Conference Transcript - ALRM 2026-03-04

David Trone, Head of Investor Relations

Thanks, everyone, for joining on the last day of the conference. It's been a great conference so far. We really appreciate all your participation and expect you to be extra lively today because this is your last chance. So we want to keep it interactive, want questions if possible. We've got no slides here, just a fireside chat format. Very happy to have Dan Kersner, who is the president of Platforms Business, right? At Alarm.com. Some of you may be familiar with Alarm.com. the story has become a little bit more diversified, I guess I would say, over the years with what you probably know as the core residential or what we think about when we think about alarm.com. But a lot of growth areas embedded that are becoming much larger in the company. So we're going to kind of explore a lot of the different areas in this discussion. But, Dan, we do have a diverse audience here, obviously, many of which may be entirely new to the alarm.com story. So for those less familiar, if you could just talk us through the elevator pitch on Alarm, core market, key value proposition, et cetera.

Speaker 5

Sure.

Daniel Kerzner, Analyst — Other

Great. Nice to see everybody. Thanks for joining. Yeah, so quickly, Alarm.com was founded in 2000, so we go back a ways. The kind of original insight was that you could take activity and data that was happening at a property. originally it was residential properties from security systems and make them useful for things beyond just core intrusion, right? So a lot of the things that you think of today as smart home or internet things, connected property, these were things that Alarm envisioned from the very beginning and had written a whole series of white papers that kind of envisioned the future before these terms existed. And so the company set about making that happening by being a very early adopter of cellular technology and getting a data path into homes so that you could start to animate these things and add value to people's lives. So, you know, flash forward to today, we provide the software backend for 10 million properties across the world. We're largely focused in North America, but also have presence all around the rest of the world and all the continents. We participate heavily in the residential markets, but also have commercial offerings as well that are growing nicely. And then some subsidiaries that do things in other related Internet of Things fields where we took our kind of core platform and understanding and then used it to kind of broaden out over time. And then the thing to understand is that we are kind of, you can almost think of this as a R&D co-op for our channel, right? So we have lots of different service providers who go out into the market and provide services under their own brands. And then they use our technology to enable them to bring those services to market. And then we aggregate the R&D investment across this very diverse channel. So we have 10,000 service providers that work with us, and then we provide a platform to all of them. So there's a really significant kind of economy of scale that drives a very robust R&D engine that wouldn't be otherwise possible.

David Trone, Head of Investor Relations

And maybe just talk about how that story manifests itself in the financial model. Just introduce us to the Alarm.com story primarily in the financial metrics and talk about your very predictable recurring business and the KPIs that you focus on internally.

Daniel Kerzner, Analyst — Other

Sure, sure. So we think of ourselves in the core as being a SaaS company, a software company. We just hit the milestone of having kind of a billion dollars of top line revenue, which is a fun number to reach. We are about 70% software SaaS-based revenue and about 30% hardware. And the way to think about that is that the hardware is really an enabler of the SaaS. right so we're not in the hardware game for the sake of being a hardware company we're good at it we do it in a specialized way that is enabling for our channel but it's all done with the pursuit of creating durable recurring revenue and in the security industry you end up having you know very long-lived accounts right so if you just think about your own personal use of your home security system or if you're a business you know these are accounts that can be on for 5 10 15 years And so we orient ourselves to have long-term durable relationships with our service providers. So our key metrics are, you know, top-line revenue focused on SaaS and hardware. We look very closely at our revenue retention metrics, right, so that we have very sustained and durable and predictable revenue. We're at around 95% revenue retention, right? We've had a focus on kind of being good stewards of capital and profitability going back a long time. So the company has been profitable since around 2008, right? Founded in 2000, went through a really relatively short period of investment, and then has been focused on being cash-generative for a long time, in part because of the natural economic efficiency of our business model, right? You think about it every day, there are thousands of salespeople, trucks, marketing campaigns that are going on, in effect, selling alarm.com services, but none of those folks are directly on our books. So we are a capital efficient entity focused on R&D and bringing great technology to market. We then take that profitability and we either reinvest it in organic growth or we use it to do kind of smart acquisitions. Because we have a view that entrepreneurship and innovation, you can do some of it internally, but you also wanna be able to tuck those things in and bring new talent into the company so that's been the focus for us so the the metric there is you know kind of cash flow in general profitability so we're about a 20 percent uh you know even a margin which is something that we've sort of marched up steadily over time and i want to double click on uh the business model that you just kind of alluded to there i think a lot of investors are kind of familiar with more of the solutions that we would get in a typical retailer We just had Arlo here yesterday as an example, right?

David Trone, Head of Investor Relations

But the Alarm.com business model is not through retail. I think Steve Trundle initially said he thought about that and then pivoted and went to a different market. So just double-click on the B to B to C go-to-market and the resulting business model, how that gets priced, et cetera.

Daniel Kerzner, Analyst — Other

Yeah, that's great. Definitely something to elaborate on. There is a good story. Steve, who's our founder and CEO, is a big guy. And imagine him in a blue shirt, like in a Best Buy. He was testing out retail, seeing if he could personally sell the boxes. So we concluded that that was not the dominant strategy for us. So early on, what happened was the company was doing both. We were selling directly to consumers, taking kitted solutions and selling directly to consumers. And then also working with traditional members of the security channel. In this case, at the time, residential security dealers. And what we found was that the volume was all coming from the channel side on a relative basis, but the mental energy associated with trying to explain to the channel that we were both going direct and selling to the channel was totally disproportionate. So we would sell 50 systems to the channel and you would sell one system direct and the channel would have thought like, you know, you were totally on the wrong side of the fence. So at some point the company said, you know what, we're going to embrace this and really focus on being the best in class provider of technology to the channel and become kind of the real expert in what it means to build a SaaS platform that is really channel oriented for something that involves physically being in people's homes and businesses, which is not quite the same thing as most other kind of SaaS companies that are out there or channel oriented companies, right? Because we are providing technologies that actually go on property and then we are servicing those properties with our service providers over the duration of the account. So you can think about a consumer who has, say, a 10-year relationship over the course of a period of time when they live in a home with a service provider. Service provider is collecting revenue for that consumer for the monitoring. We are also provisioning the mobile application, the web application, helping to keep that system online. So we're in lockstep with our service provider channel throughout the duration of that account. So that B2B2C model where you have good long-term economic alignment with your dealer channel is relatively unique. In fact, I'm not even sure I've seen another company that has exactly the model that we have. What it drives is a ton of loyalty and alignment between us and our channel, because our channel providers count on us to provide them great technology, but also realize that one way or another, we're going to be helping them to service their accounts over a very long period of time. So we end up with a very kind of synergistic relationship between us and our service providers, because they are highly incentivized to share market insights with us, to come to us with perspectives they have on things that they see that either we could do better or they could do better and are constantly working with us to kind of tune up the model. And so that's how we're able to innovate and also stay very much in touch with kind of where are the opportunity sets that might be adjacent to what we're currently doing today. So, yeah, the B2B2C thing is pretty unique to Alarm.com, but I think also very sticky.

David Trone, Head of Investor Relations

Yeah, and I always find it amazing when I've, you know, I've gone to conferences or visited you guys and demoed the solutions and seeing some of like the back end stuff that you guys do to help reduce churn or predict churn and potentially reduce, it's a very involved software to do.

Daniel Kerzner, Analyst — Other

Yeah, and it's great, Adam, it's worth setting a moment on that. So as you're thinking about our R&D investment, right, which is obviously the dominant expense that we have in the business, it's really kind of a barbell. So you have all of the consumer and business facing capabilities. So this would be the mobile app, the website, the video cameras, the video analytics, all this great stuff that we do to enable the service. There's the other side of the barbell, which is all of this dealer facing capability, which is a whole management interface, which is plugging into their ERP systems, which is giving them analytics around what they could do around efficacy, mobile applications for their technicians. And so in some ways, the piece that you don't see on the website is as sticky and as valuable as anything else. And so for example, if you look at our international business, where we found we succeeded the most is with mid and larger providers who look at our kind of full stack of services and say, wow, you can drive a lot of economic efficiency for me. You can help me take my business from being where I am today and do more and do it more efficiently because you've sort of figured this whole problem out. And that's not something that you sort of see if you're just focused on the feature function of the individual capabilities.

David Trone, Head of Investor Relations

Any questions so far for Dan? Anybody have alarm.com in their home? Yeah? Any feedback?

Daniel Kerzner, Analyst — Other

That's great. Thank you for your business. It's also possible you may have alarm.com and you don't know it, right? So just to give you some context, ADT North America is a very big alarm.com customer. We have many millions of homes on with them, but it's under the ADT brand on multiple different kind of instantiations of their offering. And then there are myriad local service providers across the country that go to market under their brand, but with Alarm.com under the cover. So statistically speaking, more of you have Alarm.com, you just don't know it.

David Trone, Head of Investor Relations

Yeah, once you see the layout of the app, you, yeah.

Speaker 5

What's the clearest differentiation between your competitors, yourself, and your competitors? I'm speaking specifically about Arlo, and then obviously Randall.

Daniel Kerzner, Analyst — Other

Sure. Yeah, I mean, from a business model standpoint, Arlo and Ring are really indirect competitors for us, which is probably the biggest sort of distinction to understand, right? So we sell to service providers and then our service provider partners compete in some way with Arlo and Ring. We don't compete with those folks directly. I would say that from an R&D perspective, we certainly are keenly aware of the offerings that are in the market and are trying to make sure that our service providers have access to technologies or solutions that are competitive or hopefully better than what you might get from an R&R ring. But the approach is slightly different because what we're trying to do is package up solutions that are going to allow the service provider to pull that solution in and offer it to you as an individual, complementing what they bring to the service in terms of monitoring or their own sales and marketing activities, right? And then it's that collection of services that then compete with an Arlo Ware ring. So it's really kind of a slightly different go-to-market. The second thing probably helped to understand is that our business is primarily what you call do it for me, right? So this is where you call someone up or get in contact with them, and they're going to come to your house and really fit out your house with a complete solution that's properly installed, a kind of pro-grade offering, if you will. We have a little bit of DIY that some of our service providers do, but mostly it's do it for me.

David Trone, Head of Investor Relations

Ring and Arlo are over here in kind of the DIY segment of the market, which has grown a lot over the last couple of years and is vibrant, but is sort of a different segment where we don't compete quite as directly. they're they're encroaching a little bit more so it's a the easy answer used to be and that was would explain to investors you know to buy ring you go into best buy right and have to you know do this yourself you know for alarm.com you're having a service provider do a professional install now uh you know arlo as an example has a partnership with adt they've got a partnership with Comcast. Google made a partnership with ADT as well, right? So some of those DIY solutions seem to be encroaching more in the dealer market. Arlo and Verisher, another example I was thinking about. What do you think is driving that trend? And as you kind of learn about some of these partnerships, are those opportunities for Alarm.com?

Daniel Kerzner, Analyst — Other

Why don't Alarm.com partner with Comcast, for example sure sure well i mean uh in some ways look it's an endorsement of our business model right i mean principally we look at that we say you know it's great like if you if you find yourself in a market where no one is trying to participate in your market then you must not have a very good market right what we find is that uh our market is is uh very healthy and consequently i'm like in every five-year basis there's some new wave of folks who try to get into our market and yet And I'm trying to be glib about it, but yet here we are 25 years later still doing it. So I would say that's the sort of dominant observation. But yeah, we're kind of in the mix all the time talking to various providers about what makes sense for them at any given time. And so we obviously have a very broad relationship with ADT. ADT will from time to time choose to do something internal or choose to work with Arlo, whoever it is, but we see that as kind of a natural kind of back and forth in the market. To give you a kind of contrasting example, we have a thriving partnership with ADT right now on the SMB and commercial side. We've made a whole series of investments to really grow a SMB and commercial offering over the last five or ten years, and so that part of the business is very active with them, and so there's also a kind of segmentation here that's useful to understand that the market is not one homogeneous thing. There are different segments that you can choose to participate in.

David Trone, Head of Investor Relations

And I want to go into those adjacencies, but any other questions on core residential before we do that?

Daniel Kerzner, Analyst — Other

Yeah, so the question, just in case you didn't hear, was for the connected home, kind of what are our kind of upsell and growth opportunities? So I think one of the things that's exciting for us right now is that the massive investment that the tech ecosystem collectively is making in AI, call it a trillion dollars of investment going into all of these amazing technologies, are collectively actually a big tailwind for the security industry, and I would say in particular for alarm.com. We have been making investments in AI for a long time. We acquired a video analytics company in 2017, and we're one of the first companies in the space to really bring out high-fidelity video analytics that we then democratized across our entire customer base. So here I'm talking about something happens in your driveway and we'll be able to tell you is it a dog, is it an animal, is it a person? Like what's going on? And to do that in a cost effective way. So we already saw that even in that sort of first instantiation of AI, that was a significant driver of increase in adoption of the offering and consequently better ARPU, right? So you can imagine going from conventional video to AI video is maybe $1 or $2 increase in ARPU and then significantly more than that for our dealers. If you look at what's happening in AI in total right now, there's so much more that we can do and that we're kind of actively bringing out to our channel and to our customers, right? So you have opportunities both to make the core AI offering much more high fidelity. You don't just tell me that there's a car in the driveway, but, for example, we released a feature called familiar vehicle. So now I can give you an alert if your spouse has come home from work, or I could not give you that alert because you don't need to know when your spouse is home from work, but you really like to know if there's some random car in your driveway. And so what you do is you're raising the signal-to-noise ratio because the AI is enabling you to do something that wouldn't otherwise be possible. And that familiar vehicle use case is an example of something that we were leading on but benefits from kind of the overall tech stack that's sort of evolving. So another trend or area that's building on this is a category called remote video monitoring, which if you're in the security space has been around for a long time. But the idea behind it is that instead of the intrusion system being the trigger to dispatch the police or to cause an alarm event, the video camera itself is now trigger right so it's video monitoring meaning if you were away on vacation something happens the there's someone from a central station who's going to take care of that for you if you think about that in a pre-ai world that's just very expensive you're literally going to have to have some person in a central station like watching the screen all the time there's a ton of false positives and that's going to be kind of non-economic so you end up saving that offering for a bank or some super you know high important facility and and you charge a lot of money for consequently it's narrowly deployed. Now flash forward to AI, I can use AI to filter out a ton of that noise and to now give you a high fidelity signal where I'm only going to alert the central station if something really interesting is going on. So now I can broaden out who's able to adopt that service quite significantly. So we actually see some of the fastest growth right now in terms of remote video monitoring happening in the residential part of our business, meaning we We have some of our partners who are making it part of their standard service plan or are using it as a very strong upsell lever or wedge. And this is in addition to the kind of natural adoption that's happening in So that's like a very intriguing trend because if I had told you five years ago that I was gonna see an acceleration in RVM happening even faster in residential versus commercial, like everyone would have said that you're crazy, right? But what you see is AI as a tailwind to lower prices and then consequently drive adoption. There was a big furor in the tech world about Jevin's paradox, this idea that as something gets cheaper, it actually drives more demand because you have it adopted so much more widely. I'm of the view that actually the security industry and Alarm.com in particular, because of the nature of our channel, because of our channel's ability to explain and deliver richer and more complicated services to customers is very well positioned to benefit from that trend. And we already see it starting to happen with RVM. We made an acquisition of a company called Check that was specialized in that space specifically so we'd be best positioned to get this technology into central stations around the world. Another example would be a really fun feature we developed called AI deterrence. So here, the use case would be someone comes into your driveway, they're about to break into your car, and the AI says, hey, you in the brown hoodie standing next to the Honda, get away from the car. This property is monitored by XYZ security. Or it could even choose to say something more colorful, which I wouldn't do in this context, right? And what's crazy about it is the first instantiation of this is just doing scene understanding, but now imagine that you've got two homes, one in Mississippi and one in Boston. I think we can agree that the inflection of how the folks talk in those two different regions is quite different, right? But the voice coming over the camera is going to sound like it's from Mississippi or is going to sound like it's from Boston, right? And so the deterrent effect on that can be pretty significant. And while the AI is providing that deterrent, you're buying time to then also relay that to the central station. So now we have this stack up, right? We have the opportunity to upsell video analytics. Then we have the opportunity to upsell remote video monitoring. Then we have the opportunity to upsell AI deterrence, right, and on and on. So there's all sorts of interesting things happening, I think, in the property space, particularly around video, but even around kind of sensing generally that I think are going to open up new opportunities for us. So in some ways, I think if you had talked about this a couple of years ago, the focus might have been more on, you know, kind of smart home, like how many widgets am I going to have and how many connected things am I going to have? I think those things are interesting. We've certainly add a lot of value in that space and invested cycles there. But I think there's some sort of asymptote on incremental value you have from connected widgets in your home. But I think when you talk about really having active insight that can then allow you to live your life both more productively and more safely, which was always alarm.com's kind of founding idea, then you get to a pretty great unlock.

David Trone, Head of Investor Relations

Another question.

Speaker 7

In terms of your client base, I know it's with Bregman and industry, so is private equity that gets involved and consolidates as you end up carrying the service to the larger, let's say, national private equity or do they end up trying to do something else?

Daniel Kerzner, Analyst — Other

Yeah, it varies. I would say for the most part, consolidation tends to kind of accrue favorably for us, certainly at least in the commercial space. That's what we've seen quite clearly because as the consolidation happens, we have very positive relationship with our service providers. And in particular, our platform is open, so we support many of the controls that are kind of out there in the world. And in those roll-up models, you inevitably end up getting a kind of heterogeneous customer base. And so there aren't many places to go if you want to have a kind of robust way to manage a heterogeneous set of deployed solutions, right? And so for the most part, I think we see that when those things happen, they actually end up being standardization opportunities that kind of accrue in our favor. Now, in the biggest cases, there are from time to time cases where you'll see someone who decides that they want to spend $100 million and build something for themselves, but those are the minority. The industry is fueled by a pretty healthy cycle of kind of consolidation and rebirth where a company rolls up a bunch of entities and then people leave that company and start a new company. That generally plays pretty well for us.

Speaker 6

Exactly. Right.

Daniel Kerzner, Analyst — Other

Yeah, I think, I mean, 10 years is a long time in the tech world. But I think the direction of travel is that we want margins, our margin profile to stay steady and then tick up some amount over time. But not at the expense of kind of overall growth or opportunity. I think our general disposition is at least sitting here today, we see many very productive places to invest. We're very focused on having a kind of positive return on invested capital, but we don't also lack for opportunities to do that. So the guiding principle that we've had is to slowly move up margin, but also focus on doing it in a way where we give ourselves the cash flow necessary to do acquisitions, feed it back in, and do kind of organic and inorganic growth. Tactically, in the next couple of years, what I would just share with you is we're trying to, for the moment target more you know call it like 2027 exit margin and we can cover more of this in the breakout because we we see some you know puts and takes happening in the margin profile as we do acquisitions but then also gain efficiency in between that period of time and then we'll we'll see I think you know you know 10 years from now could I see us bumping up the profile more I think it's possible one of the things that we're looking for is is you know where do we see true kind of of further economies of scale that would drive those type of economics. Maybe since we just have three minutes left, I'll at least mention to you. We've talked a lot about alarm.com through the lens of our kind of traditional dealer driven B2B2C model. It's worth understanding one of the businesses we acquired over time is a company called Energy Hub, which shows demand response, which is when you turn the thermostat down on the hottest day of the summer and in effect return power to the grid. Energy Hub is the largest aggregator of residential demand response capability in the country. And we just did an acquisition that made them even bigger. So to give you a sense of scale, separate from the 10 million properties I told you about that Alarm.com manages, Energy Hub manages another 2.5 million properties specifically where they have connected thermostats. And now they're moving into managing cars and batteries and water heaters and things like that. So they collectively have over kind of three gigawatts of capacity that they can contribute to the grid when there is a need for a demand response event. And so I know it's a little a field of like everything I just talked about with the security industry. But you have to understand, 10 years ago when we were first looking at that business, we said the bones of this business from an R&D perspective look exactly like everything that we're good at and that we know. And we see an adjacency to do more with these devices, particularly thermostats, that we're already putting in in our properties. So we saw Energy Hub as a way to both get more economic value for our dealers and for our properties in the nutritional alarm business, but then to also work with all of our competitors or even just other market participants. So what we set up Energy Hub to do was to provide demand response services back to the alarm.com base, which they do, But then they also work with Ecobee and Honeywell and all the other major connected thermostat providers and have ended up being really the national leader in residential demand response. So it actually makes a lot of sense when you think of it from an IoT platform perspective, but is a little bit more distinct when you think of it from kind of a line of business perspective. And then what's happened is as energy has become such a hot topic given everything that's going on with AI, Energy Hub is really one of the kind of key resources that utilities have to bring a new source of variable energy to the grid at a time when picks and shovels are just sort of so hard to come by. So I just wanted to mention that because it is part of an overall diversification theme with Alarm.com that I think is important to understand. So in the one minute I've left, I'll just share with you. Think of it as you've got kind of core residential, and then we went and added international and commercial, and those are now kind of thriving businesses. And then we went and added energy hub and demand response, and that is now a thriving business. So the overall picture that I leave you with of Alarm.com is that despite our name, which is very specific, we are actually more a generalized kind of IoT platform for connected devices in all manner of applications, with a very long track record of kind of diligent allocation of capital focused on, you know, providing durable value, which we see a lot of runway to do in the future.

David Trone, Head of Investor Relations

And a lot of asset value at this valuation when we start thinking about those different components and how fast they're growing, how much they're scaling. So it's an exciting story. We really appreciate your time, Dan. Thank you.

Daniel Kerzner, Analyst — Other

Yeah. Thanks, Adam. Thank you, everybody.