ALRM - Earnings call transcript Q2 2018 | Alarm.com Holdings, Inc.

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Operator

Good day, ladies and gentlemen, and welcome to the Alarm.com Q2 2018 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] And I would now like to introduce your host for today’s conference, Mr. David Trone, Investor Relations

David Trone

you. Thank and second everyone, conference XXXX to call. welcome afternoon, quarter Alarm.com’s earnings Good

this recorded. is a call As reminder, being

Joining us today and CEO; from Alarm.com are Steve CFO. Steve Valenzuela, and Trundle, President

tool forward-looking risks report in Commission intended required and our in to or guidance. most the include that circumstances, in management’s forward-looking meant to and information obligation note discussion reminder substitute XX-Q Before except these trends, as non-GAAP non-GAAP expectations of Risk are These statements. and statement and between during This and including a conference for words this based results current will or the include and investors website website. and similar Securities of expansion, opportunities at call, reflect we continue, forward-looking is anticipated Relations of in or forward-looking on results available uncertainties, to to anticipated those recent release, projected actual operating our financial on provides demand may, our statements Investor include Exchange Management currently also events prepared to future during identify Alarm.com Form financial by that and and The no from other our forward-looking be time Also and during with or the which Investor metrics measures call of made the company’s also contained subsequent the subject results directly undertakes reports tables such with the non-GAAP quarterly anticipated our considered comparable business our statements investors.alarm.com. forward-looking and statements. isolation that have Factors on we such market statements, with section to updated available intend, being our are posted measures or financial webcast will is believe, date, update containing and will financial that filed call are for non-GAAP use on and press statements found that not will this but measures of quick for Securities understanding Commission only GAAP to investment law. the beliefs cause today’s to time performance differ reported note these contained Please other an earnings additional of to which call and Relations from believes listeners. provide presentation conference metrics, GAAP. use archived, in These also webcast begin, to could website. the anticipate, our be estimate, Statements statements. financial these telephone products information materially expect, extent will financial is commentary statements replay can any on in accordance be a available today services, those our us. as be Management’s call strategies, the speak Reconciliations non-GAAP and statements this to subsequent file to a Exchange we

like way, out call turn to now the With to Trundle. Steve these of formalities over the I’d

You may begin.

Steve Trundle

welcome to and Thanks, call David, everyone our today. joining

from of QX second expectations. up quarter XX.X% and was $XX.X We’re in SaaS million XXXX. another $XX quarter million, license in exceeded pleased report revenue our to that solid the

year. second in million, adjusted quarter over Our XX% non-GAAP up EBITDA was $XX.X the last

want professional-grade continue solution a to the market preference and effectively potential and I compete Our smart as successful service commitment $XXX team for quarter with a to and that in service the in that from security quarter the our product partners our continued were in to second a Alarm.com have support providers in for residential on company’s more Most a customers than ongoing we provider our total want positive service anticipated. reputable business comes exceeded the provider. is the introductions. history well first we recent contribution initiatives of million thank business call, few their and results. as you update their revenue. This to to today’s to I demonstrate On

equips As convenient most This providers an useful our devices and continuously solutions an capabilities expanding set with know, It of our of we for intelligent, to hardware improving market you integrate the ecosystem. of sell. and into ever us peripheral set subscriber. new gives also and service

installations. devices. managing The Thermostat This the room-to-room retrofit and water quarter, as iotega Alarm.com headless in for security for an new kit as cylinders devices integrates of third-party individual residential boiler control for is versatile Johnson number The Controls. that iotega the Smart EU we launched well Europe. Domestically, we that a of control. new the temperature introduced solution panel new of systems hot hardware from popular easy radiators includes control for a integration provides DSC heating version It a smarter a are

for We for also as year, don’t expanded Convert the introduced smart change their to Earlier want the customers European Assure, well door addition who the Kwikset we Yale Smart hardware. with August existing of of portfolio Danalock our the this as the locks Lock market. VX Pro

service tend solutions they market. can service grow that providers expand the the our of ecosystem, of As they range more offer we so to our

during talk about Next, to second the home I builder program that want the quarter. we announced

and is homebuyers rate systems. our these I automation a facilitate to on calls, of new partnerships. service security smart As help goals mentioned high one market, on providers and work and have builders to with of have our local adoption Many tend previous their

community. home also solutions efficiently builders ecosystem range deploying target gives our provider service through can and The best-in-class products the technology. design smart Working hardware tailor full buyers in builders the home new deploying communities. of builders a support solutions home allow to program in Our of to given with new risk of and cost one a the partners, aesthetic minimize our of smart

our configure Our the the the we occurred. service install after the systems providers product and service then has Business, launched years quarter, inventory, platform, Control want and update including property discussed our commercial this progress. a the for has I initiative new new Smarter on to on through I second our and, delivered solution. manage give systems Alarm.com call Access the brief builder Early and required last quarterly our move-in also in

markets. small a It’s integrates As for and needs a medium-sized interactive control unified, address platform management the commercial designed opportunity We intelligent video our reminder, see into surveillance, access a of security, meaningful businesses. solution. energy and to domestic have commercial our increase our partners provider sales this training international service Since and platform activities marketing, to with our segment provider in partners. and both April, the we service awareness launching to initiated attack in

our is outperformance routinely the to are and takes and strong installing interest second reason comfortable longer the the our platform. selling new beginning While a not Alarm.com partners It period was typically get sustained products commercial with it in like sales of solid to flow, quarter. execution for

I Next, want to touch marketing. on

we we call, our our discussed increase quarter. As to to last marketing this proceeded our on presence plan execute

on marketing of We focused are a our couple things initiatives. in

commercial are the There, launch First, we and we channel. want to raise awareness platform. security focused on for properly our

better to with technology service position want owners. and we our business small home Second, providers and our

consumer. the on focused are we Here,

are go-to-market and educating robust integrated them our value approach. our solution We of about more the

I Canada. working to help sales they our discussions you often want countries not customers. engage our message with progress during including provider service benefits of efforts international active North on with our the business, We America. XXX continued service in of reached these the Beginning our providers quarter, accounts potential with also We of international see outside service total second some initiatives. longer-term distinguishes XX we active provider that have as Today, Our growth update in the momentum. and partners. of believe partners XXX,XXX we

countries. are localized XX for currently Our services

market. services Africa the in with provider of ADT Fidelity the through XX% This in launched residential South our South quarter, Fidelity. approximately leading security Africa, ADT is intrusion

partnership and continued to others. also expand with our in Securitas through Europe We

Our security will Aviva. is European XX They now Smart globally. Norway. Spain, and more partnership professionally relationship presence is a Aviva this new fall. our home solution with in monitored with company large highlight customers European and Aviva million Sweden smart the a One Netherlands, Ireland Ireland, introduce Belgium, want installed includes than I to insurance Home, other

range assets. service a links Aviva Many providers We smart customized a programs some offered providers, mind to of brands is application that ones. the updated investor is global preventative deck insurance now protection to of our and take idea solution security that their have discounts global It’s tailored affinity of Aviva with a full advanced the to action their our around some for also you sees feel growing property people marketing our for a their services. Aviva-branded generating our the policyholders. the our gratifying based first-of-its-kind of universally products. scope and of opportunity while company offering growing values echoing list with that for broader to market. along diverse better solution partnership Aviva’s a loved Our for key engagement. home of on of breadth peace the this IoT and and give an presence, With built protection to value To claims can more customer founded message technology of are reduce in see capabilities, includes

Northeast. breadth the it National second including license will utilities includes we energy in its in the the EnergyHub’s million SaaS Other several the more revenue quarter. battery in homes residential world of The that EnergyHub. your We and XX This categories, storage. target Building own program. Mercury also largest our operate growing National manage including with one recently XX% response and Grid’s PointCentral, is will announced bring platform device device program in leverage in EnergyHub segment. businesses by Grid the X that multiple investor-owned demand of subsidiary report Their full-scale market grew than

to initiatives. our We with progress long-term solid see ongoing growth all of continue

provider to and things their work We quarter, these Valenzuela. we’re turn with with growth hard To again to service team to our will our our for And over Alarm.com this let the me contribute investors performance summarize, Steve? as in to faith you pleased Steve for further to develop that, partners continue thanks and and our their our efforts trajectory. update business.

Steve Valenzuela

Thank of This approximately for opening with and grew quarter to for guidance full end good million you, XX.X% $XX.X of revenue second million the then the same our review of raised of the includes quarter year QX questions. a for quarter first Steve, outlook third call begin license year-ago results This Connect last $X.X QX we the the and acquisition for to of quarter for XXXX. XXXX. Connect revenue the quarter compared software toward period as quarter comparable license is closed and I revenue and the from and year $XX the million. Connect for second in provide the full will everyone. second before XXXX, SaaS the afternoon, XXXX financial our

and Our million SaaS the XX% increase Hardware in and with the gross margin Hardware and license down XX% last revenue quarter high range second the last other year. revenues our an consistent compared was hardware margin of the XX%. was increase our million license extent, rate The and in XX.X% $XX.X in the the the enhancement for XXXX. in quarter, lesser sales revenue of second second to our end quarter same quarter of of typically QX increase and cameras quarter, from for renewal XX% QX gross in our thermostat is revenue the million high XX% QX second slightly grew XXXX. a of summer second second and, from for of visibility remains $XX.X margin with quarter year. primarily for in at a was for the hardware strongest to quarter sequential historical Total quarter sales selling $XXX.X compared the the was video an to sales sales system season. in going due gross to our for quarter to SaaS same into modules. quarter XX.X%,

hardware second the expect margins XX% margin the to year. quarter to to last consistent the quarter, same was We historical for of future, our XX%. moderate with in comparable gross XX% range Total

the to in compared our Turning planned to in R&D, quarter R&D, with second same we quarter XXX opportunities million continued XXX see given expenses second employees quarter year. last investment in markets. our the the operating from ended million in we as were quarter in the $XX.X in of the XXXX, significant We expenses. up employees second R&D $XX.X

year. revenue XXX end $XX.X XX.X% R&D QX employees the Total quarter as quarter employees expect more come increased of XXXX. of the marketing add compared to university in on in We the and in to of quarter million hires third XXX board. to or compared in Sales total XX% headcount employees expenses to second $XX.X million same were the last revenue or at

performance. in measurement $XX.X from compared up to litigation adjusted second promote guidance Business in the approximately service are compared marketing net and the our be part the and to quarter second our investments with year. G&A in the As to Non-ordinary marketing year-ago raise half second $X.X XX% In Access new designed we quarter. these expenses products, $XX.X last million in revenue for $XX.X for of of in GAAP $XX.X Control $XX.X million to litigation Non-GAAP second awareness our our Non-GAAP course non-ordinary programs second for to measures to compared quarter are $XX.X non-GAAP to we quarter total increased the million income investing million XX% includes continue are in for XXXX. of million Alarm.com. year-ago our financial the quarter. stature compared from Smarter plan who sales the net adjusted sales quarter, excluded initiated million the the $XX.X million XX% general income million to second and and million Alarm.com expense course $X.X same we increased quarter to offer of of to XXXX. more in quarter and prior G&A We expense second $X.X XXXX, million to indicated, of QX consistent in of the providers to marketing increased EBITDA adjusted in in expenses the XXXX. and expense were previously quarter,

XXXX. We the free We Turning first sheet. In about in second cash prepaid to $XX.X component ended approximately flow the operations million balance and quarter $XX.X with million cash million cash cash second of quarter, of the with we supply equivalents. in generated $X.X flow. to $XXX half from million our secure of

prepayments of cash We expect in to these XXXX. half convert of to second most the

to outlook. financial our Moving

and We of expect QX SaaS license $XX.X million million. revenue to $XX.X

for license revenue license be million, $XXX our $XXX.X expectations outlook We year million full between to million. and XXXX SaaS prior and are $XXX.X our to from increasing $XXX SaaS revenue to up of for million

raising $XX We million. for includes compared our guidance $XXX up to to million, total This million of $XX.X revenue prior our are hardware XXXX $XXX.X for $XXX.X guidance million $XXX our increased also million and our from of $XXX.X guidance prior million, of to $XXX to other for revenue guidance to million. million to

lower off We expect QX QX. a than seasonably coming hardware revenue strong to be QX, sequentially

hardware revenue for to expect also QX, historical seasonally trends. be than lower QX with We consistent

our $XX.X We are increasing our to up expectations for non-GAAP adjusted EBITDA for $XX.X XXXX million. $XX.X to million from be $XX.X million guidance of between prior to million,

by in We expect with guidance. QX be year and reflecting QX to lower higher QX in which planned than our is adjusted to approximately adjusted than and EBITDA EBITDA in QX, QX, to to sequentially marketing therefore compared be QX X%. line full We R&D, to investments QX be expect our and lower X% seasonally

million half are XX% as pleased conclusion, compensation our $X.XX to $XX.X to $XX XXXX $XX.X previously based estimate of million tax diluted is This per $XX.X year up $XX share, non-GAAP to weighted of expect and from performance diluted is raising million In for prior shares for XXXX million first on diluted to million are EPS full we guidance our have net $X.XX of of of $X.XX $XX.X to million stock-based the million. outstanding, rate per on indicated. also our or our we to an income We share. for guidance average expense we $X.XX non-GAAP XX based or with XXXX.

We for our are us about opportunities ahead providers. and excited the service

on connected the Thank Q&A. opportunities property. in and that, open with today. by enabled us invest you operator, And joining Internet call business to our on to for intelligently Things continuing expanding are the for the of please the capitalize our We call

Operator

of first [Operator Instructions] Bank question from comes Our with Nikolay Beliov America.

Nikolay Beliov

Hi, taking question. thanks for the

please the can us in on caused you what color quarter. If more give some outperformance the

Steve Valenzuela

Steve speaking. Nikolay. Hey, Yes.

their generally increased portfolio. the we positive positive saw some markets. And purchase the I feeling think dealers think are is I saw product what about feeling fairly of levels They’re that economy. same we just about

just the really we launch broad – than by So my range thermostat, as all higher but anticipated. commercial driven noted cameras, of sales the not in comments, I the

product our they’re service summer shelf got and that sure think they’ve I going make well-equipped. providers on the to that want into the

those answer that a trends So general realize, some are are I those specific we really I not saw. but guess

Nikolay Beliov

Okay. And to follow-up a the equivalent.

So Steve, very clearly, XX% subscription growth, revenue strong.

is You’re guiding to Is it in seasonal QX. being XX% into guidance? you’re Or baking other conservative? there factors

Steve Valenzuela

SLA to we be could have there have to requirements consider be careful that we always when we guide. Well,

and the at when year-over-year, you SaaS, in think QX came QX, guided also if I at XX%. XX% we was look growth about we

Now to are guidance that with past here. that have being occur that revenue. our affect cautious could that our There the could just things in have said, SaaS we be occurred

Nikolay Beliov

first for first And LTE. Got you how that? change on Any question my Steve, Trundle. you your one can Steve how one are guys adopt you then take of the it. business is and might last XG seller, the were advantage preliminary thoughts to

Steve Trundle

Yes.

there number going there’s on CATM working – networking. we’re in networking So then And low-frequency There’s right ra those and all of things low of of or there’s domains. range, long are mesh on three side the sort XG, now. wireless

there immediate that LTE of really enabling envision is that low-powered more a you not I reach power be supply, see a which a cetera. et may can think we’ll may to us version there not CATM, locations is where hub, be the impact

cost volume I equipment there’s prepayments. there’s a is in as on of out. little XG, as low fair transport the and modest a further With CATM, amount more XG structure well data think So a both focus there on

give range sell flexibility in to devices able cameras. service are they go around IoT our the wider I video think, high-def high-bandwidth when be a and though, like of ambitions have we in XG to providers

and the think, and really cost waiting we’re bandwidth the on So there, the deployment. I

yet marketing in a way, by service of a deployment XG, provider these and have, bandwidth of new around years want even the can so could get Sometimes, doesn’t the version of XG installing higher you is actually advance do good be services our in the a as of as that they’re that you market. But you’re home it home And when done, you terms, the you’re if kicked breadth to example, with the for enable with technologies. their only we’re connection broadband hope the of will and these there set that a a all product consumer parts confirm with our in accommodate and application.

So think those of a things few I are that the there. excited we’re about

Nikolay Beliov

Thank helpful. That’s you.

Operator

question comes with from James. next Our Raymond Tindle Adam

Adam Tindle

Okay. Thanks, and good afternoon.

question First landscape competitive a been lot Trundle. noise know for this of the Steve quarter. I in there’s

guidance, if that and wanted and So experience Ring your of far you in tie security impact of imagine, little to I’d years QX acquisition quarter, comparing Amazon And ahead you I the to of ask just confirm, any so in completely but Nest in on results sort if ago? that, level or could based Google’s live? the now early wanted saw a to help your pausing versus customer maybe with product go that’s this

Steve Trundle

Yes. the we the cases, impact Adam. and was ago appear Good but of the answering recent we time the thing really number question, biggest of the announcement, both at I time questions most announcement don’t the years in in some questions. and want Nest got to invested cavalier, both then

seen we see providers any the service haven’t market, our what of terms In impact. in

and crowd. to There there their in is think what their to are and quality pretty customer are broad are their consistent their we the the device there And which and and overall to and in hasn’t segments evidence about other then really quarter stuff I different stuff. we any about with is apartment, way worried their base market market. the that looking or a think the are they’re that are folks to is cater families want we I evolved protection Amazon And feeling add from good of stated, the that either the in markets property really just latter Nest invest that’s home. think the pretty safety

any through the changes we’ve I catering we that in behavior. think years, who that’s group, been their to and haven’t probably seen

Adam Tindle

also And guidance first touch little down reasons just the the I SaaS that maybe Okay. a a bit maybe if of or to slow might as That’s to to a sort is In implied, after the alluded investments I basis. wanted an then, comes not kind very growth line question the margin EBITDA helpful. half, is increasing, strong acceleration a where the we appreciate. follow-up, aspect as coming guess, some start and well. would a growth the the year-over-year of we here back you wouldn’t for of fully timing mid-teen level be of Why an there’s the on on later that. see the half,

Just Thank dislocation any you. the help on things. those kind of between two

Steve Trundle

that’s some timing. Adam, Yes. definitely

partners As commercial, to to we’ve the time have talked the just the it roll trained. that take have about through dealers get provider really for service

it’s so typically, account, example, to to to license. that slow, down a being fair indicated, and we I for have And fourth take the seasonably And for into seasonality account we in into XXXX see Also, say much point especially take guide. SaaS there’s of – quarter. coming hardware, then, as in you, of for have revenue you too, not the from

disruptions past. that but factor when be that happened it there can some that have SLA in We requirements guide, we’ve like to, the has can very occur, occasionally, in we seen

in factor and are increasing investment And So we that have increasing then, we when look our R&D. EBITDA, we’re in and at our investment to you marketing in. sales

look you have hires, especially XXXX, have of at on the now if we of board. full first that half complement a of So come university hires kind didn’t R&D

here was be QX overall marketing in the nicely. marketing, guidance look our will to we’ll And increase we in about consistent XXXX at QX and came in did adjusted light more and And adjusted and sales sales midpoint folks and the with R&D marketing. we’re at EBITDA XX%. sales the for point the have a if from for QX of guidance of the XXXX, up be of higher said, second XX.X%. marketing taking the the sales XXXX half year $XX.X revenue. on on That guide quite for we fairly for of to year. EBITDA, for XX% XX% for about million So adjusted with of you EBITDA about that view, And and to

almost So points. basis XXX

Adam Tindle

much. Understood, makes very That’s you sense. helpful, Steve. Thank

Steve Trundle

Thanks, Adam.

Steve Valenzuela

Adam. Thanks,

Operator

with Matt question Blair. next comes from William Our Pfau

Matt Pfau

question. Thanks for the taking guys. my hit with And wanted insurance first just you Hey, to on that Aviva. signed partnership

interesting is least guess, first from that I’m that I in aware perspective, at international the region. So first the the insurance partnership signed, of you that

So maybe already? you can touch on how that these insurance evolved? additional And then, for I may guess, you place more partnerships? have broadly, many what’s the of opportunity how And in

Steve Trundle

Sure.

I we’re that the have U.S. markets different cases, the think, insurance innovative insurance. slightly and side, more outside – just of regulatory in some times, opined it we relates kind environment, concepts as international that on to of the the seeing at oftentimes

way premiums because So they about technology Aviva, services concept to customers. of they the potential how branded might render And the their offering the focus thought encouraging highly IoT with actually that of what’s a risk relate had and really different Aviva encouraging have about I of is premiums. think, pieces or could a and team occurred on do reduce it the deployment to differently to it that what they that just a with

kind also of working together. provider, program provider a are service in very local and way with this they So they still put been has progressive the that service

that do, they’re be novel I it early too they’re to say very that So we’re excited we just full pipeline – early, well days in know in a for too something doing they’ll us service committed very view. our do would they how across We – similar deals It’s to of and about And it’s be types appear globe. it. if but saw and to of adoption early our don’t the partnership it’s of with we’ll don’t. elsewhere, though, thrilled particularly got say providers. of to similar We we types programs

We’re program. make kind course we have that focus we help them similar term, sure to the in But various and do of we other of be near Aviva in with on be. with successful we’re attributes going discussions everything the would to can parties that

Matt Pfau

for Got it. And update for due could and video your been quite And on me. part hardware dealers prior the one Camera is quarters, the then, what of some was time. you that looking uptake order video give line video in an Doorbell outperformance with versus to how I cameras. like the customers on slim trended then, last back us given has just at new of quarter the least believe, most has Maybe

it has So seems been like there demand healthy.

an So the on uptake. maybe video just update

Steve Trundle

Yes.

You research. your did definitely

So of was I’d say, quarter-over-quarter, the really video sort consistent. attachment

my higher video but a so chain commented higher of happening customers percentage second we prior of camera particularly a some noted, but into If video you of the In unfortunately, percentage you quarter, the also on back sales certainly up I’d have have some base. you issues to video now, product. the of back trended as attachment that the existing second kind acknowledge, we our that results. base attachment seen also, of I we longer a I slim line we’re would back to And have video of supply now. in has in may system the time, did this call, the for quarter, door and way have otherwise seeing a and if frame. say go continuum look not then, time coming affected that around and over the into hampered saying like some might since add XXXX XXXX to And a

Matt Pfau

for Got Thanks guys. it it. That’s a lot. me,

Steve Trundle

Thanks.

Operator

DiFucci Jefferies. John comes question next from Our with

John DiFucci

with relationships by Brothers service already release the providers, are make relationships are Steve Steve also a then I want that a Trundle is question for in you for I the Toll just Trundle, the But uses press be I still that follow-up understand sure going that my have you. this. and out Valenzuela. question on These Steve Thank to came the owned builders to program. the Alarm.com. themselves? when builder said

to to And that in case, the believe how have there the involved I there’ll throughout you is country? how how guess, so being is, encourage answer, all want providers Toll do be relationships, you So service for my where – but others do that? and the those do how probably to some that – going last you involved, acting new be provider? I you if service – going to to upon – are you there Like that’s they’re depending do always it them, question believe related new happen? I this Brothers make homes are built those guys is is really Or is get –

Steve Trundle

Yes.

Brothers and requires So Toll from of I distinguish that good builders. of it other questions set some the

with broader come start service entity then vision actually to kind that of for a So a back builders. unique in themselves. let is bit Toll and they’re that Brothers me the

pieces But engaged bought little builder, They’re provider So some needs a security every And the a years. some of They Toll they’re option. being buyer security a operate builder well this than put a announced just that Alarm.com security their of This a the comes where vision company legacy division a the new have we different they provider. services of not meaning multiple some, home luckily, security affiliated as or attractive them I to on encourage characteristic would think in more made that. the smart with ecosystem. something to set distinguishing an new They and the highly the And decision time more like more Brothers. that model isn’t just It’s components to that period can – is program integrated like home. the the in builder ecosystem getting bucket I make their to consumer a a builders to thing. a they ago own a builder And homes consumer. a of enable new Alarm.com home be builders simultaneously is they home is to a of a is ideally, not for that therefore, we’ve – encouraging as it but distinguish division. – home, customers. it’s would service probably traditional a being service from specify piece with us that that’s other into focused And

we builder. us us builder, think, for fairly face a it from service a benefit then, the – national for is provider demand makes sort So but times, the at put builder. there from to unified the difficult a on a I particularly trick of And is fragmented us, base, to

So on smart and the and platform to introduce the or providers automating on the with builder, thermostat platform to brought But audio, in various no. applications the and then the versatility providers automation. security on our energy, home garage scale and service moving the with door an lights we’re compete marketing not automation from the moving always case, and to this and provider builders relationship. the service integrated up is merits more focused really servicing, the selling to in and the of relationship we’re and solution the service The for to up simple like video integrated of

local for builder. more the builder to smart my mechanics. providers promoting that service of I we If that with we’re valuable a compete the they to in merit we iron partners. a adopts for the value builders our lot the the provider home derisk that turn, out they well. work builder they, all benefits to comments, service have work the in So process to technology. scale work And in are put on to partners make it builder And with as few locals. of and the we’ve And builder the setups our And for us with Alarm.com business. with as standardizes then add national partners and national have ecosystem, place put the in that can it And

John DiFucci

sense Okay. – it looks in at cash also know, like I a flow accounts don’t would’ve stronger it we could know this just than receivables flow little help thought jumped. quarter, we this it would’ve basis, And And flat I a in increased year-to-year. – I great. do you shouldn’t would’ve that That’s quarter? going it’s on all But just understand that guess, you clear. not It cash what’s that. year-over-year. Steve Valenzuela, but hope was quarterly it on look us and that’s I can and That been makes

Steve Valenzuela

Yes. John. Sure,

about prepay in inventory $XX.X million the half component the year did we first for supply. So for of

parts supply our time doorbell. about are video of lead becoming we disruption Some some talked and with long

that. wanted to So prepay we

in second out not the do it’s that XXXX. cash of convert yet. expect We converted half came and that cash most So to of to of

ago, cash. higher But would of second half free flow have $X million. if had you cash XXXX, we course, So look at look the affect the are should at you about I million. of XXXX’s $XX – as the not flow A expect you pointed those, than out, we and costs litigation-related if half free year XXXX, first half cash that of of be with of caveat the second predictable, that

of it And prepayment we about of we $XX look didn’t flow of would for had flat. inventory, the So about have if XXXX, to million at we for you if the free cash XXXX. have second half been compared XXXX,

when let’s caveat factors expect – of XX% say, are up, to easily not XXXX about flow, for determinable that all XX% So it flow. comes XXXX for free to to cash the second cash the with half I be again,

John DiFucci

looks flat. business But I Yes. would mean, been is grow. And have working said, you accounts like basis. by at said, jumped I’m well not jumped this it I earnings least really then, did on would – like than was it usually are that you a doing I capital lot it But it even the would’ve does, a growing. receivable quarter. why It and here have seasonal in thought particular more sure

Steve Valenzuela

to what more there, quarter. John, tended hardware What happened of in strong is sales, the outperformance toward that was be so end had a the the happened we nonlinear and

half, in XX were in days to DSOs in AR that our convert of XX QX the XXXX, days second to and So QX. we compared QX to cash expect

or second second of we’re the actually indicating of the XXXX. the So half flow in the XXXX that’s half XXXX, be why of free for second cash to compared to half higher guiding

a So if the as not sales to don’t and those back-ended, AR hardware linear, collect have when time have your linear affects have temporary we is such within your sales is that – to DSOs that and of be you tends you because was more versus which hardware SaaS, payment period.

difference. So it’s more of a timing

that hopefully you. helps So

John DiFucci

Yes. Steve. guys. That’s much. very lot, Nice Thank helps job a you

Steve Trundle

Thanks, John.

Operator

Jeff Imperial Our next question with comes Capital. from Kessler

Jeff Kessler

And then, we from human about heard ObjectVideo, I their haven’t And absconded, a so talents a about or should assets, bought speak. them. year bunch since much Steve, you of all ago, whole to say,

even – on they’ve been if you, things been that somewhere for hiding types wondering of video but just them You’ve work some you or I’m coming obviously sand analytics, doing could Alarm.com? without of at rock, are skunkworks us update the out us

Steve Trundle

Jeff. Sure, Yes.

ObjectVideo. skunkworks very kind we’re obviously, in deployment able at the were we acquire pleased with And between this would of from team, and I to we’re moment, that So say.

recording sure So our the video the and and alerts to make in you have And we make we’re to models, analytics even goals can And a relevant of been become. for matter. intelligent that the by being more consumer training things those to the really the have more that quality of intelligent more set content the consumer. around model video, more bigger, model the be to in models powerful delivery the the data

standard heads that to are a get package internal optionality this what trying of put the there. but we now and So team making right update we’re already, we’re that’s the it our it’s guess, externally And I’d release to out the residential going kind offering down set testing but against love progress. into hard But out of don’t. of of not is we’re it analytics to deadlines working achieve ready, year. such is I time our amounts have certain until to

Jeff Kessler

Okay.

XX%. regard more obviously small could up material some about And could but the some become those I color point were businesses with in they talking you businesses other since at to give future? number, a realize Your you’re us

Steve Trundle

Yes.

wider of EnergyHub of being I actually my battery a to a to really program a the being think from won battery what enables in program coming They or I including, a consumer or being manage residential where a for you chargers nice even with comment. put my I have business more So deal National on on variety battery time – a in utilities. utility from DVR load about load highlighted comments, is impact expanding that type a about Their bit in note recently Grid. a devices, I think, meaningful being recharge selective can selective thermostat-driven

in is the array diverse a forces clicking whole managing field. along. business The of they’re So

all EnergyHub delivery, on people I think, for other a we making PointCentral down the energy when we consumption, and realize remotely manage and it. times but vacation on focused at access is vacation to we’re lot those and going are properties. in beginning and making is easier focused drilling it REIT of to unattended owns on easier or that be properties acquired access to And have really the vision for staying one unattended for awareness who of a really going a home it of temperature and rental

trying business. same we’re where where what channel. is phase HVAC to in we’re seeing its have there service, HVAC And thing, a the for building sort when number. of I nascent a past say do everyone’s contributor the I is and PointCentral talked building base vertical may take they’re demand more taking So they’re but And there’s still and And per certain more platform, which platform monitoring need people to thing. and that a is that know from IoT point at concept security the help of unit to solution and system on one platform is the And they’re provider primarily about security – not a a big se, need I’m requirement. really that the protect that they’re is is last – it business sold apply position nuanced our a of still but evidence a applications remote delivering us more evidence as have the outages, of in it to which that service the then, as we’re that segment

are say. all I progress, good kind concepts of and would So making novel

Jeff Kessler

monitoring One lot analytics is going think developed a that eventually to on one and the are equal technology say, of dealer more centers would everything lot a probably for a commodity. guess, itself, you technology if to as AI, of threat else everything the traditional monitoring developed have about, that that center is upgrade else is a clients work people of being some your spent the the of I which a to Is toward time? I the questions – their or monitoring that own is given inside centers way is are obviously, asked to over being with there being moving

Steve Trundle

Right.

the reasons day it AI. AI successful the can is the threat the is And two come believe it’s a customer And It’s thing the I first. We it can to to end need providers this enhances working consumer. range more the at service we service we’re But be – or yield day, So one if service of often parts. of capabilities our think is. that traditional business two. next in kind wants of rudimentary. reason sometimes our providers? a the And someone of to of One, not, service the get than don’t more

to So for we way our central the consumer. yes, to With open guys that would – that how we’re assets partner in central functionality regard our leveraging team at that. with in the a always the a stations, station good is better result has

actually and fragment. more you’re there every trying account. though the with is mean, AI station merit that central becomes I predictive. data of model, an into with You to have dealing model effective mind every Alarm.com training pretty coming to data video to some more train volumes it end large the the for because keep we’re exceeds in a a become that event and in, volume data volumes And would typically an the in significantly basically coming if of same the

to the I there pushing can to the with a model consumer. that and tools providing station react in cases think, well. with the the central we’re be to most them needed hopefully But in from intelligence benefit sitting down in coherent going would the where it So cases, then be way we to most some deal and as may intelligence central

Jeff Kessler

that on that on are clients to you are is would – question. your there this? like final quick taking how in was talk them little one time where a Where can you where longer And you you. in how And that of bit Thank group well? coming real – life coming and this Are business, With here is product? practice of is ahead taking the some regard as be? the group – terms of down are, to there commercial further terms do commercial a Okay. others to essentially there in a in of practices

Steve Trundle

with There to terms that so So say our owner, what by the that of with these run are entrepreneurial set seen be tend products in cycle. a I are would of adopters companies and other call single adoption it’s carriage. we’ve a very we early consistent oftentimes what would

They’re dealers. makes are One quickly. refer them to dealers a the a smaller person they can typically carriage people very decision Some because or fastest of straight decision, make adopters they anything move out.

that’s the seeing very folks – kind by good those that hands-on to way, the we’re us be with feedback. and So their most fairly vociferous of be they because for tend tend and also to

with and than set we’ve of integrator commercial just that XXX I commercial kind been we’re looking positive so got very The believe, – selling the a watching the feedback solution. but more And not repeat sales. are early has access adopters, of

tend time provider. then, drive things, just are So be larger we sales takes work time sell or sell going. to will and longer to larger those evaluate week, And take more where we’re they’re cetera. to thought sell those providers all take of they training they change one inertia et where discussions would service service not in it kind are through probably a they they consider and every about And every do in discussions weeks, but takes – just break is two which be, some cycles the the that more that will one, more

has the thus we So far, the been have. partners from smaller adoption, most of

Operator

Thank you.

next Borges Sachs. question Gabriela with comes Goldman from Our

Gabriela Borges

appreciate question. I letting afternoon. you Good to a me ask

as of the the I��d On versus piece board of from from mix benefits you’re new system? given an seeing on get on ADT you’re it customers to And Alarm.com on Thank is more rates Trundle Valenzuela, in on ARPU, business what love the Steve directionally update, you in Steve residential update either the that you. attach there an or has on-premise on Connect, functionality? seeing the coming that the channel any get

Steve Trundle

Gabriela. Sure,

significant it. internal continuously need capabilities the residential much there. start services. So – pretty me yield commercial still haven’t like dynamics can that higher I But a ARPU basic The new sometimes Steve we trends, same, I’ll are and if which of seen any than we’re won’t the help and ARPU kind change with are our capabilities evolving are

services. the at same time, So on there’s pressure the always price residential

ARPU we’re to prior working We especially think ADT, offset like residential in enhanced has usurp there, side. transition due So and ARPU and service and exciting not. more more second message to obviously, the I’d the time on together the to services in providers commercial by of market ready from when kind of the less from is trend. regarding leave it’s which of they aligned have in ADT’s ADT they’re – higher think for I said are set technology And or don’t kind will of a coming in steady-state steps, to quarters, or with plans that the to taking a plans what combination to was say kind or part segment either ADT. question want continuing we drive value probably I’ve the of our and their try we’re what to sort video going higher-volume it of message. of to We it’s bring guess, And going resulted

Gabriela Borges

to I revisit may, hardware That’s as wanted helpful. I for if the And follow-up, well. Steve Valenzuela outlook. a

basis. it a on lot Your I also sense. look comments seasonality to a made maybe of on wanted year-over-year at

implies you. growth consistent view. years. think, actually to decline How should couple of trajectory Thank business half a is of hardware year-over-year? a reason decline a of any trajectory little there here? bit back And about would if from pretty seems the it the in I the year counter think It why guidance second I we look of

Steve Valenzuela

of been it’s hardware may possible the QX. have pulled So that sales QX very too some from forward

tell the we for sure supply shortages. given because So that can’t

could weakest and just but that are timing things that is typically, it view. new if you QX of hard usually from we be to there occur hardware. if of our have you that skew typically, a to take and seasonably aware But past, So the out, because look that, guidance introductions quarter are product point for there is in tell

if you the can in XXXX. guidance, I modeling way. lower So I you If the was sales this, model, think probably I to annual be look I would XX% about doing that we’ve given was QX at model it QX

I when taken we trend, on you’ve the hard and to year quarter-to- not because think, the try quarter. what’s with up out basis. to guide that give is for actually the okay, Overall, different all guidance a the that guide fluctuations we’ve trying take what’s reasonable we the as to hardware guide can So that There’s introduced careful quarterly that’s kind steady-state, seen, look many we It’s – predictable. it’s when at hardware, because that’s cameras with just We skew. because be way so not Again, would necessarily so to new past. recurring. things introduced new that to the have not try and We the occur commercial we this. it cameras. in of We guide very on occur

Gabriela Borges

I you. appreciate the color, thank

Steve Valenzuela

you. Thank

Operator

comes Gearhart Our next question from David Analysis. First with

David Gearhart

Hi, in afternoon. actually you expense taking sequential questions. a Thank the first not to regards good litigation but increase question is just My for – here. nice nice from my

that some the give model model rest litigation baseline How it’s You of year? should hard said predict of earlier remarks your expense. for the Can we with the in year? us to you to sort

Steve Valenzuela

where are at that we a fact can’t any more least say we on saw at high that in second flow lull ebb I that the but the It’s questions, hardest expense matters. little like there the a of through of as doing think look I’d The indicative, moment, Yes. and not interest are more probably sort – of of all-in, exactly costs And at our XXXX. shareholders’ may progressing level interest what various to quarter side. these is about higher litigation think what we don’t what litigation a will telegraph or you in indicative the go XXXX of really – guess are When matters at bit the we’re telegraph because we and there’s point blip. are very kind is in we XXXX, one-time that a be a of David, questions

David Gearhart

SLA and and to put guidance you’ve that. that then, forecast talked of about agreements And having Okay. in kind your

Every You’ve revenue your public high quarter, now. license exceeded a been you’ve guidance. the of SaaS end while for and

often you’re and maybe for these it sense Just get that’s we agreement some into would factoring violate a kind occur guidance? sizing of how you sense wondering if can much and where roughly give those of how issues how SLA so us an it can

Jack Vander

possibility – variables. of every so, something And of something of sort hope variables, few one modest outcome variables sort in in a all on allow different we discount this out every that different one don’t to that there’s that an the variables volatile stream. have that negative of happen sure a come Well, that you at license And of outcome there – same to and And say, that driven goal would could do are is align lurch. are doesn’t or a does negative to quarters that three for our not one we don’t these say, causes approximation, out or but on revenue I the roughly, of occur. fluctuation hope into probably we lead sort they two make by can I one or the quarter SLA But three point. play four occur. and people some would and to four unpredictability SaaS that is And

surprised. we or them So leave have to –

And So do well, that. I it, probably – how we about I for think we everything guess, about then I slightly. have account say. anyway, if we to what would outperform that’s But goes

David Gearhart

color. Okay, for that’s the it from me. Thank you

Steve Valenzuela

Thank you.

Operator

with Reback from comes question next Our Brad Stifel.

Brad Reback

thanks Great, much. very

progressing Can when the that sort trial? back you issues us expect and here, of key remind key Just real what quickly the of cases you are what – sort on litigation. the

Steve Trundle

sometimes like I refer people probably update limited XX-Q But several think, our can public call financials a current when most we to in much we’re front, this. matters the on and – the because litigation any on material that’s don’t. reflected. about I the we would just are XX-Q, other the that up, of I goes one be litigation is full say how are TCPA of sort our And different on there’s would sometimes There’s that the bigger being is that’s in there them IP of of with approaching think, little There XX-Q. one dealing think it couple other that in make always think, one I trolls There’s the matter. we’re than a matters, that litigation.

probably is I’d what it – guess now. that’s those I about So say right

body got going – is body matter, that of just our and we there legal and assertive matters would and then then a in be we’ve disclose provide we of We’re what cases IP situation in TCPA to the can the on say is best team a – a handling, some is XX-Q. and probably

Brad Reback

much. very thanks Great,

Steve Trundle

Thank you.

Operator

Latimore comes question Northland Mike with Securities. from next Our

Matt Shea

Hi for Mike. guys, on Shea Matt

And contribute? fast First much question, SaaS how growth? revenue the was how did that Other category

Steve Valenzuela

it Other XX% this Steve SaaS year-over-year. grew million segment – and Other is Valenzuela. for $X.X accounted of the The about revenue in quarter

including revenue year our revenue. hardware, segment total ago, of for of a total accounted we now accounts The other X% revenue, whereas note as is a the X% that our thing for Other it should

basis So from in point we our Other saw contribution XXX segment. increase

Matt Shea

service? Okay, business versus residential great. a launch And separate for analytics be video segments? might ObjectVideo will there then And offerings officially when the

Steve Trundle

be eventually. flavors we will don’t there will slightly analytics I’ll not if Or sure commercial. with Sure. – I’m disappointed launch for And segment. video year this there residential be exactly different

verticals that can use different cases. imagine analytic have different commercial You

applicable through this year. and that customers, niche- oriented we’re right in – be the for some we analytics focused expect would analytic more there oriented I broadly have on it packages, market time, commercially package expect but now residential base to So will

Operator

you. Thank

Vander Maxim Group. Our next Jack with question from comes

Jack Vander

zone were up you mentioned revenue to earlier Hey guys, on I the is way. those to much. In by ARPU and XX% ARPU changed But if question, response the Connect quarter drivers from strength up you the between Can portion, an directionally? year-over-year that to that, too great in try split that just overall business. subscriber

Steve Valenzuela

because but company. If a breaking out and that few We it customers, to business. we really we get a And sensitive start other details a to them. detail, they’re ADT public don’t would break be, their is into want I out don’t there Connect customer ADT has think,

quarter. So in breaking be But it we of revenue of terms revenue provided for the million total license the breakout shouldn’t that. the of software probably doing Connect in $XX.X for further we down,

Jack Vander

guys ADT Okay, intrusion This partnership. residential – the Fidelity said I to of the – the How large relative just XX% a guess, follow-up market U.S.? American or with you market. share South intrusion South is African the

Steve Valenzuela

Yes.

of basis, So On market as probably in the country big I relative the as of that U.S. XX% market. a alone. say, probably it’s to X% not in U.S. terms nearly would TAM

I Fidelity U.S., ADT Fidelity is and different same Tyco when is you’ve is that XX around and TAM relic we in got have of of the and and got have services company, say what would a wider to not demographics at of part the my residential folks XX% households a international brand then, but So and notes, is the residential ADT recollection ADT there TAM, rate XX% my of ADT you of company. you’ve between I that which XX% there, rate and sort a roughly is way, independent number. the taking stand-alone a ADT, recollection, of security that’s million security owned a my you what services, say of by have disparity is and look that take different a take of Fidelity, ADT

Jack Vander

a helpful. Alarm And ADT an for with core back just Alarm’s That’s the powering system is overnight quickly, there providing would all-in-one with kind the platform – uptake Fidelity’s idea change? was real end the is then, Okay. residential of of Or is offering, partnership slow it like that be that? it

Steve Valenzuela

it’s it latter but No. We wish the not. were

We to figured haven’t how that. out do

systems. gradually servicing to partnership term ADT that on existing market, and then, systems we’re new that focused gradually up see Fidelity and be of crank period will where longer you’ll and see or upgrade time, they sell it with a long- produce will So a we as engine over begin

Operator

Thank you.

Aftahi next Roth Our from comes Partners. question Darren Capital with

Darren Aftahi

XQ called then, But cycle question. my homebuilder can service taking to sort fast versus And gauge how of general the talk you own a arm. for out grew trying in national XQ? you know I Could characterize Toll builders? program, the thanks I is having just more Yes, sales Brothers On you think on international, called you XXX,XXX. out for about their the it

Steve Trundle

Sure.

start me let with So international.

bring market. with to what – and away potholes so just services some we and we without new path particularly that quarter-over-quarter add growth. active see on It’s service a But steady try slow, largely, in time. continuing one at be chip just a of step of rendering fix Occasionally, we’re not sort the to and a if deal will our there market international, a think, over things, event build potholes, markets. is is security let – provider problems it sequential maintain we is the global at smooth times, Frankly, problems. relationships not over I

we So job needed the – what not partners I it’s I check. just new builder don’t needed we nothing really, that the if cycles, do – promote each about But quarter is to we’re a this Q-over-Q that and we the interfacing remember initiative with a a better and provider the is platform think you for international, sales for With regard and say there’s along. these but higher made ourselves, asking to builders to with quarter. to the where builders our service those always than us, would volume to selling, we’re prior determination builders a

want the We’re is put service the decision asking to they to several platform make to most then check or properties. prudent providers. choosing them their our in one in of And going the

of do So Again, a if cycles the handles marketing. entirely our are sales or cross cycle. are a that that is they would quick four and building can the selling homes say very builder local sales involvement. of without service of got oftentimes, that of five that’s our builder. sort size function builders, month, a you And length provider the these a I And cycle between

right have you them to ones the six-month-plus you like type some sales the the a mentioned, time of catch person, of national, If right a cycle. and and that’s you catch have at

Darren Aftahi

Great, thank you.

Operator

conclude this and presentation. today’s no This does ladies are gentlemen, Well, there questions further at time.

wonderful You disconnect day. may have and all a

Alarm.com (ALRM) 8 Aug 182018 Q2 Earnings call transcript