Q3 2019 Earnings Call
Greetings and welcome to 80, T. Inc.'s third quarter 2019 earnings conference call. At this time, all participants are no listen only mode of question and answer session will follow the formal presentation, depending which required operator since the start of the conference. Please press star zero on your telephone keypad.
Please note. This conference is being recorded I would now let's turn the conference over to your host Mr., Jason Smith, Senior Vice President Finance and Investor Relations. Thank you. Sir you may begin. Thank you operator. Thank you everyone for joining 80 <unk> third quarter 2019 earnings conference call.
Afternoon, we issued a press release in slide presentation on our quarterly results.
On our web site at Investor Day, 80, T. Dot com.
Our remarks today will include forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995. These forward looking statements are subject to risks that could cause actual results to differ materially from those expressed or implied by such forward looking statements.
These risks include among others matters that we described in our press release issued this afternoon and our filings with the FCC.
Please note that all forward looking statements speak only as of today This call and we disclaim disclaim any obligation to update these forward looking statements.
During today's call will make reference to non-GAAP financial measures, our historical and forward looking Nongaap financial measures include special items, which are difficult to predict and mainly dependent upon future uncertainties for complete reconciliation of historical non-GAAP to GAAP financial measures. Please refer to our press release issued this afternoon and our slide <unk> presentation.
Which are on our website at Investor day, any t. dot com.
Joining me on today's call, our president and CEO , Jim degrees and our CFO , Jeff what cuts are also joining us and available for Q1 day as Don Young our CIO any VP of field operations with that I'll turn the call over to Jim.
Thank you, Jason and welcome everyone to our call. We're glad you can join US today, we've been looking forward to sharing our third quarter results and our progress across multiple fronts, starting with our strong financial performance our revenue adjusted EBITDA and free cash flow are trending well during the third quarter.
Order, we grew revenue, 13% year over year to $1.3 billion, excluding the Red Hawk acquisition, which was completed in the fourth quarter of 2018, we grew our business, 5%. There's topline performance was led by the ongoing strength in our residential interactive take rate.
As well as the rapid expansion of our commercial business, which grew double digits at 17% on inorganic basis.
Adjusted EBITDA expanded 2% over the past year benefiting from our topline growth and our ongoing try for cost efficiencies offset by the margin impact from the Red Hawk acquisition in late 2018.
Our free cash flow before special items was $167 million, which brings year to date the year to date, Tony to $459 million.
Taking a closer look at our consumer business.
Our success driving higher levels of automation inside the home not only continues to enhance our results which sets the table for continued improvement for years ahead.
During the quarter more than 80% of our residential installations included our best in class Interactive services, which brought our total overall interactive base to 44% of our customers within that take rate were seen higher levels of automation more premium video service.
As as well as more connected devices per new installation.
Each of these characteristics helps drive higher per customer rather news, we're very pleased with the strong demand for 80 peak demand and we expect this 44% mix of interactive customers will continue decline with positive implications for both upfront and recurring revenue.
As well as long term customer engagement and on the point of customer engagement. We believe we have the largest interactive customer base in the country, capturing over 200 billion system events during the year, including 28 million videos captured each day.
Our ability to continue to increase customer engagement will in turn dry for attention and customer lifetime value.
Turning to our commercial business the strong double digit growth I referenced brought the portion of your to date revenues derived from business customers to 29%.
We continue to drive a wide variety of new commercial sales wins.
Including several regional and national grocery change as well as large retailers.
Nearly a year now since we acquired Red Hawk and our integration is on schedule, we establish an outstanding dedicated commercial team, which blaming the best leaders from 80 T. The prior protection, one business Red Hawk, and our tuck in acquisitions, which.
<unk> friends to acquisitions, we recently completed two smaller commercial tuck in acquisitions, including Danvers, I'd say, yes systems group, a leading regional commercial security integrator and fusion fire protection in the Metro DC area. These particular acquisitions enhance our case.
<unk> abilities in the west in mid Atlantic regions, while further supporting our enterprise level National accounts as you can imagine we're very enthusiastic about our commercial business looking ahead to the new year.
Before I update you on our strategic pursuits, I'd like to spend a moment on our continued balancing of key performance indicators are K P. <unk> in order to help support both our long term growth and our profitability.
I already mentioned, our growing interactive take rate, which remains an important focus of ours to drive retention. Another priority is acquiring new customers with efficiency.
We're seeing good progress on the efficiency of our net Saks spend.
Or net subscriber acquisition cost our revenue pay back remained strong at 2.4 years and while this headline metric tends to change slowly it is trending in the right direction.
This improvement is despite an increased level of spend related to customer upgrades to enhance systems and service levels, which support customer lifetime value, our consumer financing pilot, which I'll discuss spend a moment is one reason for our continued optimism on acquiring new customers more.
Efficiently.
Another metric we continue to optimize is our gross revenue attrition on a trailing 12 month basis. This measure remains within a narrow recent band and moved up 10 basis points versus the prior year to 13.5%.
Consistent with last quarter, our attrition was impacted by lower credit score accounts acquired through certain of our dealers, which tend to have lower retention that said in our core direct residential channel, we experienced modest improvement in attrition year over year.
Demonstrating the continued health of our business and sticking that's up our customer base and we are encouraged by this improvement in retention, providing superior customer service is one important component of customer lifetime value, we expect to drive continued retention improvement overtime.
Through a combination of industry, leading service levels enhanced customer service technology, and the addition of high quality customers attracted to our innovative offerings, both inside and outside the home as demonstrated by the increasing popularity of 80 T. command.
And and control.
Moving onto our many exciting strategic initiatives, we've announced a number of significant developments that I'd now like to walk you through.
The central theme for these initiatives is the enhancement and expansion of our consumer platform for both the near term and the long term leveraging our position within the industry and of course, our trusted 80 tea brand.
Beginning with the enhancement to our residential go to market approach through the recently expanded consumer financing pilot that was originally launched during the second quarter. As a reminder, this consumer financing arrangement allows consumers to finance upfront the costs associated with becoming an 80 Ti cost.
Or.
The initial five market pilot expanded <unk> eight in July and more recently reached 21 markets. We're already seen strong installation revenue from this program and through a pilot have narrowed our focus at hearing to and I are our centric approach and which we emphasize.
Size higher tiers of service and strong returns.
We're looking forward to a full launch on a national scale next year, which we expect will have a favorable impact on both our capital efficiency and our long term growth.
More recently, we announced the acquisition of I've, you know a leading video alarm verification service, whose cutting edge technology when paired with our own core monitoring strength will help reduce false alarms and optimize priority response for emergency services.
Simply stated we're studying the future standard for safety, while further extending our competitive advantage specifically what are called public safety answering points, such as 911 dispatchers will be more capable of confirming whether an alarm is a true emergency by leveraging.
Video location sound sensory user in activity data combined with predictive analytics. The outcome is a better decision, making process and superior protection integrating I view now into our current protocols will enhance not only of the effectiveness of our served.
This offering but also the efficiency of our extensive network of 80 T owned and operated monitoring centers by allowing the focus to remain on actual emergencies.
We're currently in a pilot phase with my view now and we look to officially launch in the coming months, we are proud to combine our industry, leading position and reputation with technology to raise the bar for the industry and set a higher standard for both the consumer an emergency service providers.
Well experienced frustration with the number of false alarms from newer inexperienced market entrants.
Turning to safety outside the home.
Last month, we announced the planned expansion of Eightys mobile reach through a new partnership with wet.
Specifically, our innovation team is working closely with lift on a new pilot program that will add an 80 powered safety feature within the lift app by integrating mobile safety solutions into the lift platform, we're bringing in added layer of security to the lift rideshare experience.
Both drivers and riders.
We're looking to launch this pilot in early 2020 in nine U.S. markets with a potential to eventually roll out totaling 30 million riders and 2 million drivers. This new partnership along with 80 T. control as an example of how we're leveraging our deep expertise and tech.
No GE to expand our end to end mobile security platform by expanding our reach into new areas of security beyond the home and business.
We also recently announced the sale of our Canadian operations, which represented approximately 4% of our revenues at 4% of our adjusted EBITDA. During the nine months ending September 2019, our Canadian business was both more capital intensive and primarily run through.
For a different infrastructure infrastructure and systems platform first is our core U.S. business.
The sale allows us to sharpen our focus on growing opportunities in the U.S. many of which I just described ranging from smart home integration to the expansion of security to an individual regardless of their location to our rapidly growing commercial business.
As Jeff will soon cover even with the sale of our Canadian operations earlier. This month, we will maintain our financial outlook due to the strength of our U.S. business.
Rounding out our current initiatives, we're making solid progress on our three G. radio conversion, we remain highly confident in the range of net expenses, we shared last quarter and we will continue to explore opportunities that support coming in towards the lower end of the range.
I'd summarize our third quarter performance as strong financially with a focus on balance scene and optimizing our K P eyes, which combined with our many strategic initiatives make us very excited about our direction heading into 2020, our recent sale of our.
Canadian operation only enhances our focus on the many emerging growth opportunities, we see all of which leveraged the trusted ATP brand to generate strong free cash flow and drive long term shareholder value with that I'll now turn the call over to Jeff.
Thank you Jim and thank you everyone for joining us on todays call.
I'm pleased to share with you today, some highlights of another strong quarter, where we again grew revenue and adjusted EBITDA and continued our strong free cash flow generation.
Starting with our topline total revenues grew 13% year over year or 5%, excluding the Red Hawk acquisition, both consistent with last quarter monitoring and services revenue grew by 6% or 2%, excluding red Hawk and our installation and other revenue grew by 74% or 29% excluding Red Hawk.
We're especially pleased that we had our second consecutive quarter of double digit organic growth in sales to commercial customers, which grew by 17% over the prior year.
Our adjusted EBITDA was up 2% to $624 million driven mainly by the revenue growth I just mentioned.
We continue to focus on cash flow and our free cash flow before special items was $167 million during the quarter, bringing our year to date totaled to $459 million our year to date free cash flow performance was driven positively fire EBITDA growth and some favorable working capital of timing benefit in the third quarter and negatively.
Higher year to date Capex spending the timing of cash interest payments this year compared to last year and an outflow associated with a legal matter dating to 2014 for which we were fully reserved.
As Jim mentioned, while we have an increasing number of exciting growth opportunities. We also continue to execute on improving our core business and that includes our focus on customer acquisition efficiency through more installation revenue.
Installation in sales and marketing cost efficiencies and growth in commercial.
During the third quarter, our net subscriber acquisition costs or Sac spending was down 8%. Meanwhile, our new recurring monthly revenue or RMR additions were approximately $13 million, which is down 2% versus the prior year.
Excluding the bulk account purchases, we mentioned on last year's third quarter earnings call or RMR adds were up 2%, while net sac was down 5% again, reflecting improved efficiency.
While the customer revenue payback held steady at 2.4 years on a trailing 12 month basis, we continue to drive efficiency improvements with lower year to date, net sac, which is down 2% compared to the first nine months of 2018, despite higher 2019 spending on upgrades of existing customers.
Our ending RMR balance ended at $351 million up 3% versus the prior year.
Turning to our balance sheet, we've been actively improving our capital structure throughout 2019.
We ended September with a net leverage ratio defined as total net debt over trailing 12 month adjusted EBITDA of 4.0 times.
Please have a look at the bottom on slide 14, our quarterly earnings deck to see our pro forma debt maturity profile, which shows well laddered maturities going forward.
As a reminder, we completed a refinancing transaction in April where we issued $1.5 billion of new firstly nodes to redeem half a billion dollars a first lien term loan and $1 billion of secondly notes.
During the third quarter, we completed the transaction that extended the maturity of our term loan to 2026 and allowed us to retire our 2020 notes while also amending some terms to provide us with additional financial flexibility.
We also completed the commercial tuck in acquisitions of fusion fire protection and Denvers Fs systems group for a combined $19 million.
Last month, we paid our regularly quarterly dividend of 3.5 cents per share, including $3 million in cash and $23 million under our dividend reinvestment plan similar to the previous quarter.
Today, we declared our third quarter dividend again at 3.5 cents per share payable on January threerd to shareholders of record on December the 13th.
Finally, as you can see 8-K, we filed this afternoon. We've now completed the sale of our Canadian assets and operations.
In conjunction and as announced last month, our board of directors has authorized a special dividend of 70 cents per share to common stockholders of record on December 13th 2019.
The special dividend will be distributed on December 20 Threerd.
Now I'll turn to our updated outlook for the balance of the year.
With the sale of our Canadian operations, we will lose approximately two months of contribution to revenue EBITDA and free cash flow before special items. However, despite that reduction we expect our U.S. financial performance to remain strong and we are therefore, not changing our guidance ranges for these key financial metrics heading into the fourth quarter.
We're updating our near term attrition guidance to reflect the effect of lower retention on a subset of our dealer generated accounts as Jim shared earlier.
We remain optimistic on the long term trends in attrition in customer lifetime value due to among other factors the increased engagement of our customer base, who are increasing their interactive take rate and adding more devices, including home automation solutions to their systems.
I encourage you to view our slide presentation for an overview of our updated full year outlook.
Before we open the call to Q in AG I'll add one housekeeping item for the quarter, which is that our net loss of $182 million included a goodwill impairment.
A $45 million and a loss on held for sale of $55 million related to the sale of our Canadian operations and $36 million associated with our third quarter refinancing transaction.
In summary, we are pleased with our financial results, including our revenue and adjusted EBITDA growth and the continued strong free cash flow generated by our business.
We are even more excited about the expanding number of growth opportunities ahead, all of which leverage our strong financial position as we further capitalize on our number one industry position and trusted 80 brand.
Thank you again for joining us today, and now Jim Don and I will be happy to take your questions.
Thank you at this time will be conducted a question answer session. If you will like to ask question. Please press star one on your telephone keypad a confirmation until indicate your line is another question Q.
You may prestart to fuel that term will be a question from the Q.
For participants using speaker equipment and may be necessary to pick up your handset before person. This sarkies one moment, please while we pull for questions.
Our first question comes on line of George Tong with Goldman Sachs. Please proceed with your question.
Hi, Thanks afternoon, So I wanted to dig into the attrition guidance the update to 13 into how per cent per year understand that consistent with the performance that you've seen so far year to date.
Can you go a little bit deeper into the the reasons into that the dealer generated accounts as to whether or not this is something that its controllable on the part of MDT, whether or not its structural and how long. These headwinds you expect will persist.
Over the near term and then as you move through 2020 and into 2021.
Thanks for the question George This is Jim I'll offer some my comments on attrition the encouraging news on on retention is that it's improved in the in the direct residential channel and we think this speaks to the continued help of our business and the overall stickiness of.
Our customer base.
Overall attrition result was driven by some lower credit score customers that were acquired by our dealers as.
As well as some expectations that were some headwinds that were below expectations in Canada.
On the dealer front, we're continuing to work with our dealers to optimize our act economics.
And Thats a line our interest and a one one additional comment here, it's worth noting there a number of levers.
Drive the highest customer lifetime value and while attrition is a key ingredient revenue payback for what we sometimes called Cratia multiple is equally important.
For for example in the dealer accounts with higher attrition, we actually acquire those accounts for lower accretion multiple and that results in.
Higher unit economics for those customers.
Got it and then switching gears to command and control can you provide a little bit of detailing insight as to how the continued rollout of committed controllable have an impact on subscriber acquisition costs up increment.
On on the margin they command and control product is modestly less expensive than the equipment that it replaced and so we'll have less.
Lower modestly lower equipment costs going forward.
In addition, and probably more importantly, one of the things that command and control facilitates is selling more devices and that offset to that revenue offset will help us improve the creation multiple as well.
George as Jeff One thing I'd add to is still relatively early days, we've been out there for a few months now, but we've seen unlike historical new product roll Rollouts, we've seen an increase in our technicians productivity historically technicians learning something new it takes longer and you see the other way around so were encouraged to about there being some labor productivity over.
Time.
Got it very helpful. Thank you.
Our next question comes on line of Gary Bisbee with Bank of America. Please proceed with your question.
Hey, guys good afternoon.
I guess.
Encouraging to hear that despite losing two months of Canada. The guidance is maintained for the year I Wonder if you could talk about some of the deltas, there and really what I'm getting at is it reasonable to believe that.
You can absorb that.
There are those upside factors will continue into 2020 or would it maybe be more prudent for us to think about.
Bringing our numbers in I realize you're not giving guidance, but to absorb the rest of the loss of Canada.
Yes, So your first where we're confident in how the years playing out overall you another way of interpreting our guidance it had we not.
Sold Canada, we would have been towards the higher end of the ranges or maybe even taking some of the ranges up. Its just continued execution of all the things that we have talked about in particularly our disciplined approach. You. Clearly you next year, we'll have the entire 12 months without Canada and the results of the effect will be greater than than just a couple of months.
Were in the process of planning and budgeting for next year, you're focused on our objective.
Of expanding our offerings.
You're growing our commercial business, becoming more of a residential end to end platform still in that budgeting process, though as you point out we're not in a position to give guidance for 2020 today, but we're confident in our closing out 2019.
I mean is it right to say that commercial drove much of the revenue Delta that is that a fair statement.
Are there other factors that contributed to.
The topline, it's particularly commercial yeah.
You guys know margins in commercial or a bit lower than residential on the residential side. There's a lot of puts and takes of course, but throughout the year weve been.
Relatively more efficient than we had originally planned on in our service cost execution, we continued to be disciplined in our cash generation, you're managing as always a lot of puts and takes so there's no one factor I point to overall, but for sure on the topline its commercial.
Okay.
In the and then Jim you talked about awful lot of initiatives you have going on one that we haven't had an update on a lot on in a while and I realize it's small but the launch of the DIY business you acquired earlier this year under the 80 tea brand is that still on track or how are you. How are you thinking about that these days. Thank you.
Sure very yes, it's still on track the DIY market is growing quickly we view this essentially as a new opportunity for 80, we think we can do well in this market. Our early progress has some healthy growth from the original life field organization that.
We acquired by not yet material in the context of our overall business, but we're pleased with the team and really pleased with our progress here, we generally see as you know.
Why not as a threat, but as an opportunity for us.
Okay. Thank you.
Our next question comes on line of Toni Kaplan with Morgan Stanley . Please proceed with your question.
Hey, guys. This is Jeff gold sand on for Tony.
Ask on the RMR additions declining by 2% versus the prior year because on one hand, it sounds like you're expanding the credit box, which is worsening attrition, but then RMR additions are not necessarily increasing year over year. So how should we think about the push and pull if those two metrics and what will it take to drive an acceleration in RMR attrition.
One thing worth mentioning I.
Referenced in my prepared remarks, but last year was a particularly strong third quarter RMR adds if I recall were up 7% last year compared to the prior year one of the drivers we mentioned on the call last year, we had some bulk purchases.
At a we're about half a million dollars of RMR ads. So excluding that we were up a couple of percent. If you look at us on a year to date basis. Our subscriber acquisition spend is down and are more ads or up. So you are consistent with our objective of becoming more efficient and revenue payback, even though you see the number still rounds to.
2.4.
Okay got it and then just given the Canadian divestiture and the decision to paid dividends from proceeds.
Should we now thinking about your leverage target and how this impacts your capital allocation philosophy going forward. So does this rollout M&A in buybacks for the foreseeable future or just how should we be thinking about that.
No no overall change to our capital allocation policy, which we viewed to be well rounded. It will include de levering overtime as has the high priority along with continuation of accretive commercial or other M&A organic investments and then we'll continue to evaluate how.
To ensure that shareholders get a return so it could also include.
Dividends or even potentially repurchases in the future.
But because of Canada, all by itself I would there's no change I would call out.
Got it thanks guys.
Our next question comes on line of Kevin Mcveigh with Credit Suisse. Please proceed with your question.
Great. Thanks, Hey, so I guess sounds like you're really scale on the consumer finance.
The citizens any sense of how much that contributed to revenue in the quarter end.
If I read right sounds like 21 markets versus.
The initial five or so any sense of how we should.
Model that out in Q4 as well.
Yeah, not not really material Kevin in the quarter, you're most of the quarter. We were in the markets that we had launched in July early August during the last several weeks weve expanded to be now in approximately 20 markets were encouraged by what we're seeing it there's there's a lot of a lot of into.
Arnold transformation and change in terms.
Of how the Salesforce sales, but we're seeing strong installation revenue.
We're focused especially on an IR centric approach to to drive optimal customer lifetime value. So we're fine tuning that precise pricing. The precise offers how we go to market to make sure that we find the right price volume trade offs and generate more higher our overtime. So we're encouraged by.
Where we are but a lot of work yet to do.
As we've said before continues to be are planned to launch nationally.
2020.
Got it and then I guess.
What drove the decision you used the proceeds for dividend as opposed to buyback or maybe other strategic M&A just as we're thinking about the optionality on on the Canadian business.
Kevin It's Jim we're teaching.
How are you where.
We're essentially looking at.
At alternatives to return capital to our.
To our shareholders are our stock.
Hadnt been performing as well as we would have white and we engage in a discussion with our board and and we thought that it was an effective way too.
To return cash to our to our loyal shareholders and it was a decision ultimately that we had unanimous board support for and the management team supported as well.
Understood and then just I guess, one more if I could you know with commercial closing in on almost a third pretty quickly the revenue overall.
Any sense of how that impacts the attrition going forward should we expect to see some benefit from that as that business continues to scale.
Yes, I mean, we're we're incredibly excited about the commercial business.
The result of speak for themselves the pipeline that we see in our commercial business is strong and a tremendous opportunity.
And as we continue to.
Grow the commercials commercial business at a at a pretty good clip, we're we're pretty bullish on the future competing in a fairly fragmented market and and a market, where we're going to be able to leverage our scale in our outstanding service.
In terms of attrition commercial should be a tailwind for attrition.
It's a it's a business that we've talked about in the past that has pretty good retention characteristics and we feel good about its overall impact on attrition.
Awesome. Thank you.
Our next question comes on line of Subotica with Deutsche Bank. Please proceed with your question.
Yes, Thanks for taking my question. So other TG, Okay, you've talked about competition coming in the wake up expense range. Maybe can you just for like some color on that front that also talk about cross sell opportunity having had any.
Initial feedback on that front as well as you go ahead, and if Youre cgmp. Thanks.
Oh, I'm, sorry, I'm not sure we fully comprehended. The question I think though the first part of the question was about about the service cost.
Yes, so yes to the first talk was about that expense coming in at the lower end, so what's driving that and then maybe.
As you look will allow the team he talked about potentially cost selling.
Like home automation or other products setting. This is thinking that customer base I was wondering if you had any thoughts on any initial feedback.
On that front as well.
Okay. She said Jim I'll offer a couple of comments on the Threeg front, and then and then ask Jeff to add to your to answering your other according to your other questions on the Threeg front.
Our range as you know was 200 325 million, it's still relatively early in the process.
But we are confident in our range. We spent approximately 13 million through the end of the third quarter. Our full year range net amount is 25 to 35 million.
We don't have comments or really insight on predecessor company performance, but a couple of variables.
That will influence whether we're on the high end or the low end of that range, our ability to generate cost offsets via revenue.
So so selling into that base.
Vendor contributions and potentially some technology solutions and Theres no theres a long way to go here, we're happy with our results so far and as I said, we have confidence in the range that we set.
And the first part of you have your question around around a service costs I was just mentioning earlier too in response to Gary's question that Theres a whole variety of factors that has enabled us to maintain our guidance, even not having Canada and the results for the last couple of months and among those is we talk normally on these calls about some of the.
More strategic types initiatives, but we continue with the day to day tactics and just executing the business in our call centers in the field and one of those factors is that does that we've done pretty well during the course of the year relative to our initial budget of managing service cost and then some of that is the reason.
That were able to maintain our guidance and in some of that has been able to help US fund some of the investments that we made and then one.
A follow up due to Gary's question as we look in 2020 that that will ultimately be as we work through the budgeting process. The the determination is we'll make is how much of that carries into next year, how much of that to invest in the business and then how much of that too.
To let drop through is as the cash flow and our EBITDA growth in 2020, which will describe more on or subsequent call.
And Thats extremely helpful. Then then maybe just a quick question on a follow up question on this and then financial as you roll that out how should the how should we think about the subscriber acquisition cost Huston like how much did that come down and how should we think about a benefit to the free cash flow from rolling that out. Thanks.
Yeah, we'll share more on our next call. Some of the answer to your question will will be dependent upon the final decisions, we make on the pricing levels. The.
The ability to finance we have.
Pretty well up and running what we're spending our additional time on before we launch nationally is as I was saying earlier fine tuning the exact pricing in the exact offers that we go out to with with customers to advantages that weren't that this should give to us one the ability to enable our customers too.
Pay a higher price meeting, we will not be in a position to have to discount or subsidize as much as we have historically and then the second as Jim alluded to earlier is the ability to enable our sales teams to become more effective to better protect and better connect consumers with more comprehensive offerings. Both of those should lead to lower net customer.
Our acquisition cost.
That's very helpful. Thanks.
Our next question comes a lot of Jeff Kessler with Imperial capital. Please proceed with your question.
Yes.
No sorry, now that you're not a year into the acquisition of Red Hawk.
I know that the margins on on.
Margins on Red Hawk, particularly in the fire business tend to be a little bit lower.
But on the other hand, the the cash flows and the ancillary businesses and the utility business that comes off of a company like that should begin to.
Should begin to help margins actually in in the business that Red Hot touches can you go.
Can you walk us through a little bit about when you expect to see the integration of Red Hawk begin to affect the financials.
On a.
On a more pause on a more positive basis, obviously, we're seeing it on the topline question is is now.
With the.
With the increase in by increasing the amount of fire and other emergency capability through as we look how do you get the Mark how do you get the margins in that business up and in sync with the rest of 80 commercial.
Yes offer thanks, Jeff It's a Jim here I'll offer a couple of overall comments about Red Hawk, and then ask Jeff to weigh in as well you asked about about the integration and how things are going from a red Hawk perspective overall.
In the short answer is we've made a ton of progress, including the selection of the commercial leadership team.
Our approach was to integrate quickly, but without any disruption to the customer. So we've been very methodical about this integration very disciplined about the organization about the integration will be substantially complete with the entire integration by the end.
2020.
And we have important milestones for integration over the course of the full year.
Those milestones our financial milestones in addition to operational milestones they are and.
They include the synergy target that were built into the base case, we've got some revenue synergy opportunities.
And and technology and human resource milestones as well.
Okay.
My follow up question is on.
No I know you guys know what I think about.
Verification and what's going on in the.
And what's going on into the Iwai section with sector with regard to false alarms.
My question, though is you know that you folks have acquired I view now.
Is this going to be something that you view as something proprietary or is.
The fact that you folks are like leader the largest company in industry also the foot leader in the.
In the verification area.
Are you going to be able to share this technology with other groups.
Or are you going to just go out and just mean being number one we dive you now so to speak since its since its technology is fairly.
Is fairly advanced.
Yes, so Jeff this is Don good question.
We've been working with I will now for a while as you know there's some significant things.
That will differentiate us from the competition that we're going to enjoy rolling out first on behalf of 8-K.
As far as the question call it longer term, whether this becomes a prelude to a standard way of providing professional monitoring for the whole industry to consume a we haven't made commitments yet to that we're still won our first in primary goal is to see how far we could go in and take ABT with us.
Technology first.
Okay.
Okay I hear you okay. Thank you.
Our final question comes the line of Manav Patnaik with Barclays. Please proceed with your question.
Hi, This is actually a Greg calling and maybe this is a payback on that deal by question.
But other topic, we havent talked about much recently is.
E Commerce channel. So I was hoping to get an update on the efforts there and how that's progressing to start kind of selling more and more through the digital channel.
Yes, the refi answer is it's a high priority for US we've made some progress in E. Commerce, we think that it will drive some gross add volume for us it will prove the Soc efficiency.
Hi, priority and our marketing and technology folks are working together to continue to move us forward on that front.
Okay.
Then nice results on the commercial side.
I saw that you you're standing up its own commercial team does a little color on on what the goal is there in terms of taking that business for the next level on what having its own team has actually provide.
Yes, we have so we've brought the best of all of the organizations together.
The team legacy protection, one a red Hawk Aronson all of our tuck in acquisitions and selected amongst all of these very great companies. The most talented leaders.
And they together are leading the commercial space.
We feel as I mentioned earlier, we feel really good about our commercial results, we feel fantastic about the pipeline and and the backlog and we feel great about our ability to compete in this space not only leveraging our brand put our reputation for having the best service.
In the commercial business.
Were hit hitting on all cylinders redhawks doing well.
Our national account business is doing exceptionally well and it will continue to be a very high priority for ATP going forward.
Alright, thank you.
That was our final question. This does concludes today's question and answer session as well as today's conference call. You may disconnect. Your lines at this time. Thank you for your participation and have a wonderful day.