Alarm.com Holdings, Inc.

Ladies and gentlemen, thank you for standing by and welcome to the Alarm.com Q2 2020 earnings call. At this time, all participants are on a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you need to press star 1 on your telephone. If you require further assistance, please call 1-0. I would now like to do so through this conference call. Mr. David Trone, Vice President, Investor Relations, you may begin.

Thank you. Good afternoon, everyone, and welcome to Alarm.com's second quarter 2020 earnings conference call. As a reminder, this call is being recorded. Joining us today from Alarm.com are Steve Trundle, President and CEO, and Steve Valenzuela, CFO. Before we begin, a quick reminder to our listeners. Management's discussion during the call today will include forward-looking statements, which include... Projected financial performance for the third quarter and full year 2020, anticipated impact of the global economic uncertainty caused by the COVID-19 pandemic and emerging market dynamics and trends on our business and on anticipated market demand for our offerings. Our business strategies, plans and objectives for future operations, continued enhancements to our platform and offerings, opportunities for growth in our current 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, indicates, may, project, trend, will and other similar words are intended to identify such forward-looking statements. These statements are subject to risks and uncertainties including those contained in the risk factors section of our most recent annual report on Form 10-K filed with the Securities and Exchange Commission on February 26, 2020, and in subsequent reports that we filed with the Securities and Exchange Commission from time to time, including the updated risk factor section of our quarterly report on Form 10-Q 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 notice 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 are pleased to report solid second quarter results. Our SAS and license revenue in the second quarter was $95.7 million, up 16.2% over the same period last year. Our adjusted EBITDA in the second quarter was $29.2 million. I want to thank our service provider partners and the Alarm.com team for their continued strong performance as we navigate these challenging times. Our results were driven by decent momentum in new account installations in the U.S., which picked up nicely in the back half of the quarter after a slowdown caused by the COVID-19 shutdowns in March and April. Our service provider partners adjusted to the environment and successfully implemented new safety procedures that allowed them to return to conducting installations. We believe that their trusted reputations reassured consumers who seemed mostly comfortable with allowing our partners to operate inside their properties. On today's call, I'll focus on our OpenEye team's recent product and integration developments and then discuss initiatives to help our service providers continue to adapt to the evolving market conditions. I'll close by commenting on a recent announcement by ADT and by providing some additional details on the effect of COVID on the markets that we serve. Beginning with OpenEye. As you probably remember, we acquired the company last year to expand our commercial opportunity in the large enterprise and national accounts market. The cloud services component of the $4.4 billion video-based security market in the Americas region is forecasted to increase from 9% of the total market in 2018 to 15% of the market in 2022. OpenEye is a leader in this transformation with its innovative solutions. I should note that OpenEye has experienced more disruption from COVID then the North American residential component of our business. They tend to service schools, financial institutions, restaurant chains, and other large or multi-site customer locations. These sites have been less accessible for installations. In some cases, project budgets have also been paused while companies manage these uncertain conditions. We view this disruption as temporary. Meanwhile, we have been very focused on executing our internal goals for Alarm.com's integration of OpenEye and the R&D program we have for the platform. OpenEye recently launched OWS 24-7 Lite, a pure SaaS offering optimized to address mid-tier commercial customers. It supports up to 24 recording channels per system and provides access to streamlined versions of the OpenEye platform's robust enterprise feature set. We designed the OpenEye subscription service to provide a cost-effective and highly flexible option for businesses that want to get started with OpenEye technology without a sizable upfront capital investment. Since launching OWS 24-7 Lite, a growing number of Alarm.com's traditional service providers have included the offering in their toolbox and started to engage their mid-tier commercial customers. One recent example is Bargain Hunt. They have been an Alarm.com subscriber for several years with 90 locations. They were initially attracted to the capabilities Alarm.com offers for the efficient and secure management of multiple locations. After using our enterprise console, they expanded their deployment with our smarter access control service. Earlier this year, Bargain Hunt was introduced to OpenEye's full suite of video services and they will begin rolling it out to their retail locations this month. Next, I want to share how we're evolving our support for our service providers so that they can continue to optimize their operations in the current COVID environment. Every year, we typically take advantage of a number of in-person opportunities to engage with our service providers and to conduct extensive training on the services and capabilities we offer. Recently, our training program, the alarm.com Academy, launched an entirely new catalog of training programs and we significantly expanded our digital platform for online learning. We've seen a strong increase in session participation throughout the year, including during the second quarter. The new training is designed to help our service providers leverage the extensive tools and services we provide for remote system configuration, testing, troubleshooting, and repair. We initially developed these capabilities to help reduce operating costs for our service providers in normal times. The COVID-19 pandemic has given these differentiated capabilities significant new utility value. We also launched a new series of smart tip instructional videos, small group workshops, interactive troubleshooting scenarios, and live webinars to replace in-person sessions. All of these were added during the second quarter and have been helpful in making sure that our service providers are well versed on the latest services and capabilities that we offer. Next, I want to comment on the announcement ADT made two days ago regarding their partnership with Google. I am sure that our investors are wondering what this means for Alarm.com. ADT has indicated to me that it is day one for this initiative, and they are working to further develop a view of both the initial objectives and their longer-term plans. We believe that ADT continues to view Alarm.com as a strategic partner. Our software is the technology platform that powers the ADT command and control offering and provides the smart home services for a large and growing percentage of their residential and commercial customers. The launch of Command and Control in 2019 was a significant undertaking and has been a success by many measures. We expect to continue work with ADT to support and expand the deployment of this offering for the foreseeable future. As we have always done, we will continue to focus on our mission of delivering to our service providers and their end customers the most innovative, secure, and reliable platform available. We believe our focus on serving our partners and on technology innovation has served us well and we remain committed to our approach. Over the past quarter, we have continued to win awards for our innovation as well as grow our partner base despite the challenging environment. We have more than 9,000 service provider partners globally. Our large ecosystem of hardware partners enables a breadth of services and capabilities that span the DIY, full-service residential, multifamily, health, small business, and commercial smart property verticals. Often we see that one of the advantages that Alarm.com brings to our service provider partners is the ability to provide a single platform with a full spectrum of IoT application services that address all these market segments. Lastly, I want to update you on market conditions and our sense about the overall effects of the COVID pandemic on our business. As I mentioned on last quarter's call, the pandemic impacted new account sales and installations across all but our energy hub lines of business in March and April as shelter and place orders were implemented. The U.S. residential security market has improved considerably from this slowdown. Our commercial business, and especially our international business, are seeing more of an ongoing impact from COVID. Overall, momentum in new account installations continued to build through the second quarter, and our retention remained solid at pre-COVID levels. We're also seeing a couple of market dynamics that tend to favor sales of new security systems. During challenging economic environments, Consumers historically tend to worry more about asset protection and security and safety become more important. And now we are seeing an emerging suburbanization trend where a growing number of households are seeking to migrate away from dense, expensive, major metro areas to smaller cities and suburbs where single-family homes are more accessible. This appears to involve a high percentage of adults Under 30 Years of Age. As a younger cohort of adults increasingly purchase single-family homes, we see a strong fit for our professionally installed and serviced smart home solutions. I also want to remind you that the course of the pandemic will likely continue to influence economic conditions for the foreseeable future. The exact outcomes remain difficult to predict As such, we will remain cautious about projecting what future conditions may look like, and we will continue to focus primarily on what we've already seen or are currently seeing in our markets. In summary, I'm pleased with our second quarter results. We remain confident that we can continue to advance our strategy as we navigate this uncertain period. I want to thank our service provider partners, our ecosystem partners, and the Alarm.com team for their hard work and our investors for their trust in our business. And with that, let me turn things over to Steve Valenzuela. Steve?