Alarm.com Holdings, Inc. Q1 FY2021 Earnings Call

Good day and thank you for standing by. Welcome to the Alarm.com's First Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker 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 first speaker today to Mr. David Trone, Vice President of Investor Relations. Thank you. Please go ahead, sir.

Thank you. Good afternoon, everyone, and welcome to Alarm.com's first quarter 2021 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 second quarter and full year 2021, the impact of emerging market dynamics and trends on 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, and will 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 February 25, 2021, and in subsequent reports that we filed with the Securities and Exchange Commission from time to time, including our quarterly 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 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.alarm.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 website. 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're pleased to report solid Q1 results to begin the year. Our SaaS and license revenue in the first quarter was $107.4 million, up 16.8% over last year. Our adjusted EBITDA in the first quarter was $35.6 million. I want to thank our service provider partners and the Alarm.com team for their contributions to our results and for their ongoing performance during these challenging times. The favorable conditions that we saw in the U.S. and Canadian residential markets in late 2020 carried into the first quarter of 2021. This momentum was driven by new account creation and the growing adoption of advanced services, such as video and video analytics. Commercial sales opportunities in the large-scale enterprise segment also improved but remained somewhat below pre-pandemic levels. Our international business remains more impacted by the pandemic than our U.S. and Canadian business. As we monitor conditions in our international markets, our team continues to add new service providers to better position for the growth we expect once more robust recoveries are underway in these markets. During the quarter, we continue to build on our growth initiatives and invest in new product development programs. I want to update you on some of the technology we released and other key developments over the period. I'll begin with our residential services. I discussed the launch of the Alarm.com touchless video doorbell last quarter, and we saw encouraging adoption during its initial rollout. In the first quarter, nearly 1,200 service providers installed the new product. This shows the level of confidence that our service providers have in our ability to deploy innovative, market-leading products that also meet the dependability and performance expectations associated with life safety solutions. To expand on our success in the video doorbell category, we are establishing a diverse product lineup with a range of price points. We continue to offer our traditional doorbell products, and we saw strong sales across the value spectrum of our lineup in the U.S. and Canadian residential markets. Shifting to our commercial solutions, we recently launched Smarter Business Temperature Monitoring for restaurants, grocery stores, pharmacies, and other commercial verticals with temperature-sensitive inventory or areas. The solution uses temperature sensors integrated with our supported security control panels. It provides comprehensive monitoring, real-time alerts, historical reporting, and multi-location awareness to ensure health, safety, and inspection compliance. Customized alerts can inform the subscriber if the temperature in a refrigerator or freezer is outside predefined thresholds, or if the door is left open for a predetermined length of time. The Alarm.com reporting engine provides an audit of out of range temperature incidents that includes the incidents' total time. We also launched a new enterprise dashboard to provide a single interface for monitoring storage temperatures and trouble conditions across multiple business locations and refrigeration units. We integrated this new temperature monitoring solution into our higher value commercial plus service plan. This is part of our ongoing effort to develop unique capabilities that are available only through our commercial plus offering, where ARPU is more favorable. As a result, the portion of new commercial subscribers taking a commercial plus plan has increased by 35% since 2018. With a strong ROI-based value proposition, we expect temperature monitoring to contribute further to these results and generate additional RMR for our service providers. We also enhanced the enterprise dashboards that we designed to make it easier for multi-location businesses to monitor and manage their properties. For businesses with multiple cameras installed across multiple sites, monitoring the high volume of activity and ensuring that all the cameras are performing reliably with the traditional video solution is cumbersome at best. We believe our enterprise video dashboard offers a smarter and more efficient solution. The new enhancements include a single screen for viewing video clips of important activity captured by any camera from any location. We also automated the process of monitoring the operational status of video cameras. On-demand video health reports summarize the status and trouble conditions discovered on all video cameras that the business has deployed. New trouble condition filters can also pinpoint specific issues at specific sites. We also strengthened the enterprise dashboard to enable multi-site security administrators to manage enterprise credentials across locations more easily. For example, administrators can assign a single user code to provide employees with customized access to any business location or region. Streamlining these workflows and permissions simplifies the process for administrators and employees, while enhancing security and control at every location. Before I hand things over to Steve Valenzuela, I want to update you on new developments with EnergyHub. EnergyHub orchestrates and manages distributed energy resources, including thermostats, batteries, commercial and industrial resources, solar inverters, and electric vehicle chargers. EnergyHub's steady expansion of its industry-leading ecosystem and associated services has opened new opportunities and growth areas. A critical strategic challenge that EnergyHub's utility customers are actively planning for is how to manage the substantial increase in demand on the grid that electric vehicle charging will create. EnergyHub is investing in comprehensive solutions to help address this. This past quarter, EnergyHub added another EV charging program to its platform through a partnership with Potomac Edison. Potomac Edison will use EnergyHub's platform to administer a dynamic pricing program for electric vehicle charging. By managing data from electric vehicle chargers, the EnergyHub platform will encourage charging during off-peak hours and support customer adoption of connected charging infrastructure. EnergyHub also announced the launch of Mercury Edge Connect. This is a standardized framework for integrating distributed energy resources, such as connected EV chargers and batteries with EnergyHub's platform. We believe streamlining the integration process for providers of these devices will strengthen EnergyHub's position as the single platform for utilities to manage a broad range of customer-owned distributed energy resources. To conclude, I am pleased with our Q1 results and the progress we made to expand our platform during the quarter. 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 Valenzuela. Steve?

Thanks, Steve. I will begin with the review of our strong first quarter of 2021 financial results and then discuss guidance before opening the call for questions. SaaS and license revenue in the first quarter grew 16.8% from the same quarter last year to $107.4 million. This includes connect software license revenue of approximately $8.7 million for the first quarter, down as expected from $9.7 million in the year-ago quarter. SaaS and license revenue for our Alarm.com segment grew 15.8% year-over-year, and our other segment grew 34.9% over the same period. Our SaaS and license revenue visibility remains high, with a revenue renewal rate of 95% in the first quarter, which is above our historical range of 92% to 94%. This slightly higher revenue renewal rate, we believe, is likely the result of fewer people moving homes at the start of the pandemic, and we could see a return to the historic range in the next quarter or two. Hardware and other revenue in the first quarter was $65.1 million, up 8.5% over Q1 2020. We continue to see strong sales of our video cameras, driven by increased adoption of our industry-leading video solutions and video analytics capabilities. Total revenue of $172.5 million for the first quarter grew 13.5% year-over-year. SaaS and license gross margin for the first quarter was 85.9%, down approximately 70 basis points from Q1 2020 gross margin, mainly due to product mix. Hardware gross margin was 22.3% for the first quarter compared to 23.9% for the same quarter last year, mainly due to product mix and also somewhat due to increased supply chain costs as the global supply chain has been more challenging recently. Total gross margin was 61.9% for the first quarter, up slightly from the same quarter last year. Turning to operating expenses. R&D expenses in the first quarter were $42.5 million compared to $39.7 million for the first quarter of 2020. We ended the first quarter with 797 employees in R&D, up from 650 employees in the same quarter last year. Total headcount increased to 1,414 employees in the first quarter compared to 1,227 employees a year ago. Sales and marketing expenses in the first quarter were $19 million or 11% of total revenue compared to $17.1 million or 11.2% of revenue in the same quarter last year. Our G&A expenses in the first quarter were $22.9 million, up from $20.9 million in the same quarter last year. G&A expense in the first quarter includes non-ordinary course litigation expense of $5.3 million compared to $2.5 million for Q1 2020. Non-ordinary course litigation expenses are part of our adjusted measures and are excluded from our measurement of non-GAAP financial performance. Non-GAAP adjusted EBITDA for the first quarter was $35.6 million, up from $29.2 million in Q1 2020. In the first quarter, GAAP net income was $14.8 million compared to GAAP net income of $8.8 million for Q1 2020. Non-GAAP adjusted net income increased to $25.8 million or $0.50 per diluted share in the first quarter compared to $20.9 million or $0.42 per year for the first quarter of 2020. Turning to our balance sheet. We ended the first quarter with $642.2 million of cash and cash equivalents. This includes net proceeds of approximately $484.3 million from the issuance of our 0% convertible bonds we closed in January of this year and reflects the concurrent payoff of our senior revolving debt facility, which had an outstanding principal balance of $110 million. In the first quarter, we generated approximately $21.2 million in cash flow from operations compared to $12.9 million for the first quarter of 2020. Our free cash flow for the first quarter was $17.2 million, up from $9.2 million for the same quarter last year. In the first quarter, our capital equipment purchases were about $4.1 million, up slightly from $3.7 million in the first quarter of 2020. Turning to our financial outlook. For the second quarter of 2021, we expect SaaS and license revenue of $108.9 to $109.1 million. For the full year of 2021, we expect SaaS and license revenue to be between $445.5 million to $446 million, up from our prior guidance of $440.5 million to $441.5 million. We are projecting total revenue for 2021 of $680.5 million to $691 million, an increase from our prior guidance of $660.5 million to $671.5 million, which includes estimated hardware and other revenue of $235 million to $245 million. We continue to monitor issues around a global chip shortage, which did not impact our revenue in this quarter but could impact our revenue this year, depending on how the supply shortages work out. We estimate that non-GAAP adjusted EBITDA for 2021 will be between $124 million to $130 million compared to our prior guidance of $120 million to $130 million. We have factored in more travel and trade show expenses in the back half of 2021, as these expenses have been curtailed with the pandemic. We also anticipate that the bulk of our 2021 headcount additions will be in the third quarter of this year. Non-GAAP net income for 2021 is projected to be $85.6 million to $90 million or $1.63 to $1.72 per diluted share, up from our prior guidance of $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 $52.4 million weighted average diluted shares outstanding. We expect full year 2021 stock-based compensation expense of $40 million to $43 million. In summary, we are pleased with how well our service providers and internal teams continue to perform during these challenging times. We are focused on executing on 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.

Thank you, sir. I show our first question comes from the line of Sterling Auty from JPMorgan. Please go ahead.

Yeah. Thanks. Hi, guys. So, you mentioned that on the international side, the continuing pandemic. I'm just kind of curious with the U.K. set to kind of open up more fully, what's the visibility that you have and improvement that we might see out of the international region in the June and then September quarters.

This is Steve Trundle speaking. I don’t anticipate much change between now and June, as we are performing at a level slightly better than in Q1. England is progressing ahead of other parts of Europe and significantly ahead of Latin America. Additionally, we are experiencing some global supply chain challenges, particularly with more specialized components, compared to what we see in North America. I would expect clearer trends to emerge in the third or even fourth quarter. Currently, we are focusing on working with service providers to prepare for stronger markets next year. We are grateful that North America remains quite strong.

That makes sense. And then maybe one quick follow-up. You talked about the renewal rates, perhaps returning to historical norms. Just what have you baked into the guidance for the rest of the year?

I believe our people essentially stopped moving around this time last year. As a result, we experienced a higher than expected revenue renewal rate of 95%. For the rest of the year, we have factored in the midpoint of our traditional range, which is between 92% and 94%.

That's right.

All right. That's fair. Thank you so much. I really appreciate it.

Sure.

Thank you.

Thank you. Our next question comes from the line of Adam Tindle from Raymond James. Please go ahead.

Thank you. Good afternoon. I wanted to discuss the guidance for SaaS and license revenue. For the full year 2021, it has been increased by a few million more than what we saw in the Q1 beat. I'm curious about what signals you are picking up that suggest ongoing strength in the later quarters, rather than just increasing it by the $2.5 million from the Q1 results. This is important, as I know you tend to be conservative with your guidance. I'm more interested in the qualitative insights you're providing than the numbers themselves. Could you elaborate on the areas where you are seeing growth? What led you to feel confident enough to project some additional upside, especially considering, as you mentioned, that the retention rate is expected to decline? I'm uncertain what compensatory factors might be at play.

Sure. A significant part of the Q1 performance boost came from a faster creation rate, and we believe many of those subscribers are likely to stay with us. This is encouraging. However, we want to avoid overextending ourselves by assuming that the current creation rates and slightly better-than-expected performance will continue throughout the year. We do face some challenges, particularly with our activities, which we have been managing well so far, but the global supply chain and markets remain somewhat unpredictable. As mentioned earlier, we are beginning to see a resurgence in commercial activity, which could provide a beneficial boost. Additionally, our EnergyHub business is currently performing well. Overall, there are several positive factors at this point in the year. We typically maintain a conservative approach to guidance, so while we do factor in some of the Q1 results into our outlook, we are cautious in raising our projections. This guidance serves as the basis for our operational budget, and we are currently reflecting on the aspects I just highlighted.

I would say we are seeing good video and video analytics performance, as Steve mentioned, and ARPU has increased slightly as well. Most of this growth is driven by new subscribers, but it's encouraging to see the strong attachment rates for video and video analytics continue to rise.

Got it. Yeah. That makes sense. And just as a follow-up. I mean, cash continues to increase. Your business is so predictable and durable, particularly on the SaaS and license side. So, Steve V, maybe you could touch on your view of optimal capital structure and timing to get to that level. And Steve T, if you could follow up with priorities for use of cash as you move to that optimal capital structure.

Certainly, we appreciate the question. We prefer to maintain a healthy cash position, and taking advantage of the attractive terms on the 0% coupon bonds allowed us to raise $500 million for growth. Our operations are cash flow positive, and this quarter, we generated a substantial amount of free cash flow, nearly doubling last year’s figures. We feel we have a significant reserve available, and our balance sheet and cash position are strong. While we prefer to maintain a net cash position, I can confidently say we have a robust balance sheet that has remained strong over the years, and this capital raise will only enhance our financial flexibility.

In terms of how we plan to use the proceeds, we want to be prepared to take advantage of the right opportunities when they arise. Our corporate development team is actively searching for various possibilities, and we have at least two internal initiatives where we might invest. However, we haven't made any final decisions yet. We're closely monitoring the market and paying attention to valuations. Our hope is that some of the market activity calms down, but when we identify the right opportunity, we are ready to move forward. We feel confident about our position for the next few years to strategically grow the business through selective acquisitions.

If you had to rank consolidating more core residential opportunities versus expanding in these growth areas like EnergyHub, would one rank higher than the other?

I believe our internal capabilities in the residential sector are very strong. We are currently scaling research and development to a level unmatched by others. Therefore, I expect that we will primarily grow our residential activities organically over time. While we are open to considering opportunities across various categories, it's important to note that the category itself is just one aspect of the overall situation. Management, the health of the business, and other factors play significant roles as well. Generally, our tendency is likely to focus on active opportunities in areas where we may not have a strong organic presence.

Makes sense. Thank you, both.

Thanks.

Thank you. Our next question comes from the line of Matt Pfau from William Blair. Please go ahead.

Hey, guys. Thanks for taking my questions and nice job on the results. Wanted to ask about the better than expected creation rate that you guys have seen over the past several quarters. How do you expect that to be impacted as U.S. economies continue to reopen? And I guess, what I'm wondering is, is that sort of a creation rate a factor of people being stuck at home and thus doing home improvement projects, or are there some other dynamics there that's creating that creation rate?

Matt, I’m not sure we can predict that accurately. We have noticed steady momentum over the past few quarters, which we believe may be partly due to people being at home during COVID, taking time to work on projects, and moving to the suburbs. We expect some of these trends to continue. However, in our modeling, we are not predicting this trajectory as a permanent state of momentum. Instead, we are looking at our pre-COVID sales velocity in North America and expecting some regression to what we consider a more normal trajectory. That’s how we see the situation. We could be mistaken, and it’s possible that the shift towards more homeownership and moving away from urban areas could remain a trend for the next five to six years. At this point, it’s hard to say for certain.

Okay, I understand. I just wanted to follow up on the retention rate and how the increased use of video, video analytics, and smart home features might influence it. Could there be an impact from customers investing more in their security systems and becoming more engaged?

Yeah. That's a very good question. So, I think there definitely is. We've been at the high side of our anticipated range for some time, a range that we established 92% to 94% potential. That's been pretty strong for some period of time. I think particularly video analytics. I mean, in the first quarter, the attach rate of analytics on new video installations was over 70%. So customers are getting a much better experience when they're getting that type of intelligence in their video alerts and in what they're viewing. If you're having a good experience, if you're impressed with the technology, if it's making your life easier, I'd like to believe that you're more durable as a customer. And then I do think your point as well, which is, as customers see more areas of benefits from the smart home and as they deploy more types of technology, whether it be video or the smart water valve or some of the energy management attributes, I think there becomes a bit more of a dependency and the likelihood of that customer not being satisfied with their experience and therefore, potentially churning. I do think that's an ongoing sort of slight positive trend there that will help us.

Great. Thanks, guys. Appreciate you taking my questions.

Sure.

Thank you.

Thank you. Our next question comes from the line of Darren Aftahi from ROTH Capital Partners. Please go ahead.

Hey, this is Terry on for Darren. Thanks for taking the questions. You talked a little bit about commercial certainly pick back up. Could you provide any color on maybe what percent or that is like a new inquiry versus someone who might have you spoken to maybe pre-COVID and had been caused due to just sort of the shutdown?

I currently don't have precise data on whether our new customers are those we had previously engaged with. Based on my observations, I believe it’s a combination of both. Conversations with our sales team, particularly in the larger enterprise sector, indicate that many opportunities were on hold due to access restrictions during the early stages of COVID until the end of the year. Now that these entities have reopened, I expect a significant portion of the recent growth is coming from larger enterprises where we were already aware of potential opportunities. Additionally, regarding the OpenEye division, they have reportedly added around 9,000 new sites in the past year, which represents substantial growth—potentially around a 30% increase in total installed sites. This growth appears to be coming not only from ongoing discussions but also from smaller enterprises that recognized opportunities for modifications during their closure, similar to homeowners during the pandemic. I believe this trend will persist.

Got it. Thank you. And as a follow-up. I guess it's sort of similar, but with the residential market, and then some of the housing market trends, were you seeing a mix of more like new accounts or sort of people who are used Alarm.com for maybe like a primary home and now we're adding it to maybe a secondary home?

No. The latter is always happening, but it's a much smaller part of the business compared to those moving into new homes. I believe the majority is from new homes. We're supported by new home construction and first-time customers getting a system for their homes. A very small portion, definitely less than 10%, of new residential customers comes from those with multiple properties. On the commercial side, if you secure a business with multiple locations and do well at a few of those sites, it can lead to ongoing business. You may see a higher proportion of commercial installations being follow-on work for businesses that have already used your technology at one location. While the percentage would be higher, it would still not exceed half, and my estimate would be not more than 35%.

Great. Thank you.

Thank you.

Thank you. Our next question comes from the line of Mike Latimore from Northland Capital. Please go ahead.

Hi, this is Aditya on behalf of Mike Latimore. Could you talk about how much did the other SaaS contribute in Q1?

Sure. In Q1 is the other segment $6.1 million of SaaS revenue, which was up 35% year-over-year.

All right. All right. And do you expect it to continue at the same rate, or do you expect it to accelerate in 2021?

We discussed the strong performance of our EV programs, which bodes well for the long-term outlook of the other segment. Additionally, we have PointCentral and the Smart Water Valve+Meter contributing positively. However, it's important to note that the other segments experience some seasonality and timing differences, with Q4 typically being the strongest quarter. For instance, in Q4, the other segment generated $7.8 million in SaaS revenue, benefiting from energy savings during the summer programs. In contrast, Q1 tends to be a slower season. Despite this, we are observing positive trends in the other segments, particularly with new initiatives like the Smart Water Valve+Meter, a valuable product that helps homeowners and businesses prevent leaks and water damage. There are significant opportunities in this area, though we recognize that seasonal variations affect quarterly performance, with Q1 usually being slower.

All right. And maybe any estimate on how much OpenEye might contribute for this year?

So, we haven't broken out OpenEye. In the past, I would say that we did talk last year that OpenEye was more impacted by COVID as you would think with commercial. Now, we did see improvement in the fourth quarter and we saw again improvement in the first quarter. So, it's trending quite well. We're also encouraged with the growth of SaaS revenue broken out, which is still fairly small, but we have a program now since we acquired OpenEye to really grow the SaaS, it'll take some time, but it's growing at a very good rate and it's a small number still. But we're learning curves to see the growth of OpenEye in the difficult environment with commercial, and we're excited about the future for OpenEye, as things open up and of course, commercial businesses go back. So, we're seeing good positive trends there.

All right. Fine. Thank you.

Thank you.

Thank you.

Thank you. Our next question comes from the line of Brian Ruttenbur from Imperial Capital. Please go ahead.

Yes. Thank you very much. Great quarter. So, a couple of quick questions. First of all, on Shooter Detection, their indoor GSL. Can you talk a little bit about what kind of traction you're seeing so far? You just acquired them recently. I know you don't break out specific acquisitions that are they on track. Are they growing with the total group? Can you talk about any trends that you're seeing in that area?

We completed the acquisition of Shooter Detection in December, during the COVID period. I recently had the opportunity to visit them in the past five to six weeks. We've noticed that they have been somewhat affected by enterprise commercial customers, particularly large entities with significant office complexes trying to assess how many employees will return to work and what to do with their facilities. This has been a challenging point. On the positive side, there is good traction on the institutional side, and the pipeline looks promising, with some notable clients added. While their first quarter performance is slightly below my ideal expectations, the level of activity in the pipeline is at or above what I anticipated. Unfortunately, every time there is a tragic incident of violence, their pipeline tends to grow as more organizations seek to protect their employees and mitigate workplace violence. We believe that over time, this business will develop significantly, although it's currently relatively small. We are making substantial investments and have made some good hires in the first quarter to enhance the distribution of their technology.

Has there been anything at the school level, from the federal agencies and all the stimulus that has gone, or that you see adding to their pipeline?

I don't have a clear answer to that. I can't recall if the federal agencies have run simulations on it. From my last discussion with them, I understand that on the institutional side, states often need to approve technology for use in all schools or courts within the state. Therefore, we're noticing that different states are approving the technology for specific uses, whether in schools, high schools, or courts. I'm unsure if there will be any stimulus related to this, but there is certainly some activity happening.

Great. And last question real quick, just timing on the commercial recovery. Just from your gut, do you see it happening in 2021 in terms of that recovery?

Yeah. From my gut feel would be that we're going to continue to see commercial gain strength throughout this year. And by the end of the year, we would see more than likely commercial performing about where we expected to be. That's my gut feel. Maybe even a little above if there's some pent-up demand out there.

Great. Thank you.

Thank you. Our next question comes from the line of Jack Vander Aarde from Maxim Group. Please go ahead.

Great. Hey, guys. Nice results. Thanks for taking my questions. So, maybe a question for either Steve T or Steve V, either of you can probably answer this. But maybe on the recent trends you're seeing in terms of recent residential subscriber installations within the United States. Are there any particular states or regional areas that have maybe surprised you, whether in terms of outperforming or underperforming relative to what you expected, and then also maybe relative to where those states were performing last year?

Yeah. I would say generally that it's been less about probably any particular state. Traditionally we've always been, and our service providers in the Southern parts of the United States have been bigger. Typically, there's just a higher market penetration. And in places like Florida, Georgia, Tennessee, Texas, all of the Southern markets, then there is typically up North. That's not to say you don't have penetration everywhere. What's probably more normal or what we've seen has been less about state by state, but more about tier two cities versus urban centers and the level of installs that are going into suburbs and what some might refer to as K2 cities as we've seen some DIY urbanization. So, our service providers who service those markets have been particularly strong and that's been not really unique to any given state, but kind of broad. And I will say one example that just sort of pops up in terms of the state, I should say, is our service providers in Florida are indicating they're way, way, way too busy that it's really popping and they can't keep up with demand. So, that's one that I know of where they're particularly busy. I think there is some migration to Florida right now, but generally it's been more about urban versus suburban or tier two.

Okay. Great. And that's helpful. And then maybe a question for Steve Valenzuela. Regarding the other segment, revenue growth is strong again, I think it was up nearly 35% if I heard that correctly year-over-year. Can you talk about maybe the underlying drivers of that business strength in terms of the actual specific businesses or subsidiaries that contribute to that? Maybe name a couple other than just EnergyHub?

EnergyHub is certainly a significant contributor, and while PointCentral has faced some challenges due to COVID, there has been a slight rebound in vacation rentals. Additionally, we have introduced the Smart Water Valve+Meter, which presents considerable potential. In the other segment, EnergyHub is the primary driver, and its growth is further supported by our other businesses. Overall, it is the most rapidly growing entity in the other segment.

Okay. Cool. And then maybe as a follow-up. Just sticking to the subsidiaries then, you mentioned PointCentral. I saw recently they rolled out this new offering that caters to the short-term rental managers with under 25 properties, which is the first I believe to that business. Can you maybe just talk about what that does is expand the TAM opportunity from what you guys initially anticipated, or was this always kind of part of the plan, but it was just starting with their larger property managers first and now you're working your way down the ladder?

Well, it definitely expands the total addressable market. I'm not certain about the exact percentage, but it hasn't made sense economically to invest significant time until now on property managers handling 10 vacation units, especially when there are those managing hundreds or thousands. So, in collaboration with home, we plan to focus on some of the smaller ones. As for the precise impact on the total addressable market, I can't provide specific details. However, I would say that the vacation rental market has been strong, and PointCentral serves both multi-family and vacation rentals. Over the last six months, vacation rental has been the stronger segment, and that's where we’re adding a lot of value. Therefore, we're aiming to deepen our efforts in that segment through this new partnership.

Okay. Great. Thank you. That's it for me guys.

Thank you.

Thank you.

This concludes today's Q&A session and the conference call. Thank you for participating. You may all disconnect.

All right. Thank you.

Thank you.