Q2 2020 Alarm.com Holdings Inc Earnings Call
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Ladies and gentlemen, thank you for standing by welcome to the alarm Dot Com Q2, 2020 earnings call. At this time all participants are in listen only mode. After the speakers presentation. There will be a question and answer session to ask the question during the session due to press star one under telephone [laughter] required.
Further.
Zero I would now like to reduce Roasteries conference call I'm sure, David Trone, Vice President and Vice President Investor Relations you may begin.
Thank you good afternoon, everyone and welcome to alarm Dot Com second quarter 2020 earnings Conference call. As a reminder, this call is being recorded.
Joining us today from alarm Dot com are Steve Trundle, President and CEO and see Valensuela CFO.
Before we begin a quick reminder to our listeners.
Management's discussion during the call today will include forward looking statements which include.
Projected financial performance for the third quarter and full year 2020 anticipated impact of the global economic uncertainty caused by the covered 19 pandemic and emerging market dynamics and trends in our business and on anticipated market demand for our offerings.
Our business strategies.
Plans and objectives for future operations.
Continued enhancements to our platform and offerings opportunities for growth in our current markets.
And other forward looking statements.
These forward looking statements are based on our current expectations and beliefs and on information currently available to us.
Statements containing words, such as began believe continue estimate expect indicates may project trend will and other similar words are intended to it identifies such forward looking statements.
These statements are subject to risks and uncertainties, including those contained in the risk factor section of our most recent annual report on form 10-K filed with the Securities and Exchange Commission.
On February 26, 2020, and in subsequent reports that we filed with the Securities and Exchange Commission from time to time, including the updated risk factor section of our quarterly report on form 10-Q that we intend to file with the Securities and Exchange Commission. Shortly after this call that could cause actual results could differ materially from those contained in the forward looking statements.
Please note that the forward looking statements made during this conference call speak only as of today's date and alarm Dot Com undertakes no obligation to update these statements to reflect subsequent events or circumstances, except to the extent required by law.
Also during this call management's commentary will include non-GAAP financial measures and provide non-GAAP guidance.
Management believes that the use of these non-GAAP financial measures provides an additional tool for investors to use and understanding the company's performance and trends.
But no set the presentation of non-GAAP financial information is not meant to be considered in isolation or as a substitute for the directly comparable financial measures prepared in accordance with gap.
Reconciliations between GAAP and non-GAAP metrics for our reported results can be found in the financials in the financial statement tables of our earnings press release, which we have posted to our Investor relations website and investors that alarm dot com.
This conference call is being webcast in is also available on our Investor Relations website.
The webcast of this call will be archived than a telephone replay will also be available on our website.
With these formalities out of the way I now like to turn the call over to Steve Trundle, you may begin.
Thank you David good afternoon, and welcome to everyone.
We're pleased to report solid second quarter results, our SaaS and license revenue in the second quarter was $95.7 million up 16.2% over the same period last year.
Our adjusted EBITDA in the second quarter was $29.2 million.
I want to thank our service provider partners and the alarm dotcom team for their continued strong performance as we navigate these challenging times.
Our results were driven by decent momentum and new account installations in the us.
Which picked up nicely in the back half of the quarter. After a slowdown caused by the cobot 19 shutdowns in March and April.
Our service provider partners adjusted to the environment and successfully implemented new safety procedures that allowed them to return to conduct installations.
We believe that their trusted reputations reassured consumers, who seem to mostly comfortable with allowing our partners to operate inside their properties.
On today's call I'll focus on our open high teens recent product and integration developments and then discuss initiatives to help our service providers continue to adapt to the evolving market conditions I'll close by commenting on a recent announcement by 80 and by providing some additional details on the effective.
David on the markets that we serve.
Beginning with opened I.
As you probably remember we acquired the company last year to expand our commercial opportunity in the large enterprise and national accounts market.
The cloud services component of the 4.4 billion dollar video based security market and the Americas region is forecasted to increase from 9% of the total market in 2018% to 15% of the market in 2022.
Opened a is a leader in this transformation with its innovative solutions.
I should note that opened I has experienced more disruption from covidien than the north American residential component of our business.
They tend to service schools financial institutions restaurant chains, and other large animal or multi site customer locations.
These sites have been less accessible for installations.
In some cases project budgets have also been paused while companies manage these uncertain conditions.
We view this disruption as temporary.
Meanwhile, we have been very focused on executing our internal goals for alarmed our comps integration of opened I and the R&D program, we have for the platform.
Opened I recently launched Oh, WCS 24, seven like a pure SaaS offering optimized to address mid tier commercial customers.
It supports up to 24 recording channels per system and provides access to streamline versions of the open I platforms robust enterprise feature set.
We designed the open I subscription service to provide a cost effective and highly flexible options.
For businesses that want to get started with open I technology without a sizeable upfront capital investment.
Since launching notably US 24, southern like a growing number of alarmed outcomes traditional service providers have included the offering in their toolbox and started to engage their mid tier commercial customers.
One recent example is bargain hot.
They have been an alarm dotcom subscriber for several years with 90 locations.
They were initially attracted to the capabilities alarmed dotcom offers for the efficient and secure management of multiple locations.
After using our enterprise console they expanded their deployment with our smarter access control service.
Earlier this year bargain Hunt was introduced to open eyes full suite of video services and they will begin rolling it out to their retail locations. This month.
Next I want to share how we're evolving our support for our service providers. So that they can continue to optimize their operations in the current cobot environment.
Every year, we typically take advantage of a number of in person opportunities to engage with our service providers and to conduct extensive training on the services and capabilities we offer.
Recently, our training program the alarm Dotcom Academy.
Launched an entirely new catalog of train programs and we significantly expanded our digital platform for online learning.
We've seen a strong increase concession participation throughout the year, including during the second quarter.
The new training is designed to help our service providers leverage the extensive tools and services, we provide for remote system configuration testing troubleshooting and repair.
We initially developed these capabilities to help reduce operating costs for our service providers in normal times.
The cobot 19 pandemic has given these differentiated capabilities significant new utility value.
We also launched a new series of smart tip instructional videos small group workshops interactive troubleshooting scenarios and wide webinars to replace in person sessions.
All of these were added during the second quarter and have been helpful and making sure that our service providers are well burst.
On the latest services and capabilities that we offer.
Next I want to comment on the announcement 18 made two days ago regarding their partnership with Google.
I'm sure that our investors are wondering what this means for alarm dot com.
18 has indicated to me that it is day one for this initiative and they are working to further develop a view of both the initial objectives and there longer term plans.
We believe that 80 key continues to view alarmed dot com as a strategic partner.
Our software as the technology platform that powers, the 80 command and control offering and provides the smart home services for a large and growing percentage of their residential and commercial customers.
The launch of command and control in 2019.
As a significant undertaking and has been a success by many measures.
We expect to continue work with 80 to support and expand the deployment of this offering for the foreseeable future.
As we have always done we will continue to focus on our mission of delivering to our service providers and their end customers. The most innovative secure and reliable platform available.
We believe are focused on serving our partners and on technology innovation has served us well and we remain committed to our approach.
Over the past quarter, we have continued to win awards for our innovation as well as grow our partner base, despite the challenging environment.
We have more than 9000 service provider partners globally, our large ecosystem of hardware partners enables a breadth of services and capabilities that spanned the DIY full service residential multifamily health small business and commercial smart property verticals.
Often we see that one of the advantages that alarm dotcom brings to our service provider partners is the ability to provide a single platform with a full spectrum of Aiotv application services that address all of these market segments.
Lastly, I want to update you on market conditions, and our sense about the overall effects of code of the cobot pandemic on our business.
As I mentioned on last quarter's call the pandemic impacted new account sales and installations across all but our energy have lines of business in March and April as shelter in place orders were implemented.
The U.S. residential security market has improved considerably from this slowdown.
Our commercial business and especially our international business are seeing more of an ongoing impact from cobot.
Overall momentum and new account installations continued to build through the second quarter and our retention remained solid at pre cobot levels.
We're also seeing a couple of market dynamics that tend to favor sales of new security systems.
During challenging economic environments consumers historically tend to worry more about asset protection and security and safety become more important.
And now we are seeing an emerging suburbanization trend, where a growing number of households are seeking to meyer migrate away from dense.
Expensive major metro areas to smaller cities and suburbs, where single family homes are more accessible.
This appears to involve a high percentage of adults under 30 years of age.
As a younger cohort of adults increasingly purchase single family homes, we see a strong fit for our professionally installed in service Smart home solutions.
I also want to remind you that the course of the pandemic will likely continue to influence economic conditions for the foreseeable future.
The exact outcomes remain difficult to predict.
As such we will remain cautious about projecting what future conditions may look like and we will continue to focus primarily on what we've already seen or are currently seen in our markets.
In summary, Im pleased with our second quarter results.
We remain confident that we can continue to advance our strategy as we navigate this uncertain period.
I want to thank our service provider partners, our ecosystem partners and the alarm dotcom team for their hard work.
And our investors for their trust in our business.
And with that let me turn things over to Steve Valensuela Steve.
Thank you Steve I will begin with a review of our second quarter 2020 financial results and then provide guidance for the third quarter and our raised outlook for the full year 2020 before opening the call for questions.
SaaS and license revenue in the second quarter grew 16.2% from the same quarter last year to 95.7 million.
This includes connect software license revenue of approximately 9.8 million for the second quarter.
Down from 11 million in the year ago quarter.
Our SaaS and license revenue visibility remains high with a revenue renewal rate of 94% in the second quarter at the high end of our historical range of 92% to 94% and consistent with levels prior to the coal that pandemic.
Hardware and other revenue in the second quarter was 45.9 million up 16.8% over Q2 2019.
We continued to see strong sales over video cameras, which primarily accounted for large increase in hardware sales.
Total revenue of $141.6 million for the second quarter grew 16.4% from Q2 2019.
SaaS and license gross margin for the second quarter was 86.4%.
Approximately 180 basis points from Q2, 19 gross margin of 84.6% due to improved efficiencies, we've been able to achieve in our operations.
Hardware gross margin was 21.6% for the second quarter compared to 18.9% for the same quarter last year, primarily due to product mix and inclusion of opened I, which has a slightly higher hardware margin.
Total gross margin was 65.4% for the second quarter compared to 63.4% for the same quarter last year, mainly due to favorable product mix.
Turning to operating expenses R&D expenses in the second quarter were 36.6 million compared to 28.4 million in the second quarter of 2019.
We ended the second quarter with 721 employees and R&D.
In total head count of 1300 17 employees.
Ill from 554 employees in R&D and total head count of 1005 in the year ago quarter.
We have continued to build our team during the pandemic with particular focus on engineering staff.
And have had success hiring for some positions that had been hard to fill in the past.
Sales and marketing expenses in the second quarter were 16.9 million or 11.9% of total revenue.
Compared to 15.6 million or 12.8% of revenue in the same quarter last year.
Our DNA expenses in the second quarter were 17.4 million.
Compared to 13.9 million in the year ago quarter.
Gene expense in the second quarter includes expenses that we exclude from our measurement over non-GAAP financial performance, which we referred to as adjusted measures.
These include non ordinary course litigation expense of 1.6 million compared to 3.1 million for Q2 2019.
Q2 adjusted measures also includes non ordinary course expenses of 543000 for the secondary offering completed by TCV.
And a reduction to expense of 1.7 million to adjust the earn out liability related to our acquisition of opened nine due to the lower probability of opening achieving their earn out.
Non-GAAP adjusted EBITDA in the second quarter was 29.2 million up from 27.7 million for Q2 2019.
In the second quarter GAAP net income was 17 million compared to GAAP net income of 13.8 million for Q2 2019.
Non-GAAP adjusted net income increased to 20.6 million in the second quarter.
Compared to $19.9 million for the second quarter of 2019.
Turning to our balance sheet, we ended the second quarter with $205.8 million of cash and cash equivalents a.
A very strong increase of cash of $34.1 million quarter over quarter.
Our dsos in Q2 remained constant at 49 days.
And up slightly from a year ago, when our Dsos were 45 days.
We have a strong balance sheet and a cash flow positive business model.
In the second quarter, we generated approximately 35.1 million and cash flow from operations up from 24.1 million cash flow in the second quarter of 2019.
Our free cash flow for the second quarter with 31.8 million.
Compared to 21.3 million for the same quarter last year.
In the second quarter, our capital equipment purchases were 3.4 million compared to 2.7 million in Q2 2019.
Next I will review our outlook for the third quarter in 2020.
This continues to be a challenging time to forecast as there are many unknowns with regard to the pandemic flu.
While our second quarter results showed that our service providers are operating fairly well overall.
We cannot fully anticipate how future results might be affected by the pandemic and its impact than general economic conditions or our supply chain among other factors.
For the third quarter of 2020, we expect SaaS and license revenue of $96.6 million to $96.8 million.
For all of 2020, we expect SaaS and license revenue to be between $382.7 million to $383.1 million.
Ill from our prior guidance of 375 to 380 million.
We are raising our guidance for total revenue for 2020.
To 552.7 to 563.1 million up from our prior guidance of 515 to 535 million, which includes estimated hardware and other revenue of 170 to 180 million.
We're raising our guidance for non-GAAP adjusted EBITDA for 2020.
To 106 to 107 million up from our prior guidance of 100 to 103 million.
Non-GAAP net income for 2020 is estimated to be 74.2 to 74.9 million or $1.46 to $1.47 per diluted share.
From our prior guidance of 69 to 73.5 million or $1.36 to $1.45 per diluted share.
We expect our non-GAAP tax rates remained at 21% for 2020.
Bps is based on an estimate at 50.8 million weighted average diluted shares outstanding.
We expect full year 2020 stock based compensation expense of 27 to 29 million.
In summary, we are pleased how well our service provider partners and our worn dot com teams are performing in this environment.
We will continue to work hard to support our service provider partners and their customers during these challenging times.
And with that operator, please open the call for acuity.
Ladies and gentlemen, you have a question or comment at this time. Please press star than the one key on your Touchtone telephone. If your question has been answered or you were sure what yourself from the Q. Please press the balance sheet.
Our first question comes from Adam Tindle with Raymond James.
Okay. Thanks, good afternoon, STI trundle at.
Just maybe start with kind of a general strategic update backdrop in the industry is environments very volatile that your performance has been quite stable probably pretty different some competitors. Good healthy balance sheet stable predictable business of Org affords you some optionality to maybe get a little bit more on offense. So.
Maybe just talk about how you're thinking about using this business stability as a competitive advantage is now the time to start thinking about doing something larger and then the key metrics are characteristics you're looking for in investments.
Sure.
Adam I think yeah. We're in a fortunate position I think our service providers are doing generally pretty well in that provides a good amount of stability.
The businesses are very driven by by recurring revenues so.
Makes them more predictable.
I think as we look forward I mean, we're not going to dramatically change I think what you see US do continuously is is reinvest back into R&D and steadily attempt to expand the footprint.
The offering that we make available to our to our service provider. So they can expand their market. So you've seen us over the years moved from.
Residential to residential video to commercial to access control et cetera.
That's important for our service providers that we'd be able to sort of cover the full spectrum of biotech application services. Likewise, we've been expanding globally and that takes pretty intensive investment. So that said there are couple of things probably that we continue to focus on a bit more one is our corporate.
Development function.
We spoke a lot about open I, just a moment ago and Thats. The result of an active corporate development.
Operation. So we'll continue to sort of that opportunities and look for places, where we can add value and then.
I think that.
We may shift to slightly more aggressive.
Marketing posture over the next next year, so we'll be some steps like that but.
But generally.
I think we're doing well, it's it's a challenging time to get so bullish.
Especially with the with the cobot uncertainty that sort of creates an overhang that you want to.
At this moment in time bet big on a new direction, but I think generally we are taking advantage of the dynamic to run our recruiting engine hot look to fill key positions that are open and continued to grow in a lot of different directions.
Understood Thats helpful. Maybe just as a follow up more near term.
SaaS revenue growth, obviously accelerated this quarter I think over 4% sequential growth.
Just touch on some of the key drivers between ARPU dealer adds retention and you also mentioned that I think.
Corruptions picked up at the ended the quarter could you give us an update what you're seeing here in early August did that picked up at the end of the quarter continue kind of linearly as as you sit here in early August. Thank you guys.
Yes, good question.
So.
The.
The thing that probably surprised us in the quarter was the strength of the us.
Particularly the us residential.
Market, which picked up a little more quickly than we expected and and really at this point is running pretty pretty well and that.
Have a number of partners that are doing extremely well that.
That kind of covered some of the weakness that we saw commercially and internationally in international markets have not come back.
Quite as quite as quickly so a lot of the growth was driven by.
By outperformance and US residential another also some strong performance in the subs if you look at.
The 10-Q, I don't know, if it's out yet or not but but you'll see sick 66 zero percent year over year growth on the SAS line.
In the sat in the subsidiary businesses on a good bit of that's driven by.
Energyhub, bringing on really moving to a more mature status in some of their electric utility relationships and Thats, a nice tailwind for the business. So.
Some of it is ARPU driven but at the moment our posture on ARPU is to really focus on the value of providing the service providers and make sure that that.
That we're not we're not trying to get everything on the table necessarily but instead deliver to the consumer steadily better.
Experience that said video analytics has been continuing to pickup and.
As customers use more really is a nice offering as customers use more.
Of the capabilities that we were able to render then we get as a trickle of improvement on the ARPU rate overtime as well.
Thanks, Steve.
Yes. Thanks.
Our next question comes from Niccolo below Bank of America.
Hey, guys. Thanks for taking my question I have a two part question will stick trundle once David.
This convergence between income that and and calm security alarm dealers what does it mean at the high level from strategic point of view and sounds like you do the chess game again.
At the chess game around the Smart call me should become began just more complicated.
We do every transaction. This week I mean called you think of albeit in the long term what does it mean for you all business and call do you as the CEO think about did development.
So, let's two part question I'll start and the first part.
Convergence of Internet service provisioning with security I think was your your first the first question if I understood correctly cracked up a tad.
That's been underway I mean at we've gone from a world, where we're putting in almost entirely wireless technology.
To one where more and more we're.
Leveraging the consumers Internet connectivity, particularly for video services at times for integration of additional third party devices. So.
As you leverage that that communication pipe in our world we have to make sure. It's very reliable we don't we're not doing games online with our teenagers here, where we're trying to provide a very reliable security service. So our service providers have been sort of migrating in a bit into the business of offering or attempting to help the can.
Tumor improve the reliability of there of the Internet services and we ourselves shipped I don't think we may have made a lot of noise about it but we ship something called the alarm dot com smart gateway.
Specifically for that purpose and that it allows the dealer to remotely administer the conductivity inside the home that is feeding video cameras and other internet connected devices and it's become.
That we did it to make the service runners more efficient make it more easy for them to service customers remotely.
But it's becoming sort of a an additional piece of their offering.
So I think that will continue of course, we also have some MSL customers and their the benefit as more of a bundled offering but.
As I look at sort of the landscape.
Has the world got more complicated I think it sort of.
Has done and hasn't in that.
Yes, I think this announcement does demonstrate that.
That the professional service provider.
Company and channel is a very attractive place to be in the smart home market.
We've been saying that for some period of time that there really are multiple market segments and the one that we.
Probably focus most intensely on his professional service provider and Thats been good for us over the years. So you see it on its an additional endorsement in a way of that have that strategy that that we adopted over a decade ago.
And at the same time I think with this announcement in particular, it's just a little too early to tell I think we've been a and we've been a solid partner we've got.
Over 3 million customers in collaboration with.
80 to you that that that we're servicing together, we've got a lot of competence capability that I think we'll be valued as we look forward. So we're looking forward to.
A set of discussions and a roadmap planning session in the not too distant future and.
And we'll see where things go I don't I don't necessarily.
May be that we see some additional devices and whatnot integrated so I think it's a little earlier early to tell exactly how that washes out.
Hey, Steve I mean, just a clarification question I can see called that makes wrong. Okay dual brand strategy getting da Y and professional services said at the same time and that.
Maybe didn't work out with Google brings that well, but it was okay sounds like Google want to thank you for the next level, but I guess the Fred do you is that Google at some point might cab backend system outflow dealers that comparable instruments. So you all caught on technology. So maybe you can count will help us compare and contrast, what Google cash.
Today in that regard versus the capabilities of your system. Thank you.
Yeah.
I think I think a lot of that contrast is based on is based on pedigree and that.
Since 2000 and for small for quite a while we've been focused on first and foremost the customer being the professional service provider.
And building out the back end application software that allows a professional service provider to manage.
Very large deployment when they themselves oftentimes have multiple dealers. So there's a lot of.
A lot of application, where that's required that probably half of what we produce is not directly in front of the consumer.
Certainly when we get into commercial applications as well, we get into very rich.
Log in hierarchies, and Permissioning routines and what not that.
You have to do we wouldn't have done then if we were just getting started the last few years I think that.
Further to contrast, and think where.
Google has been very strong is on the consumer device side with some very elegantly designed.
Devices that are rich and functionality that have been in some cases market shift gain if you think about the nest.
Thermostat that are generally regarded as pretty high quality.
Pretty high quality devices, and and then the focus on the software side has really I think bent on rendering an experience around those devices to the consumer.
Not really a focus on rendering a platform for a service provider. So we're starting in a very different place Sen and it may well be that.
With the right amount of collaboration we can we can sort of accelerate on both sides and I'm not sure yet, but those are the basic some of the basic differences I think if you look at what we do we're also covering a lot of different market segments with a single platform so weather year.
Dealer that servicing small business or residential or you're going DIY or you've got to help component in your business.
You may be installing access control whatever it is.
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We've kind of tailored the offering to work for the service provider and.
And at the moment thats pretty different place than where.
Where Google is coming from where they've had.
A strong focus on.
Really the devices, that's consumer uses in the home.
Perfect. Thank you.
Yes.
Our next question comes from David Robertson with William Blair.
Hey, guys registered a question on the open I SaaS offerings. So.
I'm just curious how.
Maybe you can kind of elaborate on how the selling process compares to two the legacy offering and I know in the past you stood a date you intended to put some additional sales resources behind opened nine so is that still the case.
We will that kind of change what that target customer will look like compared to the legacy offering as oil.
No. Good question, yes, really it's on its on two fronts. When we think about Salesforce enhancement on the one side. The open I team is enhancing sort of the scale of their sales team and the number of.
The number of the amount of outreach they can do.
And then on the other hand, we're beginning to introduce.
The offering through the alarm dot com.
Parker sales team.
That we've had in place for a long time now as we as we take components of open I and begin to introduce that through the alarm Dot Com channel. It has made sense to tailor what I described a moment ago as auto the us like which is a.
Sort of a less.
Not as much of the enterprise version product, but more of a true SaaS product that.
Has very low upfront cost and.
That is more akin to what our.
Our service providers are used to used to using used to reselling. We'll continue with the opened I platform in the enterprise sales segment, so they're always going to be a set of customers who want to.
Pursue who are very large typically institutions universities places like that that want to pursue a more classical enterprise deployment with racks of servers in their own not.
Running software running the opened I package now that that enterprise deployment is backed up by the way with a very nice.
SaaS software layer, so that we can remotely administered remotely manage.
All of that infrastructure on the on the enterprise side, but I guess the short answer is going to keep doing enterprise. The build out has been lately on the sort of a lighter weight SaaS offering what you think will be more applicable for slightly smaller locations.
More applicable to a broader segment of the market and we'll have them.
In our view kind of using our traditional model slightly more attractive.
And durable long term economic model with less upfront costs to the to the subscriber.
Great. Thanks.
Yes.
Our next question comes from Jeff Kessler with Imperial capital.
Yes.
Hi, congratulations on a good quarter in a tuck in a tough environment.
Oh Im interested in.
Our announcement.
The Johnson controls international.
That's the old Navy cheap you will lead you brand that's out there that actually was kind of pushed aside in many ways that bye bye elite by very short.
And it was considered in some cases and also ran but youve gotten into Europe with.
You guys did you ever securitized and now youre going to help out and whether it potentially very large base.
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Consumer.
Page.
Consumer types of systems are you going to be we Johnson controls are you going to be targeting just to consumer or will you be moving into like small business or even enterprise business.
With with them over time can you talk about your European strategy, because it seems to show that you're beginning to start covering the entire continent.
Yes, no thats [laughter].
It's insightful you picked up that announcement I think many people have in the us at forgotten about 80 to international but it's still a very large and successful business outside of us and.
It's really not just Europe its parts of Asia I think we're launching in 11 countries parts of Asia Europe.
Couple of parsed parts of Latin America, and initially the focus there is on.
Is on the the residential side of that that business, primarily and bringing the customer.
A richer set of services upgrading a lot of existing customers to a richer set of lung dot com powered services and and.
Kind of managing down attrition, but also freshening up the presentation.
Of what 80 to international brings to the consumer so that's going to they've they've executed remarkably well in the first.
668 months to the year, and Thats going going pretty well in terms of our overall ambition, yes, I think our ambition is to leverage every investment we make for the North American market.
As much as possible for international markets. So when we make investments and commercial or access control or video analytics, we never sort of sit here and sale of this is a U.S. only feature we ask ourselves.
Is the feature is going to be relevant based on the until we have to other segments into other partners elsewhere in the world and therefore our.
Much as we see here in North America different service providers service different parts of the market, whether the enterprise small business et cetera, some do it all but but but because there's a lot of fragmentation will continue to work with lots of different partners and hopefully.
Overtime upgrade the overall sort of smart property experience that a consumer can expect in these other markets.
Will this be is just separate and apart from.
Your your team secured Todd is just going to be in conjunction with them is you're going to be some overlap.
How are you going to work this.
No. It's Jeff it's similar to how we work with 9000 service providers already where.
We take a little bit as much as we can have a switzerland role and we do a lot of R&D, which then we've we then amortize across.
A lot of different service provider. So we have a good relationship with Securitas, we intend to fully support them, but that this is not.
80 International is just a different different companies. So it's not yes not it.
Non affiliation type of deal.
Understood just quickly Energyhub you had some kind of nice words for them as part of your gross.
Particularly in SaaS growth.
During the quarter could you expand.
What is what is what are you going on Thats, what is going on badges that so successful right now with Energyhub since it seems that helped your numbers this quarter.
Yes, I'll talk tactics, and then a little bit strategy.
On tactics I think weve from time to time have announced new energy partners, some of whom has been.
Large fairly large and notable utilities, we have not been able to announce every deal they sign because some of those partners want to keep that information confidential keep their deployment information confidential. So we've announced some we haven't announced them all.
Last year, most of though a lot of those opportunities for sort of in the startup phase where you're running trials and pilots are getting things in place and then I think some of the accelerated growth. We saw in second quarter on that side of the business came from the fact that those relationships.
We are maturing and are now reaching.
A full deployment now let me backup talk a little about strategy, there, which is the concept is that you connect to any energy consuming component that may exist in a primarily in our residential property. So we already do a lot of that through the alarm dot com business.
But we also on the energy upside partner with a lot of a lot of folks you might not typically expect us to partner with even people that we would traditionally describe as competitors anyone making a device that can be tethered to a powerful thing is someone that may be a partner of ours, whether it be an h. back manufacturer of water heater manufacture.
Sure thermostat manufacture a full pump manufacturers whoever it may be and we then aggregate all of that data.
In a certain amount of control and put that into the hands of the electric utility so they can better.
Manage and control what's happening on the edge of their of their grid Senate time at times, even influence the way that they level load their their production. So thats just becoming that's a good business to be again it takes scale. It takes a long time.
You get some traction with a few and that that then carries over into a few other relationship. So so thats not sort of.
Of course, the edge of the grid for these guys is not getting easier you cut batteries, you got solar Inverters, you've got more and more there.
On the consumer side that you need to track you need to manage you need to understand so.
All of those components generating additional data, which makes that good place for a software provider to to prosper.
Thank you very much.
Thanks.
Our next question comes from covered Mcfate with Crdit Suisse.
Great. Thank you Hey, Steve you mentioned unexpected strength and.
You wish residential in the quarter, maybe just help us understand what drove that just relative to expectations.
Yes, so I think last quarter, we talked about generally.
New account creation being at around 70% of what we had planned in that caused us to be a little bit.
To be more cautious as we gave an outlook for the rest of the year, we thought that that would ramp that we weren't sure when I think what happened is it it ramped.
Inside of the quarter quite a bit and and I think what maybe surprised us a bit is how.
How willing the consumer is to allow a company with a trusted reputation so as you're someone if you're if you're one of our service providers, whether it be 18 brink's anyone.
Guy Guardian lots and they have great reputation.
And customers are willing to let a well branded sort of trusted entity into their home if they perceive that they're taking the proper safety precaution at the same time, you've got a lot of consumers that are at home and can get stuff done so to the extent theyve been thinking about getting a smart home system or want to upgrade their system.
They've been more available more available for sales visits more available for installations and I. Thank them.
We didn't see that kind of.
Advises you look at our are the size of the cobot pandemic flu has and and you wouldn't necessarily expect that relative to the rest of the world, but even end markets.
Florida, Texas elsewhere.
Where we perceive there being.
A more intense pandemic situation.
We've seen the consumer be very very resilient.
And then again still back to 80, Google from a a marquee perspective.
We think just.
The competitive landscape.
Resets to the extent, we see you were to a lot of distributors. How do you think the other distributors react and then another it's a hard question, but he think it triggers other type of relationship similar to what.
Globally key have or just any thoughts on if there is any kind of.
Industrial fundamental change.
Hi.
Okay.
I think I'm getting a little background noise, there, but I'm I'm not sure that's come from Brian.
I'll say that I think.
The first it's a little early to tell we don't really know exactly how this this this recent announcement will shake out.
What it means for the for the market and.
Therefore, I am not yes, it's difficult for me to predict exactly how other service providers react I would say in general though that.
The market has been competitive for a long time, both on the technology side, and the service provider side and and.
Competition is generally.
It can be a good thing for us and our relationship with our service providers because it drives the need for innovation.
And we're in a position where we're laying in place the investments to maintain a very innovative posture. So if you want to if you want to stay current and deliver the consumer a tier one experience.
I hope and I think that we are the right partner for you and that.
That it will.
Regardless of how things shake out that a competitive technology environment will be good for alone Dot com.
Thank you.
Thanks.
Our last question comes from Jack Vendor Garden Maxim Group.
Okay, Hi, Hi, guys ex excellent quarter, thanks for taking my questions.
Okay. So.
First question for Steve Trundle.
In one of my favorite topics to explores is the premium services front in kind of what new potential solutions services or any offerings. During a pipeline that may go overlooked or not talked about as much but could be quite unique to the current market. While also being material ARPU expansion driver.
Yeah.
One example, my mind is the recent acquisition of Air Dog maker of unmanned aircrafts.
That sounds exciting could you could you maybe talk about the vision or the planned for anew hand aircrafts in than anything else in the pipeline or on the drawing board you might be able to talk about.
You are paying too much attention lately.
Yes, so we're always attempting to expand the footprint.
Value that we can provide the consumer through our service providers and I think.
You've been watching things there have been a few things that are maybe not fully at fruition, yet but that have that that have at times gotten a little bit of airplay one being the connected car.
Capability that we announced in the fourth quarter of 2019 that is sort of out there, but below the radar and not yet in deployment I think we've talked in the past about water and the importance of water monitoring water management to the consumer.
It's a place where were making meaningful.
Meaningful investments and I I have a lot of hope that within the next 12 months will.
We'll see very attractive offering there that's that's becoming more broadly deployed.
With Air Dog, we we've been working for some time.
On.
Making it possible for.
Cameras.
Two.
Go where they need to go to see what they need to see as opposed to being.
Absolutely in a fixed position are not able to track.
You know a dynamic event so.
Kind of fundamental R&D there, but.
But.
Thats, an ongoing initiative and and one that.
We'll continue to invest and don't have any immediate updates, but but.
There are several things like that that we our goal is to keep our service providers ahead. So we have to be looking out more than just sort of the next six months or 12 months indeed be at times, taking some flyers on things that.
To use upon by the way on things that.
That we think over time will generate differentiated value, but take a while to do.
Got it that's helpful and.
And then also Steve Trundle, if if you could provide maybe a status update on.
Point, central which I imagine, it's been likely impacted or more disrupted and then your residential business given the vacation in property rentals.
But they did acquire door report back in early May which has already announced take last quarter too but.
Any additional color you can provide on point central and maybe just informally speaking when you might when one might you see them scale into a larger contributor to a alarm as a whole business, yes exactly.
They were and are being impacted probably a bit more by covidien.
Some of the other segments their customers are the vacation rental companies now those companies are doing well again right now people are driving stain and vacation homes much more than than.
That's an outcome most people are doing their summer vacation. So the market is good but there is not a lot of opportunity to install new stuff.
This summer because everything's fully booked.
The winter will be the time, when we when we hopefully get back in the VR video space.
With a faster install rate.
They also though are in the business of time, together and making available a full multifamily.
Platform, whether you're a company that owns thousands of rental homes or whether you're an entity. That's operating several 300 unit multifamily buildings point Central provides a smart property solution for that segment that benefits both the property owner the property manager and the tenant.
Themself and door Port was germane to that vision more on the multifamily side, particularly with with higher rise in high rise residential we wanted to.
Add value at the access point that the tenant is using with a smart entercom solution and we wanted to be able to do that both of the set of partnerships. So we're partnering with several folks that are in the intercom business, but also with a fairly affordable retrofit solution.
That is not dependent on the buildings internet connections cellular retrofit solution and and we thought that the door port was an innovator in that domain in and doing full end to the point central multifamily offering nicely and strengthen our our technology position there.
Got that that's helpful as well and then just just lastly, I think on the last one in the queue here first for Steve out as well.
So the SaaS and license revenue guidance for 2020 was raised a lot of analyst Party kind of question there had questions about this but.
It's it does imply robust growth and it's great to see just hoping you can maybe break it down though in terms of the underlying drivers.
Would you say what are the factors there there are embedded there in terms of maybe international subscriber growth does embed international subscribers grow commercial subscribers grow.
And then how much is split towards ARPU expansion in general.
Jack Thanks for the question I am actually here. This is the first question I got so it's going to get a question. So yes, the staff growth.
Talked about.
Really is new subscriber adds really in north American residential being in the major driver.
We continue to see you really good progress and really good uptake with video analytics and as Steve talked about that does inch up the ARPU a bit.
But again I think we're benefiting from a faster if you will be shape recovery.
In North American residential.
Now being a main driver that's helping offset some slowdown in international we have a number of new new dealers internationally that are.
Preceding has just at a slow ramp given the Cove Ed endemic and then commercial course.
Has been impacted a bit but I think the.
Main driver has been strong.
New subscriber adds in North American residential the retention rates have been rock solid even compared to basically at the same level prior to the pandemic. So we're getting a boost from new subscriber ads and at a faster rate than we anticipated with with the same level retention and ARPU.
Moving up.
That's helpful. I mean, you guys.
I'm sorry go ahead.
So thats really driving the south growth.
And you just because you referenced.
The strong renewal rates are.
Small attrition rate.
Does that hold true for international as it does in North America or is there any difference there.
International is still relatively new so we don't really break it out I don't think that Theres really any significant difference between the two.
Of course, North American residential we've been doing for many many many years from the very beginning international still relatively new and so you don't have that that base of subscribers, but we typically don't break it out I would say that.
I'm not aware of any to any major differences and retention between international and North American residential and our work so far its look pretty similar increase their similar to the point that we don't model it differently, yes, that's right.
Fantastic Alright, guys again, great quarter sold results and I appreciate the time. Thanks. Thanks Jack.
Ladies and gentlemen. This concludes todays presentation you may now disconnect and have a wonderful day.
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