Q1 2022 Vivint Smart Home Inc Earnings Call
Targets for total subscribers revenue.
Our guidance range for free cash flow, while leaving the top end of the range unchanged.
Dale will speak to the specifics of this change in his remarks.
We are focused on redefining the home experience with technology products and services that create a smarter greener safer at home, while saving our customers money every month.
Our integrated platform as the core nadler that allows us to deliver on this mission.
Processed more than $1 1 billion events per day across our subscriber portfolio. Our average customer has about 15 devices in their home and interact with their system nearly 11 times per day and stays with us for approximately nine years, a proprietary platform allows us to not only protect our customers' homes and families.
But to make their homes more enjoyable and intelligent as we integrate solutions with artificial intelligence to make smart decisions on their behalf.
As we work to also bundled smart energy and Smart insurance, we will leverage our integrated easy to use operating system to help customers save money on their electric bills and insurance premiums.
We believe our strategy provides distinct advantages that will allow us to increase the lifetime value of our customers, which in turn should drive strong economic value for our shareholders.
We expect that the unit economics of our customers should also improve further enhancing the cash flow generation of the company and allowing us to reinvest and compelling value accretive initiatives work.
We are confident in our strategy is our data indicates that at scale, a customer who bundle smart home with smart energy and our smart insurance has a greater lifetime value than a smartphone customer alone. Moreover, the lifetime value of a smartphone customer increases by 200 to $400 with each additional year.
<unk> they remain on the platform.
And we believe that customers with bundled services will remain with us longer than the current nine year average we believe our broader platform strategy will further cement demand has been in a category of one and as we leverage the advantages from our intelligent and integrated platform will further extend our leadership in the do it for me Smart home segment.
Of course executing on our strategy of making smart homes smarter greener and safer requires us to focus on operational excellence continuous product innovation and our commitment to enhancing the experience of our customers.
I am pleased to welcome Rashid Patel, our new Chief operating officer to the <unk> Rashid with join US in mid May and he brings to Vivek 20, plus years of experience in building technology service businesses, driving innovation and improving the customer experience. Most recently as the chief product and platform officer.
Of AT&T business, a segment with $35 billion in annual revenue he.
He will oversee all of our customer facing operations as well as our technology and product platform. We look forward to ashish, helping us refine our approach to expanding the lifetime value of our customers.
Turning to our key strategic Adjacencies as one of the first smartphone companies to expand into smart energy. We are very encouraged by the momentum we saw in the first quarter.
Due to the seasonality of our business, we would expect the majority of ourselves to come in the back half of the year and we remain on track to double the 45 megawatts, we sold in 2021.
Our vivid salesforce and strategic partners, who seamlessly bundle of stem and smart home system with solar or seen a considerably better sales realization rate than those who are only selling solar.
This is an incredible demonstration of the power, we bring by offering a bundled solution and our stripes directly at one of the issues the solar industry struggles with.
Wasted upfront costs on the sales of a solar system that never get installed.
Our long term our long term vision is to combine energy production and consumption.
Through an integrated platform that uses data infused AI to manage power consumption more intelligently, our nationwide footprint and ability to install our award winning smart home solution within a day or two of customers signing up with solar we believe is a game changer for the industry and for our customers.
We believe that as we grow and solidify our go to market partnerships, we will prove to be a powerful and differentiated combination to grow in routine smartphone customers ebb and pack, who I've worked with for several years of inventory joined the visit leadership team a few months back to lead our smart home energy initiative and our manage our relationships with these key partners.
And confident he is the right person to lead our smart home energy business into this next phase of growth.
Survey show that less than 4% of the addressable homes in the U S have adopted sorted this point with our nearly one 9 million customers across North America. We believe there is a significant opportunity to provide bundled smart energy to our existing customers as well as the hundreds of thousands of new subscribers we have.
Add to our portfolio every year.
Now to briefly discuss our smart insurance initiative, we continue to believe that our data rich platform can help better price the risk of a customer who is a professional installed and actively monitor smart home system that can potentially mitigate the severity of loss events, we believe that when customers present, a lower risk than homeowners without a smartphone.
System or with non monitored DIY system that was inadequate scoped and poorly installed we continue to invest in this initiative and in March we welcomed <unk> to a newly created role as the Chief Insurance Officer in this role Rob leads all aspects of the smart insurance business, including the development of our market.
<unk> strategy as well as the process of becoming a managing general agent, which will allow us to develop specific homeowner coverages and enables us to provide proprietary insurance operations and Ron is a proven leader that is showcases ability to transform and build insurance companies over a career spanning more than two decades at unit.
They recognized brands such as Progressive Allstate, and most recently safe auto which was recently purchased by Allstate.
In closing, we're extremely pleased with our performance in the first quarter of 2022.
And we're excited about the future the markets in which we operate are large they're growing and provides a significant headroom for growth. Our business model provides a platform for growth in smart home as well as Adjacencies like Smart Smart energy Smart insurance and more we believe that we continue to grow at a much faster.
Youre right and our do it for me peers and do so in a profitable way, while generating positive free cash flow that we can invest in value accretive opportunities with that I will turn the call over to Dell to further discuss our first quarter results and our outlook for the year.
David Good afternoon, everyone my.
My comments will refer to information in our earnings presentation that was posted to the Investor Relations section of our website at <unk> Dot com prior to this call.
Following my prepared remarks, we will open the call for a Q&A session.
Our key subscriber portfolio metrics continued to perform well and showed year over year improvement in the quarter.
During the first quarter of 2022, we had growth in total subscribers of nine 6% versus the prior year period.
Increasing from $1 71 to $1 $87 million.
Our average monthly rate our average monthly reoccurring revenue per user or am argue in the first quarter increased.
<unk> increased three 1% year over year to $67 87.
The average in AAM argue was driven by customers.
Purchasing incremental smart home products at the initial point of sale a trend that we have seen over the past several quarters.
The year over year growth in total subscribers and <unk> drove a 12, 9% increase in total monthly recurring revenue or <unk>.
<unk>.
For the first quarter of 2022 total <unk> was $126 5 million up from $112 million reported in the prior year period.
Moving on to revenue and adjusted EBITDA.
Revenue grew by 14, 7% to $392 7 million in the first quarter of 2022.
The growth in revenue was attributable to the previously mentioned double digit increase in total subscribers and the increase in Aam's argue as well as a solid contribution from our smart energy initiatives.
We are very pleased with the first quarter's revenue growth and we remain on track to meet or exceed our revenue guidance for the full year.
Like revenue adjusted EBITDA grew nicely in the first quarter of 2022.
At $202 3 million up 25, 9% from the same period in 2021 with a margin of 51, 5%.
The scaling of service costs and lower G&A expenses were the primary drivers of the 25, 9% year over year increase.
I would note that in the first quarter of 2021, we incurred a onetime legal expense and this was the primary driver of the decrease in year over year G&A costs.
We are happy with the growth in adjusted EBITDA, and our ability to increase adjusted EBITDA margin in the face of continued economic challenges and supply chain constraints.
Next I will highlight a few metrics on subscriber originations in the first quarter of 2022.
Led by eight 9% year over year growth in our national inside sales, we installed a first quarter record of 66734 new subscribers.
Additionally, our smart energy partnership continue to show the benefits of bundling smart home of solar.
Adding 2940, new evidence of our home subscribers in the quarter.
Nearly all of the customers originated in the quarter either paid in full or finance the purchase of their equipment through one of our financing partners.
As we have discussed on prior earnings calls the timing of the payment of fees to our primary financing partner as change from over the term of the loan to upfront and netted from the gross proceeds received from that partner.
Due to this change we are updating how we report average proceeds collected at point of sale and net subscriber acquisition cost per new subscriber.
These metrics will now include the fees paid to our financing partners for all periods shown.
Whether the fees are paid over the term of alone or upfront at the point of sale.
Net of fees paid to our financing partners.
Proceeds collected grew by $93 from $1556 in the last 12 month period ended March 31, 2021 to $1649 in the same period in 2022.
Average proceeds collected at point of sale, excluding finance fees.
<unk> increased from $2067 in 2021 to $2185 in 2022.
I will next cover our net service cost per subscriber and net subscriber acquisition cost per new subscriber for the quarter.
We continued our trend of year over year improvement in net service cost versus scriber dropping from $10 77.
In the first quarter of 2021 to $10 in <unk>.
In the first quarter of 2022.
Our net service cost per subscriber for.
For the first quarter remain near an all time low.
Our net service margin remained strong at 78, 2%.
These results reinforce the advantage of <unk> fully integrated platform, which encompasses the entire customer journey as.
As well as the constant feedback loop that enables us to continuously improve the performance of our products and platform.
Before I discuss net subscriber acquisition cost per new subscriber as mentioned earlier, we are now including the fees paid to our financing partners and.
In the reporting of this metric.
Those fees are paid over the term of alone or upfront at the point of sale.
Including financing fees net subscriber acquisition cost per new subscriber for the last 12 months ended March 31, 2022 was $618 up slightly from $577 in the prior year period.
But down $635 or approximately 50% from the same period in 2019.
The marginal year over year increase was primarily driven by higher equipment and housing related expenses.
Net subscriber acquisition cost per new subscriber excluding financing fees was $82 up slightly from $66 in the prior period.
But down $878 from the same period in 2019.
Our customer financing model <unk> Flex Bay has been instrumental in our transition from using cash and taking on debt to grow the business to.
To producing cash reducing debt and having the flexibility to invest in new initiatives that we believe will be value accretive for our shareholders.
Another metric we are happy to report as our last 12 month attrition rate.
For the period ended March 31, 2022, our attrition rate improved for the eighth consecutive quarter to 11, 2% a 15 quarter low.
Our enhanced underwriting standards improved product and service performance and the high level of customer engagement with our platform continue to drive what we believe is the lowest attrition rate among national smartphone companies.
In terms of net cash used in operating activities.
Is $31 1 million excuse me $36 1 million during the first quarter of 2022.
Up $21 9 million from the first quarter of 2021, which was primarily driven by a change in the timing of interest payments due to the refinancing of our debt last year and a change in the timing of finance fees.
Paypal, our elite financing partner.
We finished the quarter with $153 $2 million of cash on hand, and a very strong liquidity position of approximately $510 million.
In conclusion, we are proud of our consistent execution across our key financial and operational metrics.
Typically since becoming a public company in January of 2020.
The fundamentals of the business remains strong we are pleased with our momentum going into the second quarter and we are bullish about the opportunities that lie ahead of us.
We are also aware of the continuing supply chain disruptions inflationary pressures rising interest rates and challenging labor dynamics.
Taking all of these into consideration.
We are reaffirming our original guidance issued during our fourth quarter of 2021.
Earnings call for total subscribers revenue adjusted EBITDA.
And we are lowering the bottom end of our guidance range for free cash flow by $17 million.
To $50 million.
While leaving the top end of the range unchanged at $77 million.
We expect to end the year with <unk>.
Total subscribers within the range of $1 95 and $2 million.
Total revenue within the range of one six and $1 $63 billion.
Adjusted EBITDA within the range of 725 and $745 million.
And free cash flow within the range of 50 and $77 million.
This concludes our prepared remarks for the first quarter.
Operator, please open the call for Q&A.
Absolutely.
If you would like to ask a question. Please press star followed by one on your telephone keypad. If for any reason you would like to move that question. Please press star followed by two again to ask a question Star one as a reminder, if you are using a speakerphone. Please remember to pick up your handset before asking your question, who will pulse here briefly it's questions registered.
Our first question goes to Rod Hall with Goldman Sachs Rod.
Rod Your line is open. Please go ahead.
Hi, Thank you for taking my question. This is Max <unk> on for Rod first question would be on just if you could just elaborate on the attrition trends in the quarter and kind of how that compares to your expectations heading into the quarter.
And from a longer term perspective, where we should expect attrition to go from here for the rest of the year and maybe even beyond as some of the older cohorts come to an end. Thank you.
Yes.
Start with that this is Dale and David you can jump in here and add anything I think we're continuing to see attrition or retention of our customers.
<unk> performed really well.
They are probably ahead of our again our expectation in the first quarter, but again, we think when you have the interaction 11 times a day.
Individuals are active and with our system interacting with our system. They are using the system. They are finding value in it they are more likely to keep staying with the system. They are paying for it and I think that's what we're seeing and I think over time, our product and our service offering continues to get better and there's more functionality that theyre able to get out of it and so that's leading to again customer.
Is that are wanting the system and wanting this.
Service that we provide.
In terms of what we see I think we've set a guidance wise, we expect tuition to probably be in that 12% range for the full year and I think that's what we said coming into this year.
In terms of guidance there I think we still expect that we're cautious I mean, there's lots going on in the economy as you know <unk>.
And.
Why do we think the attrition will continue to perform really well and we believe it will.
For guidance Wise, we would say we are expecting a part of that is we have we know that the end of term percentage of customers will go up.
From where it is today as we go through renewals here latter later in the year I think we're at 10, 2% of customers that are at their initial contracts for this last 12 month period.
We expect that to go up in higher now as we go through 2022.
So that's why we're saying hey, based upon our hydraulics when you add more customers in the turn the attrition usually have those dose cohorts at that point in time are higher than we would expect.
12% or somewhere in that range for our full year guidance, but one thing I would point out and then David you can jump in if everything else is the last time, we were at this type of this low.
<unk> was and I think the second quarter of 2018, and we had it but we have 10, 8% like I said customers that during the term this.
Period, it was $12.
2% or 12, 3% that way so so we've got.
We're performing better across the board.
And so we're really excited about where that is.
And continued to perform better than what we had what.
While we expect that we continue to think that will happen throughout the year, David I don't look at it more on nutrition.
The point you just made is what I wanted to make.
Other thing is Max I do think this is a good illustration of the integrated model.
I see the collaboration between our operations teams and our our innovation teams and we own the product we own the IP.
<unk> seen those two teams worked well together.
To root cause anything that is causing friction with our customers.
And how they collaborate to knockdown was issues proactively.
It's great to see and those two teams work very well together, it's very close so it is not this large disparate set of solutions from across a large range of parties. It's the majority of it is what we own and do internally so.
I think we're really pleased with the results coming from Metacritic model. So.
So far so good and I think as I mentioned in my comments.
Number two we can see I think we're materially ahead of a lot of our peers.
We're proud of that and we'll continue to work hard to continue to.
Biden that gap.
Got it.
Helpful. Thank you very much and then another question would be just from a macro perspective from how are you thinking about director home sales heading into the summer.
With that covered largely in the rearview mirror for the first time in I guess two years.
I guess that should probably help your direct to home sales, but we also have a tough operating environment with rising labor costs.
I was wondering about your direct to home sales strategy for this year.
Yes, no great question direct to home is a very important channel for us.
We launched this summer.
Two and a half almost three weeks ago.
We're off to a great start actually we've been very pleased with the first few weeks, they're performing better than we expected.
Probably one of our best launches in years so.
We're very encouraged by that.
It's a collaborative settlements and informative cell and so.
We're very good at this I think we're best in class of this we've been doing this for decades now.
Our teams know how to sell where to sell.
We're very pleased with the platform of services that we have to offer.
And.
Our productivity, we're very encouraged what we've seen these first few weeks so.
Very bullish and I'm very very encouraged by the results. We've seen you usually know within the first four or five weeks of the summer how the summer.
Trend out.
Thus far all of the data center to be a very strong some trusts so very very encouraged.
So yes.
Thank you very much behind us.
Haven't totally behind US is a great thing but.
Also we're not seeing.
We're seeing the sales productivity hasnt really been.
Kurt by kind of the economic chaos going on.
So we are still cautious.
But so far so good.
CLO two more weeks stack up and we will report.
In August , but feeling good about it.
Got it thank you very much.
Thank you.
Thank you.
Our next question goes to Ashish <unk> with RBC capital Ashish. Your line is open things go ahead.
Yes, thanks for taking my question.
Maybe just a quick question on the free cash flow guidance.
I was just wondering what they exceeded the high end with some of the low end of the guidance range and maybe.
Just a follow up question there Mike.
Why do we see that get back on the free cash flow, but I haven't really seen those headwinds impacting the EBIT dollar other line items. So any color there will be helpful as well thanks.
Yes, so with <unk>.
Rising interest rates.
Two pieces of kind of depth I would say we have the term loan that's on our balance sheet.
And then the bigger component is really the citizens financing as you know we offer that the consumers are zero percent APR.
And so there are cost associated to do that as rates rise will increase.
And so we're trying to do some forecasting there around what we think will happen around rates in the different swap curves and so thats why we said hey, based upon where we see rates today and what we expect.
The increases will be at the next two or three or four fed meetings, we factor that into kind of our estimates and said Hey, we think that there will be.
Yeah.
Potentially a greater use of cash than we originally.
Anticipated when we did our models for the beginning of the year.
The reason why you don't see that into.
Like EBITDA for example is when that comes through it comes through as a reduction to revenue.
So as.
As we put it on so if you take the gross amount.
Let the B that net amount is what we put into deferred revenue and we recognized over say a 60 months of period of alone and so while it will be.
A lot could be.
10, $28 million of incremental cash spending on what happens with rates. There. It is very small when you look at it on a revenue basis, because it gets spread out over think about five years. So in any one period of time for revenue, it's not going to be material to change the numbers.
<unk>.
But on a cash basis because of the cash that we get in this period related to those new.
Sales it will have some impact there. So that's why we're just.
We're being.
Were being realizing what's really happening in the economy. We're seeing these rates go up and they're gone up a lot faster I think than maybe when you look at the yield curves and the out two to three years you got to remember.
Most of our loans, we put on our citizens, our 60 month loans and so that that cost why the rates have not increased that dramatically. When you look at it just quarter over quarter.
One year rates, but.
Population use to figure out what our cost is with them. It uses longer term periods in those rates of half went up higher.
And what they were the last time, when we put out our guidance.
That's very helpful color and maybe just on my follow up thanks for the disclosure on the Smart energy Park notion to new subscribers.
Read it from that channel.
And just given the higher energy prices seems to be a strong demand for solar energy. So I was wondering what are you seeing on that front and how should we think that partnership helping drive accelerated subscriber growth going forward. Thanks.
Yes.
We are seeing see some strong demand there.
The work that the team did two years ago, but you got to that partnership.
It really brought to market last summer.
Was fortuitous because we knew that there was a strong desire to bundle. The two we've known that for years.
But we really saw the benefits of at the end of last summer and then throughout this last fall and winter.
We have forecast that would be will double our megawatts.
You may do more than that.
We also see that there are some challenges on the solar side.
There are some challenges with regards to supply constraints that are on panels.
That is causing some concern and so.
We're also just being.
Realistic around the access to panels, there and there is also financing costs had impact.
So just like there is across all consumer products.
But having said that those headwinds are real there is similar to what we see on the smartphone side.
But there is this desire obviously to control your energy costs and I think with the rising cost of petroleum. There are people, who are saying hey, net net long term I want to be able to be in control of that and.
So I think that they have that longer vision and they are pushing forward to adopt solar.
There was a strong desire there and as we mentioned, we're seeing a very a much higher pull through.
Those cells that actually go to install which is a day is what really matters when they bundle smartphone we knew from the work that we had done from all of the survey work that there was a strong desire to bundle them and in fact.
In practice, we're seeing.
Clearly higher pull through rate.
We think we're onto something pretty special and our partners agree.
And so.
Ying and Yang.
Pro and a con in the current environment, but net net we think that the demand for solar will continue to be strong and the demand of bundle, what we have will be even stronger.
Those that provide the bundled solution with electric customers, even more and provide them more value and as a result, we think we can actually do a better job in and winning in that market space.
Yes, it will be continue to be very very strong shoulder.
That's great color and again solid results and see the great momentum in both subscriber and revenue growth.
Yes. Thank you it was a great quarter.
We're optimistic for the full year.
Thank you Ashish.
Our next question goes to Eric Woodring with Morgan Stanley Eric Your line is open. Please proceed.
Hey, guys just wanted to I want to echo the congrats on really strong quarter.
The board really so.
I guess my question, which is you saw a nice upside in <unk> kept your full year guidance unchanged just want to understand is that more a function of.
We're trying to embed some conservatism in the model for the rest of the year, given what's going on or has there been any change in outlook as we think about the remainder of the year and then I have a follow up.
Hey, Eric.
Thanks for the question.
It's really betting conservatism I don't know of conservatism or being cautious with what we're seeing in the marketplaces frankly, it was a great quarter.
And as David just mentioned, we are bullish on the full year prospects.
But we're also there's lots of things going on in the economy that we just don't know how consumer behavior. If it will change we haven't seen it today and as David.
We're feeling good about the start of the direct to home sales season, that's a couple of weeks in.
But for where we are today, we're five months into the year I think we feel pretty good saying, Hey, that's where we think we'll be and as we get deeper into the year and get.
Second quarter credit.
Need to make any revisions.
I'm sure we will but it's really just thoughtful about everything thats going on out there with.
Supply chain.
David you can jump in but I think that that supply chain is likely to like we went through 2021 selection. It can't get any worse and that there is going to get better.
Soon we're not.
We're still seeing it.
It's every day, it's a battle to make sure we got deep.
<unk> from sub components suppliers that we've got to go work with them to get those.
Components recommitted or we got to go out and find other suppliers to bring us those components.
Got got they've got labor constraints, I think you got China shutdown, which is where a lot of sub components actually come out of we don't really manufacturer finished goods in China, but a lot of the sub components that go into our finished cameras and panels.
<unk> come out of there and so that's a disruption we don't know what I do.
What's kind of how long that's going to go on or what that really will look like.
And it's not only just timing it does but it's also in costs as they are going to be more costly perhaps use more airfreight.
Higher manufacturing costs, because they're going to have to use more labor and overtime to catch keep the volumes that we need to come in for production. So theres just lots of things out there that we.
We see but don't have like full.
Full visibility to what those could how those could impact us and so that's why we're kind of in that full year.
Kind of where it is today from what we know and what we see.
David I know, if you said anything else.
I agree.
We have a gentleman entrust code that runs our direct to home and.
<unk> been talking to him. It's interesting you think about this year.
We're encouraged by the startup direct to home this year and the reason why I bring that up is because.
I think the solutions that we have this year.
We're bringing forth with our sales force and with our customers.
It resonates.
Bundled solutions they resonate.
The fact that we're trying to make pumps safer more efficient and also more cost effective they resonate.
We talked about the roadmap of our of our company, we're trying to extend.
Along we are with our customers to pull our highest service margins, we have to our current business plus bundle and incremental margin.
And we're trying to create more value for our customers.
You take all of that.
We're encouraged by the year so.
In Q1 was a great manifestation of that.
Work, we're doing with our inside sales are direct to home really kicks off in the spring and summer by our inside sales was relatively strong.
So.
We feel good about that.
Assignment of our strategy and our execution of our strategy our operations teams and they continue to dial in on their ability to execute even in a more leveraged way than they have in the past. So we're encouraged but to <unk> point.
I'm not sure.
Training in conflict with Russia, not sure oil price demand up skill and concerned about these supply chain constraints.
Interest rate when we have the three year curve.
Not exactly sure where then it goes to try to beat them. So does that unknown. We're just thought it was prudent.
The fields, where we are in and our goal with you guys to give it to you how we see it.
We've been we've done a really good job performing ever since we did the IPO you don't want to blow that has to believe in what we say and.
That's kind of how we roll so.
So that's where we are.
I appreciate all that color and then I think we've taken the right strategy. So kudos to you.
Maybe just my follow up.
David I think you mentioned a comment earlier, where you said the customer stays for nine years.
Is that.
Is that just a subtle hint that you think your long term attrition rate, which was originally thought to be closer to 12% could actually be lower than that because you now see customers staying kind of nine years versus the high end of seven or eight years that was kind of the prior estimation I just wanted to make sure if that was.
If that was just a comment in passing or if thats something that you think is fundamentally change where now the long term attrition rate might now be lower than it was.
When you were thinking maybe 369 12 months ago.
No.
We're very explicit about this are our aspiration is very much.
Turn long term customers into life time customers Terry.
Aspirational, but.
Our goal here is to have it be 12 years 15 years.
No.
Solar relationship is 35 years.
If we.
If you bring to them a better assurance solution.
They benefit from because of their smart home solution.
Why would they go anywhere else.
If we can continue to make their home more efficient.
Today and more enjoyable.
And they interact with at home more and more why we're going anywhere else. So it very much is our.
Stated desire and objective.
To bring them value so that it goes from nine to 12 to 13 and that would very much reduced attrition.
I talked about this internally at fair, but we're trying to have the entire bundled solution.
Be a lower cost than they have today and when you do that and you help educate the consumer about the value we're bringing.
I really do hope that we're dropping out hundreds of basis points from attrition over time.
And.
By map you extend that relationship.
Interesting 10 years ago. When you were just in the security business.
You sold the system.
<unk>.
Hope that they never had to use it they hope to never got had an instance, where they had an alarm goes off.
By default they never knew who is really working.
And we've completely flip that we.
We are trying to drive interaction with them everyday we're reminding them every day the value that we bring so we always talk about that 11 times per day, we hope that we can get that to 13 times a day 15 times a day, where you are so integral into their family.
It's so funny my wife, she hates it but.
We will often.
On my phone I will see her on R. R. R.
<unk> cameras in the house, and I'll talk to or over the phone and she's like David I hate that you can now see what I'm doing now, but I'm interacting with my family at different times, if I'm late for dinner.
There'll be there'll be having dinner and I'll be talking to them.
There's new ways that I'm interacting my family that I never even thought about a year ago. So we're always trying to think about ways that we can become more central to who they are.
So that they can't live without us so, yes, very much Eric I hope that that average lifetime.
<unk> continues to go up and like I said on just the smart home alone not even including insurance or so just the smartphone for every year, we extend it.
But how big their packages, it's 200 to $400 more of lifetime value.
And then when you add in solar and you add in.
<unk>.
My goal here is to show you guys over time with the lifetime value of the customer.
<unk> is expanding nicely.
So you as investors are saying.
Wait a minute this is the superior investment option for us.
That's what we're trying to prove to you.
Perfect I love that answer thank you so much guys.
All the best Thank you Erik Thank you Eric.
Our next question goes to Paul Chung with J P. Morgan Paul Your line is open. Please go ahead.
Paul Your line is open. Please proceed.
Okay.
Sorry about that.
Thanks for taking my question. So just on <unk>, what kind of drove the big.
Uptick there typically seasonally slower.
What were some pockets.
Man what regions you saw strength.
And then how's competition kind of Ferring are more and more people, becoming aware of your brand.
Well.
Hello, David.
In Q1, most of that was driven through our inside sales. So the seasonality of our direct home they really kick in as we've diversified our channels.
You really see the strength of direct to home in Q2 and Q3.
And then parts of Q4, but so really Q1, the majority of that is from inside cells.
And I really think thats a function of many things.
Once again as I think our product is getting better.
And so that's folks who are researching our product theyre seeing the accolades that we have from our product.
We call ourselves a category of one we really do think that we have the best product out there for the money.
And so I think people see that the success of our direct to home do you see all of the advertisers all the homes have the signed upfront that we benefit from that so there is a symbiotic relationship there between the two.
But that was really around digital marketing.
The effectiveness of that and just the brand awareness, we've done a fair bit of survey work around our brand awareness.
<unk> hi for how little we spend on brand.
And we think thats earn offerings.
That is that's from doing this now for 20 years and really earning that.
A word of mouth basis, which is the most valuable brand awareness you could possibly have.
So.
Once again its partners.
And that was really largely from.
From inside cells, which I think stands on the merit of the efficacy of the product.
This layer and the incentives really really strong.
We did pick up almost 3000 that's true.
New subscribers from that partnership that we've created as David said groundwork was laid 18 24 months ago really started coming to fruition in 'twenty, one and we're continuing to see that really come full circle. So to speak in 2022, So you've got almost 3000, new business smart homes from a channel that didn't exist previously.
We think theres lots of solar largely sold year round, you're right and the team is help them understand the value of bundling and as we've trained them in the benefits as true that engine has also helped US yes, so inside cells and that new channel coming online a good point.
Yes, I do see that in the numbers.
Right.
Yes of course.
On the solar side.
Yes, the solar stuff some nice momentum there.
How do we think about kind of new subs growth relative to.
The doubling of the megawatts, you mentioned and kind of the revenue and margin contribution per sub kind of moving forward on that that basis, and then I guess the same kind of question for smart insurance kind of unit economics per sub there.
Yes, so I'll start with Florida insurance Oracle Huawei back Paul This is Dale.
We're not really giving out we haven't give out I think we're still very early into the.
Lifecycle of the insurance.
Business and building out again 7000, or so Paulo.
<unk> policies last year.
So that's very early and continue to build out record spending investing there. That's one of the investments that we're making in 2022 above the MGA that we're working on ron's been in place.
And obviously, we brought in belief.
<unk> been in place for six months 60 days I think at this point. So so very early there we think we definitely believe it's accretive.
Due to our to our EBITDA margin.
Definitely drives extended and increased lifetime value of a customer.
We will give those out when I think it's appropriate when we have a better feel for what those really look like.
Because theres a lot of movement there slip today I think I think on.
On the smart energy side.
I think that 45 megawatts that we did last year would be.
That was probably 5000 homes or so so if you double that this year you get the 90% you are probably in the 90 to 90 510000 homes.
And we believe that we will be able to drive incremental value and margin out of that business.
And then what I think comes there's two pieces of that right.
The revenue that's generated from from the selling of that solar to that customer and we get the marginally from that and then Theres also from this partnership development and increased <unk>.
Smart home customers that are very strong.
Margins in terms of lifetime value for the so theres kind of two pieces of that I think we want to make sure we think about that way.
I think we can drive I think we think we can drive 10000 ish or more subs from that.
Smart home subs and then Youll have last year I think we said that 45 megawatts.
It is volatile.
About $45 million to $50 million of revenue.
So you can kind of back in it we're doubling where we are this year then we're probably looking at somewhere between call it $85 to $95 million of revenue from that that.
And then we're still working it's early I think we think we feel good about where our cost structure will come out there.
But it's probably a little still so early but I think it'll be.
Some of our north of 10%.
What we'd say is the margin on that.
And I think our goal is to get it.
And to the mid to high teens, but we're still working on that and the investments, we're making investments now to make sure that we scale it correctly.
Great.
Again, I think Paul the mixture.
It's incremental to what we did today so.
Positive to whatever we've done today in terms of.
EBITDA, we're getting from that and I think it's really about as David said previously it's about the lifetime value of customer and if you could take that customer that has a 75% to 80% service margin from the smart home side, you can add incremental.
Revenue that youre getting from that customer related to solar.
Solar sale or the annual insurance premiums coming in from that customer. It really expands out we believe the lifetime value of that customer and pull the margin from smart home and other.
So that's.
Really quite powerful.
We saw some people are saying hey, the margins dilutive. Unlike you got to open your aperture.
If you were if you're running this business lending around you to make the investment because.
You are protecting and elongated and adding and most importantly, you are adding value to the customer which makes you must on asset. So as you open your aperture and think about value of the customer.
Sending your base and incrementally adding margin.
On a very risk adjusted basis. It is a no brainer to do.
And the way we're doing it in an asset light balance friendly way very very.
Okay.
Thank you so much.
Thank you for the question Paul.
Thank you Paul.
Our next question goes to Brian Rotenberg, excuse me Rosenberg with Imperial capital Brian . Your line is open. Please proceed.
Yes. Thank you very much first of all.
In terms of second quarter.
Can you talk a little bit about where you see.
G&A going because you had a dramatic drop in G&A year over year sequentially in the first quarter, where you see that going in second quarter.
Yes.
Yes.
So sequentially. It will go up from Q1 to Q2 will go up I think when you look at it on a year over year basis, it's going to be called.
Call it 5% 6%.
Growth. So again one of the things we've really focused tuck is really trying to drive efficiencies out of the dollars that we're investing in G&A is an investment I mean, it's like it's a capital allocation like anything else, whether it's their subscribers or technology or products.
So we're really focused on that Brian , making sure that where we're spending our dollars.
And G&A, whether that's in finance.
Legal operation.
Our our marketing exactly is wherever that we're actually getting a return on those dollars.
There will be.
Some year over year, I mean, there's going to be some as you know, Brian theres going to be some inflationary pressures just on some of the core.
Core things that we have in that whether it's travel.
We're going to see a little bit more travel David and I are.
Ben the conferences and so forth. So there are certain things like that that we're starting to see but we're going to try our best to maintain and really drive.
Scale scale across the G&A.
Okay very good.
Other question is more macro it's kind of your road map.
Can you talk a little bit more about the insurance offering where you are now in terms of the rollout.
Are you going to be farming that salaries are you self insuring.
You or your customers here, what's the structure and then maybe what other offerings could you potentially be selling through.
Your channel.
Right Bryan Thanks for the question I'll take that one.
So, yes first and foremost we believe this is a platform play and we're really seeing that come to fruition.
Last year and then this year.
So this this ecosystem rehab and home relationship we have with the customers. They are asking us to say hey, bring us other solutions. So you talked about solar.
The insurance is a great manifestation of that so where we are.
This last year and a half we've literally working on just making sure that we could actually be relevant in our customers' devices. We've just been in Ashley just selling policies are refined policies, just making sure the systems in place the compliance apparatus to be able to sell.
Two 2 million customers.
So there wasn't anything terribly.
Creative about that it was just trying to get the ability to sell sell correctly through an agency piece.
Working actually develop an MGA model, where we can then take the data that we have and underwrite with partners with the reinsurer.
Actually be able to have them underwrite a lot of the risk to that.
Actually bring data to bear that the customers have on their behalf to underwrite a product that will benefit them and so this year. Our goal is to be into three states.
Could be into our first state as an MGA later this summer and then hopefully be into more states by the end of the year.
And the states, we're going to do as a function of.
Where our partners want us to go where we have a large customer base and the risk profile works for our product. So once we read thoughtful Dell mentioned. This this is not be a material piece of our economics, probably for a year or two.
What we're trying to do now is just making sure that we do it correctly methodically working with our partners. There is a very large interest level.
Because we own the data.
Our customers we have the platform.
And so we're just making sure we're doing it correctly, we're not relying upon this to be a large revenue lift or a large EBITDA lift or large cash lift or drain. We're doing this to build a prove out value to our customers and this will be a nice growth engine in the years to come but most important its a great manifestation of the platform.
Were in play and as will do the second part of your question. So.
So to answer your question there, Brian we're partnering with.
Large large industry players are making sure the risk falls appropriate where it should be relying upon their expertise and our expertise we're not trying to play in areas of risk that we're not confident in we're relying upon them and we're reliant upon what were really good at to do our part and that really is the data we have.
The installation, we havent servicing your app and they're helping makes it will be priced the risk interest of this correctly.
With regard to where else. We can go we've done a fair bit of work on this on one of the platforms.
We feel right now our plate is pretty full.
Along with the continued expansion of smart home and smart energy and Smart insurance, but also the expansion of channels and how we bring these to market inhibited on our plate.
And for the next 18 to 24 months really digesting and scaling that but we've mentioned in prior calls that we're interested in an aging in place.
And the marketplace, we think we haven't really strong.
Product offering to bring to bear there and we can we can really drive out a lot of costs and bring a lot of both.
Comfort and.
And value to folks who want to age in their home.
Where they are happier healthier and do it a much more cost effective way and connect their families. So that's an area that we're doing some work around and I could see that being an area that we'll probably invest in the future, but right now we're focusing on what we have.
Great.
And maybe it's a partnership that may be through organic but we're still trying to manage exactly how we want to approach that marketplace and when we will do it but that's another example of where the platform will most likely go down the road.
Great. Thanks, Thanks, Robert.
Okay.
Thank you Brian .
All questions have been exhausted, so I will turn the conference back over to David Bywater for closing remarks.
Great. Thank you.
Appreciate you guys interest like I said I think we had a great Q1.
We're looking forward to a solid year.
We appreciate your ongoing interest in US we're focused on delighting, our customers taking care of our shareholders taking care of our employees.
Did want.
Mentioned to all of you guys that we really appreciate our employees, we think they're world class.
I hear often from our customers, how well our employees take care of them.
Whether it's how they sell and how they service them on whether it's.
Pause over the phone or when they are in their homes.
And I'm very proud of our employees and I.
I appreciate how they innovate I appreciate how they take care of each other.
And how they've come through this COVID-19 crisis.
With respect for one another and.
And just how the tree each other and how to treat our customers. So once again, thanks for your time and your interest and we look forward you guys are you guys on our next call take care.
That concludes today's <unk> smart home first quarter 2022 financial results Conference call. Thank you for your participation you may now disconnect your lines.