NRG Energy, Inc. (NRG) Q4 2020 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by, and welcome to the Vivint Smart Home, Inc., Fourth Quarter 2020 Earnings Call. [Operator Instructions] I would now like to hand the conference over to your speaker today, Mr. Nate Stubbs, Vice President of Investor Relations. Please go ahead.

Good afternoon, everyone. 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 Pedersen, Vivint's CEO; and Dale 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 31, 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 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. 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 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, Vivint 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 homes subscribers in this past year which was an acceleration from the previous year and the highest we've ever achieved in a year. As of December 31, 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 result emits the unprecedented challenges related to COVID-19 pandemic is nothing short are 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-to-home sales in Canada. But what we could not have foreseen was, having to move our call centers and corporate employees to a work from home environment, and pulling our entire direct-to-home sales team out of their markets, delaying the start 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 Flex Pay 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 it’s 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 as an end-to-end smart home platform company with the most robust service offering, our vision is to extend the reach of the smart home experience well beyond where it is today by delivering additional services to the home, 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 deliberately home maintenance and repair. These initiatives are completely within our wheelhouse, in large part because we have built a platform that allows us to expand the many services homeowners’ wants. 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 are 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 our 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 Todd, I'll walk through the financial portion of the presentation that we posted today in conjunction with our earnings release. First on Slide 6, we highlighted 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 7, we highlighted the 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 8, 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 EBITDA 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 9, we highlight 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 costs 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 the 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 Vivint’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 upper trend moving from 73.8% in 2019 to 78.9% in 2020, the provided net service cost 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 and solved the 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 our 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, 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 presumably 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 the cash flow neutral in 2020, but with the change in upfront pricing reduction of retail installment contracts and improving operating metrics, we will able to generate $226.7 million in net cash flow from operating activities compared to the use of $221.6 million in 2019. We finished 2020 with the 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 in 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 feel our leadership position in smart home. In terms of guidance for 2021, we expect to end the year with approximately 1.80 million to 1.85 million total subscribers, full-year revenue between $1.38 billion and $1.42 billion and adjusted EBITDA between $640 million and $655 million. This concludes our prepared remarks. Operator, please open the line for Q&A.

[Operator Instructions] And your first question will come from the line of Paul Coster of JPMorgan. Please go ahead.

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

Yes, sure. As we had talked about – and by the way thanks for joining Paul, as we had talked about last year, 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 5% brand awareness in the United States 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 operating 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 have a positive enough result, even better than we have expected. From a response perspective, all of 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're a company that we own our own platform. I think everyone here knows that. And so we developed our platform out, our operating system out, 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 on-boarding 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 company, 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 to massive margin, it requires physically installed piece of hardware to collect the right pieces of micro data in a home, which we have in our house. 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 with this proprietary operating platform with lots of customers growing long life cycle of the customer. So we're actually really excited about it.

You thanked me for joining the call. I got to tell you it's such a delight joining your call. So it just seems so exciting to me. So it's good to be here. Although a more sobering subject, you have filed the shell. 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 fact but we were anticipating a refinancing of the debt. When are these things going to get done? When are you going to issue the equity or sell to – do the follow-on? And when are you going to refinance?

Yes, well, hey, this is Dale. Welcome to the bar. I think just to maybe state why we did the shell or what we did here, in connection with the Mosaic transaction that we completed last January, obviously January 2020, certain number of our shareholders or stockholders were granted registration rights, requiring the company to put up shell for registration that would cover those shares. Due to the fact that we were a stack or a shell company or a blank check, however you want to think about, probably emerging with it, we were not eligible S-3 eligible, so just recently and had to fulfill those registration requirements by filing an S-1 shell. As soon as we become or became S-3 eligible we decided to file universal shell on form S-3 to cover those existing shares, registration rights, as well as registration of some additional securities for potential offering directly in the future. At this time we have no present attention to immediately conduct any offering, so to that shell, the purpose itself was to provide flexibility. So that's kind of what we're thinking and unfortunately that's probably the best I can give you at this at this point.

It's not imminent, but we're prepared – the markets we’re in, there's a need for the company to do that, then we can take advantage, so it's more preparation. As far as refinancing the debt, paying down some debt and those are still in consideration. I mean, obviously the debt markets are strong. I think we're now well-positioned from the financial perspective operationally and otherwise to go and execute on that. And so that's coming.

So I guess I'm sort of seeing your comments on the shell just to mean that those with big stakes in the companies still are in the name after all these years, aren't necessarily are keen to sell at this price level. Is that a true statement?

Yes, I mean, I can't speak for the major shareholders. I mean, there were some lockup periods that part of the agreement were six and 12 and some are 24 months based on some of the shareholders that they came in through back. So I can't really speak to whether…

And look Paul, I can say this, I mean from a liquidity perspective, we wouldn't – we're open to that if they would like to sell down at some point, because we need more to put into stock. We all know that, so that wouldn't necessarily be a bad thing. 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, in an appropriate sell-down over time would be beneficial to the overall company and the share price and allow more people get into this name. So we're kind of relaxed about that a little bit and they're going to make the decision as they go about, I happened to be a major shareholder and I'm not one of those.

Right. Got it. Okay. The last question is the key performance metrics have improved dramatically this last year. As we sort of roll into 2021, the macro numbers are now perhaps more of the focus than the key performance metrics. Because it seems to me like some of the – there's going to be attenuating improvements at this point, it is difficult for you to keep that rate of improvement going over the result?

Yes. So let me tell you the thing that we're – and I've mentioned this in some of the investments that we're making into the company, the platform, the technical tools that we use to onboard customers in the field over the phone, serve our service platform. Again, it's all proprietary to both. We invest in those because this is what we know. The demand is high, even with all of the things that we changed last year. I mean, remember we eliminated new business in Canada. We eliminated RICs, kind of April timeframe stopped onboarding RICs other than an occasional RIC with system outages. So we're anticipating RICs would be 1% of our business this year. And then we put the direct-to-home program on pause for six straight weeks and then did a slow roll out. And so even with that, we get the numbers we did, there's demand for our products and services. And the more we get our name out and tell our story that we're going to start seeing better and improved top line revenue growth and sub-growth we're confident in that. So part of that 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 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. Some of the new – we have some new initiatives that 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, we are really excited that we're doing, we feel positive about and we figured out a lead to know better macro numbers. And then obviously we're always focused on what are the key things in the business like attrition and net service margin and all of those things, which kind of hard to improve, too much on all those very kind of knock those out of the park. But we're thinking about the whole thing all the time, Paul.

Got it. Thank you so much.

Thank you, Paul.

Your next question comes from the line of Rod Hall of Goldman Sachs. Please go ahead.

Hi. This is RK 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 financed contracts, any differences you'd call out in terms of proceeds at point of sale or attrition or anything else?

Yes, I mean, – Hey RK, thanks for joining the call. Hope you and Rod are doing great. What I would say is, what we see normally on pay-in-full, a lot of times those are customers again that maybe don't qualify for financing, for example. So they still want to get on the platform. They still want to get the 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 -ish upfront versus somebody that takes the complete system, 15, 16 devices, six or seven, what I would call smart devices, so those are outdoor cameras, doorbell cameras, cross-over views, door locks access those types of packages. Those are going to be in the $2,500 to $2,600 upfront, so that's kind of how to think about the difference there. And again, the consumer financing that's free for any financing fees, right, so, we do pay financing fees with [indiscernible] do pay those over time or we pay those upfront as their loans grow. So on average, you're seeing that call it $2,500 ish range on a super finance pay-in-full call it $1,000 or something.

It's super helpful, Dale. Thank you and they're doing well. As a follow-up what's the sustainable level for net service costs and margins and what's included in your 2021 outlook?

Yes. So I'd say, we've said this all along. We had a couple of quarters, if you think about Q2, Q3, where and we called this out on all these calls saying, hey, we had a lot – we had fewer service tickets into the home, which is a big part of that service costs. As COVID was really taking hold, a lot of people didn't want people coming into their homes and so we were trying to take care of that most of them at phone. And so we've said, 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 that probably in the 73% to 75% margin rate, service margin is kind of where we think were normalized service levels in terms of the service we're providing the customers and then the service 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 out to their home, to fix up that we couldn't fix. By the way we fix 85% to 90% of those, those issues that come in from a customer we're able to do over the phone, because of our technology platform that we have. But that's kind of so long and short of the answer is probably that mid-70% range in terms of service margins.

One thing I'll say, and may be this is for the future, this is not going to be 2021 impact, but there's going to be a cost factor there in 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 then we see gains on connectivity and usability, and reliability of our system and our offering. We were 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 its two quarters were kind of abnormally low, even though if you look at kind of on a trend basis over the past four years, when we came to – we came down from the mid-$18 per month level, down into what somewhere in the $11’s 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, when we come out with a new hub or a new camera or new doorbell camera or the 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 very much sense. Thanks guys and good luck.

Thank you.

Thanks RK.

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

Hey guys. Congrats on the quarter, I wanted to ask kind of a high level strategy question and then a finance question. So just to start high level, obviously then last nine months have been pretty unprecedented in many ways. Just curious, Todd and Dale from each of your perspectives and 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 I have follow-up.

So I think this, that I haven't heard that question. You're towards a great question. 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, we like other companies we went from working in the office to work from home and had to change the whole dynamic of how we operate and took care of our customers, which by the way that's the most important thing. It's quality of service delivery or we are customer’s hand. And we as an organization made that happen very, very quickly with very little disruption and making sure that our employees were safe and protected same as consumers. Now the one thing and you saw – I mean, if anyone's noticed this, but our cash flow turnaround from 2020 to 2021 – from 2019 to 2020 staggering. In part of that was just deficiencies and 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 had 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 improving 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 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 didn't let our customers down and then the demand grew and intensified. And those are the ways you win in a consumer facing space as you deliver on what you say, you're going to deliver on, when you're going to – when you say you're going to deliver on that, because that the word spreads, we haven't had brand awareness. So it's consumer awareness to build relationships. So that's what I would say.

Okay. 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 sizeable 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 and 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.

Yes. Good question. So, again as Todd said, there was brand spending in the fourth quarter, which we didn't have year-over-year. I think the other thing is, we extended – 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 we have costs associated with that, that we 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 as we kind of – as we normally we'd put in accounts in Q2 Q3, and you'd start seeing a lot of Q3 going into Q4 and see service costs kind of come up because you have, that first 90 days after sales come in, you have some more calls come in, some of it is education, some of it's of helping people get the system set the way they want it set. Sometimes it requires truck rolls back up to the homes. And we 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 w3e see it. Thinking about – just to be kind of, as you think about 2021, it's going to be there'll be some odd kind of work year-over-year comparisons. Because again Q2 of 2020, we didn't start – really didn't even start direct-to-home April first part of May, we were shutdown really. So you didn't have any costs associated with that and it's popped up. We then coming out of April, we didn't know what the pandemic looked like, we didn't know how it is going to impact the business. So we scaled back and kind of cost. And our employees luckily allowed us to do something that we had to be stopped 401(k) paybacks for example. We didn't get merit for a period of time. We were able as the business went along and got into the fourth quarter, we actually reinstated merits. We actually did some study, reinstated 401(k) and some stuff around that. So we see all of those cost come back in the fourth quarter. That would've normally been there until Q2 and run rate out. But we're excited we put out the numbers that we put out in terms of our guidance. We're excited about, again as Todd said, really staying focused on those key metrics and really evaluating how do we spend our dollars. Travel was one, for example, not to pick on the travel, the travel is one it's like, do we need to travel as much to go see, partners separately, can we do that over Zoom, I mean, it's worked, it worked for nine months and we've done and the results are saying. 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, we'll continue to do going forward for a period of time. Maybe broader, I mean, it's kind of part of the new branding.

That's really helpful if I could, 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 annual 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 got next year?

Yes. So let me tell you, what's interesting. Thanks for pointing that out. I don't want to, there's no nothing to be alarmed about with this, but we actually think it could be better. We're trying to be a bit cautious because the supply chain, like everyone else that manufactures products overseas there's concern around supply chain, 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, they're not – we have homed 16 cameras in the map, that five years ago they didn't even want camera. And the way we are just 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 few years ago, there wasn't much upside for that to increase. Now we're seeing the opposite. The demand for additional and more hardware professionally installed is increasing substantially. So we're excited about that. 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.

Thank you.

Next question. Come from Kunal Madhukar of Deutsche Bank, please go ahead.

Hi, thanks for taking the questions. A couple of I got, one on the subscribers 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 be the subscriber count end up at more than 10% growth on a year-over-year basis in 2021? And then I've a question on branding and brand spent, given the approved 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 would say on the direct-to-home program. We're still in the middle of this pandemic. We are being cautious about over hiring, I don't, if you remember that last year, we had a lot more people hired than we actually deployed. 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. The ones that did, we did it with all the safety concerns in mind and protocols. And we did all the proper measures to make sure that they were healthy, but – and we had a lot of success, but we're still, if we over hire and something, another disruption that happens, it's just very expensive. So we're trying to be not cautious, but just be balanced in our approach with the direct-to-home. And then from an inside sales perspective, it's still growing scam. We are wanting to prove out to ourselves and we think we have somewhat that it's just been a quarter, that the brand spend that we're doing in the specific areas, we're doing really are going to produce the results that all of our shareholders are going to appreciate. And that's – really what that means is it's going to lead to subscriber growth. We feel that's the case. We actually believe it or we’re in, and we’d 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 – I’d add one additional point this describes is that, for attrition we finished 12.4% in 2020. Again, we're putting some caution into those numbers and maybe attrition is – maybe it's in the high-12% maybe even low-13%, but again, we're – there's a lot of unknowns out there, like still how are the economy is going to evolve, how they can impact the actual consumers. I mean, if there's more government stimulus checks put into the market, how does that impact our customers it seems like it was very good, our customers were in terms of how they performed in 2020. But again, so we're just kind of being taken 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 thing is reasonable.

And these things are all things that have to work in constantly, let’s take this is what we know the product and services in 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, even though with food delivery, DoorDash had more packaged delivery. We're like – 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 to have a position to do that.

Thank you.

Thanks, Kunal.

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?

Hey Jeff, how are you?

Doing great.

Okay. Sitting at home. I obviously have a lot of questions I'll hit you later on when I get you back. 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 relating to that net service cost, what are you doing in terms of – 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 over the last year?

Well, I think the simple fact is this. We own our whole technology stack. We're including sales, installation, monitoring, ongoing service, technical support, the entire feedback loop we own. It's proprietary to build it. Now obviously we will integrate with best-in-class products Google Device or an Amazon device, but we own the technology stack. And so we have the ability to have this incredible quick feedback loop. If a new product or a piece of hardware is causing more cause into the customer care or technical support department or causing more truckloads, we troubleshoot, we can troubleshoot quickly. It's our innovation center. It's our software and firmware engineers. It's our product designers. So this is – we've said this, and it's now proving to be not just true, but 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 the – more it's 15 devices in a home, seven of them are smart home devices. These are door window sensors and to keep all in the 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 at his home on the Vivint platform. He came and showed me, it's like – this is your company is so cool. Every single one of these are online. He had our system several years ago, four or five years ago when we were first coming out with extra cameras. And they would go offline sometimes. But we've troubleshooted, do all of these things I've talked about to make sure that experience is incredible. By the way drives down calls and service costs. So we think we're going to still continue to see gains from that respect. And when you say from an on-boarding perspective, what's your specific question?

The first – those first conversations in those first couple of several weeks where the customer may have had problems, or 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 on 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. A 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 teams, our proprietary platform for installation, service and sale, all combined up into our call center and customer service center and ultra – 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 it's – 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 that's we all know that’s happening. And so it's – 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've made decisions over 20 years to invest in ensuring that the quality of service and the reliability and the 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, better at those. Not that it's almost impossible to be perfect with technology and lots of devices that are connected wirelessly, but we're pretty darn 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 just getting started.

But my follow-up is probably directed – actually probably directed toward Albany, the – 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 that if we're trying to figure that out, we would have to be making – are you different in any other way than other companies?

Not I'm aware of that. I'm glad that I can take a look. I don't have all that bottoming air, but glad to catch up offline we can walk you through that. We'll be final it in day or two. So all of our financials will be out there within the next day or so.

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 deal on all things, but we've had tremendous improvements operationally, financially, and that 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 toward consumers, because that's going to be, that is one of the key differentiators. We have professional 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, just as maintaining these hardware devices having them be stable, reliable, elegant, great experience, low issues, and then we're doing that.

All right. Great. Thank you very much.

Our next question comes 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 cameras scaring way package dealers, and so on. Those were different messages than what you've 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. And is that something that you would expect to evolve even in 2021 or so? Thanks.

No, I mean, look, I will here's what I'd say. There's no – there are 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 it doesn't overwhelm them also. A lot of people don't realize that they can get 15, 20, 30, 50 devices installed their home profession at a very, very reasonable price. And to just put that out there, like I say might just have someone tune out a little bit because they would think, well, that's, 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 – here we are, this is simple. Just give us a try little doorbell, put that on there. And then we're pretty good at sales and upsells, and so we can upsell them into a full system. And so you'll see it evolve all the time. We're just the response and how simplistic and it was on purpose. The initial entrance was we had a tremendous response.

No. Okay, great. Well, that's good to hear and great quarter and thanks a lot.

Thank you.

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

So we appreciate everyone being on the call and via webcast. Again, we want to make sure everyone knows that we're super focused on just making sure that we deliver on what we say we're going to. We think the future is super bright. There's a bit everyone on the phone knows this. It's a big industry, lot of opportunity, and we are best suited to take advantage of that because of this, the ecosystem we've built out technologically 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 to invest in this panel. So and we look forward to talking to you next quarter.

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