Alarm.com Holdings, Inc.

Good day and thank you for standing by. Welcome to the Alarm.com first quarter 2022 earnings conference call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 1 on your telephone. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Matt Zartman, Vice President of Investor Relations. Please go ahead.

Thank you. Good afternoon, everyone, and welcome to Alarm.com's first quarter 2022 earnings conference call. I want to remind you that this call is being recorded. Joining us today from Alarm.com are Steve Trundle, President and 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, the impact of emerging market dynamics, trends, and anticipated market demand, and the impact of the COVID pandemic and challenging global supply chain dynamics, our business strategies, plans and objectives, and integration of recent acquisitions, 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 annual report on Form 10-K filed with the SEC on February 24, 2022, and in subsequent reports that we file with the SEC from time to time, including our quarterly report on Form 10-Q for the quarter ended March 31, 2022, that we intend to file with the SEC 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 call speak only as of today's date, and Alarm.com undertakes no obligation to update these statements to reflect subsequent events or circumstances except to the extent required by law. Also during this call, management's commentary will include non-GAAP financial measures and provide non-GAAP guidance. Management believes that the use of these non-GAAP financial measures provides an additional tool for investors to use in understanding the company's performance and trends, but notes that the presentation of non-GAAP financial information is not meant to be considered in isolation or as a substitute for the directly comparable financial measures prepared in accordance with GAAP. Reconciliations between GAAP and non-GAAP metrics for our reported results can be found in the financial statement tables of our earnings press release. which we have posted to our investor relations 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. 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 solid Q1 results to begin the year. Our SATs and license revenue in the first quarter was $123.2 million, up 14.8% over last year. Our adjusted EBITDA in the first quarter was $29.9 million. In the first quarter, demand remained steady for Alarm.com products and services, and we saw stronger sales than expected. But we also absorbed increased component and freight costs that pressured our hardware gross margins. As a result, we are currently phasing in a second price increase of the year on select products. We expect hardware margins to strengthen from Q1 levels as the year progresses, but not to reach our historical levels during 2022. On today's call, I want to update you on several new commercial product initiatives that are good examples of the ongoing collaboration between our OpenEye and Alarm.com R&D teams. I will also share some takeaways from my time at ISC West, the largest security industry trade show of the year, which was held in late March. Starting with our new commercial products, we recently introduced the Pro Series Commercial Stream Video Recorder, or SVR. It's designed for small and medium sized commercial installations with support for up to 16 cameras on a single recording device. The SDR is accessible from anywhere through an intelligent interface that includes a timeline view of all video feeds in the property. The timeline displays an overlay of activity detected by video analytics, security and access control systems, and other sensor-based events. This functionality streamlines forensic video searches and provides a unified interface for subscribers to monitor their property and view important activity. Importantly, the Pro Series SVR was developed via collaboration between the OpenEye and Alarm.com product teams. The effort has allowed us to introduce to mid-tier commercial customers a set of enterprise-grade video management capabilities that are typically available only to the large-scale customers that OpenEye serves. OpenEye also had a productive quarter. During IFC West, they demonstrated a new analytics solution that was recently introduced into their SaaS offering. OpenEye worked with Alarm.com's video analytics team to advance our AI architecture and deploy a new neural network that is optimized for the high-demand environments of OpenEye's enterprise commercial customers. This new video analytics engine can simultaneously analyze the large volumes of data generated by hundreds of cameras. It is also relatively open and supports retrofitting of existing third-party camera deployments into OpenEye's enterprise video ecosystem. One functional benefit of this new architecture is highly accurate activity detection that reduces false motion events that can be caused by background movement and other image noise. More precise detection of important activity will allow subscribers to create more actionable alerts and quickly find recorded video associated with an incident. Another benefit is the opportunity for customers to reduce video storage needs and related costs. Today, most enterprise commercial customers receive too many nuisance false alerts that waste valuable video recording space. OpenEye can now dynamically trigger alerts and camera recordings only when important activity, including the presence of a human or vehicle, is detected. During testing of this new capability, OpenEye saw a reduction in false positive alert reporting that led to a 20% to 40% improvement in video storage efficiency. When we acquired OpenEye in the fourth quarter of 2019, I discussed the opportunity we saw to leverage technology and domain expertise across alarm.com and OpenEye. Developing and deploying advanced video analytics capabilities in the OpenEye channel was a key part of this vision and an important step in our strategy to build a strong and durable recurring revenue business model at OpenEye. The OpenEye team is doing great work and has become a strong contributor to our business. Let me next turn to ISC West, where alarm.com recently had a great presence. We highlighted our residential security and video products, especially new partner-facing capabilities that drive operational efficiency and increase subscriber satisfaction. We also showcased our expanding set of commercial services. During the conference, we engaged with a broad cross-section of our service providers in direct meetings, training sessions, and hosted events. These activities always create a valuable opportunity to take the pulse of our channel and to hear direct market feedback. Our service provider partners continue to see a positive demand environment for professionally installed security services. Consumers increasingly view security systems as the platform for an intelligent, multi-device smart home. Alarm.com and our service providers are driving this trend and leading the industry, particularly in deploying video solutions. In 2021, our service provider partners attached video to nearly half of all new security and smart home accounts. Industry-wide, Parks Associates recently estimated that about 30% of residential security systems installed in 2021 included video. Overall, my sense was that our partners see a positive year developing. Most of their concerns were focused on supply-related issues, inflationary pressures, and labor constraints rather than market challenges, competitors, or product gaps. To conclude, I'm 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.