Alarm.com Holdings, Inc.

Good day, and thank you for standing by. Welcome to the Alarm.com Q4 2023 earnings conference call. At this time, all participants are in 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 will need to press star 11 on your telephone. You will then hear an automated message advising that your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker, Matt Zartman, Vice President of Investor Relations. Please go ahead.

Good afternoon, everyone, and welcome to Alarm.com's fourth quarter and full year 2023 earnings conference call. Please note that this call is being recorded. Joining us today from Alarm.com are Steve Trundle, our CEO, and Steve Valenzuela, our CFO. During today's call, we will be making forward-looking statements, which are predictions, projections, estimates, or other statements about future events. These statements are based on current expectations and assumptions that are subject to risks and uncertainties that may cause actual results to differ materially from our current expectations. We refer you to the risk factors discussed in our annual report on Form 10-K and our Form 8-K both of which will be filed shortly after this call with the SEC along with the associated press release. The call is subject to these risk factors and we encourage you to review them. Alarm.com assumes no obligation to update forward-looking statements or information which speak as of their respective dates. In addition, several non-GAAP financial measures will be discussed on the call. A reconciliation of the GAAP to the non-GAAP measures can be found in today's press release on our investor relations website. I'll now turn the call over to Steve Trundle. Steve?

Thank you, Matt. Good afternoon and welcome to everyone. We are pleased to report fourth quarter and four-year results that exceeded our expectations. Our SAS and license revenue in the fourth quarter was $148.3 million, up 10.3% over the last year. Our adjusted EBITDA for the quarter was $45.6 million. Despite some uncertainty throughout the year, we delivered solid, fast revenue growth by sharpening our focus on key initiatives. We also delivered record adjusted EBITDA and cash flow performance. I want to thank our service provider partners and our employees for their contributions to our 2023 performance. I'll focus my prepared remarks today on our long-term strategy. We believe that we have the right opportunities in our sights and the right plans to attack them. Our R&D program is positioned to leverage the growing universe of IoT data and to continue building innovative AI-based offerings that will empower our service provider partners and deliver unique value to end customers. We have transitioned from a focus on one primary market where we have been very successful, mainly the North American residential monitored security market, to a more diversified business serving a larger overall TAM. We've expanded into the video market, both commercial and residential, and the commercial access control and intrusion market. We developed an international business and cultivated new IoT-enabled growth businesses like Energy Hub. These growth initiatives collectively represented 31% of our total SAS revenue in 2023 and together grew 27% year over year. Let me kick through these various elements of our strategy. I'll start with the commercial market. We're attacking the market opportunity with a purpose-designed solution that deeply integrates access control, intrusion, and video monitoring into a single cohesive platform that the largest commercial integrators can leverage to solve their clients' multi-site requirements. We've made good progress in our R&D pipeline here. During 2023, we launched third-party camera support to enable our video solutions to operate with existing camera installations and originate additional SAS revenue. We also launched a new access control product called Cell Connector. It leverages our work with LTE cellular networks to connect the access door controller directly to the alarm.com platform rather than depending on an end customer's internal networks. OpenEye, our cloud-based video solution for large-scale commercial customers, launched new solutions during the year through its open ecosystem architecture. For example, Sales Connect is a new point-of-sale solution that integrates transaction data from the leading suppliers of point-of-sale systems. OpenEye triggers real-time alerts for point-of-sale exceptions, such as voids, refunds, and overrides, and retrieves the corresponding video of the transaction. OpenEye also integrated environmental sensors to launch a new solution that detects smoke from cigarettes and vapes, monitors temperature, humidity, and air quality, and detects sound anomalies. Both solutions are sold as an additional SAS module and significantly strengthen OpenEye's position in the retail, grocery, and quick serve restaurant verticals, as well as secondary schools. Shifting to our video business, we're deploying increasingly capable video analytics solutions. Importantly, we leverage our R&D investment in video and video analytics across our residential, commercial, and international businesses. Our goal is to take advantage of a significant shift in video-based monitoring technology that is underway. Traditional video systems operate only on premise and use legacy technology. These systems are being replaced, particularly in business properties. Our video solutions employ intelligent AI processors at the edge, coupled with flexible cloud-based software and storage, and additional layers of more refined cloud-resident video analytics capabilities. The market is competitive, but we believe we are in a strong position to capture share as the shift away from traditional systems continues to unfold. One area where you will see us extending our video capabilities further in 2024, is in the realm of proactive deterrence. In 2023, we launched a capability called Perimeter Guard. Perimeter Guard can already identify a person during times when the potential for trouble is greatest or when the subscriber is away, and then trigger a series of responses. Video cameras enabled with Perimeter Guard can emit audible warnings and strobe light responses. An escalated video event can also be sent directly to the monitoring station through our alarm response software. This enables monitoring station operators to view video feeds and talk down through the camera's onboard mic or via an external microphone so they can try to defuse a potential threat before escalating a step further by initiating a police response. Shifting to our international business, We are driving growth by supporting our international partners to fully operationalize alarm.com and deploy our solutions in the diverse range of commercial and residential markets they address worldwide. Last year's acquisition of EBS, a European-based business that designs and manufactures universal communicators, will significantly expand our support for our international partners. Universal communicators can work with a wide range of legacy control panels. Service providers can cost-effectively upgrade existing customers to alarm.com. EBS has been in business for 30 years, and its products support control panels that have been widely deployed in international markets. The final element of our growth strategy is the continued development of our growth venture businesses. These SAS-based businesses consist of Energy Hub, Building 36, Point Central, and Shooter Detection Systems. Each is developing innovative IoT-enabled applications that can further expand our TAM. As you know, these businesses are at various stages of development, with Energy Hub being the most mature. We expect these growth businesses to continue to increasingly contribute to our overall performance next year and become more efficient with scale. Next, I want to comment briefly on our EBITDA margin strategy. EBITDA is a choice that we make in our strategic planning cycles. One can choose between investing in the future health of the business or harvesting profits to produce cash today. I believe that producing meaningful, positive EBITDA while also making reasonable long-term investments inspires good operational discipline and allows the company to selectively evaluate both organic and inorganic opportunities. Our commitment to ongoing R&D investment into future opportunities is a cornerstone of our synergistic relationship with our 11,000-plus service provider partners who handle the bulk of the sales and marketing activities on our behalf. I have previously indicated that we have a long-term target range of adjusted EBITDA margin of 18%, assuming a similar mix of SaaS and hardware revenues and a similar go-to-market approach as we have today. Our target range remains unchanged, and as Steve Valenzuela will discuss shortly, our four-year adjusted EBITDA guidance for 2024 implies an adjusted EBITDA margin of 17.5%. Lastly, before I hand things over to Steve Valenzuela, I also want to briefly discuss the settlement of the VIVINT matter. In December, we announced that we entered into a long-term intellectual property license agreement under which Alarm.com will license to Viva our intellectual property portfolio. The revenues associated with the new license agreement are reflected in our guidance for 2024. We simultaneously settled all outstanding litigation matters between the companies. We are not able to share the details of this confidential settlement, and it will therefore be hard for us to answer detailed questions on this particular matter. But I can say that I believe that the outcome is a good one for alarm.com and its investors. To conclude, I'm pleased with our performance in 2023, and I'm excited about the year ahead in 2024. And with that, let me turn things over to Steve Valenzuela. Steve?