Q4 2023 Alarm.com Holdings Inc Earnings Call

Operator: Good day, and thank you for standing by. Welcome to the Alarm.com Q4 2023 earnings conference call. At this time, all participants are in a listen-only mode.

Good day and thank you for standing by welcome to the alarm Dot Com Q4, 2023 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 on your telephone.

Operator: 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 11 on your telephone. You will then hear an automated message advising that your hand is raised.

We'll then hear an automated message advising that your hand is raised to withdraw your question. Please press star. One again, please be advised with todays conference is being recorded I would now like to hand, the conference over to your Speaker bats, Artman, Vice President of Investor Relations. Please go ahead.

Operator: To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker, Matt Zartman, Vice President of Investor Relations. Please go ahead.

Okay.

Matt Zartman: Good afternoon, everyone, and welcome to Alarm.com's fourth quarter and full year 2023 earnings conference call. Please note that this call is being recorded. Joining us today from Alarm.com are Steve Trundle, our CEO, and Steve Valenzuela, our CFO. During today's call, we will be making forward-looking statements, which are predictions, projections, estimates, or other statements about future events. These statements are based on current expectations and assumptions that are subject to risks and uncertainties that may cause actual results to differ materially from our current expectations. We refer you to the risk factors discussed in our annual report on Form 10-K and our Form 8-B, both of which will be filed shortly after this call with the SEC along with the Associated Press. The call is subject to these risk factors, and we encourage you to review them.

Artman: Good afternoon, everyone and welcome to alarm Dot Coms fourth quarter and full year 2023 earnings Conference call. Please note that this call is being recorded joining us today from alarm Dot com are Steve Trundle, our CEO and Steve Valensuela, our CFO during today's call, we will be making forward looking statements which are <unk>.

Artman: Predictions projections estimates or other statements about future events. These statements are based on current expectations and assumptions that are subject to risks and uncertainties that may cause the actual results to differ materially from our current expectations. We refer you to the risk factors discussed in our annual report.

Artman: <unk> on Form 10-K, and our form 8-K, both of which will be filed shortly after this call with the SEC along with the associated press release the call is.

Artman: Subject to these risk factors and we encourage you to review them alarm Dot Com assumes no obligation to update forward looking statements or information, which speak as of their respective dates.

Stephen S. Trundle: Alarm.com assumes no obligation to update forward-looking statements or information which speak as of their respective dates. In addition, several non-GAAP financial measures will be discussed on the call. A reconciliation of the GAAP to the non-GAAP measures can be found in today's press release on our Investor Relations website. I'll now turn the call over to Steve Trundle.

Artman: In addition, several non-GAAP financial measures will be discussed on the call a reconciliation of the GAAP to the non-GAAP measures can be found in today's press release on our Investor Relations website, I will now turn the call over to Steve Trundle, Steve.

Stephen S. Trundle: Thank you, Matt. Good afternoon, and welcome to everyone. We are pleased to report fourth-quarter and four-year results that exceeded our expectations. Our SAS and license revenue in the fourth quarter was $148.3 million, up 10.3% over the last year. Our adjusted EBITDA for the quarter was $45.6 million.

Thank you, Matt good afternoon, and welcome to everyone.

Stephen S. Trundle: We are pleased to report fourth quarter and full year results that exceeded our expectations, our SaaS and license revenue in the fourth quarter was $148 3 million up 10, 3% over the last year.

Stephen S. Trundle: Adjusted EBITDA for the quarter was $45 6 million.

Stephen S. Trundle: Despite some uncertainty throughout the year, we delivered solid, fast revenue growth by sharpening our focus on key initiatives. We also delivered record-adjusted EBITDA and cash flow. I want to thank our service provider partners and our employees for their contributions to our 2023 performance. I'll focus my prepared remarks today on our long-term strategy.

Stephen S. Trundle: Despite some uncertainty throughout the year, we delivered solid SaaS revenue growth by sharpening our focus on key initiatives.

Stephen S. Trundle: We also delivered record adjusted EBITDA and cash flow performance.

Stephen S. Trundle: I want to thank our service provider partners and our employees for their contributions to our 2023 performance.

Stephen S. Trundle: I'll focus my prepared remarks today on our long term strategy.

Stephen S. Trundle: We believe that we have the right opportunities in our sights and the right plans to attack them. Our R&D program is positioned to leverage the growing universe of IOT data and to continue building innovative... AI-based offerings that will empower our service provider partners and deliver unique value to end customers. We have transitioned from focusing on one primary market where we have been very successful. Specifically, the North American Residential Monitored Security Market.

Stephen S. Trundle: We believe that we have the right opportunities in our sites and the right plans to attack them.

Stephen S. Trundle: Our R&D program is positioned to leverage the growing universe of Iot data and to continue building innovative.

Stephen S. Trundle: AI based offerings that will empower our service provider partners and deliver unique value to end customers.

Stephen S. Trundle: We have transitioned from a focus on one primary market, where we have been very successful.

Stephen S. Trundle: Mainly the North American residential monitoring security market.

Stephen S. Trundle: To a more diversified business serving a larger overall task. We've expanded into the video market, both commercial and residential, and the commercial access control and intrusion market. We developed an international business and cultivated new IoT-enabled growth businesses like Energy Hub. These growth initiatives collectively represented 31% of our total SAS revenue in 2020 and together grew 27% year over year. Let me go through the various elements of our strategy. I'll start with the commercial market. We are attacking the market opportunity with a purpose-designed solution that deeply integrates access control, intrusion, and video monitoring into a single cohesive platform that the largest commercial integrators can leverage to solve their clients' multi-site requirements.

Stephen S. Trundle: To a more diversified business, serving a larger overall tab.

Stephen S. Trundle: We've expanded into the video market, both commercial and residential and the commercial access control and intrusion market.

Stephen S. Trundle: We developed an international business and cultivated new Iot enabled growth businesses like energy hub.

Stephen S. Trundle: These growth initiatives collectively represented 31% of our total SaaS revenue in 2023, and together grew 27% year over year.

Speaker Change: Let me kick through these various elements of our strategy.

Speaker Change: I'll start with the commercial market.

Speaker Change: Attacking the market opportunity with a purpose design solution that deeply integrates access control intrusion and video monitoring into a single cohesive platform that the largest commercial integrators can leverage to solve their clients multi site requirements.

Speaker Change: We've made good progress in our R&D pipeline here.

Speaker Change: During 2023, we launched third party camera support to enable our video solutions to operate with existing camera installations and originate additional SaaS revenue.

Stephen S. Trundle: We've made good progress in our R&D pipeline. During 2023, we launched third-party camera support to enable our video solutions to operate with existing camera installations, and Originate Additional SAS Revenue. We also launched a new access control product called CellConnect. It leverages our work with LTE cellular networks to connect the access door controller directly to the Alarm.com platform rather than depending on an end customer's internal network.

Speaker Change: We also launched our new access control product called cell connector. It leverages, our work with LTE cellular networks to connect the access door controller directly to the alarm dot com platform, rather than depending on and end customers internal networks.

Speaker Change: Open eye are cloud based video solution for large scale commercial customers launched new solutions during the year through its open ecosystem architecture.

Speaker Change: For example sales connect is a new point of sale solution that integrates transaction data from the leading suppliers of point of sale systems.

Speaker Change: Open eye triggers real time alerts for point of sale exceptions, such as voids refunds and overrides and retrieves the corresponding video of the transaction.

Stephen S. Trundle: OpenEye, our cloud-based video solution for large-scale commercial customers, will deliver new solutions during the year through its open ecosystem architecture. For example, Cells Connect is a new point-of-sale solution that integrates transaction data from the leading suppliers of point-of-sale services. OpenEye triggers real-time alerts for point-of-sale exceptions, such as Void, refunds, and overrides, and retrieves the corresponding video of the transaction. OpenEye also integrated environmental sensors to launch a new solution that detects smoke from cigarettes and vapes, monitors temperature, humidity, and air quality, and detects sound anomalies.

Speaker Change: Open I also integrated environmental sensors to launch a new solution that detects smoke from cigarettes and Babes <unk>.

Speaker Change: <unk> temperature humidity and air quality and attacks sound anomalies.

Speaker Change: <unk> solutions are sold as an additional SaaS model and significantly strengthen <unk> position in the retail grocery and quick serve restaurant verticals as well as secondary schools.

Speaker Change: Shifting to our video business, we're deploying increasingly capable video analytics solutions.

Speaker Change: Importantly, we leverage our R&D investment in video and video analytics across our residential commercial and international businesses.

Speaker Change: Our goal is to take advantage of a significant shift in video based monitoring technology that is underway.

Stephen S. Trundle: Both solutions are sold as an additional SAS module and significantly strengthen OpenEye's position in the retail, grocery, and quick-serve restaurant verticals, as well as secondary schools. Moving to our video business, we're deploying increasingly capable video analytics solutions. Importantly, we leverage our R&D investment in video and video analytics across our residential, commercial, and international businesses. Our goal is to take advantage of a significant shift in video-based monitoring technology that is underway. Traditional video systems operate only on the premises and use legacy technology.

Speaker Change: Traditional video systems operate only on premise and use legacy technology <unk>.

Speaker Change: These systems are being replaced particularly our business properties.

Speaker Change: Our video solutions employ intelligent AI processors at the edge.

Speaker Change: Coupled with flexible cloud based software and storage and additional layers of more refined cloud resident video analytics capabilities.

Speaker Change: The market is competitive but we believe we are in a strong position to capture share as the shift away from traditional systems continues to unfold.

Speaker Change: One area, where you will see us extending our video capabilities. Further in 2024 is in the realm of proactive deterrence in 2023, we launched a capability called perimeter guard.

Speaker Change: Perimeter guard Curt already identify a person during times when the potential for trouble is greatest or when the subscribers away and then trigger a series of responses.

Stephen S. Trundle: These systems are being replaced, particularly in business properties. Our video solutions employ intelligent AI processors at the edge. This is coupled with flexible cloud-based software and storage and additional layers of more refined cloud-response video analytics capabilities. The market is competitive, but we believe we are in a strong position to capture share as the shift away from traditional systems continues to unfold. One area where you will see us extending our video capabilities further in 2024 is in the realm of proactive deterrence. In 2023, we launched a capability called Perimeter. Perimeter Guard can already identify a person during times when the potential for trouble is greatest or when the subscriber is away, and then trigger a series of responses. Video cameras enabled with Perimeter Guard can emit an audible warning.

Speaker Change: Video cameras enabled with perimeter guard can emit audible warnings and stroke life responses.

An escalated video event can also be sent directly to the monitoring station through our alarm response software.

Speaker Change: This enables monitoring station operators to view video feeds and talked down through the cameras onboard Mike.

Speaker Change: Or via an external microphone. So they can try to defuse the potential threat before escalating a step further by initiating a police response.

Speaker Change: Shifting to our international business, we are driving growth by supporting our international partners to fully operationalize alarm dot com and deploy our solutions and the diverse range of commercial and residential markets they address worldwide.

Speaker Change: Last year's acquisition of EPS, a European based business that designs and manufactures universal communicators will significantly expand our support for our international partners.

Universal Communicators can work with a wide range of legacy control panels service providers can cost effectively upgrade existing customers to alarm dot com.

There has been in business for 30 years and its product support control panels that have been widely deployed in international markets.

Stephen S. Trundle: Strobe Light Response An escalated video event can also be sent directly to the monitoring station through our alarm response software. This enables monitoring station operators to view video feeds and talk down through the camera's onboard mic or via an external microphone so they can try to defuse a potential threat before escalating a step further by initiating a police response. Moving to our international business, we are driving growth by supporting our international partners to fully operationalize Alarm.com and deploy our solutions in the diverse range of commercial and residential markets they address worldwide. Last year's acquisition of EBS, a European-based business that designs and manufactures universal communicators, will significantly expand our support for our international partners. Universal communicators can work with a wide range of legacy control pedals.

Speaker Change: The final element of our growth strategy is the continued development of our growth venture businesses.

Speaker Change: These SaaS based businesses consist of energy hub building 36 point central and shooter detection systems.

Speaker Change: Each is developing innovative Iot enabled applications that can further expand our tam.

Speaker Change: As you know these businesses are at various stages of development with energy hub being the most mature.

We expect these growth businesses to continue to increasingly contribute to our overall performance next year and become more efficient with scale.

Speaker Change: Next I want to comment briefly on our EBITDA margin strategy.

Speaker Change: EBITDA is a choice that we make in our strategic planning cycles.

Speaker Change: One can choose between investing in the future health of the business or harvesting profits to produce cash today.

Speaker Change: I believe that producing meaningful positive EBITDA, while also making reasonable long term investments inspires good operational discipline and allows the company to selectively evaluate both organic and inorganic opportunities.

Stephen S. Trundle: Service providers can cost-effectively upgrade existing customers to Alarm.com. EBS has been in business for 30 years, and its products support control panels that have been widely deployed in international markets. The final element of our growth strategy is the continued development of our growth venture business. These SAS-based businesses consist of Energy Hub, Building 36, Point Central, and Shooter Detection. Each is developing innovative IoT-enabled applications that can further expand our town. As you know, these businesses are at various stages of development, with Energy Hub being the most mature. We expect these growth businesses to continue to increasingly contribute to our overall performance next year and become more efficient with scale. Next, I want to comment briefly on our EBITDA margin strategy. EBITDA is a choice that we make in our strategic planning cycle.

Speaker Change: Our commitment to ongoing R&D investment and the future opportunities as a cornerstone of our synergistic relationship with our 11000 plus service provider partners, who handle the bulk of the sales and marketing activities on our behalf.

Speaker Change: I have previously indicated that we have a long term target range of adjusted EBITDA margin of 18%.

Speaker Change: Assuming a similar mix of SaaS and hardware revenues and a similar go to market approach as we have today.

Speaker Change: Our target range remains unchanged and as Steve balanced whaler will discuss shortly.

Speaker Change: Our full year adjusted EBITDA guidance for 2024 implies an adjusted EBITDA margin of 17, 5%.

Lastly.

Speaker Change: Before I hand things over to Steve balanced whaler.

Speaker Change: I also want to briefly discuss the settlement of the Vivek matter.

In December we announced that we entered into a long term intellectual property license agreement under which alarm dot com will licensed of either our intellectual property portfolio.

Speaker Change: The revenues associated with the new license agreement are reflected in our guidance for 2024.

Stephen S. Trundle: One can choose between investing in the future health of the business or harvesting profits to produce cash today. I believe that producing meaningful, positive EBITDA while also making reasonable long-term investments inspires good operational discipline and allows the company to selectively evaluate both organic and inorganic opportunities.

Speaker Change: We simultaneously settled all outstanding litigation matters between the companies.

Speaker Change: We are not able to share the details of this confidential settlement and it will therefore be hard for us to answer detailed questions on this particular matter.

Speaker Change: But I can say that I believe that the outcome is a good one for alarm dot com and its investors.

Speaker Change: To conclude I am pleased with our performance in 2023 and I'm excited about the year ahead in 2024.

Stephen S. Trundle: Our commitment to ongoing R&D investment into future opportunities is a cornerstone of our synergistic relationship with our 11,000 plus service provider partners, who handle the bulk of the sales and marketing activities on our behalf. I have previously indicated that we have a long-term target range of an adjusted EBITDA margin of 18%. Assuming a similar mix of SAS and hardware revenues and a similar go-to-market approach as we have today, our target range remains unchanged, and as Steve Valenzuela will discuss shortly, our full-year adjusted EBITDA guidance for 2024 implies an adjusted EBITDA margin of 17.5%. Lastly, before I hand things over to Steve Valenzuela, I also want to briefly discuss the settlement of the Vivint Matter.

Speaker Change: And with that let me turn things over to Steve Valensuela Steve.

Steve Valenzuela: Thanks, Steve.

I'll begin with a review of our fourth quarter and full year 2023 financial results and then provide guidance for 2024 before opening the call for questions.

Steve Valenzuela: Fourth quarter, SaaS and license revenue of $148 3 million grew 10, 3% from the same quarter last year.

For the full year of 2023, SaaS and license revenue of $569 2 million grew nine 4% over 2022.

non-GAAP SaaS and license revenue, excluding <unk> and license revenue grew 13% in 2023 year over year.

Steve Valenzuela: Our SaaS and license revenue visibility remains high with a revenue renewal rate of 94% in the fourth quarter.

Steve Valenzuela: Hardware and other revenue grew five 8% in Q4 2023 to $77 9 million.

Steve Valenzuela: Mainly driven by sales of video cameras.

Total revenue of $226 2 million for the fourth quarter grew eight 7% from Q4 2022.

Stephen S. Trundle: In December, we announced that we entered into a long-term intellectual property license agreement under which Alarm.com will license-divide our intellectual property portfolio. The revenues associated with the new license agreement are reflected in our guidance for 2024. Additionally, we simultaneously settled all outstanding litigation matters between the companies.

Steve Valenzuela: For the full year of 2023 total revenue grew four 6% year over year to $881 7 million.

Steve Valenzuela: That the license gross margin for the fourth quarter remained solid at 84, 6%, which is slightly down from 85, 2% in the year ago quarter, mainly due to mix.

Steve Valenzuela: Hardware gross margin was 25% for the fourth quarter up 610 basis points from 18, 9% for Q4 2022.

Stephen S. Trundle: We are not able to share the details of this confidential settlement, and it will therefore be hard for us to answer detailed questions on this particular matter. But I can say that I believe that the outcome is a good one for Alarm.com and its investors. To conclude, I'm pleased with our performance in 2023, and I'm excited about the year ahead in 2024. And with that, I turn things over to Steve Valenzuela. Steve

Steve Valenzuela: Due mainly to the improvement in our supply chain and to a lesser extent product mix.

Steve Valenzuela: Total gross margin was 64, 1% for the fourth quarter up 230 basis points from 61, 8% for Q4 2022.

Steve Valenzuela: Mainly due to the improvement in hardware margins.

Steve Valenzuela: Turning to operating expenses.

Steve Valenzuela: R&D expenses in the fourth quarter were $61 3 million compared to $57 4 million in the fourth quarter of 2022.

Steve Valenzuela: Mainly due to an increase in headcount and related compensation expenses as we continue to execute our growth strategies.

Steve Valenzuela: Thanks, Steve. I'll begin with a review of our fourth quarter and full year 2023 financial results and then provide guidance for 2024. Before opening the call for questions, fourth quarter SAF and licensed revenue of $148.3 million grew 10.3% from the same quarter last year. For the full year of 2023, SAS and licensed revenue of $569.2 million grew 9.4% over 2022. Non-GAAP SASM license revenue, excluding VIVINT license revenue, grew 13% in 2023 year-over-year.

Steve Valenzuela: We ended 2023 with 1100 18 employees in R&D up from 1004 employees at the end of 2022.

Steve Valenzuela: Total head count increased to 19 189 employees for 2023.

Steve Valenzuela: Compared to seven 533 employees at the end of 2022.

Steve Valenzuela: Sales and marketing expenses in the fourth quarter were $25 9 million or 11, 5% of total revenue.

Steve Valenzuela: Paired to $23 6 million or 11, 3% of revenue in the same quarter last year.

Steve Valenzuela: Our G&A expenses in the fourth quarter were $24 2 million compared to $25 4 million in the year ago quarter down slightly due to lower legal costs.

Steve Valenzuela: G&A expense in the fourth quarter includes non ordinary course litigation expense of $1 1 million down from $1 9 million for Q4 2022.

Steve Valenzuela: Non ordinary course litigation expenses are part of our adjusted measures and.

Steve Valenzuela: Our SAS and licensed revenue visibility remains high, with a revenue renewal rate of 94% in the fourth quarter. Parker and other revenue grew 5.8% in Q4 2023 to $77.9 million, mainly driven by sales of video cameras.

Steve Valenzuela: Are excluded from the measurement of our non-GAAP financial performance.

Steve Valenzuela: non-GAAP adjusted EBITDA in the fourth quarter was $45 6 million compared to $39 million in Q4 2022.

Steve Valenzuela: For all of 2023, adjusted EBITDA was $154 million, an increase of four 8% from adjusted EBITDA of $146 8 million for 2022.

Steve Valenzuela: Total revenue of $226.2 million for the fourth quarter grew 8.7% from Q4 2022. For the full year of 2023, total revenue grew 4.6% year over year to $881.7 million. DASA's licensed gross margin for the fourth quarter remains solid at 84.6%, which is slightly down from 85.2% in the year-ago quarter, mainly due to mix.

Steve Valenzuela: In the fourth quarter GAAP net income was $31 3 million compared to GAAP net income of $18 1 million for Q4 2022.

Steve Valenzuela: non-GAAP adjusted net income was $33 9 million or <unk> 62 per diluted share in the fourth quarter compared to $28 7 million or <unk> 53 per share in the fourth quarter of 2022.

Steve Valenzuela: Hardware growth margin was 25% for the fourth quarter, up 610 basis points from 18.9% for Q4 2022, due mainly to the improvement in our supply chain and, to a lesser extent, product mix. Total gross margin was 64.1% for the fourth quarter, up 230 basis points from 61.8% for Q4 2022, mainly due to the improvement in hardware margin. Turning to operating expenses, R&D expenses in the fourth quarter were $61.3 million compared to $57.4 million in the fourth quarter of 2022, mainly due to an increase in headcount and related compensation expenses as we continue to execute our growth strategy. We ended 2023 with 1,118 employees in R&D, up from 1,004 employees at the end of 2022. Total headcount increased to 1,989 employees in 2023 compared to 1,733 employees at the end of 2022.

Steve Valenzuela: GAAP net income for the full year of 2023 was 81 million.

Steve Valenzuela: <unk> to GAAP net income of $56 3 million for 2022.

non-GAAP adjusted net income for 2023 was $113 2 million or $2 <unk> per diluted share compared to non-GAAP net income of $106 9 million or $1 95 per share for 2022.

Steve Valenzuela: Turning to our balance sheet.

Steve Valenzuela: We ended the fourth quarter with $697 million of cash and cash equivalents up from $622 2 million at December 31, 2022.

Steve Valenzuela: For all of 2023, we used $27 $3 million.

Steve Valenzuela: Purchased approximately 488000 shares of our common stock.

Steve Valenzuela: Through the 12 months ended December 31, 2023, we generated $136 million of cash flow from operations up from $56 9 million for 2022.

Steve Valenzuela: Our free cash flow for 2023 was $128 4 million compared to $28 3 million for 2022.

Steve Valenzuela: These results were driven by combination of an improvement in our working capital.

Steve Valenzuela: Due to an easing of supply chain dynamics and increasing profit margins.

Steve Valenzuela: Before turning to our financial outlook.

Steve Valenzuela: I wanted to provide some additional context about the IP license agreement and settlement with vivid.

Steve Valenzuela: Q4, 2023, the agreement had no impact on our SaaS and license revenue.

Steve Valenzuela: On a non-GAAP financial results.

Steve Valenzuela: Looking ahead to 2024, our guidance includes the expected contributions.

Steve Valenzuela: Sales and marketing expenses in the fourth quarter were $25.9 million, or 11.5% of total revenue, compared to $23.6 million, or 11.3% of revenue, in the same quarter last year. Our G&A expenses in the fourth quarter were $24.2 million compared to $25.4 million in the year-ago quarter, down slightly due to lower legal costs. G&A expense in the fourth quarter includes non-ordinary court litigation expense of $1.1 million, down from $1.9 million for Q4 2022.

Steve Valenzuela: From the new agreement.

Speaker Change: With that said I will now turn to our financial outlook.

Speaker Change: For the first quarter of 2024, we expect SaaS and license revenue of $148 six to $148 8 million.

Speaker Change: For the full year of 2024, we expect SaaS and license revenue to be between $622 five to $623 5 million.

Speaker Change: We are projecting total revenue for 2024 of 912 five to $933 5 million, which includes estimated hardware and other revenue of $290 to $310 million.

Speaker Change: We estimate that adjusted EBITDA for 2024 will be between $160 million to $164 million.

Steve Valenzuela: Non-ordinary court litigation expenses are part of our adjusted measure and are excluded from the measurement of our non-GAAP financial performance. Non-GAAP-adjusted EBITDA in the fourth quarter was $45.6 million, compared to $39 million in Q4 2022. For all of 2023, Adjusted EBITDA was $154 million, an increase of 4.8% from Adjusted EBITDA of $146.8 million for 2022.

Speaker Change: We expect adjusted EBITDA in the first quarter of 2024 to represent approximately 22% to 23% of our annual guidance.

non-GAAP net income for 2024 is projected to be 116 to $118 1 million or $2 10 to $2 14 per diluted share.

Speaker Change: EPS is based on an estimate of $55 2 million weighted average diluted shares outstanding.

Speaker Change: We currently project, our non-GAAP tax rate for 2024 to remain at 21% under current tax rules.

Speaker Change: I do want to point out however that some of our tax payments will be frontloaded for the new section 174 requirement. The capitalized R&D costs. If Congress doesn't act to reverse this change in the tax code.

Steve Valenzuela: Q4 2022. Non-GAAP-adjusted net income was $33.9 million, or $0.62 per diluted share, in the fourth quarter, compared to $28.7 million, or $0.53 per share, in the fourth quarter of 2022. GAAP net income for the full year of 2023 was $81 million, compared to GAAP net income of $56.3 million for 2022.

We expect full year 2020 for stock based compensation expense of $51 million to $53 million.

Speaker Change: In summary, we are pleased with how well our service provider partners and internal teams have performed over the past year. We are focused on executing on our business plan and investing in our long term strategy, while continuing to deliver profitable growth in.

Speaker Change: And with that operator, please open the call for Q&A.

Speaker Change: Certainly 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. Please press star one again, please standby, while we compile the Q&A roster.

Steve Valenzuela: Non-GAAP-adjusted net income for 2023 was $113.2 million, or $2.07 per diluted share, compared to non-GAAP net income of $106.9 million, or $1.95 per share, for 2022. Now, turning to our balance sheet. We ended the fourth quarter with $697 million of cash and cash equivalents, up from $622.2 million at December 31st, 2022. For all of 2023, we used $27.3 million to repurchase approximately 488,000 shares of our common stock. Through the 12 months ended December 31st, 2023, we generated $136 million of cash flow from operations, up from $56.9 million for 2022. Our free cash flow for 2023 was $128.4 million compared to $28.3 million for 2022.

Speaker Change: One moment for our first question.

Speaker Change: Our first question will be coming from.

Speaker Change: Okay.

Speaker Change: Okay.

Speaker Change: Yeah.

Speaker Change: Alicia Barnes your line is open.

Speaker Change: Okay.

Speaker Change: And one moment for our next question.

Speaker Change: Our next question will come from Sakakawea of Barclays. Your line is open.

Sakakawea: Okay, Great Hey, guys. Thanks for taking my questions here and nice results here, Steve Steve Trundle, Steve Venezuela.

Steve: Thank you.

Sakakawea: Thanks, Hey, guys, Steve I will just maybe yeah, absolutely Steve Valenzuela, maybe to start with you.

Sakakawea: <unk>.

Sakakawea: Just to kind of hit vivid upfront.

Sakakawea: And I know, we can't talk too much about it but as we look at the revised 24 guide can you maybe just talk about how much of the increase in SaaS revenue is coming from sort of better underlying fundamentals.

Sakakawea: Versus versus some of the litigation settlements.

Sakakawea: And along those same lines.

Sakakawea: And maybe how should we kind of think about the lower litigation costs and 24 versus your prior expectations.

Speaker Change: That makes sense.

Speaker Change: Second although you said the SaaS revenue from litigation costs did you mean, the EBITDA or.

Speaker Change: EBITDA.

Speaker Change: Yes.

Speaker Change: How much lower does litigation Costco.

Speaker Change: Yes, no it's a very good point.

Speaker Change: Yes. Thank you.

Speaker Change: So when we released our Q3 results in November we provided an initial look for 2004.

Steve Valenzuela: These results were driven by a combination of an improvement in our working capital due to an easing of supply chain dynamics and an increase in profit margins. Before turning to our financial outlook, I want to provide some additional context about the IP license agreement in settlement with Vivid.

Speaker Change: And that was of course before the settlement. We've now provided guidance for 2024 for EBITDA, that's about $13 million higher than will be Gabe on the initial look and Thats a combination of the <unk> settlement and also the strength of our business I would say.

Steve Valenzuela: For Q4 2023, the agreement had no impact on our SAS and licensed revenue or on our non-GAAP financial results. Looking ahead to 2024, our guidance includes the expected contributions from the new agreement. With that said, I will now turn to our financial outlook. For the first quarter of 2024, we expect SAS and license revenue of $148.6 to $148.8 million.

Speaker Change: The <unk> settlement is a larger component of that but we can't really break it out as Steve talked about given the confidentiality of that of that situation. The also important point to make is that the.

Speaker Change: Legal matters related to dividend had gotten to the point at the end of the fourth quarter of last year, where we would adjust those out of EBITDA. So there is no benefit to EBITDA in 2024 from that litigation matter being resolved. However, there is a significant cash flow benefit because we do expect lower legal costs.

It's always very difficult to predict legal costs, and I would add too to horn, a little bit here on the cash flow.

Steve Valenzuela: For the full year of 2024, we expect SAF and licensed revenue to be between $622.5 and $623.5 million. We are projecting total revenue for 2024 of $912.5 to $933.5 million, which includes estimated hardware and other revenue of $290 to $310 million. We estimate that adjusted EBITDA for 2024 will be between $160 to $164 million. We expect adjusted EBITDA in the first quarter of 2024 to represent approximately 22 to 23% of our annual guidance. Non-GAAP net income for 2024 is projected to be $116 to $118.1 million, or $2.10 to $2.14 per diluted share. EPS is based on an estimate of $55.2 million, weighted average diluted share is outstanding.

Speaker Change: This year, we believe cash flow could be about $150 million now there is that.

Speaker Change: There is that tax matter related to section 174.

Speaker Change: Unless Congress acts and they are supposed to meet again in the next couple of weeks, we would have about $70 million of tax payments and 24 related to the R&D capitalization, which brought loads the taxes. So our net tax or net cash flow would be about 80 million $85 million in 2014.

Speaker Change: <unk> into account the $70 million. So the operating cash flow in 'twenty, four really is going to be about $150 million. So very similar to the cash flow, we actually generated in 'twenty three where we also made that tax payment of around $35 million and regenerated about $125 million of free cash flow.

Speaker Change: <unk> and 'twenty three so the business is generating very good amount of cash does that answer your question.

Yes that does that's super helpful detail actually.

Speaker Change: Steve Trundle, maybe maybe for my follow up for you maybe on onto a different topic.

Stephen S. Trundle: I was wondering if you could just talk about some of the early observations that youre seeing from from ADP, Google and its and its impact to the business and just maybe remind us how youre sort of thinking about that impact in 'twenty, four and whether thats changed at all.

Stephen S. Trundle: Sure.

So far the observations are we havent seen impact.

Steve Valenzuela: We currently project our non-GAAP tax rate for 2024 to remain at 21% under current tax rules. I do want to point out, however, that some of our tax payments will be front-loaded for the new Section 174 requirement to capitalize R&D costs if Congress does not act to reverse this change in the tax code. We expect full year 2024 stock-based compensation expense of $51 to $53 million.

Stephen S. Trundle: From the rollout of the ADT plus software in terms of how we're looking at the year.

Stephen S. Trundle: Where we're building our models off of.

Stephen S. Trundle: Of the publicly available sort of estimates.

Stephen S. Trundle: From ADT themselves instead of speculating about any other sort of timeframe. So we're currently.

Stephen S. Trundle: Using the estimate that that transition will occur in the first and second quarter of this year in the first half of the year and therefore, that's how we've.

Stephen S. Trundle: We've model.

Stephen S. Trundle: The results there.

Stephen S. Trundle: Expectation, there and our own guidance.

Operator: In summary, we are pleased with how well our service provider partners and internal teams have performed over the past year. We are focused on executing on our business plan and investing in our long-term strategy while continuing to deliver profitable growth. And with that, Operator, please open the call for Q&A. As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again.

Speaker Change: Got it if I can just squeeze one last housekeeping question here for you Steve Valenzuela every year Theres, a really helpful. Stats just on the annual subscribers.

Stephen S. Trundle: Yes.

Stephen S. Trundle: I think last year at the end of 'twenty two was a little over $9 million do you have that rough number here for for how we ended subscribers at the end of 2023.

Stephen S. Trundle: The second generally the thing.

We've looked at our business, it's changed so much given with new inline with UBS with commercial really not being indicative of the number of subscribers given that you have multiple locations and so that's a metric that we don't feel thats really valuable anymore. So we've not really provided that we think it's actually misleading it actually understates.

Operator: Please stand by while we compile the Q&A roster and one moment for our first question. Our first question will be coming from Alicia Barnes. Your line is open.

Stephen S. Trundle: The benefit of the commercial growth of our business, which is.

Stephen S. Trundle: Almost 10% of our SaaS or I think it was nine 4% of our SaaS revenue in the fourth quarter.

Operator: And one moment for our next question. Our next question will come in from Saket Kalia of Barclays, and your line is open. Okay, great. Hey guys, thanks for taking my questions here. Nice result here, Steve Trundle and Steve Valenzuela.

Stephen S. Trundle: And so it's really not a meaningful stat anymore.

Speaker Change: Very helpful. Thanks, guys.

Speaker Change: Thanks.

Speaker Change: And one moment for our next question.

Okay.

Speaker Change: Okay.

Speaker Change: Our next question will be coming from Adam Naughton.

Adam Tindle: Of Raymond James Your line is open Adam.

Adam Tindle: Hey, this is Adam tindle.

Adam Tindle: I just wanted to maybe start Steve Trundle, you mentioned the focus of this call was long term strategy and that you were transitioning your focus to becoming a more diversified business.

Saket Kalia: Thank you. Hey, Steve Valenzuela, maybe, yeah, absolutely, Steve Valenzuela, maybe to start with you, just to kind of hit Vivint up front. And I know we can't talk too much about it, but as we look at the revised 24 guide, can you maybe just talk about how much of the increase in SAS revenue is coming from sort of better underlying fundamentals versus some of the litigation settlements. And, along those same lines. Maybe how should we think about the lower litigation costs in 24 versus your prior expectations? Does that make sense? Yes, I could do that.

Adam Tindle: On that point, if you could maybe share some practical strategies that youre thinking about in terms of that increased focus.

Adam Tindle: And I mentioned that because you're arguably at scale now and in these areas improve in commercial for example might it make sense to employ a more direct sales force the.

Adam Tindle: The growth businesses, you've got major reference customers like a Tesla how do you capitalize on that and you also have significant cash balance to overlay across this entire increased focus. So you could just maybe share some practical strategies that you're thinking about as you talk about that high level topics. Thanks.

Speaker Change: Yes, good question Adam.

Speaker Change: So practical.

Speaker Change: And distinguishing commercial from our commercial go to market from a residential go to market is.

Speaker Change: It's worth doing.

Speaker Change: The relationship that <unk> has with their partners.

Steve Valenzuela: Although you said the SAS revenue from litigation costs, did you mean the EBITDA or EBITDA? Yeah, like how much lower do the litigation costs go? Yeah, no, it's a very good point.

Speaker Change: Slightly different in the commercial side than the residential side on the commercial side.

Speaker Change: Our integrator partners expect us to do.

Speaker Change: More and.

Speaker Change: More marketing more lead generation activity I don't think we'll jump into a direct salesforce thats thats at all competing with our with our partners. So thats definitely not in our plans, but some practical things. We've been doing are doing a lot more sort of outbound calling to.

Steve Valenzuela: Yes, thank you. So when we released our Q3 results in November, we provided an initial look for 2004. And that was, of course, before the settlement.

Speaker Change: <unk> potential commercial clients.

Steve Valenzuela: We've now provided guidance for 2024 for EBITDA, and that's about 13 million higher than what we gave on the initial look. And that's a combination of the Vivint Settlement and also the strength of our business. I would say the Vivint Settlement is the larger component of that, but we can't really break it out as Steve talked about given the confidentiality of that situation. The other important point to make is that the legal matters related to Vivint had gotten to the point at the end of the fourth quarter of last year where we would adjust those out of EBITDA. So there would be no benefit to EBITDA in 2024 from that litigation matter being resolved.

Speaker Change: Julien a lot more in the form of lead generation that then flows down to our commercial partners and absorbing some of the cost associated with that but trying to drive further growth there.

Speaker Change: And I think we will continue to do that because thus far we are seeing meaningful results from that.

Speaker Change: Okay on the cash balance and priorities.

Speaker Change: The second piece was on the I'm, sorry, the cash balance.

Speaker Change: Yes, the cash balance on the balance sheet, and how that might Oh sure sure sure yeah.

Speaker Change: I mean, the cash we have gives us an opportunity to be.

Speaker Change: Optimistic when we see things come along and our primary.

Speaker Change: I guess, our primary view is we want to retain that dry powder for the right opportunity. If we see something on the corporate development side that makes sense.

Speaker Change: So that's that's sort of what we continue to look at.

Speaker Change: We don't feel like we have to go do any sort of deal with that balance. So we're able to sort of sit back and look at things that come up to see if they meet our criteria.

Steve Valenzuela: However, there is a significant cash flow benefit because we do expect lower legal costs. It's always very difficult to predict legal costs, and I would toot our horn a little bit here on the cash flow. This year, we believe the cash flow could be about $150 million.

Speaker Change: <unk>.

Steve Valenzuela: Now there is that tax matter related to Section 174 where, unless Congress acts, and they are supposed to meet again in the next couple of weeks, we would have about $70 million of tax payments in 2024 related to the R&D capitalization, which front loads the taxes. So our net cash flow would be about $80 million, $85 million in 2024, taking into account the $70 million. So the operating cash flow in 2024 really is going to be about $150 million. So, very similar to the cash flow we actually generated in 23, where we also made that tax payment of around $35 million, and we generated about $125 million of free cash flow in 23. So the business is generating a very good amount of cash. Does that answer your question? Yeah, that does sound good.

Okay.

Speaker Change: More brand building activity, particularly in the commercial on the commercial side of the of the business. So when I say, they're sort of scale that in a way what we mean there is that they're converging each business is different but summer converging on the point where.

Speaker Change: Growth is still there, but cash burn is is reduced.

Speaker Change: They're all a different sort of stages when we're talking about the other segment energy hub is closer to being at scale.

Speaker Change: As an example.

Speaker Change: Moonlight, probably not as close to being at scale as an example.

Stephen S. Trundle: That's super helpful detail actually. Steve Trunnell, maybe on to a different topic, I was wondering if you could just talk about some of the early observations that you're seeing from ADT and Google and its impact on the business and just maybe remind us how you're sort of thinking about that impact in 2024 and whether that's changed at all. Sure. So, so far, the observations are that we haven't seen an impact from any rollout of the ADP Plus software.

Speaker Change: So each one has sort of different characteristics.

Speaker Change: But on an overall basis, we think that.

Speaker Change: The other segments some of the businesses, they're getting to scale and.

Speaker Change: And in terms of how that flows up to the parent I think I would just come back to.

Speaker Change: We're going to continue to to bring them, along and focus on growth and you'll probably see us this year.

Speaker Change: Go and a bit harder on the marketing and sales sides and we have Ah last year. If you go back to last year, we were sort of dealing with the surprise.

Speaker Change: And our P&L and we pulled out a lot of levers to try to.

Speaker Change: Maintain sort of a certain direction with the ship if you will.

Stephen S. Trundle: In terms of how we're looking at the year, We're building our models off of publicly available estimates from ADT themselves instead of speculating about any other sort of time frame. So we're currently using the estimate that that transition will occur in the first and second quarter of this year, in the first half of the year. And therefore, that's how we've done it. We've monitored the results there and the expectations there under our own guidance. Got it.

Speaker Change: Some of that pressure is off so we want to go back to focusing on how do we grow the business.

Speaker Change: Thank you.

Speaker Change: Yep.

Speaker Change: And one moment for our next question.

Speaker Change: And our next question will be coming from Michael Funk Bank of America, Michael your lines or something.

Great. Thank you for taking the questions Tonight couple if I could please so just.

Michael J. Funk: On the on the use of cash question again wanted to drill down and should we should we think about potential strategic uses.

Michael J. Funk: Overlain with the priorities that you mentioned earlier growth venture businesses international and some of the other capabilities.

Saket Kalia: If I can just squeeze one last housekeeping question here for you, Steve Valenzuela. You know, every year there's a really helpful stat just on the annual subscribers. I think last year at the end of 22, there were a little over 9 million.

Michael J. Funk: Or.

Michael J. Funk: How should we think about that I guess is the question.

Speaker Change: Yeah, I think that's a good starting point.

Speaker Change: Is looking at some of those priorities that I that I mentioned in my prepared remarks that commercial piece video piece video analytics.

Speaker Change: Sensually other growth remains like multifamily or the energy business. So those are all places where we are surveying for opportunity I would say that.

Steve Valenzuela: Do you have that rough number here for how we'll end up with subscribers at the end of 2023? SACA generally, the thing we've looked at our business, it's changed so much given with the new line with EBS, with commercial really not being the indicative of the number of subscribers given that you have multiple locations. And so that's a metric that we don't feel is really valuable anymore. So we've not really provided that because we think it's actually misleading.

Speaker Change: The criteria that one applies to opportunities change with the cost of capital so.

Speaker Change: While we still have a pretty low cost of capital, we evaluate each opportunity against today's cost of capital and.

Speaker Change: And whether we think the opportunity to sort of be a good fit with our overall strategy be good for our investors. So probably the bar is raised a tad this year versus.

Speaker Change: Go in terms of what meets our criteria.

Speaker Change: We continue to look I wouldn't say that we want to consider.

Steve Valenzuela: It actually understates the benefit of the commercial growth of our business, which is, you know, almost 10% of our staff. I think it was 9.4% of our staff's revenue in the fourth quarter. And so it's really not a meaningful stat anymore.

Speaker Change: Something that comes up in our core business domain, but but I would say probably the places where survey in the market more broadly are in those growth areas. If you look at some of the tuck ins like last year, the Avs acquisition.

Speaker Change: Was focused on our international business as an example.

Steve Valenzuela: Very helpful. Thanks, guys. Thank you. And one moment for our next question. Our next question will be coming from Adam Norrison of Raymond James, Elinas, and Adam. Hey, this is Adam Tindle.

Speaker Change: The venture acquisition was focused on our video analytic strategy. So you can kind of see a pattern there of us.

Speaker Change: Building out the diversity of our of our time and our go to market by.

Speaker Change: Strengthening some of the areas that we.

Adam Tindle: I just wanted to maybe start, Steve Trundle, you mentioned the focus of this call was long-term strategy and that you were transitioning your focus to becoming a more diversified business. On that point, could you maybe share some practical strategies that you're thinking about in terms of that increased focus? And I mentioned that because you're arguably at scale now in these areas, and proven in commercial, for example, might it make sense to employ a more direct sales force? The growth businesses, you've got major reference customers like Tesla. How do you capitalize on that?

Speaker Change: More new to us that our core business.

Speaker Change: Sure and then just quickly on AI SD spoke about in the past and potential monetization.

Speaker Change: Opportunity.

Speaker Change: Hoping to get an update on your thinking for AI and the potential for that to drive <unk> and top line.

Speaker Change: Yeah. The good news is it sort of already happening at some level of the.

Speaker Change: AI is a very broad category to us.

Speaker Change: There are two places where it sort of intersects with our business. One is the efficiency on how we handle.

Speaker Change: A lot of the communications to our partners and how we handle support calls how we put together documents those type of things. So you can drive some additional efficiency there. The other is more on the <unk> side, where to US AI is what are we doing.

Stephen S. Trundle: And you also have a significant cash balance to overlay across this entire increased focus. So you can just maybe share some practical strategies that you're thinking about as you talk about that high-level topic. Yeah, good question, Adam.

Speaker Change: How are we using intelligence to get more.

Speaker Change:

Stephen S. Trundle: So, practical, and distinguishing commercial from our commercial go-to-market from our residential go-to-market is worth doing because the relationship that one has with their partners is slightly different on the commercial side than the residential side. On the commercial side, our integrator partners expect us to do more marketing, and more lead generation activities. I don't think we'll jump into a direct sales force that's at all competing with our partners, so that's definitely not in our plans.

Speaker Change: Get more content from millions of video cameras that we have deployed in the world and if you are getting more content or more not just content, but more useful content. Then you are able to drive higher revenue per channel increasingly by the way our pricing when when when we talk.

Speaker Change: Is increasingly more of a per channel type of model. So.

Speaker Change: The opportunity sort of here today, and we are leveraging.

Speaker Change: What we see to drive.

Speaker Change: Increasingly sophisticated use cases on each on each.

Speaker Change: <unk> unit that we see installed.

Stephen S. Trundle: But some practical things we've been doing are doing a lot more sort of outbound calling to potential commercial clients, doing a lot more in the form of lead generation that then flows down to our commercial partners, and absorbing some of the costs associated with that but trying to drive further growth there. And I think we'll continue to do that because, thus far, we've seen meaningful results from that. Okay, on the cash balance and priority set. Oh, the second piece was on the cash balance.

Speaker Change: Thank you for the time and the color.

Speaker Change: Sure.

Speaker Change: And one moment for our next question.

Speaker Change: Our next question is coming from Darren Taffy.

Darren Aftahi: Taffy rock M K M. Your lines.

Darren Aftahi: Hey, guys. Thanks to my questions in a nice quarter.

Darren Aftahi: Tuesday may 1st on.

Darren Aftahi: Growth opportunities you kind of talk the commercial energy and video, making up 31% I think ruins 47 per cent year on year like what are the underlying assumptions and your 2024 outlook does that grows decelerate or has it become a bigger mix shift and kind of routine that that growth characteristics any color on that would be helpful.

Speaker Change: Yes, I think Darren.

Speaker Change: Looking at that growth continuing.

Speaker Change: In 2024, I mean, typically when we do guide we have to be conservative so probably backing off a little bit on that growth in our guide, but we're seeing good growth there in commercial and video a video of the lakes energy up as you mentioned, which are in those grilled segments.

Stephen S. Trundle: Yeah, the cash balance on the balance sheet and how that might... Oh, sure, sure, sure. The cash we have gives us an opportunity to be... optionistic when we see things come along. And, and, you know, our primary, I guess our primary view is we want to retain that dry powder for the right opportunity if we see something on the corporate development side that makes sense. So that's sort of what we continue to look at. We don't feel like we have to make any sort of deal with that balance, so we're able to sort of sit back and look at things that come up and see if they meet our criteria.

Speaker Change: But again in the guide we have to be somewhat conservative there, so probably backing off a little bit on that in 2004.

Speaker Change: Great and then uhm it seems like everyone's raising prices I'm just curious what was the last time you guys did a price increase in any kind of thoughts about that going for Ya.

Speaker Change: The last time, we did a price increase.

Speaker Change: They're sort of happening all the time, but there.

Speaker Change:

Speaker Change: The last time, we announced a price increase was in the fourth quarter of 2023.

Speaker Change: Hardware stabilized I would say so.

Stephen S. Trundle: Where we deploy, if we do deploy, I think it really depends on the unique element of each opportunity that comes up. So for now, I'm just going to continue to preserve that capacity as dry powder if the right thing comes along. Okay, and I know that was a multi-parter for my first one; sorry.

Speaker Change: Haven't seen as much there lately and you see.

Speaker Change: With the margin profile that Steve reported probably less pressure on the hardware side with improvements in the supply chain on the services side, though.

Speaker Change: There's sort of a.

Speaker Change: I need to just sort of recognize that an inflationary environment.

Speaker Change: There has to be some price increase component.

Speaker Change: Okay.

Speaker Change: One moment for our next question.

Speaker Change: Our next question will come from you for a carpenter.

Adam Tindle: But as a quick follow-up, one of the other things you talked about on this call was that the growth businesses are improving with scale, and it sounded like the unit economics and margin profile. If I look at that, you finished 2023 with an EBITDA margin of around $17.5, and this initial guidance implies kind of a flattish year-over-year. I understand that you tend to be somewhat conservative, but help us maybe better appreciate that comment on the benefits of scale because it's not as evident as we look at 2024.

Carpenter: J P Morgan Corey your ninth Okay.

Carpenter: Hey, Thanks and to just first wanted to ask about hardware trends you called out swelling. The commercial segment last quarter curious what you see more recently.

Speaker Change: That was incorporated into your.

Speaker Change: <unk> and then just to clarify on the guide.

Speaker Change: I guess to ask directly would you raise your 24 guidance adopted economy.

Speaker Change: Or any assumptions or an ADP. Thank you.

Speaker Change: Hey.

Carpenter: This is Steve so I'll start with the last question.

Steve: Historically, if you look at sort of the.

Steve: Standard practice between our initial look and R. R Q4 report.

Steve: Generally we have been able to gain additional sort of visibility end of the business. During the last three months of the year and raised the guide some coming into the full year guide. So I I would say even absent those two matters you mentioned that likely would have occurred this year.

Stephen S. Trundle: Sure, I guess what I'd say first at this point in the year is that we want to preserve the capacity to unleash more marketing activity probably than you saw from us in 2023, more brand building activity, particularly on the commercial side of the business. So when I say they're sort of at scale, what we mean there is that they're converging, you know, and each business is different, but some are converging at the point where growth is still there, but cash burn is reduced. They're all at different sorts of stages when we talk about the other segments. Energy Hub is closer to being at scale, as an example. Moonlight is probably not as close to being at scale as an example. So each one has sort of different characteristics.

Steve:

Steve: As it relates to the to the hardware peace.

Speaker Change: I guess, what I would say there as we continue the fourth quarter, we saw some stability on the hardware side.

Steve: Roughly came in about within what we had guided for a range. It's we're seeing right now is sort of a low pretty low point in terms of the amount of hardware that.

Steve: As in the channel relative to what the install rate traditionally is so we're trying to sort of adjudicate R. As the channel just becoming more efficient and moving too much.

Steve: Much lower inventory profile permanently or are we sort of an interesting.

Steve: Interesting point in time, where.

Steve: The density of hardware and the channels just unusually low we're not real sure yet, but until we figure that out we wanna be judicious with a hardware guide and and we looked at that when we put together the number.

Stephen S. Trundle: But on an overall basis, we think that, you know, the other segments, some of the businesses, they're getting to scale, and And in terms of, you know, how that flows up to the parent company, I think I would just come back to We're going to continue to bring them along and focus on growth. And you'll probably see us go in a bit harder on the marketing and sales side than we did last year. If you go back to last year, we were sort of dealing with a surprise in our P&L, and we pulled on a lot of levers to try to maintain sort of a certain direction with the ship, if you will. Some of that pressure is off, so we want to go back to focusing on how we grow the business. Thank you. And one moment for our next question. And our next question will be coming from Michael Funk of Bank of America. Michael, your line is open.

Steve: For the year.

Speaker Change: Okay, great. Thank you.

Speaker Change: Thanks.

Speaker Change: Okay, one moment for our next question.

Speaker Change: [noise] next question will be coming from checking.

Checking: Maximum group.

Checking: Okay.

Checking: Okay, great. Thanks, Thanks D T Stevie great to see strong results raised outlook I'll start with a question here for Steve Trundle.

Checking: Can you can you speak to your dealer channel partners.

Checking: What's the overall sentiment and kind of morale channel overall and just how are they navigating the current competitive environment any updates there from your channel.

Stephen S. Trundle: Sure no. It's a good question because I.

Stephen S. Trundle: Already this year have been out a few dealer events. So I've got a kind of a fresh feel for what the sentiment is.

Speaker Change: And I would say generally they're very.

Speaker Change: You have to break I mean, our channel iceberg, we have lots and lots of service providers.

Speaker Change: Most recently I've spent a lotta time with the mid size smaller service providers.

Michael J. Funk: Great. Thank you for taking the questions tonight. A couple, if I could, please.

Speaker Change: They provide a lot of balanced in our business and represent the bulk of our service providers. There's a lot of kind of encouraging the miles very good there I would say, there's lots of opportunities, particularly <expletive> video moves.

Michael J. Funk: So, you know, just on the use of cash question, again, I wanted to drill down a bit. Should we think about potential strategic uses, overlaying with the priorities that you mentioned earlier, you know, the growth venture businesses, you know, international, and some of the other capabilities? Or, you know, how should we think about that?

Speaker Change: To the cloud lots of commercial locations that want to upgrade to take advantage of new analytic capabilities take advantage of new remote monitoring capabilities. So the wealth of things that they're able to sell today that are desired by the customer I'd say. This is just generally been a trend over the last five years, which is what most of those service.

Stephen S. Trundle: Great. Thank you. Yeah, I think that's a good starting point, looking at some of those priorities that I mentioned in my prepared remarks, the commercial piece, the video piece, video analytics, potentially other growth domains like multifamily or the energy business. So those are all places where we're surveying for opportunity. But I would say that, you know, the criteria that one applies to opportunities change with the cost of capital.

Speaker Change: Providers are selling today.

Speaker Change: Is actually something that the customer really wants and is desirable, especially with the capabilities that are enabled with video analytics with the cloud access control piece. So.

Speaker Change: The excitement seemed to be there now when you get into other parts of the market better focus.

Speaker Change: More on.

Speaker Change: Residential mass market I would say, it's tad more neutral as the sentiment at the moment folks are.

Stephen S. Trundle: So while we still have a pretty low cost of capital, we evaluate each opportunity against today's cost of capital. And, and whether you know, we think the opportunity to sort of be a good fit with our overall strategy would be good for our investors. So, probably, the bar is raised a tad this year versus two years ago in terms of what meets our criteria.

Speaker Change: Wondering what's gonna happen with the economy, what's gonna happen with moves.

Speaker Change: What's gonna happen with new Homestar to those type of sort of macroeconomic concerns.

Speaker Change: Probably a bit more of a a neutral stance.

Speaker Change: There, but overall I'd say folks are mostly up.

Speaker Change: Great. That's helpful. That's helpful color, Thanks, Steve and maybe just a question for Steve Valensuela.

Stephen S. Trundle: But we continue to look, and I wouldn't say that we won't consider something that comes up in our core business domain. But, I'd say probably the places we're surveying the market more broadly are in those growth areas. If you look at some of the tuck-ins, like last year, the EBS acquisition was focused on our international business. As an example, the venture acquisition was focused on our video analytics strategy. So you can kind of see a pattern there of us building out the diversity of our TAM and of our go-to-market strategy by strengthening some of the areas that we, you know, that are more new to us than our core business domain.

Steve Valenzuela: I I appreciate I understand you're not providing the total subscriber count at the end of the year, but yeah, something you'd just be helpful. Maybe if if you can can you speak anything in terms of international connected properties or international fast revenue as a percentage of the overall I think he said commercial was about 9.4 per cent something near.

Speaker Change: 10% of the <unk>, just anything to provide some subscriber growth there a subscriber count or percentage of revenues for the international and commercial.

Speaker Change: International is actually 4% of our total revenue international continues to do well it grew about set the international SaaS revenue.

Stephen S. Trundle: Sure. And then just quickly on AI, you know, Steve spoke about in the past that AI is a potential monetization opportunity. I'm just hoping to get an update on your thinking for AI and the potential for that to drive ARPU and top line. Yeah, the good news is it's sort of already happening at some level. AI is a very broad category to us.

Speaker Change: 23 grew about 25% year over year.

Speaker Change: And so we're.

Speaker Change: With DBS, especially we're excited about the opportunity going forward with the communicator, that's going to be coming on this year. So we think there's quite a few opportunities there internationally.

Speaker Change: And that in commercial as you mentioned commercial actually grew quite well and twenty-three as well and it was about nine 4% of the total staff.

Stephen S. Trundle: There are two places where it sort of intersects with our business. One is efficiency and how we handle, you know, a lot of the communications with our partners and how we handle support calls, how we put together documents, those type of things. So you can drive some additional efficiency there.

Speaker Change: Gotcha, So just to clarify international about 4% of total revenue in up around 25% commercial revenue about 9.5% of total SAS room, now and growing very sure okay, well great to hear.

Stephen S. Trundle: The other is more on the revgen side where, to us, AI is what we do, you know, how are we using intelligence to get more, You know, get more content from the millions of video cameras that we have deployed in the world, and if you're getting more content or more, not just content, but more useful content, then you're able to drive, you know, higher revenue per channel. Increasingly, by the way, our pricing So the opportunity is sort of here today, and we're leveraging what we see to drive increasingly sophisticated use cases on each video unit that we see installed. Thank you for the time and the color.

Speaker Change: Yeah.

Speaker Change: Yeah National Saturn twenty-five.

Speaker Change: Year over year, Yeah, sorry, it's quite a few hundred or to mix up.

Speaker Change: Yeah cause I mean, we do squat international revenue in our in our case in queues.

Speaker Change: Gotcha I appreciate the color. Thank you.

Speaker Change: Sure.

Speaker Change: Yeah. It's a reminder, if you would like to ask a question. Please press star one one on your telephone and wait for your name to be announced.

Speaker Change: Again, Please press star one one for any additional questions.

Speaker Change: And I'm showing no further questions.

Speaker Change: This concludes today's conference call. Thank you for participating you may now disconnect.

Speaker Change: Thank you. Thank you.

Stephen S. Trundle: Sure. In one moment for our next question. Our next question is coming from Darren Aftahi of Roth MKM. Your line is open. Hey guys, thanks for taking my questions and for a nice quarter. Two, if I may, first on the growth opportunities, you kind of talked about commercial energy and video making up 31%, I think growing 27% year on year. Like what are the underlying assumptions in your 2024 outlook? Does that growth decelerate? Or has it become a bigger makeshift and kind of retain that growth characteristic?

Speaker Change: Mmm.

Speaker Change: [music].

Speaker Change: Mmm.

Speaker Change: [music].

Darren Aftahi: Any comment on that would be helpful. Yeah, I think, Darren, we're probably looking at that growth continuing in 2024. I mean, typically, when we do forecast, we have to be conservative.

Steve Valenzuela: So probably backing off a little bit on that growth in our guide. But we're seeing good growth there in commercial and video, video analytics, and energy hub, as you mentioned, which are in those growth segments. But again, in the guide, we have to be somewhat conservative there. So, probably backing off a little bit on that in 24.

Stephen S. Trundle: Great. And then it seems like everyone's raising prices. I'm just curious, when was the last time you guys did a price increase, and any kind of thoughts about that going forward? Thank you.

Stephen S. Trundle: The last time we did a price increase, they're sort of happening all the time, but the last time we announced a price increase was in the fourth quarter of 2023. Hardware stabilized, I would say, so I haven't seen as much there lately, and you see with the margin profile that Steve reported, probably less pressure on the hardware side with improvements in the supply chain. On the services side, though, there's sort of a need to just sort of recognize that in an inflationary environment, there has to be some price increase component. And one moment for our next question. Our next question will come from Corey Carpenter of J.P. Morgan. Corey, your line is open. Hey, thanks. I have two.

Corey Carpenter: Just first wanted to ask about hardware trends. You called out slowing in the commercial segment last quarter. Curious what you've seen more recently and how that was incorporated into your 24-hour outlook. And then just to clarify on the guide. I guess to ask directly, would you have raised your 24-hour guidance without the Vivint settlement or any assumptions around ADT? Thank you. This is Steve.

Steve Valenzuela: So I'll start with the last question. Historically, if you look at sort of the standard practice between our initial look and our Q4 report, generally, we've been able to gain additional sort of visibility into the business during the last three months of the year and raised the guide, some coming into the full year guide. So I would say even absent those two matters you mentioned, it likely would have occurred this year, as it relates to the hardware piece.

Steve Valenzuela: I guess what I'd say there is we continue to see some stability on the hardware side, and it roughly came in about within what we had guided for a range. We're seeing right now sort of a low, pretty low point in terms of the amount of hardware that is in the channel relative to what the install rate traditionally is. So we're trying to sort of adjudicate whether the channel is just becoming more efficient and moving to a much lower inventory profile permanently, or are we sort of at an interesting point in time where the density of hardware in the channel is just unusually low.

Steve Valenzuela: We're not really sure yet, but until we figure that out, we want to be judicious with our hardware guide, and we looked at that when we put together the number for the year. Okay, great. Thank you, www. HoldingsInc.com. One moment for our next question. Our next question will be coming from Jack Vanderaar of Maxim Group. Your line is open. Okay, great.

Speaker Change: [music].

Jack Vanderaar: Thanks. Thanks, Steve T, Steve V. Great to see strong results and a raised outlook. I'll start with a question for Steve Trundle. Can you speak to your dealer channel partners?

Stephen S. Trundle: And just, you know, what's the overall sentiment and kind of morale of the channel overall? And just how are they navigating the current competitive environment? Any updates there from your channel? Sure. No, it's a good question because I...

Stephen S. Trundle: Already this year, I've been out to a few dealer events, so I've got kind of a fresh feel for what the sentiment is. And I would say, generally, they're very, you have to break, I mean, our channel is big. We have lots and lots of service providers. But most recently, I've spent a lot of time with the mid-sized, smaller service providers.

Stephen S. Trundle: They provide a lot of ballast in our business and represent the bulk of our service providers. There's a lot of kind of encouraging; the morale is very good there, I would say. There are lots of opportunities, particularly as video moves to the cloud, lots of commercial locations that want to upgrade, take advantage of new analytic capabilities, take advantage of new remote monitoring capabilities. So the wealth of things that they're able to sell today that are desired by the customer, and I'd say this has just generally been a trend over the last five years, which is what most of those service providers are selling today is actually something that the customer really wants and The excitement seemed to be there.

Stephen S. Trundle: Now, when you get into other parts of the market that are focused more on the residential mass market, I would say it's a tad more neutral in the sentiment at the moment. Folks are wondering what's gonna happen with the economy, what's gonna happen with moves, what's gonna happen with new home starts. Those type of macroeconomic concerns create probably a bit more of a neutral stance there.

Stephen S. Trundle: But overall, I'd say folks are mostly up. Great. That's helpful. That's helpful, Culler. Thanks, Steve. And maybe just a question for Steve Valenzuela.

Steve Valenzuela: I appreciate, understand you're not providing the total subscriber count at the end of the year, but something would just be helpful, maybe, if you could. Can you speak to anything in terms of international connected properties or international SaaS revenue as a percentage of the overall? I think you said commercial was about, you know, 9.4%, something near 10% of the SaaS revenue.

Steve Valenzuela: Just anything you could provide from a subscriber growth or subscriber count or percentage of revenues for international. International is actually 4% of our total revenue. International continues to do well. It grew about, and the international staff's revenue in 23 grew about 25% year over year. So with EBS especially, we're excited about the opportunity going forward with the communicator that's going to be coming out this year. So we think there are quite a few opportunities there internationally. And commercial, as you mentioned, commercial actually grew quite well in 23 as well, and it was about 9.4% total sales.

Steve Valenzuela: [music].

Steve Valenzuela: Gotcha. So just to clarify, international revenue is about 4% of total revenue and up around 25% commercial revenue, about 9.5% of total SaaS revenue and growing very sharply. Okay. Well, great to hear guys. Yeah, international... year over year, yeah. Sorry, quite a few numbers there to mix up. Yeah, because we do score international revenue in our case in Q.

Operator: I appreciate the color. Thank you, Sure. As a reminder, if you would like to ask a question, please press star 11 on your telephone and wait for your name to be announced. Again, please press star 11 for any additional questions. And I'm showing no further questions. This concludes today's conference call. Thank you for participating. You may now disconnect. Thank you.

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