Q4 2019 Earnings Call
After the speakers presentation, there will be a question answer session to ask the question doing that session you will need to press star one on your telephone. Please be advised to today's conference is being recorded if you require any further assistance. Please press star in cereal I went out and the conference over to the Vice President.
Investor Relations David Trone.
Thank you good afternoon, everyone and welcome to alarmed Dot Com fourth 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.
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 first quarter and full year 2020.
Potential impact on public health crises, such as the krona virus on our global supply chain.
The impact from certain investments in our business our business strategies continued enhancements to our platform anticipated market demand for our offerings.
Opportunities for growth in our current markets were to expand into new markets.
In other forward looking statement.
Forward looking statements are based on our current expectations I believe.
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 Exchange Commission on November 15, 2019, and subsequent reports the Wi Fi with the Securities and Exchange Commission from time to time, including our annual report.
On form 10-K.
Intends to file with the Securities and Exchange Commission. Shortly after this call 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 measure provides an additional tool for investors to use in understanding the company's performance on trends, but note that the presentation of non-GAAP financial information is not meant to be considered in isolation worth.
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 investors that alarm dot com.
This conference call is being webcast and is also available on our Investor Relations website. The webcast of this call will be archived and a telephone replay will also be available on our website <unk>.
He is formalities out of the way I'd now like turn the call over to Steve Trundle, you may begin.
Thank you David.
Good afternoon, and welcome to everyone.
We're pleased to report that fourth quarter results were above our expectations, our SAP and license revenue in the fourth quarter was $19.1 million up 15.7% over last year.
Our adjusted EBITDA in the fourth quarter was $30 million.
Our fourth quarter results helped close out a strong 2019 with annual revenue exceeding half a billion dollars for the first time in our company's history.
I want to take our service provider partners, our ecosystem partners and our employees, who enabled us to achieve this revenue milestone.
Today more than 9000 service providers, so in surface, our technology to their customers and more than 6.8 million properties in over 40 countries around the world.
Alarmed dot com manages more than 100 million connected devices and sensors through our cloud services.
On our last call at the end of Q3, I spoke about our increasing confidence and several growth areas as well as far as <unk> the step off our level of organic investments.
The more fully capitalize on the opportunities we see.
That process is underway.
On today's call I will review some of the elements of our strategy in 2020 and touch upon the growth areas, where we are investing.
First we are working hard to extend our position as the most innovative platform provider for service provider business is the wants to capitalize on the wide set of emerging aiotv driven monitoring applications.
This requires that we continue to build scale across our technology stack and operations.
We are aiming to fully address opportunities across the single family and multifamily residential markets.
The small business market.
And the enterprise commercial market.
For each property type, we're aiming to provide fully integrated voice supported best in class applications and the areas of security automation energy management water management and help.
And we will deliver these applications across geographies and languages.
Such that we can drive broken both our north American an international businesses.
We are steadily making progress against these goals.
And the commercial market for example, we're focused on delivering a purpose built solution that intelligently integrates video access control and intrusion.
In 2019, we significantly enhanced our position and product offering.
We launched our commercial video analytics service for small and medium sized businesses.
We also applied our AI technology called the insights engine to our access control solution for large scale commercial installations to intelligently detect unexpected access control about an alert the right personnel.
We also expanded our commercial market opportunity with the acquisition of opened I in late 2019.
Opened a it is a leading commercial besides company with a mix of products and services that addressed and unique needs of the enterprise market.
Open I go to market strategy is synergistic with a service provider channel that primarily consist of large commercial integrators.
There are and customers are large scale enterprises, such as universities schools banks national retail chains and property management companies.
Looking forward, we intend to create new capabilities for commercial customers.
Well you integrate in many of our technology assets with opened <unk> enterprise video platform.
As an example, we expect that the integration of our video analytics capabilities into the open I software stack, well unlock additional value and each open I deployment.
We also intend to strengthen the alarm dot com video offering by integrating many of the enterprise elements of the open I platform.
Shifting to the residential space our service provider partners continue to lead the market.
And our results demonstrate that leadership.
Security and life safety remains a top consideration for homeowners.
When purchasing smart home products and services.
As more devices become conducted in the typical home.
Now you have in intelligently integrated solution not as professionally service only increases.
Over the last decade, we have seen many new entrants attempt to disintermediate the professional service provider channel.
These companies typically entered the market with a point solution product for self installation.
I'm better tempted to broaden their offering by adding a few additional devices.
None have significantly impacted our business or the professional service provider.
And most of them have failed to create sustainable business models.
So we have continued confidence that our go to market approach and the extensive solutions, but we have developed the professional service provider channel are the right strategy.
Moving forward, we worked hard to extend the technology advantages.
That our service providers enjoy into residential marketplace.
Our focus is on advancing the overall security and service provider experience and on creating new growth opportunities for service providers.
It's not in monitoring to more aspects of the home.
As an example, we recently announced our new smart water ball plus meter device at CES in January.
This device is a critical component of our comprehensive whole home water safety solution that protects properties from the full range of water related issues.
It can detect leagues respond to water sensors and automatically shut off the properties water supply and the event of a problem.
Notably from its central point of installation on the homes water main <unk>.
It can detect extremely slow leagues, <unk> waste water or caused damage anywhere in the property.
A second element of our strategy that I would like to discuss is our video player.
Our video product development efforts have translated into meaningful results, both financially and in terms of customer engagement and satisfaction.
Since launching video analytics in late 2018.
We've seen a strong increasing the adoption of our video services.
In 2019, the attachment rate a video services for new account installations was well over 35%.
In 2020, we expect this positive trend to continue as some of our larger service provider partners began deploying our video analytics capabilities and as we launch several new products currently in our pipeline.
As an example, we plan to watch a lower cost indoor camera called the alarm Dot com fyfifteen.
Will round out our camera lineup.
Planned for availability. This summer it offers to weigh audio Teneighty p. image quality and has the onboard compute power required for our video analytics service.
It's smaller size and lower price point should expand the market opportunity for video analytics services.
A third key element of our strategy is international.
Last year on this call I highlighted that we had reached a confidence level with our international business.
Want to building out our global team and presence.
We executed on those throughout 2019 with the goal of providing unmatched support for our existing international partners. While also adding additional international partners that can contribute to further growth.
We feel that these efforts have been going well and our confidence and this aspect of our business is increasing.
The final element of our strategy is expanding our addressable market by building our segment businesses.
These include points Central Energyhub and building 30 cents.
As reported in our other segment SaaS revenue for our.
Like many businesses grew 51.6% in 2019.
We have made solid progress building. These teams, we're finding their business models and scaling their operations over the last few years.
Each segment I suppose is focused on an attractive rolling market.
Points subtle provides an airplane solution for vacation rental property companies residential streets and multifamily dwelling units.
As an example of a successful 2019 deployment punch central was installed and over 8000 apartment units managed by BH management.
Building 36 partners with H block servicing companies, while also leading our product development efforts and thermostats and water safety devices and solutions.
Last year building 30 sucks launched a sophisticated now H block monitoring solution in partnership with Goodman Omar.
And then the fourth quarter worked to further extend its market opportunity by integrating HVAC systems manufactured by letting.
Energyhub provides an enterprise software solution for managing distributed energy resources to the energy utility market.
Over 45 energy utilities that reached more than 45 million households, United States now use energy hubs technology.
In summary, we had a solid fourth quarter and finish 2019 with nice momentum.
As 2020 gets underway I also want to introduce our new Board member Simone World.
We're very excited to add some more onto the board team Simone serves as a senior Vice President and General Counsel for choice hotels International.
Her previous experience includes more than 10 years at XL Communications, where she also served as senior Vice President and General Counsel.
Simone brings broad operational management and legal experience to our board and we're looking forward to working with her.
Lastly, I want to fight Oh service provider partners and the alarm dot com team for their hard work in 2019.
And our investors for their trust in our business.
And with that let me turn things over to Steve Valensuela.
Yeah.
Thank you, Steve and good afternoon, everyone I will start with a review over fourth quarter and full year 2019 financial resolved and they provide guidance for 2020 before opening the call for questions.
Sasson license revenue in the fourth quarter grew 15.7% from the same quarter last year to 90.1 million.
This includes connect software license revenue.
Approximately 10.6 million for the fourth quarter.
Down from 10.7 million in a year ago quarter.
The drop in connect license revenue is expected as our customer who we license that connects software to is focused on rolling out their new platform.
An alarm dot com SAP software that we operated host for the service provider.
That's a license revenue for our alarmed dot Com segment grew 14.6% in the fourth quarter.
And our other segment grew 34% year over year, driven by strong results at our subsidiaries, including energy hub and points central.
Both of which Steve just described.
For the full year of 2019 Sasson license revenue grew 15.9% from 2018.
The 337.4 million.
Our alarm Dot Com segment grew south revenue by 14.2% year over year end or other segment grew 51.6% in 2019.
Our SaaS and license revenue visibility remains high with a revenue renewal rate of 94% in the fourth quarter.
The high end over historical range of 92% to 94%.
Hardware and other revenue in the fourth quarter was 50.4 million up 50.2% over Q4 2018.
The increase in hardware revenue was primarily due to an increase in sales from a video cameras and to a lesser extent the inclusion of open nine or financial result from the closing of the acquisition on October 21st 2019.
Total revenue of 140.5 million for the fourth quarter grew 26.1% from Q4 2018.
For all of 2019 total revenue grew 19.5% to 502.4 million.
That's an license gross margin for the fourth quarter was 86%.
Approximately 90 basis points from Q4, 18 gross margin of 85.1%.
Hardware gross margin was 20.8% for the fourth quarter compared to 18.8% for the same quarter last year, primarily due to product mix.
Total gross margin was 62.6% for the fourth quarter compared to 65.1% for the same quarter last year, mainly due to the increase in hardware revenue.
Turning to operating expenses R&D expenses in the fourth quarter were 30.1 million compared to 24.4 million in the fourth quarter of 2018.
We ended the fourth quarter with 621 employs an R&D up from 500 employees in the same quarter last year.
Total head count increased to 1100 60 employees compared 884 employees at the end of 2018.
Sales and marketing expenses in the fourth quarter were 18.4 million or 13.1% of total revenue compared to 16 point threemillion or 13.7% of revenue in the same quarter last year.
Our gene expenses in the fourth quarter were 18.2 million compared to 17.8 million into your go quarter.
DNA expense in the fourth quarter includes non ordinary course litigation expense of 2.1 million compared to 3.2 million for Q4 2018.
DNA expense in the fourth quarter also includes 813000 and acquisition related expenses.
Non ordinary course litigation in acquisition expenses are part of our adjusted measures and are excluded from our measurement over non-GAAP financial performance.
Non-GAAP adjusted EBITDA in the fourth quarter of 30 million grew 43.7% from Q4 2018.
For all of 2019, adjusted EBITDA was 108.3 million up 16.4% from adjusted EBITDA of 93.1 million for 2018.
In the fourth quarter GAAP net income was 13 million compared to GAAP net income of 7.9 million for Q4 2018.
Non-GAAP adjusted net income increased to 21.5 million in the fourth quarter compared to 14.5 million for the fourth quarter of 2018.
Non-GAAP net income for 2019 was 77.2 million or dollar 54 per diluted share up 16.8% of non-GAAP net income of 66.1 billion or $1.33 per share for 2018.
Turning to our balance sheet.
We ended the fourth quarter with $119.6 million of cash cash equivalents.
In Q4, we used 58.8 million in cash to acquire 85% of opened I net of acquired cash.
In the fourth quarter, we generated approximately 23.3 million in cash flow from operation compared to 25.7 million for the fourth quarter 2018.
Our free cash flow for the fourth quarter was 14.6 million compared to 24 million for the same quarter last year.
In the fourth quarter.
Capital equipment purchases were about 7 million higher than Q4 18, mainly for facility related costs and additional service for our data centers.
Through the 12 months ended December 31st 2019, we generated 27.8 million of free cash flow compared to 49.7 million for the same period in 2018.
Our 2019 cash flow from operations and free cash flow were reduced by the 28 million payment. We made in 2019 to settle the TCPA matter.
Turning to our financial outlook for the first quarter 2020, we expect staff and license revenue of 89.9 90.1 million.
For the full year 2020, we expect staff and license revenue to be between 382 to 382.5 million.
We are projecting total revenue for 2020, a 547 to 557.5 million.
Which includes estimated hardware and other revenue of 165 to 175 million.
At this time the potential impact global supply chain from the Corona buyers is difficult to predict and therefore, it's not possible to fully determined the impact on our hardware revenue.
While there could be some short term impact from the Corona buyers. We are hopeful this will not impact our full year results.
We estimate that non-GAAP adjusted EBITDA for 2020 will be between 107 to 110 million.
Non-GAAP net income for 2020 is projected to be 74.9 to 75.4 million.
Or dollar 48 to $1.49 per diluted share.
We expect our non-GAAP tax rate to remain at 21% for 2020.
S is based on an estimate at 50.7 million weighted average diluted shares outstanding.
We expect full year 2020 stock based compensation expense of 26 to 28 million.
In summary, we are pleased with our performance in the fourth quarter and full year 2019.
We are focused on executing on her business strategy and investing in or growth opportunities.
While continuing to deliver solid financial results.
Before I turn the call it to the operator for Q and age.
I'd like to mentioned they will be holding our investor and analyst day on May 19 at our headquarters in Tysons, Virginia.
We will be sending on imitation soon and we hope to see many of you there and with that operator. Please open the call for QNX.
Thank you and ladies and gentleman asked I remind there to ask a question just press Star then one on your telephone keypad to withdraw your question Chris <unk>. Please standby we've compiled it can a roster.
And our first question is from Nikolai badly off with Bank of America. Your line is now open.
Hi, This is jackman shown on for Nikolai Thanks for taking the question can you. Please double click on how commercial is doing and you know the progress there and when would we expect it to kind of ramp up and had some sort of inflection point.
Sure a Jack when this is Steve speaking, so yeah commercials or commercial is doing pretty well. We did grew at an accelerated pace last year we.
Obviously made the open I acquisition.
To further strengthen our commercial story and particularly strengthen our story in the enterprise market.
So you know when was when is it going to be sort of Oh, a real dollar mover I'd say, it's already positively impacting our business and as we build the base from service providers, who.
Promote install the commercial offering a we should see it continue to accelerate I'd say, we're at roughly 10% of service providers right now or are trained and marketing the offering and the commercial space and we expect that number to continue to grow.
Got it thank you and it can you talk about like what training is required and how you know why why why arent, we seem more service providers trained on the commercial platform.
Well first just keep in mind share numbers, so with 9000 service providers when I say, 10% that means that in a relatively short period of time 900 have come up and are actively beginning to solve the offering.
Second as a lot of them are busy on the residential space you know if your service provider you have to make a decision.
Do I want to stay focused on the business, that's good and the residential space what I wanted to begin to divert resources into the commercial space.
Quite a few have a preference for sort of staying where there is strong and and.
Focusing on the residential space and that's fine with US that's that's a great market, but.
Yeah with the improvements the offering we're continuing to recruit more service providers that already have a history of competing in the commercial enterprise space and.
In terms of training, it's one of block and tackle execution, it's trading on everything from.
How to install door strikes to how to price how to sell it really depends on the experience of the service provider.
Or in the commercial space already how much of that trainings actually necessary, but with our products we do.
Take each service provider through a certification process.
Got it got it thank you and if I could just slip in one more just also wanted to hear about how international is doing it sounds like we're seeing a little bit of around but what when do we expect infection. This segment as well.
Yes, so I I think we're definitely seeing a ramp our service providers internationally our our.
Our exit executed well in 2019, I would say in some of the investments we've made in prior years I think in prior years people have asked well how long does it take what do you have to do what are the steps and I sort of went into refrain of.
Similar types of things you have to train you have to get your pricing said you have to make sure all the ecosystem products are working for a given market a lot of that came together in 2019, and we saw enough service providers really succeeding on execution side that.
We gain confidence in that part of the business, particularly in the back half of the year.
And we expect.
You know rough numbers, we ended the year with well over 200 or very close to or over 200000.
Non north American subscribers, and we're seeing an acceleration of kind of installed rate. So I don't know what what we necessarily characterizes inflection, but we see good solid momentum there and that's one of the one of the drivers for why or why we're going to continue to step up in our efforts to.
Cater to the international markets.
Thank you. Our next question comes from Adam Tindle with Raymond James. Please go ahead.
Okay. Thanks, and good afternoon, I just wanted to start with the 2020 guidance the SaaS and license revenue growth initial guidance is quite healthy at mid 13% year over year range. I think that's just about the same percentage growth as you started guiding 2019, obviously ultimately it's you did it but now you're starting off a bigger base. So I'm just hoping.
Or maybe some thoughts around key drivers as you built up 2020 Sasson license initial guidance why the confidence to start out with a similar percentage growth target as 2019, and it looks like that's going to progress as the as the year moved on because Q1's going to start slightly below that year over year growth. So why does it accelerate as the year progresses.
Sure I'll I'll take the initial a lack of that Adam first you're you're pretty pretty Percepta [laughter] go back and it looked good history. So yeah. We believe we felt some things are coming together in the back half of 2019, we've talked about increasing contribution from a number of the.
Number the growth areas of the business and and then we saw strength.
And our North American service provider channel as well in parts of it. So we are model. The way we do guidance is really more of a budgeting process, where its bottom up.
And we look at upfront trajectories, and then we model off of that and 'em, we treated as a budget that we intend to head. So when we see some of the results coming down and we see growth and international growth in some of the segment businesses.
The North American business doing well growth in commercial I think even on the bigger base because some of these things are beginning to.
Great a more material contribution we felt comfortable with the guide that.
That on a percentage basis was somewhere to what we did this time last year.
Okay, and the acceleration as the year Progressive is something that happens in the back half of the year that maybe yeah, there's very little bit of yeah. I mean, Q1 always I think there's a little seasonally but seasonal seasonally weak quarter at some level me not dramatically week, just just a slightly weak and.
Yeah, obviously to get to our kind of goal for the end of the year, we have to have outperformance in the back half of the year or what you would call accelerated performance. So yes, that's what we.
That's what we're currently I'm modeling.
Okay. That's helpful and I just have a kind of a bigger picture follow up Steve on investments and I'll acknowledge it that maybe this is somewhat unfair because it's predicated on prior success of the business, but bear with me you've talked about the payback period on recurring revenue how healthy that's been we've been able to take prior year sales and marketing add it to prior year sounds like.
Since revenue and usually get a proxy for where forward.
Your SaaS revenue should be up at a minimum now that were done with 2019 I think this was the first year, where that payback period model extended beyond that one year and if we look at 2020 guidance. It implies that payback period extends a little bit further. So the question is maybe first just taco why the payback period has elongated and then how do you.
The investment opportunities given the core businesses not saturated what are the key metrics that you're focused on on these investment decisions.
Yeah, that's starting with the starting with sales and marketing payback period, I I would say as a.
More meaningful chunk of the business is tied to less mature initiatives you know earlier stage initiatives, the upfront sort of sales and marketing expense really required to prime the pump. It is higher on a relative basis, then it would be in a more mature segment. So if we take a segment like.
You know like international we're going to work really hard.
To bring honest service provider in a given country that you know and the first few months after that relationships consummated might create five or 10 actual subscribers for us and clearly that doesn't justify the themselves in marketing spend on on an annual basis anyway. The reason we do it of course is we.
Hope to have a decades long relationship, but as you're as you're trying to set up a number of these relationships that hopefully will be decades long you do have some increased burden on the marketing side.
And and I think that's we're seeing when they look at both some of the earlier stage ER segment businesses, particularly I think last year or end of third quarter I talked about wanting to actually intentionally step up investment and some of the organic growth initiatives in the segment businesses based on what we saw.
And.
That requires building out a bigger sales team and yeah. We have the confidence now that that demand or native demand is likely there the product in different cases is is ready and and it's time to prime the pump with summit increased sales and marketing energy So I'd say.
Thats why in aggregate.
You see that I don't think we want to pull back from being thorough and servicing our more traditional north American partners either they while we may not be selling a ton of new business to a given service provider in North America. We still have you know growth there with with additional offerings and video in commercial and we want to make sure. It's.
Some point sales moves from sort of sales.
Service hand.
As a partner kind of continues there legacy with US we want to make sure we're keeping in place.
A meaningful service component and helping them continue to grow their business. So you get somewhat more efficient as the base built in a mature business, but you don't want to drop the service component and then the new the new businesses require some some up on energy I think that's why that that payback is that CAC ratio is there's a long getting a bit.
Understood. Thank you Adam.
Steve Downs will I would add to with open I acquisition.
We're going to be investing in their sales team. If you look at the opportunity for the enterprise you've got a 4 billion dollar market and as a private company. They were really constrained in terms of the number of salespeople and given that that sale is an enterprise sale.
We are going to be adding a number of additional salespeople to the open I team and that does increase the sales and marketing expense a bit but still looking at other companies you looked at our sales and marketing spending as a percentage of revenues around 13% for 2019.
Maybe up a 100 basis points for 2020, but it's still relatively low when you compared to other other companies out there. So we feel very good about or investment sales and marketing.
Fairpoint Thanks, Steve.
Yes. Thank you.
Thank you. Our next question comes from Matt filed with William Blair. Please go ahead.
Hey, guys. Thanks for taking my question Dick wanted to ask on on the video analytics product you mentioned that there's several large part larger partners that are going to market with video analytics.
2020.
How come it took these partners you know over a year I guess to just started to offer the product and then as you look across your base what percentage of partners that could offer video analytics are doing so currently.
Yeah, Let me start with the second question, which is what percentage of partners that could offer analytics are doing so.
My guess is the this is this a gas but this is from looking at as you know sales reports and whatnot as that numbers actually probably pretty high at this point I'd say.
60% plus or in the.
Our offering analytics with the video solution and.
The reason for that as it's just it's just such a a better customer experience and everyone is focused on delivering.
World class customer experience to the consumer.
With the larger entities some have already moved some have have not and.
A year is actually not that outrageous when you think about the.
If you're a large enterprise again, when you think about reconditioning the way that salespeople in the field sell.
The way that technicians are trained to do installations those sorts of things. It just takes some time to work through to work through that deployment.
That deployment plan. It also at times takes a little bit of effort to work things out with us on the cost of those type of thing. So we've we I think we've cleared most of those hurdles that disappointed and therefore that we're able to comment that we expect to see that that trend continue.
Got it and and as you increase the breadth of the offering.
More complex something in things like video and the smart water valve.
You know the associated.
Installations also become more complex. So how do you work with your partners to incentivize them to sell those more complex deployments and then also you know make make sure that they're they're done properly. So that it doesn't end up reflecting poorly on on your end.
Right now that's excellent question and that's that's something we we have to focus on with with training and support the first is.
Making sure that you're.
And we're very proud of our support team, so making and the reason for that is if you're one of our partners and you're attempting to sort of enter.
The market with a new Coyote type of product you have to feel confident that the supplier you're working with is going to support you.
Effectively so first thing is making sure that we have great support resources in place that's everything from email and telephone support training to knowledge base articles those types of things.
That's not really an incentive it's just table stakes something had to do but it's hard to do well.
Second as the market is creating in terms of incentive the customers.
He is increasingly asking for capabilities like this and all of our service providers are I think focused on delivering the most value they possibly can to the consumer so.
Theres, a little bit of a a market based there if you will wear in order to add more customers and remain relevant to.
A a wider segment of the Tam.
I need to expand the universe of.
Ecosystem devices that you support and water is a good example, it will be a hard one <unk> be a hard one.
Because it is it involves plumbing and as part of the installation.
And.
Well it will do is work to create the right network of third party providers, who can come in to a home or a small business and make adjustments to the plumbing apparatus and.
The value, though to an insurance company to the homeowner if you actually look at loss.
As a mats and the value to consumers just sort of the peace of mind of knowing that.
Thank you have leaks or don't is pretty pretty high as well. So we think the market will demand will figure out how to too.
To execute on the actual delivery of the product, but good question because it is it is one of the reasons why sometimes we announce something and then a year later, where we're at 50% 50 or 60% in terms of.
Installs that could be deployment the technology.
Great. That's all I had for you guys. Thanks, a nice finished yet.
Thank you.
Thank you. Our next question comes from David Gearhart with first analysis. Please go ahead.
Hi, Good afternoon. Thank you for taking my questions in prior quarters, you talked about.
Some of your large dealers, having having difficulty getting.
Significant are sufficient credit to buy accounts, just wondering if you could give us an update on on that front and activity around those most large dealers in regards to that issue.
Sure.
David I'll take that one.
Yeah the market.
The market for US has three stack, but is there sort of very large well capitalized players.
There are smaller very local service providers. Those two segments are both in fine shape right now there's a third sort of challenge, which is large players who are.
Who have through the years.
Become dependent on on a handful of lenders and we've seen some softness and that and that lending community that then that persist today.
So it's still a an issue that folks are working through I think.
The issue.
Is that that credit is not as widely available to the service provider in a certain categories. Today is it as it was a year ago and.
The issue hasn't yet gone away.
I think it will go away, yes, I think we'll see a.
Trickle of deals so trickle of additional entrance the terms on.
At some point as the markets evolve then and terms on debt deals evolve and at some point the deals become so attractive that a lender you know wants to participate and I think that's kind of where we are right now it is probably at a point, where we're just beginning to see some participants that are looking more anxiously at the operating.
No need to lend into the segment of our other channel.
I would add that there are a couple lenders that we've heard a recently the seat as an opportunity that are starting to take a look and think that the.
There was a good opportunity for them in the business and.
Whereas you know in the past they may not have looked at this area but.
There are few that are starting to see that that it is a good opportunity.
Okay, and then lastly from me.
You mentioned Corona virus in your prepared remarks, and I wanted to touch on that briefly.
One of your peers, maybe less so on the do it yourself space with scale announced their results yesterday, and they talked a bit about having difficulty getting components and it's making it hard to actually build products. So I'm. Just wondering are you not facing that at this time and related question is do you have enough safety stock of components on hand, and what kind of.
Runway you think that gives you.
Yeah. So we're all watching the news [laughter], probably with with more interest that that normally and at this juncture. Obviously, we have to to make an estimate for the year based on what we know today and.
We we have accommodate at a certain amount of of challenge our supply chain.
With the estimates we provided to the here.
We havent accommodated the absolute worst case scenario.
But that's partially because I don't think we're going to have the absolute worst case scenario. If we you know well if we look at what's actually going on with.
With factories I think most are reporting that factories are gradually.
Coming back online in terms of our suppliers that's truly each day, we look at a percentage of.
Have a capacity that's now back online and it's it's not increasing as quickly as we would like but it is increasing do we have an infant supply on had no we don't.
So I expect at some point.
Yeah, we'll see some factors come back online it will be okay. We'll see a few products, where we'll have some execution challenges and we'll have to manage those and we will scramble accordingly, but but based on what we see today and I'm a I guess hopeful that that we'll see this thing gradually in the supply chain anyway work its.
Work itself out.
Okay. Thanks for the color that's it for me.
Thank you.
Thank you. Our next question is from Niihau chalk see with Maxim Group go ahead. Please.
Oh, yeah, Thank you and great results.
I have two questions first is that within that great Sasson license revenue growth that you saw it wasn't celleration was there any one time license related revenue behind that.
So.
For the full year 2019.
Fourq or your 19.
Fourth quarter Oh for for Q4.
One time.
There's always a tad of seasonality in that and the number in the fourth quarter when we when we get.
So value out of our energy contracts that are dependent on how those contracts performed or any here and those are those can be challenging to replicate over and over again.
You may get them next year, you may not you just don't know and so we had we had some strength there I would say in the fourth quarter and particularly also had a better strength in.
Various types of performance incentives that whether they be energy related or related to reliability of our services.
Then came in slightly positive so there was probably a small.
Component.
The Q4 SAS number that was.
Not necessarily I'm repeating I would say, but and that's that's probably why if we look at the Q1 Guy Q over Q. It it looks I'm on a relative basis, a little smaller and that probably capture some of some of what that volatility was.
Okay, great and you've talked a lot of the video on the call and adoption by your customers. It's now at 35% in new accounts for Count Your 19, and you expected that positive trend to continue to what are you basically trying to say that the attach rate to new.
I'll just gonna go up or are you expecting that to stay flat and has that been to driver what I calculate to be second your ROE of 8% ARPU increase.
[laughter].
Yes, I I think what it I mean by that the confidence that the trend will continue I do I.
I do think that we'll continue to see an increase in the percentage of new installations that have video attached.
I'm not sure where the endpoint is that maybe 50% I don't know if we'll get there this year, but I think we'll continue to see a an upward trajectory there, particularly the second half the year.
So we would hope to provide us an.
I think even higher attach rate data point towards end of year in terms of how that translates to.
So two to ARPU, obviously selling more services is better I had the same time, we have to be mindful of making sure. We're providing reasonable died in service providers. So.
So will will will hopefully see.
Some benefit there, but we're not going to.
We're not going to use it primarily as a you know we're not going to get overly zealous about preserving we're gaining aren't massive ARPU growth out of the service, we want to providing great service to the customer and make sure that protecting the value we already provide.
Thank you.
Great. Thanks.
Thank you Sir our next question comes from Darren Aftahi with Roth Capital Partners.
Hey, guys. Thanks for taking my questions a nice results I heard the 9000 service provider numbers did I hear the ending subscriber count you had at the end of 2019.
Yes, we said that was 6.8 million.
Substantially greater.
Fantastic show, maybe I could.
Kind of fall on the last question it looks like the in the fourth quarter that the core SAS.
At least what we call, but I'm not cost so that that kinda reaccelerated in as more miles kind of.
First half the year kind of levels. It didn't look like you know comps will really any easier last year. So I'm just curious if there's anything you'd call out in that week celebration and as you know is part of that commercial and international.
Steve It sounds like some of your commentary is Directionally positive there got anything you kind of caught there would be helpful. Thank you.
Yeah, I think as Steve said, there is some seasonality in the fourth quarter, you know with the energy programs, we get the benefit of the Texas utility savings energy savings that typically reported in the fourth quarter and those were positive, but I would say too that we did see growth in international starting to contribute in the fourth quarter, it's not a huge number.
But it did take a little bit of a stair step up in the fourth quarter as we saw a number of the new international dealers come online I think.
Commercial also is contributing I think video analytics is contributing.
And video plans as we talked about before video certainly adds not only the hardware that comes along with video but also the you know the ARPU related to video. So I think those are all positive elements that contributed to the up to the fourth quarter performance.
Great and then.
On your commentary around video services uptake on new customers are these at 35% I'm just kind of curious a while back at me about it.
You are I S. You West day, you kind of talked about increasing kind of training for the service providers I'm curious attach rates on video for existing subs, where you're sort of sweater base is going back and Upselling those services, what kind of the attach rate you, Steve maybe on a trailing basis. Thank you.
[laughter], they're definitely doing that in terms of the what I can tell you one data point I do have that I'll share is about 18% of our actual video camera. So I believe in the fourth quarter went back to the base.
So that's coming from either our service writers going out and upgrading existing customers to get them to a a level of device capable of supporting video analytics or it's going into customers, who simply don't have video attached to their home or business. So so it's definitely.
Part of our strategy is to to continue to go back into the base and penetrate I don't have a good number handy for exactly whats the base penetration is but.
[noise] brand in this last one for me I think last call you talked about 540 to slice 50 through revenue guidance. It's about 75 million better. This time around I'm. Just curious you Didnt you didn't segment out what the.
What the numbers worse, so I'm kind of curious what that southern half a million either skewed towards its hsas are hardware. Thanks.
Yeah actually it's the Steve Jones will it. So we took up the South guide by about 7 million. So most of that increases out its seth.
But we've never actually giving a guide on it but I think we took it above seven about some of the consensus exactly head. If you look at our hardware number it get really not elevated at all relative to 2019 and if you include the open items right. So.
Yes, so that's where most of the game there versus our initial out.
That's right sorry.
That's helpful. Thank you.
Thank you.
Our next question is from Mike Latimore with Northland capital markets.
Great. Thanks, congratulations on the quarter.
Can you probably a little more color on international maybe how many service providers there sort of Onboarded now versus a year ago and are there any particular countries that are no sort of the most fruitful don't corridor.
See no more color I don't have the number of service providers in front of May but.
Sure. The main thing we're watching is the is the creation rate how many how many account.
For we.
We are per month are you actually installing we saw that move.
In the back half the year, well above 10000 a month.
That gave us confidence that we would see increased gross in 2020 and international.
Segment markets that are better good.
The it's actually almost every market where end so Latin America has shown nice nice strength than the last six months.
Europe I feel like we're beginning to get some momentum.
There.
Couple of different service provider. So some shrink their Australia has been strong for a long time continues to be strong.
Turkey as a market that has been strong for long time.
Continues to be strong so.
Most places, where where where we're we're participating we feel some momentum on the international side I think I noted we're at about 40 countries.
Now with with good service provider relationships and those are all in different stages, but but in general we were not really seen a place where we're sort of running into failure at the moment. If we're running the failure. It's usually things that we can solve fix the product get the right device was supported get the right support apparatus.
In place and and.
It was the type of problems, we like to encounter because they're solvable and that's kind of overseeing.
Great then I guess I'm interpreting that you're a little more confident in the North American residential marketing is one is that true right now and then to that tied largely to this credit dynamic improving or something else.
I think it's just the you know based on the production that the the delivery of the service providers and end 2019 was was we thought solid theres been a lot of.
Concern and noise about impact coming from various places on the service provider, but if we look at the beyond the whole up the performance of Middle Bakken residential segment.
It was was pretty good so I think I'm.
That's a that's that's probably on the debt marketing.
It's it's not.
Not a part of the market, where we're in active participants so.
Work outside are looking and but.
From my discussions with various with various partners I I have a belief.
Gradually works itself out as new entrants come in and as that firms up then that's what I'm hearing as I don't have a.
Business problem, what I have is a balance sheet problem at the moment I need to roll that over etcetera, and we have fewer participants so.
As the participants come in at the business is falling to think I'm going to see that rectify itself.
<unk>.
Okay, great. Thank you.
Great. Thanks.
Thank you so much at all or last question is from Jeff Kessler with Imperial. Please go ahead.
Thank you.
Thank you for taking my question.
As you as we look at the the as we look at the worldwide security industry and looking at your larger security providers and looking at PSX. Secondly, your acquisition of opened a high who deals with enterprise size.
Enterprise SaaS installers or the world of the world of commercial.
It's a dealers and the world of in stores is beginning to kind of more together. So how are you in interpreting this in terms of going to your larger dealers, who may be doing both commercial and and resi and dealing with the ins.
Dealing with the integrators, who basically are just all commercial and getting them those folks to get on the same I'm talking about the on the commercial side getting them. All on the same page those commercial dealers and those and those integrators to start taking on your products. So that the if you want to call. It the.
The the sales channel begins to begins to even out for you and you begin to get you because you get a common message across to both of those groups to accelerate your commercial business.
And enterprise business at the same time, yeah. So there's a couple of parts to that question, Jeff first I I think you're absolutely right that the system integrator.
Component of the channel is sort of converging with the commercial dealer part of a channel the integrators moving into more recurring revenue oriented or types of business models and the commercial dealer is moving up and enterprise space on so so that process is on.
Your way, we want to make sure you know we have the right product there and.
Barack for US the focus is really on being you know it's not the first the bastad a fully integrated enterprise grade solution that incorporates access video intrusion and in some cases energy management, if that all works together nicely and.
The the presentation of that functionality to the user is exceptional than we think we'll have the right product there and we'll continue to make inroads as we look at the.
Service providers, who are more residentially focused if you actually asked them what there what their biggest challenges the biggest challenge I, usually here is that I can't hire enough technician.
I'm constrained on an eight from an HR perspective, especially in the current economy and it against that backdrop, it's sometimes hard to get a person to say hey, what I'm already under Resourced and I'm struggling to hard enough technicians to install on the demand I see right in front of me.
Sometimes it's difficult to get that person to also want to leap into a new a new markets. So.
I think it's the type thing where are you you know you sort of chip away you hope that they're able to scale up their HR functions hire more technicians meet that demand on the residential side for installations that as they do that they become more successful they may be gain more capacity to invest and invest in the hires that that are.
Focus on the commercial space and then you know gradually build that out we don't need every one to be we don't need or really walk [laughter], everyone, who strong in residential to move to to.
Commercial so we just want to make sure that for those source writers that are doing both that we've got the right platform that allows them to kind of.
Move across the entire central market, that's addressable to them.
All right. Thank you last question.
At this time last year, you talked about investing spending some time in 2019 investing some more investing some reinvesting more into your business, which was kind of like I'm actually was a dog whitsell, but it was kind of it was kind of like a cold and say.
We better watch out for you know, what's your EBITDA would be what some of the what some of the but some of the numbers below the revenue line, we're going to be and you probably and you did invest more heavily into this is where did things go go right. So that those helped more <unk> those adv increased investment in your business.
Did not.
Did not was well basically ended up with numbers that were particularly higher than what most analysts we're thinking about at the beginning as the year.
Right.
A question of whether it went right so you're talking about the EBITDA number being higher and the robustness.
Yeah, I'm talking I'm talking that you know the fact that you said that you would go to spend this year investing fairly heavily into business that is kind of a at this kind of code for.
The fact that expenses would be higher investments would be higher R&D would be higher and it was you know and you'd became optum more optimistic throughout the year with regard to a with regard to how your revenues were reacting to those investments or what was what was the cause of that.
But I guess I would say that the cause was.
Perfect execution on the recruiting front.
Learned dot com. So we we intended and markets are tough.
On the recruiting front, we intended to scale up last year our.
Our R&D function, even faster than we did and and you know so when you have.
Do you have a slightly fewer employees than you expected then you end up with.
Higher EBITDA number, particularly when that's compounded by growth that was better than we expected on the on the topline. So we had better topline growth.
Higher hardware sales, we didnt quite hire as many people as we wanted to in 2019.
Then towards end of year as we roll into 2020, we acquired opened I.
I think we commented we intend to invest in that business and build out a lot of the reasons you just articulated in your question on the commercial space.
Called out our presence there so in that case, where we're taking a business that is going to contribute I think we've indicated $40 million.
And top line.
We've indicated we're definitely not running that it and sort of the company's EBITDA margin levels are probably going to run it for a while a in the investment mode at a loss. So that that was one of the reason I think towards the end of last year.
I communicated that as we go into 2020, we're going to.
Continued to look for opportunities to.
Deploy capital and growth initiatives, both organic and in some cases, resulting from acquisition.
Okay.
Well open I eventually have to cloud a little eventually open I have a cloud platform.
Oh, yes, they already do actually and the cloud is getting richer by the day.
[laughter].
Okay. Thank you. Thank you very much for taking my question. Thank.
Thank you thank you Jeff.
Thank you ladies and gentlemen, this concludes our Q in nature and program for today. We appreciate your participation you may now disconnect have a wonderful day.
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