Alarm.com Holdings, Inc. Q4 FY2020 Earnings Call

Ladies and gentlemen, thank you for standing by, and welcome to the Alarm.com Fourth Quarter 2020 Earnings Conference Call. At this time, all participant lines are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, David Trone, Vice President of Investor Relations. Thank you. Please go ahead, sir.

Thank you. Good afternoon everyone and welcome to Alarm.com's fourth quarter 2020 earnings conference call. As a reminder, this call is being recorded. Joining us today from Alarm.com are Steve Trundle, President and CEO; and Steve Valenzuela, 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 first quarter 2021 and full year 2021; the impact of emerging market dynamics and trends in our business and on anticipated market demand for our offerings, including new product offerings; the impact of the COVID pandemic on our global supply chain and the global economy; our business strategies; plans and objectives for future operations and integration of recent acquisitions; continued enhancements to our platform and offerings; opportunities for growth in our current markets and our plans 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 began, believe, continue, estimate, expect, forecast, may, project, trend, will, and other similar words are intended to identify such forward-looking statements. These statements are subject to risks and uncertainties, including those contained in the Risk Factors section of our most recent quarterly report on Form 10-Q filed with the Securities and Exchange Commission on November 5, 2020 and in subsequent reports that we file with the Securities and Exchange Commission from time to time, including our annual report on Form 10-K that we intend to file with the Securities and Exchange Commission shortly after this call, that could cause actual results to differ materially from those contained in the forward-looking statements. Please note that the forward-looking statements made during this conference call speak only as of today's date and Alarm.com undertakes no obligation to update these statements to reflect subsequent events or circumstances, except to the extent required by law. Also during this call, management's commentary will include non-GAAP financial measures and provide non-GAAP guidance. Management believes that the use of these non-GAAP financial measures provides an additional tool for investors to use in understanding the company's performance and trends, but notes 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 Web site at investors.alarm.com. This conference call is being webcast and is also available on our Investor Relations Web site. The webcast of this call will be archived and a telephone replay will also be available on our Web site. With these formalities out of the way, I'd now like to turn the call over to Steve Trundle. You may begin.

Thank you, David. Good afternoon and welcome to everyone. We are pleased to report fourth quarter results that exceeded our expectations. Our SaaS and licensed revenue in the fourth quarter was $105.5 million, up 17.1% over the last year. Our adjusted EBITDA in the fourth quarter was $32.4 million. Despite the challenging global environment, the fourth quarter closes out a strong 2020 with total revenue growing 23% year-over-year. I want to thank our service provider partners and our employees for their resilience and contribution to our performance. We closed the year with more than 10,000 service provider partners who sell and service our technology in more than 7.6 million customer properties in over 40 countries around the world. On today's call, I will review some of the key elements of our long-term strategy and highlight a few examples of the many new products and capabilities that we introduced to our markets in 2020. When we think about our strategy, our first goal is to be the defining security-oriented IoT platform for four different market segments: residential, multifamily, small business, and enterprise commercial. For each of these market segments, our vision is to provide fully integrated, best-in-class applications that span security and surveillance, automation, energy management, water management, and health. We're developing these applications for multiple geographies so that we can leverage our platform investments around the globe. We made solid progress on this vision in 2020. In the commercial market, for example, we recently released CloudConnect. This is a two-way integration between the OpenEye Cloud Video Platform and the Alarm.com for Business platform. CloudConnect directly associates event data from intrusion sensors and access control readers with OpenEye’s Video Surveillance-as-a-Service product. Based on this rich set of event data, subscribers can easily customize intelligent video recording rules, set alerts to keep track of important events, and easily find video footage associated with specific activity. We also expanded our commercial market capabilities with the acquisition of Shooter Detection Systems in December. Shooter Detection Systems, or SDS, brings a unique technology stack and strong position in the developing market for gunshot detection solutions. Their offering includes proprietary acoustic and infrared sensors and algorithms that accurately detect gunshots in an indoor setting. Our plan is to work with the existing SDS management team to expand the leadership position they have built in their developing market. Integrating SDS capabilities with our commercial platform will also unlock unique value for our service providers and their customers and expand our overall commercial market opportunity. Shifting to the residential market, we will continue to expand our platform to enable our service providers to deliver a growing array of differentiated capabilities and to expand the monitoring services they provide. In 2020, we launched the Smart Water Valve + Meter to reduce water damage risk. We also launched Flex IO to extend the security perimeter of the home. And we introduced our Connected Car solution to allow homeowners to extend security, monitoring, and automation rules to vehicles. Lastly, on the residential side, we added a new video analytics-based capability for monitoring stations to improve alarm response efficiency. Connected Car launched in the fourth quarter and allows subscribers to track the location of vehicles, view trip histories, set speed alerts, and know if a vehicle is being used at hours when it's not supposed to be, all from within the Alarm.com mobile app. The service is enabled by an onboard cellular module and a backup battery so that it can alert the subscriber if it's removed from the vehicle’s port. We're also developing an increasing array of technologies that will enhance the professional monitoring services provided by our partners. Last year, we launched visual verification people detection for monitoring stations. This new alarm verification service uses our cloud-based video analytics engine to provide monitoring station personnel with an inventory of all the people in or near a property immediately before, during, and immediately after an alarm event. Images of the inventory people are sent directly to the monitoring station operator’s interface. The capability is only activated with the customer's consent, and we believe this will help monitoring stations respond to alarms more accurately, reduce false dispatches, and add differentiated value to the monitoring services provided with Alarm.com powered systems. Another tenet of our strategy is to deliver the most capable video monitoring offering in the market at a cost level that is broadly accessible. This strategy has been our focus for the last couple of years and will remain so in 2021. Our product development efforts have driven meaningful results in terms of customer engagement, installation efficiency, and growth for Alarm.com and our service provider partners. Our innovations, including video analytics and our integrated video doorbell solution, continue to drive strong adoption of video service plans. As I mentioned last quarter, 40% of our new subscribers are now attaching a video service plan to their system. In the fourth quarter, we launched the Alarm.com Touchless Doorbell, which leverages our video analytics engine to provide the market’s first available video doorbell that rings without requiring physical contact with an actual doorbell button. While the capability was timely, given the pandemic, we believe that consumers will continue to want capabilities that automatically alert about activity at their door, and so we expect to continue to have success with our full range of video doorbell solutions. The third key element of our strategy is the growth of our international business. As we updated you throughout 2020, our international markets have been more impacted by the COVID pandemic than the U.S. market. We believe the international markets will ultimately recover and begin to grow again, but they will likely do so unevenly. The dependencies we're monitoring in each market include the level of access to effective vaccines, the extent of the economic impacts, and the corresponding challenges to economic recovery. These dynamics are likely to be unique in each region. But as these markets recover, we believe we are in a position to grow off the solid base we have established in our international business. The final element of our strategy that I want to cover today is the way that we are expanding our addressable market by building our segment businesses. These include PointCentral, EnergyHub, and Building36. Each business is focused on an attractive opportunity. In the fourth quarter, PointCentral launched a connected intercom system called Connected Retro. The product was enabled in part through our acquisition of Doorport last year. Connected Retro upgrades existing phone-based intercom systems on apartment buildings to an interactive connected system without replacing any of the existing hardware. Traditional phone-based intercoms are difficult to use and manage and create security gaps. However, the cost of replacing system hardware has impeded upgrades to connected intercom systems. Once upgraded to Connected Retro, property access can be securely managed and monitored with smart keys that residents can easily create directly from the PointCentral mobile app to provide scheduled access for guests and delivery personnel. Each code can generate automated alerts and is tied to a 30-day audit history allowing property managers to monitor access. Turning to EnergyHub. EnergyHub provides an enterprise software service that enables its electric utility customers to flexibly manage grid demand through its ecosystem of distributed energy resources. EnergyHub has been steadily expanding its business as well as the suite of services it offers. In 2020, over 50 energy utilities that reach more than 45 million households in the United States now use EnergyHub’s technology. An area of EnergyHub’s development that I want to highlight is its solution for managing electric vehicle charging stations. As EV sales increase and customer-owned EV charging stations become more pervasive, energy utilities face a complex grid management challenge that EnergyHub is well positioned to address. EnergyHub’s recent partnership with Enel X, a leading EV charger manufacturer and service provider, expands the breadth of energy resources available for utilities to manage through its SaaS platform. EnergyHub’s EV charging solution can create customer incentives that induce off-peak charging and reduce strain on the grid during peak periods. Two of EnergyHub’s existing customers are already taking advantage of this partnership and expanding their EV programs, managed by EnergyHub. EnergyHub will continue to expand its EV charging offers and incorporate the growing range of grid edge devices as it works towards its vision of deploying comprehensive distributed energy resource management services. To conclude, I'm pleased to report solid financial results for the quarter and the full year. It was a tough year on many fronts, but the residential market in the U.S. and Canada has been resilient through the pandemic and we continue to see momentum building in our commercial markets. As the global community appears to be rounding third on the pandemic, we look forward to return to normal as 2021 progresses. And with that, let me turn things over to Steve Valenzuela. Steve?

Thanks, Steve. I'll begin with a review of our fourth quarter and full year 2020 financial results and then provide guidance for 2021, before opening the call for questions. SaaS and licensed revenue in the fourth quarter grew 17.1% from the same quarter last year to $105.5 million. This includes Connect software licensed revenue of approximately $9 million for the fourth quarter, down as expected from $10.6 million in the year ago quarter. SaaS and licensed revenue for our Alarm.com segment grew 16.1% in the fourth quarter and our other segment grew 31.8% year-over-year. For the full year of 2020, SaaS and licensed revenue of $393.3 million grew 16.6% over 2019. Our Alarm.com segment grew SaaS revenue by 15.5% year-over-year and our other segment grew 33.6% in 2020. Our SaaS and licensed revenue visibility remains high with a revenue renewal rate of 94% in the fourth quarter, at the high end of our historical range of 92% to 94%. Hardware and other revenue in the fourth quarter was $60.1 million, up 19.2% over Q4 2019. The increase in hardware revenue was primarily due to an increase in sales over video cameras. Total revenue of $165.6 million for the fourth quarter grew 17.9% from Q4 2019. For all of 2020, total revenue grew 23% to $618 million. SaaS and licensed gross margin for the fourth quarter was 86.9%, up approximately 90 basis points from Q4 '19 gross margin of 86%. Hardware gross margin was 24.5% for the fourth quarter compared to 20.8% for the same quarter last year, primarily due to product mix. Total gross margin was 64.2% for the fourth quarter compared to 62.6% for the same quarter last year. Turning to operating expenses. R&D expenses in the fourth quarter were $38.9 million compared to $30.1 million for the fourth quarter of 2019. We ended the fourth quarter with 780 employees in R&D, up from 621 employees in the same quarter last year. Total headcount increased to 1,404 employees compared to 1,160 employees at the end of 2019. Sales and marketing expenses in the fourth quarter were $23.6 million or 14.2% of total revenue compared to $18.4 million or 13.1% of revenue in the same quarter last year. Our G&A expenses in the fourth quarter were $23 million compared to $18.2 million in the year ago quarter. G&A expense in the fourth quarter includes non-ordinary course litigation expense of $2.5 million compared to $2.1 million for Q4 2019. G&A expense in the fourth quarter also includes $688,000 in acquisition-related expenses. Non-ordinary course litigation and acquisition expenses are part of our adjusted measures and are excluded from our measurement of our non-GAAP financial performance. Non-GAAP adjusted EBITDA in the fourth quarter was $32.4 million, up from $30 million in Q4 2019. For all of 2020, adjusted EBITDA was $125.3 million, up 15.6% from adjusted EBITDA of $108.3 million for 2019. In the fourth quarter, GAAP net income was $16 million compared to GAAP net income of $13 million for Q4 2019. Non-GAAP adjusted net income increased to $23.1 million or $0.45 per diluted share in the fourth quarter compared to $21.5 million or $0.43 per share for the fourth quarter of 2019. Non-GAAP net income for 2020 was $89.4 million or $1.75 per diluted share, up 15.8% from non-GAAP net income of $77.2 million or $1.54 per share for 2019. Turning to our balance sheet. We ended the fourth quarter with $253.5 million of cash and cash equivalents, up $119.6 million on December 31, 2019. As previously reported, we closed our 0% convertible offering in January 2021, issuing $500 million in bonds, which netted us approximately $484.3 million in cash after fees. We concurrently paid off and retired our senior revolving debt facility, which had a principal balance of $110 million and was set to expire in October 2022. We took advantage of very favorable terms with the structure of our convertible offering to give us additional flexibility to create more growth opportunities while also minimizing dilution for our shareholders. In the fourth quarter, we generated approximately $35.4 million in cash flow from operations compared to $23.3 million for the fourth quarter of 2019. Our free cash flow for the fourth quarter was $29.9 million compared to $14.6 million for the same quarter last year. In the fourth quarter, our capital equipment purchases were about $5.5 million compared to $8.7 million in the fourth quarter of 2019. Through the 12 months ended December 31, 2020, we generated $102.1 million of cash flow from operations compared to $47.1 million for 2019. Our free cash flow for 2020 was $85.9 million compared to $27.8 million for 2019. Turning to our financial outlook. For the first quarter of 2021, we expect SaaS and licensed revenue of $104.8 million to $105 million. I'd like to note that in Q1, we usually see lower revenue from EnergyHub, whereas Q2 and Q4 tend to be stronger quarters based on the timing of utility programs and incentives. Therefore, we expect our SaaS and licensed revenue to increase sequentially in Q2 with that quarter representing just shy of 25% of our total SaaS and licensed revenue for the year. For the full year of 2021, we expect SaaS and licensed revenue to be between $440.5 million to $441.5 million. We are projecting total revenue for 2021 of $660.5 million to $671.5 million, which includes estimated hardware and other revenue of $220 million to $230 million. We are monitoring issues around the global chip shortage which could impact our hardware revenue for the first half of 2021. We estimate that non-GAAP adjusted EBITDA for 2021 will be between $120 million and $130 million. We have factored in more travel and tradeshow expenses in our plan for 2021, as these expenses were mostly curtailed last year. We are also continuing to invest in the strategies, which Steve discussed, mainly in R&D that have proven to be successful in driving growth for our service providers and Alarm.com. Non-GAAP net income for 2021 is projected to be $84 million to $90 million or $1.61 to $1.72 per diluted share. We currently project our non-GAAP tax rate for 2021 to remain at 21% under current tax rules. EPS is based on an estimate of 52.2 million weighted average diluted shares outstanding. We expect full year 2021 stock-based compensation expense of $42 million to $45 million. In summary, we are pleased how well our service providers and internal teams have navigated this challenging time with the COVID pandemic. We are focused on executing our business strategy and investing in our growth opportunities, while continuing to deliver profitable growth. And with that, operator, please open the call for Q&A.

Our first question comes from Jeff Kessler from Imperial Capital. Your line is now open.

I'd like to ask a question regarding the growth of, let's say, the several areas that are in other, but have been out there for a while, EnergyHub, PointCentral. Is there a larger plan to essentially bring analytics up and perhaps at some point bring OpenEye down, if needed, to provide both video analytics and perhaps someday even the improved access to all of those areas, including energy management, because obviously utilities at some point in time beyond their grid needs are going to need operational and then physical security as well. And the same thing applies to multifamily, even though they're in different segments, but talking about general commercial use. And I'm just wondering, with that growing segment, how much can you get out of it?

Yes, good question, Jeff. This is Steve. Starting with the electric utilities, there is an AI engine already in use to support what we call smart chip, which helps us balance the load on the grid by predicting how quickly a consumer might adjust their thermostat when we begin to lower the temperature. There is a lot happening behind the scenes involving AI. To be honest, at EnergyHub, our main focus has been on what we believe is a strong market for managing distributed energy resources. Currently, the priority is to integrate as many edge-consuming or edge-producing devices into the platform as possible. This includes electric vehicles, batteries, and solar energy. The better our platform can operate with these examples, the stronger it will become. However, you're correct that over time, if we build a solid presence with many of these customers, it would make sense to leverage our enterprise-grade security systems for managing substations and production facilities, but that's not our current focus. The EnergyHub team has plenty on their plate right now. In contrast, with PointCentral, there is more immediate synergy in the multifamily housing market. The initial focus is on access and creating tenant-friendly solutions for moving in and out. However, property managers quickly request that our service providers integrate this convenience with robust security and surveillance systems. We want to gather data from as many locations as possible, using video as a data source, including at entry points. Therefore, leveraging our video analytics capabilities in multifamily housing makes sense and will help us grow while providing better service for consumers and property managers.

Okay, great. And one quick question for Steve. With the recent converted offering, can you give us some idea of what your interest expense is expected to be for 2021?

Hi, Jeff. This is Steve Valenzuela. So the good news is interest expense, the convertible has a zero coupon. So one of the benefits, of course, of the convertible is we retired our senior debt, which carried an interest rate of about 2% to 2.5%. Now there is some GAAP imputed interest cost that gets adjusted out of non-GAAP. That's really more of an accounting adjustment that has to be booked, but it's not a cash expense. So effectively our cash expense will be zero.

All right, great. Okay. Thank you very much. I appreciate it.

Thanks, Jeff.

Thanks, Jeff.

Thank you. Our next question comes from the line of Adam Tindle from Raymond James. Your line is now open.

Okay, thanks. Good afternoon. Steve Trundle, you outlined the vision to be the platform in four different areas and just curious to touch base on ways to accelerate that vision. So commercial and international specifically have had a few years to develop under the dealer base and still not quite at escape velocity at this point. I'm wondering if it makes sense to perhaps revisit the go to market strategy, perhaps add a direct sales force in conjunction to dealers to add fuel to the fire, or other ideas you're contemplating on how to accelerate that broader platform vision?

I need to separate this into two areas: commercial and international. Starting with commercial, I believe we missed some growth opportunities in 2020 that might have emerged otherwise due to the softness in the commercial market caused by the pandemic. Many companies froze their capital expense budgets, access to facilities became difficult, and retail significantly reduced its activity, which created a less vibrant environment than we anticipated. However, commercial is growing steadily and is contributing increasingly to our SaaS and licensed revenue. To enhance this growth, we will not be establishing a direct sales force but will continue to work with our service providers. We plan to recruit more integrators and focus on training. There are opportunities to expand our platform's relevance. For instance, we made the SDS acquisition in Q4 to engage a new customer segment concerned about employee safety in larger institutions. Additionally, we have initiatives with OpenEye. Our strategy will focus primarily on improving our product and technology. We believe that by creating the best possible product, positive outcomes will naturally follow, and we rely on our service providers to adopt our offerings. On the international front, I feel optimistic as we enter this year. Last year was challenging, with COVID having a more significant impact internationally than in the U.S., but we trust our partners. We have a solid group of service providers established and some additional ones in the pipeline. Despite a slow start, we ended last year producing 50% more accounts monthly than at the beginning of the year, and I expect production to increase further this year as businesses resume operations. There are still various product-related issues that need to be addressed globally, which will contribute to our progress.

Okay, thanks. And maybe as a follow up, I think if I factor in the convert, the cash, the debt pay down, you're somewhere in the $0.5 billion range in liquidity, I think it's more than ever in the company. So with that as the backdrop, maybe you could touch on the framework and important points that you look for in potential acquisition targets. And are there any internal limitations from a systems or platform standpoint that would preclude a sizable $0.5 billion plus type of a deal?

We are quite optimistic about our situation. We believe the market was in a very favorable position towards the end of the year, making it an ideal time to strengthen our balance sheet and lift some previous debt restrictions. Our goal is to be ready to seize opportunities when they appear. When evaluating potential acquisitions, our primary consideration is the team. We need to believe they can grow their business with our support and that we can collaborate effectively. These interpersonal dynamics often prove to be the most crucial factors in the long term. Next, we look for a robust technology stack or the ability to enhance it. Finally, we assess the market itself, our impression of it, the synergies with our distribution channels, and how it fits into our software-as-a-service portfolio. Regarding size, we are now more flexible than we were six months ago, and we are prepared to deploy capital for the right opportunity. We will monitor market conditions over the next year or two.

Sounds good. Thanks for the details and congrats on 2020.

Thank you.

Thank you. Our next question comes from the line of David Robinson from William Blair. Your line is now open.

Hi. Thanks for taking my questions. First question I had just on the Shooter Detection Systems acquisition. I guess how large do you expect that opportunity to be? And then I’m just curious if there are any differences and perhaps the selling motion for a system like this compared to your other commercial offerings, and if there are any differences in terms of, I guess the type of target customer that might purchase the gunshot detection system versus your other offerings?

All good questions. I'm trying to remember if we disclose the size of the Shooter Detection Systems or not. You can find it in the 10-K, as it's detailed there. Currently, it's a relatively small company but has an impressive track record and a strong customer base with notable Fortune 100 names deploying the technology in critical areas where they have significant stakes. We believe that the potential for growth is substantial, as there is a clear need for this technology. With an increased focus on marketing and distribution, we can drive meaningful growth. However, we haven't owned the company long enough to accurately predict how much bigger it can become. The type of customers for this technology differs from ours, often being large tech companies or very large oil and gas companies, institutions, governments, and schools that prioritize protecting large groups of people during unfortunate events. We think this technology will integrate well with the rest of our commercial platform, allowing us to enhance video and access control functionalities tied to data from the Shooter Detection Systems. We are developing a tech roadmap, but the short answer is that I don't really know how big it can be. I see a lot of potential, and I believe in the strength of the company and its management team as we work to determine this over the next three to six months.

Okay. I guess just a follow up since you kind of mentioned the synergies with the distribution channel as one of the focuses with regards to acquisitions. I guess are there dealers in your base now that are kind of familiar with this, or will this take some additional ramp-up time?

This will take some ramp-up time. And really when you get into this particular domain, there's some engineering involved in actual configuration of the sensors and a headquarters facility or in a sports facility or whatever. So in this case, the company itself, SDS will retain a lot of that engineering and sort of pre-sales type of responsibility. We’ll work directly with these larger institutions to spec in what they need, and then a certain set of integrators that are servicing that type of market will be pulled in. But not many of our existing, I should say, partners are in that sort of niche arena today.

Thank you. Our next question comes from the line of Darren Aftahi from ROTH Capital Partners. Your line is now open.

Hi, guys. Thanks for taking my questions. Nice quarter. Can I ask a question? I know you guys don't focus on hardware, but it looks like the midpoint of the hardware is flat year-on-year. So in that context, I'm curious. How much do you think on the residential side, because of COVID, maybe – and the house market being so hot, that demand has been pulled forward, if anything? And then how much of that hardware kind of assumption assumes there may be some problems with chip shortages, like the rest of the industry is experiencing? And then second question, just on your SaaS growth, what's sort of the implied assumption with sort of attach rate of newer products or additional products versus organic, just new subs? Thanks.

Certainly. Regarding the hardware, we don't prefer to overestimate our guidance. It's not beneficial for the business. We believe there may have been some demand pull forward in the residential market, which we see as a reasonable assumption for 2020, although we can't be certain. Additionally, the commercial hardware revenue in 2020 was lower than we anticipated. We expect that some of that will improve in 2021, balancing any shifts in the residential market. For SaaS growth, we have observed that new customers are actually opting for more of our services this year. Despite the challenges, commercial adoption, which yields a higher average revenue per user, is increasing and becoming a significant part of our SaaS and licensing revenue. We anticipate this trend to persist, indicating that we are realizing more revenue per subscriber. Our service providers have found success in 3G upgrades and marketing to their existing customer base, with last year marking our best performance yet in upgrading current subscribers, particularly in video services. Therefore, while subscriber growth might be slightly lower, we can still achieve the same level of SaaS growth.

Great. Thanks for the color.

Thank you. Our next question comes from the line of Mike Latimore from Northland Capital. Your line is now open.

Hi. This is Aditya on behalf of Mike Latimore. I was wondering about the ARPU. By what percentage did the ARPU change in 2020?

We don’t typically provide detailed figures for ARPU, but as Steve Trundle mentioned, the adoption of both video and video analytics, which we charge a premium for, along with the trend of new subscribers adding more services and existing members upgrading, certainly contributes positively. With 7.6 million subscribers, it’s akin to a large ship; it takes time to see movement in ARPU, and that’s not the primary factor. The main contributors are the influx of new subscribers and the upgrades of current ones. Historically, ARPU has shown a gradual increase over time, though it varies among dealers due to different incentives. Ultimately, incremental increases in ARPU are not the key driver of SaaS growth; the focus remains on attracting new subscribers and enhancing the offerings for existing ones.

All right, that's fine. And how much would you expect OpenEye to contribute in this year, 2021?

We don't provide specific figures for OpenEye. However, we did mention that the commercial sector faced challenges in 2020, and OpenEye was certainly affected. In the second quarter, their impact was more pronounced, but they began to recover in the third quarter and performed well in the fourth quarter. While they did not meet our initial pre-COVID expectations for 2020, they still showed year-over-year growth, which we find very encouraging. As conditions improve, and as Steve mentioned, we believe OpenEye will perform even better moving forward. When we acquired OpenEye, we had to adjust our expectations, predicting around $40 million in revenue for them over the next 12 months. Given the commercial market conditions I previously discussed, we did not reach that figure last year. Despite this, the company demonstrated solid year-over-year growth, and I believe they are on track to meet or exceed our targets this year.

All right, that’s fine. That’s it. I’ll pass. Thank you.

Thank you.

Thank you. Our next question comes from the line of Jack Vander Aarde from Maxim Group. Your line is now open.

Great, thanks. Hi, Steve. Hi, Steve V. Excellent quarter. Thanks for taking my questions. I'll start with a two-part question for Steve Trundle. Then I have a few for Steve Valenzuela. So Steve T, first, hoping you can provide your thoughts on key factors driving new subscriber activations in North America, which continue to obviously grow at healthy rates with that updated total you gave us, 7.6 million. I know it's not all North America, but I know the bulk are. Are you seeing anything new or unique maybe that's driving your recent subscriber growth just given COVID made people leaving cities and moving homes, just anything new that’s interesting worth noting?

Almost everything you mentioned aligns with our observations. In many ways, COVID prompted people to focus on tasks they had been putting off, making it easier for us to capture their attention and helping them decide on the systems they want. Feedback from our service providers indicates that customers have become quite comfortable with the COVID precautions taken during installations and sales. There's also been a noticeable trend toward suburban living and purchasing second homes, creating momentum that drives demand. Furthermore, technology continues to advance, enhancing the value proposition for customers consistently. This improvement isn't exclusive to us; it's a trend across the entire industry. More individuals who may have previously thought they didn’t need a security or alarm system are now recognizing the purpose of these systems, especially with innovations like video analytics and automation for monitoring minor issues like leaking toilet valves. This shift is gradually increasing demand. Lastly, we confirmed last year that more customers prefer a service provider, leading to a decline in the DIY segment as more consumers seek technology along with comprehensive service and support. These four trends are what we observed in North America, all underpinned by a more resilient economy compared to other parts of the world.

Great, it's really helpful. And actually that's a nice segue to the third point you mentioned there, technology improvement and all these like helpful just point solutions outside of just security also driving interest. So my next question is in terms of the competitive environment and Alarm’s positioning, has anything kind of changed in your perspective regarding the key competitive factors for me, like, this kind of theme that was playing out more so a few years ago from the DIY-focused competitors versus the alarms/pro install channel, anything changing there, because some of the DIY guys are public are having good numbers as well. And just wondering if it's all benefiting everyone or anything you have to share?

Yes, I would say that the competitive landscape is evolving, and it requires much more scale now. The barriers to entry for delivering a comprehensive solution are increasing, and the scale requirements are higher. For instance, video analytics has become a significant focus for us that wasn't even on our radar three years ago. Now, we're in a competitive race in that area with some major players, and it's essential to have the right resources and personnel to stay competitive. I believe the main competitive dynamic is that we are beginning to see a technology shakeout as advancements become more sophisticated. Companies with scale will likely endure, while those without may struggle through this transition. Looking back, the size we were ten years ago wouldn't allow us to compete effectively today. We feel fortunate to be positioned where we are, considering the expectations of consumers and small businesses, which is the most significant factor in play.

Okay, that's helpful. And then for Steve Valenzuela, can you maybe provide some more color, maybe quantify whatever you can on the status of the international business maybe in terms of percentage of your overall 7.6 million plus subscribers? How many of those are international? And how many of your 10,000 plus channel partners are international, anything around that?

We haven't broken that up. However, we can share that international revenue accounted for 3% of our total revenue. We operate in about 40 different countries internationally and have added new service providers in these regions over the past year. Hopefully, that provides some insight.

I'm going to attempt to ask this next question anyway. With international markets still in the early stages and growing, potentially more affected by COVID than your domestic markets, what does it take to drive subscriber growth internationally from a channel partner perspective? Is it similar to North America? It appears you're consistently adding more channel partners, and they are helping you scale your business in North America. Is the situation similar internationally? How dependent is the growth of subscriber activations on bringing in new channel partners, or is it more about expanding within your large existing international channel partners?

Yes, to provide a bit more detail, we began last year with approximately 10,000 units per month and concluded the year at about 15,000. We are pleased with this progress considering the circumstances. Certain regions, especially Latin America, experienced a significant slowdown for much of the year, but we did not lose any partners during this time. We maintained our partnerships and collaborated on improvements. Currently, our top priority is ensuring an excellent customer experience across the various markets with the full range of capabilities we offer in the U.S. While this may seem straightforward, it involves managing operations across 40 countries, each with different networks and consumer preferences. We are actively engaged in technology and product development alongside our partners to meet our commitments. We anticipate adding more partners, such as demo houses in specific markets, which is a positive trend. The key focus is on technology and consistent effort. We need to persist, maintain good partnerships, and positive results will come. We experienced similar patterns in the U.S., where our growth initially was slower than it is now but eventually gained momentum.

Okay, sounds good. Well, again, great quarter and look forward to following up next quarter. Thanks, guys.

Thank you.

Thank you.

Thank you. Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.