Q4 2020 Alarm.com Holdings Inc Earnings Call
Ladies and gentlemen, and thank you for standing by and welcome to the alarm Dot Com fourth quarter 2020 earnings conference call. At this time of all participant lines are in a listen only mode.
After the speaker's presentation, there will be a question and answer session to ask the question. During the session you will need the press star one on your telephone please be advised that the day conference is being recorded if you require any further assistance. Please press star zero and I would not like to hand, the conference of which of your speaker today, David Chung Vice Pres.
Didn't of Investor Relations. Thank you. Please go ahead Sir.
Thank you good afternoon, everyone and welcome to alarm Dot Coms fourth quarter 2020 earnings Conference call. As a reminder of this call is being recorded joining us today from alarm Dot com.
Steve Trundle, President and CEO and Steve Valensuela CFO.
Before we begin a quick reminder to our listeners.
Management's discussion during the call today will include forward looking statements which include <unk>.
Projected financial performance for the first quarter 2021, and full year 2021.
The impact of emerging market dynamics and trends on our business and on the anticipated market demand for our offerings, including new product offerings.
The impact of the Covid pandemic on our global supply chain and the global economy.
Our business strategies.
Plans and objectives for future operations and integration of recent acquisitions.
Continued enhancements to our platform and offerings.
And opportunities for growth and our current markets and our plans to expand into new markets.
And other forward looking statements.
These forward looking statements are based on our current expectations and beliefs and on information currently available to us.
Statements containing words, such as began believe continue estimate expect forecast may project trend will and other similar words are intended to identify such forward looking statements.
These statements are subject to risks and uncertainties, including those contained and the risk factors section of our most recent quarterly report on form 10-Q filed with the Securities and Exchange Commission on November five 2020.
And in subsequent reports that we filed with the Securities and Exchange Commission from time to time.
Including our annual report on form 10-K, and we intend to file with the Securities and Exchange Commission. Shortly after this call.
And that could cause actual results to differ materially from those contained in the in the forward looking statements.
Please note that the forward looking statements made during this conference call speak only as of today's date and alarm 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 management's commentary will include non-GAAP financial measures and provide non-GAAP guidance.
Management believes that the use of these non-GAAP financial measures provides an additional tool for investors to use and understanding the company's performance and trends. The notes that the presentation of non-GAAP financial information is not meant to be considered and in isolation and whereas a substitute for the directly comparable financial measures prepared in accordance with GAAP.
Reconciliations between GAAP and non-GAAP metrics for our reported results can be found and the financial statement tables of our earnings press release, which we have posted to our Investor relations website at investors that alarm dot com.
This conference call is being webcast and is also available on our Investor Relations website the.
The webcast of this call will be archived and a telephone replay will also be available on our website.
With these formalities out of the way I'd now like to turn the call over to Steve Trundle, you may begin.
Thank you David good afternoon, and welcome to everyone.
Pleased to report fourth quarter results that exceeded our expectations, our SaaS and license revenue and the fourth quarter was $105 $5 million up 17, 1% over the last year.
Our adjusted EBITDA and the fourth quarter was $32 4 million.
Despite the challenging global environment, the fourth quarter closes out of strong 2020.
With total revenue growing 23% year over year.
I want to thank our service provider partners and our employees for the resilience and contribution to our performance.
We closed the year with more than 10000 and service provider partners, who sell and service our technology and more than seven 6 million customer properties and over 40 countries around the world.
On today's call I will review some of the key elements of our long term strategy and highlight a few examples of the many new products and capabilities that we introduced to our markets and 2020.
When we think about our strategy. Our first goal is to be the defining security oriented Iot platform.
For for different market segments, residential and multifamily and small business and enterprise commercial.
For each of these market segments. Our vision is to provide fully integrated best in class applications that span security and surveillance automation energy management water management and health.
We are developing these applications for multiple geographies such that we can leverage our platform investments around the globe.
We made solid progress on this vision and 2020.
And the commercial market for example, we recently released the cloud connect.
This is a two way integration between the open eye cloud video platform and the alarm dot com for business platform.
Cloud connect directly associates event data from intrusion sensors and access control readers with open eyes video surveillance as the service product.
Based on this rich set of event data subscribers can easily customize intelligent video recording rules.
Total works to keep track of important events and easily find video footage associated with weather.
The specific activity.
We also expanded our commercial market capabilities with the acquisition of shooter detection systems and December.
Sure detection systems, or STS brings a unique technology stack and strong position and the developing market for gunshot detection solutions.
They're offering and includes proprietary acoustic and infrared sensors and algorithms that accurately detect gunshots and and indoor settings.
Our plan is to work with the existing STS management team to expand the leadership position they have built and theyre developing market.
Integrating <unk> capabilities with our commercial platform will also unlock unique value for our service providers and their customers and expand our overall commercial market opportunity.
Shifting to the residential market, we will continue to expand our platform to enable our service providers to deliver a growing array of differentiated capabilities and to expand the monitoring services. They provide.
And 2020, we launched the Smartwater valve plus meter to reduce water damage risk. We also launched flex I owe to the extend the security perimeter of the hall and.
And we introduced our connected car solution to allow homeowners to extend security monitoring and automation rules for vehicles.
Lastly on the residential side, we added a new video analytics based capabilities for monitoring stations to improve alarm response of efficiency.
Connected car and launched in the fourth quarter and allow subscribers to track the location of vehicles viewed trip histories.
Speed alerts and knows the vehicle is being used at hours when it's not supposed to be.
All from within the alarm Dot Com mobile app.
And the services enabled by and onboard cellular module and the backup battery so that it kind of alert for subscriber if its removed from the vehicles port.
We're also developing an increasing array of technologies that will enhance the professional monitoring services provided by our partners.
Last year, we launched visual verification people detection for monitoring state.
This new alarm verification service uses our cloud based video analytics engine to provide monitoring station personnel with an inventory of all the people and or near of property immediately before during and immediately after and alarm event.
Images of the inventory people are sent directly to the monitoring station operators interface.
The capability is only activated with the customer's consent and we believe this will help monitoring stations respond to alarms more accurately reduce false dispatches and add differentiated value to the monitoring services provided with alarm dot com powered systems.
Another tenet of our strategy is to deliver the most capable of video monitoring offering.
And the market at a cost level that is broadly accessible.
This strategy has been a focus for the last couple of years and will remain so in 2021.
And our product development efforts have driven meaningful results in terms of the customer engagement and installation efficiency and growth for alarm dot com and our service provider partners.
Our innovations, including video analytics and our integrated video Doorbell solutions continue to drive strong adoption of video service plans.
And as I mentioned last quarter, 40% of our new subscribers are now attaching of video service plan to their system.
And the fourth quarter, we launched the alarm dot com touchless, doorbell, which leverages our video analytics engine to provide the market's first available video doorbell debt ratings without requiring physical contact with and actual doorbell button.
While the capability was timely given the pandemic. We believe the consumers will continue to work capabilities that automatically alert about activity of their door and so we expect to continue to have success with our full range of video doorbell solutions.
The third key element of our strategy is the growth of our international business.
As we updated you throughout 2020.
And international markets have been more impacted by the Covid pandemic than the U S market.
We believe the international markets will ultimately recover and begin to growth again.
But they will likely do so unevenly.
The dependencies, we're monitoring and each market include the level of access to effective vaccines the.
And of the economic impacts and the corresponding challenges the economic recovery.
These dynamics are likely to be unique and each region.
But as these markets recover we believe we are and are positioned to grow of the solid base, we have established and our international business.
The final element of our strategy that I want to cover today is the way that we are expanding our addressable market by building our segment businesses.
These include <unk> Central energy hub and building 36.
Each business is focused on and attractive opportunity.
And the fourth quarter and central launched the connected Entercom system called connected retro the.
The product was enabled in part through our acquisition of door Port last year.
Connected retro upgrades of existing phone based entercom systems on apartment buildings.
On interactive connected system without replacing any of the existing hardware.
Traditional phone based and our comps are difficult to use and manage and create security gaps.
However, the cost of replacing system hardware has impeded upgrades to connected Entercom systems.
Once upgraded to connected retro property access can be securely managed and monitored with smart keys that residents can easily create directly from the point central mobile app to provide scheduled access for guest and delivery personnel.
Each code.
Generate automated alerts and is tied to a 30 day audit history, allowing property managers to monitor access.
Turning to energy hub energy hub provides and enterprise software service that enables its electric utility customers to flexibly manage grid demand through its ecosystem of distributed energy resources.
Energy hub has been steadily expanding its business as well as the suite of services. It offers and 2020 over 50 energy utilities that reached more than 45 million households, and the United States now use energy hubs of technology.
And area of energy hubs development that I want to highlight is it solution for managing and electric vehicle charging stations.
As EV sales increase and customer owned EV charging stations become more pervasive.
Energy utility space of complex grid management challenge that energy hub is well positioned to address.
Energy hubs and recent partnership with Enel X and leading EV EV charger manufacturer and service provider.
Spans the breadth of energy resources available for utilities to manage through it SaaS platform.
Energy hubs EV charging solution can create customer incentives that induce off peak charging and reduce strain on the grid during peak periods.
Two of of energy hubs existing customers are already taken advantage of this partnership and.
And expanding their EV programs managed by energy hub.
The energy hub will continue to expand the TV charging offers and incorporate the growing range of grid edge devices and as it works towards its vision of deploying comprehensive distributed energy resource management services.
To conclude.
I'm pleased to report solid financial results for the quarter and the full year.
A tough year on many fronts, but the residential market and the U S and Canada has been resilient through the pandemic and we continue to see momentum building and our commercial markets.
As the global community appears to be rounding third on the pandemic.
We look forward to a return to normal as.
And as 2021 progresses.
And with that let me turn things over to Steve Valensuela Steve.
Thanks, Steve ill begin with the review of our fourth quarter and full year 2020 financial results and then provide guidance for 2021 before opening the call for questions.
SaaS and license revenue and the fourth quarter grew 17, 1% from the same quarter last year to $105 5 million.
This includes connect software license revenue of approximately $9 million for the fourth quarter.
Down as expected from $10 6 million in the year ago quarter.
SaaS and license revenue for our large dot Com segment grew 16, 1% and the fourth quarter and our other segment grew 31, 8% year over year.
For the full year of 2020.
SaaS and license revenue of $393 3 million grew 16, 6% over 2019.
Our alarm Dot Com segment grew SaaS revenue by 15, 5% year over year and.
And our other segment grew 33, 6% and 2020.
Our SaaS and license revenue visibility remains high with a revenue renewal rate of 94% and the fourth quarter at the high end of our historical range of 92% to 94%.
Hardware and other revenue and the fourth quarter was $60 1 million up 19, 2% over Q4 2019 the.
The increase and hardware revenue was primarily due to an increase in sales over of video cameras.
Total revenue of $165 6 million for the fourth quarter grew 17, 9% from Q4 2019.
For all of 2020 total.
Total revenue grew 23% to $618 million.
SaaS and license gross margin for the fourth quarter was 86, 9% up approximately 90 basis points from Q4, and 19 gross margin of 86%.
Hardware gross margin was 24, 5% for the fourth quarter.
Paired to 28% for the same quarter last year, primarily due to product mix.
Total gross margin was 64, 2% for the fourth quarter compared to 62, 6% for the same quarter last year.
Turning to operating expenses.
<unk> expenses and the fourth quarter for $38 9 million.
Compared to $30 1 million for the fourth quarter of 2019.
We ended the fourth quarter with 780 employees and R&D up.
Up from 621 employees in the same quarter last year.
Total head count increased to 1400 for employees compared to 1100 60 employees at the end of 2019.
Sales and marketing expenses and the fourth quarter for $23 6 million of 14, 2% of total revenue compared to $18 4 million for 13, 1% of revenue and the same quarter last year.
Our G&A expenses and the fourth quarter were $23 million compared to $18 2 million and the year ago quarter.
G&A expense and the fourth quarter includes non ordinary course litigation expense of $2 5 million compared to $2 1 million for Q4 2019.
G&A expense and the fourth quarter also include 688000, and the acquisition related expenses.
Non ordinary course litigation and acquisition expenses are part of our adjusted measures and are excluded from our measurement of our non-GAAP financial performance.
Non-GAAP adjusted EBITDA on the fourth quarter was $32 4 million up from $30 million and Q4 2019.
For all of 2020, adjusted EBITDA was $125 3 million of 15, 6% from adjusted EBITDA of $108 3 million for 2019.
In the fourth quarter GAAP net income was $16 million compared to GAAP net income of $13 million for Q4 2019.
Non-GAAP adjusted net income increased to $23 1 million for 45 per diluted share and the fourth quarter compared to $21 5 million for 43 per share for the fourth quarter of 2019.
Non-GAAP net income for 2020 was $89 4 million or $1 75 per diluted share up 15, 8% from non-GAAP net income of $77 2 million for $1 54 per share for 2019.
Turning to our balance sheet, we ended the fourth quarter with $253 $5 million of cash and cash equivalents.
Up from $119 6 million on December 31, 2019.
As previously reported we closed our zero percent convertible offering and January 2021, issuing 500 billion of bonds, which netted us approximately $484 3 million and cash after fees.
We can currently paid off and retired our senior revolving debt facility, which had a principal balance of $110 million and was set to expire in October 2022.
We took advantage of very favorable terms with the structure of our convertible offering to give us additional flexibility to create more growth opportunities. While also minimizing dilution for our shareholders.
In the fourth quarter, we generated approximately $35 4 million and cash flow from operations compared to $23 3 million for the fourth quarter of 2019.
Our free cash flow for the fourth quarter was $29 9 million compared to $14 6 million for the same quarter last year.
In the fourth quarter, our capital equipment purchases for about $5 5 million compared to $8 $7 million and the fourth quarter of 2019.
Through the 12 months ended December 31, 2020, we generated $102 1 million of cash flow from operations compared to $47 1 million for 2019.
Our free cash flow for 2020 was $85 9 million compared to $27 8 million for 2019.
Turning to our financial outlook for the first quarter of 2021, we expect SaaS and license revenue of 100 for $8 million to $105 million.
I'd like to note that in Q1, we usually see lower revenue from energy hub, whereas Q2, Q4 tend to be stronger quarters based on the timing of utility programs and incentives.
Therefore, we expect our SaaS and license revenue to increase sequentially in Q2 with the quarter, representing just shy of 25% of our total SaaS and license revenue for the year for.
For the full year of 2021, we expect SaaS and license revenue to be between 445 to $441 5 million.
We are projecting total revenue for 2021 of 665 to $671 5 million, which includes estimated hardware and other revenue of $220 million to $230 million.
We are monitoring issues around of global chip shortage, which could impact for hardware revenue for the first half of 2021.
We estimate that non-GAAP adjusted EBITDA for 2021 will be between 120 and $130 million.
We have factored in more travel and trade show expenses in our plan for 2021 as these expenses were mostly curtailed last year.
We are also continuing to invest in the strategies, which Steve discussed mainly in R&D that are proven to be successful and driving growth for our service providers and alarm dot com.
Non-GAAP net income for 2021 is projected to be 84 to 90 million for $1 61, and $2 72 per diluted share.
We currently project, our non-GAAP tax rate for 2021 to remain at 21% under current tax rules.
EPS is based on an estimate of $52 2 million weighted average diluted shares outstanding.
We expect full year 2021 stock based compensation expense of $42 million to $45 million.
In summary, we are pleased how well our service providers and internal teams have navigated this challenging time with the Covid pandemic.
We are focused on executing on our business strategy and investing and our growth opportunities, while continuing to deliver profitable growth.
And with that operator, please open the call for Q&A.
As a reminder to ask a question you will need to press star one on your telephone to withdraw your question press the pound key please standby, while we compile the Q&A roster.
Our first question comes from the line of Jeff Kessler from Imperial Capital. Your line is now open.
I would like to.
And I'd like to ask a question regarding.
The growth of.
Let's say the.
Several of the several areas that are in other but.
But ours, but have been out there for a while and energy hubs.
The central is there a is there a larger plan to essentially bring.
Bring analytics up and perhaps at some point bring open up and down as needed to provide both.
Video analytics, and perhaps some day even.
And and improved access to all of those areas, including energy management, because obviously utilities at some point in time beyond beyond the grid needs are going to need the operational operational and and physical security as well and the same thing applies to multifamily.
Even though they are in different segments of talking about general and general commercial and general commercial use and I'm wondering.
I'm just wondering with the growing.
Growing segment.
How much can you get out of it how much can you get out of it.
Yes. Good question, Jeff This is Steve so.
Starting with with the electric utilities and there is it's not video analytics, but there is an AI engine. There at work already today to render a capability that we call smart shift that allows us to really level the.
The load on the grid by anticipating how quickly of consumer will.
To change their thermostat and once we began to downshift to turn this debt. So there's a lot going on and the background. There that is AI and we haven't to be candid with you. The the focus on energy hub has really been on what we think is a strong market for distributed energy resource management and the race right now is to <unk>.
Incorporate as many of the edge consuming devices or edge producing devices into the platform as you, possibly can and so that's why I talked about EV as an example batteries as an example solar will be for example.
The better picture, we can give there the stronger the platform becomes now you are correct that.
And over time, if we have a nice position and a number of those customers.
Customers, then certainly leveraging and our enterprise grade security apparatus.
For managing Substations and managing production facilities whatnot would make a line of scent.
But it is not currently the focus of the energy of teams got enough sort of right in front of them that that's not right now of focus there.
Contrast that with <unk> central where there is sort of more immediate synergy I would say when you get to the multifamily housing market.
The goal of starts with sort of and access and of tenant friendly apparatus to let people in and out.
But pretty quickly the property manager.
It does ask and this is where our service providers and were very helpful does ask for.
And all of that.
And kind of convenience to also be integrated with a industrial strength sort of security and surveillance mechanism.
And there the video analytics you can imagine.
And we want to get.
And data gathering where video itself as data the data gathering devices as many places as we possibly can including some of the actual entry portal devices readers and otherwise so there I think.
Absolutely leveraging the full sort of video analytics platform back into multifamily will make a lot of sense and will help us drive.
Drive growth and also just drive better service for both the consumer and the property manager.
Okay, Great and then one quick question for Steve.
And with the with the <unk>.
With the recent convertible offering can you give us some idea of what you are.
And what your interest expense should be is expected to be for 2021.
Hey, Jeff This is Steve Valensuela, so the good news and the interest expense the.
The convertible has the zero coupon so one of the benefits of course of the convertible as we retire debt senior debt, which carried an interest rate of about two to two 5% now there is some GAAP imputed interest cost that gets adjusted out of non-GAAP.
That's really.
On a more of the.
And on accounting adjustments and it has to be booked but it's not a cash expense so effectively our cash expense.
We will be zero.
Cash interest expense will be zero.
Right.
Great.
Thank you very much I appreciate it thanks, Jeff.
Thank you. Our next question comes from the line of Adam Tindle from Raymond James Your line is now open.
Okay. Thanks, and good afternoon, Steve Trundle, you outlined the vision to be the.
Platform and for different areas and just curious.
Based on ways to accelerate that vision, so commercial and international for US typically have had a few years had developed on the under the dealer base and.
So not quite at the Scoop philosophy at this point I'm wondering if it makes sense for perhaps revisit the go to market, perhaps and a direct sales force in conjunction to dealers to add fuel to the fire or other ideas you are contemplating on how to accelerate that broader platform vision.
Yes so.
And also have to break them into two commercial and international starting with commercial.
On.
I think we probably missed some of the acceleration in 2020 that we might have otherwise seen there just because of the commercial market not just for us, but I think for anyone playing and the commercial market was a little soft with the pandemic. There are a lot of folks that froze up capital expense budgets. It was hard to.
Get into the facilities retail kind of backed off entirely and.
And just wasn't quite as frothy as as.
We would have expected that said commercial is growing at a meaningful rate and contributing and ever more of our <unk>.
SAS and license and I think the things we can do the accelerated we're not kind of go with.
And with the direct sales force.
<unk> with our service providers, we will continue to recruit additional integrators continue to train, but I do think we have places where we can continue to build out the platform to become even more broadly relevant and.
One example of that we did in Q4.
Was the Sds acquisition, which gets us into another type of customer that has a real concern about.
The real concern about.
On protecting their employees and our largest larger institutional setting so to.
And do that we also did some things on opening day.
Our focus will be more on the product and technology side in terms of we always sort of lift by our mantra that if we can get to.
The best products, the most capable product then.
Good things will happen downstream and we trust our service providers to sort of adopt.
Adopt what we produce on the on the international side I think for pretty good spot going into this year.
Last year was soft as I mentioned on the prepared remarks.
And much more impact from Covid, then and then than we saw on the U S. But.
Again kind of having some trust and partners.
Do think we have.
We've got a good set of <unk>.
Based service providers there already.
Got a few more and the works and even though production was still up last year ended the year.
Producing 50% more accounts per month than we were producing at the beginning of the year. So production was up but it will I think it will go up even more of this year as folks coming back online and there are still things Adam honestly on the product side.
<unk> need to be addressed for various markets globally that will also help.
Yes.
Okay, Thanks, and maybe as a follow up I think if I factor and the convert the cash the debt paydown and somewhere in the half a billion dollar range and liquidity I think it's more of than ever and the company.
With that as the backdrop, maybe you could touch on the framework and important points that you look for and potential acquisition targets and are there any internal limitations from a systems and platform standpoint that would preclude a sizable half billion dollar plus the type of the deal.
Yes so.
We're pretty.
Pretty optimistic with what we what we do.
We felt like the.
And the market was and kind of a very favorable state towards the end of the year and it was it was.
The unusually right time too.
Add some dry powder to the balance sheet and also actually lift some of the constraints.
And that were associated with our prior debt instrument in terms of covenants and otherwise so I wanted to get ourselves in a place where we really.
Have the opportunity to be opportunistic when the right opportunity comes along and and.
Terms of how we evaluate things.
First and foremost will be the team.
At the add on potential acquisition targets.
Our belief that they can continue to grow their business with our help.
Whether we can work with them effectively all of those types of basic human issues actually and my experience turned out to be the most important issues over time. So that's most important after that strong technology stack is or the ability for us to make the technology stack Tech stack, particularly strong becomes number two and the number three of <unk>.
On the sort of the market the address our feelings about that market the synergies with our distribution channel.
And and really the ability to contribute to.
To our SaaS portfolio so.
Those are the few things that we look at in terms of size and I'd say, we're and less constrained now and in terms of size and where we were.
Six months ago. So we have the ability theres nothing theres no.
Nothing really that would prevent us from from deploying that capital.
If we saw the right opportunity too for you.
Or is it and we will see how the markets look here for the next year or two.
Sounds good thanks for the details and congrats on 2020.
Thank you.
Thank you. Our next question comes from the line of David Robinson from William Blair. Your line is now open.
Uh huh.
Hey, Thanks for taking my question first.
First question I had just on the shooter detection systems acquisition, I guess, how how large do you expect that opportunity to be and then I was just curious if there is any differences and perhaps the selling motion for.
For.
System like this compared to your other commercial offerings and if there are any differences in terms of I guess the type of target customer that they might purchase the.
Gunshot detection system versus your other offerings.
Yes, all good questions.
So im trying to remember if we disclose Steve Sds size or is it until we pay or anything it's in the 10, yes, you can see it and in the 10-K is broken out there but.
It'll be there but.
It's a relatively small company at the moment with.
Our marquee track record and our marquee customer base in terms of the it's not sort of fantasy it's real with top flight.
Fortune 100 names that are deploying the technology.
And sort of the areas, where they have the depot for key assets.
We think in terms of how big it can be.
That's kind of of I would call that a pleasant unknown and we don't know how big it can be we havent hypothesis that it could grow substantially that there is a need for that technology and that with an enhanced focus on marketing and distribution that we can we can drive meaningful growth there.
But I don't think we.
We haven't owned it and we Havent work of the team quite long enough to really say well, we think it's going to be 10 times bigger than it is today the.
Type of customers, a little bit of a different customer than who we currently.
Deal with that.
It's going to be a headquarters for a large tech company for example for one of the fangs or it'll be the super large.
Oil and gas company or those type of entities institutions government schools.
And that are particularly focused on on.
On being able to protect the large number of people when theres a and.
Unfortunate event, that's unfolding the.
The technology, we believe will be tied into the rest of our commercial platform and enable us to do.
And do artful things with video and with access control that relate to the data coming from the STS system. So we have of tech roadmap that we're on we're.
And we're working but the short answer is I don't really know how big it can be I think theres a lot of upside there I think on the company's solid the management team's solid and we will be trying to figure that out over the next three to six months.
Okay, and then I guess, just a follow up since you kind of mentioned the <unk>.
Synergies with the distribution channel is one of the folks the Suez with regards to the acquisitions I guess.
Are there dealers and your base now that are kind of familiar with this or will this take some I guess the.
The additional <unk>.
Amp up time.
This will take some ramp up time and really when you get into this.
<unk> domain, there some engineering involved and actual configuration of the sensors and a headquarters facility or and.
Sports facility or whatever so and.
On this case.
The company itself Sds will retain a lot of that energy engineering and sort of pre sales type of risk.
The responsibility will work directly with these larger institutions to spec and what they need and then.
Certain set of integrators that are servicing that type of market will be.
We will be pulled in.
Not many of our existing and I should say partners are in that.
And that sort of natural arena today.
Great. Thanks.
Thank you. Our next question comes from the line of Darrin of Safi from Roth Capital Partners. Your line is now open.
Hey, guys. Thanks, taking my questions nice quarter.
And I asked a question and then you guys and I'll focus on hardware, but it looks like the at the mid point of the hardware is flat year on year. So in that context I'm curious how much do you think on the residential side because of Covid, maybe and then.
Market being so hot the demand has been pulled forward if anything and then how much of that hardware kind of assumption assumes there may be some problems with chip shortages like the rest of the industry is experiencing and then second question just.
On your SaaS growth, what sort of the implied assumption.
With sort of attach rate of newer products or additional products versus organic new subs. Thanks.
Sure.
Okay on the.
Hardware. So I think the question is regarding.
Sort of the assumptions, we made and the hardware.
Projection and the guide right and a couple of things there first.
As we've said in years past, we don't really like the overnight the hardware and we don't see a lot of merit and getting ahead of ourselves there its finances for the business.
I do think we and at least are working on on the assumption.
There was some demand pull forward and the residential market.
We don't know for sure that that's true, but we think it's a reasonable assumption to take.
And on 2020 and.
Yes.
That was something we factored in a bit at the same time.
For 2020 on the commercial side was significantly.
The less productive on hardware revenue then and then.
Really what we what we expected.
So I think we anticipate the some of that will be unlocked and 2021 and will.
Offset any and a potential changes on the residential side and thats kind of.
Little bit of color of how we.
And how we look at it and in terms of the.
The implied growth on on.
On the SaaS and whether that's coming from.
The additional services or coming from just sort of new subs.
I think that.
Uh huh.
We have seen this year that.
The average new customer is taking.
More not less of.
And of the alarm Dot Com services, we've also seen that.
And we even and a tough year that the commercial adoption, which is the higher <unk> component of our service revenue is.
Is increasing and thats, becoming a more meaningful chunk of our SaaS and license and we expect that trend to continue which means you are getting a little bit more per sub and then we have seen our service providers have a lot of success as they go back and do three G upgrades.
But really even market to their existing base.
And.
There's been a fair amount of success last year was the best year yet of.
Operating existing subscribers to additional services, particularly those around around video. So I would say, we're expecting all of those three things to contribute.
Which means the growth and sub accounts in theory, it could be slightly.
Slightly.
Could be less and still achieve the same same cash growth level.
Great. Thanks for the color.
Yes.
Thank you. Our next question comes from the line of Mike Latimore from Northland Capital. Your line is now open.
Hi, this is debt.
On behalf of Mike Latimore I also wondering now below the or do you know how much by what percentage did the artful change and 2020.
So the <unk> we.
We don't really breakout the ARPA and detailed but we have seen as Steve Trundle talked about with the adoption of more video and video analytics, because we do charge more for those and the trend of of new subscribers, adding more services and EBIT existing subscribers upgrading and it certainly does help the when you've got seven six.
And subscriber you can imagine it's a big ship moving right. It takes a while for the <unk> to move and Thats really not the main driver. Its really the addition of new subs addition of the services that are really contributing so I would say we've set of the pass it <unk> inches up over time and of course, it varies dealer by dealer of those incentives.
For the various dealers but.
I would say it does.
Does it does increase incrementally.
But that's not the major driver of SaaS growth. It's really the addition of new subscribers.
And upgrading existing subscribers.
Alright, alright, and how much would you expect open and I to contribute in 2021.
So we don't break out open eye.
Did we did talk about how commercial was impacted and 2020 more and so open and I certainly was part of that.
And certainly in Q2, they were impacted more than they were and they saw some recovery in Q3 and a good recovery in Q4.
And so they did come in below the planned for 2020, we initially set of pre COVID-19, but they actually grew year over year. So we're very encouraged with performance by open eye and we think of as things open up and as Steve said as we round third which I loved that analogy I think let the.
Third.
Third exactly I mean, a little more color there when we when we acquired open I think we had to adjust expectations on on what we produce and we said we thought of the next 12 months would get around $40 million from open eye I think based on my comments about the commercial market you can assume we didn't get that.
Last last year, even though of the company grew nicely year over year, we had a nice target for them I think theyre tracking to two more than to the perform at or above that target.
This year.
Alright, alright, that's it help us thank you thank.
Thank you.
Thank you. Our next question comes from the line of Jack Vander Ark from Maxim Group. Your line is now open.
Great. Thanks, Hi, Steve Hi, Stephie.
Excellent quarter, Thanks for taking my questions.
I'll start with the two part question for Steve Trundle, the and I have a few for Steve <unk>.
Steve T.
And just hoping you can provide your thoughts on key factors driving new subscriber Activations and North America.
And which continue to obviously grow at healthy rates of debt updated total you gave us $7 6 million.
I know, it's on all of North America, but I know the bulk of our.
Are you seeing anything new or unique maybe thats driving your recent subscriber growth just given COVID-19 and meet people, leaving cities and moving homes, just anything new it's interesting worth noting.
Actually almost all of the ones you just.
Would be the so and.
And the and Covid met people were home and we're interested and and.
And taking care of things that had been on their two list I think and and so theyre actually it was easier in many ways for them to get their time and attention to have them.
Choose what system. They want that's what we're hearing from our service providers.
Customer got very comfortable with the <unk>.
Sort of Covid precautions that are service providers were taken.
For installation and for sales.
Second there has been a sort of of suburbanization move at some level of also of second home move.
So look.
The lots of transition, there and which drives.
The demand and then I think.
Third the third.
And third is the actual technology continues to get better and.
The value prop to the customers.
Is improving all the time and.
And that's not just us that's the entire industry, but I think the value prop is is is continuing to improve and.
More people that might have said in the past hey, I don't need.
A security system on an alarm system are now, saying hey.
With what Youre doing with video analytics with the things you're doing on automation with the ability to monitor for low grade leaks.
And the toilet valves its busted those type of things Theyre, just more sort of purpose for the systems and I think thats kind of slowly moving slowly moving the demand curve.
And then and then lastly, I think we saw some confirmation last year that.
That the market once the service provider and we probably work through some of the some of the DIY.
On.
Chunk of the market some of those folks begin to move upstream and and more and more people seem to be wanting to acquire the technology with service and support so I think those of the for trends we saw on North America all supported by.
Just a much more resilient economy than what we saw elsewhere and the world.
Great and then it's really helpful and actually that's a nice segue to the third point you mentioned their technology improvement and all of these like helpful. Just point solutions outside of just the security also driving interest.
The next question was in terms of the competitive environment and and the warm <unk> positioning as anything and kind of change and your perspective regarding the key competitive factors for me on this.
And this kind of a theme that was playing out more so a few years ago from.
The DIY focused competitors versus the alarms slashed pro installed channel.
Any anything changing there because of some of the DIY guys are public or are having good numbers as well and just wondering if it's if it's all it's all benefiting everyone or anything you have to share.
Yes, I would.
And say.
The thing Thats going on and competitively is.
It's.
It's just taking more of everything is taking much more scale, probably the barriers to entry to really deliver a full solution are are rising.
The scale requirements are higher the range of when you talk about video analytics and wasn't even something we were talking about three years ago and.
Now we're in an arms race and that category.
And some large players.
And.
You have you have to build of resource and staff that effort accordingly to remain competitive so probably the the main competitive dynamic I think is debt.
There's starting to be and little bit more of a technology shakeout evolving as the technology gets more sophisticated and those who have scale are likely to be able to sort of persist and though.
Is that.
And they're going to struggle some with this shake out I think.
And we Couldn, that's sort of the size we were at 10 years ago, we couldnt be competitive today. So we're fortunate to be on the spot where and given the range of capabilities that the other.
The consumer expects that of small business expects.
And Thats, probably the biggest thing going on.
Okay, that's helpful and.
And then for Steve Valenzuela.
Can you maybe provide some more color maybe quantify whatever you can on the status of the international business and maybe in terms of percentage of your overall seven six plus million subscribers. How many of those are international and how many of your 10000, plus channel partners or international anything around that.
So we haven't broken that out, but what we have broken out is the international revenue was 3% of our total total revenue and we have added we have.
<unk> said, we have about 40 different worrying about 40 different countries internationally and we have added new <unk>.
Service providers internationally, this past year as well.
So hopefully that gives you some color.
That does that does and I'm still going to try and ask this next question regardless.
Sure.
And with the international market for the international markets.
And you still early stage still growing maybe more impacted by Covid and your domestic markets are there any I don't know what what does it take to drive subscriber growth internationally for.
And maybe a channel partner perspective is it similar to North America. It sounds like you are adding more of these more channel partners. All the time there. They are helping you really scale the business in North America is it similar internationally is the growth the power.
Dependent is the growth of subscriber activations on adding new channel partners or is it just expanding within your large existing international channel partners. So a little more color I mean, I think we started the year last year at around the 10000 unit per month, the clip and.
We ended the year of around 15000, and we're happy with that given the dynamics and you had regions, particularly like Latin America that kind of just went dark almost for a long period of the year.
So we expect we've got.
Didn't lose any partners and that process when capital partners and we work together to improve I would say from where we sit the number one thing.
As is.
Bullet proofing.
The customer experience for each of these different markets with the full range of our of the capabilities that we deliver and the U S and.
It sounds easy, but it's 40 countries.
Lots of different networks lots of different sort of consumer preferences on how things are done, but there's still a fair amount of.
Of technology and product work that we're doing in concert with our partners to get to the point that.
And that we fulfill everything we say we're going to do.
And we think we will continue to add partners. We add for example of demo of houses and some markets things of this nature, but it is going into right direction of the number one thing as I said technology, it's really persistence.
Mike.
Keep try and keep working very good partner and eventually things will come and I think.
We saw that and the U S. It's actually I haven't looked at the data recently, but it took us.
Some point when we looked at and are rapidly and the U S was slower than what were ramping in the U S. But at some point you get the sort of critical mass.
And.
And it takes off I'm, sorry of the ramp rate.
U S was slower than our earlier days and the international.
Yes.
We will see.
Okay. It sounds good well again, great quarter and look forward to following up next quarter. Thanks, guys. Thank you. Thanks, Jack I appreciate it.
Sure.
Thank you ladies and gentlemen. This concludes today's conference call. Thank you for participating you may now disconnect.
And then.
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