APX Group Holdings, Inc. (“APX Group”, “Vivint” or the “Company”)
today reported financial and operational results for the first quarter
ended March 31, 2019.
“One of our primary focus areas in the first quarter is preparation for
our summer selling season,” said Todd Pedersen, chief executive officer
of APX Group. “We believe we’ve made good progress in expanding our
direct-to-home sales force and expect to have more sales representatives
in the field this year. We’ve also spent quite a bit of time integrating
our second look financing partner and expect this addition will reduce
retail installment contracts as we move through the year. Our innovation
team will release a number of new products in 2019, including a new 4K
outdoor camera and an upgraded doorbell camera, along with a regular
cadence of enhancements to our smart home cloud platform. With all of
this momentum, I believe we’re well positioned for another strong
performance this calendar year.”
Revenue and Subscriber Data
The Company reported total revenues of $276.2 million for the
three-month period ended March 31, 2019, an increase of $29.6 million,
or 12.0%, as compared to the same period in 2018. Total Subscribers
increased by approximately 10% during the three-month period ended March
31, 2019, which accounted for approximately $26.5 million of the
increase in total revenues, while approximately $4.1 million of the
increase was due to an increase of $0.81 in the Average Monthly Revenue
per User. When compared to the three months ended March 31, 2018,
foreign currency translation negatively affected total revenues by $0.9
million, as computed on a constant foreign currency basis.
The Company added 47,536 New Subscribers during the first quarter of
2019, a decrease of 14.4% compared to 55,502 New Subscribers during the
same period in 2018. Excluding the New Subscribers originated from the
retail channel in the first quarter of 2018, New Subscriber growth is
flat on a year-over-year comparison basis.
|
Summary of Quarterly Key Financial and Portfolio Metrics |
|
($ in millions, except for subscriber data)
|
|
a: This earnings release includes Adjusted EBITDA, a metric |
|
March 31,
2018 |
June 30,
2018 |
September 30,
2018 |
December 31,
2018 |
March 31,
2019 |
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| Total Revenues | $ | 246.6 | $ | 255.0 | $ | 272.3 | $ | 276.5 | $ | 276.2 | |||||||||||
| Net Loss | $ | (84.7 | ) | $ | (144.4 | ) | $ | (120.2 | ) | $ | (118.6 | ) | $ | (89.2 | ) | ||||||
| Adjusted EBITDA(a) | $ | 122.9 | $ | 137.2 | $ | 139.3 | $ | 138.3 | $ | 149.7 | |||||||||||
| Adj EBITDA Margin | 49.8 | % | 53.8 | % | 51.2 | % | 50.0 | % | 54.2 | % | |||||||||||
| New Subscribers(1) | 55,502 | 117,875 | 104,249 | 44,948 | 47,536 | ||||||||||||||||
| Total Subscribers(1) | 1,313,742 | 1,393,635 | 1,450,185 | 1,444,822 | 1,445,353 | ||||||||||||||||
| Total Monthly Service Revenue(1) | $ | 71.0 | $ | 73.3 | $ | 75.5 | $ | 76.1 | $ | 77.0 | |||||||||||
| Average Monthly Service Revenue per User(1) | $ | 54.00 | $ | 52.61 | $ | 52.05 | $ | 52.67 | $ | 53.26 | |||||||||||
| Total Monthly Revenue(1) | $ | 82.2 | $ | 85.0 | $ | 90.8 | $ | 92.2 | $ | 92.1 | |||||||||||
| Average Monthly Revenue per User(1) | $ | 62.97 | $ | 62.49 | $ | 63.12 | $ | 63.80 | 63.78 | ||||||||||||
| Attrition Rate(2) | 10.7 | % | 11.1 | % | 11.8 | % | 12.3 | % | 12.9 | % | |||||||||||
|
(1) New Subscribers from sales pilots are not included |
|
(2) Attrition Rate is reported on an LTM basis for each period |
“As Vivint grows and increases capabilities, we’ve continually
emphasized operational and financial scaling across the business, and we
are seeing meaningful results in this area,” said Mark Davies, chief
financial officer of APX Group. “In terms of sales efficiency, our last
12-month Net Subscriber Acquisition Costs decreased year over year from
$1,488 to $1,142. Our G&A productivity has improved year over year, as
we’ve reduced G&A as a percent of revenue from 20.6% to 16.8%. And most
importantly, the benefits of our fully integrated technology and service
platform has yielded significant improvements in our service cost per
subscriber, which decreased from $17.04 in the first quarter of 2018 to
$13.83 this quarter. While these improvements are significant, we’ll
remain focused on balancing growth with cash flow and margin creation.”
Costs and Expenses
Operating expenses for the first quarter of 2019 decreased by $0.7
million to $83.1 million as compared to $83.8 million for the first
quarter of 2018. The primary drivers of the decrease were a $2.6 million
decrease in costs associated with our retail channel and other sales
pilots and lower equipment costs of $2.2 million. These cost decreases
were partially offset by increases in personnel and related support
costs of $1.9 million, customer payment processing costs of $0.6
million, and information technology software costs of $0.4 million.
Net Service Cost per Subscriber was $13.83 for the first quarter of
2019, which contributed to a Net Service Margin of 74.0%, as compared to
$17.04 and a Net Service Margin of 68.6% for the same period in 2018.
Selling expenses, net of capitalized contract costs, for the first
quarter of 2019 decreased by $15.7 million to $43.6 million as compared
to $59.2 million for first quarter of 2018. The primary drivers of the
decrease were $11.2 million in lower costs associated with our retail
channel and other sales pilots, a decrease in personnel and related
support costs of $3.0 million and lower marketing-related costs of $1.1
million.
The Company’s Net Subscriber Acquisition Costs per New Subscriber was
$1,142 for the last twelve months ended March 31, 2019 as compared to
$1,488 for the same period in 2018. The average proceeds collected at
point of sale during the last twelve months was approximately $1,031 per
New Subscriber.
General and administrative (“G&A”) expenses, net of allocations, for the
first quarter of 2019 decreased by $4.7 million to $46.3 million as
compared to $51.0 million for the first quarter of 2018. The primary
drivers of the decrease were a reduction in professional and legal
contracted services costs of $2.8 million, lower marketing-related costs
of $1.4 million, a decrease in personnel and related support costs of
$1.3 million and lower information technology costs of $0.5 million. The
decreases were partially offset by a $1.9 million increase in bad debt.
Adjusted EBITDA and Net Loss
Net loss was $89.2 million and Adjusted EBITDA was $149.7 million for
the first quarter of 2019, as compared to net loss of $84.7 million and
Adjusted EBITDA of $122.9 million for the same period in 2018.
Liquidity
As of March 31, 2019, the Company’s liquidity position on a consolidated
basis, defined as cash on hand, short-term marketable securities and
available borrowing capacity under the Company’s revolving credit
facility, was approximately $253 million.
Certain Credit Statistics
The Company’s net leverage ratio, defined as the ratio of net debt to
LTM Adjusted EBITDA, was 5.5x as of March 31, 2019.
Conference Call
Vivint will host a conference call and webcast to discuss the quarterly
results at 5:00 p.m. ET today, May 7, 2019. To join the live webcast and
conference call, please visit the Investor Relations section of the
Vivint website, www.investors.vivint.com/events-presentations/events,
or dial (833) 235-7641 for domestic participants or (647) 689-4162 for
international participants with the conference code of 1698518.
A financial results presentation and online access to join the webcast
will be available immediately before the call on the Investor Relations
section of the Company’s website at http://www.investors.vivint.com/events-presentations/events.
A replay of the webcast will be available for 30 days on the Investor
Relations section of the Company’s website at www.investors.vivint.com
following the completion of the webcast and conference call.
About Vivint Smart Home
Vivint Smart Home is a leading smart home company in North America.
Vivint delivers an integrated smart home system with in-home
consultation, professional installation and support delivered by its
Smart Home Pros, as well as 24-7 customer care and monitoring. Dedicated
to redefining the home experience with intelligent products and
services, Vivint serves more than 1.4 million customers. For more
information, visit www.vivint.com.
Forward-Looking Statements
This earnings release and accompanying conference call include certain
forward-looking statements as defined by the Private Securities
Litigation Reform Act of 1995, including statements regarding, among
other things, the Company’s plans, strategies and prospects, both
business and financial. Forward-looking statements convey the Company’s
current expectations or forecasts of future events. Although we believe
that the Company’s plans, intentions and expectations reflected in or
suggested by these forward-looking statements are reasonable, we cannot
assure you that the Company will achieve or realize these plans,
intentions or expectations. Forward-looking statements are inherently
subject to risks, uncertainties and assumptions. Generally, statements
that are not historical facts, including statements concerning our
possible or assumed future actions, business strategies, events or
results of operations, are forward-looking statements. These statements
may be preceded by, followed by or include the words “believes,”
“estimates,” “expects,” “projects,” “forecasts,” “may,” “will,”
“should,” “seeks,” “plans,” “scheduled,” “anticipates” or “intends” or
similar expressions.
Forward-looking statements are not guarantees of performance. You should
not put undue reliance on these statements which speak only as of the
date hereof. You should understand that the following important factors,
in addition to those discussed in “Risk Factors” and elsewhere in the
Company’s most recent Annual Report on Form 10-K/A, for the fiscal year
ended December 31, 2018 and the Quarterly Report on Form 10-Q for the
fiscal quarter ended March 31, 2019, which is expected to be filed on or
about the date of this earnings release, 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:
-
risks of the smart home and security industry, including risks of and
publicity surrounding the sales, subscriber origination and retention
process; -
the highly competitive nature of the smart home and security industry
and product introductions and promotional activity by Vivint’s
competitors; -
litigation, complaints, product liability claims and/or adverse
publicity; -
the impact of changes in consumer spending patterns, consumer
preferences, local, regional, and national economic conditions, crime,
weather, demographic trends and employee availability; -
increases and/or decreases in utility and other energy costs,
increased costs related to utility or governmental requirements; -
cost increases or shortages in smart home and security technology
products or components; - the introduction of unsuccessful new Smart Home Services;
-
privacy and data protection laws, privacy or data breaches, or the
loss of data; and -
the impact to the Company’s business, results of operations, financial
condition, regulatory compliance and customer experience of the Vivint
Flex Pay plan and our ability to successfully compete in the retail
sales channels.
In addition, the origination and retention of new subscribers will
depend on various factors, including, but not limited to, market
availability, subscriber interest, the availability of suitable
components, the negotiation of acceptable contract terms with
subscribers, local permitting, licensing and regulatory compliance, and
our ability to manage anticipated expansion and to hire, train and
retain personnel, the financial viability of subscribers and general
economic conditions.
These and other factors that could cause actual results to differ from
those implied by the forward-looking statements in this press release
are more fully described in the “Risk Factors” section in the Company’s
most recent annual report on Form 10-K/A for the fiscal year ended
December 31, 2018 and the Quarterly Report on Form 10-Q for the fiscal
quarter ended March 31, 2019, which is expected to be filed on or about
the date of this earnings release, and other reports as such factors may
be updated from time to time in the Company’s periodic filings with the
SEC. These risk factors should not be construed as exhaustive. We
undertake no obligations to update or revise publicly any
forward-looking statements, whether a result of new information, future
events, or otherwise, except as required by law.
Certain Definitions
Total Subscribers – is the aggregate number of active smart home
and security subscribers at the end of a given period.
Total Monthly Revenue – or Total MR, is the average monthly total
revenue recognized during the period.
Average Monthly Revenue per User – or AMRU, is Total MR divided
by average monthly Total Subscribers during a given period.
Total Monthly Service Revenue – or MSR, is the contracted
recurring monthly service billings to our smart home and security
subscribers, based on the Total Subscribers number as of the end of a
given period.
Average Monthly Service Revenue per User – or AMSRU, is Total MSR
divided by Total Subscribers at the end of a given period.
Attrition Rate – is the aggregate number of canceled smart home
and security subscribers during the prior 12 month period divided by the
monthly weighted average number of Total Subscribers based on the Total
Subscribers at the beginning and end of each month of a given period.
Subscribers are considered canceled when they terminate in accordance
with the terms of their contract, are terminated by us or if payment
from such subscribers is deemed uncollectible (when at least four
monthly billings become past due). If a sale of a service contract to
third parties occurs, or a subscriber relocates but continues their
service, we do not consider this as a cancellation. If a subscriber
transfers their service contract to a new subscriber, we do not consider
this a cancellation.
Average Subscriber Lifetime – in number of months, is 100%
divided by our expected long-term annualized attrition rate (which is
currently estimated at 13%) multiplied by 12 months.
Net Service Cost per Subscriber – is the average monthly service
costs incurred during the period (both period and capitalized service
costs), including monitoring, customer service, field service and other
service support costs, less total non-recurring smart home services
billings for the period divided by average monthly Total Subscribers for
the same period.
Net Service Margin – is the monthly average MSR for the period,
less total average net service costs for the period divided by the
monthly average MSR for the period.
New Subscribers – is the aggregate number of net new smart home
and security subscribers originated during a given period. This metric
excludes new subscribers acquired by the transfer of a service contract
from one subscriber to another.
Net Subscriber Acquisition Costs per New Subscriber – is the net
cash cost to create new smart home and security subscribers during a
given 12 month period divided by New Subscribers for that period. These
costs include commissions, Products, installation, marketing, sales
support and other allocations (general and administrative and overhead)
less upfront payment received from the sale of Products associated with
the initial installation, and installation fees. These costs exclude
capitalized contract costs and upfront proceeds associated with contract
modifications.
Total Bookings – is total monthly service revenue for New
Subscribers multiplied by Average Subscriber Lifetime, plus total
Product revenue to be recognized over the contract term from New
Subscribers.
Total Monthly Service Revenue for New Subscribers – is the
contracted recurring monthly service billings to our New Subscribers
during a given period.
Average Monthly Service Revenue per New Subscriber – is the Total
Monthly Service Revenue for New Subscribers divided by New Subscribers
during a given period.
Lifetime Service Revenue per New Subscriber – is the Total
Monthly Service Revenue for New Subscribers divided by New Subscribers,
multiplied by Average Subscriber Lifetime.
Lifetime Service Revenue Multiple – is the Lifetime Service
Revenue per New Subscriber divided by Net Subscriber Acquisition Costs
per New Subscriber.
Total Subscriber Lifetime Backlog – is total unrecognized Product
revenue plus total service revenue expected to be recognized over the
remaining subscriber lifetime for Total Subscribers.
| APX GROUP HOLDINGS, INC. and SUBSIDIARIES | |||||||||
|
Condensed Consolidated Statements of Operations |
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|
(In thousands) |
|||||||||
|
(Unaudited) |
|||||||||
| Three Months Ended March 31, | |||||||||
| 2019 | 2018 | ||||||||
| Revenues: | |||||||||
| Recurring and other revenue | $ | 276,249 | $ | 246,597 | |||||
| Total revenues | 276,249 | 246,597 | |||||||
| Costs and expenses: | |||||||||
| Operating expenses | 83,076 | 83,760 | |||||||
| Selling expenses | 43,591 | 59,243 | |||||||
| General and administrative expenses | 46,339 | 50,967 | |||||||
| Depreciation and amortization | 131,221 | 124,258 | |||||||
| Total costs and expenses | 304,227 | 318,228 | |||||||
| Loss from operations | (27,978 | ) | (71,631 | ) | |||||
| Other expenses (income): | |||||||||
| Interest expense | 63,748 | 58,790 | |||||||
| Interest income | (23 | ) | (31 | ) | |||||
| Other income, net | (2,246 | ) | (45,240 | ) | |||||
| Total other expenses | 61,479 | 13,519 | |||||||
| Loss before income taxes | (89,457 | ) | (85,150 | ) | |||||
| Income tax benefit | (301 | ) | (433 | ) | |||||
| Net loss | $ | (89,156 | ) | $ | (84,717 | ) | |||
| APX GROUP HOLDINGS, INC. and SUBSIDIARIES | |||||||||||
|
Condensed Consolidated Balance Sheets |
|||||||||||
|
(In thousands) |
|||||||||||
|
(Unaudited) |
|||||||||||
| March 31, 2019 | December 31, 2018 | ||||||||||
| ASSETS | |||||||||||
| Current Assets: | |||||||||||
| Cash and cash equivalents | $ | 3,691 |
|
$ | 12,773 | ||||||
| Accounts and notes receivable, net | 55,348 | 48,724 | |||||||||
| Inventories | 94,275 | 50,552 | |||||||||
| Prepaid expenses and other current assets | 15,128 | 11,449 | |||||||||
| Total current assets | 168,442 | 123,498 | |||||||||
| Property, plant and equipment, net | 64,614 | 73,401 | |||||||||
| Capitalized contract costs, net | 1,092,865 | 1,115,775 | |||||||||
| Deferred financing costs, net | 1,797 | 2,058 | |||||||||
| Intangible assets, net | 235,583 | 255,085 | |||||||||
| Goodwill | 835,404 | 834,855 | |||||||||
| Operating lease right-of-use assets | 72,891 | – | |||||||||
| Long-term notes receivables and other assets, net | 121,796 | 119,819 | |||||||||
| Total assets | $ | 2,593,392 | $ | 2,524,491 | |||||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | |||||||||||
| Current Liabilities: | |||||||||||
| Accounts payable | $ | 115,242 |
|
$ | 66,646 | ||||||
| Accrued payroll and commissions | 37,281 |
|
65,479 | ||||||||
| Accrued expenses and other current liabilities | 158,997 |
|
136,715 | ||||||||
| Deferred revenue | 194,326 |
|
186,953 | ||||||||
| Current portion of operating lease liabilities | 11,749 | – | |||||||||
| Current portion of finance lease obligations | 7,114 | 7,743 | |||||||||
| Total current liabilities | 524,709 | 463,536 | |||||||||
| Notes payable, net | 3,035,990 | 3,037,095 | |||||||||
| Revolving line of credit | 40,000 | – | |||||||||
| Finance lease liabilities, net of current portion | 3,952 | 5,571 | |||||||||
| Operating lease liabilities, net of current portion | 71,964 | – | |||||||||
| Deferred revenue, net of current portion | 326,631 | 323,585 | |||||||||
| Other long-term obligations | 73,390 | 90,209 | |||||||||
| Deferred income tax liabilities | 1,120 | 1,096 | |||||||||
| Total liabilities | 4,077,756 | 3,921,092 | |||||||||
| Total stockholders’ deficit | (1,484,364 | ) |
|
(1,396,601 | ) | ||||||
| Total liabilities and stockholders’ deficit | $ | 2,593,392 | $ | 2,524,491 | |||||||
| APX GROUP HOLDINGS, INC. and SUBSIDIARIES | ||||||||
|
Summary Cash Flow Data |
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|
(In thousands) |
||||||||
|
(Unaudited) |
||||||||
| Three Months Ended March 31, | ||||||||
| 2019 | 2018 | |||||||
| Net cash used in operating activities | $ | (43,017 | ) | $ | (59,582 | ) | ||
| Net cash (used in) provided by investing activities | (1,811 | ) | 46,586 | |||||
|
Net cash provided by financing activities |
35,721 | 12,616 | ||||||
| Effect of exchange rate changes on cash | 25 | (19 | ) | |||||
|
Net decrease in cash and cash equivalents |
$ | (9,082 | ) | $ | (399 | ) | ||
| Cash and cash equivalents: | ||||||||
| Beginning of period | 12,773 | 3,872 | ||||||
| End of period | $ | 3,691 | $ | 3,473 | ||||
Statement Regarding Non-GAAP Financial Measures
This earnings release includes Adjusted EBITDA, which is a supplemental
measure that is not required by, or presented in accordance with,
accounting principles generally accepted in the United States (“GAAP”).
“Adjusted EBITDA” is defined as net income (loss) before interest
expense (net of interest income), income and franchise taxes and
depreciation and amortization (including amortization of capitalized
subscriber acquisition costs), further adjusted to exclude the effects
of certain contract sales to third parties, non-capitalized subscriber
acquisition costs, stock based compensation and certain unusual,
non-cash, non-recurring and other items permitted in certain covenant
calculations under the agreements governing our notes, the credit
agreement governing our term loan and the credit agreement governing our
revolving credit facility.
We believe that the presentation of Adjusted EBITDA is appropriate to
provide additional information to investors about the calculation of,
and compliance with, certain financial covenants contained in the
agreements governing the notes, and the credit agreements governing the
revolving credit facility and the term loan. We caution investors that
amounts presented in accordance with our definition of Adjusted EBITDA
may not be comparable to similar measures disclosed by other issuers,
because not all issuers and analysts calculate Adjusted EBITDA in the
same manner.
Adjusted EBITDA is not a measurement of our financial performance under
GAAP and should not be considered as an alternative to net loss or any
other performance measures derived in accordance with GAAP or as an
alternative to cash flows from operating activities as a measure of our
liquidity.
See the following table for a quantitative reconciliation of Adjusted
EBITDA to Net Loss, which we believe is the most comparable financial
measure calculated in accordance with GAAP.
| APX GROUP HOLDINGS, INC. and SUBSIDIARIES | |||||||||||||||||||||||
|
Reconciliation of Non-GAAP Financial Measures |
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|
(In millions) |
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|
(Unaudited) |
|||||||||||||||||||||||
| March 31, | June 30, | September 30, | December 31, | March 31, | |||||||||||||||||||
| 2018 | 2018 | 2018 | 2018 | 2019 | |||||||||||||||||||
| Net loss | $ | (84.7 | ) | $ | (144.4 | ) | $ | (120.2 | ) | $ | (118.6 | ) | $ | (89.2 | ) | ||||||||
| Interest expense, net | 58.8 | 60.3 | 61.9 | 63.8 | 63.7 | ||||||||||||||||||
| Other loss (income), net | 5.1 | 4.7 | 14.5 | 8.7 |
(2.2 |
) | |||||||||||||||||
|
Gain on sale of spectrum (i) |
(50.4 |
) | – | – | – | – | |||||||||||||||||
|
Income tax benefit |
(0.4 |
) |
(0.9 |
) |
(0.2 |
) | – |
(0.3 |
) | ||||||||||||||
|
Restructuring expenses (ii) |
– | 4.1 | 0.5 | – | – | ||||||||||||||||||
| Depreciation and amortization (iii) | 28.9 | 28.9 | 29.1 | 28.9 | 26.2 | ||||||||||||||||||
| Amortization of capitalized contract costs | 95.4 | 97.9 | 101.5 | 103.4 | 105.0 | ||||||||||||||||||
| Non-capitalized contract costs (iv) | 70.9 | 83.1 | 59.6 | 63.0 | 57.7 | ||||||||||||||||||
| Non-cash compensation (v) | 0.2 | 0.3 | 0.9 | 0.9 | 0.8 | ||||||||||||||||||
| Other adjustments (vi) | 12.0 | 19.8 |
14.9 |
12.7 | 11.5 | ||||||||||||||||||
|
Adjustment for change in accounting principle (Topic 606) (vii) |
(12.9 |
) |
(16.6 |
) |
(23.2 |
) |
(24.5 |
) |
(23.5 |
) | |||||||||||||
| Adjusted EBITDA | $ | 122.9 | $ | 137.2 | $ | 139.3 | $ | 138.3 | $ | 149.7 | |||||||||||||
| (i) |
Gain on sale of spectrum intangible assets during the three months ended March 31, 2018. |
||
| (ii) | Restructuring employee severance and termination benefits expenses. | ||
| (iii) |
Excludes loan amortization costs that are included in interest expense. |
||
| (iv) |
Reflects subscriber acquisition costs that are expensed as incurred because they are not directly related to the acquisition of specific subscribers. Certain other industry participants purchase subscribers through subscriber contract purchases, and as a result, may capitalize the full cost to purchase these subscriber contracts, as compared to our organic generation of new subscribers, which requires us to expense a portion of our subscriber acquisition costs under GAAP. |
||
| (v) |
Reflects non-cash compensation costs related to employee and director stock option plans. Excludes non-cash compensation costs included in non-capitalized subscriber acquisition costs. |
||
| (vi) |
Other Adjustments includes certain items such as product development costs, subcontracted monitoring fee savings, certain legal and professional fees, expenses associated with retention bonuses, relocation and severance payments, and certain other adjustments. |
||
| (vii) |
Adjustments to eliminate the impact of the Company’s adoption of |
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