Vivint Smart Home, Inc.

We're standing by. Welcome to the Vivint Smart Home first quarter 2021 earnings call. This time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. If you require any further assistance, please press star zero. I would now like to hand the conference over to Nate Stubbs. Investor Relations, please go ahead.

Good afternoon, everyone. Thank you for joining us to discuss the results of Vivint Smart Home for the three months ended March 31st, 2021. Joining me on the conference call is Todd Peterson, CEO, and Dale R. Gerard, CFO. I would like to begin by reminding everyone that today's discussions 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 the amendment to our annual report on Form 10-K-A for the year ended December 31, 2020, which we filed with the Securities and Exchange Commission on May 11, 2021. 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 factors 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. During today's call, management 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 website at investors.vivint.com. I will now turn the call over to Todd.

Thanks, Nate, and good afternoon to everyone. I hope that life is starting to get back to normal for all of you as vaccine rollouts accelerate until case counts decline. Today, we will cover the following topics. Discuss our strong financial and operating results for the quarter. Review our robust customer engagement and the performance of our platform. Talk about our excitement over the near-term outlook for Vivint's premier end-to-end smart home platform as we gear up for what we expect to be a normal summer selling season. and as our customers' engagement levels remain high, regardless of whether people are spending time inside or outside their homes. The momentum around our business that we saw in 2020 has carried into the first quarter of 2021, and we are pleased to report continued improvements in our key metrics year over year, including an accelerated revenue growth of 13%, along with 60,000 new smart home originations, which represented a 20% increase all while producing an adjusted EBITDA margin of 47%. As of March 31st, 2021, Vivint's total subscribers grew 10% from the same period in 2020 to more than 1.7 million. Along with the highlights I previously mentioned, we also saw solid improvements across the board and other key metrics for the quarter, including another steep decline in net subscriber acquisition costs per subscriber, and the lowest LPM attrition rate in the past nine quarters. I believe that these strong results speak to the fact that our core value proposition, proven over two decades of reliably taking care of our customers and their families, is as relevant today as ever. Dale will provide more specifics on the financials during his remarks, as well as share our thoughts about our full year 2021 guidance. If the past year has taught us anything, it's that there is no better time for homeowners to have a comprehensive smart home system. The 1.1 billion daily events processed by our smart home operating system across more than 23 million connected devices are the best indicator of the frequent engagement of Vivint's customer base. We are uniquely qualified to help our customers deal with any environment across the various smart home devices we support. from door locks, cameras, security monitoring, thermostats, lighting controls, garage door controls, and many other connected devices. All of these innovative products are designed to work together seamlessly through our elegant platform that homeowners can control from their in-home touchscreen hub to a single app on their phone or by simply using their voice. Vivint services also include life-saving and life-protecting 24-7 professional monitoring or emergencies such as medical, fire, carbon monoxide, and burglary alerts. Our vertically integrated model includes dedicated customer care and monitoring teams to ensure that we respond to alerts within seconds. Our cloud platform and proprietary technology also allows customers to seamlessly manage and protect their homes, regardless of whether they're socially distancing inside the home or from somewhere outside of it. Vivint takes care of our customers and their families while providing the peace of mind that people demand during times of heightened awareness, anxiety, uncertainty, and mobility. We've been securing and innovating smart homes for over 20 years, and our experience since the onset of the pandemic has only cemented in our minds the fact that our customers will continue to value home security and smart home technology during challenging economic and societal times. underscoring the strength and resiliency of the Vivint model in any type of environment. With attention now turning to the reopening of the economy and having this coincide with the onset of our summer selling season, we remain bullish about the near-term demand for the business. Given that approximately 50% of the adult population in the U.S. have now received at least one dose of the vaccine and that by the end of the month, We anticipate that all states will have lifted mandatory quarantine restrictions. The tried-and-true process of selling door-to-door and installing new, vibrant systems inside of homes is getting back to normal. We believe the pent-up demand for travel also plays right into our hands. To the extent that last year's shelterers became this year's travelers, they still have every reason to remain highly engaged with their smart home systems. Based on interaction volumes with our platform before COVID, during COVID, and now as the country begins to look beyond COVID, our systems and services have proven to be just as relevant in all of these environments. We are still respectful of the fact that we continue to operate in a world actively dealing with COVID-19. We have increased the preparedness of our direct sales team as they head out to markets across the US at full capacity. And they'll be ready to go with all the right training and necessary PPE to interact with current and new customers. As a reminder, last year at this time, we had to swiftly move our call centers and corporate employees to a work from home environment. We paused our entire direct home sales teams for about six weeks during the first wave of the pandemic, delaying the start of the summer selling season. At this point, we fully expect to return to a more normal summer sales season this year. Meanwhile, our other sales channel, National Inside Sales, which onboards nearly half of all new subscribers in a normal environment, has turned in robust results through the pandemic, and we believe that momentum will continue in 2021. We have long believed the total addressable market for smart home presents a massive opportunity, and in the not-so-distant future, the vast majority of the 150 million homes in North America will be running on a comprehensive smart home operating system. We believe Vivint is the premier end-to-end smart home platform company with the most robust service offering and, as such, is the best position provider to take advantage of this opportunity. We believe in order to take advantage of the growth opportunities in smart home, it's important that we increase our focus and investment in our brand, technology, and new product development. On this front, I'm pleased with the early returns we've seen from our brand investments. rolled out during the fourth quarter of 2020 to drive better consumer awareness 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 by delivering the security and peace of mind they desire. But beyond the brand, we also think now is the time to step things up in terms of technology and our product vision to maintain our position on the leading edge through product development, and to continue pushing new boundaries by delivering a transformative smart home experience to every home. Before I turn the call over to Dale to go through specifics of our first quarter results, as you may have seen, Vivint recently resolved a matter with the U.S. Federal Trade Commission related to certain historical instances of violations of the company's policies by sales employees. We are pleased to put this matter behind us. Vivint takes matters of compliance seriously, particularly as customers across the country put their trust in us to protect their homes and families. We had already taken steps before the FTC began its review to strengthen our compliance policies, and we will continue to make this a focus going forward. To that end, we are deeply committed to operating with integrity, doing right by our customers, delivering on our commitments to stakeholders, and providing exceptional service to our customers. I will now turn the call over to Dale. Thanks, Todd. Before I get into the results for the quarter, just a quick comment on the recent statement by the SEC related to the accounting for warrants issued by SPAC companies. Following the issuance of the statement, we re-evaluated our historical accounting for both the public and private placement warrants assumed in conjunction with our merger with Mosaic in January 2020. Like a majority of SPACs, we previously recorded these warrants as equity. However, based on our evaluation, we determined that the warrants should have been classified as liabilities and measured at fair value in the closing date of the merger, with subsequent changes in fair value reported as non-operating income or expense and are consolidated statements of operations each reporting period. On Tuesday of this week, we filed an amendment to our 2020 Form 10-K to restate our previously filed financial statements. As a result of this restatement, we recorded a $109.3 million non-operating loss related to the warrants. And our warrant liability was $83.6 million as of December 31, 2020. I'll now walk through the financial portion of the presentation that we posted today in conjunction with the earnings release. Looking on slide six, we highlight a few metrics for the subscriber portfolio, which continue to be strong across the board. Total subscribers grew 10.2% from 1.55 million to 1.71 million. Average monthly revenue per user, or AMRU, increased to $67.24, up 3% year over year. The increase in AMRU was driven by additional sales of new products, such as our latest generation of outdoor and doorbell cameras, as well as the recognition of deferred revenue. On slide seven, we cover revenue and adjusted EBITDA for the quarter. For the first quarter of 2021, revenue grew by 13.2% to $343.3 million. The revenue growth is attributable to previously mentioned double digit increase in total subscribers, as well as the increase in the average monthly revenue per user. Adjusted EBITDA grew nicely in the first quarter. The primary drivers were the scaling of service and expense subscriber acquisition costs. For the quarter, we increased our adjusted EBITDA margin by 270 basis points, the 47.2% of revenue, compared to 44.5% in the first quarter of 2020. Moving to slide eight, we will highlight a few points on the subscribers originated in the first quarter of 2021. New subscriber originations led by a 29% year-over-year growth in our national inside sales channel were 60,127 for the quarter. How and which subscribers we onboard is important to our success today and in the future, and we continue to redefine and boost the underwriting requirements and process to qualify and onboard new subscribers. One of the positives of the enhanced underwriting requirements is that we were able to reduce the number of retail installment contracts, or RICs, that are financed on the company's balance sheet. For the first quarter of 2021, we saw a 77% reduction in the number of subscribers financed through retail installment contracts.