Earnings Call: Q4 2020

Feb 23, 2021

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. I would now like to turn the conference over to Eric Filan. Please go ahead, sir. Thank you, operator. Good afternoon, and welcome to RO Technology's fourth quarter and full year twenty twenty 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. We'll then have some closing remarks from Matt before we enter Q and A. At that time, we will have time for any questions. If you have not received a copy of today's press release, please visit Arlo's Investor Relations website at investor.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 BarreSure, continued new product and service differentiation, future business outlook and the impact of COVID-nineteen pandemic 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 all those periodic filings with the SEC, including the most recent annual report on Form 10 K and quarterly report on Form 10 Q. 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 this 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, Eric, and thank you, everyone, for joining us today on Arlo's fourth quarter twenty twenty 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, an 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 set about implementing a business model transition that cut across our entire organization. We refreshed 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 is not the same 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 $114,800,000 in revenue at the top end of our guidance. Our non GAAP gross margin grew by more than 10 percentage points year over 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 $4,000,000 of non GAAP operating expense reduction year over year. That combined performance created significant leverage in our business, improving our non GAAP net loss by $14,000,000 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 8%. And rounding out our financial metrics, our cash, cash equivalents and short term investments balance improved by $12,500,000 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 over year basis. And Q4 was our sixth consecutive quarter of record services revenue at $21,600,000 up 72% year over 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 ninety 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 product's 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 refresh launched new products through 2020 and beginning in 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 Guide 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 WireFree Video Doorbell by saying, It's the best smart video doorbell we've ever tested. Arlo also started the year strong by winning two CES 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 camera offerings. The second award was given to our touchless 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, thus 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 communication service providers. These local trusted CSP will bundle Arlo's 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 its plan. 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 $500,000,000 hardware purchase minimum guarantee over five years from 2020 through 2024, in addition to ramping paid accounts in the region. The minimum guarantee alone represents a 25% CAGR for the European market over the five years and the partnership serves as a great example of our 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 lockdowns and supply chain disruption induced by the pandemic hampered our growth in 2020, we made excellent progress running the business and improving our P and L during the year. Even with the financial burden of the business model transition and pandemic induced challenges in the first half, we produced meaningful margin expansion for the full year across both products and services, which resulted in a six ten 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 $20,000,000 in 2020. Importantly, our results have shown incremental improvement 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 $40,000,000 for the year, with much of this improvement coming in the back half. This trend of sequential improvement culminated in strong results for the fourth quarter of twenty twenty, 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 $2.00 $6,000,000 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 $114,800,000 up 4.2% sequentially, but down 6.2% year over year. Product revenue for Q4 twenty twenty was $93,300,000 which was down 15.1% compared to last year and up 2.2% sequentially. Our year over year revenue decline was largely due to FerrisSure stocking in the third quarter for the European market, a seasonal pattern that was much different from what we had seen in the past. Our service revenue for Q4 twenty twenty was again a record at $21,600,000 up 72.1% as of 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 to our paid subscription service, Arlo Smart, after the free trial has ended. Our service revenue also includes 2,400,000 of NRE services we are providing for VeriSure, along with associated costs as compared with $2,300,000 in the third quarter of twenty twenty and zero a year ago. During the fourth quarter, we shipped approximately 1,167,000 devices, of which approximately 1,164,000 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 twenty twenty was up $10,900,000 or 73% year over year to $25,700,000 which resulted in non GAAP gross margin of 22.4%, up from 20.6% in Q3 twenty twenty and up more than 10 percentage points from 12.2% in Q4 twenty nineteen. This is our highest gross margin in nine quarters. The $10,900,000 year over year improvement in non GAAP gross profit included improvements of $8,400,000 from services and $2,500,000 from product. This exemplifies the beneficial effect the services business is having on our P and L. Non GAAP product gross margin was 14%, down 70 basis points sequentially due to typical Q4 promotions and up four forty 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 twenty twenty and thirty four point three percent in Q4 twenty nineteen. 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 benefited from last year's restructuring, along with our continued expense management. Total non GAAP operating expenses were $32,200,000 down $3,800,000 or 10.5% year over year and up 3.3% sequentially. This was again slightly below our $33,000,000 to $34,000,000 guidance, but up sequentially due to the planned seasonal increase in our sales and marketing activities. We continue to believe our non GAAP operating expenses will be in the $33,000,000 to $34,000,000 range each quarter this year. Our total non GAAP R and D expense for the fourth quarter was slightly down sequentially at 12,500,000 Our headcount at the end of Q4 was three fifty nine employees compared to three fifty eight 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 have included these costs in our normal operating expenses. Reimbursement from Beresor is included in other income and was approximately $900,000 during Q4. Additionally, in Q4, Verisure made their contractual $40,000,000 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 twenty twenty was $185,000 For the fourth quarter of twenty twenty, 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 $206,100,000 in cash, cash equivalents and short term investments, up $12,500,000 sequentially and down $50,500,000 year over year. We continued to make progress on our working capital management during Q4. Our DSO came in at sixty four days, down nicely from ninety seven days a year ago, but up from forty seven days sequentially due to seasonal dating terms with certain retailers and a shift in customer mix. Q4 inventory closed at $64,700,000 a decrease of $4,300,000 over Q3 twenty twenty, which turned increasing to five as compared to 4.6 last quarter. Now, turning to our outlook. As has been seen across many industries, Arlo is facing supply constraints, driven largely by chip shortages, which were exacerbated by elongated shipping timeframes. In consideration of this, we expect first quarter revenue to be in the range of $70,000,000 to $80,000,000 We expect these supply constraints could limit our ability to deliver through the first half of twenty twenty one. With our current visibility, we still believe we can achieve revenue of approximately $400,000,000 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 twenty twenty one. In Q1, consistent with the pattern we saw in Q1 twenty twenty, we will see a working capital outflow and expect our cash, cash equivalents and short term investments to end the quarter in the $150,000,000 dollars to $160,000,000 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 $120,000,000 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. And 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 1,000,000 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 ninety day service period ends under our new business model, as we follow cohorts over a six month period, we see that number climb to 65% attach rate to our subscription services. These factors should translate to approximately $100,000,000 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 the new business model. And with that, we can open up the call for questions. Your first question comes from the line of Jeffrey Rand with Deutsche Bank. Your weeks of inventory went up in both your retail and distribution channel and it's about three weeks higher than at the end of twenty nineteen. 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? Hey, Jeff, it's Gordon. Thanks for the question. So in terms of the actual weeks of stock, I just remind you that the denominator from that calculation is the last six weeks of POS. Actually, in terms of actual dollars inventory, we've seen the dollars come down year over year, so in Q4. And certainly, if you look at the distribution weeks of stock, that's just really timing of shipping in, shipping out. So any eleven point seven weeks, 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 fill. I think to your point, you're absolutely right. I think the inventory levels both at retail and distribution are a lot more normalized, a lot closer to the normal levels compared to what we saw, for example, at the end of Q2. So we don't expect much of a tailwind in 2021 from channel fill. 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's what we are seeing for sure. And we've spoken about this quite a lot. And certainly, Arlo is no different from the rest of the market. Certainly, airfreight rates, we've seen elevated rates there all the way back from the back end of Q1 last year. And that's showing no signs of abating. And that will 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 wouldn't want to guess how that's going to pan out, but certainly airfreight rates still elevated. We've also seen a more recent phenomenon of sea freight rates also being elevated. And due to the additional pressure on sea freights, we're also seeing actual elongated shipping times as well and somewhat 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 over the last six months, it probably got a little bit worse 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 from me. Your product gross margin grew meaningfully year over 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 first and foremost, we did go through the business model transformation and certainly the gross margin profile you saw in the first half of twenty twenty is very much a story of two halves. And as we went through that business model transition, we certainly saw an uptick in product gross margins and that's a reflection 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's really first and foremost. Obviously, with all over the seasonality in our business, 35% to 40% of the business in the first half, sixty ish percent in the second half. So there are scale 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. Your next question comes from the line of Adam Tindle with Raymond James. Your line is open. Okay. Thanks. Good afternoon. Matt, I just wanted to start on the subscriber metrics and intent to roughly triple paid subscribers in 2021, reach a million subscribers. Those are big numbers. I would just be curious on the color on visibility into that level to go out that far this early. It's a significant step function from already healthy growth rate. So just wondering, do you have some perhaps contractual visibility with Verisure and Calyxt? Is there an underlying growth assumption? Just how you're building up to those impressive goals? Yes, it's a great question, Adam. And 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 multifold. 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. The Verisure is a good example of that where today most of the execution with 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 the actual attach rate six months out is closer to 65%. That's another new metric we wanted to share today. But the VeriShare 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 integrations 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 of what's happening with the 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 Verisure yet or is it still too early to call? 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 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 perhaps lifetime value of a subscriber, gross churn or retention rate that you're experiencing. So basically, how valuable is a 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 our low 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 bat. We have a good churn rate. So we're still looking at it. It's early in that transition, but we're seeing it accelerate as 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 cross some of these big thresholds like crossing a million subscribers twelve months from today. Yes, that would be helpful. Thanks for the details and congrats on the momentum. Thank you very much, Your next question comes from the line of Hamed Khorsand with BWS Financial. Your line is open. This is Wahid for Hamed. Just a follow-up on that last exchange. In terms of subscribers, could you kind of shed some light on which subscription level they are opting for? Is it 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 end kind of our service revenue against subscriber ads, you'll see what the ARPU is. And it's a little bit lower 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 of 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, can 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 twelve to eighteen months. We've really just been focused on driving that conversion rate, really understanding how to drive the transition in our business. That's complete. Again, still optimizations to do, but work through that transition period and 2021 is going to be a year of really optimizing that model. We will start to look at it, our roadmaps over time now thinking about R2 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 and the chip shortages, do you anticipate that is going to have a pricing impact pricing promotions impact on new products or legacy products? Well, it's more of a supply chain slowdown from a supply perspective. And what I mean by that is, in 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 and may attenuate some of the upside. But we're also extending our forecasting deeper into beer 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, when there is shortages, sometimes that can mean you don't have to promote as much to reach some of that upside. And we'll always be, as you've seen in the last couple of quarters, really diligent about the spend versus opportunity and make sure we're driving gross margin where we can. Okay. Thank you very much. Your next question comes from the line of Jeff Osborne with Cowen and Company. 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 $400,000,000 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 chipsets that are clearly out longer than that. And there's some that I think will clear out 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 in the broker or you can negotiate with an ODM to pull it from other sources. And then there's some ships 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. 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 and the shortage wasn't there? Or is that a good number of the true indicative demand that's out there that you're seeing? Yes. Hey, it's Gordon. That's a great question. I think the reason we're calling out supply constraints and the guide that we gave is $70,000,000 to $80,000,000 to Q1, otherwise would be a little bit higher, but for supply constraints that we're already seeing in Q1. And I'd echo Matt's comments. We think the supply constraints will certainly impact the first half of 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. Makes 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 was there any noticeable shifts in 2020? And then any initiatives for 'twenty one to accelerate traffic through your own site? Yes, that's a great question. So if I go back to 2019 a little bit before the window of your question, we had launched arlo.com right 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 the Arlo site. 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 a massive shift to 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 sixty days that had completely inverted where it was 70% online, 30% actually in store or through in store pickup. So we saw that. That also helped us grow Parlo.com because so many of the consumers have moved to online channels. Throughout the year, we saw the channels start to normalize a little bit where some of our customers started to get a little bit more balanced on a fiftyfifty basis. But we continue to grow Arlo.com through the year. And of course, there's 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 from 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 launched 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 basis, meaning a little bit more balanced between their online efforts and their actual physical store efforts. Now that's different by retailer. You know 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. And my only follow-up 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? Yes, I don't think it changes a lot. The seasonality of the spend is the same. Obviously, we're spending a little bit more on arlo.com and so that flows through a little bit differently. The biggest changes we saw last year was the timing of promotion. So 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 it the same way, focus on a balanced approach of driving awareness, driving sales of our key products, but also delivering the gross margin that we need to, while 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 drive promotional dollars to traffic to certain areas. So we've gotten a lot smarter not only in how we approach promotion, but also the tools that we use underneath because a lot of them are 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. Got it. That's all I had. Thank you. You're welcome. There are no further questions at this time. Matt MacRae, 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.