Alarm.com Holdings, Inc. Q4 FY2022 Earnings Call

Good day, and thank you for being with us. Welcome to the Alarm.com Fourth Quarter 2022 Earnings Conference Call. I will now pass the call to the Vice President of Investor Relations, Matthew Zartman. Please go ahead.

Good afternoon. Welcome to Alarm.com's Fourth Quarter and Full Year 2022 Earnings Conference Call. This call is being recorded. Joining us today from Alarm.com are Steve Trundle, our CEO; and Steve Valenzuela, our CFO. Before we begin, a quick reminder. Management's discussion during today's call will include forward-looking statements, which include, among others, projected financial performance and key assumptions related thereto, including with respect to the Vivint dispute, potential legal spend and cost rationalization strategies, the impact of emerging market dynamics, trends and anticipated market demand, the impact of the COVID pandemic, challenging global supply chain dynamics and adverse macroeconomic conditions. Our business strategies, plans and objectives and the integration of recent acquisitions and anticipated growth prospects of our Noonlight acquisition, continued enhancements to our platform and offerings; opportunities for growth and expansion in our current and new markets. These forward-looking statements are based on our current expectations and beliefs and on information currently available to us. These statements are subject to risks and uncertainties, including those contained in today's earnings press release and in the Risk Factors section of our most recent quarterly report on Form 10-Q filed with the Securities and Exchange Commission on November 9, 2022, and in subsequent reports that we file with the SEC from time to time, including our annual report on Form 10-K for the year ended December 31, 2022, that we intend to file with the SEC after this call that could cause actual results to differ materially from those contained in the forward-looking statements. Please note that the forward-looking statements made during this call speak only as of today's date and Alarm.com undertakes no obligation to update these statements to reflect subsequent events or circumstances, except to the extent required by law. Also during this call, management's commentary will include non-GAAP financial measures and provide non-GAAP guidance. Management believes that the use of these non-GAAP financial measures provides an additional tool for investors to use in understanding the company's performance and trends. However, 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 replay will be available on our website. Let's now turn the call over to Steve Trundle. You may begin.

Thank you, Matt. Good afternoon, and welcome to everyone. We are pleased to report fourth quarter and full year results that exceeded our expectations. Our full year 2022 SaaS and license revenue was $520.4 million, up 13% over the last year. Our adjusted EBITDA for the full year was $146.8 million. During the year, we continued to execute on our long-term growth strategy. We expanded our platform and continued to build diversity into our revenue streams. We ended 2022 with more than 11,000 service provider partners who deliver Alarm.com solutions to more than 9.1 million connected property subscribers in over 60 countries around the globe. We now also have hundreds of thousands of Noonlight personal safety subscribers. I want to thank our service provider partners and our employees for their contributions to our 2022 performance. I will use today's call to discuss our long-term strategy, focusing on 4 of our key growth areas. The commercial markets, our video software initiatives, our growing international business and our new venture businesses. These business areas collectively represented nearly 30% of our total SaaS revenue in the fourth quarter. I'll begin with the commercial markets. We have made solid progress in advancing our platform so that we can further target the nearly 6 million properties that make up the commercial market in the U.S. and Canada. The Alarm.com for Business platform addresses small- and medium-sized businesses or the SMB commercial segment. And our commercial video subsidiary, OpenEye, is a leading provider of video surveillance as a service for the large-scale enterprise segment. In 2022, OpenEye's SaaS revenue more than doubled as compared to 2021, and they increased total new video channel activations by over 30% over the same period. Our overall commercial account base has grown to well over 0.5 million accounts. Our commercial product strategy is to develop software-based capabilities that will deliver unique value to commercial customers through the deep integration of security, video, analytics, access control and energy management solutions. Increasingly, we are also offering the active shooter detection technology developed by our subsidiary business, Shooter Detection Systems. With our expanding offering, we expect that a commercial property with the full suite of our solutions will generate about 6x the ARPU on average of our typical residential account. Innovation in video is integral to our commercial strategy. A high percentage of commercial properties have traditional video monitoring systems and our connected solutions are driving an upgrade cycle in the market. Last year, we launched a new video analytics service called Business Activity Analytics. It provides enterprise business intelligence reporting for occupancy tracking, people counting and queue monitoring. With our analytics solution, a business owner can answer questions like, what is the average wait time for my customer to check out? Or how can I manage employees and keep track of their break times? Or how many people walk past a particular product display in the last day. We also launched a new screen video recorder or SVR. It enables 24/7 recording and event tracking for up to 16 commercial video cameras. The SVR also enables our new third-party camera support capability, which allows commercial customers to upgrade to Alarm.com services without the cost of ripping and replacing all their legacy video cameras. Our video platform also continues to drive meaningful results in the residential market. About half of our new residential accounts include Alarm.com video service. This growing account base exhibits higher user engagement and significantly lower attrition profiles compared to accounts with only a security system. Our video team is also launching a completely wireless battery-powered version of our flagship video doorbell with 780p. This will give our service providers some flexibility to address unusual installations where a wired power source cannot be provided and also address some international markets where regional wiring standards don't support a wired video doorbell. The 780p includes a custom video analytics package that we developed to provide high-value capabilities while optimizing battery life. Shifting to our international business. Our base of global accounts surpassed $0.5 million in 2022. We believe we can continue to drive significant international growth by comprehensively supporting our international partners to fully operationalize Alarm.com and reach full-scale deployment in a diverse range of markets they address worldwide. In 2023, we will also expand support for a wider range of legacy security control panels that are deployed in international markets so they can leverage Alarm.com's technology. The final element of our strategy is the continued development of our subsidiary businesses, EnergyHub, Noonlight, PointCentral, Shooter Detection Systems and Building 36. EnergyHub provides an enterprise software solution that enables utilities to flexibly manage electricity demand by orchestrating customer-owned and enrolled distributed energy resources. These resources include devices such as smart thermostats, batteries, commercial and industrial resources, solar inverters and electric vehicle chargers. We're investing in the expansion of EnergyHub's ecosystem of distributed energy resources. This will enable utilities to access greater electricity load capacity as they manage the growing sources of stress on the grid. Our strategy is working. Utility clients are turning to EnergyHub programs far more often. In 2022, the number of demand response events called by utilities via EnergyHub increased 80% over 2021. Last year, we acquired Noonlight, a growing SaaS business that provides context-aware event management and emergency response capabilities. Noonlight enables providers of IoT devices and mobile app-based services to easily integrate emergency response capabilities into their offerings. As a hypothetical example, a company that makes the bike could write a few lines of code to call Noonlight API and enable first responder incident response when there is a bike accident. Noonlight gives Alarm.com a technology environment for developing capabilities that leverage our deep partnerships in the security channel to extend central station monitoring services to address new use cases. I also want to spend a moment on the new organizational structure and roles we announced in an SEC filing in late January. With my enthusiastic support, our Board of Directors appointed Jeff Bedell, the President of our Ventures Business and Corporate Strategy; and Dan Kerzner, the President of our Platforms Business. Jeff will oversee all of our Venture Businesses as well as Corporate Development and Corporate Strategy. Dan will oversee all Product Development for our core commercial and residential platforms as well as sales and marketing for our largest market, North America. As the pace of expansion and diversification has accelerated in our business, the timing was right to formalize this structure and give Jeff and Dan more responsibility while recognizing these two strong levers. Jeff and Dan have been integral members of our management team for nearly 10 years, and I have had the privilege of working with them even before they joined Alarm.com. They have each played very important roles in much of the progress we have made over the last decade. I expect even more from each of them as we move forward and pursue our growth goals. In future quarters, I will begin to occasionally bring Jeff and Dan into our quarterly call so that our investors can hear from them firsthand about the key business areas they oversee. We are very fortunate to have a strong management team with a long history of working together. As CEO and a Co-Founder, these organizational changes do not alter my level of involvement or engagement with the company. As I noted during last quarter's call, I feel good about where we are headed and I'm excited about continuing to pursue our strategy and building Alarm.com well beyond $1 billion in annual revenue. I have been both President and CEO since 2003 when Alarm.com had fewer than 10 employees and no revenue. As we are now much larger I thought it was time to better distribute and delegate the vision making and leadership so that we can move faster as a team. Before I hand things over to Steve Valenzuela, I want to also update you on the Vivint matter. As you know, Vivint notified us that it will stop paying Alarm.com the royalty fees associated with the patent license agreement that we reached with Vivint in 2013. In late 2022, we filed for arbitration under the terms of that agreement. We expect the arbitration process to take 12 to 14 months. Subsequent to our filing for arbitration, Vivint announced that it was being acquired by NRG. That deal has not yet closed, and we are closely monitoring recent events, including a $189 million jury verdict against Vivint in Federal District Court announced last week. We also filed a patent infringement lawsuit against Vivint in January of this year, alleging Vivint is infringing on 15 patents that we added to our portfolio subsequent to the 2013 licensing agreement. We continue to work to ensure that we fully protect our patented technology from infringement and its use without a license. To conclude, I'm pleased with our performance and the meaningful contributions of our growth initiatives in 2022. Our focus will continue to be on executing our strategy to generate growth in 2023 and beyond. And with that, let me turn things over to Steve Valenzuela. Steve?

Thanks, Steve. I'll begin with a review of our fourth quarter and full year 2022 financial results and then provide guidance for 2023 before opening the call for questions. Fourth quarter SaaS and license revenue of $134.6 million grew 10.5% from the same quarter last year. Excluding Vivint license revenue, Q4 non-GAAP SaaS and license revenue grew 15.6% year-over-year. SaaS and license revenue includes Connect software license revenue of approximately $6.3 million for the fourth quarter, down as expected from $7.4 million in the year-ago quarter. For the full year of 2022, SaaS and license revenue of $520.4 million grew 13% over 2021. Non-GAAP SaaS and license revenue, excluding Vivint license revenue, grew 14.4% in 2022 year-over-year. Our SaaS and license revenue visibility remains high with a revenue renewal rate of 94% in the fourth quarter. Hardware and other revenue grew 11.6% in 2022 to $322.2 million, mainly driven by sales of cameras. Total revenue of $208.1 million for the fourth quarter grew 6.6% from Q4 2021. For the full year of 2022, total revenue grew 12.5% year-over-year to $842.6 million. SaaS and license gross margin for the fourth quarter remained solid at 85.2%. Hardware gross margin was 18.9% for the fourth quarter compared to 11.1% for Q4 2021 due primarily to price increases that we put forth in early 2022. Total gross margin was 61.8% for the fourth quarter, up from 57.8% for Q4 2021, mainly due to the improvement in hardware margins. Turning to operating expenses. R&D expenses in the fourth quarter were $57.4 million compared to $47.6 million in the fourth quarter of 2021, mainly due to an increase in headcount and related compensation expenses. We ended 2022 with 1,004 employees in R&D, up from 837 employees at the end of 2021. Total headcount increased to 1,733 employees for 2022 compared to 1,500 employees at the end of 2021. Sales and marketing expenses in the fourth quarter were $23.6 million or 11.3% of total revenue compared to $24.6 million or 12.6% of revenue in the same quarter last year, mainly due to lower advertising costs in the fourth quarter of 2022. Our G&A expenses in the fourth quarter were $25.4 million compared to $22.6 million in the year-ago quarter, mainly due to higher personnel-related costs, including stock compensation and consultant fees. G&A expense in the fourth quarter includes non-ordinary course litigation expense of $1.9 million compared to $1.8 million for Q4 2021. Non-ordinary course litigation expenses are part of our adjusted measures and are excluded from our measurement of our non-GAAP financial performance. Non-GAAP adjusted EBITDA in the fourth quarter was $39 million compared to $31.3 million in Q4 2021. For all of 2022, adjusted EBITDA was $146.8 million, up 3.1% from adjusted EBITDA of $142.5 million for 2021. In the fourth quarter, GAAP net income was $18.1 million compared to GAAP net income of $9.1 million for Q4 2021. Non-GAAP adjusted net income was $28.7 million or $0.53 per diluted share in the fourth quarter compared to $22.6 million or $0.43 per share for the fourth quarter of 2021. GAAP net income for the full year of 2022 was $56.3 million compared to GAAP net income of $52.3 million for 2021. Non-GAAP adjusted net income for 2022 was $106.9 million or $1.95 per diluted share compared with non-GAAP net income of $103.5 million or $1.99 per share for 2021. Turning to our balance sheet. We ended the fourth quarter with $622.2 million of cash and cash equivalents, down from $710.6 million at December 31, 2021. During the fourth quarter of 2022, we used $27 million to repurchase 545,343 shares of our common stock at an average price of $49.47. For all of 2022, we used $78.8 million to repurchase approximately 1.4 million shares or 2.8% of our outstanding shares. During 2022, we also used $33.4 million in cash for acquisition of Noonlight. In the fourth quarter, we generated $34.4 million in cash flow from operations compared to $20 million for the fourth quarter of 2021. Our free cash flow for the fourth quarter was $33.9 million compared to $17.8 million for the same quarter last year. Through the 12 months ended December 31, 2022, we generated $56.9 million of cash flow from operations, down from $103.2 million for 2021. This is mainly due to our investment in inventory to strengthen our supply chain. Our free cash flow for 2022 was $28.3 million compared to $92.1 million for 2021, also due to our investment in inventory and our purchase of land for $22 million near our headquarters in Tysons, Virginia. Turning to our financial outlook. For the first quarter of 2023, we expect SaaS and license revenue of $132.4 million to $132.6 million. For the full year of 2023, we expect SaaS and license revenue to be between $551.5 million to $552.5 million. We are projecting total revenue for 2023 of $851.5 million to $877.5 million, which includes estimated hardware and other revenue of $300 million to $325 million. We are providing a wide range for a hardware revenue guide for 2023 due to several factors. We expect fewer sales of communication modules as the 3G upgrade cycle winds down in the U.S. and Canada. We expect less hardware revenue from ADT, and we anticipate that the higher interest rate environment may result in fewer moves and new construction builds moderating demand for some of our products. We estimate that adjusted EBITDA for 2023 will be between $115 million to $125 million. This excludes Vivint license revenue and includes significant legal costs regarding the matter with Vivint. We expect adjusted EBITDA in the first quarter of 2023 to represent approximately 21.5% to 22% of our annual guidance. Non-GAAP net income for 2023 is projected to be $79.7 million to $86.5 million or $1.44 to $1.57 per diluted share. EPS is based on an estimate of 55.2 million weighted average diluted shares outstanding. We currently project our non-GAAP tax rate for 2023 to remain at 21% under current tax rules. We expect full year 2023 stock-based compensation expense of $62 million to $64 million. In summary, we are pleased with how well our service providers and internal teams have performed over the past year. We are focused on executing our business and investing in our long-term strategy while continuing to deliver profitable growth. And with that, operator, please open the call for Q&A.

And it comes from the line of Adam Tindle with Raymond James.

Okay. Congrats on a strong close to the year. Steve Trundle, I wanted to maybe start with you on the new organizational structure. It's really interesting. I was just curious if you can maybe dig deeper into what this perhaps enables from both an operational and maybe even a capital allocation standpoint in each of these two businesses, the core and the ventures that could perhaps accelerate trends versus how it was structured previously? I'm curious, Steve, if this is an indication that we may get a breakout of growth or profitability of each of those businesses from a reporting perspective at some point.

Sure, this is Steve Trundle. With the organizational upgrade, we expect to make decisions more swiftly and contain them at the appropriate levels for quicker resolutions. In the core business, it has been challenging to balance capital allocations between marketing and R&D, as different people oversee their own objectives. With Dan now firmly overseeing the P&L for North America along with R&D and sales and marketing investments, I believe we can enhance capital allocation efficiency and be more strategic in how we deploy resources. While I will still be involved, there were shortcomings in the previous approach. The business has expanded with various teams moving in different directions, so centralizing this under one person will be beneficial. As for the other side of the business, I've been providing updates on our growth initiatives like PointCentral and EnergyHub each quarter. Each of these initiatives has its unique strategies, goals, and leaders, making it increasingly difficult for me to track every detail. Jeff will oversee the strategy for our ventures, ensuring we execute on our acquisition plans effectively. Lastly, this is a collaborative effort; our historical teamwork will enable us to work well together across different areas. Without our established rapport, this structure could be problematic, but we are equipped to manage these responsibilities effectively.

And then Adam, this is Steve Valenzuela. Your question on the breakout of additional breakout of segments. We're going to continue for the time being to show Alarm.com and the other segment in public reporting. For example, for Q4, the SaaS revenue for the Other segment was $13.4 million and hardware revenue was $2.1 million. And this is interesting. This is the first quarter the Other segment SaaS represented 10% of our SaaS revenue. So that's quite an achievement for the Other segment, and that's headed up by Jeff Bedell. And of course, the core in the filings we call Alarm.com. For the year, the Other segment generated $42.2 million of SaaS revenue, 8.3% of hardware revenue, and that grew 26% year-over-year.

Got it. That's helpful, Steve. And maybe just as a follow-up for Steve. You did a nice job covering the rationale for the hardware guidance for 2023. I did think that the SaaS guidance was fairly healthy. On the adjusted numbers, I think 14.4% growth is what you're guiding to in the coming up on a year of 15.6% adjusted growth for the dividend piece. So the point would be not implying a lot of deceleration in the SaaS growth, despite everything going on in the macro environment. I also know that you tend to be conservative with these numbers, but the minimal deceleration and just has me kind of wondering the puts and takes to what looks like a very healthy outlook in the SaaS growth piece. And also what's assumed in ADT? I understand the dividend taken out. You assume some ADT headwind in the hardware was there ADT headwind assumed in the SaaS piece?

So, Adam, yes, it's Steve Valenzuela. To clarify, we're projecting about 9.6% year-over-year growth in SaaS for 2023, not counting dividends. For 2022, if we adjust for Vivint, we achieved a 14.4% year-over-year growth. Typically, when we report the first quarter, we take a conservative approach due to various factors in different segments of the business. For instance, in 2022, we initially guided for a 10.5% growth in SaaS, but we ended up at 14.4%. That said, many factors are in play, including the interest rate environment, which could lead to fewer moves. On the positive side, fewer moves could mean less attrition, but there might also be fewer hardware purchases and system installs. We've factored that into our guidance for 2023. To summarize, last year we guided for 10.5% growth, and I want to ensure we meet or exceed that. Currently, we're at 9.6%, which is less than 100 basis points off from our guidance, and I hope there’s potential for upside.

Got it. I apologize for not noting that in the press release, but that clarification helps a lot. Could you provide details on the ADT assumption included in that?

Sure. I can provide some insight on that. We have projected a reduction in new account origination, similar to our previous commentary in earlier quarters. In the second quarter of this year, we considered this in our guidance. We don’t have precise information on ADT's plans, but they seem to be doing well with their command and control strategy, as indicated by their impressive attrition rates from last quarter. They are also reducing their service costs through various services. Overall, things seem to be progressing positively for them, although we are uncertain about their deployment strategy. Nevertheless, we had to make some assumptions for our model, which reflects a decrease in that business for the second quarter. We do expect to continue working together in certain areas, such as commercial and large custom homes, on an ongoing basis in the long term.

It comes from the line of Darren Aftahi of ROTH.

Two, if I may, follow up on the commentary about the interest rate environment and maybe less news and hence, lower hardware. I guess one of the things that we didn't hear is just general backdrop year-to-date in the Residential and Enterprise segments. And I guess on residential, I'm more curious, in the past, you guys have talked about educating service providers on kind of upgrade cycles. Like how much of an emphasis are you putting on that? And then my second question, maybe for Steve V. It looks like there's a 340 basis point drop on EBITDA margins from '22 versus your '23 guide. I'm more curious how much of that is from revenue in the business versus reinvestment for growth?

I will begin with the general situation in the residential sector and then discuss the Enterprise segment. Currently, residential markets in North America are not as strong as they were in 2021 and 2022. We are observing a slowdown in builder activities, and consumers are being more cautious with their spending. However, our Q4 results show no significant drop-off at all. Historically, we have noted that smart home and security businesses tend to remain stable even when the economic environment changes, as people often become more concerned about their safety and security. Additionally, with fewer moves, there's generally less customer attrition, which creates a nice balance. On the residential side, we are still working with service providers to enhance and expand the range of products available for homes. We are focusing on increasing video and thermostat attachment rates, adding value through various offerings. Recently, we launched a product called Water Dragon, which expands our ecosystem. On the enterprise side, the macro trends differ somewhat, as we are still in the early stages of shifting from on-premise video servers to cloud-based video services, and from traditional access control to cloud solutions. Our focus there is on assisting partners in marketing to commercial customers who are ready to upgrade, and capturing market share during this transition.

In terms of the impact, in terms of adjusted EBITDA '23 compared to '22, I would say it's about 300 basis points impact from accommodation of less Vivint revenue in '23 and additional legal spend, as we talked about regarding the Vivint matter. Those are really the main drivers of the deceleration, if you will, or the 300-plus basis point drop in adjusted EBITDA in '23, Darren.

It comes from the line of Brian Ruttenbur with Imperial Capital.

Yes. First of all, housekeeping. Interest income was up in the fourth quarter. Can you help us out for what you're looking for, for the first quarter and then for the full year of 2023?

Yes, Brian, it's Steve Valenzuela. So we have been investing very conservatively, of course. But luckily, we've been able to take advantage of our strong cash position and invest our money in 4% plus funds. And so that's the main reason for the increase. And depending upon what happens with the interest rate environment, we would expect interest income to continue to call out the debt in '23.

Okay. So modeling at this 4.7% or higher going forward, seems to like the logical move. And then you also mentioned other housekeeping apologies, but the tax rate on the year was how much you went over that very quickly.

So yes, so we obviously use a fixed tax rate of 21% for non-GAAP. The actual tax rate varies, of course, on a GAAP basis, given the puts and takes with what occurs with stock compensation expense. So it's 21% tax rate, the same as 2022 for non-GAAP.

Okay. And then one other macro question. Given that some of the competitors on the hardware side have reported, like Allegion, Verisure internationally as an operator, they're all calling for weakness on the residential side, but at the same time, they're talking about real deep strength in the commercial. Can you talk a little bit about how much of your business currently is commercial? And are you still seeing strong drivers on the commercial side?

Brian, it's Steve Valenzuela. So commercial continues to do really well. Commercial is now about 8% of our SaaS revenue and it grew over 25% year-over-year in the fourth quarter. And we have over 500,000 commercial accounts now.

So you're seeing continued growth at that 20-plus percent rate?

In the commercial side, yes. Yes, that's correct. We see growth rates there. And I don't think we're quite as bearish on the residential side, maybe as some others. Obviously, we have a more mature business there, but we still think we can find attractive health on the residential side.

And we're seeing growth in international too; international is now 4% of our revenue, and international total revenue was up 27% year-over-year. So I think international is really helping us out on the residential side as well.

And it comes from Jack Aarde with Maxim Group.

Yes. I have a couple of questions regarding housekeeping. Can you share what the former Connect or software license revenue was in the fourth quarter?

The number was $6.4 million, which I believe I mentioned on the call. Let me confirm that. Yes, in Q4 '22, Connect software revenue was $6.3 million. In the same quarter a year prior, Q4 '21, it was $7.4 million.

I appreciate that. Can you remind me which businesses contributed to approximately 30% of your fourth quarter SaaS revenue? It seems like increased commercial is part of that, which Steve mentioned was 8%. What else is included in that nearly 30% of SaaS revenue?

Sure. Yes, I can outline that in terms of what we include in sort of the faster growing initiatives. They are international, commercial, including small business, and the other segment businesses like EnergyHub. And then lastly would be the video business overall, excluding video to ADT actually.

Got it. It seems like the commercial sector is the primary contributor, but it’s encouraging to see healthy input from all growth drivers. Additionally, I wanted to discuss another point where Steve Valenzuela mentioned that the Other segment’s SaaS revenue reached $13.4 million for the quarter, which represents over 10% of the overall revenue for the first time. Where do you see this heading? Is this acceleration just a one-time occurrence, or do you believe it will persist? When do you anticipate reaching 20%? Any insights you can share would be appreciated.

Well, just to clarify, so it was 10% of total SaaS revenue in the fourth quarter, up 31% year-over-year. For the year, the Other segment SaaS was 8% of total SaaS. So typically, in the fourth quarter, we do get a benefit from energy out from the energy savings in the summer programs. So we'll probably see in the near future a range of between 8% to 10% for the Other segment. But over a period of time, we do expect to see continued growth from the Other segment as we see EnergyHub and PointCentral, Building 36 contribute going forward. But I don't think I would want to project when we would hit 20%. I think it's great to see for the first time to hit double digits. So that's a good achievement by the team.

There was some outperformance in the fourth quarter due to the renewed program powered by EnergyHub, which had a lot of participants. As a result, our performance exceeded our expectations.

Got it. And then just one more for me. It's good to see the connected property total. I think it's the first time we reported it since last year or so. I think that was like 700,000 new properties net since last year. Do you think going forward now, are we going to see a pickup in international contribute to that number? I guess what drove that 700,000 incremental homes or connected properties? And then are those drivers changing now going forward? It sounds like it's going to be more commercial and international loaded maybe, but just sharing your thoughts would be helpful.

Yes, I believe there will be some changes. To start, I previously mentioned that we expect a decrease from ADT in the second quarter, which will significantly impact our numbers. These accounts usually have the lowest average revenue per user. As a result, we’re likely to see an increased proportion of commercial and international accounts. Additionally, we have noted that the average revenue per user for commercial accounts is at least twice that of residential accounts, and we aim to increase it to about six times that level. Therefore, you might notice a slight decline in overall net subscriber growth year-over-year unless we incorporate other factors into that figure. However, we hope to see some compensating growth in average revenue per user as the business continues to shift and gain more influence from the commercial side.

And ladies and gentlemen, with that, I will close Q&A and conclude today's program. Thank you for your participation, and you may now disconnect. Good day.

Thank you.