Good day and thank you for standing by. Welcome to the Vivint Smart Home First Quarter 2021 Earnings Call. This time all participants are in a listen-only mode. [Operator Instructions] 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 this afternoon to discuss the results of Vivint Smart Home for the three months ended March 31, 2021. Joining me on the conference call is Todd Pedersen, CEO; and Dale R. Gerard, CFO. I would like to begin by reminding everyone that today’s discussion 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 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. 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.vivin.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 a 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 of their homes. The momentum around our business that we saw in 2020 as 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 31, 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 LTM 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 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…

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 reevaluated 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 valuation, we determine that the warrants should have been classified as liabilities and measured at fair value in the closing date of the merger was subsequent changes in fair value reported as non-operating income or expense, and our consolidated statements of operations each reporting period. Of 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 6, we highlight a few metrics for the subscriber portfolio, which continued to be strong across the board. Total subscribers grew 10.2% from 1.55 million to 1.71 million. Average monthly revenue per user our AMRU increase to $67.24 up 3% year-over-year. An 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 7, we cover revenue and adjusted EBITDA for the quarter. For the first quarter of 2021 revenue grew by 13.2% with $343.3 million. The revenue growth is attributed to previously mentioned…

Thank you. [Operator Instructions] Your first question comes from the line of Paul Coster from JPMorgan. Your line is now open.

Yes, thanks very much for taking my question. You said it sounds like the guidance implies that supply chain risks present upside perhaps, but not factored into the guidance, so the limited from a downside, thinking one of the first sort of tilts in that kind of way. Can you just talk to us about what your biggest sort of component risks are and how it is that you seem to be managing through this problem so well on a relative basis?

Hey, Paul. It’s Dale. Thanks for joining the call. We look at it a big part of our growth initiative and some of the stuff we’re trying to do is really around camera attach rates. And as, we think that’s one of the big selling points and why people really like smart home as one of the big advantages we think our systems have over others, integrated analytics, and the different things that we can do with that, in terms of notices, and so forth with customers. And so part of what we’re doing with our pricing and how we’re selling and what we’re seeing in terms of take rate, or adoption of additional cameras, we’re in good shape, we believe right now. But if adoption rates are higher than we think, and if there’s any, disruption, in terms of chip manufacturing, and or the big thing, really, one of the big things is logistics frankly, supports and getting and then from the ports, it could be some where we may have to limit the number of cameras, we sell the second, maybe late in the third quarter or fourth quarter. But, we think we’ve addressed that we’re doing some stuff with air spray and shipping. And so, we’re just calling that out as to say, hey, based on, we’re off to a good start. We think that the year we’re going to have a good year. But with some stuff around supply chain, like there’s some inflationary pressures out there, there’s some hiring constraints, what we’re probably no different than other companies as we try to continue to ramp up, especially in the field, in higher and in the markets that we service, have been able to hire enough installers and service professionals to be able to take care of the customers the way we want to take care of them. So, we just kind of put all that stuff together and said hey, based upon on where we are today, and what we see. We think, confirming our guidance, which we think is really good guidance for the year to begin with, is the best path at this point. Todd, I don’t know anything you just want to add?

Yes, I was just saying, Paul, you kind of caught that which is based on supply chain issues that Dale mentioned, the potential for upside beyond where we sit is limited to product being delivered to the U.S. and being able to install that. So it’s not impossible that we could see some upside, but it’s going to be quite difficult or just like own house everyone else their supply chain issues out there. Ships mean, kind of front end center, driving most of that. So but we do feel very comfortable this number. We’re fortunate that we have a seasonal business in some regards, because we treat order a lot of the hardware and had done that last year. And so a lot of what we need to attain these numbers, we already know we have a kind of insight.

Gotcha. And a quick follow up, I think investors have been working really hard to try and figure out what’s going wrong, because the stocks been going down and we’re all sort of very anxious, but something obvious here. Let me just sort of try and my luck is the, it sounds like you’ve entered into an extended term with Citizens Bank, but as part of that, there’s different allocation of the credit risk. Does that relate back to this FTC issue? And in passing? Todd, can you just tell us, what is actually the FTC issue identified and when it occurred?

Yes, I think the first part, Paul, [indiscernible] in terms of the extension with Citizens, we’re very, very pleased with our partnership with Citizens, they’ve done a very good partner. We’ve had a relationship during consumer finance with him since early 2017. And so we were glad to be able to extend it, the changes that we’re making in that program assistance really has, nothing in terms of the FTC. It was really part of the negotiations to move from the installment line into a, what we call a line of credit, which really is better for us long-term and better for our customers. It’s easier for the onboarding process. And then really where we will see the benefit is the additional sales of hardware, either additional products that customers want to take or as we roll out new products, and customers want to have those systems, their line of credit allows for that in a way that the installment loan which was a kind of a fixed loan debt. And so, in reality, the way the terms are set with the line of credit or more standard terms, our terms are ahead with installment loan, we’re probably not what with standard industry? We were able to do that, I think early on. So by moving to the line of credit, one of the things that was part of that was we’ve kind of go to more standard terms around how come, the users of these products pay for that the credit offering from Citizens or from other banks, and then Todd will pick this.

Yes, I mean. The first thing I’d say is, we’re glad to have this FTC settlement done. Now, why we have not, we’ve been asked about refinancing paying down debt, and we were not able to do that didn’t feel like it was good timing, in the middle of that FTC settlement happening. So, we’re glad to have that past and in the past. Secondly, we’re a company that we want to provide great service, take care of consumers, our customers, and so this behavior, if it’s not consistent with integrity and doing right by consumers, has no part of this company. But back in 2017, we did have some sales people that got around some systems that we found out and let those people go. And that was part of this investigation by the FTC. And the thing is, we found out we did let those return those people let them go. But again, that’s in the past and done. We’re glad to have that behind us. We’ve definitely made. And we do this every year enhanced improvements on compliance, and systems and controls to ensure that underwriting and everything is up to par and again, compliant with laws of the United States from a financing perspective. So again, glad to have that behind us and done and the settlement over.

All right. Thanks so much Todd. Thanks.

Yes. Thank you, Paul.

Thank you. Your next question comes from the line of Jeff Kessler from Imperial Capital. Your line is now open.

Thank you. And it’s been great working with all you guys. I will hopefully, we’ll continue to talk. Just not in the position I am that’s all. I’ve got really a couple of questions here. Firstly, what are the – it looks this year from the sound – look, you’re going to have to the economy looks like it’s opening up, you have – you are making investments you’re talking about? And you’ve already started with in branding the company. Now, can you talk about what other types of investments and how much that may cost you that you’re going to be involved with assuming that other than that the overall economy opens up is probably timing for you to start pushing on some of the other home, some improving home automation, trying to put some distance as we knew and others in terms of technology, trying to do things, in terms of maybe improving. I don’t know improving your training or focus on how you onboard your new salespeople are spending more money there. Can you just talk about the various types of increased investment you’ll be doing in addition to branding?

So, and by the way, it’s been great to work with you to these years. We’re going to miss this, I guess it’s a perfect like that, hopefully relationship continues.

I’m sure; we’ll have with my other guys.

That sounds great. Well, so a couple of things. We are – we agree that investment in continued product enhancement and quality and technologies is critical, so that we can keep our lead in the market and deliver the best services that we can to consumers and that’s first and foremost. The quality has got to be there. The values got to be there or continue to drive that. We are investing in new tools and technologies from onboarding customers, underwriting customers; we’ve built these tools over the years. Some of them we feel need to be refreshed. You’ll probably end up seeing within a year or so a platform kind of reinvestment in the platform. Again, we built out our operating system seven, eight years ago. And we believe that there’s some updates that can be done and will be done to enhance that, that experience for the consumer, allow us to do more upgrades, have more content for consumers information, consumers and allow us to kind of deliver service to them through those enhanced – to be enhanced operating system. So, that’s going to happen now we’re super pleased with the results that have been are, it’s early I mean, we started rebranding the marketing, really in Q4. But as you saw with our Q1 numbers, 13%, top line revenue growth compared to – we’re starting to see some momentum there. Now, we are already mentioned earlier that with some supply chain constraints. We’re not going to be off to the races, because we have to be, if we do add customers, we need product and hardware to be able to install. So although we’re a great year passed out, and we take the numbers and projections we have are strong, the cash flow dynamics of the business, the attrition numbers, our net operating margins, our net SAC are all super strong and improving year-over-year. So, we’re really excited about how the company is positioned. And, what the future looks like for this.

This includes an increased investment in SAC?

What? Can you maybe expand? What do you mean?

You talked about new tools for onboarding customers and getting customers trained and things like that?

Yes, I mean, it’s really within our area of information technology for that area, which we do allocate out the SAC, from that SAC some of that service. So yes, there’ll be some of that there. And then some of the brands then that’s directly contributed to the media that we’re doing is actually being [indiscernible]. But, it’s part of like, as we said earlier, when we did the fourth quarter call and talked about kind of what we expect 2021 said, hey, we’re going to make investments in really three areas of Todd just talked about, you’re going to see those really, you’ll start seeing the impact of those in Q2. In terms of where we’re kind of really starting to get some of the spend in terms of brand is, as we kind of rolled out the summer sales force. And then as we’ve hired up for some of the stuff we need to do in technology, and product development, you’ll start seeing that kind of come through Q2, Q3.

Okay. Same question actually is on attrition. And going through the various components of attrition obviously, percentage of customers coming to term on their contracts is obviously an important one mover it is an important one, people who can’t pay were isn’t important when people don’t like your sit or whatever. It’s always someone important; these are all move around depending on the times we’re living in, and the ability to reaffirm to create a better value proposition for your customers. What is going on, when attrition because clearly, you even say that your sweet spot is probably going to be somewhere in the 12% or maybe the high 11% to 12% or 13% to come. In the past, you seem to may be under estimated how far attrition can go up. But now you seem to be under estimating how far attrition can come down?

Yes, well, so here’s a couple of things. We – that we are fully integrated platform, end-to-end solution. We continue to make improvements in the hardware, the installation process, the firmware; we’ve got this incredible feedback loop that we’ve talked about. So, we continue to make improvements and enhancements from that perspective. If these products work and we have 14 or 15 devices on average per home, if they work consistently and the use case are relevant to consumers, they keep the product now there are obviously circumstances where people lose their jobs or have financial changes in their lives that they calls some of these people to cancel. We hope think people it’s not because people don’t like our system, but maybe that happens occasionally. But the other is, if you’ve noticed in the last year, we’ve made them great enhancements to the underwriting the reduction in RICs to the platform is going to have continued impact on efficient overtime. And again enhancements in every little detail of what we do, to deliver service to consumers is going to impact. So, we’re not we’re hopeful we’re not trying to be pessimistic, we continue to see potential gains in that from that side. That’s pretty, for a consumer facing business on a 1% monthly attrition is pretty incredible. And then you add to that our net subscriber costs come down substantially. And our net service costs $10.77 this is a really good story. And real good build up from what we’ve been trying to accomplish in the last couple of years.

So that’s the sweet spot, are you are you changing your view of what maybe your long-term sweet spot range should be for LTM attrition?

No, Jeff at this point, Jeff, no. I think what we’re taught, like Todd said, I think as we get more time in here, and we continue to see how attrition performs, we may picked up, but at this point, I think we’re going to stay where [Technical Difficulty]

I would say that we’re super pleased with all of the, all of the results are great, but the $10.77 per subscriber and net servicing costs, that means people are – our systems are working, we’re not having to roll trucks and fix things as often as we used to work, replace hardware. So again, the better and more reliable the system is, and the more elegant, in fact, the more robust the system is, the more we see attrition coming down over time. So, we’re not done from an aspiration perspective. But we think we’re feeling confident about what we’ve injected to the market for the year. And hope to make gains over that if possible.

Great, thank you very much. I appreciate it.

Thanks again, Jeff. Good luck in retirement.

Thank you.

Thank you. Your next question comes from the line of Rod Hall from Goldman Sachs. Your line is now open.

Hi, this is [indiscernible] on behalf of Rod. Nice job on the results. Could you expand on the difference between the installment line versus line of credit and how it’s better for customers? And you also mentioned some impacts to tax to cash flow. So, could you give us some color on that?

Okay. So the line of credit in the – that what we have as soon as, and what we’ve been putting us this is kind of a fixed term installment loan. And so but that means once the customer finance, what the finance at the initial point of the sale, that was fixed, and if the customer called back, six months later said, hey, I really – I only bought two cameras, I wish I would bought a third camera, so I can put her out on my back porch, we weren’t able to actually add that to the finance. The line of credit, it’s more like a credit card, the way to think about it. And so that will allow us to actually go back and add to that system and make instead of have to come out of pocket that point for that camera, and the install, they can add that to the line of credit. So that’s the really the big difference. It just allows us that the customer and allows us as the companies to be able to offer that product to them, and the customer then to be able to finance that going forward, as they want new or additional products installed in their homes. In terms of the cash, the way – the way the installment loan product has worked, we paid the kind of the MDR fee in the last year overtime. And so every month, if there were – the MDR fee was paid every month and losses were paid as occurred up into the loss based on the loss arrangements that we have the caps that we had in place. The way it will move the line of credit will move eventually, as we transition through the next kind of 24 months, it’ll move to that’ll be like a more standard where we’ll pay that the MDR fee and then the expected losses upfront, and so it’d be a net. So very, very similar to how our program works with Fortiva or other financing partner.

Super helpful. I also wanted to ask about direct-to-home. So the subscriber growth sequentially is a bit weaker than historical trends. And I understand they’re still operating in a COVID environment. But could you talk about how that – why that is and expand the line on that?

Yes, look, we’re basically saying that we believe that will operate in the normal way from a deployment perspective. We’ve deployed the majority of our direct-to-home sales people across the country, they’re still – some number of them, they’re still coming – going out to market. We’re having, we are obviously respectful of this social distancing still at this point, even though that is changing somewhat with vaccinations and a percentage of people are being vaccinated across the country, and based on CDC guidelines and suggestions. But it feels like, it will be back to more of a normal type year for the summer selling season, which we’re excited about. Now, we’ve made adjustments that be based on COVID maybe accelerated some of the adjustments on how we underwrite and do approvals for consumer events, we used to do it on our devices. We have salespeople who travel around with an iPad. Now, it’s done on the consumers’ device. So, we can maintain the social distancing, even in the future. The second thing that it really does for us is from a compliance perspective, it really tightens things up. So, this is a net positive all the way around. We’re, again, trying to be respectful of COVID-19, and making sure that we’re not spreading anything, we still checking people’s health on a daily basis in market, wearing the appropriate masks and gloves and that sort of thing. But then, from an underwriting and compliance perspective, with the adjustments, it’s going to be a net positive for the company.

Thanks, Todd. And last question from me, could you give us an update on the insurance business?

Yes, so we’re still – I would say we’re still in test mode. We believe, we have great upside potential with that business. And again, this is the great thing about owning our platform and the data that we have. If you think about it super, it’s hyper local data inside of the home based on consumer actions and interactions with the system. So usage patterns, we have all of that collected inside of our data that we collect on a daily basis. We’re not quite ready to start announcing volume or future projections, but we’re trying to make sure that we have everything from a compliance perspective from a financial perspective and underwriting perspective dialed in before we will expand that business out with.

Great. Thanks guys.

Thanks, [indiscernible].

Thank you. [Operator Instructions] And your next question comes from the line of Erik Woodring from Morgan Stanley. Your line is now open.

Hey, good afternoon, guys. Congrats on the quarter, and again, congrats on the attrition rate, really impressive stuff. I guess I wanted to ask an earlier question, perhaps a different way. And that was, would you say that through the end of the March quarter, there was still a bit of what I’d call COVID complacency, driving that metric, meaning, I know you had less than 10% of your base reached the end of term in 1Q, but are people perhaps putting a decision to reevaluate their smart home provider on hold for now, given the environment? Just curious you take on that? And then I will follow up. Thanks.

Yes, I mean, look, that could be true with some of the consumers. And then the other side of that is, the better underwriting our systems are working and operating better as we continue to make improvements, like I mentioned earlier on firmware, software, new hardware releases, installation protocols, just every little thing that we do. We’ve been through different types of downturns and issues in the past. And this kind of is proving out again, the fact that what we deliver to people, which is peace of mind in different ways for different people, based on their situation in their living environment, that this is something that people see value in, and we continue to try to push those boundaries and make sure that we’re more and more relevant from a consumer perspective every day.

Okay, that’s super helpful. And then I guess my second question, selling expenses were up more than 100% year-over-year, smart home subscribers were up 20%. What drove that growth in selling expenses? Should we interpret that as meaning it’s getting more expensive to acquire new customers? And then how do I kind of tie that with Net SAC that obviously continues to reach very impressive new lows? Thanks.

Yes. So a couple things last year in the first quarter, if you recall, we shut down kind of direct-to-home. So, part of your year-over-year is the fact that the last, I don’t know the last two or three weeks of the first quarter, there was no spend, when I say no spend, we kind of said don’t spend any more money on recruiting, training, anything so that’s a big variance or a variance to kind of year-over-year in terms of that. And then you have some of that brand spin, also, as I said, we’re pushing some of the brand spin, that’s media directly tied to commercials and so forth into SAC also. So, I mean, we’re in terms of terms of our gross cost, or net gross cost of SAC, it’s in line with where we have been. And again, we keep driving down the Net, because we’re charging more for, sorry, we’re selling more product. So the upfront, basically, the number of cameras, number of devices we’re selling is higher. I think the other thing to say as a call, because I actually look at selling expense or SAC excluding stock based comp. So, when you – so stock based comp was a big driver in that in terms of the legacy equity that we had that came through in the first quarter that also got expense, plus the new grants that are there. So, that’s kind of a double kind of whammy there in terms of that expense. But if you looked at I think it’s 11%. I think without that stock based comp charge; you’re only up about 11%, around $5 million year-over-year.

Okay, that’s really helpful. And then I guess if I can squeeze on the last one. I remember you guys kind of previously guiding to long-term adjusted EBITDA margins in the mid-40%. Correct me if I’m wrong, but is that still how we should think about the long-term? And I say that compared to obviously your current guidance, which would imply you’re kind of already there? And that’s it for me. Thanks again and congrats, again.

Yes, I think, again, a lot of things we’re seeing improvement across the board, right, we’re seeing better servicing costs, and as we can continue to drive down service costs, but while still providing really of such exceptional service for our customers, again, moderate – being able to leverage G&A in terms of what we’re spending there. I think overall, we still think kind of in a mid-40s, whether that’s 45% to 47%, is really kind of where we see margin that. For the near-term, I think, as we continue to invest in the business and make decisions that we think will help the business long-term being more successful in terms of products, technology, brand, as Todd has mentioned, so that’s kind of where we’re shooting for today.

Okay, thanks, guys.

Thank you, Erik.

Thank you. Your next question comes from Marlane Pereiro from Bank of America. Your line is now open.

Great, thank you for taking my questions. I just have two very quick one. One, can you share any thoughts on addressing the capital structure? And two and I apologize if I missed this, but for attrition, how do you think about a normalized level or kind of a steady state for the business? Thank you.

Sure. I take it through. Our backwards attrition, I think we’ve kind of said, we think 12% to 13%. If I had the group attrition, I’d say attrition somewhere in the high 11%. That’s probably low 13%. So, maybe its 12% to 12.5% is kind of where we think at this point. Again, as Todd said, as we continue to provide a better service, better value to our customer, that they really – they look at this and say, hey, I need this everyday as part of my life. I mean our interactions that we saw pre-COVID, during COVID, and post-COVID continuing to increase in terms of how many times people are interacting with their system via their app. And so that tells us that and I think one of the things that we actually found in our quarter is that those interactions went up. And I think, part of that’s the being able to answer the door, get your deliveries without touchless deliveries, not have to talk to the person, but you can talk them through your video camera, your doorbell camera, those types of things. So, even when people go back to the office, which, I think people will at some point, they’ve got these uses probably used cases that they’ve discovered why they were at home, that actually it will be beneficial. And so we kind of – again, attrition, we’re happy where it is. And the thing, I think it’s important about attritional service, as somebody mentioned earlier, we’re less than 10% of our portfolio is at the end of their initial term is that goes up that have the drop – that has an impact that will lift attrition, automatically, even though attrition is not really performing worse, is just as you the percent of customers at the end of term, you always see a little bit of a higher percentage of attrition related to those customers. If we can drive that down, then we can lower that long-term attrition number. In terms of the cap structure, I think Todd said, we’ll be looking to address that, I think sooner than later, as we you know, want to go ahead and take care, I think we’ve got some 2022s, 2023s for sure that we’d like to take care of the maturities and extend those. And so I think you’ll see us look to be out in the market at some point in the near future.

Great. Thank you, Dale.

Thank you. Have a good day.

Thank you. There are no further questions at this time. I’ll now like to hand it over to Mr. Todd Pedersen, for any closing remarks.

We appreciate everyone getting on the call with us today. And again, we’re looking back at this past quarter, which was a build up in the past couple of years, a plan set in place. We’re excited to see the acceleration in top-line revenue growth improvement in LTM attrition, net subscriber acquisition costs, servicing costs everything with the business is performing incredibly well. We’re excited about the future of the business. And look forward to getting on the phone call with you guys again in the next quarter. Thank you.

Thank you. Ladies and gentlemen, this concludes today’s conference call. Thank you for your participation. You may now disconnect.