Q4 2022 Alarm.com Holdings Inc Earnings Call
Okay.
Good day, and thank you for standing by and welcome to the alarm Dot Com fourth quarter 2022 earnings conference call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During the session you will need to press star one.
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Good afternoon, welcome to alarm Dot Com fourth quarter and full year 2022 earnings Conference call. This call is being recorded joining us today from alarm Dot com are Steve Trundle, our CEO and Steve Valensuela, our CFO before we begin a quick reminder, management's discussion during today's call.
<unk> will include forward looking statements, which include among others projected financial performance and key assumptions related thereto, including with respect to the <unk> dispute potential legal spend and cost rationalization strategies, the impact of emerging market dynamics trends and anticipated market demand.
The impact of the Covid pandemic challenger and global supply chain dynamics, and adverse macro economic conditions, our business strategies plans and objectives and the integration of recent acquisitions and anticipated growth prospects of our new light acquisition continued enhancements to our platform and offerings.
<unk> for growth and expansion in our current and new markets.
These forward looking statements are based on our current expectations and beliefs and on information currently available to us.
These statements are subject to risks and uncertainties, including those contained in today's earnings press release and in the risk factors section of our most recent quarterly report on Form 10-Q filed with the Securities and Exchange Commission on November nine 2022, and in subsequent reports that we saw.
File with the SEC from time to time, including our annual report on Form 10-K for the year ended December 31, 2022 that we intend to file with the SEC. After this call that could cause actual results to differ materially from those contained in the forward looking statements.
Please note that the forward looking statements made during this call speak only as of today's date and alarm 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 in understanding the company's performance and trends.
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 to GAAP.
Reconciliations between GAAP and non-GAAP metrics for our reported results can be found in the financial statement tables of our earnings press release, which we have posted to our Investor relations website at investors not alarm dot com.
This conference call is being webcast and is also available on our Investor Relations website. The webcast of this call will be archived and a replay will be available on our website, let's now turn the call over to Steve Trundle you may begin.
Thank you Matt Good afternoon, and welcome to everyone. We're pleased to report fourth quarter and full year results that exceeded our expectations. Our full year 2022, SaaS and license revenue was $524 million up 13% over the last year or <unk>.
EBITDA for the full year was $146 $8 million.
During the year, we continued to execute on our long term growth strategy, we expanded our platform and continued to build diversity into our revenue streams. We ended 2022 with more than 11000 service provider partners, who deliver alarm dot com solutions to more than $9 1 million.
<unk> property subscribers in over 60 countries around the globe.
We now also have hundreds of thousands of new light personal safety subscribers.
Want to thank our service provider partners and are poised for their contributions to our 2022 performance.
I will use today's call to discuss our long term strategy focusing on four of our key growth areas. The commercial markets. Our video software initiatives, our growing international business and our new venture businesses.
These business areas collectively represented nearly 30% of our total SaaS revenue in the fourth quarter.
I'll begin with the commercial markets, we have made solid progress in advancing our platform. So that we can further target by nearly 6 million properties that make up the commercial market in the U S and Canada.
The alarm dot com for business platform addresses small and medium sized businesses or the F&B commercial segment.
And our commercial video subsidiary open eye is a leading provider of video surveillance as a service for the large scale enterprise segment.
In 2022 open I've SaaS revenue more than doubled as compared to 2021 and they increased total new video channel activation by over 30% over the same period.
Our overall commercial account base has grown to well over half a million accounts.
Our commercial product strategy is to develop software based capabilities that will deliver unique value to commercial customers through the deep integration of security video analytics access control and energy management solutions.
Increasingly we are also offering the active shooter detection technology developed by our subsidiary business shooter detection systems.
With our expanding offering we expect that our commercial property with the full suite of our solutions will generate about six times the <unk> on average of our typical residential account.
Innovation in video is integral to our commercial strategy.
High percentage of commercial properties have traditional video monitoring systems and our connected solutions are driving an upgrade cycle in the market.
Last year, we launched a new video analytics service care called business activity analytics.
It provides enterprise business intelligence reporting for occupancy tracking people counting and key monitoring.
With our analytics solution a business owner can answer questions like what.
What is the average wait time for my customer to checkout.
Or how can I manage employees and keep track of their break times or how many people walked past the particular product display in the last day.
We also launched a new stream video recorder or SPR.
Enables 24 by seven recording an event tracking for up to 16 commercial video cameras.
The SBR also enables our new third party camera support capability, which allows commercial customers to upgrade to alarm dot com services without the cost of ripping and replacing all of their legacy video cameras.
Our video platform also continues to drive meaningful results in the residential market.
About half of our new residential accounts include an alarm dot com video service.
It's growing account base exhibit higher.
Our engagement and significantly lower attrition profiles that accounts with only a security system.
Our video team is also launching a completely wireless battery powered version of our flagship video doorbell the 700 ADB.
This will give our service providers some flexibility to address unusual installations, where a wired power source cannot be obtained and also address some international markets, where regional wiring standards don't support a wired video doorbell.
The 700 ADB includes accustomed video analytics package that we developed to provide high value capabilities, while optimizing battery life.
Shifting to our international business, our base of global accounts surpassed half a million dollars in 2022.
We believe we can continue to drive significant international growth by comprehensively supporting our international partners to fully operationalize alarm dot com and reached full scale deployment and the diverse range of markets they address worldwide.
In 2023, we will also expand support for a wider range of legacy security control panels.
Better deployed in international markets. So they can leverage alarm dot com technology.
The final element of our strategy is the continued development of our subsidiary businesses energy hub Moonlight Central shooter detection systems and building 36.
Energy hub provides an enterprise software solution that enables utilities to flexibly manage electricity demand by orchestrating customer owned and enroll distributed energy resources.
These resources include devices, such as smart thermostats batteries commercial and industrial resources. So.
All our Inverters and electric vehicle Chargers.
We're investing in the expansion of energy hubs ecosystem of distributed energy resources.
This will enable utilities to access greater electricity load capacity as they manage the growing sources of stress on the grid.
Our strategy is working utility clients are turning to energy hub programs far more often in.
In 2022, the number of demand response events.
By utilities, the energy hub increased 80% over 2021.
Last year, we acquired <unk>, a growing SaaS business that provides context aware event management at emergency response capabilities.
<unk> enables providers of Iot devices.
Mobile App based services to easily integrate emergency response capabilities into their offerings as.
As a hypothetical example, a company that makes a bike helmet, which detects falls could write a few lines of code to call a new light API and enable a first responder incident response, when there is a bike accident.
<unk> gives alarm dot com, a technology environment for developing capabilities that leverage our deep partnerships and the security channel to extend central station monitoring services to address new use cases.
I also want to spend a moment on the new organizational structure and roles, we announced in an SEC filing in late January .
With my enthusiastic support our board of directors appointed Jeff, but all of the president of our ventures business and corporate strategy and Dan Kirshner, the president of our platforms business.
Jeff will oversee all of our venture businesses as well as corporate development and corporate strategy.
Ed will oversee all product development for our core commercial and residential platforms as well as sales and marketing for our largest market North America.
As the pace of expansion and diversification has accelerated and our business. The timing was right to formalize this structure and give Jeff and Dan more responsibility, while recognizing these two strong leaders.
Jeff and Dan have been integral members of our management team for nearly 10 years and I have had the privilege of working with them even before they joined alarm dot com.
We have each played very important roles in much of the progress we have made over the last decade.
I expect even more from each of them as we move forward and pursue our growth goals.
In future quarters, I will began to occasionally bring Jeff and Dan into our quarterly call. So that our investors can hear from them firsthand about the key business areas. They oversee.
We're very fortunate to have a strong management team with a long history of working together.
As CEO and cofounder. These organizational changes do not alter my level of involvement or engagement with the company.
As I noted during last quarter's call I feel good about where we're headed and are excited about continuing to pursue our strategy and building the alarm dot com well beyond $1 billion in annual revenue.
I've been both president and CEO since 2003, when alarm dot com had fewer than 10 employees and no revenue.
As we are now much larger.
Got it was time to better distribute and delegate decision, making in leadership. So that we can move faster as a team.
Before I hand things over to Steve Valensuela I want to also update you on the different matter.
As you know Vivek notified us that it will stop paying alarm dot com the royalty fees associated with the patent license agreement that we reached with vivid in 2013.
In late 2022, we filed for arbitration under the terms of that agreement.
We expect the arbitration process to take 12 to 14 months.
Subsequent to our filing for arbitration, Devon announced that it was being acquired by NRG.
That deal has not yet closed and we are closely monitoring recent events, including a $189 million jury verdict against Veeva in Federal District Court announced last week.
We also filed a patent infringement lawsuit against <unk> in January of this year alleging veeva is infringing on 15 patents that we added to our portfolio subsequent to the 2013 licensing agreement.
We continue to work to ensure that we fully protect our patented technology from infringement energy is without license.
Okay.
To conclude I am pleased with our performance in the meaningful contributions of our growth initiatives in 2022.
Our focus will continue to be on executing our strategy to generate growth in 2023 and beyond.
And with that let me turn things over to Steve Valenzuela, Steve.
Thanks, Steve ill begin with a review of our fourth quarter and full year 2022 financial results and then provide guidance for 2023 before opening the call for questions.
Fourth quarter, SaaS and license revenue of $134 6 million grew 10, 5% from the same quarter last year.
Excluding <unk> license revenue Q4, non-GAAP SaaS and license revenue grew 15, 6% year over year.
SaaS and license revenue include connect software license revenue of approximately $6 3 million for the fourth quarter down as expected from seven 4 million in the year ago quarter.
For the full year of 2020 to SaaS and license revenue of $524 million grew 13% over 2021.
non-GAAP SaaS and license revenue, excluding debit license revenue grew 14, 4% in 2022 year over year.
Our SaaS and license revenue visibility remains high with a revenue renewal rate of 94% in the fourth quarter.
Hardware and other revenue grew 11, 6% in 2022 to $322 2 million, mainly driven by sales of cameras.
Okay.
Total revenue of $208 1 million for the fourth quarter grew six 6% from Q4 2021.
For the full year of 2022 total revenue grew 12, 5% year over year to $842 6 million.
SaaS and license gross margin for the fourth quarter remained solid at 85, 2%.
Hardware gross margin was 18, 9% for the fourth quarter compared to 11, 1% for Q4 2021, due primarily to price increases that we put forth in early 2022.
Total gross margin was 61, 8% for the fourth quarter up from 57, 8% for Q4 2021, mainly due to the improvement in hardware margins.
Turning to operating expenses.
R&D expenses in the fourth quarter were $57 4 million compared to $47 6 million in the fourth quarter of 2021, mainly.
Mainly due to an increase in headcount and related compensation expenses.
We ended 2022 with 1004 employees in R&D up from 837 employees at the end of 2021.
Total head count increased to 733 employees for 2022 compared to 1500 employees at the end of 2021.
Sales and marketing expenses in the fourth quarter were $23 6 million or 11, 3% of total revenue compared to $24 6 million or 12, 6% of revenue in the same quarter last year, mainly due to lower advertising costs in the fourth quarter of 2022.
Our G&A expenses in the fourth quarter were $25 4 million compared to $22 6 million in the year ago quarter, mainly due to higher personnel related costs, including stock compensation and consulting fees.
G&A expense in the fourth quarter includes non ordinary course litigation expense of $1 9 million compared to $1 8 million for Q4 2021.
Non ordinary course litigation expenses are part of our adjusted measures and are excluded from our measurement of our non-GAAP financial performance.
non-GAAP adjusted EBITDA in the fourth quarter was $39 million compared to $31 3 million in Q4 2021 for.
For all of 2022, adjusted EBITDA was $146 8 million up three 1% from adjusted EBITDA of $142 5 million for 2021.
In the fourth quarter GAAP net income was $18 1 million compared to GAAP net income of $9 1 million for Q4 2021.
non-GAAP adjusted net income was $28 7 million or <unk> 53 per diluted share in the fourth quarter compared to $22 6 million or <unk> 43 per share for the fourth quarter of 2021.
GAAP net income for the full year of 2022 was $56 3 million compared to GAAP net income of $52 3 million for 2021.
non-GAAP adjusted net income for 2022 was $106 9 million or $1 95 per diluted share compared to non-GAAP net income of $103 5 million or $1 99 per share for 2021.
Turning to our balance sheet.
We ended the fourth quarter with $622 $2 million of cash and cash equivalents down from $710 6 million at December 31, 2021.
During the fourth quarter of 2022, we used $27 million to repurchase 545343 shares of our common stock at an average price of $49 47.
For all of 2022, we used $78 8 million.
To repurchase approximately one 4 million shares or two 8% of our outstanding shares.
During 2022, we also used $33 $4 million in cash for acquisition of new life.
In the fourth quarter, we generated $34 4 million in cash flow from operations compared to $20 million for the fourth quarter of 2021.
Our free cash flow for the fourth quarter was $33 9 million compared to $17 8 million for the same quarter last year.
Through the 12 months ended December 31, 2022, we generated $56 9 million of cash flow from operations down from $103 2 million for 2021.
This is mainly due to our investment in inventory to strengthen our supply chain.
Our free cash flow for 2022 was $28 3 million compared to $92 1 million for 2021 also due to our investment in inventory and our purchase of land for $22 million near our headquarters in Tysons, Virginia.
Turning to our financial outlook.
For the first quarter of 2023, we expect SaaS and license revenue of 132, four to $132 6 million.
For the full year of 2023, we expect SaaS and license revenue to be between 551, five to $552 5 million.
We are projecting total revenue for 2023 of 851 five to $877 5 million, which includes estimated hardware and other revenue of $300 million to $325 million.
We are providing a wide range for our hardware revenue guide for 2023 due to several factors.
We expect fewer sales of communication modules as the <unk> upgrade cycle winds down in the U S and Canada.
We expect less hardware revenue from ADT.
And we anticipate that the higher interest rate environment May result, in fewer moves and new construction build moderating demand for some of our products.
We estimate that adjusted EBITDA for 2023 will be between $115 million to $125 million.
This excludes vivid licensed revenue and includes significant legal costs regarding the matter with debit.
We expect adjusted EBITDA in the first quarter of 2023 to represent approximately 21, 5% to 22% of our annual guide.
non-GAAP net income for 2023 is projected to be 79, 7% to $86 5 million or $1 44 to $1 57 per diluted share.
EPS is based on an estimate of $55 2 million weighted average diluted shares outstanding.
We currently project, our non-GAAP tax rate for 2023 to remain at 21% under current tax rules.
We expect full year 2023 stock based compensation expense of $62 million to $64 million.
In summary, we are pleased how well our service providers and internal teams have performed over the past year.
We are focused on executing on our business and investing in our long term strategy, while continuing to deliver profitable growth.
And with that operator, please open the call for Q&A.
Thank you and as a reminder to ask a question. Please press star one one on your telephone and wait for your name to be announced to withdraw your question simply press Star one again.
Please standby, while we compile the Q&A roster.
My moments, where our first question.
Okay.
Okay.
And it comes from the line of Adam Tindle with Raymond James. Please proceed.
Okay. Thanks, good afternoon, and congrats on a strong close to the year, Steve Trundle I wanted to maybe start with you on the new organizational structure, it's really interesting.
Just curious if you could maybe dig deeper into what this perhaps enables from both an operational and maybe even a capital allocation standpoint in each of these two businesses. The core in the ventures that could perhaps accelerate trends versus how it was structured previously and curious Steve.
This is an indication that we may get a breakout of growth and profitability of each of those businesses from a reporting perspective at some point.
Hey, Adam sure. This is Steve Trundle starting in.
With the the organizational.
Got an upgrade.
I think we'll be better.
Firstly is <unk>.
It has to be made more quickly and you want to try.
Try to contain the decisions at.
At a level, where they can be made quickly.
Quickly. So for example on the core business side.
Traditionally.
It's been difficult sometimes to.
Arbitrage, whether we should be putting more capital and marketing versus R&D that different people.
And charge ultimately they each have their own set of goals.
With Dan now kind of firmly in control of the P&L for North America as well.
The investments, we're making in R&D and the investments, we're making in sales and marketing.
I am hopeful that we can ratchet up the capital allocation efficiency a bit and be.
A level more judicious or more clever in how we choose to.
And to deploy capital I'll of course continue to be.
I guess in some ways.
The old Guy wasn't doing a very good job of it but the reality is the businesses grow and there are a lot of different.
Thanks, Paul.
On a different direction so.
Really narrowing.
We are trying to drive all of that scope through one person made sense.
On the other side of the business.
Yes, I think if you've been following us for a while each quarter I've attempted to give you an update on one of the one of the growth initiatives, whether it be what we're doing with central or energy hub or whatever it may be each of those businesses have their own.
Yes, their own strategies their own goals and their own P&L, they each have their own leader and.
It was becoming and has become progressively more difficult for me to keep track of exactly.
What the nuts and bolts of each business. We're Jeff is in charge of strategy. So a lot of what we're doing in Corp Dev.
As a reflection of our strategy and then we make a decision to go.
Make an acquisition and we have to execute on all of the pieces. We had when we made that decision and.
Putting all of that under Jeff I think.
Again gives us a more kind of dedicated responsible executive to drive follow through on a lot of the decisions we make when we are.
On the M&A.
And then I guess the most important thing lastly is this.
It really is a team effort so.
This may not work well if you had three people that hadn't worked together for a long period of time or that.
Didn't like each other any of that we've worked together really more as peers.
For a long period of time, and we expect to be able to collaborate on things that may be in between.
Some of these areas.
I think if we didn't have that kind of a long term working relationship the structure to be awkward, but but we have an ability to deal with that here and at the same time really.
But these guys take responsibility for these areas.
As Steve Valensuela. Your question on the breakout of additional breakout of segments. We're going to continue for the time being to continue to show alarm dot com and the other segments and our public reporting.
For example for Q4.
SaaS revenue for the other segment was $13 4 million and hardware revenue was $2 1 million and this is interesting. This is the first quarter. The other segment SaaS represented 10% of our SaaS revenue. So thats quite a achievement for the for the other segment and that's headed up by just the Dell and of course the core.
The findings, we call alarm dot com for the year.
The other segment generated $42 $2 million of SaaS revenue eight 3% of partner revenue and that grew 26% year over year.
Got it that's helpful. Steve.
And maybe just as a follow up for Steve. The you did a nice job kind of covering the rationale for the hardware guidance for 2023, I did think that the SaaS guidance was fairly healthy on the adjusted numbers I think 14, 4% growth is what youre guiding to and you're coming up on the year of 15, 6% adjusted growth for dividend piece. So.
The plant would be not implying a lot of deceleration in the SaaS growth despite everything going on in the macro environment. I also know that you tend to be conservative with these numbers, but.
Minimal deceleration.
Just kind of wondering the puts and takes to what looks like a very healthy outlook in the SaaS growth piece and also whats assumed in ADT I understand David's taken out you assume some ADT headwind in the hardware with their ADT headwind assumed in the SaaS piece. Thank you.
So again, Steve Valenzuela, So just two.
Clarify the SaaS growth for 2023.
<unk>.
Not counting <unk> is about nine 6% year over year growth.
And while we did achieve for 2022, if you adjust for <unk> is 14, 4% year over growth.
And so typically when we report the first quarter of the year.
We do tend to be of course conservative but need to be conservative given that we have a lot going on in various different segments of the business. If you look at like 2022.
When we initially guided Q when we initially guided the year four and this quarter, we guided for 10, 5% growth for SaaS and we came in at 14, 4% growth so that.
That being said there is still a lot going on.
In terms of a lot of puts and takes then you've also got the whole.
Interest rate environment.
Which could result in fewer moves the good news there is that.
Theres less attrition when you have you removed, but there may be less hardware purchases to right. There may be fewer installs of new systems. So we've kind of factored that into our into our guide for 2023.
Yes, so the summary, there Adam I think is if you look back at last year, I think Steve made the point, but I'll reiterate it we guided 10, 5% growth.
And we usually at this juncture in the year I want to make sure we hit and B, but we guide.
Guarantee that this.
This year were less than 100 basis points off of that at nine 6% at this juncture.
Hopefully have some upside in that.
Got it.
Sorry, I missed misread that in the press release here, but that makes a lot more sense.
But the ATP assumption.
Built into that.
Can tell us.
Sure I can.
Give you a little on that.
We have model then.
A tapering of new account origination.
Same as we have I think probably the same commentary as we've shared in prior quarters, but.
In Q2 of this year and.
And.
Have have accounted for that.
And the guide that we're providing we don't.
We obviously don't know Adt's exact plans I think they are having a lot of success with command and control as evidenced by the.
The phenomenon of the attrition number they put out last quarter and.
Driving down their cost to serve with remote services and things like that so I think things are relatively gone relatively well for them.
And we're not sure exactly what their deployment plan will be.
But.
With Google, but we have to anticipate.
Something for the purposes of our model and we've tapered that business in Q2 with a note that.
We expect to continue to collaborate and partner in certain areas such as commercial.
Large custom homes areas where were.
Where we expect basically just continue to collaborate.
On an ongoing basis longer term.
Got it thanks, and congrats again.
Thank you.
Thank you one moment for our next question. Please.
And it comes from the line of Darren <unk> of Roth.
Please go ahead.
Hey, guys. Thanks for taking my question.
Two if I may.
Following up on the commentary about the interest rate environment.
Maybe less news and hence lower hardware I guess one of the things maybe we didn't hear is just general backdrop.
Year to date in the residential and enterprise segments, and I guess on residential I'm more curious in the past you guys have talked about.
Educating service providers on kind of upgrade cycles like how much of an emphasis are you putting on that and then my second question maybe for Steve It looks like there is 340 basis points.
Drop on EBITDA margins from 22 versus your 23 guide.
We're curious.
How much of that is.
From.
Last visit revenue in the business versus reinvestment for growth.
So I'll start on the.
The general backdrop.
Residential <unk> and then in the enterprise segment.
I'd say the general backdrop right now is as residential in North America as well.
Not quite as hot as it was.
'twenty, one and 'twenty two.
We're seeing some moderation of builder activity that I mean.
And.
And just generally consumers being a little more careful with their pocket book right now.
Said, our Q4 results indicate that that hasnt been a significant are massive.
We can off at all and I think historically, we've always.
Indicated and want to remind investors that.
Typically smart home or security businesses actually hold up pretty well, even if the economy or the economic backdrop changes because people become.
Oftentimes, even more concerned about their security and safety and then when there are fewer moves there also tends to be.
Less attrition, so you get a nice sort of counterbalance there in.
In terms of our focus right now with service providers on the residential side.
Say, we are still focused on.
Conditioning them and collaborating with them to expand.
Ecosystem of products that are going into the home that's been happening so continuing to drive video attachment rate thermostat attachment rates.
And the range of things, where we can provide value we launched a product recently called.
Broader dragon that I spoke about last quarter, which again is sort of an expansion of the ecosystem.
So that tends to be the focus there.
And then.
On the enterprise side, its probably the macro trends are a little different in that it's still more early days in terms of the migration from on premise.
Video servers to cloud based video services from on premise access control to cloud based access control.
From our kind of command centers to command centers that debt in your hand on year on a mobile app. So there I think the service a bit is a bit more on helping the partners market to those commercial customers that are ready and willing to take upgrades and then capturing share.
There is people make this transition.
In terms of the impact in terms of adjusted EBITDA and 23 compared to <unk> 22, I would say, it's about 300 basis points impact from a combination of less driven revenue.
23.
And additional legal spend as.
As we talked about regarding the debit matter those are really the main drivers of the detail. If you will are the.
300, plus basis point drop in adjusted EBITDA in 'twenty three Darrin.
Thanks, guys I appreciate it.
Sure.
One moment for our next question please.
And it comes from the line of Brian <unk> timber with Imperial capital. Please go ahead.
Yes. Thank you very much first of all housekeeping interest income was up in the fourth quarter can you help us out for what Youre looking for for first quarter and then for the full year of 2023.
Yes, Brian its Steve Valensuela. So we have been investing very conservatively of course, but luckily we have been able to take advantage of our strong cash position and invest our money in 4% plus.
Funds and so that's the main reason for the increase in <unk>.
Depending upon what happens with the interest rate environment, We would expect interest interest income to continue to call up a bit.
In 'twenty three.
Okay. So modeling at this $4 seven or higher going forward.
It seems like the logical move.
And then you also mentioned.
Other housekeeping apologies, but the tax rate on the year with with how much you went over that very quickly.
Okay.
So yes, so we obviously as a fixed tax rate of 21% for non-GAAP . The actual tax rate varies of course on a GAAP basis, given the puts and takes with what occurs with stock compensation expense. So it's 21% tax rate the same as 2022 for non-GAAP .
Okay, and then one other macro question.
Given that some of the competitors on the hardware side have reported like a lead gen bearish or internationally as an operator.
They are all calling for weakness on the residential side.
At the same time, they are talking about real.
Deep strength on the commercial can you talk a little bit about how much of your business. Currently is commercial and are you still seeing strong drivers on the commercial side.
Hey, Brian its Steve Venezuela, So commercial continues to do really well commercial it's now about 8% of our SaaS revenue.
And it grew over 25% year over year in the fourth quarter.
And we have over 500000 commercial accounts now.
Great.
Good strength there.
So youre, saying Youre seeing continued growth at that.
<unk> 20 plus percent rate.
And the commercial side, yes, yes, that's correct, we see growth rates, there and I don't think were quite as bearish on the residential side maybe as.
Is what you alluded we don't obviously, we have more mature business there, but we still think we can.
Fine.
Attractive health on the residential side and we're seeing growth in international to International is now 4% of our revenue and international total revenue was up 27% year over year. So I think international is really helping us out on the residential side as well.
Great. Thank you very much.
Thank you one moment for our next question. Please.
And it comes from Jack Vander <unk> with Maxim Group. Please proceed.
Yeah.
Yeah, Okay, great. Thanks for taking my questions guys.
Couple of housekeeping questions from me as well.
Maybe for Steve bounce whaler, what was the former the former connect software license revenue in the fourth quarter.
So that number was $6.4 million I believe I mentioned on the call.
Let me confirm that the former was sorry in Q4 'twenty to <unk>.
Connect software revenue was $6 3 million in the year ago quarter in 'twenty, One Q4, 'twenty, one was $7 4 million.
Got you okay.
Appreciate that and then just another clarity question can you remind me which businesses.
Combined I think Steve Trundle prepared remarks, approximately almost 30% of your fourth quarter SaaS revenue.
I'll take that and good commercial which I think is at 8%.
What else include what else is included nearly 30% of SaaS revenue sure. Yes, I can outline that in terms of what we include in sort of the faster growing initiatives.
They're international.
Commercial.
Including small business.
The other segment businesses like Turkey hub.
And then lastly would be the video.
Overall excluding.
Video to ADT actually.
Got you okay.
Sure.
I guess it sounds like commercials.
Bulk of that then.
Healthy healthy contribution from all of those.
<unk>, that's great to hear.
And then just one other.
Yes.
Topic to dive a little bit deeper than that that was encouraging as Steve down through I think you said the other segment SaaS revenues $13 4 million for the quarter and that was 10% or more.
Overall search is the first time ever so is that I mean is this is this now where do you see this trending as this acceleration a onetime kind of blip do you think this is going to continue.
When do you think we're going to have 20% anything you can provide there.
Well just to clarify so it was 10% of total SaaS revenue in the fourth quarter up 31% year over year for the year. The other segment SaaS was 8% of total SaaS. So typically in the fourth quarter, we do get a benefit from <unk> from the energy savings and the summer programs. So.
We'll probably see in the near future between 8% to 10% for the other segment, but over a period of.
Time, we do expect to see continued growth from the other segment as we see energy oven Central building 36 contribute.
Going forward, but I don't think I would want to project when we would hit 20% I think it's great to see for the first time to hit double digits.
That's a good achievement by the by the team.
And there was a little outperformance there in the fourth quarter because.
Nest implemented there.
Thermostat renew program, which has been in power.
Energy hub and there were a lot of.
A lot of folks signed up for that so we got a little better performance there.
Other than we expected.
Yes.
And then just one more for me it's good to see the connected property total I think this is the first time, we reported at <unk> last year.
$9 1 million or so.
I think it was like 700000 new properties.
Net since last year.
Do you think going forward now are we going to see a pickup in international contribute to that number I guess, what drove that 700000 incremental homes are connected properties and then are those drivers changing now going forward. It sounds like it's going be more commercial and international loaded maybe but just curious your thoughts would be helpful.
Yes, I think there'll be some changes I mean, starting with I think on one of the prior questions I indicated we're modeling in a taper from ADT in the second quarter.
That will be meaningful in terms of.
Numbers.
Those accounts typically are at the lowest end of the <unk> range. So what.
What youll, probably see is a higher mix of commercial accounts.
International accounts.
And I would think I mean, I think somewhere else, we have indicated that our <unk> on the commercial side.
As at least two X, but.
We hope to grow to sort of a <unk> level versus residential so you may see a slight.
A bit of a decline in the overall net subscriber growth year over year, unless we start cooking other things into that number.
Sure.
But hopefully we will see some offsetting.
Growth in the <unk> level as the business transitions to.
<unk> continues to sort of be getting more impact from what we're doing on the commercial side.
Okay, Great. That's helpful color great quarter, guys I appreciate the added commentary thank you.
Thank you one moment for our next question.
Yeah.
I don't see any further questions in the queue with this I will.
Okay.
I'm, sorry, ladies and gentlemen, one moment for our next question.
And it comes from the line of Mike Latimore with Northland Capital. Please proceed.
Hi, this is <unk>.
Mike That's a model.
Could you give some color on if youre seeing any effects of inflation on your business like you are seeing any demand gap among the best in wireless or are you seeing the longer sales cycle with your service providers.
I'd say, we're seeing a little bit.
Little bit of impact I think we've mentioned that there are two places we would look for impact one is on the pace of Newbuild activity.
New home construction.
The other is on the pace of sort of existing home sales, which is a proxy for moves.
As moves decline, we tend to get it.
Favorable tailwind on attrition, but as new builds decline then there can be some impact, particularly on the hardware number if we're not being installed in as many new places. So those are the things we're beginning to see some evidence of you also.
Credit is tighter so the consumer's willingness to.
Hypothetically at $3000 purchase.
There is not as high.
Today, they may be are more comfortable with the $2000 purchase if credit is tighter please see a little bit of that.
And I think we are seeing some early indications that that is occurring.
ECR. These layoffs that are occurring how meaningfully or we don't know, but obviously when someone is.
Unemployed that tends to be a time that they're not looking to make material new purchases I'm not sure we have evidence of that.
Causing any impact today, but there are some some.
Modest indications that inflation.
His impact.
Alright.
What percentage of new subscribers are taking video and what percentage of those are analytics.
So yes, the video attachment rate in the fourth quarter continued to be strong at around 47% Upper 40% is typically what we've seen and then those eligible cameras that can take analytics over 95% of those subscribers are taking video analytics. It really goes together really.
Well with with the advanced video capabilities, we have combining that with video analytics gives us subscribers are the best the best experience.
Alright, thank you.
Sure. Thank you thanks.
Thank you and ladies and gentlemen, with that I will close Q&A and concludes today's program. Thank you for your participation and you may now disconnect.
Thanks.
Thank you.
The conference will begin shortly to raise and lower Johan during Q&A you can dial one one.
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Okay.
Yeah.
Yes.
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