Q4 2020 Arlo Technologies Inc Earnings Call
Ladies and gentlemen, thank you for standing by at this time all participants are in a listen only mode. Later, we will conduct a question and answer session at that time. If you have a question you will need to press star one on your push button phones, and I would now like to turn the conference over to Eric violent. Please go ahead Sir.
Thank you operator, and good afternoon, and welcome to Arlo technologies fourth quarter and full year 2020 financial results Conference call.
Joining us for the company and Mr. Matthew Mcrae, CEO and Mr. Gordon Mattingly CFO.
Format of the call will start with and introduction and commentary on the business provided by Matt followed by a review of the financials for the fourth quarter and full year, along with guidance provided by Gordon.
And we'll then have some closing remarks before we enter Q&A at that time, we will have on for any questions.
If you have not received a copy of today's press release, please visit our Investor Relations website and.
At Investor Day Arlo Dotcom.
Before we begin the formal remarks.
We advise you that todays conference call contains forward looking statements.
Forward looking statements include statements regarding expected revenue gross margins operating margins tax rates expenses future cash outlook, our partnership with Berkshire.
Continued new product and service differentiation future business outlook and the impact of COVID-19, pandemic on our business and operations.
Actual results for trends could differ materially from those contemplated by these forward looking statements.
More information please refer to the risk factors discussed and all those periodic filings with the SEC Inc.
Including the most recent and report on form 10-K, and quarterly report on form 10-Q.
Any forward looking statements that we make on this call are based on assumptions as of today and.
And the Arlo undertakes no obligation to update these statements as a result of new information or future events.
In addition, several non-GAAP financial measures will be much and on this call a reconciliation of the GAAP to non-GAAP measures can be found in today's press release on on Investor Relations website.
At this time I would now like to turn the call over to Matt.
Thank you Eric and thank you everyone for joining us today on <unk> fourth quarter 2020 earnings call.
On today's call Gordon and I will walk you through arlene's results for the quarter, which include an overview commentary on paid account growth.
New product announcements and update on partnerships and financial results.
He will also provide some expanded commentary on our outlook going forward based on the foundation, we built in 2020.
During a very tumultuous 'twenty and 'twenty Arlo set about implementing a business model transition that cut across our entire organization.
We refresh and most of our product portfolio, we launched new service plans, we won more awards than any other time and our company history, we diversified our revenue through key partnerships and we optimized the business operations.
All wall, we fought through the pandemic induced disruptions that swept through our industry our markets and indeed our world.
With a dramatically stronger financial Foundation Arlo is not the same company. It was a year ago, we are stronger and on a new upward path and I could not be prouder of the entire arlo team for what we accomplished in 'twenty and 'twenty.
And now onto our Q4 results on.
I'm pleased to share that we delivered 114 $8 million and revenue at the top end of our guidance on non-GAAP gross margin grew by more than 10 percentage points year over year, while our service gross margin improved by more than 10 percentage points sequentially and.
In addition to our substantial gross margin expansion, our unrelenting focus on operational efficiency and excellence deliberate and nearly $4 million of non-GAAP operating expense reduction year over year.
That combined performance created significant leverage and our business improving our non-GAAP net loss by $14 million, when compared with last year and sending us well past the high end of our guidance for non-GAAP net loss per share, which came in at a loss of eight cents.
And rounding out our financial metrics, our cash cash equivalents and short term investments balance improved by $12 $5 million sequentially.
Underpinning this outstanding quarter, it's a continued acceleration of our paid accounts, which set yet another record as we added 79000 paid accounts in Q4, which is a 36% increase over Q3.
Arlo ended the year with approximately 435000 paid accounts, which is an 89% increase on a year over year basis and.
And Q4 was our sixth consecutive quarter of record services revenue at $21 $6 million up 72% year over year, and putting an exclamation point at the end of a truly transformative year.
Arlo is moved to our new business model is the driving force behind the transformation and provides 90 days of Arlo Smart service with the purchase of a hardware device.
<unk> Smart is our best in class AI powered motion identification and security service, which enhances the products capabilities and transforms and user experience.
Upon expiration of the initial service period, we have consistently seen a 50% subscription attach rate to the paid service a rate 10 times higher than our old business model.
Sales of old business model products phased out as our relentless product portfolio refresh and launched new products through 'twenty and 'twenty and beginning in 2021 virtually all of our retail sales will be products under our new business model.
This success would not be possible without arlo is unwavering commitment to innovation in Q4, we launched our wire free video doorbell that brings arlo is best in class technology to a new form factor that addresses a large fast growing market segment.
The product is clearly resonating with users and critics with tech Guy and calling it a quote unquote game changer.
And quote unquote, the one to buy while commenting on the responsiveness and our unique image format as key Differentiators and review Dot Com praised our wire free video doorbell by saying quote it's the best Smart video doorbell, we've ever tested.
Arlo also started the year strong by winning two CES Innovation awards, one for our new essential indoor camera that incorporates all of our award winning features from that product line combined with an innovative motorized privacy shutter that directly addresses concerns around typical indoor camera offerings.
The second award was given to our Touchless video doorbell concept.
That utilizes a unique proximity sensing technologies to ring, the doorbell with a wave of a hand, instead of a physical touch and thus reducing.
And potential spread of viruses or other pathogen via a button repeatedly used by numerous people.
In December we announced a strategic partnership with Calix that enables expanded distribution of Arlo is award winning products and services.
Alex will now offer the Arlo Smart security solutions to their broad network of communication service providers. These local gross could CSP will bundle all those products and services with their other offerings, such as managed Wi Fi and.
And address regional customers that may be underserved by traditional retail channels. This partnership opens up another exciting route to market across the U S and Canada.
Our various true partnership continues to proceed as planned we achieved all in quarter milestones and are targeting on a wider rollout as the year progresses.
As a reminder, the partnership with their share includes a 500 million dollar hardware purchase minimum guarantee over five years from 2022 2024. In addition to ramp and paid accounts in the region.
The minimum guarantee alone represents a 25% CAGR for the European market over the five years and the partnership serves as a great example of our ability to execute and the BW channel.
And now I would like to hand over the call to Gordon who will provide more insight into our financial performance operational details and outlook for the first quarter and full year.
Thank you Matt.
While the Lockdowns and supply chain disruption and G by the pandemic.
Hampered our growth and 2020.
We made excellent progress running the business and improving our P&L during the year.
Even with the financial burden for the business model transition.
And pandemic induced challenges and the third time.
We produced meaningful margin expansion for the full year.
Across both products and services.
Which resulted in 610 basis point increase in non-GAAP gross margin.
We outperformed the targets we laid out.
2019 restructuring plan.
And lowered on non-GAAP operating expenses by.
And by more than $20 million in 'twenty and 'twenty.
Importantly, our results have shown incremental improvements as we progressed through the year.
We transitioned to the new business model and began to realize that benefit.
In total we reduced our non-GAAP operating loss.
By more than $14 million for the year.
And with much of this improvement coming in the back half.
This trend of sequential improvement.
Culminated and strong results for the fourth quarter 'twenty and 'twenty.
With revenue at the high.
And the guided range.
Considerable margin expansion and.
And EPS well above guidance.
We ended the year with more than $206 million and cash cash equivalents and short term investments and.
Excellent outcome.
Given the complexity and.
On transformation, we navigated through during 2020.
And now moving on to the key for finance will detail.
Revenue came in at $114 8 million.
And for 2% sequentially.
Though down six 2% year over year.
Product revenue for Q4 2020.
With $93 $3 million.
Which was down $15 one per cent compared to last year.
And up to 2% sequentially.
Our year over year revenue decline.
Largely due to Irish or stocking.
And the third quarter for the European market.
The seasonal pattern.
And with much different from what we had seen in the past.
While service revenue for key for 2020 was again a record.
$21 $6 million.
Up 72, 1% type of last year.
And up 13, 7% sequentially.
This was primarily driven by our paid account growth under our new business model.
From which we have seen consistently strong conversion to a paid subscription service on.
And those small.
After the free trial has ended.
Service revenue also includes $2 $4 million and.
And our resources, we are providing for for sure.
Along with associated costs.
And compared with $2 $3 million and the third quarter 2020.
And here a year ago.
During the fourth quarter, we shipped approximately $1 million 167000 devices.
Of which approximately $1 million.
160, cool and wet.
Cameras.
From this point Tom.
My discussion points will focus on non-GAAP numbers.
The reconciliation from GAAP to non-GAAP is day.
Detailed and our earnings release distributed earlier today.
Our non-GAAP gross profit for the fourth quarter of 2020.
It was up $10 $9 million or 73% year over year to $25 7 million.
Which resulted in non-GAAP gross margin of 22, 4%.
Up from 26% in Q3 2020 and.
More than 10 percentage points from 12, 2% and key for 2019.
This is our highest gross margin in nine quarters.
The $10 9 million.
Year over year improvement and non-GAAP gross profit.
Included improvements of $8.4 million from services.
And $2 $5 million from product.
This exemplifies the beneficial effect the services business and.
Having been on P&L.
Non-GAAP product gross margin was 14%.
Down 70 basis points sequentially.
Due to typical key for promotions.
And up 440 basis points from nine 6% a year ago.
Non-GAAP service gross margin came in at 58, 9%.
Up substantially.
And 48, 8% in Q3 2020.
And 34, 3% in.
In Q4 2019.
This was driven by continued paid account growth under on new business model.
Pounded by benefits and cost savings and.
In 2020, we successfully delivered four consecutive quarters.
Service margin expansion.
And Q4 operating expenses once again benefited from last year's restructuring and.
Along with our continued expense management.
Total non-GAAP operating expenses were $32 2 million.
Down $3 8 million.
Or 10, 5% year over year.
And up three 3% sequentially.
This was again slightly below our 33 to 34 million dollar guidance.
But up sequentially due to the planned seasonal increase in our sales and marketing activities.
We continue to believe our non-GAAP operating expenses will be and the $33 million to $34 million range each quarter. This year.
Our total non-GAAP R&D expense for the fourth quarter was slightly down sequentially at $12 5 million.
Our head count at the end of Q4 with 359 employees compared to 358 in the prior quarter.
As a reminder, during the early stages for the bearish on relationship we.
We agreed to provide them with transition services.
Which include training with all of employees as.
And as well as system costs and some outside service costs.
We've included these costs and on normal operating expenses.
Reimbursement for Bearish rule is included in other income and was approximately zero point $9 million during Q4.
Additionally, in Q4, bearish or made their contractual 40 million prepayment for future product purchases.
Which can be seen both on our cash balance.
And in deferred revenue.
Our non-GAAP tax expense for the fourth quarter of 2020 with $185000.
For the fourth quarter of 2020, we posted a non-GAAP net loss per diluted share and eight.
Much better than the high end of on guidance.
We ended the quarter with $206 1 million and.
And cash cash equivalents and short term investments.
Up $12 5 million sequentially.
And down $55 million year over year.
We continue to make progress on our working capital management during Q4.
Our DSO came in at 64 days down nicely from 97 days a year ago.
But up from 47 days sequentially due to seasonal dating terms with certainly tyler's and a shift and customer mix.
Key for inventory closed at $64 $7 million.
A decrease of $4 3 million over Q3, 2020 with turns improving to five and compared to $4 six last quarter.
Now turning to our outlook.
As has been seen across many industries on.
Although it's facing supply constraints, driven largely by chip shortages, which were exacerbated by elongated shipping timeframes.
And consideration of this.
We expect third quarter revenue to be in the range of $70 million to $80 million.
We expect the supply constraints.
And would limits on our ability to deliver through the first half of 2021.
With our current visibility.
We still believe.
We can achieve revenue for the.
Approximately $400 million.
For the fiscal year as we shared last quarter.
We expect our GAAP net loss per diluted share to come in between 35%.
And 29 cents per share.
And our non-GAAP net loss per diluted share to come in between 23.
And 17 cents per share for the first quarter of 2021.
In Q1.
Consistent with the pattern, we saw in Q1 2020.
We will see a working capital outflow and.
And expect our cash cash equivalents and short term investments to end the quarter in $150 million to $160 million range.
Also consistent with 2020.
We expect our cash consumption to moderate considerably through the rest for fiscal year.
And to end the year with more than $120 million and cash cash equivalents and short term investments.
We will continue to monitor our performance and prudently manage our operations to preserve our cash position.
And now I'll pass it back to Matt for a few comments before we open it up for questions.
Thank you Gordon.
And our guidance for Q1 and on a reaffirmation of our past commentary on 2021 revenue I want to share a bit more on the trajectory of our business as we look ahead.
As I mentioned at the beginning of the call Arlo is a different company than it was a year ago. We start this year on a solid foundation and with a clear focus on what will drive our future success.
The transition to our new business model was a watershed moment.
That redefined our path and we will continue to accelerate.
While we added 200000 paid accounts and 2020.
We expect to add nearly three times that number and 2021 to reach 1 million paid accounts by our fourth quarter call. This time next year.
And while we have shared with you that we see a 50% conversion rate. After the initial 90 day service period and under our new business model as we follow cohorts over a six month period, we see that number climbed to 65% attach rate to our subscription services.
These factors should translate to approximately $100 million and service revenue and 2021 at a gross margin of more than 50%.
Arlo is now services first company from our culture through to our roadmap and I have never been more confident and our team our company and our path as we continue to unlock substantial value from our assets and the new business model.
And with that we can open up the call for questions.
At this time I would like to remind everyone in order to ask a question press star and the number one on your telephone keypad, we'll pause for just a moment to compile the Q&A roster.
Your first question comes from the line of Jeffrey Rand with Deutsche Bank. Your line is open.
Hi, Thanks for taking my question and congrats on a good quarter Youre weeks of inventory went up and both your retail and distribution channel and it's about three weeks higher than at the end of 'twenty and 19 can you talk a little bit about that day dynamics around the pandemic on holiday season that are changing your inventory or.
How are you thinking about your inventory levels right now.
Hey, Jeff Gordon and thanks for the question. So in terms of the actual weeks of stock I, just remind you that the denominator and that calculation and the last six weeks for P. O S.
Actually in terms of actual dollars and inventory we've seen.
The dollar has come down year over year.
And so and in Q4 and certainly if you look on the distribution weeks of stock that just really timing of shipping and shipping out so any of $11 seven weeks I think that will come down as we head into Q1 looking ahead to 2021 I think it's fair to say that we don't expect to see much of a tailwind from channel inventories.
Phil I think to your point and you're absolutely right and the inventory levels, both at retail and distribution and a lot more normalized more close to the normal levels compared to what we saw for example, the end of Q2. So we don't expect much of a tailwind in 2021 from channel fill.
Great. Thank you and are you still seeing any increased logistical cost due to the pandemic and is there any visibility on when these should decrease.
Yes, that's that's what we are saying for sure and we've spoken about this quite a lot and certainly all of that is no different from the rest of the market.
Suddenly airfreight rates, we've seen elevated rates there all the way back from the back end of Q1 last year and I'm sure.
Selling no signs of abating and that will.
Turn back around path towards the backend of this year, perhaps but it will rely on on the pandemic and how that plays out and.
And I wouldn't want to guess, how that's going to pan out but is that on the air freight rates still elevated we also seen and more recent phenomenon of sea freight rate also being elevated and due to the additional pressure on sea freight. We are also seeing actual elongated shipping times as well.
And somewhat some degree of congestion at ports as well so that side of things still continues and we haven't really seen any change.
As we've gone through the pandemic of last six months has probably got a little bit west and <unk>.
Due to the pressure on sea freight and right now we don't see any signs of that abating, but everything depends on how the pandemic plays out.
Great and then just one more for me your product gross margin grew meaningfully year over year and for Q.
Are you seeing less need for promotional activity or are there other factors involved.
I think it's a combination of things, but first and foremost we did go through the business model transformation and certainly the gross margin profile you saw on our first half of 2020 as very much a story of two halves and as we went through that business model transition and we certainly saw an uptick in product gross margin.
And that's a reflection of the new technology that we bought out into the market that naturally means you don't have to promote quite as much.
And so that that's really first and foremost obviously with all either the seasonality on our business.
And 35% to 40% of the business first half and.
And 60 ish percent and the second half. So there are scale benefits as well that benefit product gross margin in Q3 and Q4, certainly looking ahead to Q1 I would say, we expect product gross margins to be and the low double digits and that's really a reflection of that change and the scale between the second half of last year and the first half of this year, but yes.
I think it's fair to say the new technologies definitely helping us and we don't have to promote quite is not China.
Great. Thank you.
Your next question comes from the line of Adam Tindle with Raymond James Your line is open.
Okay. Thanks, good afternoon, and Matt I, just wanted to start on the subscriber metrics and intend to roughly triple paid subscribers in 2021 reach a million subscribers. Those are big numbers I would just be curious on the color on visibility and to that level to go out that far this early.
It's a significant step function from already healthy growth rate. So just wondering do you have some perhaps contractual visibility with bearish or and calix is there and underlying growth assumption just how you're building up to those impressive goals.
Yeah, It's a great great question.
And Adam and obviously, we decided to add that additional commentary in.
And the call today, because we do have high confidence and what we're seeing and the subscription side of our business. So I would say it's multifold.
One as you've seen quarter over quarter over quarter, we've been able to grow our <unk>.
Subscriber base at a very predictable way and we're and we really understand what that trend as.
We also have great visibility into the subscriber business right, when we sell product and get certain trials.
And one quarter that gives us a very good idea of what's going to happen and the following quarter.
So that has provided a lot of.
Our confidence not only in the business itself and where the business is going Youre also correct and that we have several partnerships that will start to bring in additional upside to.
And to subscriber numbers <unk> is a good example of that where today most of the execution with fair share is around the retail and E com business in Europe, which follows a similar paid service rate as consumers that buy here from retail on the United States May attach.
Are they convert at 50% we shared the actual attach rate six months out is closer to 65%. That's another new metric we wanted to share today, but the very sure direct business, which has a one to one attach rate.
On service will start to happen later in 2021 later this year and we've been sharing that we're progressing on those custom products and some of the work and integration with fair share and that's been happening on time every quarter as we get close to it so you're absolutely right, it's a mix of having.
A lot of history now a year of history under our belt of what's happening with the new business model, we feel very comfortable with our metrics and seeing where that's headed and the visibility we have towards that and seeing some partnership to layer in as we get towards the end of 'twenty and 'twenty one.
Okay, and do you have a sense for size of the direct versus indirect with for sure yet or is it still too early to call.
I think it's too early to call I think both will be sizable, but it's going to depend on execution and the rollout across multiple regions and so I would say, even the direct business won't be fully operational until we get deeper into 2022, because they have so many different regions.
And on deploying the product, but both will be substantial.
And we're starting to build some of those forecasts because we have long lead components now so the visibility there is good we're not sure and how that that breaks up.
But I think it's too early to really place a bet on which side will be bigger in 2021, but we expect that direct business to continue to scale as we get into 2022.
Okay, and I know, it's still somewhat early for the services and subscriber business, but I'd be just curious what you're learning about the characteristics of your subs base specifically.
Perhaps the lifetime value of a subscriber gross churn or retention rate that you're experiencing so basically how valuable is a subscriber and how sticky are they.
Yeah. So we have not released.
Some of the metrics that you're touching upon there I can I can kind of reiterate some of the ones. We did released today and give you a more qualitative.
Look at it as we as we've shared.
And the new business model is dramatically different and the old So number one as we mentioned and the call. It 10% a 10 times increase in conversion rate, we incrementally shared on the call today to provide some more visibility that when looking at cohorts over six months after that purchase of hardware.
Right on surface actually declined to 65%.
And that's what's giving us our.
Confidence and some of the longer term outlook on the subscription business. So that people can kind of understand where we think arlo is going what's interesting is it's so early to your point.
And actually the churn is so much lower than our old business model that im not sure we have a handle on things like long term value.
Some of the customers because we're not seeing a lot of cancellation and top of back and we have a good churn rate. So we're still looking at it its early and that in that transition, but we're seeing it accelerate as <unk> seen it quarter over quarter and we are.
And we couldnt be more excited about.
What's actually happening from a metric perspective on the subscriber side, we tried to share a lot more visibility on the subscription business on the call today, and we'll look forward maybe on an annual basis to try and provide additional look as we crossed one of these big thresholds like crossing 1 million subscribers 12 months from today.
Yes that would be helpful and thanks for the details and congrats on the momentum.
You very much.
Again, if you would like to ask a question for star and the number one on your telephone keypad.
Your next question comes from the line of harm of course, and with B Ws financial Your line is open.
Alright. Thank you for taking the question and this is wahid for comment just to follow up on that last exchange in terms of subscribers could you kind of shed some light on which <unk>.
Subscription level, they're opting for us at the high and low and is it a good mix.
Yeah. So we've we've shared this on the past a bit again not on a full breakout basis on a quantitative basis, but on a qualitative basis. We have a single can plan, we have the our $10 for kind of Middle plan and then we have our high and plan at $15 and we've shared most people are signing up for the middle plan.
And if you back and kind of our service revenue against subscriber adds youll see what the ARP who is.
And it's a little bit lower than the midpoint, there because of certain promotions and the free trial and things like that layering in.
But I would say most of our subscribers are in that middle tier, which is which is great for us.
One of the things we've talked about on our previous call as we've rebooted the entire product portfolio and got everything over and to a new business model and our and most of our sales now and 2021 will be products on the new business model. We're doing a couple of things. One is we're looking at how to continue to fine tune the metrics.
And our subscription business and bring up the conversion rate a little bit Mark and we've reduced churn a little bit more we've hired and new leadership that is helping us really optimize that services business, but one of the things looking out farther and will now be considering opportunities to actually increase ARPA over time that has not been a focus and the last 12 to 18 months, we've really just been.
And I'm focused on driving that conversion rate really understanding how to drive the transition and our business that's complete.
Again still optimization to do but worked through that transition period, and 2021 is going to be a year of <unk>.
Really optimizing that model, we will start to look at it our roadmaps over time now thinking about <unk> expansion, but hopefully that gives you an idea of where kind of the tip of the bell curve is on a distribution and where we think things will head over time.
Okay, and just one more question and.
In terms of you were talking about the supply chain and the chip shortages do you anticipate that is going to have a pricing impact price and promotion is impact on new.
Products or legacy products.
Well, it's more of a supply chain.
On.
Slowdown from a supply perspective, and what I mean by that is on every quarter and we've got certain upsides, we can shape.
And I think it's a little bit more difficult to chase. Some of these these upside and most of our old product, we stopped building a quarter or so ago and those shipments happened a while back and if you look in our investor deck Youll see the old business model versus new business model mix per quarter, and you'll see we're exiting the year, where most dramatically almost.
All of our product is now on the new business model. So looking forward.
From a supply chain perspective, I think it's really just us making sure we can service the needs of our retailers.
And may turn away some of the some of the upside, but we're also extending our forecasting deeper and the beer to try and make sure that through very diligent operations, we're going be able to reach the numbers, we talked about on the call. It does when there is shortages sometime back for me and you don't have to promote as much to reach some of that upside and we will.
Always be as you've seen and the last couple of quarters really diligent about the spend versus opportunity and make sure. We're driving gross margin where we can.
Okay. Thank you very much.
Your next question comes from the line of Jeff Osborne with Cowen and company. Your line is open.
Hey, good afternoon, guys a couple of questions on my end on the semiconductor issue.
And what what's your working assumption as to when that resolves itself as it relates to hitting the $400 million target for the year is that something that you think is just for Q1 issue or lingers throughout the spring and into the summer.
Yeah, I think it's it's distributed and what do you mean by that is there's some chipsets that are clearly out longer than that and there are some that I think will.
We'll clear us within a quarter for so from here.
So when you look at any given product is a little bit different so we're seeing shortages across.
Normal products normal chipset that we can find in other channels, sometimes you can go and buy it on the broker you can negotiate with an ODM to pull it from from other sources.
And then there are some chipsets that are longer we have great visibility right now and to where that fits and this is something that we're tracking on a week by week basis, and we're extending our forecasting into those suppliers to make sure that we can deliver the revenue that we're commenting on the quarter today.
And in some areas, yes, I think we're looking at another quarter or so and other areas, it's longer and the way, we're operating and providing visibility into our supply chain is attempting to match that so that we can deliver what we need to.
Got it that's helpful. Matt and then the guidance for revenue for Q1 would that have been higher if ports weren't as congested and the shortage wasn't there or is that a good number of the true indicative demand thats out there that youre seeing.
Hey, Gordon.
Question I think the reason, we are calling out supply constrained and the guide that we gave and 70 to $70 million to $80 million for Q1.
And otherwise would be a little bit higher but for supply constraints that we're already seeing and Q1 and on.
But I cannot comment and we think the supply constraints will certainly impact first half day for the year and I think the seasonality that we thought we would see this year is probably going to be a little bit more pronounced and we have previously for just because of that.
Makes sense and then my last question and I'm not sure. If you can touch on this but can you just give us a conceptual framework on how to think about 2020 and what your strategies are for 2021 as it relates to the potential mix shift of sales through the arlo store versus through say best buy and Amazon was there any noticeable shifts and 2020 and then any.
Initiatives for 'twenty, one to accelerate.
Traffic through your own.
Alright.
Yeah, that's a great question so if.
If I go back to 2019, a little bit for for the window of your question. We had launched Arlo Dot com right kind of close to the end of the year I think it was in Q3 going into Q4 before we had all of our products up on on Arlo site.
That was great timing as it turns out as the Covid pandemic started to impact Q1 late Q1 going into Q2, what we've seen in 2020 and answer. Your question is definitely initially and the first half a massive shift to online and I think we shared with you for metrics from one of our retail partners. That's.
But.
Where they had 70% in store and 30% on line and within 60 days that had completely inverted, whereas <unk> 70 per cent of online 30%.
Actually in store or through in store pickup. So we saw that that also helped us grow arlo dot com because so many of the consumers have moved to online channels throughout the year. We saw the channel start to normalize a little bit where some of our customers starting to get a little bit more balance on a 50 50 basis.
But we continue to grow Arlo dot com.
Through the year and of course, there's a lot of benefits to arlo dot com, including a faster cash conversion and higher gross margin and our ability to drive potentially new business models or new offerings to consumers directly. So that's big when I look at 2021.
And we're still seeing a little bit more of a normalized what I would call omnichannel approach for most retailers and that they learned a lot from that shift to online and I think for for many retailers that bigger online component.
It's going to be part of their strategy going forward at the same time, we are continuing to invest and arlo dot com, we actually had a brand new website launch yesterday.
Which includes massive upgrades to the e-commerce functions to the shopping cart functions and lays down the foundation for us to do some other interesting things from an E. Commerce perspective, So we will continue to invest and Arlo dot com.
Both from a marketing perspective, but also from an infrastructure perspective, and I think we're going to see the channel broader channel be a little bit more omni and basis, meaning a little bit more balance between their online efforts.
And there are actual physical store efforts now that's different by retailer someone a retailer that sells grocery will still have a higher percentage and store than online a little bit and one that's mostly selling technology for instance is going to see a bigger mix of online and then they had on.
On a historical basis.
And my only follow up for that Matt and I'll. Let you go is there an implication of that shift then to promotion spend for 2021 relative to say a normal year for Ya pre COVID-19.
I don't think it changes a lot the seasonality of the spend is the same.
Obviously, we're spending a little bit more on arlo dot com and so that that flow through a little bit differently.
The biggest changes we saw last year was the timing of promotions. So prime day landing in Q4 was was disruptive and created a different seasonality than we've seen before our expectation is we'll see we'll see a more normalized calendar from a promotional perspective, and so we're going to attack. It the same way focused on a balanced approach of draw.
<unk> awareness driving sales of our key products.
But also deliver on the gross margin and we need to.
Wall and turn obviously driving subscribers. So I don't see a big change the tools underneath have changed quite a bit so.
We started utilizing certain tools that allow us to get better visibility inside of retailer website.
That drive promotional dollars or traffic to certain areas and so we've gotten a lot smarter not only how we approach promotion, but also the tools that we use underneath because a lot of them are now digital and.
And our integrated directly into retailer Dot com site.
But the overall spend and the calendar I think it will be basically what you would expect from a normalized retail deployment.
Got it that's all I had thank you.
Youre welcome.
And there are no further questions at this time, Matt Mcrae I turn the call back over to you.
Great. Thank you operator, I want to thank everybody for joining the call and that concludes our commentary for today. Thank you.
This concludes today's conference call you may now disconnect.
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