Q2 2019 Earnings Call
Hi, Thank you good afternoon, everyone and welcome to alarmed outcomes second quarter 2019 earnings conference call.
As a reminder, this call is being recorded.
Joining us today from alarm dotcom, or Steve Trundle, President and CEO and Steve Valensuela CFO before we begin a quick reminder to our listeners.
Management's discussion during the call today will include forward looking statements which include.
Projected financial performance for the third quarter and full year 2019.
Anticipated timing of payment of certain liabilities the impact of certain investments in our business our business strategies.
Continued enhancements to our platform.
Anticipated market demand for our offerings.
Opportunities for growth in our current markets or to expand into new markets and other forward looking statements.
These forward looking statements are based on our current expectations and beliefs and on information currently available to us.
Statements containing words, such as anticipate believe continue estimate expect intend may will and other similar statements are intended to identify such forward looking statements.
These statements are subject to risks and uncertainties, including those contained in our updated risk factors section of our most recent quarterly report on Form 10-Q filed with the Securities and Exchange Commission.
And subsequent reports that we file with the Securities and Exchange Commission from time to time that could cause actual results to differ materially from those contained in the forward looking statements.
Please note that these forward looking statements made during this conference call speak only as of today's date and alarm Dotcom 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, but note that the presentation of non-GAAP financial information.
Is not meant to be considered in isolation or as a substitute for the directly comparable financial measures prepared in accordance with 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 that 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 telephone replay will also be available on our web site.
So with these formalities out of the way I'd now like to turn the call over to Steve Trundle, you may begin.
Thanks, David and welcome to everyone joining our call today.
We're pleased to report another solid quarter that exceeded our expectations.
SaaS and license revenue in the second quarter grew to $82.3 million up 16% year over year.
Our non-GAAP adjusted EBITDA in the second quarter was $27.7 million.
During the quarter our service providers continue to have success in the market, we added new subscribers and increasingly deployed our more advanced services.
One particular area of strength for our service providers.
Continues to be with our video services.
For the first six months of the year the number of subscribers electing a video service plan is up about 40% from the first half of 2018.
Adoption of our video analytic service.
Which we initially released at the end of last year continues to grow as well.
The improved user experience and quality of service enabled by video analytics is driving increased overall demand for video.
Overall, I am pleased with our progress and the video category.
As I have stated previously we have been steadily increasing our focus in this area.
We have both wrapped up our internal R&D investments and made select acquisitions to strengthen our tech stack and provide a solid product or service providers.
The market is highly competitive, but we are competing well.
In order to continue to innovate in the video category and in other growth categories like commercial and access control. We have worked hard to further build out our R&D team.
We ended the second quarter with an R&D team of 554 employees not including contractors.
As for the rest of the year unfolds, we expect to continue to invest in strengthening our capacity to drive best in class products and innovation into the markets we serve.
During the second quarter. We also expanded the ecosystem of supported third party hardware products that work with the alarm dotcom platform.
Of particular focus was on the IOTV devices that our builder channel partners desire.
We added devices from both Eaton and love upon which are brands that we see builders frequently installing for lighting control.
These additions fit nicely with existing integrations for audio walk control shade control and smart thermostats.
With me array of best in class devices available in our ecosystem builders can tailor solutions for the target buyers and the design aesthetics of a given community.
This quarter, we also significantly expanded our lineup of supported security control panels to give our service providers additional options to install in their customers properties.
Importantly.
We advance the capabilities available to our service providers by working with our existing control panel partners on new models that they are bringing to market.
With expanded touchscreen interfaces and our LP dual path gateways.
We can now offer new capabilities to subscribers such as display and video feeds on the control panel.
We have also worked with partners to create a more consistent alarmed are Tom user interface between our mobile app and the control panel.
We also worked with our manufacturer partners to increase the number of partitions and zones supported on several control panels. This upgrade allows the control panel to better meet the needs of small and medium sized business owners and light commercial applications.
An important element of our product strategy for security control panels has been cellular communications and managing the sunset of the Threeg networks that is planned for 2022.
Back in 2015 alarm Dot Com was the first company to bring LT smart home connectivity to market.
Since that time, we've enabled LTE across our entire security control panel liner.
Our service providers have also standardized on LTE connectivity for its superior customer experience and long term network life.
Today over 99% of all along Dot com systems installed in the us on stalled with an LTV based communication layer.
We believe that the requirement for security and life safety systems to work when the power is out we will continue to require cellular signaling for most professionally monitoring systems.
Since the beginning of this year, we have been executing a plan with our service providers to efficiently upgrade existing threeg. So other accounts and a small handful of two g., so that our talents to the LTE cellular network.
As we do this we also see an opportunity to further upgrade these subscribers.
To more advanced Smart home services than were available back in 2015 and earlier.
We are supporting our service providers with programs and analytics to help them efficiently upgrade those threeg customers, who are most likely to remain customers for a long period of time.
Our goal is to help our service providers make the needed upgrades in the normal course of routine service and installation calls that they will make between now and 2022.
Shifting to our international operations, we continue to see solid momentum.
We are working with attractive partners and prospects that have significant positions in their respective markets.
Internally, we are investing in the expansion of our global team and operations to ensure that we are able to provide outstanding support.
To our growing roster of international partners.
Earlier this year I mentioned some of our key partners in the Latin American region, and I want to follow up on their progress.
A subset a subsidiary of Claro Amedicas called net began deploying our video based solution to an initial set of cities in Brazil earlier this year.
This proves successful and that is now expanding to offer this solution throughout Brazil.
Another partner GTV has also had success with an initial deployment of our video solution in Chile.
And they are now expanding as well.
While we are pleased with this progress we must also thank these partners for their patients and collaboration as we have worked through a number of local market integrations during the trial periods.
Of note is that in both of these Latin America from cases, we see a large partner leading with the consumer video service as the base service and then complementing that service with sensor based security and automation.
Over the past 12 months, we have built regional teams that can support our partners in their markets.
We now have teams in both the talk Colombia, and Sydney, Australia.
We also strengthened our regional offices in Spain, the Netherlands, France, Mexico, and the UK with additional sales and support staff.
Lastly, we have build out a new distribution center in Taiwan to create more efficiency in our integrated supply chain for our international customers.
And we are continuing to strengthen our development and quality engineering team. So that we can be more nimble and supporting our international service provider partners.
To conclude I'm pleased with our second quarter results and the progress we have made against our plan halfway through the year.
I want to thank our service provider partners and our team for their hard work and our investors for their continued trust in our business.
And with that let me turn things over to Steve Valensuela Steve.
Thanks, Steve I will begin with a review of our second quarter 2019 financial results and then provide guidance for the third quarter and our raised outlook for the full year of 2019 before opening the call for questions.
SaaS and license revenue in the second quarter grew 16% from the same quarter last year to $82.3 million.
This includes connect software license revenue of approximately $11 million for the second quarter.
Compared to $10.2 million for Q2 2018.
Our SaaS and license revenue renewal rate was 94% of the second quarter.
At the high end of our historical range of 92% to 94%.
Hardware and other revenue in the second quarter was $39.3 million up 17.3% over Q2 2018.
The increase in hardware revenue was primarily due to an increase in sales of video cameras.
As Steve mentioned, we continue to see increasing adoption of video by both new and existing subscribers.
Total revenue for the second quarter was $121.7 million.
Up 16.4% over the same quarter last year.
Thats and license gross margin for the second quarter was 84.6% consistent with prior quarters.
Hardware gross margin was 18.9% for the second quarter compared to 24% for the same quarter last year, primarily due to product mix.
Total gross margin was 63.4% for the second quarter.
Compared to 65.1% for the same quarter last year, mainly due to lower hardware margins.
Turning to operating expenses R&D expenses in the second quarter were $28.4 million compared to $21.5 million in the second quarter of 2018.
As we continued our planned investments in R&D to support the opportunities we see in our markets.
We ended the second quarter with 554 employees that R&D up from 466 employees in the same quarter last year.
Total headcount increased to 1005 employees.
Compared to 828 employees at the end of Q2 2018.
Sales and marketing expenses in the second quarter were $15.6 million or 12.8% of total revenue compared to $14.6 million or 14% of revenue in the same quarter last year.
Our Genie expenses in the second quarter were $13.9 million compared to $18.1 million in the same quarter last year.
Gene expense includes a 3.3 million reversal of an impairment charge, we took in the fourth quarter last year on a note for a supplier.
In the second quarter, we received 7.4 million from the supplier as partial payment on her node, which allowed us to reverse this impairment charge.
We received the remaining amount due from the supplier in July which discharged our note.
DNA expense in the second quarter also includes non ordinary course litigation expense of $3.1 million.
Compared to $6.1 million for Q2 2018.
Non ordinary course litigation expenses are part of our adjusted measures and are excluded from a measurement of our non-GAAP financial performance.
Looking ahead, we expect TNT expenses to be sequentially higher in the third quarter as we will hold an all employee Offsite planning meeting, where we bring all of our teams together over the course of a few days to review our plants and align everyone to our company goals.
We last held this event in Q2 of 2017.
non-GAAP adjusted EBITDA in the second quarter was $27.7 million, which includes the $3.3 million credit I previously mentioned.
In the second quarter GAAP net income was $13.8 million compared to 10.7 million in Q2 2018.
non-GAAP adjusted net income increased to $19.9 million in the second quarter compared to $16.8 million for the second quarter of 2018.
Turning to our balance sheet, we ended the second quarter with $150.9 million of cash and cash equivalents.
In the second quarter cash flow from operations was $24.1 million compared to $11.7 million for the second quarter of 2018.
Our free cash flow was $21.3 million compared to $8.6 million for the same quarter last year.
For the first six months of 2019.
Cash flow from operations was $22.9 million compared to $15.2 million for 2018, and free cash flow was $17.2 million versus $9.1 million in the first half of 2018.
Now, let's turn to guidance for the second half of the year.
We expect SaaS and license revenue of $83.7 million to $83.9 million for the third quarter.
For the full year, we expect SaaS and license revenue to be between $333.2 million to $333.7 million.
Up from our prior guidance of 331.3 $332.2 million.
We are raising our guidance for total revenue for 2019 to $460.2 million to $465.7 million up from our prior guidance of $447.3 million to $454.2 million.
This includes our increased guidance for hardware and other revenue of $127 million to $132 million.
We expect non-GAAP adjusted EBITDA for 2019 to be between $101 million to $103 million.
And non-GAAP net income to be $70 million to $71 million or $1.39 to $1.41 per diluted share.
We expect our non-GAAP tax rate to remain at 21% for 2019.
EPS is based on an estimate of 50.5 million weighted average diluted shares outstanding.
We expect full year 2019 stock based compensation expense of $19 million to $20 million.
In summary, we continue to invest in numerous product development initiatives to drive growth and constantly improve the capabilities to our customers. While also delivering strong financial results for our shareholders.
Thank you for joining us on our call today and with that operator, Please open the call for Q and a.
Thank you and ladies and gentlemen, if you have a question at this time just press Star then the number one can you have your touchstone telephone if your question has been answered.
And you wish to be removed from the Q press the pound key again to ask a question guess press Star then one.
Our first question is from Nikolay Beliov with Bank of America.
Hi, This is actually Jacqueline Chung on for Nick lie.
Quick question on when do you think international and commercial revenues will and flat and what is the adoption curve of customers in regards to those two segments.
Sure Hi, Ashley.
I don't know that you'll see sort of an overnight type of inflection moves in the chart, we're seeing steady sort of.
Quarter over quarter increases in the number of both the absolute number of customers, we're putting on both of those segments and.
Sort of a with a nice growth rate, but I don't think you're going to see sort of a big Bang moment, partially of added reason for that is we're building basically a long term.
No path to market by educating service providers in those various segments, making sure their training eight you've got a fair amount of.
Of setup required which of course requires creates its own nice barrier to entry, but we think we're making good progress long term. We can see if we think about international we've always said, we think international can and eventually will be.
As much as a third of the business and we're sort of tracking.
Early days at the moment, but but tracking towards that goal.
Got it thank you and any comments on the adoption curve with customers.
Did have customers do you mean of commercial customers.
The adoption curve of customers I'm not sure.
I understand what you meant Ashley.
Like how do they typically rollout with Alon dotcom, how does that trend over time.
Okay. So if we go there really when we think about customers there are two levels.
There is the service provider and.
That adoption cycle is typically.
You know a year of evaluation of testing of of maybe some piloting some in house work.
Towards the end of that period I think we.
Of course are working to complete contracts and we are beginning the training.
They are preparing their go to market pricing, so you're basically looking with typical meaningful service provider, whether it be domestic going into the commercial segment our international of.
A year, maybe a little more in some cases of preparation and everyone getting company you have to remember that what we offer is sort of core to their business and core to how they present themselves. So it can be a meaningful transition.
Once we get that work done.
Most partners will will de risk the process by.
Sort of gradually turning the lights on and that process itself may take another year to year and a half as they literally go from one geography to the next to the next and begin the deployment when you when you get into sort of non us markets.
You do see some additional.
Obstacles, which will be regulatory environments by country may vary. So you may have a service provider that is doing business in two different countries that are adjacent to each other one has.
Different set of regulatory requirements and the other one may take a little longer, but but generally we think about sort of from day, one to sort of.
Fully deployed ramp being a two and a half year type of ramp at the service provider level than obviously at the customer level gets turned on it works and they're happy on day two so once you create the end customer the adoptions very quick quick.
Thank you so much.
Sure. Thank you.
And our next question comes from Adam Tindle with Raymond James.
Okay. Thanks, and good afternoon, Steve Trundle I just wanted to start.
First by acknowledging obviously, SaaS and license revenue growth quite healthy versus expectations and I don't think the macro environment is great based on the results from the channel around you, but there are obviously has been some investor consternation around a couple of quarters of moderation in SaaS growth on a year over year basis and your forward guidance indicates that's going to continue to just hoping you could maybe take a second to parse through some of the drivers of that moderation between churn ARPU trends gross adds have you just go through each how its impacted so far this year and some of the potential drivers to those as the year progresses with the initiatives that you have.
Sure.
Yes, Adam.
So as you said so far we're only six months into the year, but so far the year.
Has progressed at a.
I'd say at a better rate than we probably we expected at the beginning of the year I think we began the year.
You know forecasting sort of a 13% growth rate on the on the SaaS line anyway, and with the with the increase on guide that we have out now where we've moved that up to 14 and a half so the year over year is.
Things are.
Probably better than we expected.
I think if we go sort of to the internal market drivers. It it's such a diverse market and you can have parts that are doing very well, while you have other parts that are.
A little soft I think.
Yes, as you look at US you have.
I think Steve just comment as example, rep retention is actually going pretty well we're at the high end of our range at 94%, but but you have to keep in mind that each year.
The base that you're attempting to retain is also getting bigger so the impact of even that 6% is more meaningful and thats of course, some revenue attrition that we.
We have to replace each year. So you have that as a driver if we look at sort of at the market right now.
I think we've seen.
Slightly tighter credit markets than what were historically used to especially in North America and that can it can be somewhat constraining for our service providers and this really gets to sort of what how how much will a lender loan against subscriber acquisition costs.
The numbers a little lower now than it was probably two years ago I think.
Everyone sort of sorting out exactly what the new entrants.
Our doing whether they are having an impact on the market our take is.
Really not.
Well, we've always said that the.
The line in sort of the point product segment has existed.
And it hasn't really.
Had an impact on our core.
On our core addressable market of those people who want to have professional.
Monitored security that that continues to be the case what folks are.
Trying to sort that out so you've got a bunch of kind of inside the market drivers and then you have them in our case.
Certain amount of latency as we.
Configure and operationalize various.
Segments associated with our growth initiatives. So it's hard to predict exactly when I think the question a moment ago is when is the inflection point, it's hard to sort of predict exactly when that inflection point will be in there is really not ever an absolute inflection just take some time to to build into those initiatives. So those are those are some of the things we're seeing but like I said, so far on a year to date basis, we're pleased with the.
The market being probably a market being a bit healthier than we would've thought at the beginning of the year.
Okay. That's really helpful and maybe just a follow up obviously acknowledging revenue performance has been very strong and raised the adjusted EBITDA guidance is actually I think been kept at this level for a couple of quarters. After some solid performance on that number and I think the benefit from the impairment charge reversal this quarter.
Imagine maybe there is some exhaustion as factors in there I don't know if maybe tariffs are impacting or an indication indication for.
Appetite for increased spending so maybe just some of the buckets that lead you to keep the adjusted EBITDA guidance at the same level. Thanks.
I think it's kind of a couple of things so.
First on the opportunity side we.
An internal struggle for US is we're excited enough about the different opportunities that we see especially when we think about where we want the business to be in five to 10 years that that we really sometimes struggle to to prioritize and make decisions on which domain is his best to invest and do you invest in.
Creating commercial for international or do you invest in additional capabilities for video.
For your average domestic customers sort of that constant.
Tug of war that we face and we think actually all of those are nearly all of those things that we are staring at represent.
Good places to deploy capital. So we already have sort of a natural internal tension that makes me a little bit reticent to.
To want to put ourselves in a place where we're more constrained in the amount of investment that we can actually make to go after long term opportunity. So have a natural sort of desire to preserve our capacity. If you will to build the company over the long haul.
So you've got that touches this year has been a little bit special and probably in terms of of how we've moved relative to what we initially guided.
This has been a year, where we've needed to keep an eye on on on Twitter literally and we have had some some uncertainty emerge around attempts and what those costs will be.
To the business the mirror sort of this the mere sort of presence of that dynamic has at times created some disruption in the supply chain. So we we've been Radisson I think too.
Two.
Get comfortable that all of those issues to sort of go away in the next month and I think we're pleased that we've been able to stick by our buyer guide, but where we're kind of reluctant to jump out in front of it while there's so much still going on in that domain.
Makes sense, thanks, and congrats on the results.
Thank you thanks Adam.
Thank you. Our next question is from Kevin Mcveigh with credit Suisse.
Great. Thank you Hey, Steve I Wonder if you could just flush out did see approach on tariffs.
Can you just remind us kind of more in the process today and then to the extent we get this next round how should we think about condoms sourcing and other areas versus maybe inability to.
Pass that on to the customers.
Right. So the way we think about it yes, we've had some exposure already on a year to date basis with.
Products like the alarm dot com smart thermostat with some of our cameras.
About a third of our overall hardware product is actually produced and.
In China, a larger component of that I mean, when you get down to at the component level. So even things that we produce in our Utica, New York facility, our that we produce and Mexico one of the componentry is coming from.
From China specifically.
And recently, we've seen list. We know list four is in development. There is an emerging set of tariff costs there. So.
I think we're all sort of trying to figure to figure it out but the way we think about it is first we are seeing indications from our suppliers that in most cases there.
They're making real efforts too.
Move affected parts of their operations to other countries have that where the tariffs wouldn't apply so we're seeing some of that transition. We're looking occasionally it shifting things around so I think if everyone had a year and knew this was coming that you'd probably see a lot of preparation for it and supply chains would have been sort of ready I think the fact, you just can't move something especially in proprietary product you can't move it overnight from one place to the other so that's the dynamic we see in terms of the way the cost flow through.
In our in our I think each company treated differently you try to you try to get it out of your suppliers. If you can't get it there at some point either the company, meaning we or the end customer.
Or someone in the middle has to absorb the tariff cost and it's sort of on a case by case basis by product.
But but generally I think our service providers understand that this is not.
You look at the gross margins, we run on hardware and you look at.
Which are intentionally low and you look at this additional cost and most are understanding that there is a new tariff costs and and as long as we call that out.
We can pass through the bulk of it.
Kevin One thing we have done as well as Weve set up a warehouse in Taiwan for international customers.
So we don't have to ship it through the U.S. spare the tariff. So we'll go directly from Taiwan to Europe and Asia.
That's super helpful. And then just if I heard right did you say the commercial opportunity could be that third of revenue.
If so is that primarily just based on the Stanley deal you signed already or would that assume some penetration in the us as well and.
What type of timeframe, you think what would it take to kind of get to that level of contribution.
Yes, Kevin Steve Trent I Hope I said on the.
What I'd throughout the third number I meant to say that we saw long term international being about a third of our.
Of our revenues. So I think that's not a new kind of guide post for US. We've always felt that would be the case I don't think we've really put out an estimate on percentage of revenue long term that will be commercial what what we have said is it's kind of early days to growing category.
It's growing nicely right now, but I don't think we're at the point of being on project long term percentage of revenue there.
Very helpful. Thanks, and congrats again.
Thank you.
Thank you. Our next question comes from Reed Matelski with Imperial capital.
Hi, I was the provider of the back end of the command and control system will be alarmed dot com responsibilities and possibly fees regarding providing education and backup customer service for those installing the new system.
Hi, so that what our responsibilities to two you said to educate those installing the new command and control system.
Yeah.
Yeah, not you're basically in this in that case that thats.
Command control is 80 teas, new system and.
80 is really owning the deployment of that.
Technology, and they're doing a great job with it they take ownership of.
Training the installers in the technicians and have been training installers and technicians for years. So its right in their wheelhouse. Our role is really to support them. The best we can making sure we're getting in any information that they might need from us, but were not front and center in that educational process.
Nice and what types of pipeline discussions alarm or calm having regarding its energyhub subsidiary.
And what are the types of clients and the types of services that the company is disgusting.
So with energy hub.
It's really.
More of the same I think we've indicated in prior quarters, that's a place where we have some momentum we're pleased with the management team and the entire team there and what we're trying to build out our sins essentially the benefits of scale. We we add on each quarter, we attempt to add on meaningful additional utilities, who want to reduce carbon emissions and who want to be able to.
Level load their their production.
And at the same time, we go back and we work with the IOTV.
The I O T companies and including.
Almost anyone that wants to work with energy hub to make sure that we're able to connect to and gather information from each of those devices. So those are the basic to marching orders for that business, they're doing a good job on both of those.
Vectors and as they.
As they continue to make progress I'd say, they become relevant to more utilities and likewise relevant to more aiotv device makers and.
And then sort of what we have going on so we didn't talk about then specifically, but that but it's been continue to see good progress there and those are the two things that are really focused on.
Got it and can you I know you guys touched on Europe that earlier, but can you guys also talked about Australia and Asia. If there was any progress being made there if it slow down the priority list or.
I'm not.
Sure.
I.
Australia continues to adult don't think of a meaningful update this quarter is as far as I can remember it's been.
Ben sort of continued progress we did set up an office there and Sydney. So we're beginning I think high level, you're seeing us began to get comfortable with the.
Long term opportunities in markets when we make the decision to put physical offices in the ground.
And location, we did that in the prior quarter and Australia.
Southeast Asia is still very early.
More pipeline stage, there, where we are targeting to service providers in each of the geographical markets, but don't have any.
I wouldn't say, we don't have traction we're happy with the pipeline in the test and whatnot, but we're we're not we're not driving a lot of revenue out of southeast Asia.
Got it thanks a bunch.
Sure. Thank you.
Thank you. Our next question comes from John Difucci with Jefferies.
Hey, guys. This is part of on for John .
You guys talked briefly about the Threeg upgrade opportunity in your prepared remarks I just wanted to get a sense. You know is there any quantitative or qualitative color you could maybe give us to help us.
Is that an opportunity over the next couple of years.
And that would be both I guess within your current installed base and the broader market that might be up to groups.
Yeah.
So qualitatively if there are meaningful set of subscribers that are already alarmed outcomes for aggregate subscribers that are service with threeg connections it.
If we sort of.
If we took the percentage of our overall subscriber base where.
We are contracted to actually provide the.
The cellular communication capability, and we're actively providing that its roughly a third or 30% or so of our.
Subscribers and.
And and our intent is to upgrade them as much as we can.
With again with our partners through normal course, so weve.
We've run some different types of campaigns I think in most cases, we see it as an opportunity to.
To go back to the customer upgrade the functionality to more modern functionality probably add.
Cameras and then we have to also work hard with our service providers for some of them, it's and see some meaningful issue that we're managing through it creates even for our service providers both opportunity and then also at some point.
Fortunately, we're talking about 2022 timeframe, but at some point that gets closer than it is today and I won't have to accelerate the pace of.
But we've seen them move out pretty well.
This year, we ran a nice campaigns at the end of the year and it got a lot of people moving in and on.
And we're happy with how that's going.
Okay got it thank you.
Sure.
Thank you.
Our next question comes from Mike Latimore with Northland capital.
Hi, guys this phone on for Mike.
I had two questions.
Hoping you cited was provided them some selling commercial now and what parts of that sort.
Actually something.
So the question was what percent of service providers are selling commercial.
Yes, yes exactly.
Well I don't have that data point Unfortunately.
Right in front of me to give you an.
We may not actually have it readily available here so.
I can't really answer that question, what what I can maybe give you as a.
And indicative of.
Indication is about 4% of our.
New subscribers are coming on to a commercial service plan.
I think thats pretty widely distributed across service providers.
And with that with that rate.
Obviously, the commercial customers using a lot of capabilities that that may not be applicable to a residential subscribers so that commercial.
Customer as generating or that base of customers that 4% are generating about 8% of the new.
New subscription revenue.
We're training.
Service providers all the time, so that number keeps on changing and keeps on growing clearly that's a focus for us in terms of providing them the training.
Okay and.
How many people in the R&D Department I'm looking on video analytics.
Good question, yes.
I think if you. So if you took video as an overall category.
You got cameras in there.
Yes end user functionality, how the video is rendered inside the app.
Different types of interfaces for scrubbing through video I'm going to sort of leave all of that out and just say that.
You know the video analytics team is.
And actually I have said don't want to reveal exactly that we have working but I'll give you an idea that it's.
The dozens, but not hundreds that are actually a video scientists who are working every day on on improving that offering and and that's probably what I would say, though.
In January 2017, we acquired video objects, which brought on the initial team than we've grown that team quite a bit. Since then that's really the beginning stages of with all their knowledge 18 years or 17 years of knowledge. They brought working with many different government programs Weve.
Of enhance that team quite a bit over the last couple of years.
Okay.
Thank you okay.
Thank you.
Thank you and our next question comes from Darren Aftahi with Roth Capital Partners.
Hi, good afternoon, Thanks for taking my questions as to if I may.
First could you disclose what other SaaS revenue was in the second quarter.
And then Steve trend all your commentary about 40%.
Video growth over the first half I'm, just kind of curious if you kind of break that down between kind of your core video service and then perhaps add ons like video analytics, what's making up that that component. Thank you.
Sure and I'll start with the first question other South other segment was 4.2 million in Q2.
That was up about 46% year over year. It was down sequentially from Q1, which was around $4.6 million.
And then the second question was where is the Where's the video growth.
Coming from then and I guess I would just say generally no at this point.
We look back a year about a fourth of all the installations were coming on with a video subscription.
Today that numbers above a third so we're just seeing steadily more and more of our subscriber base even at time of install opt for video and then.
A meaningful number of existing customers that may not have the capability there are requesting that.
The.
The breakdown is.
I do think it a little deployed in my prepared remarks that.
Analytics.
If I look at those customers, who have an outdoor one of our newer outdoor video comp cameras.
You know.
At this point as it's all of the capital as long as it out a bit but 60% of them are partaking analytics simply because the capabilities. So so nice and so much better than whats.
Existed in the past I think the availability of that of that technology is driving kind of a more or less a wholesale move all video products are moving the the doorbell.
Video product continues to be.
No sort of the hospitals on pads as are the.
Yes, outdoor video cameras that support video analytics.
Great. Thank you.
Thank you.
And our last question is from Jack Fund there are two ways to maximize that.
Hey, guys.
Good quarter.
You said a few questions on.
Did I hear correctly the subsidiary business other.
Revenue was 4.2 million in Q2.
For South that's right.
Yes, okay.
Gotcha and then.
If I look at a hardware and other GM gross margin of why it was down year over year.
It did improve by about a 140 basis points or so from last quarter.
Despite the tariffs and all these other cost factors to what specifically.
It is improving that hardware gross margin I guess, specifically in this quarter relative to the prior quarter.
Yes, it was up about 150 basis points quarter over quarter, and we do run different promotions different times, because we really use hardware is an enabler for south and so we're driving really the adoption of sales with constantly lowering the price where we can.
Hardware products, including cameras, and then you've got a different mix of cameras have different margins in different price points, so, but it was really relatively.
Quarter over quarter relatively minor change in terms of 100 150 basis points.
Yes, I don't think we know exactly what did that why that would move that little little amount, but it was kind of just noise in the system really yes.
Yeah, we've said in the house that.
You should think really about hardware margins in the 18% to 20% range and we typically kind of been in that range over the last.
Last couple of quarters.
Got it that's helpful and if I can just ask quickly if is there any update you can share on point central specifically or maybe how the partnership at the invitation homes is developing any any developments there you can share.
Let's see.
Hi.
Continues to perform well on these points central continues to perform well theres, a we think theres a tremendous opportunity in the multi developments basin and the the rental property space.
As they continue to perform very well if you look at their part of the other segment and the other segment SaaS revenue was up 46% year over year.
In Q2, so they are part of that contribution.
Maybe a more general update there so my impression just watching activity as invitations going fine the continues to be.
The.
Same installation rate and everything so nothing really on the negative side has changed the business has evolved some were beginning to include some of.
On selective basis, some of our service providers and the.
Fulfillment side of that business and growing into.
In the multifamily segment so.
We're excited about it I don't think we have a super discrete update there this quarter, but generally things are fine.
Okay. That's helpful. Thanks, guys great quarter.
Thanks, Jack Thank you.
Thank you and ladies and gentlemen, this concludes our Q an A.M. program for today. We thank you for your participation you may now disconnect good day.