Q2 2020 ADT Inc Earnings Call
[music].
Greetings and welcome to ABT incorporated second quarter 2020 earnings Conference call.
So all participants are gonna listen only mode.
Question, then exercise Joe will follow the formal presentation.
What's your acquire operator system sorry, the girlfriends. Please press star zero on your telephone keypad.
Please note this conference is being recorded.
During the conference over to Derek Fiebig, Vice President Investor Relations. Thank you you may begin.
Thank you operator, and thank you everyone for joining us on todays call. This afternoon, we issued a press release in slide presentation on our financial results.
Addition, on Monday, we issued a press release.
Slide presentation related to the partnership.
He's materials are available on our website.
That's true Dot 80 gig dotcom.
Our remarks today will include forward looking statements within the meaning of the private Security Litigation Reform Act 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 in our filings with the FCC.
Please note that we disclaim any obligation to update our forward looking statements, which speak only as at the time are made.
During today's call will also make reference non-GAAP financial backers artists to work and forward looking non-GAAP financial measures include special items, which are difficult to predict and or maybe mainly dependent upon future uncertainties.
For a complete reconciliation of historical non-GAAP to the most comparable GAAP financial measures. Please refer to our press release and our slide presentation issued this afternoon, both of which are also available on our website.
With me on today's call, our 80 teach president and CEO, Jim to reach our CFO, Jeff like a SAR and also joining us and available for you today are done young our CIO and eat a field operations as well as rich Rod actually paid business operations in Jason Smith, That's me.
Yes.
With that I'll turn the call over to Jim.
Thank you Derek and it's a pleasure to welcome everyone to today's call as you know on Monday, We announced our long term partnership with Google, which we believe positions us for a major leap forward in Arkansas, <unk>, Louis and long term growth potential.
Our existing initiatives combined with our global partnership in April wants to continue to lead the industry well into the future I hope. Many of you were able to join our call. One one day, where we just got this exciting alliance in more detail I'll share a brief recap of our agreement in a moment.
But first I'd like to spend some time discussing ATP very strong second quarter performance.
The only way we shared with you the transformational effort by our team to navigate the cold at 19 environment.
Highlighted a structurally buying an extraordinary chefs who aren't nearly 5000 called front or employees. So work from home environment.
As we progressed through the second quarter, we accomplished many so more objectives toward adjusting our business operations, including extraordinary customer service provided Byron tighter field organization I am pleased and proud that the 18 quit.
Cory you from navigating during a challenging time to simply wiping from a customer care fairpoint. The pandemic has allowed us to rethink the art is it possible or we are encouraged by the high level of service and effectiveness we achieved.
These efforts resulted and I hope the year over year improvement in our NPS score to an all time high during the quarter. We also introduced our first artificial intelligence shares bought to handle customer service issues. Additionally, we delivered our.
I have stopped the first call resolution right and so on increasing our customers use of our self service interactive voice response.
Our field operations ATP technicians continue to see where inefficiently service, both new and existing customers.
Second quarter also represented our that's corridor for technician productivity, while acknowledging the many economic challenges true throughout the country.
Man for ABTS products and services remained burnt overall with strength in residential demand, partially offsetting a softer environment for our commercial customers and Mary we actually began adding technicians to our team I'd expect to continue to do so through the balance of <unk>.
Yes.
Strong customer service and satisfaction levels supported customer retention and as our 12 month gross customer revenue attrition improved by approximately 40 basis points sequentially to 30.1%.
We experienced improvements across both our direct and dealer channel and actually in every category, we track including customer relocations.
As we've highlighted a number of price before progress and the customer retention well not always be linear, but I'm pleased with our performance during the quarter, we'll continue to drive the customer service initiatives I shared earlier, which we expect will result in higher customer satish.
That's true and strong retention over the long run.
Turning to our residential business new residential sales also finished the quarter strong with each month better than the prior more.
He has shared during our first quarter call covert 19 and shelter in place restrictions negatively impacted our business in late March and April before sales demand improved during the course of May and Spike higher in June.
Our June U.S. residential RMR additions, Oh, I'm, a year over year basis net customer additions remain positive for the first six months of the year.
We're monitoring the resurgence of Coburn 19, and the broader macroeconomic situation carefully despite the near term uncertainty the resilient characteristics of our business are illustrated with consumers, placing a high value on safety security.
Peace of mind.
Looking further into the future, we're increasingly encouraged by current and potential long term market trends.
Per household basis consumers continue to two desire more services I'm more helpful home services, and we expect that macro trend to continue for years to calm record low interest rates recent trends towards be urbanization, and a growing millennial population seeking.
New homes, all bode well for housing and home automation overtime.
These trends present, both short term and long term opportunities for us.
We're also excited about 82, new long term partnership with P.R. Horton the nations largest homebuilder for one of our most exceptional dealers safe Haven 80 tea is now the exclusive provider for D.R. Horton and we'll professionally deliver smart home security.
And automation solutions for new homes built quite D.R. Horton. This will include connected thermostats video doorbell door locks lights in addition to security.
We're excited to be a partner to D.R. Horton now and for many years to calm.
Strength, we experienced and residential demand offset weakness stemming from coal good 19 related pressure and our commercial business.
Throughout 2019 in early 2020, we experienced low double digit organic growth rates in commercial revenue.
A large portion of the growth coming from the installation of new systems and ongoing service business.
It was shared previously in March our commercial business experienced a year over year decline due to colder 19, which continued into the second quarter with revenue and being down approximately 15% from a year ago.
However, we continue to make progress in our long term commercial position and while we believe that many of our growth prospects. Our deferred they are not diminished a great example of this girl announced in May was our largest commercial partnership however, with dollar tree.
Your family dollar we anticipate this partnership to eventually span more than 15000 locations across the United States, while we've experienced pockets of success and progress during the quarter, we remain cautious about the balance at the year and expect to see continued.
Year over year pressure and that's part of our business, which is factored into our total company guidance.
However, we'll look to continue to strengthen the commercial business through integrating our existing operations, adding to our capabilities and acquiring new talent to position commercial for 2021 and growth well into the future overall, we're pleased with our.
Financial performance, especially our cash generation and Jeff will describe additional details in a few moments.
As mentioned.
Our trailing 12 month revenue attrition ended at 31%.
Improving by approximately 20 basis points from a year ago, and approximately 40 basis points sequentially.
Our subscriber acquisition or Sac efficiency improved over the past year as well with our trailing 12 month revenue pay back coming in at 2.3 years down from 2.4.
In summary, 80 to perform very well turning to second quarter. Thanks to the efforts and accomplishments of our dedicated employees along with our dealer partners, who worked tirelessly to deliver essential services millions of customers and its challenging environment.
Our strong second quarter performance demonstrates not only the resilience of our business model, which features recurring contractual revenues strong cash flow and flexibility in expenditures, but also our team's ability to stay focused on the business at hand walking.
Junior lien to prioritize health and safety.
Before turning things over to Jeff I'd like to take a moment to revisit our announcement from two days ago regarding Google on Monday as most of you already know we announced a transformational long term strategic partnership with Google that significantly enhances 80.
He is long term growth opportunities over time.
While breaking partnership will enable us to develop new offerings, new products and technology to service the rapidly growing smart home market, our shared vision mutual commitment to serving customers complementary strengths significant equity investment and meaningful.
Go to market funding position, our partnership first access for many years to calm.
I'd encourage you to review Mondays recorded call and slide presentation for more information on our partnership with Google.
Now I'll turn the call over to Jeff to provide further details on our second quarter results along with an updated outlook for 2020.
Thank you Jim and thank you everyone for joining todays call.
As Jim mentioned, we're very pleased with our overall second quarter results and our accomplishments through the first half of 2020.
Our performance demonstrates the resilience of our business in afforded you'd have our team who have delivered these strong near term results, while concurrently strengthening our long term position despite the challenging macro environment. So far in 2020.
Our total reported revenues in the quarter grew by approximately 4% year over year. Despite our 2019, Canada disposition in the 2020 effects over 90.
The main contributor to revenue was installation and other revenue driven mainly by higher reported residential outright sales revenue, which more than offset softness in sales to commercial customers.
Monitoring services revenue declined by 4% on a total company basis with the divestiture of Canada.
However, U.S. recurring monthly revenue grew by approximately 1% in the quarter, even with the cobot 19 related slowdown, which has especially affected sales to commercial customers.
We're pleased that our adjusted EBITDA of $563 million grew sequentially by approximately 4% compared to the first quarter.
As in the first quarter and as expected our adjusted EBITDA was down year over year, driven primarily by expenses recognized in our PML as a result of the defenders acquisition disposition of Canada, and a lower volume of commercial transactions.
Cash generation, which benefited from the defenders acquisition was again a highlight in the quarter.
Generated $232 million of adjusted free cash flow during the second quarter and $405 million on a year to date basis.
This compares to $292 million for the first half of last year.
As I will describe in a bit more detail later, our adjusted free cash flow for the first time includes net inflows from our new consumer financing arrangement and Mizuho partnership, which contributed $19 million in the quarter.
The benefits of our consumer financing program contributed to efficiency net subscriber acquisition costs for SAP, which were down 19% year over year on a 14% reduction in addition to recurring monthly revenue or RMR.
Customer revenue payback on a trailing 12 month basis improved to 2.3 versus 2.4 years.
Additional contributing factors to net Sac efficiency include improved pricing the defenders acquisition and our ongoing cost efficiency actions.
As in the first quarter net that shifted between capitalize and noncapitalized due to the defenders acquisition and the shifted to more residential outright sales.
Another highlight in the quarter was improvement in our gross revenue attrition, which declined by approximately 20 basis points versus the prior year in approximately 40 basis points on a sequential basis.
And you mentioned attrition improvements were driven by several factors, including fewer relocation a number of positive customer service trends and the effectiveness of our retention initiatives.
From a demand perspective, we entered the quarter with widespread softness due to cope with 19 related shutdowns as we described on our last call.
However, residential new unit demand strengthened throughout the quarter with volumes improving in made versus April ended June versus me.
We exited the quarter at a run rate moderately above the prior years levels and we saw strong increase in net customer count during June.
Well you must residential RMR additions were down for the full quarter the increase year over year in the last month of the quarter.
Turning now to the balance sheet, our overall capital structure did not materially changed during the second quarter.
As a result of our strong cash generation, we repaid during the second quarter, the $220 million balance outstanding on our revolving credit facility as of the end of the first quarter.
In addition, read today declared our quarterly dividend of three and a half cents per share payable in early October.
I also want to point out that in consideration of recent market strength, we're considering accessing the capital markets in the near term to refinance our six and a quarter notes due in October of 2021.
Now I'll share a brief update to our outlook for full year 2020.
While the economy continues to face uncertainty as result of Kogan 19, and other dynamics, we are fortunate to benefit from our recession resilient characteristics exposure to favorable trends and demonstrated strong execution in the first half.
Consequently, we have improved our overall financial outlook relative to the ranges we shared in May.
Our new revenue range is 5.05.
$5.3 billion.
Our adjusted EBITDA range is $2.1 billion to $2.2 billion.
And our adjusted free cash flow range is $625 million to $725 million.
As always we will continue to bounce short and longer term objectives with a focus on the pursuit of selected incremental investments to generate future period returns.
Before turning to culinary I want to mentioned a couple other items related to our results and outlook.
First as I mentioned earlier, our second quarter results for the first time include the net cash inflows from our new pricing model changes in consumer receivables facility with Mizuho, which we entered into during the quarter.
Due to the inclusion of this new inflow, which we had included end described in our original 2020 financial outlook. We are now using the term adjusted free cash flow to describe our primary non-GAAP cash flow major.
The inclusion of this new planned inflow is the only change to the major which you can see in more detail in earnings materials.
Secondly, as I mentioned on our first quarter call. It made certain of our interest rate swap cash flow hedges were de designated in March as a decrease in interest rates caused the hedges to no longer be highly effective.
This resulted in approximately $28 million in mark to market changes recorded into second quarter earnings.
Third as we also described during our first quarter call our transition back to a predominantly 80 owned equipment model, which we began during the second quarter for legacy 80, GE residential sales will result in lower reported installation revenue in the second half of the year compared to the first half.
Lastly, the outlook ranges I just shared consider our current expectations for the near term effects of our newly announced partnership with Google.
However, because we have only recently signed and announced this exciting partnership later in the early stages of building, our near and longer term investment plans, we will share any relevant updates as we announced our third quarter earnings.
To conclude my comments today, we're very pleased with our strong results through the first six months of 2020 and excited by the progress we have made positioning 80 for the longer term and resulting opportunity in front of us.
Thank you again for being on todays call.
At this time will be conducting a question and answer session. If he would like to ask a question. Please press star one and your telephone keypad and confirmation till indicate your line is in the question can you May proceed start to see where they can we move your question from the Q for participants using speaker equipment.
Maybe necessary to pick up your handset before pressing the star and he is.
Our first question is from George Tong with Goldman Sachs.
Hi, Thanks, good afternoon.
Thanks, I wanted to dive deeper into the potential financial implications of the new Google Long term partnership you laid out three time horizons for the partnership to ramp could you, perhaps put a framework around what's the timing is around each of the horizons, but look back corresponds to from a year perspective.
And then which horizon would you expect to see a material financial impact from the partnership.
Hi, George Thanks for the question, it's Jim Clark.
Horizon.
First horizons aren't necessarily sequential.
We've been working with Google for almost a year now on their technology and how that came in games.
The 80, plus current gold vision for smart home and.
How we can transform the industry and and really paid a special customer experience and so it's not necessarily sequential but let me let me speak to your.
Your question.
Horizon, one is essentially the introduction of products.
Salable today to our current.
And to our legacy customers.
That will occur over the next 12 months.
Then horizon two is a fully integrated solution that utilizes nest products.
Total install.
There are some additional features like enhanced alarm verification.
On the whole launch of Horizon to no later than June 20 to 22.
And then and then probably what we're most excited about what we call the Reimagination horizon.
It's all about the art of the possible and and rethinking the smart home experience.
Hi machine intelligence, and then building a platform the times all of that together.
We're not.
We're not.
Hi, good quantitative impacts.
Point from for each of those.
For each of those horizons, but thats, a timeframe and a little distributor for you on what the horizons look like.
George and just I'd add I'd, one thing I'd add to that too is the way we're thinking about is it fundamentally changes.
Our long term growth trajectory and so that's kind of many of the rise into horizon, three but it exposes us to two more quickly growing market. Some smart home market. In addition to our core security market.
It makes us appeal to consumers, who might be a little bit more smart home first instead of security burst. It gives us a more compelling broader set of offerings even for those security first customers and did you give us more differentiation, which gives some of the stuff Jim mentioned, but differentiated monitoring video analytics.
Possibly prioritize alarm response, and then to the heart of the possible point, even over the last 24 36 hours, we've gotten a lot of inbound ideas of other places that this could go over time and.
We're excited to have this thing now signed and in motion and a and more to share later I'd emphasize the about into political.
Yep.
And just a follow up on on the partnership or how does the Google partnership differ fundamentally from your Amazon partnership how does that augment the market and the addressable opportunity differently than the Amazon partnership it.
Yes, so on the so the Amazon partnership really orbited around Alexa and using Alexa guard.
As an audio detection device in the home and outside of his to swim lanes that was the extent of the Amazon relationship.
Google relationship.
George is just fundamentally different partnership.
Involves deep integration.
You know about the the investment and the incremental a $150 million and growth funds.
We viewed and still view the Amazon relationship is helpful helpful to the organization.
But the Google relationship.
It's really important accelerator for us and.
An exceptionally deep integration product roadmap.
Joint.
Joint marketing.
Coal branding all part of what's involved with Google.
Got it very helpful. Thank you.
Thank you.
Our next question is from Toni Kaplan with Morgan Stanley. Please proceed.
Thanks, very much the attrition rate in the quarter was exceptionally strong hoping you could help break down the drivers I know you mentioned a few were relocations and that makes sense since co that I think would lead to see our people moving during the period, but just talk us through the factors and how sustainable.
All the number looks from here I expect that.
10, Chilean could tick up a little bit if if if it is driven by the dealer most thanks.
Thanks, Tony So so first just a little bit of context on on attrition.
Our our number one objective is.
No as capital efficient growth.
And that involves balancing a number of not tracks the cost to acquire customers customer retention cost to serve a number of other factors.
Mission is obviously extremely important.
And it receives some times more attention unwarranted because its a.
A balancing act for us to drive.
Capital efficient growth that said.
We're we're unbelievably proud of them on the improvement in attrition.
Sure and a number of times the improvement won't be linear, but we like what we saw in Q2.
Yes for us was at record levels.
Customer satisfaction with our service agents was at record levels.
First call resolution was at or near record levels.
And then we did have fewer relocations and that certainly was the driver, but we improved and retention in every single category we track.
Non pay voluntary lost to competition.
And not on importantly, we improved in every region of the country and and customers generated from correct and dealer. So we think you to retention is an excellent point.
To highlight recession resistant and.
In the end to end the value.
They customers place on our service. So we feel good long term, we know that attrition won't be linear, but attrition improvement won't pay linear, but we feel great about.
The the performance in the quarter.
That's great and on the Google partnership I always received the number of question John what it to means you're resin pricing and also if there would be any cannibalization of the pro install business I was hoping is that share your perspective on that and I was hoping to clarify upstairs.
Revenue or a profit sharing component to the sale of each unit, that's something people that Scott as well. Thank you.
Yes.
Certainly hoping relationship will involve both R&D iwai segment and our do it for me segment, there isn't a revenue sharing aspect to the agreement per se.
We're excited about.
About was what we can come with Google in both segments.
But I wouldn't say most of our attention and frankly most of the attention and the reason why Google was attracted to us.
Because of our do it for me segment.
Our.
5000 or so.
Our 5000 or so technicians.
Our team.
Variance and expertise in distribution.
The brand our trusted reputation.
And the ability for us to be the curator of.
Google product in the Smart home is where we focus a great deal of attention.
At the end of the day was really what.
Google to be to choose 18 is their strategic partner and Tony to your pricing question too I want to add that not not related to Google of course in the quarter, but we continue to make really good progress on our new pricing model that has as you may recall, we rolled out.
In the first quarter and watch nationally towards the end of the first quarters. The second quarter was our first quarter, where we had our new structure in place and our focus there was was to have a simpler pricing structure. It was to enable.
Our sales teams to sell more comprehensive solutions to customers and rely less on discounting all enabled by the availability of financing solution. So after our first quarter, having that in place where we're very pleased with the progress that has led to.
It's realizing more install revenue for the average residential installation, which is a meaningful contributor to the stack improving that you see in the revenue payback that you see year over year and in Google is just going to help that more because it gives us both products and services that we think give us additional differentiation relative to other.
Solutions that might be other.
Sounds like that progress. Thank you.
Our next question is from Seth Weber with RBC capital markets. Please proceed.
Hi, guys good afternoon.
Doing well.
I wanted to ask a little bit on the commercial business the commercial side of the business down 15% in the quarter.
Can you just give us any color as to trend trend rate through the quarter.
And then you know I guess just.
Looks like the customer count was pretty flat sorry are you expecting things to get a little bit worse before they get better here going forward. Thanks.
Thanks, Jim So the commercial business.
[music] about 10% gain in Q1, obviously the impact of thought coal that 19 changed.
That trajectory pretty significantly in the second quarter.
I'll give maybe three or four takeaways on on the commercial business for you.
Our first we expect softness in EBITDA and revenue.
Essentially through the remainder of the year.
Thats baked into our guidance.
Secondly, we think the softness as temporary.
As the country navigates through the pandemic, we're a long term bullish about as part of our business.
And third we're using this time and position ABT commercial.
Even stronger over the long term.
We're focused on the integration of Red Hawk, we had a big systems milestone just completed this past weekend.
We continue to look at tuck in M&A that remains part of our ongoing strategy here and we're opportunistically really knows options and then we're actually still in the market from a commercial talent acquisition standpoint.
Especially on the technician front and we'll continue to focus on on net important work. So ultimately share gain in growth here is about customer service thats, our sweet spot and and as I mentioned, what we're bullish about pits.
About this business, where we think about the opportunity here.
We think its deferred not diminished and Thats. How we grew we started doing acquisitions to grow our commercial presence part of that was to diversify the portfolio and while that part of our business isn't performing quite as well in Ecova 19 World. We're very fortunate to have the diversification and resilient.
In our in the residential side. So some of the trends that Jim described earlier about about about the suburbanization more demand for peace of mind fewer relocations has led to our our sales to residential customers and retention of those customers to remain strong with your goes into us being in a position you even despite the co the 19.
Dynamics affecting commercial to have have raised our guidance in the period.
Right and I appreciate that just trying to get to get a finer point as to whether the trends in June we are different from.
April may whether you whether you saw any improvements through the quarter on it on a year over year basis.
Just a if you're willing to to address that it's it or if you don't want to get background granular that's fine, but that's really what I consider the question, yes, I would say well there we have I mean, there's macroeconomic uncertainty we have a wider range in our guidance than we normally would it was clear on the residential side as we mentioned for.
Paired remarks that the trends improved over the course of the quarter less less clarity I would say at this point as to how commercials likely to play out between now and the rest of the year.
Okay and can you just talked to whether you're seeing any.
Yeah challenges on the collection side on the credit.
Sorry go ahead on the commercial side of the business just.
Credit quality anything you'd call out there that we should be aware of thank you.
It's something we're watching closely we increased our credit loss provision in the first quarter, we didn't materially change it in the second quarter.
The year that we've had some exposure to some of the kinds of businesses that you can read about you're going through some some difficult time I would add though that our commercial exposures are reasonably diverse and some of those exposures are too are too.
Segments.
The economy that are less affected so we're watching this closely manage it closely you're trying to balance the risk with our our growth objectives.
But so so so far I'd say, it's played out a little bit better than we maybe would have expected going in and subside, Jeff was talking about the commercial side, it's probably worth mentioning the SMB part of our business as well.
Where I know there was there has been some concern expressed on a year to date retention in our small business segment is through June 30, similar to last year.
And there's a slight mix shift with cancels for non thing as you might expect being higher.
In the current economic environment.
But overall year to date retention in SMB is the same as last year through June 30, So we're monitoring nonpaying in SMB closely.
On past two is a bit higher than expected, but that is flat to last year and we feel good about that.
Yes, I appreciate it guys. Thank you very much.
Thank you.
Our next question is from Jeffrey Kessler with Imperial capital. Please proceed thank.
Thank you good afternoon guys.
Can you.
But a little bit on us.
One of the in terms of commercial.
You did get a boost to keep it from being down further.
From what I will call the willing the dollar group installation before the beginning of the installation there.
Can you describe what you have done what's you showed because you're.
The come the competition, who had it has some pretty good technology, what have you been doing with your national accounts and what did you do.
On a broader basis, what are you doing in terms of implementing upticked allergy.
To get.
Assuming assuming.
Coded covert begins to relax in 2021, and your positioning yourselves to take advantage of the marketplace. What are you doing to take advantage and get greater share through both technology and the types of service you telling the.
Potential clients, you can give them that their incumbent can't give them.
Yes, so so I'll give a little color and then at a high level, Jeff and handed over to done.
Alternately we like I mentioned earlier, we should see share gain here is.
About customer service and no no one in this space provides the level of service that 80 does.
That the Red Hawk, and 80, T. together do and and we think that that has been and we'll continue to be the single most important source of growth for us specifically to your question on dollar tree family dollar.
You know, we announced that in May that was our largest national account partnership.
Ever announced the work has already started it didn't have a material impact on the corridor.
Alternately that could be as large as.
15000 locations and we think that there continues to be pretty significant opportunity in the national accounts space.
Again, driven principally by World Class service.
So Jeff Bond movie May offer.
From a technology standpoint.
Family dollar had.
And one stop shopping solution operative them by the incumbent phone service.
Broadband share their et cetera.
They they shifted their focus they came up with other alternatives for the broadband and the full service was less security as a primary reason for thinking or new alternative and then we just basically it was able to close the deal is that just based on our prowess on our service levels.
Okay great.
My follow up question is Don you know that I'm going to be at what I'm asking you but.
This past this past quarter and Appeals court upheld.
The the Sandy Springs suit.
Are there there there if you I caught their onerous.
There are owner is fine and and actually their police.
Police their police the response types of rules for.
Before providers that and their customers who have to make false alarms.
What that brings up the question of differentiation in the marketplace and we are where do you where are you in the process of putting together.
Putting together a verification capability that will satisfy police from not so they'll put you at the at at the top of their scoring system and so that you don't get hit your clients don't get hit by fines for a false alarms, what what whereas that were.
Is that progress Adesis point.
Yes, so we've talked about this before Jeff Pinnacle arms on fire alarms have their own different category of response and intrusion alarms.
Typically have been difficult to try to prioritize the technology, we've been working on literally for for years, but more importantly, the last.
Six months or so with the rules help a there and away from the very analytical prowess really accelerate with us for place or we're very comfortable deploying a prioritize version of an intrusion alarm. So basically categorizing that prioritization within the confines that we have.
Suffer up to this point.
Combined that with the flooring standard and we think we're really well positioned to go to market will not only the technology to support it but also a standard in the industry to go at him back it up.
Right.
And.
Is there a general timeframe on this is this something you hope to rollout in 2021.
Probably difficult for me the Gordon.
Paint a picture from a time horizon standpoint, I would expect than 2021, a scoring standard or at least a first version of that to be available and the technology to at least prioritize some portion of the intrusion alarms, mainly the video portion.
The question that remains as how far and how fast it can go on the other sources of data I would say video leads the way followed quickly by location information.
Okay great.
Thank you very much.
Our next question is from Gary busy with Bank of America. Please proceed.
Hey, guys. This is Jay Hanna on for Gary today.
I'm, just going back to that Google partnerships.
Conversation.
You know how should we expect anymore immediate costs just from that that initial integration process like on your side looks like for step is just the combined YY offerings and is there going be some cost there. We should expect the next two quarters and is that reflected in the guidance you just updated.
Yeah, Jay that Jeff yesterday, I may have mentioned in my prepared remarks, but our guidance.
Outlook for the year include consideration of the initial.
Investment associated with with.
The recently announced partnership.
Because we're so so at new to being formally aligned we are in the process as you can imagine of working through the details in the specifics and if anything is immediately if it will of course talked about it on our our next call.
In the near term.
Yes, we wouldn't expect to see a material difference some outside the guidance ranges I just shared as we talked about earlier, what we're most excited by it is using the near term investments to drive a materially meaningfully different set of opportunities for us over the longer term.
Okay, Great and then I'm just quickly on.
On the consumer financing offering it sounded like it was it was nicely additive.
In Q2 is there any concern.
On the credit risk side going forward it strikes me that.
You know the typical customer that might pursue that offering might might have some somewhere obligations crop up elsewhere.
The next couple of quarters.
Yeah, It's something we watch close and we don't offer as you can imagine we don't offer the financing program to every single customer.
We evaluate.
And stick to credit standards, because its new we're where we are watching it super close.
Yes. It did earlier question about commercial credit losses, we are are a very attuned to payment rates and and.
And your credit card, except rates and DCH, except rates and all of those things have continued to perform in the range that that so far is going okay, but as you stimulus.
Runs out and the depending on how the economy performed in the coming weeks and months.
We will continue to watch that closely and potentially make make some adjustments.
Okay. Thank you.
We have time for one more question and that would be Brian when with credit Suisse. Please proceed.
Thanks, Kevin.
Teaching.
[noise] distillery certainly looks in the business so.
Into the screen, it's a little there's still some more or is this just how are you thinking about the business mix and regulators.
That's good.
We see partnership.
Hi, Kevin weekly make out most of what you said could you repeat that please.
All right is that better.
[noise], it's just on it.
Determine what the take this mix looks like.
The.
Uhhuh partnership whether or not it allows you to accelerate the shift to commercial or.
Are you thinking about this and as a business versus an expert.
That's a partnership could you just now.
Okay, Kevin I got to about one out of every four award so I'm going to answer the question I think you.
The the Google partnership.
His focus right now on the.
On the residential and small business parts of 80.
We think that Theres, some optionality on the commercial side.
In the future.
Right now we are focused.
[laughter].
Hi volume.
Residential and SMB.
Understood and then I guess within the context with the retention.
[laughter] more diversified set of what's on the next product you look the retention to get better than kind of some of the target you put out there as well.
[laughter].
Absolutely absolutely the retention, we think we know that more of that a customer uses their system. The more they interact with their system the higher the retention and a smartphone customer that has more devices and their home that we cure rate.
We will be a stickier customer.
In not only at the retention advantageous there Kevin.
Other advantages from a sac cost perspective male higher installation revenue and were able to acquire smart home customers more efficiently.
So to answer your question on retention is yes, we expect improve retention characteristics and also because we are installed revenue it would be a tailwind for us in 'em sac.
Great and is there is there anything about the retention what at average smart home attention is virtually no additional.
Yeah, I would I would say good Kevin the.
Yes, and go back in with Jim was saying earlier that we're confident that all things equal this is going to lead to customers using their systems more and our is going to lead to better retention over time. We're also balancing that managing that with the cost to acquire customers or you could envision a different models that have different contract.
I will turn into the future and then what do we bounced up always also against the profitability of of serving the customers. So go back to what Jim said at the beginning about our number one job being too to optimize the customer lifetime value and NPV of customers. We take on the way I would look at that is we're highly confident that this.
Partnership is going to both enable us to do that and also lead to meaningfully different long term growth trajectory as as the a partnership fully comes together.
Thank you.
We have meets that never question answer session I would like to turn the conference back over the management for closing remarks.
Thank you operator, so it was obviously very strong quarter for us, especially in the context of the environment of coal good 19.
We're feeling very good about the anticipated benefits of our of our recent announcements as well.
We had strong Q2 financials outstanding cash generation.
As I mentioned earlier customer service is that is at record levels, our customer retention was strong.
Technician productivity revenue paying back our both pointed in the right direction a number of operating K.P. eyes were also terrific.
We successfully partnered with one of the largest retailers in America dollar tree family dollar and then.
Most of you know just last week, a D.R. Horton the largest builder in the country selected us as their exclusive partner.
And then of course, we announced our long term partnership with Google This week and.
Be more excited about what that relationship will do to accelerate growth.
Finally, I want to thank all the 80 employees in our dealer partners for their relentless commitment is as we continue to navigate the pandemic and serve our customers. So thanks for taking the time. This evening. We appreciate your interest in ATP Tonight, everyone.
Thank you. This does conclude today's conference you may disconnect. Your lines at this time, you know how they're good evening.