Vivint Growth Fund in Automated Homes
PROVO, February 13, 2012 /Deseret News/ — To best understand where Vivint Inc. is headed, start with the home security company’s smartphone app. From there, customers can see if an alarm is set, when doors and windows are opened and what’s happening at home through live video feeds. Then take a look at the rooftop solar panels and smart thermometers that reduce electrical grid demand and energy use.
For Todd Pedersen, the 43-year-old co-founder and chief executive officer, it’s a recipe for growth, tapping resident demand for protecting and monitoring homes and making them more efficient. It also shows progression from the company’s beginning in 1999 when Pedersen began it “on accident” to pay for school. Now it is expanding into home automation to help residents monitor energy costs and automate appliances. Last year, the company reported about $350 million in revenue, up 35 percent from 2010.
“We’re not trying to be that system that is $1 million in up front costs; we’re trying to sell to every American,” Pedersen said at his Provo headquarters. “The objective is simplifying life, increasing energy efficiency and protecting families.”
Typically Vivint installs up to $1,700 of equipment ranging from security monitoring to controls for lighting, small appliances and energy management into a house. Customers pay $99 to activate it and $50 to $67 a month to monitor it under a typical 42-month contract, he said. Typically they stick around for about 12 years.
Last year, the company acquired about 170,000 new customers. His goal is 1 million annually.
“Customer acquisition is something we have down to a science,” said Pedersen who began selling during the summer months in Arizona. More than half of Vivint’s employees work during the summer, selling door to door.
All that growth requires a lot of cash.
“You would think that it would be an easy story, but the way we put business on, we subsidize the equipment,” he said. “It’s very capital intensive up front and we recoup money from customers that stay.”
Beyond cash flow, Vivint’s funding includes a bank revolver soon to be worth $810 million and a $125 million non-rated securitization. Interest rates top 10 percent, he said while declining to give specifics.
Management owns 50 percent with the other half split between private equity backers from The Goldman Sachs Group Inc., Jupiter Partners LLC in New York and Peterson Partners in Salt Lake.
“Capital is still tight right now,” said Pedersen, who is also the company’s largest shareholder. “Over the next year or two, we will either tap into the securitization market or an equity transaction.”
The company doesn’t borrow money unless it can create a customer, he said. It isn’t profitable on an accounting basis because of that borrowing. That growth needs cash to subsidize installations.
“I don’t want to be involved if we aren’t growing,” he said. “I would love for us to not be profitable” because the company was investing in growth.
Home security isn’t the company’s only focus. It is also expanding into home solar power.
In 2010, the company installed 15,000 energy management systems.
To be sure, helping to monitor energy use can be difficult. In 2009 Google Inc. started helping homeowners monitor power use. It shut down in September because it couldn’t attract enough users.
Still solar panel installations are rising, up 22 percent to 124,000 in 2010 according to the Interstate Renewable Energy Council.
Vivint plans to offer new appliances with no money down and financed through power savings.
“We don’t just monitor a security event,” Pedersen said. “That’s part of this whole system that we put together.”
Potential growth areas include wireless internet, a distributed audio system and home health care. For example, an elderly person could allow someone else to remotely monitor their safety at home instead of in a nursing home.
“We have an analytics side of it that’s going to be able to tell people in real time what their usage is, not guesstimate based on averages around the community,” Pedersen said. “When does she get up, how long is she in the bathroom versus normally and get a notification on parameters you determine. Monitoring basic health and vital signs — all can be set.”
By Jordan Burke