Arlo Technologies, Inc. (ARLO) Q4 2020 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by. At this time all participants are in a listen only mode. Later we will conduct a question-and-answer session. [Operator Instructions] I would now like to turn the conference over to Erik Bylin. Please go ahead, sir.

Thank you, operator. Good afternoon, and welcome to Arlo Technologies Fourth Quarter and Full Year 2020 Financial Results Conference Call. Joining us from the company are Mr. Matthew McRae, CEO; and Mr. Gordon Mattingly, CFO. The format of the call will start with an introduction and commentary on the business provided by Matt, followed by a review of the financials for the fourth quarter and full year, along with guidance provided by Gordon will then have some closing remarks from that before we enter Q&A. At that time, we will have time for any questions. If you've not received a copy of today's press release, please visit Arlo's Investor Relations website at www.arlo.com. Before we begin the formal remarks, we advise you that today's conference call contains forward-looking statements. Forward-looking statements include statements regarding expected revenue, gross margins, operating margins, tax rates, expenses, future cash outlook, our partnership with Verisure, continued new product and service differentiation, future business outlook, and the impact of COVID-19 pandemic on the business and operations. Actual results or trends could differ materially from those contemplated by these forward-looking statements. For more information, please refer to the risk factors discussed in Arlo's periodic filings with the SEC, including the most recent annual report on Form 10-K and quarterly report on Form 10-Q. And any forward-looking statements that we make on this call are based on assumptions as of today, and Arlo undertakes no obligation to update these statements as a result of new information or future events. In addition, several non-GAAP financial measures will be mentioned on the call. A reconciliation of the GAAP to non-GAAP measures can be found in today's press release on our Investor Relations website. At this time, I would now like to turn the call over to Matt.

Thank you, Erik. And thank you, everyone, for joining us today on Arlo's fourth quarter 2020 earnings call. On today's call, Gordon and I will walk you through Arlo’s results for the quarter, which include an overview, commentary on paid account growth, new product announcements, and update on partnerships and financial results. We will also provide some expanded commentary on our outlook going forward based on the foundation we built in 2020. During a very tumultuous 2020, Arlo said [ph] about implementing a business model transition that cut across our entire organization, we refresh most of our product portfolio, we launched new service plans, we won more awards than any other time in our company history. We diversified our revenue through key partnerships, and we optimized business operations. All while we fought through the pandemic induced disruptions that swept through our industry, our markets, and indeed our world. With a dramatically stronger financial foundation, Arlo’s is not different company it was a year ago. We are stronger and on a new upward path. And I could not be prouder of the entire Arlo team for what we accomplished in 2020. And now on to our Q4 results, I'm pleased to share that we delivered $114.8 million in revenue at the top end of our guidance. Our non-GAAP gross margin grew by more than 10 percentage point’s year-on-year, while our service gross margin improved by more than 10 percentage points sequentially. In addition to our substantial gross margin expansion, our unrelenting focus on operational efficiency and excellence delivered nearly $4 million of non-GAAP operating expense reduction year-on-year. That combined performance created significant leverage in our business, improving our non-GAAP net loss by $14 million when compared with last year, and sending us well past the high end of our guidance for non-GAAP net loss per share, which came in at a loss of $0.08. And rounding out our financial metrics, our cash, cash equivalents and short term investments balance improved by $12.5 million sequentially. Underpinning this outstanding quarter is the continued acceleration of our paid accounts, which set yet another record as we added 79,000 paid accounts in Q4 which is a 36% increase over Q3. Arlo ended the year with approximately 435,000 paid accounts, which is an 89% increase on a year-on-year basis. In Q4 was our sixth consecutive quarter of record services revenue at $21.6 million up 72% year-on-year, and putting an exclamation point at the end of a truly transformative year. Arlo’s move to our new business model is the driving force behind the transformation and provides 90 days of Arlo Smart service with the purchase of a hardware device. Arlo Smart is our best in class AI powered motion identification and security service, which enhances the products capabilities, and transforms the user experience. Upon expiration of the initial service period, we have consistently seen a 50% subscription attach rate to the paid service, a rate 10 times higher than our old business model. Sales of old business model products phased out as our relentless product portfolio refreshed launched new products through 2020 and beginning of 2021, virtually all of our retail sales will be products under our new business model. This success would not be possible without Arlo’s unwavering commitment to innovation. In Q4, we launched our wire free video doorbell that brings Arlo’s best in class technology to a new form factor that addresses a large, fast growing market segment. The product is clearly resonating with users and critics with tech God [ph] calling it a “game changer” and “the one to buy” while commenting on the responsiveness and our unique image format as key differentiators. And review.com praised our wire free video doorbell by saying quote, it's the best smart video doorbell we've ever tested. Arlo also started the year strong by winning two CDS Innovation Awards, one for our new essential indoor camera that incorporates all of our award winning features from that product line, combined with an innovative motorized privacy shutter that directly addresses concerns around typical indoor channel offerings. The second award was given to our touch less video doorbell concept that utilizes a unique proximity sensing technology to ring the doorbell with a wave of a hand instead of a physical touch. That's reducing potential spread of viruses or other pathogens via a button repeatedly used by numerous people. In December, we announced a strategic partnership with Calix that enables expanded distribution of Arlo’s award winning products and services. Calix will now offer Arlo’s smart security solutions to their broad network of communications service providers. These local trusted CSP will bundle all those products and services with their other offerings such as managed Wi-Fi, and address regional customers that may be underserved by traditional retail channels. This partnership opens up another exciting route to market across the U.S and Canada. Our Verisure partnership continues to proceed as planned. We achieved all in quarter milestones and are targeting a wider rollout as the year progresses. As a reminder, the partnership with Verisure includes a $500 million hardware purchase minimum guarantee over five years from 2020 to 2024 in addition to ramp and paid accounts in the region. The minimum guarantee alone represents a 25% cater for the European market over the five years and the partnership serves as a great example of Arlo’s ability to execute in the B2B channel. And now I would like to hand over the call to Gordon, who will provide more insight into our financial performance, operational details and outlook for the first quarter and full year.

Thank you, Matt. While the lockdown and supply chain disruption induced by the pandemic hampered our growth in 2020. We made excellent progress running the business, improving our P&L during the year. Even with the financial burden, the business model transition and pandemic induced challenges in the first half. We produce meaningful margin expansion for the full year across both product and service, which resulted in a 610 basis point increase in non-GAAP gross margin. We outperformed the target we laid out in our 2019 restructuring plan and lowered our non-GAAP operating expenses by more than $20 million in 2020. Importantly our results have shown incremental improvements as we progress through the year as we transition to the new business model, and began to realize its benefits. In total, we reduced our non-GAAP operating loss by more than $14 million for the year but much of this improvement coming in the back half. A trend of sequential improvement culminated in strong results for the fourth quarter of 2020. With revenue at the high end of our guided range, considerable margin expansion and EPS well above guidance. We ended the year with more than $206 million in cash, cash equivalents and short term investments, an excellent outcome given the complexity and transformation we navigated through during 2020. And now, moving on to the Q4 financial detail. Revenue came in at $114.8 million from 4.2% currently to down 6.2% year-on-year. Product revenue for Q4 2020 with $93.3 million, which was down 15.1% compared to last year and up 2.2% sequentially. Our year-on-year revenue decline was largely due to Verisure's stocking in the third quarter for the European market. That's internal pattern that was much different from what we had seen in the past. Our service revenue for Q4 2020 was again a record that $21.6 million up 72.1% over last year and up 13.7% sequentially. This was primarily driven by our paid account growth under our new business model, from which we have seen consistently strong conversion for our paid subscription service Arlo Smart after the free trial has ended. Our service revenue also includes $2.4 million of NRE services, we are providing for Verisure along with the associated cost as compared with $2.3 million in the third quarter of 2020 and zero a year ago. During the fourth quarter, we shipped approximately 1167,000 devices, of which approximately 1164,000 were cameras. From this point on, my discussion points will focus on non-GAAP numbers. The reconciliation from GAAP to non-GAAP is detailed in our earnings release distributed earlier today. Our non-GAAP gross profit for the fourth quarter of 2020 was up $10.9 million or 73% year-over-year to $25.7 million, which resulted in a non-GAAP gross margin of 22.4%, up from 20.6% in Q3 2020 and up more than 10 percentage point from 12.2% in Q4 2019. The improvement in non-GAAP gross margin came from both products and services. Non-GAAP product gross margin, we've came in at 14.8%, up from 6.8% a year ago, benefited from scale across the product supply chain, lower promotional spending and progress in the transition to products under our new business model. This is our highest growth margin in nine quarters. The $10.9 million year-on-year improvement in non-GAAP gross profit included improvements of $8.4 million from services and $2.5 million from product. This exemplifies the beneficial effect of services business is having on our P&L. Non-GAAP product gross margin was 14% down 70 basis points sequentially due to typical Q4 promotions and up 440 basis points from 9.6% a year ago. Non-GAAP service gross margin came in at 58.9% up substantially from 48.8% in Q3, 2020 and 34.3% in Q4 2019. This was driven by continued paid account growth under our new business model, compounded by benefits from cost saving assets. In 2020, we successfully delivered four consecutive quarters of service margin expansion. In Q4 operating expenses, once again benefitted from last year's restructuring, along with our continued expense management. Total non-GAAP operating expenses were $32.2 million, down $3.8 million or 10.5% year-on-year, and up 3.3% sequentially. This was again slightly below our $33 million to $34 million guidance, but up sequentially due to the plan seasonal increase in our sales and marketing activities. We continue to believe our non-GAAP operating expenses will be in a $33 million to $34 million range each quarter this year. Our total non-GAAP R&D expense in the fourth quarter was slightly down sequentially at $12.5 million. Our headcount at the end of Q4 was 359 employees, compared to 358 in the prior quarter. As a reminder, during the early stages of the Verisure relationship, we agreed to provide them with transition services which include training with our employees, as well as systems costs, and some outside service costs. We've included these costs in our normal operating expenses. Reimbursement from Verisure is included in other income, and was approximately $0.9 million during Q4. Additionally, in Q4 Verisure, made their contractual $14 million prepayment for future product purchases, which can be seen both in our cash balance and in deferred revenue. Our non-GAAP tax expense for the fourth quarter of 2020 was $185,000. For the fourth quarter of 2020, we posted a non-GAAP net loss per diluted share of $0.08, much better than the high end of our guidance. We ended the quarter with $206.1 million in cash, cash equivalents and short term investments up to $12.5 million sequentially and down $50.5 million year-on-year. We continue to make progress on our working capital management during Q4. Our DSO came in at 64 days, down nicely from 97 days a year ago, but up from 47 days sequentially due to seasonal dating terms with certainly tailors and a shift in customer mix. Q4 inventory closed at $64.7 million. The decrease of $4.3 million over Q3 2020 returns increasing to $5 million as compared to $4.6 million last quarter. Now, turning to our outlook. As it's syncing across many industries Arlo is facing supply constraints, driven largely by chip shortages, which are exacerbated by elongated shipping timeframes. In consideration of this, we expect first quarter revenue to be in the range of $70 million to $80 million. Except these supply constraints could limit our ability to deliver through the first half of 2021. With our current visibility, we still believe we can achieve revenue of approximately $400 million for the fiscal year as we shared last quarter. We expect our GAAP net loss per diluted share to come in between $0.35 and $0.29 per share and our non-GAAP net loss per diluted share to come in between $0.23 and $0.17 per share for the first quarter of 2021. In Q1, consistent with the pattern we saw in Q1 2020, we will see a working capital outflow and expect our cash, cash equivalents and short term investments to end the quarter in $150 million to $160 million range. Also consistent with 2020, we expect our cash consumption to moderate considerably through the rest of the fiscal year and to end the year, with more than $120 million in cash, cash equivalents and short term investments. We will continue to monitor our performance and prudently manage our operations to preserve our cash position. Now, I'll pass it back to Matt, for a few comments before we open it up for questions.

Thank you, Gordon. Beyond our guidance for Q1, and our reaffirmation of our past commentary on 2021 revenue, I want to share a bit more on the trajectory of our business as we look ahead. As I mentioned at the beginning of the call, Arlo is a different company than it was a year ago. We start this year on a solid foundation, and with a clear focus on what will drive our future success. The transition to our new business model was a watershed moment that redefined our path, and will continue to accelerate. While we added 200,000 paid accounts in 2020, we expect to add nearly three times that number in 2021 to reach 1 million paid accounts by our fourth quarter call this time next year. And while we have shared with you that we see a 50% conversion rate after the initial 90 day service period ends under our new business model, as we follow cohorts over a six month period, we see that number of clients a 65% catch rate to our subscription services. These factors should translate to approximately $100 million in service revenue in 2021. At a gross margin of more than 50%. Arlo is now a services first company from our culture through to our roadmap. And I have never been more confident in our team, our company and our path as we continue to unlock substantial value from our assets, and then the business model. And with that, we can open up the call for questions.

[Operator Instructions] The first question comes from the line of Jeffrey Rand with Deutsche Bank. Your line is open.

Hi, thanks for taking my question. And congrats on a good quarter. Your weeks of inventory went up in both the retail and distribution channel. And it's about three weeks higher than at the end of 2019. Can you talk a little bit about the dynamics around the pandemic or holiday season that are changing your inventory or how are you thinking about your inventory levels right now?

Hi, Jeff. This is Gordon, thanks for the question. So in terms of the actual weeks of stock, just to remind you that the denomination of that calculation is the last six weeks of PLA. Actually, in terms of actual dollars of inventory. We've seen the dollars come down year-on-year. So and in Q4 and certainly if you look at the distribution weeks of stock that's just really timing as shipping in and shipping out. So any 11.7 feet, I think that will come down as we head into Q1. Looking ahead to 2021, I think it's fair to say that we don't expect to see much of a tailwind from channel inventory sale. I think to your point, you're absolutely right. In the inventory levels, both retail and distribution are a lot more normalized, a lot closer than normal levels, compared to what we saw for example, at the end of Q2. So we don't expect too much of a tailwind in 2021 from channel.

Great. Thank you. And are you still seeing any increased logistical costs due to the pandemic? And is there any visibility on when these should decrease?

Yes, that that's what we are seeing for sure. And we've spoken about this quite a lot and certainly Arlo’s, no different from the rest of the market. Certainly air freight rates, we've seen elevated rates there all the way back from you know the back end of Q1 last year, and that's showing no signs of abating. And that will you know, turn back around perhaps towards the back end of this year, perhaps, but it's all reliant on the pandemic and how that plays out. I would want to get how that's going to pan out. But certainly air freight rates still elevated. We also seen a more recent phenomenon of sea freight rates also being elevated. And due to the additional pressure on the freight, we're also seeing actual elongated shipping times as well. And some degree of congestion at ports as well. So that side of things still continues. We haven't really seen any change, it's probably as we've gone through the pandemic have last six months, probably gotten a little bit worse and due to the pressure on sea freight. And right now, we don't see any signs of that abating. But everything depends on how the pandemic plays out.

Great. And then just one more for me, your product gross margin grew meaningfully year-on-year in 4Q, are you seeing less need for promotional activity? Or are there other factors involved?

I think it's a combination of things. But the first and foremost, we did go through the business model transformation. And certainly the gross margin profile you saw in the first half of 2020 is very much a story of [indiscernible]. And as we went through that business model transition, you know, we certainly saw an uptick in product gross margin. And that's a reflection, you know, of the new technology that we bought out into the market that naturally means you don't have to promote quite as much. So that that's really first and foremost, obviously, with all over seasonality in our business, 35% to 40% of business in first half, 60-ish percent in the second half. So the rescale benefits as well, the benefit product growth margin in Q3 and Q4. Certainly looking ahead to Q1, I would say we expect product gross margins to be in the low double digits. And that's really a reflection of that change in the scale between the second half of last year and the first half of this year. But yes, I think it's fair to say the new technology is definitely helping us and we don't have to promote quite as much either.

Thank you.

Your next question comes from the lines of Adam Kindle with Raymond James. Your lines open.

Okay, thanks. Good afternoon, Matt. I just wanted to start on the subscriber metrics and intend to roughly triple paid subscribers in 2021 reach a million subscribers. Those are, you know, big numbers, I would just be curious on the color on visibility into that level to go out, you know, that that far this early is a significant step function from already healthy growth rates. So just wondering, do you have some perhaps contractual visibility with bearish or and Calix? Is there an underlying growth assumption just how you're building up to those impressive goals?

Yes, it's a great, great question, Adam. And I know, obviously, we decided to add that additional commentary in the call today, because we do have high confidence in what we're seeing in the subscription side of our business. So I would say it's multi fold. One, as you've seen quarter-over-quarter-over-quarter, we've been able to grow our subscriber base at a very predictable way and we really understand what that trend is. We also have great visibility into the subscriber business, right? When we sell product and get certain trials in one quarter that gives us a very good idea of what's going to happen in the following quarter. So that has provided a lot of confidence not only in the business itself, but where the business is going. You're also correct in that we have several partnerships that will start to bring in additional upside to subscriber numbers. Verisure is a good example of that, where today most of the execution was Verisure is around the retail and e-com business in Europe, which follows a similar paid service rate as consumers that buy here from retail in the United States may attach, or they convert at 50%. We shared you know, the actual attach rate six months out is closer to 65%. That's another new metric we wanted to share today. But the very short direct business, which has a one to one attach rate on service will start to happen later in 2021, later this year, and we've been sharing that, we're progressing on those custom products and some of the work in integration with Verisure. And that's been happening, on time every quarter as we get close to it. So you're absolutely right. It's a mix of having a lot of history now a year of history under our belt at what's happening with a new business model. We feel very comfortable with our metrics and seeing where that's headed, and the visibility we have towards that and seeing some partnership layer in as we get towards the end of 2021.

Okay and do you have a sense for size of the direct versus indirect with Verisure yet, are still theoretical?

I think it's too early to call. I think both will be sizable, but it's going to depend on execution and the rollout across multiple regions and so, I would say even the direct business won't be fully operational until we get deeper into 2022. Because they have so many different regions that they plan on deploying the product. But both will be substantial. And we're starting to build some of those forecasts, because we have long lead components now. So the visibility there is good. But you know, we're not sharing how that breaks up. But I think it's too early to really place a bet on which side will be bigger in 2021. But we expect that direct business to continue to scale as we get into 2022.

Okay, and I know, it's still somewhat early for the services and subscriber business, but I’d be just curious what you're learning about the characteristics of your subspace, specifically, you know, perhaps lifetime value of a subscriber, gross churn or retention rate that you're experiencing? So basically, how valuable is the subscriber and how sticky are they?

Yes, so we have not released some of the metrics that you're touching upon there. I can kind of reiterate some of the ones we did release today and give you a more qualitative, look at it as we've shared. The new business model is dramatically different than the old. So number one, as we mentioned in the call, 10 times increase in conversion rate, we incrementally shared on the call today to provide some more visibility, that when looking at cohorts, over six months after that purchase of hardware, that hatch rate on service actually climbs to 65%. That's what's given us our confidence in some of the longer term outlook on the subscription business so that people can kind of understand where we think Arlo is going. What's interesting is, it's so early to your point. And actually, the churn is so much lower than our old business model, that I'm not sure we have a handle on, things like long term value of some of the customers because we're not seeing a lot of cancellations off the back, we have a good churn rate. So we're still looking at it. It's early in that transition, but we're seeing it accelerated, you've seen it quarter over quarter. And we couldn't be more excited about what's actually happening from a metric perspective on the subscriber side. We tried to share a lot more visibility on the subscription business on the call today. And we'll look forward, maybe on an annual basis to try and provide additional look, as we crossed some of these big thresholds like crossing a million subscribers 12 months from today.

Yep, that would be helpful. Thanks for the details and congrats on the momentum.

[Operator Instructions] Your next question comes from the line of Hamed Khorsand with BWS Financial. Your line is open.

Thank you for taking the question. This is Wahid [ph] for Hamed. Just to follow up on that last change. In terms of subscribers, could you kind of shed some light on which subscription level they're opting for is at the high end, the low end? Is it a good mix?

Yes, so we've shared this in the past a bit, again, not on a full breakout basis on a quantitative basis. But on a qualitative basis, we have a single can plan, we have our $10, kind of middle plan. And then we have our high end plan at $15. And we've shared most people are signing up for the middle plan. And if you back in kind of our service revenue against subscriber, as you'll see, what the ARPU is, and it's a little bit lower than, than the midpoint there because of certain promotions and the free trial and things like that layering in. But I would say most of our subscribers are in that middle tier, which is great for us. One of the things we talked about on a previous call, as we've rebooted the entire product portfolio and got everything over into a new business model. And most of our sales now in 2021, will be products on the new business model, we're doing a couple things. One is we're looking at how to continue to fine tune the metrics on the subscription business, bring up the conversion rate a little bit more, we reduce churn a little bit more, we've hired in the leadership that's helping us really optimize that services business. But one of the things looking out farther will now be, considering opportunities to actually increase ARPU over time that has not been a focus in the last 12 to 18 months, we've really just been focused on driving that conversion rate, we really understanding how to drive the transition in our business. That complete again, still optimizations to do but work through that transition period in 2021 is going to be a year of really optimizing that model. We will start to look at our roadmaps over time now thinking about ARPU expansion, but hopefully that gives you an idea of where kind of the tip of the bell curve is on a distribution and where we think things will head over time.

And just one more question. In terms of you were talking about the supply chain in the chip shortages? Do you anticipate that is going to have a pricing promotions impact on new products or legacy products?

Well, it's more of a supply chain, slow flow down from a supply perspective. And what I mean by that is, , every quarter, we've got certain upsides we can chase. And I think it's a little bit more difficult to chase some of these upsides, most of our old product, we stopped building a quarter or so ago, and those shipments happened a while back. And if you look in our investor deck, you'll see the old business model versus new business model mix per quarter. And you'll see we're exiting the year where most dramatically, almost all of our product is now on the new business model. So looking forward, from a supply chain perspective, I think it's really just us making sure we can service the needs of our retailers. It may attenuate some of the upside, but we're also extending our forecasting deeper into BR [ph] to try and make sure that through very diligent operations, we're going to be able to reach the numbers we talked about on the call. It does, you know, when there is shortages, sometimes I mean, you don't have to promote as much to reach some of that upside, and will always be as you've seen in the last couple quarters, really diligent about the spend versus opportunity and make sure we're driving gross margin where we can.

Thank you very much.

Next question comes from the line of Jeff Osborne with Cowan and Company. Your line is open.

Good afternoon, guys. A couple of questions on my end on the semiconductor issue. What's your working assumption as to when that resolves itself as it relates to hitting the $400 million target for the year? Is that something you think is just a Q1 issue or lingers throughout the spring and into the summer?

Yes, I think it's distributed. And what I mean by that is, there's some ships that are clearly out longer than that. And there's some that I think will clear up within a quarter or so from here. So when you look at any given product, it's a little bit different. So we're seeing shortages across normal products, normal chipsets that we can find in other channels, sometimes you can go and buy it on the broker, or you can negotiate with an ODM to pull it from other sources. And then there are some subsets that are longer. We have great visibility right now into where that fits. And this is something that we're tracking on a week by week basis. And we're extending our forecasting into those suppliers to make sure that we can deliver the revenue that we're commenting on the quarter today. But so in some areas, yes, I think we're looking at another quarter or so. In other areas, it's longer and the way we're operating and providing visibility into our supply chain is attempting to match that so that we can deliver what we need to.

Got it. That's helpful, Matt, and then the guidance for revenue for Q1, would that have been higher if ports weren't as congested in the shortage, wasn't there? Or is that a good number of the true indicative demand that's out there that you're seeing?

It’s Gordon, that's a great question. I think the reason we were calling out supply constraints. And you know, the guide that we gave $70 million to $80 million in Q1, otherwise would be a little bit higher, lots of supply constraints that we're already seeing in Q1. And [indiscernible] comments, we think the supply constraints will certainly impact first half the year. And I think the seasonality that we thought we would see this year is probably going to be a little bit more pronounced than we had previously thought just because of that.

Make sense and my last question. I'm not sure if you can touch on this. But can you just give us a conceptual framework of how to think about 2020 and what your strategies are for 2021 as it relates to the potential mix shift of sales through the Arlo store versus through say, Best Buy and Amazon? Was there any noticeable shifts in 2020 and then any initiatives for ‘21 to accelerate traffic through your own site?

Yes, that's a great question. So what you know, if I go back to 2019, a little bit for the window of your question, we had launched Arlo.com, kind of close to the end of the year. I think it was in Q3, going into Q4 before we had all of our products up on our website. That was great timing, as it turns out, as the COVID pandemic started to impact Q1, late Q1 going into Q2, what we've seen in 2020, to answer your question is definitely initially in the first half of massive shift online. And I think we shared with you some metrics from one of our retail partners, that's anonymous, but where they had 70% in store and 30% online, and within 60 days that had completely converted whereas 70% online, 30% actually in store or through in store pickup. So we saw that that also helped us grow Arlo.com because so many of the consumers that moved to online channels. Throughout the year, we saw the channel start to normalize a little bit where some of our customers started to get a little bit more balanced on 50-50 days. But we continue to grow Arlo.com through the year. And of course, there are a lot of benefits to Arlo.com including a faster cash conversion, higher gross margin, and our ability to drive potentially new business models or new offerings to consumers directly. So that's big. When I look at 2021, again, we're still seeing a little bit more of a normalized what I would call omni-channel approach for most retailers in that they learned a lot from that shift to online. And I think for many retailers, that bigger online component is going to be part of their strategy going forward. At the same time, we are continuing to invest in Arlo.com, we actually had a brand new website launch yesterday, which includes massive upgrades to the e-commerce functions to the shopping cart functions and lays down the foundation for us to do some other interesting things from an e-commerce perspective. So we will continue to invest in Arlo.com, both from a marketing perspective, but also from an infrastructure perspective. And I think we're going to see the channel, broader channel be a little bit more omni in basis meaning a little bit more balanced between their online efforts and their actual physical store efforts. Now, that's different by retailer, someone, a retailer that sells grocery will still have a higher percentage in store than online a little bit, and one that's mostly selling technology, for instance, is going to see a bigger mix of online than they had on a historical basis.

My only thought to that, Matt, and I'll let you go, is there an implication of that shift then to promotion spend for 2021, relative to say, a normal year for you pre-COVID?

I don't think it changes a lot, the seasonality to spend is the same obviously, we're spending a little bit more on Arlo.com. And so that that flows through a little bit differently. The biggest changes we saw last year was the timing of promotion. So you know, Prime Day landing in Q4 was disruptive and created a different seasonality than we've seen before, our expectation is we'll see a more normalized calendar from a promotional perspective. And so we're going to attack at the same way, focused on a balanced approach of driving awareness, driving sales of our key products, but also delivering the gross margin that we need to wall in turn, obviously, driving subscribers. So, I don't see a big change, the tools underneath have changed quite a bit. So, we've started utilizing certain tools that allow us to get better visibility inside of retailer websites that drives promotional volumes of traffic to certain areas. And so we've gotten a lot smarter, not only how we approach promotion, but also the tools that we use underneath because a lot of more now digital and are integrated directly into retailer.com sites. But the overall spend in the calendar I think will be basically what you would expect from a normalized retail deployment.

That's all I had. Thank you.

There are no further questions at this time. Matt McRae, I turn the call back over to you.

Great, thank you, operator. I want to thank everybody for joining the call. And that concludes our commentary for today. Thank you.

This concludes today's conference call. You may now disconnect.