

Sure.

Our next question comes from U haul trucks, the with Maxim Group.

Oh, yeah. Thanks.

So this open I acquisitions.

Pretty exciting I think and so a lot more questions on this first was it the competitive process.

I'm sorry.

Was it a competitive price competitive process.

Yes.

What I'd say is that they had a retained that have retained banking relationship that was exploring.

Few options I think.

The in terms of a strategic we were the we were sort of the only only one that was invited to consider.

The situation so.

Yes. It was it was source.

It wasn't it wasn't a big action investments, that's you mean, but yeah.

Understood. That's helpful. And then who would you consider open ice biggest competitor today.

There there are a set of folks I want to avoid naming any single one set of.

Fairly established.

Traditional.

In the our players who who deliver software and in the ours that normally sit on site and allow you to monitor one hundreds of cameras without really a lot of cloud apparatus included so open I already as a cloud oriented provider and that's that's really they're big piece of differentiation is they allow you.

To manage the entire deployment through the cloud if you want to share resources, you do that through the cloud. So it's already implemented as a hybrid cloud slash on premise model. They have gravitated to on more of an on premise traditional pricing scheme.

Primarily because of the the cash flow benefit that rise for a company that self funded but.

There are three or four large.

Large players that are in the traditional space and then there are a handful of startups like open I think on the on the Disruptor list open I is probably the leader.

And there are a couple of others that are driving.

Entirely cloud driven architectures, but I would say they probably have more traction than any of them.

Our or any of those established players Chinese vendors that have been recently put a placement of restricted listen maybe be creating some disruption that you guys can go and take advantage of.

Well I think that that dynamic creates.

Some additional opportunity in that opened I is also open which means while they have a set of proprietary cameras that they offer they support.

Probably 12 15 different partners, who when you when you go to large commercial sites. They don't want to be told that you need to replace.

All of the cameras they've installed over the last three or four years around the location. So that you can run the open I software. They want you to work with what's there and that's driven the company to be fairly open in park oriented support a wide range of cameras, including a number who are not on any type of list or have you know that may have any of those liabilities and so.

She did with them so that was another attractive.

Element of this of this opportunity.

Got it and then finally has the lack of Dms or the SAS been issue for driving to adoption alarms other commercial offerings.

I would say that.

Not entirely because we have not gone after the segments that there.

Focused on so we probably were working within a small slightly smaller pam than what is conceivable with.

With the opened I solution and our case.

Typical installation will be anywhere from from two to.

30, CABOSUN the way the video is on the commercial side is consumed as normally through and I pad or an iPhone.

Or some other mobile device and their case.

Typically installation could be hundreds of cameras that all need to be managed through.

A similar or through a single.

Software stack and.

The majority of will be concerned by a person that's sitting in EYEGUARD station with with 30 or 40 different cameras alternating in the proprietary years user interface. So so that part of the market that they serve.

Customers like.

Yes, exactly university or olive garden or some of these large sort of distributed players bed Bath and beyond that's a segment that we haven't really.

Targeted with our commercial offering today, and therefore, I wouldn't say, we've been Hendrix, but but now we have an opportunity through opened I to target more of that segment.

Okay. Thank you.

Thank you.

Ladies and gentlemen. This concludes todays presentation you may now disconnect and have a wonderful day.