Ladies and gentlemen, thank you for standing by, and welcome to the Alarm.com Third Quarter 2020 Earnings Conference Call. At this time, all participant lines are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Mr. David Trone, Vice President, Investor Relations. Please go ahead, sir.

Thank you. Good afternoon, everyone, and welcome to Alarm.com's third 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 fourth quarter 2020 and full year 2020 as well as early thoughts on 2021; emerging market dynamics and trends on our business and on anticipated market demand for our offerings; possible impact of the global economic uncertainty caused by the COVID-19 pandemic; our business strategies, plans and objectives for future operations including expectations regarding our future relationship with ADT; 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, forecast, 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 the risks that any anticipated developments in respect of ADT may not occur or may unfold differently than we anticipate, and those contained in the Risk Factors section of our most recent Annual Report on Form 10-Q (sic) [Form 10-K] (00:02:28) filed with the Securities and Exchange Commission on February 26, 2020 and in subsequent reports that we file with the Securities and Exchange Commission from time-to-time including the updated Risk Factors 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…

Thank you, David. Good afternoon, and welcome to everyone. We are very pleased to report strong third quarter results. Our SaaS and license revenue in the third quarter was $100.1 million, up 17.9% over the same period last year. Our adjusted EBITDA in the third quarter was $34.5 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. During the third quarter, we've seen ongoing strength in the professionally serviced smart home market in the US and Canada. The commercial market, while not fully recovered to pre-COVID levels, also began showing some positive momentum in the third quarter. The strength of the recovery and the overall performance of our service provider partners, particularly in the residential segment, exceeded our expectations and drove the strong results. On today's call, I will highlight the new products we've recently launched and review the progress we've made against our growth initiatives and their contributions to our overall business. I'll begin with our product initiatives. We recently launched an innovative new device called Flex I/O. Flex I/O is a security sensor that does not require a connection to a control panel or a hub or a Wi-Fi network. It can stand on its own or be fully integrated into an existing multi-sensor control panel environment. The sensor is integrated with an LTE CAT-M cellular communication capability and is battery powered so it can be deployed anywhere it may be needed. We designed Flex I/O for outdoor applications where we can extend security and awareness to any location on a property or even to other very distant properties. Flex I/O addresses an entire set of new security use cases where existing sensors and devices that are directly connected to the control panel…

Thanks, Steve. I'll start with a review of our third quarter 2020 financial results and then provide guidance for the fourth quarter as well as our raised outlook for the full year of 2020. I'll conclude with our initial thoughts on 2021 before opening the call for questions. SaaS and license revenue in the third quarter grew 17.9% from the same quarter last year to $100.1 million. This includes Connect software license revenue of approximately $9.5 million for the third quarter, down as expected from $10.8 million in the year ago quarter. Our SaaS and license revenue visibility remains high with a revenue renewal rate of 94% in the third quarter, at the high end of our historical range of 92% to 94%, and consistent with levels prior to the COVID pandemic. This high retention rate contributes to our favorable SaaS metrics with a very positive LTV to CAC ratio of approximately 3.9 due to our long lifetime customer value. Hardware and other revenue in the third quarter was $58.7 million, up 36.7% over Q3 2019. We continue to see strong sales of our video cameras, which primarily accounted for a large increase in hardware sales. Total revenue of $158.9 million for the third quarter grew 24.2% from Q3 2019. SaaS and license gross margin for the third quarter was 85.7%, up approximately 30 basis points from the same quarter last year. Hardware gross margin was 20.2% for the third quarter compared to 18.3% for the same quarter last year primarily due to product mix. Total gross margin was 61.5% for the third quarter compared to 62.8% for the same quarter last year, mainly due to higher hardware revenue. Turning to operating expenses. R&D expenses in the third quarter were $36.9 million compared to $29.5 million in the third quarter…

Thank you. Our first question comes from Adam Tindle of Raymond James. Your line is now open. Adam Tindle - Raymond James & Associates, Inc.: Okay. Thanks. Good afternoon. Steve, I first want to acknowledge the strong results. I'm afraid the focus is largely going to be on ADT. So, I wanted to ask a couple around that. I think you – thanks commentary there. It was helpful. You said you anticipate Alarm.com will provide service to all existing customers on both platforms for the full service life of the subscriber. What is the full service life of the subscriber, what are you expecting? I know they're going after this with a lot of marketing dollars, but may not make sense to truck roll. So, I'm just trying to (00:25:34) trying to understand that case cadence of the runoff and the service life of the subscriber.

Sure, Adam. Yeah. We're – so, when we say service life, normally you activate a subscriber and I think what we see if that's on the Alarm.com platform or on the Command and Control platform as that subscriber typically will have lower attrition than a normal industry subscriber. But that attrition rate can be anywhere from 10% to 15% depending on a number of factors. And what we would expect therefore is when a customer is activated that if you had a 1,000 customers, 15% – or 12% or so would probably attrit in the first couple of years and then you get to sort of a 10% to 15% steady rate. So, average customer life tends to be around eight years, eight, nine years, something like that, is what I would think of as normal and – as a normal customer life. It depends on how well the service provider is doing. And I think in this case, the exciting thing as we started the quarter with a lot of uncertainty ahead a contract that was terminating in the middle part of next year and solved for that, extended that contract. So, we know what's occurring in 2021, we know what's occurring in 2022, and there'll be subscribers coming on and then they'll run for their full life. Adam Tindle - Raymond James & Associates, Inc.: Okay. That's helpful. I think you also mentioned that after it ends, you'll still support via a royalty or IP license agreement. Is there a way for us to maybe think about as that occurs – that transition occurs, just kind of a change in economics, generally speaking?

Well, it's obviously less. And I can't really go into the exact – unfortunately, I can't really communicate exactly the terms of our agreement there. But I think what I will say is it's a reasonable recurring royalty agreement and it includes a lot of incentives for different types of performance by our customer in different areas. So, it has some variability in it depending on how those incentives are going and – but I can't really give you the dollar number there, no. Adam Tindle - Raymond James & Associates, Inc.: Okay, then maybe I'll try one last one then – instead. Each company there is I think investing like an additional $150 million on top of the $450 million. It's a pretty expensive pursuit relative to your enterprise value given you're already scaled, you have over 9,000 dealers. I'm just, bigger picture, trying to understand how you think about chess moves and strategic alternatives, the optionality this creates, maybe the pros and cons to your partnering with a bigger entity, just kind of bigger picture strategic chess moves.

Yeah. So, I think the first was the decision to make – to support a certain set of Google products with ADT in their Command and Control offering, and we chose to do that. I think that enables our customer to market that set of products to new customers for the next couple of years as well as upgrade existing customers as that may make sense. So, that's how we sort of looked at that. And in terms of longer term, I guess what I would say is we have a dynamic where if a customer that's roughly 15% of our revenue, that's probably slightly trending down, already was, primarily because of the growth that we have and some of the initiatives I talked about during our – during my prepared remarks. We've got a set of things that now represent 22%, 23% of our revenue and we're growing 40%. So, we already had a little bit of a natural decline in that number. We I think got a nice healthy runway here and we'll continue to look at areas where we can focus that that we think will create durable long-term and diversified revenue stream. So, that's probably how I look at it. At the same time, I'm sort of relieved and happy that we have a clear plan here and clear runway for more than a couple of years. Adam Tindle - Raymond James & Associates, Inc.: Understood. Thanks, and congrats again on the results.

Thank you.

Thank you. And our next question comes from Nikolay Beliov of Bank of America. Your line is now open.

Hi. Thanks for taking my questions. Steve, last quarter you spoke about COVID potentially being a durable positive secular shift to the business on the residential side. Do you have any more data points over the last three months to confirm or maybe disprove that?

Yeah. Good question, Nikolay. I think we have been surprised and we're not – I can't 100% say it's all COVID induced, but almost from top to bottom, we've been surprised by the performance of our service providers over the last three or four months. And I think that what we're hearing from our service providers are that customers are home, they're ready to take meetings, they want to invest in their home because they're not traveling. So, they have a bit more discretionary income and some of them were adding second homes for which they need monitoring and that sort of thing and automation obviously (00:31:41) all the things we do so. So, it appears – it's just appeared much stronger than what we expected. That's great. Commercial has not quite been as strong as I indicated, but has now gotten closer to sort of the pre-COVID levels. And the real question is, is this a long-term trend? Is suburbanization sort of an ongoing thing or are we looking at some short-term benefits here? I think that the nature of our business is one where you add a customer and you essentially hope to keep that customer for life and it may be life across several properties, but you really do hope that you can add enough value and convenience to their lifestyle that they remain with you or with your service provider for a long period of time. So, I think we're probably seeing something that will have some long-term benefits to our business and our service providers because we're grabbing more ground right now. It may be induced by COVID, it may be something else going on, but we're grabbing more turf and more subscribers than what we anticipated at the beginning of the (00:32:48) year. And I think that will give us kind of perpetual optionality to bring in additional products like the Flex I/O or like the Smart Water Valve + Meter and hopefully create an expectation for convenience in the eyes of the subscriber that will last forever. So, I think it's positive.

I personally find the Flex I/O product quite interesting, and in my opinion, probably one of your most important innovations over the last few years. Is it in the marketplace? What has been customer reception so far from the beta proof of concept, what use case is do you think customers will gravitate towards and what's the price uplift from a customer deploying Flex I/O?

Yeah. So, it is just going into the market really this – as we speak right now, this month, and it has been in beta for a long time. We're using new cellular technology there. So, we wanted to make sure that the reliability and – we're in in life safety at times (00:33:56), so we want to make sure that we have industrial grade sort of life safety caliber reliability with that connectivity. It's battery powered, so you have a lot of testing of power management in different types of climate environments. So, we've been testing it for a long time with a set of marquee service providers. And the feedback is variable, but I will say – not variable in a bad way, I mean, we have some folks that really think it's a game changer and are excited to use it for just a whole myriad of purposes. I think particularly if you're in an area where it's sort of a more spread out suburb where people are living on 3, 4, 5 acre types of lots and they have detached garages and they may have some equipment , some capital equipment that they use to maintain the property. They may have, I mean, even weird things. We've heard of people installing this thing on their chicken coop, for example, to make sure they didn't leave the door open on that. So, pretty much anything you may have as a hobby, Flex I/O now allows us to add some value to, it allows us to monitor. If you have a second home, a cabin, a barn, a gate – gate has been a very heavy use case and people that have a gate either coming into their home or coming into their second property or into a…

Got it. Thanks so much.

And you may add like 5 or 6 of them, it really depends on the use cases. So.

Got it. Thank you.

Thank you. And the next question comes from Jeff Kessler of Imperial Capital. Your line is now open.

Yeah. So, I have couple of questions about the growth of your other business. It seems that for quite a period of time it was in the 8% to 10% area of revenue and now all of a sudden it is quite a bit higher. Can you talk a little bit about what areas are really – are really driving – are driving this? I know that you've been – you've probably been strong in South America. You've probably been strong – these new data points you're giving us in EnergyHub. I know it's a very wide range of areas that we're talking about. But if you could just give us some color around why this has become such a bigger part of the company in a fairly short period of time?

Yeah. Jeff, it's a good question and a data point I was excited to toss out (00:38:32) there this quarter when we did the analysis. What we were looking at – last quarter, someone asked us how do we measure sort of return on investment around some of the R&D investments we're making. So, we looked at the domains where we're really kicking in and kicking into gear with a lot of R&D and those domains were commercial, international, video and our subsidiary businesses. And we put the revenue coming from those categories and as the numerator and denominator is all SaaS and license revenue, all. We excluded anything from ADT in the numerator, but we left everything from ADT in the denominator and we looked at how much is that. And as I said, it's around 23% right now. And the growth in those categories year-over-year is around 40%. So, it's a pretty quickly growing part of the business. Each one has different drivers, and we can go through them one by one, but I'd cover them at different points and different conference calls. I think EnergyHub is reaching a new level of maturity, expanding the platform to shift from sort of a solely a demand response platform, but being to – being more of a software platform that allows the utility to manage all of the edge resources including batteries, and therefore, getting to sort of a larger and more important position with their customers. Commercial, it's really a game where we're bringing the same ease and convenience that our platform affords to our service providers and, in some cases, teaching them how to go after the commercial and access control market. In other cases, they're already very well studied there and we're sort of just getting some additional wallet share. International is a slog, but it's a slog where we're doing well and we've been continuing to make investments and getting to sort of a point where it's more mature now. And instead of people running pilots and tests, salespeople went out there (00:40:34) every day and selling Alarm.com in 40 different countries. So, a lot of these things are reaching a maturity that makes them more relevant and that maturity is sort of confirmatory of the investments we've been making for the last two or three years and showing nice return.

All right. Second question is, you know my long-term interest in the problem and the potential fix is for false alarms verification. You decide something that you were doing obviously with Rapid Response. There aren't that many really great independent monitoring companies that are out there. But Rapid Response obviously is one of them. Is this the type of business that you can – if you demonstrate it at some place like Rapid Response and it works, you can get out in front of other providers as well? I mean, clearly (00:41:45) been talking about the stuff it's been doing with (00:41:49) now for a while. And I'm just wondering what you are – not just what was your relationship there is, but also what are you doing with the universe of potential users to start cutting down on false alarms and fines and increasing (00:42:08) decreasing response times?

Right. No, great question. So, yeah, you're correct about Rapid Response. I think the industry does watch that central monitoring station, and you and I probably both know Russ. They're very high quality operators. And I was up there a few months ago and looking at all the different things they were doing. And in those conversations, we talked about Smart Signal and what its impact had been on, what we call, the false dispatch rate. False dispatch is obviously better – bad for everyone, bad for first responders, bad for the subscriber. It means that you had an alarm that was false and we dispatched on it or we and our partner did. So, we looked at the impact there of our work together on Smart Signal and obviously on their side there's education of the service provider and there's a lot of technology they bring to bear to make all this work with us. And the impact was very, very meaningful. If you're cutting down false dispatches by 25% with a capability like that that we've embedded in the consumer's mobile app, huge savings downstream, huge savings. So, we were excited about that. We're continuing to do a lot more in this domain, every – across all elements of the offering, everything from AI in terms of the way we interpret different events coming in to much more sophisticated video analytics to more user control. And I think that working with our partners, I think everyone will – it's in the entire industry's interest and will continue to be in our interest to make sure the consumer has a great convenient experience and that we reduce all of the downstream costs we're generating. And so, I think you'll see people follow here.

Is your dream team of objects, video guys involved in this?

They are definitely involved in the initiative, yes.

Yeah. Okay. Okay. Thank you very much.

Thank you. And our next question comes from David Robinson of William Blair. Your line is now open. David Robinson - William Blair & Co. LLC: Hey, guys, just a quick question on Flex I/O product. So, I realize this is kind of really days and has just been released. But I guess I was kind of wondering how long does it take for the service providers to kind of get ramped up on the product and then take it from there to kind of selling into the residential customers? And then, in terms of I guess growth rates and expectations, I was just curious what you're thinking, how you're pitching this (00:44:53) product kind of progressing relative to the success you've seen in video analytics category?

Okay. Yeah, good question. So, on the uptake, meaning that the complexity that service provider has to deal with, it's actually in this case very modest. We've eliminated the need for a power supply, if you don't have a power supply. It's cellular. It's sort of a put the battery and connect it and let it register and it works. So, for its most simple use case – simple use case is in terms of installability would be things that look and feel like what we've traditionally called a contact sensor where you have a sensor that's monitoring a door that opens or you have a tether sensor where you have a loop looks like a bicycle chain almost and you loop something into that bicycle chain and when the chain opens, you know that you had activity there. So, those are really pretty simple installs. And any of our service providers that are already familiar with the overall backend system of Alarm.com can add that very quickly. And then, probably the heavy lift will be getting their sales teams to be aware of the types of solutions they now can render to the market. Technical impedance, very little. There's always a certain amount of educational impedance and education of sales teams particularly since these are third-party sales teams on how to find those use cases, how to present them to the subscriber. So, I think putting that together, it will look something – maybe not quite as quick as analytics, analytics is going very well. But I think we'll see kind of a similar dynamic where first six, nine months, we're seeing steady progress in terms of adoption, but we're not seeing it be sort of dollar moving (00:46:44) moving progress in our P&L. And then, once you get a year and a half or so out, you've got enough people trained, enough education, enough experience selling and installing that it becomes a part of the daily arsenal of 9,000 service providers and then it kicks in and begins to really contribute. David Robinson - William Blair & Co. LLC: Awesome. Thanks for that.

Sure.

Thank you. And our next question comes from Darren Aftahi of ROTH Capital Partners (00:47:14). Your line is now open.

Hi, guys. Thanks for taking my questions, and congrats on the quarter. Hope you're well. Curious to – first, the percentage of subs, new subs in the quarter, what percentage of those were from existing subs? Meaning, Steve, you talked a little about people buying second home, I'm just kind of curious on that. And then, can you give what the other revenue was in the quarter, please? Thanks.

So, I will unfortunately have to acknowledge that I don't actually know the percentage of our – it's a great question. The percentage of our new subs, who are taking the offering for second homes, the other heavy situation there is your commercial enterprise and you have 80 different stores and you start with five in the 80 (00:48:01). I bet that's a pretty good number, but I don't know it and it's one we should check. And it's hard for us to totally know because our service providers are in charge of the subscriber. But oftentimes, if you have multiple properties or multiple stores, your tying those two user expenses together in the mobile app and (00:48:20) we could check that growth rate (00:48:23). I just don't have it on the top of my stack. I'm going to let Steve answer the second question, though.

Yeah. Darren, so the other segment revenue was $7.3 million in Q3 and it was up 46% year-over-year. That includes EnergyHub, PointCentral, Building36 where we announced the Smart Water Valve + Meter that we came out with this quarter. Of course, it's not in the sales numbers yet, but it's just been released.

So, if I could just sneak one more in. So, as we think about your – I think you said $435 million for 2021 SaaS revenue. Like, how should we think about that other segment in terms of the growth profile maybe relative to the overall business? Thank you.

The other segment has been growing. Depending upon the quarter and there is some seasonality within EnergyHub and timing differences, but generally, the other segment has been growing anywhere from 30% to 40% year-over-year. We don't see any reason why that would change in 2021. Operator?

Thank you. And our...

Thanks.

...next question comes from Jack Vander Aarde. Your line is now open.

Hi, Jack.

Hi. Great. Thanks. Hi, Steve T. Hi, Steve V. Excellent quarter.

Thank you.

Thanks for taking my questions. A lot of analysts have already touched on some of the stuff I wanted to ask. But let me revisit this topic. Maybe Steve T, you initially responded to an earlier question of the average customer life – or consistent customer life, I guess, is eight or nine years maybe for single property and you hope to maintain that customer though for the entire life as they move properties. So, either Steve T or Steve Valenzuela, do you have any data points or metrics you can maybe share on the total number of subscribers that have deactivated because they're moving properties and then have actually gone on to reactivate Alarm's properties? Any data points or metrics you have that would provide evidence of that?

Well, we do have a revenue retention rate that we – it's been pretty consistent at the high end of 94%. But I will say, based on our past experience, moves is probably one of the main reasons for attrition. Now, with the – obviously people expanding and adding second homes, generally people have not been moving as much though. They've been adding the second homes and adding other properties. They've been moving out of cities where generally you have apartments where typically you don't have an alarm system in your apartment. So, I think we've been benefiting from that trend and I think overall – but, yeah, movies is certainly one of the reasons why you have attrition.

There is a metric, Jack, in the industry and others report it that you may want to look at. We don't keep it because we don't always know if there's, what we call, a re-sign (00:51:34). But service providers that are public oftentimes report their re-signs and they report attrition net of re-sign. And the larger you are as a service provider, the more advantages you have when people move because you can re-sign them in a new market they may have moved in. But some of the service providers do report that. I don't think we have it right now. We could just probably find anecdotal examples by talking to folks.

Okay. That's helpful. That's helpful. And then, let me shift gears. There's a lot of talk – some talk on international, I'm hoping explicitly or specifically to get an update maybe on the partnership you announced last quarter on the latest developments and progress with your partnership with Johnson Controls and the countries and regions you're going after with Global Interactive Services?

Sure. Yeah. I think that partnership is going well. I think they've done a great job. I just would say in that case we had a time bound objective to upgrade a lot of existing subscribers that they were servicing internationally in several different markets. And it was a hard project and they executed on it very well. We obviously worked with them on that. So, we upgraded quite a few customers throughout the first nine months of the year there. But we also got the sales teams conditioned, the installers conditioned, and now have a nice – I would say both parties are now enjoy the fruits of that labor. We have a nice engine that is producing subscribers every day in Chile and Argentina and in many Latin American markets as well as UK and Australia. So, that's going well. We're happy with it. We're continuing to upgrade the platform. But we're at this point up in about 40 different countries and have a whole litany or a whole set of service providers that we're at various stages with and still are working through some kinks market by market and in the technology, but are getting I think more mature. And overall, the segment – so, international was hit, I think I indicated last quarter, it took a little bit more of a dive with COVID than the US market and it was slower to come out of that. But we're just getting back to pre-COVID levels now internationally. We hope [Technical Difficulty] (00:54:17) doesn't reverse that. But it's come back and now we're back sort of into – beginning to get into the green growth area again in terms of daily installations.

Okay. Fantastic. That's it for me, guys. Again, great quarter...

Thank you.

...and a solid guidance.

Thanks, Jack.

Thank you very much.

Thank you. And ladies and gentlemen, this does conclude our question-and-answer session. Thank you for participating on today's conference call. You may now disconnect.