Q4 2020 Vivint Smart Home Inc Earnings Call

Presentation, there will be a question and answer session to ask a question. During the session you will need to press star one on your telephone.

If you require any further assistance. Please press star zero and I would now like to hand, the conference over to your speaker today, Mr. Nate Stubbs Vice President of Investor Relations. Please go ahead.

Good afternoon, everyone.

And for joining us this afternoon to discuss the results and vivid smart home for the three months and fiscal year ended December 31 2020.

Joining me on the conference call. This afternoon are Todd Peterson, <unk>, CEO, and Dale or Gerard <unk> CFO.

I would like to begin by reminding everyone that the discussion today may contain forward looking statements, including with regards to the companys future performance and prospects.

Forward looking statements are inherently subject to risks uncertainties and assumptions.

And are not guarantees of performance and you should not put undue reliance on these statements.

I would direct your attention to the risk factors detailed in our annual report on form 10-K for the period ended December 31 2020.

Which we expect to file within a few days of this earnings call.

Be aware that these risk factors may be updated from time to time and the Companys periodic filings with the Securities and Exchange Commission.

And that the realization of any such risk factor could affect our future results and could cause those results are other outcomes to differ materially from those expressed or implied in our forward looking statements.

The company undertakes no obligation to update or revise publicly any forward looking statements, whether as a result of new information future events or otherwise.

And today's remarks, we will also refer to certain non-GAAP financial measures and reconciliation of these non-GAAP financial measures for historical periods to the most comparable measures calculated and presented in accordance with GAAP are available and the earnings release and accompanying presentation.

Which are available on the Investor Relations section of our website I will now turn the call over to Todd.

Thanks, Nate and good afternoon to everyone joining the call I'll start by recapping, our terrific results for the fourth quarter and full year, along with some of the key drivers of that performance.

And then I'll spend some time outlining some of our future priorities sharing more of our vision for the smart home and why we think we have the unique capabilities to deliver that vision is the premier and the and smart home platform company.

Starting with the key financial highlights of the business, we had a strong finish to what was a very successful year for <unk> and our first year as a public company.

Fourth quarter revenue grew by more than 8% to approximately $333 million adjusted EBITDA was approximately $147 million up over 17% from the prior year and producing and adjusted EBITDA margin of 44% and the quarter.

For the full year <unk> grew total revenue by over 9% to one and two 6 billion.

And adjusted EBITDA grew by 40% or $589 million.

We originated over 343000, new smart home subscribers and this past year, which was an acceleration from the previous year and the highest we've ever achieved and a year.

And as of December 31, <unk> and had approximately $1 7 million total subscribers up more than 9% versus the prior year.

Dale will provide more specifics on the financials during his remarks as well as share our outlook for 2021.

But I do think it's important to provide some additional context to put our performance and perspective.

The fact that we turned and such strong results and that's the unprecedented challenges related to COVID-19 pandemic is nothing short of remarkable we've.

We've certainly seen a lot and the 20 years since I founded the company and we performed well through the past economic downturns.

2020 was altogether different and the challenges, we dealt with and maintaining our sales and exceptional customer service, while protecting our employees and customers and we are profound.

Some of these headwinds were self imposed such as our decision to essentially eliminate retail installment contracts is one of our financing options as well as stopping direct home sales in Canada.

But what we could not have foreseen was having to move our call centers and corporate employees to a work from home environment and pulling our entire direct to home sales team out of their markets delaying the start and the summer selling season for six weeks during the first wave will depend emmick.

Despite all of this.

We were able to substantially beat our initial guidance for total subscribers and adjusted EBITDA.

<unk> attributable to the fact that we were well positioned as a business heading into the pandemic, both operationally and financially we.

We believe our cloud based operating platform and the <unk> user experience are better today than ever before the end to end video platform is driven by AI and machine learning, so it's continuously getting smarter and improving and because each smart home is installed professionally by us it ensures that those systems work as designed.

Delivering a delightful and transformational smart home experience to our customers.

We believe we have been able to drive significant improvements and our customer experience as well as overall profitability and cash flow. Thanks to our strategic focus and three primary areas first transforming net service costs through our vertically integrated business model.

Bringing down net subscriber acquisition costs through flex pay and.

And third scaling overall G&A expenses, excluding stock based compensation.

As a final reflection on 2020, while we were fortunate that we were able to adjust our process to deal with the most challenged and sales climate, we've ever seen we're still seeing the impact of COVID-19, and our business in terms of restrictions in certain markets.

Additionally, our unaided brand awareness and the low single digits. We began the process of fixing that late last year investing to drive better consumer awareness of the brand on a national scale.

Those investments will continue as we tell the story of who we are what we do and how we can add value to people delivering the security and peace of mind the designer.

But beyond the brand. We also think that now is the time to step things up in terms of overall vision to continue pushing new boundaries and delivering transformative smart and experience to every home.

And as an end to end smart home platform company with the most robust service offering.

Our vision is to extend the reach of the smart home experience well beyond where it is today by delivering additional services to the home bridge and even further to a truly autonomous zone.

And our smart home and operating system processes over $1 4 billion daily events, and our proprietary platform collects and controls and massive amount of relevant data delivered through the vim and devices and home.

There are many logical extensions of our end to end platform, including insurance energy management and aging in place and home health care Pet monitoring services home inventory replenishment and delivery home maintenance and repair.

These initiatives are completely within our wheelhouse and large part because we have built a platform that allows us to extend and the many services homeowners once.

Our expertise has always been and redefining the home experience by delivering intelligently designed cloud enabled solutions directly to every home our proprietary cloud based smart home operating system, along with our well trained team of smart home professionals makes it possible to create a completely customized smart home.

Today, we have over 20 million connected devices on the <unk> platform and we believe the data collected from those devices puts us in a very unique position to deliver many of the additional services I just mentioned.

From the very beginning we are focused on building products and services that our comprehensive easy to use and affordable from the mass market.

Delivering a truly integrated smart home experience requires unique proprietary technology.

The expertise to customize and install smart devices and the customer's home and importantly, the ability to provide services through the entire lifecycle of the customer via call center professionals or in home support.

That is why our nationwide workforce of over 10000 dedicated smart employees is such a critical differentiator to the visit model.

And we took hold and a first mover opportunity and this emerging category many years ago, and we believe we remain the leader.

And while others are busy trying to bundle together multiple apps hardware sets and interactions across different providers, we're focused on extending the lead and we feel we enjoy.

I will now turn the call over to Dale to go through the specifics of our fourth quarter and full year results as well as to provide our initial outlook for 2021.

Thanks Todd.

I'll walk through the financial portion of the presentation that we posted today in conjunction with the earnings release.

First on slide six and we highlighted a few data points for the subscriber portfolio, which were strong across the board despite.

Despite the economic and social challenges that existed in 2020.

Told us subscribers grew from $1 $5 5 million to $1 seven zero million or 92%.

And total monthly revenue grew by 8% year over year.

On slide seven we highlight and revenue for the fourth quarter and the full year.

Fourth quarter revenue grew by 8% to $332 5 million, while revenue from the full year grew by nine 1% to $1 $2 6 billion.

The revenue growth was mainly attributable to the aforementioned increase and pulse subscribers and total monthly revenue.

Moving to slide eight adjusted EBITDA scaled nicely for both the fourth quarter and the full year the.

And the primary drivers of our lower expense.

Fiber acquisition cost and scaling of service costs and G&A.

For the year and we are proud to have increased adjusted EBITDA margins by another 1000 basis points to 46, 7% of revenue compared to 36, 5% and 2019.

While we fell we responded well to the challenges brought on by the pandemic seamlessly transitioned thousands of customer service and corporate employees to a work from home environment.

We had already implemented cost reductions even before the full impact of COVID-19 was felt.

These actions, but the company and a better position as the pandemic gripped the world.

On slide nine we highlight a few metrics on new subscribers and.

And subscriber originations were 58554 for the fourth quarter and 343434 for the year.

Both figures reflect outstanding results from our national inside sales channel and a strong second half of the year from our direct to home sales channel. Following the multiple week delay at the start and the summer sales season caused by the pandemic.

New subscribers grew by 27, 7% and the quarter versus the prior year period and for the year, we grew net subscribers by more than eight 5%.

Furthermore, we reduced the number of retail installment contracts or risks by 85%.

As mentioned on previous calls this has affected our new subscriber growth.

But by shifting a greater proportion of our subscribers away from <unk> and towards our financing partners and pay and <unk> arrangements.

We have increased the cash collected at the plant sale, thus, reducing our net subscriber acquisition cost and improving our cash flow dynamics.

Moving on to the right hand side of Slide 10, our net subscriber acquisition cost per new subscriber for the year was $139 versus $1018 and the prior year period and.

And 86, 3% improvement as we increased our upfront pricing for the purchase and installation of equipment and nearly eliminated the number of new subscribers that were financed via Rex.

On the left hand side of slide 10, the improvement in net service cost per subscriber and a major impact on our earnings for the fiscal year 2020.

Our net service cost per subscriber declined from $13 73, and 2019 to $10 50, this past year.

The solid improvement is due to the work of <unk> vertically integrated smart home platform, which encompasses the software hardware and the installation and ongoing customer support.

As we continue to make improvements and all of these areas. We're seeing continued positive trends in both customer satisfaction and the cost of service.

The result is that our net service margins and continued its upward trend moving from 73, 8% and 2019 to 78, 9% and 2020.

And that prevent and net service cost explains a large portion of the improvement and adjusted EBITDA that I cited earlier.

It's worth mentioning that service costs were somewhat muted during the year as homeowners and either delayed service calls or elected and solve issues over the phone because of Covid related concerns. Additionally, we saw higher service revenue during the year from upgrades and moves which had a positive impact on our net service cost metrics.

And I'd also note that service margins dipped a bit and the fourth quarter versus the third quarter as expected.

Based on how we generally put on new customers, particularly and this summer we tend to see service cost increase and the latter part of the year.

Slide 11 depicts our typical subscriber walk that illustrates the changes and total subscribers at year end.

One of the areas, we're concerned about it depend and it took hold was its potential impact on the performance of our portfolio and we were presently surprise and see our attrition improved year over year, ending at 12, 4%, which was 150 basis points lower year over year, and an eight quarter low.

As we have started 2021, our portfolio continues to perform better than expected in terms of attrition and other leading indicators.

While we are very happy with the year over year growth and new subscribers total subscribers revenue and adjusted EBITDA of $448 million turnaround and cash flow from operations is our biggest accomplishment and 2020.

And we stated that our goal is to get to cash flow neutral in 2020, but with the change and upfront pricing reduction of retail installment contracts and improving operating metrics, we were able to generate $226 $7 million and net cash flow from operating activities compared to a use of 221.

$6 million and 2019.

We finished 2020 with a very strong liquidity position of approximately $648 million, including $313 $8 million of cash on hand.

During the quarter, we saw approximately $4 1 million warrants exercised which also had a positive impact on our cash position and increased our public float as well.

Finally, moving to our financial outlook for the upcoming year on slide 12, the fundamental characteristics of our financial model remain highly attractive, particularly the contractual recurring revenue that provides long term visibility and predictability to our business.

We have several initiatives and 2021 that we believe will continue to fuel our leadership position and smart home.

In terms of guidance for 2021, we expect to end the year with approximately 180 to 185 million total subscribers.

Full year revenue between $1 38, and $1 $42 billion.

And adjusted EBITDA between $640 and $655 million.

This concludes our prepared remarks, operator, please open the line for Q&A.

Absolutely and as a reminder to ask a question you will need to press star one on your telephone keypad. If you wish to withdraw your question press the pound key.

The first question will come from the line of Paul Coster of Jpmorgan. Please go ahead.

Yes, thanks very much for taking my question, let me start with the.

The outlook for the year ahead, you're talking and some new initiatives and the prepared remarks.

And none of the document.

Points towards something that it sounds like you're expanding the scope and bureau, offering so brand and scope.

And then maybe the savings for 'twenty and 'twenty, one could you comment please.

Yes sure.

As we had talked about and by the way thanks for joining Paul.

And as we've talked about last year.

If we had a clear insight into the fact that we would be cash flow positive.

And it starts testing some branding exercise I think.

Said this before we have less and a 5% brand awareness and in the United States and.

And the company was $1 7 million subscribers and.

And literally no brand awareness. So there is massive upside for the for our company to put ourselves out there in the market with this special offering.

And with a fully integrated professionally installed and and service.

Smart and are monitoring so we're really excited about it we actually started doing that in Q3.

Our actual we're not going to talk about exact specifics, we spent less than $10 million and brand in Q4 last year.

And this year.

And somewhat less than $30 million and brands and we had.

Ziv and up result, and an even better than we'd expected.

From a response perspective all of these things do take.

Years and years to mature and and gain momentum, but very excited about debt and then the second part of that question is.

We are.

We're a company that we own our own platform I think everyone here knows that and so.

And we developed a platform out our operating system.

And somewhat like eight years ago.

So, we think that doubling down and enhancing and improving that and kind of revamping that is importantly that some of it and.

Technical tools for Onboarding customers and underwriting so there's some investment happening on that side and the company.

And then we're going to further explore some of the initiatives initiatives, we have around insurance that we've talked about and then some additional investments in aging in place and the potential that's coming without question and for our company.

Physician in the home with the number of devices and other data and trying to figure out how to how to approach debt markets amounts of market.

And it requires.

Physically installed piece of hardware.

Pieces of micro data and the home, which we have and the house.

We have and multiple initiatives and initiatives like that and so there is some spend happening in those areas.

And we're really making sure that as a company, we're being thoughtful around the future of the company, how we're positioned taking best advantage and the fact that we've got this proprietary operating platform and lots of customers growing long lifecycle and the customers. So we're actually really excited about it.

Thank you for joining the cool and sexy.

At the line joining your pool and so it just seems so exciting to me so.

It's good to be here.

The most sobering subject, though you have followed this shelf and I think those of US who are looking at the stocks rather and the business there.

Little bit irritated by that we feel like there's an overhang.

Just that we were anticipating a refinancing of the debt.

When does it can weather these.

And I think he's going to get done what are you going to.

Issue the equity will also do the follow on.

When are you going to refinance.

Yes, Paul this is bill and welcome to the ball.

Yes.

So I think just to maybe stay so why are we did debt, but what we did what we did here and in connection with the mosaic transaction completed last January and January 2020.

Certainly most shareholders stockholders were granted registration rights.

<unk> EBITDA.

Self registration.

That would cover those shares.

Bad debt.

Back and it's.

Or a shell company or blank check however, you want to think about that.

Following our merger with day ramp.

Eligible S three eligible.

So just recently and had to fulfill those registration requirements.

Filing an S. One shelf.

Maybe some.

And our became S. Three eligible we decided to file a universal shelf.

Formats three.

To cover those existing shares registration rights.

Rates are some additional securities where potential operating of debt or equity in the future.

At this time, we have no present intention to immediately conduct any operator.

So does that flow.

What's the purpose of the surplus to provide future flexibility.

And kind of what we think and and unfortunately, that's probably the best I can give you at this point.

It's not imminent, but we're prepared.

And the markets right and.

There is the need for the company and do that and take advantage and so it's more preparation as far as refinancing.

The debt pay down some debt and those are still and consideration I mean, obviously the debt markets are strong.

I think we're now well positioned.

From a financial perspective, operationally and otherwise to.

Go execute on that and so that's that's.

Tom.

So I guess and servicing.

Comments from Michel if this to me.

And the <unk>.

Those with Big Stakes and the company is still.

And then after Lucia is necessarily that came to sell at this price level is that a truthfully.

Yes.

I can't speak for that.

Major shareholders.

There was the lockup period debt debt.

And part of the Green or six and 12 and 24 months based upon from the shareholders debt that came in Peru.

It's back.

So I can't really speak debt.

Are there and look all I can say this I mean from a liquidity perspective.

Wouldn't.

And we're open to that if they would like to sell down at some point, because we need more and put it.

And we don't know that so that wouldn't necessarily be a bad thing.

Now they haven't run to the markets to do a big block trade or anything like that we all know this but and there is a point and time there.

And on appropriate sell down over time would be beneficial to the overall company and the share price and.

A lot more people into this into this game.

And we're kind of relaxed about that a little bit and they're going to make it.

I happen to be.

<unk> shareholder and I'm not I'm not.

And so.

Alright got you.

And last question is that.

The key performance metrics have improved dramatically this last year.

From roll into 'twenty, and 'twenty, one the macro numbers now and perhaps more.

Focus the key.

Key performance metrics, because it seems to me like some of that's going to be.

And the Whiting.

And improvements at this point difficult pizza.

Two.

And keep that rate of improvement going over to Phil.

Yes so.

Let me say the thing that and I mentioned this and some of the investments that will maintain and into the company.

That form.

Technical tools that we use to onboard customers.

And in the field over the phone serves our service platform again, that's all proprietary to them and we'll be investing there because this is what we know.

And the demand is high even with all of the things that we changed last year I mean remember we eliminated.

New business in Canada, we eliminated risks.

It kind of April timeframe stopped onboard and mix other than and occasional Rick.

System outages.

So.

And we're anticipating ritual it would be one percentage of our business. This year. So and then we put the Jack.

Program on pause for six to eight weeks and then there's a slow rollout and so even with that we hit the numbers. We did there is.

Demand for our products and services and the more we get our name out until our story.

We're going to start seeing better improved top line revenue growth and sub growth, we're confident in that so and so part of it and invest in the platform to make sure that we.

We can do that and handle that growth and deliver in a way that kind of match, which has been similar and so we're kind of doing some things and preparation has seen some positive results on the branding side of the slide the exercise of that some of the new we have some new initiatives, where we're doing around just testing out new ways to enter into the market or get into a home.

And expand in the home. So we have a lot of things here really excited that we're doing and we feel positive about and what.

We think that will lead to better macro.

<unk> and then obviously, we're always focused on.

What are the debt.

Key things and the business like attrition and.

Net service margin and all of those things, which kind of order and pay too much and holders and knock those out of the park, but.

Just thinking about the whole thing of zone.

Paul.

Got you. Thank you so much.

Yes, Paul.

Our next question will come from the line of Rod Hall with Goldman Sachs. Please go ahead.

Hi, This is aki on behalf of Rod. Thanks for taking my question and congrats on the nice results.

I was wondering if you could compare and contrast, PR paid and photo contracts versus your banks finance contracts.

Defenses you'd call out in terms of proceeds at point of sale of attrition or anything else.

Yes.

Hey, RK, thanks for joining the call.

And rod are doing great.

What I would say.

What we see normally on a painful a lot of times those are customers.

Again, maybe.

I'll qualify for financing for example, but they still want to get on the platform is still and I get the services that we offer but maybe they are not able to take three cameras and two door locks and so they're taking a smaller system. So you are looking on average those those are going to roughly $1000 or or ish upfront.

Vs versus somebody that takes the complete system.

The 15, and 16 devices six or seven what I would call smart devices. So those are outdoor cameras doorbell cameras.

<unk> access those type of packages and those are going to be and.

And the 25 to $2600 upfront, so thats kind of how to think about the difference there and then.

Again, the two super financing and Thats before any financing fees right. So we do state by and exit fees with citizens and we said we do pay those over time.

And for Tivo, we pay those upfront.

And that alone and so on.

And on average and Youre seeing and that call. It 2500 ish range on a superb finance painful Col 1000 buses.

That's super helpful. Thank you and we're doing well from.

What's a sustainable level for net service cost and margins and what's included in 'twenty, one and outlook.

Yes, so what I said and we've said this all along we had a couple of quarters. If you think about Q2 Q3 and we.

Called this out on all of these talks and Hey, we had a lot we had.

Your service tickets into the hole, which is a big part of that service Bob.

Oh that was really taken a hold a lot of people didn't want people coming and so their homes.

And so we're trying to take care of that most of them and so we've said hey, those costs those service costs, most quarters will probably abnormally lower than what they would have been I think we see.

Service costs, what I would say and the margin range, we've said that probably in the 73% to 75% margin range service margin is kind of where we think.

Normalized service levels in terms of service, we're providing to customers and then the service requirements are what we're doing.

Pulling in from customers and tenancy, the pulse coming into our call centers or requiring us to actually go roll a truck out to their fixed debt, we could fix by the way, we fixed 85, and 90% of those issues that come in from a customer and we're able to do over the fall because of our technology platform that we have.

But thats kind of so so long and short of the answer is probably a net mid 70% range in terms of service margins one thing I'll say for the future. This is not going to be.

'twenty one impact.

There's going to be net cost factor there and investment.

And we see some operating more opportunities and we're constantly doing this because we own.

Our hardware stack the platform the installation capability.

We're always making.

Improvements to the software and firmware and we see gains on connectivity and usability and reliability of our system and our.

Offering.

We're going to be investing even more because of the AI and machine learning into <unk>.

More self healing capabilities more awareness around what's happening well down to the unit basis on a hardware that we've installed inside of the home and so we believe there is.

Improvements and better economics to come.

Just bill maybe mid point debt.

And two quarters were kind of abnormally low even though if you look at kind of on a trend basis over the past four years and we came that we came down from and the.

And many teen dollar per month per sub per month level down and somewhere in the 11. Please.

And kind of a normalized number so we're very confident that that trend can continue over time now.

There are things that need to be done and we're making investments and those and part of it is.

And we have the new when you come out with a new hub or new camera or new doorbell cameras.

The devices, they get better and better while staying connected and the and reliable which reduces inbound calls technical support truck rolls and such so this is something we're constantly focused on.

Thanks, Alison Thanks, guys and good luck.

Yeah. Thank you thanks again.

Our next question will come from the line of Erik Woodring with Morgan Stanley. Please go ahead.

Hey, guys.

Congrats on the quarter I wanted to ask kind of a high level strategy question and then a finance question. So just to start higher level, obviously than last nine months have been pretty unprecedented in many ways.

Just curious.

Todd and debt from each of your perspectives and what were some of the lessons that you learned this year.

About your business and what does that can you apply to the business going forward to make it more efficient and make it more cost effective just anything you can speak to that and then I have a follow up.

I think.

And I haven't heard that question get towards a great question.

We had the transition one thing we learned about the organization as we have the ability.

Great speed and efficiency to change on a dime.

Like other companies, we went from working and update.

And the office to work from home and.

And to change the whole dynamic of how we operated and.

And took care of our customers, which by the way that's the most important day, it's quality of service delivery.

Customers can't.

And we as an organization made that happen very very quickly with very little disruption and making sure that our employees were safe and protected Cmos.

And now the one thing and you saw her.

And if anyone's noticed this but our cash flow turnaround from 'twenty to 'twenty one from.

And from 2019 to 20 staggering and <unk>.

Part of that was just efficiencies and spend less travel.

Yes.

General spend with some budgetary items that we went through and said Hey look. This is this isn't driving revenue per say, we thought it might and it's not that.

Let's get rid of book.

So we have become more efficient and the dollars that we're spending and I think as a group as a leadership group and we.

We've got a great cadence and making sure that those don't creep back in.

And just making sure that will be approved and with the dollars that are coming through.

And making sure that they are redeployed in a way that actually has benefit and gross value of the business or delivers better service to the consumer or develops new products or services. They are going to want.

So.

And I can say this organization and I am so proud of what happened.

And how the risk while we responded to the year in every way form and fashion and the most important is we did let our customers down and and then.

The demand grew and intensified.

And those are those are the ways you win and a consumer facing space as you deliver on what you say you're going to deliver on when youre going to and you say you're going to deliver on that because that's the word spreads and we havent had brand awareness so thats its consumer awareness.

<unk> chips.

And that's what I would say.

Okay. That's awesome, that's really helpful. I guess, maybe a relevant question and then to touch on would just be.

On the cost side of things clearly you saw a pretty sizable uptick in cost in the fourth quarter. You mentioned brand awareness was less than $10 million can you just walk through kind of what drove the growth and costs and the fourth quarter, how much of that was kind of temporary or one time versus permanent.

And then how to think about that into 2021. Thanks.

Yeah. Good question. So again as Todd said there was there was brand has been and the fourth quarter, which you didn't have year over year I think the other thing is we.

And we were able to extend our direct to home program out into the early part of the fourth quarter, which we've never done before and so you have.

Costs associated with that.

The debt that you wouldn't have had.

And frankly in the past so those are kind of the two big drivers of it and then you did start seeing again.

This is really part of the normal process.

And our service costs as we kind of as we normally we put in accounts Q2, Q3, and you start seeing a lot of App Q3 going into Q4 into service cost kind of come up because you have.

That first 90 days after accounts come and you have some.

More calls come in and some of it's education some of it.

And of helping people get the systems that the way they want its debt sometimes it requires truck rolls back after the homes and then you start seeing some of that and the fourth but again, that's normal we expected them and our numbers.

That's kind of how you're.

Thinking about just to be kind of as you think about 'twenty one.

Going to be there will be some odd kind of.

Year over year comparisons because again Q2, 'twenty, we start really didn't even start.

The direct to home April 1st part of May we were shut down.

So you'd have any cost such that and as Bob said, we then coming out of April we didn't know what dependent and it looks like we didn't have that business are we scaled back and product cost and.

And our employee Luckily allows us to do something that we have that we stopped boral and came back for example, we didn't get merits out and do that.

Period of time, we were able as the business went along and got into the fourth quarter, we actually reinstated merits, we actually it's and stuff.

Reinstated flow and gave some stuff around that so.

It's all of those costs come back in and.

The fourth quarter that would have normally been there in Q2 and run rate out.

But we're excited we put out the numbers that we put out in terms of our guidance we're excited about.

As Todd said really staying focused on those key metrics and really evaluating how do we spend their dollars and.

<unk> was one for example.

Mark will pick up and travel withdrawals ones like do we need to travel as much to go see.

Partners are separate can we do that every day I mean, it's worked and worked for nine months and.

The results are simple.

Theres some of that will bring back and.

I think some of this zoom and some of the other types of way to connect with with our partners and.

And our teams will continue to do going forward for a period of time.

And maybe broader.

It's kind of growth in Ukraine.

That's really helpful. If I could if I could just sneak a last one and then here just in terms of your guidance. It looks like you're implying that you should get an <unk> growth around like 3% next year. Just curious from your perspective or can you help contextualize why we should expect that to grow is that implying new services I understand you might not be able to tell us some of that but.

Just why we should think about that growing.

And the way that you've guided next day air.

Yes, So let me tell you what's interesting.

Thanks for pointing that out.

And I don't want and there's no nothing to be alarmed about with this but we actually think it could be better.

We're trying to be a bit cautious because of the supply chain like everyone else that debt.

Manufactures products overseas.

And as concerned around supply chain and we're good with the plan and we have and we're showing you right here, but the demand for our products and services cameras doorbell cameras or not.

We have homes that are 16 cameras in them that debt.

Five years ago, they didn't even want Kim.

And the way ours are connected and how they deploy and how people interact with them and the amount of interaction.

On this on this call 120000 live video views are going to happen and our customer base. During this call. So the demand is so high we believe it could be could have been better we're working on trying to.

Speed things up from a supply chain perspective, we don't think it's going to disrupt our plan at all because we had planned quite a bit and.

Advance to make sure we get it.

There is.

And we would have said few years ago, there wasn't much upside for that to increase now we're seeing the opposite the demand for additional and more hardware professionally installed.

Is increasing substantially so we're excited about that.

But we're feeling like that that's conservative because of the supply chain issue not demand.

Awesome Super helpful. Thank you guys Congrats again.

Thank you.

Our next question will come from Canola Microcar of Deutsche Bank. Please go ahead.

Hi, Thanks for taking the questions a couple if I could one on the on the subscriber growth and the outlook there.

Given given the acceleration that you're seeing.

<unk> 2000, 22020 internationally and tight sales and the fact that hopefully by the time, we get into the actual selling season.

Being able to deploy a lot more sales guys into the direct to home why shouldn't the subscriber growth and bought back more than 10% growth on a year over year basis and 2021.

And then.

A question on branding and brand spend.

You've given given the approved.

Financial metrics and the profitability and the and the cash flow profitability of the business why aren't you spending more.

Those are and a great. Both of those are great questions, Here's what I'd say on the on the direct <unk>.

The home program.

We're still.

Still and the Minto middle of this pandemic.

We are being cautious about over hiring and I don't know if you remember that last year.

We had a lot more people hired and we actually deployed and <unk>.

There were people that were concerned about going into the neighborhoods and homes or even on People's front porches and to do consultative sales.

The ones that did we did it.

With all of the safety concerns in mind and protocols.

And we did all the proper measures to make sure that they were healthy, but and we have a lot of success, but we're still.

If we over higher and something another disruption and happen, let's just very expenses. So we're trying to be not cautious, but just be balanced and our approach with the direct to home and then from an inside sales perspective, it's still growing and scaling now.

We are we are.

One thing to prove out to ourselves and we think we have somewhat but it's just been a quarter.

The brand spend that we're doing with specific areas. We're doing really are going to produce produced results at all of our shareholders. Appreciate and that's really what that means that's going to lead to subscriber growth we feel thats the case.

We actually believe it and.

We would we would say it's good enough probably more and spending more than $30 million. This year, but we're going to reserve the right to do that if we choose throughout the year, we continue to improve but for now we're kind of it kind of say and somewhat less than $30 million.

Modest amounts and spin.

I would suspect you would see over time, if they continue to show the results are showing that that will increase over the next few years.

And I'd say this debt.

One additional point from prescribers is very.

Per attrition.

We finished with 12, 4% and 2020 again, we're putting some caution into those numbers and maybe attrition is maybe its and the high <unk>.

And maybe even low <unk>, but again, we're there's a lot of unknown that there is still however are the economy is going to happen.

Evolve how are the actual consumers.

And if there's more government.

Stimulus checks peninsula market, how does that actually our customers and it seems like it was very good and our customers were.

In terms of how they performed in 2020, but again, so we're just kind of being taken and what we know today in terms of what we see out there again as Todd said around the sales side and then in terms of customer portfolio performance and debt and trying to put out a number that we think is reasonable.

Yeah and this is this these are all things of that work in concert with this thing. This is what we know that the the product and services and the <unk>.

Way, we deliver them and how magical it is.

It's going to gain momentum we're perfectly suited for this environment. This new environment of working from home and some people back at the office, some that's kind of back and forth.

We though with.

Food delivery door dash and more package delivery and we are.

We are perfectly suited for this new home environments.

And we can take care of consumers and a very and a very special way. So we're excited about the future we have that opportunity to the position to do that.

Thank you.

Our next week.

And from the line of Jeff Kessler of Imperial capital. Please go ahead.

Thank you Hey, Todd how are you doing.

Great.

Yes.

Okay, Okay sitting at home.

Uh huh.

And I was having a lot of questions I'll hit you later.

And when I get too long, but.

[noise].

If you if we take this down to the street level, so to speak or.

To the actual customer.

And your rubber meets the road can you can you talk a little bit about.

Number one.

And what you do what you've done and that's different now and the Onboarding process and also in terms of and related to that net service costs. What are you doing in terms of in terms of servicing the customer both of which.

And are showing up and the metrics but.

And the real world I need to know kind of what what.

What's changed.

And what's changed over the last year.

Well.

I think the simple fact is we own our whole technology stack.

Sure.

And including sales installation monitoring ongoing service technical support and.

Tiger feedback loop, we own.

Criteria to Vivek <unk>.

Obviously, we will integrate with.

Best in class products.

Google device or an Amazon device, but we own the technology stack and so we have the ability to have this incredible quick feedback loop.

And new product or a piece of hardware is causing more calls.

And into the customer care or technical support and from the Orthopods and more truckload, we troubleshoot and we can chalk troubleshoot quickly, it's our innovation and sooner. It's our it's our software and firmware engineers and our product designers.

This is we've said this and it is now it's now proving to be not just true but.

And im incredibly relevant to this business and it's not just the margins.

Consumer experience that's most important if our if our service cost has come down with the 15 devices and seven of them are smart home devices. These are door window sensors, and a key fob and and Blackberry nothing we don't have them, but these are really robust sister.

Systems I mentioned earlier I, just saw Guy the day 16 cameras and as shown on the video platform he came and Shelby.

This is your company. So pool every single one of these are online and he had our system several years ago.

Five years ago, and one of your first coming out with the extra Jamie and then glass line from sense, but we troubleshoot and do all of these things I talked about to make sure that experience is incredible and by the way drives them calls and service cost.

We think we're just still continue to see gains from that perspective.

And when you say from and Onboarding perspective, what's your what's your specific question.

And.

The first step.

Those first.

And those first conversations and those first couple of several weeks, where the customer may.

And it may have had problems or maybe more expensive to bring that customer on.

To get them up and ready, particularly if theyre, taking on a bunch of technology, where they have been sold.

Yes.

14, or 15 different items and being taught how to do it how how do you make sure that customer is satisfied.

<unk> or two later.

Well again this is right back to the same thing.

Sure.

100% of our installs are done by our employees that use our.

Technical tools to do the installation we have these health metrics with our we call and protecting our proprietary platform for installation and service and sales all combined up into our call Center and customer service Center and ultra low and that's all the data we can track on a real time basis I don't know if anyone else can do.

The space and <unk>.

Take care.

And so we just have these huge advantages and the markets are going to continue to prove themselves out more and more as we as we go on and the space gets more robust and deeper into the home with products and services, which is happening and that's we all know that and.

So.

This is many many years and we're making we didnt just decide to do this recently because someone else is doing and this is a decision we.

We've made decisions over 20 years to invest and ensuring that the quality of service and the reliability and the magic magical experiences there and it.

Has to happen.

At the point of installed <unk>.

Walk away and things don't work, we'll that's a bad experience and it's constantly and both of those are bad and so we're getting better and better and better dose and that's it.

It's almost impossibly perfect with technology and lots of devices that are connected wirelessly, but we're pretty damn good at it and getting better and I can assure you that over the next year and years, we have plans to continue to burn down those issues and eliminate them and make them our strong suits. So we're just getting.

<unk>.

My follow up is.

And it's probably directed actually probably directed towards Talbot.

The below the cash flow from operations line.

To get down to what would be what.

Some of US we call just pure.

Pure unadulterated.

Unfettered free cash flow.

And whether some of the what are some of the.

What are some of the subtraction.

If we were trying to figure that out and what you would have to be making.

Are you different and are you.

Different and any other way than other companies.

Oh not.

And where I'm glad I can take a look I don't have all that front of me here, but you'll have to catch up.

And looking in.

Yes.

We'll be filing any day.

They are too and so all of that all of our financials.

To be out there.

And next day or so.

Yes, great again.

Cash from operating activities was I mean.

We just we just.

And we knew we were going to you by the way, we knew and feet on all things.

<unk> had tremendous improvements operationally financially and then it was on purpose and none of it happened on accident and work.

We're hyper focused on.

How we operate this business we want to be.

And as great operators, not just from a financial metric perspective toward consumers because thats going to be.

That is one of the key differentiators near professionally installed.

Fully owned proprietary smart home platform and that's going to lead to the future of our business, which is what our true smart home is going to be which is.

The entrance into the home to what we're doing is going to provide lots of outlets and the services and technologies that we're going to build that provides our consumers who is going to be great and diverse part just maintaining these hardware devices and having them.

The stable reliable elegant great experience.

Low issues and where.

We're doing this.

Alright, great. Thank you very much.

Yes.

Our next question comes from Todd Morgan with Jefferies. Please go ahead.

Thanks, Good evening and lots of information here.

Just one thing Thats kind of I see is the branding efforts you've talked about I mean, you've been very passionate about sort of the technology and the experience that you're offering folks yes, when I look at the ads I kind of see two things and maybe I'm not seeing all the assets, but I see Snoop dog, explaining how how easy to do it for me installation.

Our model works and I see the more traditional ads talking about doorbell Cam scaring away package dealers and so on those are different messages and what you've just spent the last period, you're telling us about I'm just curious as to kind of how you got to that kind of and advertising message and is that something that you would expect to evolve even and <unk>.

And one or so thanks.

Look here's what I'd say there is no there are no company, that's done and branding.

Interest in it and.

And tell the entire story with their first entrants into the space that just not possible.

So we just wanted to say here. We are this is Debbie we actually have something as cool as professionally installed unit and worry about.

But I can assure you that we will continue to tell our story over time and thats been as somebody something that evolves.

And we want to make sure it resonates with customers and it doesn't overwhelm them also.

A lot of people don't realize that they can get.

15, 2030, 50 devices installed their home potentially at a very very reasonable price.

And to just put that out there.

I'd say.

Might just have some and tune out a little bit busy day.

And thankfully.

And even though we are seeing it let's say and an advertising campaign and they may not leave it like that that can't be affordable.

And so it's just share. We are this is simple just just give us a try.

And we'll doorbell put debt on there and then and we're pretty good at sales and Upsells and so we can upsell them into a full system.

And so youll see it evolve over time.

And just the response and how simplistic and it was on purpose. The initial entrance floods and we had a tremendous response.

No okay, great well, that's good to hear and great quarter and thanks a lot.

Thanks.

And that's all the time, we have allotted for questions today I will now turn the call back over to Mr. Tom Peterson for closing remarks.

So we appreciate everyone being on the call and the webcast.

Again.

We want to make sure everyone knows that work.

Super focused on just making sure that we deliver on what we say we're going to.

We think the future's Super bright as everyone on the total knows the big industry, a lot of opportunity and we are best suited to take advantage of that because of this the ecosystem we've built out technologically.

Our 12000 employees, they're taking share of our customers and expanding our reach throughout North America. So again, we appreciate you all paying attention to us and we're investing is that also and.

And we look forward to talking to you next quarter.

And this concludes today's conference call. Thank you for joining you may now disconnect.

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