Vivint Smart Home, Inc.

Good afternoon, everyone. Thank you for joining us this afternoon to discuss the results of Vivint Smart Home for the three months and fiscal year ended December 31, 2020.

Joining me on the conference call this afternoon are Todd Peterson, Vivint's CEO, and Dale R. Gerard, Vivint's CFO. I would like to begin by reminding everyone that the discussion today may contain forward-looking statements, including with regards to the company's 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 31st, 2020, which we expect to file within a few days of this earnings call. Please be aware that these risk factors may be updated from time to time in the company's 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 or 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. In today's remarks, we will also refer to certain non-GAAP financial measures. Reconciliation of these non-GAAP financial measures for historical periods to the most comparable measures calculated and presented in accordance with GAAP are available in 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. 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 as the premier end-to-end 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 Vivint 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 an adjusted EBITDA margin of 44% in the quarter. For the full year, VIVA grew total revenue by over 9% to $1.26 billion, and adjusted EBITDA grew by 40% or $589 million. We originated over 343,000 new smart home subscribers this past year, which was an acceleration from the previous year and the highest we've ever achieved in a year. As of December 31st, Vivint 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 in perspective. The fact that we turned in such strong results amidst the unprecedented challenges related to COVID-19 pandemic is nothing short of remarkable. We've certainly seen a lot in the 20 years since I founded the company, and we performed well through the past economic downturns. But 2020 was altogether different. and the challenges we dealt with in maintaining our sales and exceptional customer service while protecting our employees and customers were profound. Some of these headwinds were self-imposed, such as our decision to essentially eliminate retail installment contracts as 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 center and corporate employees to a work-from-home environment and and pulling our entire direct home sales team out of their markets, delaying the start of the summer selling season for six weeks during the first wave of the pandemic. Despite all of this, we were able to substantially beat our initial guidance for total subscribers and adjusted EBITDA. This attributable to the fact that we were well positioned as a business heading into the pandemic, both operationally and financially. We believe our cloud-based operating platform and the Vivint user experience are better today than ever before. The end-to-end Vivint 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 in our customer experience, as well as overall profitability and cash flow, thanks to our strategic focus in three primary areas. First, transforming net service costs through our vertically integrated business model. Second, bringing down net subscriber acquisition costs through FlexPay. 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 challenging sales climate we've ever seen, we're still seeing the impact of COVID-19 on our business in terms of restrictions in certain markets. Additionally, our unaided brand awareness is in 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 they desire. 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 home experience to every home. Vivint is 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, bridging even further to a truly autonomous home. Our smart home operating system processes over 1.4 billion daily events. and our proprietary platform collects and controls a massive amount of relevant data delivered through the Vivint devices in the home. There are many logical extensions of our end-to-end platform, including insurance, energy management, aging in place, in-home healthcare, pet monitoring services, home inventory replenishment and delivery, home maintenance and repair. These initiatives are completely within our wheelhouse, in large part because we have built a platform that allows us to extend to the many services homeowners want. Our expertise has always been in 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 Vivint 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 have focused on building products and services that are comprehensive, easy to use, and affordable for the mass market. Delivering a truly integrated smart home experience requires unique proprietary technology. the expertise to customize and install smart devices in a 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 10,000 dedicated smart home employees is such a critical differentiator to the Vivint model. We took hold of a first mover opportunity in this emerging category many years ago, and we believe we remain the leader. While others are busy trying to bundle together multiple apps, hardware sets, and interactions across different providers, we're focused on extending the lead 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, Don. I'll walk through the financial portion of the presentation that we posted today in conjunction with the earnings release. First, on slide six, we highlight a few data points for the subscriber portfolio, which were strong across the board. Despite the economic and social challenges that existed in 2020, total subscribers grew from 1.55 million to 1.70 million, or 9.2%. And total monthly revenue grew by 8% year over year. On slide seven, we highlight revenue for the fourth quarter and the full year. fourth quarter revenue grew by 8% to $332.5 million, while revenue for the full year grew by 9.1% to $1.26 billion. The revenue growth was mainly attributable to the aforementioned increase in total subscribers and total monthly revenue. Moving to slide eight, adjusted EBITDA scaled nicely for both the fourth quarter and the full year. The primary drivers were lower expense subscriber acquisition costs, and scaling of service costs and G&A. For the year, we are proud to have increased adjusted our margins by another 1,000 basis points to 46.7% of revenue compared to 36.5% in 2019. While we feel we responded well to the challenges brought on by the pandemic, seamlessly transitioned thousands of customer service and corporate employees to our work-from-home environment, We had already implemented cost reductions even before the full impact of COVID-19 was felt. These actions put the company in a better position as the pandemic gripped the world. On slide nine, we highlighted a few metrics on new subscribers. New subscriber originations were 58,554 for the fourth quarter and 343,434 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 of the summer sales season caused by the pandemic. New subscribers grew by 27.7% in the quarter versus the prior year period, and for the year, we grew new subscribers by more than 8.5%. Furthermore, we reduced the number of retail installment contracts, or RICs, 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 RICs and towards our financing partners and pay-in-full arrangements, we have increased the cash collected at the point of 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 $1,018 in the prior year period, an 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 RICS. On the left-hand side of slide 10, the improvement in net service cost per subscriber had a major impact on our earnings for the fiscal year 2020. Our net service cost per subscriber declined from $13.73 in 2019 to $10.50 this past year. The solid improvement is due to the work of Vibrant's vertically integrated smart home platform, which encompasses the software, the hardware, the installation, and ongoing customer support. As we continue to make improvements in 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 continued its upward trend, moving from 73.8% in 2019 to 78.9% in 2020. The improvement in net service costs explains a large portion of the improvement in adjusted EBITDA that I cited earlier. It's worth mentioning that service costs were somewhat muted during the year as homeowners either delayed service calls or elected to 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 the net service cost metric. We would also note that service margins dipped a bit in the fourth quarter versus the third quarter, as expected. Based on how we generally put on new customers, particularly in the summer, we tend to see service costs increase in the latter part of the year. Slide 11 depicts our typical subscriber walk that illustrates the changes in total subscribers at year-end. One of the areas we were concerned about as the pandemic took hold was its potential impact on the performance of our portfolio, and we were pleasantly surprised to see our attrition improve 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 in new subscribers, total subscribers, revenue, and adjusted EBITDA, the $448 million turnaround in cash flow from operations is our biggest accomplishment in 2020. We stated that our goal was to get to cash flow neutral in 2020. But with the change in upfront pricing, reduction of retail installment contracts, and improving operating metrics, we were able to generate $226.7 million in net cash flow from operating activities compared to a use of $221.6 million in 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 flow 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 reoccurring revenue that provides long-term visibility and predictability to our business. We have several initiatives in 2021 that we believe will continue to fuel our leadership position in smart home. In terms of guidance for 2021, we expect to end the year with approximately 1.80 to 1.85 million total subscribers. full-year revenue between $1.38 and $1.42 billion, and adjusted EVA between $640 and $655 million. This concludes our prepared remarks. Operator, please open the line for Q&A.

Absolutely. As a reminder, to ask a question, you will need to press star 1 on your telephone keypad. If you wish to withdraw a question, simply press the pound key. The first question will come from the line of Paul Koster of JP Morgan. Please go ahead.

Yeah, thanks very much for taking my question. Let me start with the outlook for the year ahead. You're talking of some new initiatives and the prepared remarks, the written document, Todd, sort of points towards something that it sounds like you're expanding the scope of your offering. So brand and scope sound like they may be the themes for 2021. Can you comment, please?

yeah sure um you know as we had talked about and by the way thanks for joining paul um as we had talked about last year um if we had a clear insight into the fact that we'd be cash flow positive we were going to start testing some branding exercises i think we've said this before we have less than a five percent brand awareness in the in the united states and and we're a company with 1.7 million subscribers and literally no brand awareness. So there is massive upside for our company to put ourselves out there in the market with the special offering we have with the fully integrated, professionally installed and serviced smart home offering. So we're really excited about it. We actually started doing that in Q3. Our actual, we're not going to talk about the exact specifics. We spent less than $10 million on brand in Q4 last year. And this year, it's going to be somewhat less than $30 million in brand spend. We had a positive enough result, even better than we'd expected from a response perspective, although these things do take years and years to mature and gain momentum, but very excited about that. And then the second part of that question is we are – We're a company that, you know, we own our own platform. I think everyone in here knows that. And so we developed our platform out, our operating system out, you know, somewhat like it was like eight years ago. So we think that doubling down and enhancing and improving that and kind of revamping that is important with some of the IT and technical tools for onboarding customers and underwriting. So there's some investment happening on that side of the company. And then we're going to further explore some of the 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 for our companies because of our position in the home, the number of devices, the amount of data, and kind of figuring out how to approach that market. It's a massive market that requires innovation. you know, physically installed piece of hardware to collect the right pieces of micro data in a home, which we happen to have. So we have multiple 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 of the fact that we've got this proprietary operating platform with lots of customers growing, long life cycle of customers. So We're actually really excited about it.

You thank me for joining the call. I've got to tell you, it's actually a delight joining your calls. They just seem so exciting to me. So it's good to be here. On a more sobering subject, though, you have filed this shelf. And I think those of us who are looking at the stock rather than the business are a little bit irritated by that. We feel like there's an overhang. Not just that, but we're anticipating a refinancing of the debt. When are these things going to get done? When are you going to issue the equity or do the follow-on? And when are you going to refinance? Yeah. Well, hey, this is Bill.

Welcome to the podcast. So I think just to maybe state why we did the shelf or what we did here, in connection with the Mosaic transaction that we completed last January, January 2020, certain of our shareholders or stockholders were granted registration rights requiring the company to put up a shelf registration that would cover those shares. Due to the fact that we were a SPAC or a shell company or a blank check, however you want to think about that, following our merger with Losei, we were not S3 eligible until just recently and had to fulfill those registration requirements by filing an S1 shell. As soon as we became S3 eligible, we decided to file a universal shell on Form S3 to cover those existing shares of registration rights, as well as register some additional securities for potential offering of debt or equity in the future. You know, at this time, we have no present intention to immediately conduct any offering. So to that shelf, the purpose of the shelf was to provide future flexibility. So that's kind of what we're thinking, and unfortunately, that's probably the best I can give you at this point. I mean, it's not imminent, but we're prepared. You know, the market's right, and if there's a need for the company to do that, then we can take advantage of that. So it's more preparation. refinancing, the debt, paying down some debt, those are still in 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 coming.

So I guess I'm interpreting your comments on the shelf just to mean that, you know, the – those with big stakes in the company still are in the name after all these years aren't necessarily that keen to sell at this price level. Is that a true statement?

Yeah, I mean, I can't speak for the major shareholders. I mean, there was some lockup here that part of the green were 6 and 12 and some were 24 months based on some of the shareholders that came in through – back. So I can't really speak to their... And look, Paul, I can say this. I mean, from a liquidity perspective, we're open to that if they would like to sell down at some point, because we need more liquidity in the stock. We all 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 there is a point in time where an appropriate sell-down over time would be beneficial to the overall company in the share price and allow more people into this vein. So we're kind of relaxed about that a little bit. and they're going to make their decisions as they go. But I happen to be a major shareholder, and I'm not one of those.

All right, gotcha. Okay, the last question is that, you know, the key performance metrics have improved dramatically this last year. As we sort of roll into 2021, you know, the macro numbers are now perhaps more of the focus than the key performance metrics, because it seems to me like some of the, you know, there's going to be attenuating changes at this point, it's difficult for you to keep that rate of improvement going, I would have thought.

Yeah, so, you know, let me tell you the thing that we're, and I mentioned this in some of the investments that we're making into the company, the platform, technical tools that we use to onboard customers in the field, over the phone, our service providers, platform again it's all proprietary but we're reinvesting those because this is what we we know the demand is high even with all of the things that we changed last year i mean remember we eliminated um new business in canada we eliminated ricks or we you know it kind of april time frame stopped onboarding ricks other than an occasional rick with system outages um So, you know, we're anticipating Ricks only to be 1% of our business this year. And then we put the direct home program on pause for six straight weeks and then did a slow rollout. And so even with that, we hit the numbers we did, there's demand for our products and services. And the more we get our name out and tell our story, we're going to start seeing better, improved top line revenue growth and sub growth. We're confident in that. So part of it is going to invest into the platform to make sure that We can do that and handle that growth and deliver in a way that's kind of magical to the consumer. So we're kind of doing some things in preparation of seeing some positive results on the branding side of the exercise of that. We have some new initiatives 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 that are really exciting that we're doing that we feel positive about. We think we're going to lead to, you know, better macro numbers. And then, obviously, we're always focused on, you know, what are the key things in the business, like attrition and, you know, net service margin and all of those things, which is kind of hard to improve too much on all those. We kind of knock those out of the park. But we're thinking about the whole thing all the time. Gotcha. Thank you so much.

Thank you, Paul. Your next question will come from the line of Rod Hall of Goldman Sachs. Please go ahead.

Hi, this is R.P. on behalf of Rod. Thanks for taking my question, and congrats on the nice results. I was wondering if you could compare and contrast your paid in full contracts versus your bank finance contracts, any differences you'd call out in terms of proceeds at point of sale or attrition or anything else?

Yeah, I mean, I think the way – hey, RK, thanks for joining the call. Hope you and Rod are doing great. What I would say is what we see normally on a pay-in-full, a lot of times those are customers, again, that maybe – don't qualify for financing, for example, but they still want to get on the platform, they still want to get services that we offer, but maybe they're not able to take three cameras and two door locks, and so they're taking a smaller system. So you're looking, on average, those are going to probably $1,000 or or ish upfront versus versus somebody that takes the complete system, you know, 1516 devices, you know, six or seven, what I would call smart devices. So those are outdoor cameras, doorbell cameras, you know, your door locks, access, those type of packages, those are going to be, you know, in the $2,500 to $2,600 up front. So that's kind of how to think about the difference there. Now, and that's, you know, again, the consumer financing, that's before any financing fees, right? So, you know, we do pay financing fees with citizens. As we said, we do pay those over time. Our four-team, we pay those up front as they, you know, the loans go up. So,

on average you know you're seeing you know a net call at 2500 ish range on a consumer finance paying full call it a thousand bucks or so it's super helpful dale thank you and we're doing well as a follow-up what's a sustainable level for net service costs and margins and what's included in your 21 outlook

Yeah, so what I'd say, we've said this all along. We had a couple quarters, you know, if you think about Q2, Q3, and we called this out on all these calls saying, hey, we had fewer service tickets into the home, which is a big part of that service cost. You know, as COVID was really taking a hold, a lot of people didn't want people coming into their homes, and so we were trying to take care of that mostly on the phone. And so we've said, hey, those costs, Those service costs in those quarters were probably abnormally lower than what they would have been. I think we see service costs, what I would say, in the margin range. We've said this, probably in the 73% to 75% margin range, service margins, is kind of where we think we're normalized. service levels in terms of the service we're providing the customers and then the service uh requirements are what we're pulling in from customers in terms either calls coming into our call centers or requiring us to actually go roll a truck after they're going to fix something that we couldn't fix by the way we fix you know 85 90 of those those uh issues that come in from a customer we're able to do over the phone because of our technology platform that we have um But that's kind of – so long, short of the answer, probably that mid-70% range in terms of service margins. You know, one thing I'll say, and this is for the future, this is not going to be a 21 impact, but there's going to be a cost factor there and investment. We see some more opportunities, and we're constantly doing this because we own – the 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 more self-healing capabilities. more awareness around what's happening down to the unit basis on the hardware that we've installed inside of the home. And so we believe there's improvements and better economics to come. Just Dale made the point that those two quarters were kind of abnormally low, even though if you look at kind of on a trend basis over the past four years, we came down from, you know, in the mid-$18 per month level down into what, you know, somewhere in the 11s is 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 in those. And part of it is, You know, when we come out with a new hub or a new camera or a new doorbell camera or devices, they get better and better about staying connected and being reliable, which reduces inbound calls, technical support, truck rolls, and such. So this is something we're constantly focused on.

Makes a lot of sense. Thanks, guys, and good luck.

Thank you. Your next question will come from the line of Eric Woodring of Morgan Family. 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 high-level, obviously the last nine months have been pretty unprecedented in many ways. Just curious, you know, Todd and Dale, from each of your perspectives, what were some of the lessons that you learned this year about your business? And what of that can you apply to the business going forward to make it more efficient, make it more cost-effective? Just anything you can speak to that, and then I have a follow-up.

Well, you know, I think just that I haven't heard that question before. It's a great question. You know, we had to transition. One thing we learned about the organization is we have the ability with great speed and efficiency to change on a dime. I mean, like other companies, we went from working in the office to work from home and had to change the whole dynamic of how we operated and took care of our customers, which, by the way, that's the most important thing. It's quality of service delivery or our customers cancel. And we as an organization made that happen very, very quickly with very little disruption in making sure that our employees were safe and protected. Now, the one thing, and you saw, I mean, I don't know if anyone's noticed this, but our cash flow turnaround from 20 to 21, from 19 to 20 is staggering. And part of that was just deficiencies in spend. Less travel, less general spend with some budgetary items that we went through and said, hey, look, this isn't driving revenue per se. We thought it might and it's not. Let's get rid of that. So we have become more efficient in the dollars that we're spending. And I think as a group, as a leadership group, we've got a great cadence in making sure that those don't creep back in. So just making sure that we're being prudent with the dollars that are coming through and making sure that they're redeployed in a way that actually adds benefit and grows value to the business or delivers better service to the consumer or develops new product or services they're going to want. So, you know, look, I can say this. Organization, I'm so proud of what happened, how we responded to the year in every way, form, and fashion. And the most important is we did let our customers down, and then the demand grew and intensified. And, you know, those are the ways you win in a consumer-facing space is you deliver on what you say you're going to deliver on when you say you're going to deliver on that because the word spreads. We haven't had brand awareness, so that's consumer awareness through relationships. So that's what I would say.

Okay. No, that's awesome. That's really helpful. I guess maybe a relevant question then to touch on would just be on the cost side of things. Clearly, you saw a pretty sizable uptick in costs in the fourth quarter. You mentioned brand awareness was less than $10 million. Can you just walk through kind of what drove the growth in costs in 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 questions. So, again, as Todd said, there was brain spin in the fourth quarter, which you didn't have year over year. I think the other thing is 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. So you have costs associated with that that you wouldn't have had, 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 of our service costs. Normally we put in accounts Q2, Q3, and you start seeing a lot of Q3 going into Q4. You see service costs kind of come up because you have, you know, that first 90 days after accounts come in, you have more calls come in, some of it's education, some of it's, you know, helping people get the system set the way they want it set. Sometimes it requires truck rolls back out to the homes. And you started seeing some of that in the fourth quarter. Again, that's normal. We expected that in our numbers. But that's kind of how you see it. Thinking about just to be kind of as you think about 21, it's going to be there will be some odd kind of year-over-year comparisons. Because, again, Q2 of 20, we really didn't even start counting. The direct-to-home April, first part of May, we were shut down. So you didn't have any cost associated with that. And as Todd said, we then, coming out of April, we didn't know what the pandemic looked like. We didn't know how it was going to affect business. So we scaled back a ton of costs. And our employees, luckily, allowed us to do some of that. We stopped 401K masks, for example. We didn't get merits out in that area. for a period of time we were able as the business went along and got into the fourth quarter we actually reinstated merits uh we actually did some stuff you know reinstated 401k some stuff around that so He sees all those costs come back in in the fourth quarter that would have normally been there in kind of Q2 and run right out. But, you know, we're excited. We put out the numbers that we put out in terms of our guidance. We're excited about, you know, again, as Todd said, really staying focused on those key metrics and really evaluating how do we spend our dollars. And travel is one, for example. Not to pick on travel, but travel is one. It's like do we need to travel as much to go see, you know, partners and stuff, or can we do that over Zoom? I mean, it worked for nine months, and the results are soon. So there's some of that we'll bring back in, but I think some of this Zoom and some of the other types of way to connect with our partners and our teams, you know, we'll continue to do, you know, going forward for a period of time, maybe forever. I mean, it's kind of part of the new grain.

That's really helpful. If I could just sneak a last one in here, just in terms of your guidance, it looks like you're implying that you should get AMRU 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 the way that you've guided next year?

Yeah, so let me tell you what's interesting. Thanks for pointing that out. There's 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 supply chain. Like everyone else that manufactures products overseas, there's concern around supply chain. Now, we're good with the plan we have, and we're showing you right here. But the demand for our products and services, cameras, doorbell cameras, we have homes that have 16 cameras in them now. Five years ago, they didn't even want cameras. And the way ours are connected and how they deploy and how people interact with them and the amount of interaction. I mean, on this call, 124,000 live video views are going to happen in our customer base during this call. So the demand is so high, we believe it 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've planned quite a bit in advance to make sure we can hit this. But we think there's even – and we would have said a few years ago there wasn't much upside for that to increase. Now we're saying the opposite. The demand for additional and more hardware professionally installed – is is increasing substantially so we're excited about that outlook it's 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 your next question will come from canal madhukar of deutsche bank please go ahead hi thanks for taking the questions uh a couple if i could one on the on the subscriber growth and the outlook there

Given the acceleration that you have seen throughout 2020 in the national inside sales and the fact that hopefully by the time we get into the actual selling season, you'll probably be able to deploy a lot more sales guys into the direct-to-home. Why shouldn't the subscriber count end up at more than 10% growth on a year-over-year basis in 2021? And then, you know, a question on branding and brand spend. You know, given the approved, you know, financial metrics and the profitability and the cash flow profitability of business, why aren't you spending more?

Those are great. Both of those are great questions. Here's what I'd say on the direct-to-home program. We're still... We're still in the middle of this pandemic. We are being cautious about over-hiring. I don't know if you remember, but last year we had a lot more people hired than we actually deployed. We put on pause. There were people that were concerned about going into the neighborhoods, in homes, or even on people's front porches. to do consultative sales. We, the ones that did, we did it, you know, with, with all the safety concerns in mind and protocols. Um, and we, you know, did all the proper measures to make sure that they were healthy, but, and we had a lot of success, but we're still, um, if we overhire in something, another disruption happens, it's just very expensive. So we're trying to be, I'm not cautious, but just be balanced in our approach with the direct to home, um, And then from an inside sales perspective, it's still growing and scaling. Now, we are wanting to prove out to ourselves, and we think we have somewhat, but it's just been a quarter, that the brand spend that we're doing in the specific areas we're doing it really are going to produce results that all of our shareholders are going to appreciate. And really what that means is it's going to lead to subscriber growth. We feel that's the case. We actually believe it. And we would say it's good enough. It probably warrants spending more than $30 million this year. But we're going to reserve the right to do that if we choose throughout the year, if we continue to improve. But for now, we're kind of saying somewhat less than $30 million is a modest amount to spend. But I would suspect you'd see over time if they continue to show the results are showing that that will increase over the next few years. I'd say this today. I'd add one additional point to the subscribers is that, you know, for attrition, we finished 12.4% in 2020. Again, we're putting some caution into those numbers and maybe attrition is, you know, maybe it's in the high 12s, maybe even low 13. But again, we're There's a lot of unknowns out there still. How are the economies going to evolve? How are the actual consumers? I mean, if there's more government stimulus checks put into the market, how does that actually – our customers, it seems like, was very good. Our customers were – in terms of how they performed in 2020. But, again, so we're just kind of taking 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 trying to put out a number that we think is reasonable. You know, again, these are all things that have to work in concert. But this is what we know, that the product and services and the 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, some people back at the office, some that's kind of back and forth. You know, with food delivery, DoorDash, more package delivery, we're perfectly suited for this new home environment, and we can take care of consumers in a very special way. So we're excited about the future. We have that opportunity, but we're positioned to do that.

Thank you. Our next question comes from the line of Jeff Kessler of Imperial Capital. Please go ahead.

Thank you. Hey, Todd. Hey, Dale. How are you doing? I'm great. Good, Jeff. How are you? Okay. Okay. Sitting at home.

I obviously have a lot of questions. I'll hit you later when I get you alone.

Okay. If we take this down to the street level, so to speak, or to the actual customer where your rubber meets the road, can you talk a little bit about, number one, what you do, what you've done that's different now in the onboarding process, and also in terms of related to that net service cost. What are you doing in terms of servicing the customer, both of which – are showing up in the metrics, but in the real world, I need to know kind of what's changed, you know, what's changed over the last year. Well, I think the simple fact is this. We own our whole technology stack, including sales, installation, monitoring, ongoing service, technical support, the entire feedback loop, we own it. Now, obviously, we will integrate with best-in-class products, you know, a 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. If a new product or piece of hardware is causing more calls into the customer care or technical support department or causing more truck rolls, we troubleshoot. We can troubleshoot quickly. It's our innovation center. It's our software and firmware engineers. It's our product designers. So we've said this, and it's now proving to be not just true, but true. incredibly relevant to this business. And it's not just the margins. It's the consumer experience that's most important. If our service cost has come down with 15 devices in a home, seven of them are smart home devices. These aren't door window sensors and a key fob and a glass break. Not that we don't have them, but these are really robust systems. I mentioned earlier, I just saw a guy today, 16 cameras in his home. on the Vivint platform. He came and showed me. He's like, your company is so cool. Every single one of these are online. He had our system several years ago, you know, four or five years ago when we were first coming out with exterior cameras, and they would go offline sometimes. But we've troubleshooted through all of these things I've talked about to make sure the experience is incredible, which, by the way, drives down calls and service costs. So we think we're going to still continue to see gains from that perspective. And when you say from an onboarding perspective, what's your – specific question. The first vote, you know, those first, those first conversations in those first couple of several weeks, where the customer may, you know, may have had problems or may it may be more expensive to bring that customer on. to get them up and ready, particularly if they're taking on a bunch of technology where they've been sold, you know, 14 or 15 different items and being taught how to do it. How do you make sure that customer is satisfied a month or two later? Well, again, this is right back to the same thing. 100% of our installs are done by our employees. They use our technical tools to do the installation. We have these health metrics with our, we call it the tech team, our proprietary platform for installation service and sales, all combined up into our call center and customer service center, and that's all the data we can track on a real-time basis. I don't know of anyone else that can do that in this space. I'm confident they can't. And so we just have these huge advantages in the market. They're going to continue to prove themselves out more and more as we go on and the space gets more robust and deeper into the home with products and services, which is happening. We all know that's happening. And so this is many, many years in the making. We didn't just decide to do this recently. or because someone else is doing it this is a decision we we've we've made decisions over 20 years to invest in ensuring that the quality of service and the reliability and the magic magical experience is there and it has to happen at the point of install we walk away and things don't work well that's a bad experience and it's a cost center and both of those are bad and so we're getting better and better and better at those not that it's almost impossible to be perfect with technology and lots of devices that connected wirelessly, but we're pretty dang 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, eliminate them and make them our strong suits. So we're, we're, we're, we're just getting started. Um, but my followup is, uh, uh, is probably directed, uh, actually probably directed toward Albert. Um, the, uh, Below the cash flow from operations line, to get down to what would be what some of us would call just pure unadulterated unfettered free cash flow, what are some of the subtractions if we're trying to figure that out? that we would have to be making. Are you different in any other way than other companies? No, not that I'm aware of, Jeff. I'm glad that I can take a look. I don't have all that in front of me here, but I'd be glad to catch up offline with you and walk you through that. We'll be filing the K or two, so all of our financials, the K will be out there next year. Yeah, man, it's great. Cash from operating activities was – I mean, we just – and we knew we were going to, by the way. We knew we were going to beat on all things. We've had tremendous improvements operationally, financially, and it was on purpose. None of it happened on accident, and we're hyper-focused on – how we operate this business. We want to be known as great operators, not just from a financial metric perspective, but to our consumers, because that is one of the key differentiators. We are professionally installed, fully on proprietary smart home platform, and that's going to lead to the future of our business, which is what a 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 into services and technologies that we're going to be able to provide for consumers. We've got to be great at the first part, which is just maintaining these hardware devices, having them be stable, reliable, elegant, great experience, low issues, and we're doing that. All right, great.

Thank you very much. Thanks, Jeff. Our next question will come from Todd Morgan of Jefferies. Please go ahead.

Thanks. Good evening. Lots of information here. Just one thing that 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. Yet when I look at the ads, I kind of see two things, and maybe I'm not seeing all the ads, but I see Snoop Dogg explaining how easy-to-do-it-for-me installation model works, and I see the more traditional ads talking about doorbell cayennes scaring away, package stealers, and so on. Those are different messages than what you just spent the last period here telling us about. I'm just curious as to kind of how you got to that kind of an advertising message from And is that something that you would expect to evolve, you know, even in 21 or so? Thanks.

No, I mean, look, here's what I'd say. There's no company that's done branding, enters in and can tell the entire story with their first entrance into the space. That's just not possible. So we just wanted to say, hey, here we are. This is Vivint. We actually have something that's cool, that's professionally installed. You don't need to worry about it. But I can assure you that we will continue to tell our story over time, and that's going to be something that evolves. We want to make sure it resonates with customers and doesn't overwhelm them also. A lot of people don't realize that they can get 15, 20, 30, 50 devices installed in their home professionally at a very, very reasonable price. And to just put that out there, like I said, might just have someone tune out a little bit because they would think, well, even though we're saying it, let's say on an advertising campaign, they may not believe it like that. That can't be affordable. So it's just, you know, here we are. This is simple. Just give us a try. We'll doorbell, put that on there, and then we're pretty good at sales and upsells, and so we can upsell it into a full system. And so you'll see it evolve over time. We're just the response in how – simplistic and it was on purpose, the initial entrance was, we had a tremendous response.

Okay, great. Well, that's good to hear and great quarter and thanks a lot.

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

So we appreciate everyone being on the call and the webcasts. Again, we want to make sure everyone knows that we're super focused on just, you know, making sure that we deliver on what we say we're going to. We think the future is super bright. Everyone on the phone knows this. It's a big industry, a lot of opportunity, and we are best suited to take advantage of that because of this ecosystem we've built up technologically and our 12,000 employees that are taking care of our customers and expanding our reach throughout North America. So, again, we appreciate you all paying attention to us and if you're invested in us, that also. And we look forward to talking to you next quarter.

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