Good day, ladies and gentlemen and thank you for standing by. Welcome to Alarm.com's Fourth Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] As a reminder, this conference call is being recorded. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Matt Zartman. Sir, you may begin.

Thank you. Good afternoon, everyone, and welcome to Alarm.com's fourth quarter and full-year 2021 earnings conference call. I want to remind you that this call is being recorded. Joining us today from Alarm.com are Steve Trundle, our President and CEO; and Steve Valenzuela, our CFO. Before we begin, a quick reminder to our listeners. Management's discussion during today's call will include forward-looking statements, which include projected financial performance for the first quarter 2022, and full-year 2022, the impact of emerging market dynamics and trends on our business and on anticipated market demand for our offerings, including new product offerings, the impact of the COVID pandemic on our global supply chain, international strategy and the global economy, and our ability to manage supply chain challenges. Our business strategies, including our partnerships, plans and objectives for future operations, and integration of recent acquisitions, continued enhancements to our platform and offerings, opportunities for growth in our current markets, and our plans to expand into new 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 anticipate, began, believe, continue, could, estimate, expect, forecast, may, plan, 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 quarterly report on Form 10-Q filed with the Securities and Exchange Commission on November 4th, 2021 and in subsequent reports that we filed with the Securities and Exchange Commission from time to time, including our annual report on Form 10-K for the year ended December 31, 2021 that we intend to file with the Securities and Exchange Commission shortly after this call, that could cause actual…

Thank you, Matt. Good afternoon and welcome to everyone. We're pleased to report fourth quarter and full-year results that exceeded our expectations. Our SaaS and license revenue for the year 2021 was $460.4 million up 17.1% over the last year. Our adjusted EBITDA for the full-year was $142.5 million. Our results benefited from continued momentum in both the residential and commercial connected property markets in the U.S. and Canada. We close the year with more than 10,900 service provider partners, who deliver our technology to more than 8.4 million subscribers in 58 countries around the globe. I want to thank our service provider partners and our employees for their resilience and contribution to our 2021 performance. As we get the New Year underway, I will use today's call to discuss our strategy and how we plan to continue to grow. I will also highlight a few examples of the new capabilities that we introduced to our markets in 2021. Our strategy is to be the defining security oriented IoT platform for four different property types, residential, multifamily, small business, and commercial or institutional enterprises. For each of these property types, we have a roadmap to deploy fully integrated best in class applications that span security and surveillance, automation, energy management, water management and health. The key areas that drove much of our growth in 2021, and that I expect to continue to drive growth in 2022 and beyond are our expansion into commercial markets, our video software initiatives, our expanding international business, and our energy management business. I'll begin with our commercial opportunity. As I reported to you during the year, commercial market activity returned to pre-pandemic levels in the second quarter. Our strategy is to develop software based capabilities that will deliver unique value to commercial customers through the…

Thanks, Steve. I'll begin with a review of our fourth quarter and full-year 2021 financial results, and then provide guidance for 2022 before opening the call for questions. SaaS and licensed revenue in the fourth quarter grew 15.4% from the same quarter last year to $121.7 million. This includes Connect software license revenue of approximately $7.4 million for the fourth quarter down as expected from $9 million in the year ago quarter. SaaS and licensed revenue for our Alarm.com segment grew 14.2% in the fourth quarter, and our other segment grew 30.9% year-over-year. For the full-year of 2021, SaaS and licensed revenue are $460.4 million grew 17.1% over 2020. Our Alarm.com segment grew SaaS revenue by 16.4% year-over-year, and our other segment grew 26.9% in 2021. Our SaaS and licensed revenue visibility remains high. Our revenue renewal rate of 94% in the fourth quarter is at the high end of our historical range of 92% to 94%. Hardware and another revenue in the fourth quarter was $73.5 million up 22.4% over Q4 of 2020. The increase in hardware revenue was primarily due to an increase in sales of our video cameras. Total revenue of $195.3 million for the fourth quarter grew 17.9% from Q4 2020. For the full-year of 2021, total revenue grew 21.2% to $749 million. SaaS and license gross margin for the fourth quarter was 86.1%, an increase of approximately 80 basis points quarter-over-quarter, mainly due to mix. Hardware gross margin was 11.1% for the fourth quarter, compared to 15.2% for Q3 2021. The lower hardware margin is mainly due to increased shipping costs and supplier price increases. We are increasingly having to address global supply chain challenges by tactically using air freight transportation for certain products. Because our costs are significantly higher. We have also announced price…

[Operator Instructions] Our first question or comment comes from the line of Adam Tindle from Raymond James. Your line is open.

Okay, thanks. Good afternoon, and congrats on a strong finish. Obviously, the very strong hardware growth is continuing. And I would imagine that creates an opportunity to upsell services over time as you see the market with many units. So maybe a two parter one for Steve T, you talked about an upsell engine a couple of quarters ago, maybe you could talk about the progress and what you're experiencing there. And then Steve V from a financial standpoint, I'm noticing that the net dollar retention metrics are very healthy and up again, I would imagine that this maybe ties into this theme. Where do you think that that metric could go over time?

Hey, Adam, yes upsell continues to be a driver of some of the hardware growth. It is primarily centered on video, which is great, because that also allows us to push some SaaS growth from the existing base as well. And we think that we'll probably continue, I believe that we saw growth in sales of video cameras last year to existing customers of around 36%. So pretty happy with that number. And I wouldn't say we're doing everything yet possible to do all that we can do there because we've also had a pretty meaningful focus on the 3G upgrades, which has eaten a lot of the cycles that our service providers have in terms of going back to the existing customers. But I think that that continues to be something that we can push and hopefully even expand beyond video and get into the thermostat Smart Water Valve, the Flex Sensor and some of the other devices, but it is increasingly a meaningful chunk of our business.

Hi, Adam. For your second part, it's Steve Valenzuela. The 94% dollar retention rate certainly has been very strong. I would say in the short-term, in the near term with the 3G upgrades, we might see a slight decline there. But I would think longer-term and hard to define longer-term given all the upgrades and the video and video analytics and how compelling the solution is with those features. I would think over the long-term, we should see that retention rate inch up over the next couple of years, it would be nice to see over 100%, I'm not saying that we would hit that point. But I think once you get a system like this with video and video analytics, it's very hard to go without it. So it's very compelling solution.

Understood and maybe just as a quick follow-up, I mean, balance sheet remains very healthy. And in light of Securitas family combination. Recently here, I thought I might ask about M&A priorities again, given some of those things that are going on, and maybe you could double click on that deal specifically if it has implications for you, but would you consider something of that size and maybe just kind of revisit your priorities for M&A given balance sheet? Thank you.

Sure. So on that deal, and specifically, I mean we are -- we have a good partnership with Securitas. And that there's not a lot of commenting on that deal because it's still subject to some regulatory review and I believe that it closes a little bit later this year. So we're not probably able to comment too much on what's going on there. With regard to your own view, yes, we're sitting on a pretty active corporate development pipeline of opportunities we're looking at, we don't really, we're looking for the right opportunities as opposed to the right size. So if something we're sizable, but really represented the right opportunity for the company, then that's something we would consider doing, I don't think that we'll be actively buying service providers, because our customers or service providers, and we like it that way. So I think we're looking more on the -- looking at opportunities that further our technology stack, or further the addressable market that we're able to attach to. And some of them will be smaller opportunities, some large but certainly an area of focus for us. And I'd say probably it's getting better now than it was last year, slowly, but surely, we're seeing some more reasonable discussions of value, and probably a higher likelihood that a strategic can be effective in the current market, and maybe what we saw six months ago, when things were potentially a little bit more frothy.

Very helpful. Thanks and congrats again.

Thanks, Adam.

Thank you. Our next question or comment comes from the line of Sterling Auty from JPMorgan, your line is open.

Hi, guys, this is Rachit on for Sterling. Can you give colors on the demand moment around Thermostat as HD and how should we think about revenue contribution from the solution?

Sure, so Thermostat HD is a new product. It rounds out our lineup of thermostats, the weakness in our lineup historically has been that we've had a great thermostat, good value proposition there, at a great price points been very useful in our service provider channel. If you're doing a new home build, oftentimes you want to really, we haven't had a thermostat that had a super elegant touchscreen on it, very vibrant display, that sort of thing. Our strategy has been to sort of blend into the wall and then do all of the thinking in the cloud and on the app itself and let the user drive everything from that location. Especially in our builder market, there's demand for a higher end thermostat. And that's what Thermostat HD is servicing. Also, in the HVAC trade, there's demand for a higher end thermostat. So incremental contribution, I don't think it's going to be a dial mover in terms of incremental contribution of hardware revenue. I think it's just an incremental improvement and the range of offerings we bring to the market and then Thermostat is important to us because it allows us to better serve our customers in the multifamily space and then the builder space and then the HVAC trade and then has some downstream value to our energy hub business as well. So it's an important product, but I wouldn't say it's going to drive a massive incremental hardware contribution. I could be surprised but it would drive incremental improvement.

Thank you. Our next question or comment comes from the line of Brian Ruttenbur from Imperial Capital. Your line is open.

Yes, thank you very much. Great quarter and year. Couple of questions on gross profit. First of all, I think that you came in around 12% gross profit on the hardware that's down by about half year-over-year and you've sequentially been going down. I guess I'm stating the obvious here. Are we at a bottom gear, can we look for anything worse than this? It looks like we've hit a bottom here, or at least it's slowed. Can you talk about what kind of surprises would we have? I guess are they getting any worse on the hardware side?

Yes, good question, Brian, you're correct. Margins on hardware has slid, we haven't I'll just be clear and say we haven't worried about it a time. And in our business as a SaaS business and our primary goal has been to get the service providers the product, they need to get the installations done, and ideally at a good value so that we don't create too much acquisition cost for them when they're attempting to create new subscribers. So that's always our primary goal. And then to run a sustainable business, you need to drive some margin on the hardware. I think Steve commented that we did finally go ahead and put through a price increase in the first quarter, we think that will gradually lift margins. So are we absolutely at the bottom? I think we're probably at the bottom at the moment, unless we were to make a strategic decision in some way, shape or form about just the overall hardware margin profile. But in terms of running the business, the way we've traditionally run it, I think we're probably at the bottom. That said, the supply chain is, it's still a fairly volatile place. And things change week to week. So we will continue to emphasize getting our service providers the product they need, and if something comes up that we need to work through, even at the expense of hardware margins, we will do it. But if I were to guess I'd say we're probably at about the bottom right now.

Great. And just as a follow-up on that, you mentioned a price increase, can you ballpark us? I'm sure there's multiple products, and it gives us an average on how much you increase prices? And has that already gone through the system, was there any pushback? And then the last part of that very long question was how long before we get back to the 20s on hardware? Is that two years out, three years out?

So, first part of the question, on average, as you noted, it vary dramatically by SKU, but on average, probably 8% or 9% was the effective price increase. And that is mostly through the system at this point. Did we get, people call us up and thanked us for raising that. No, they don't do are they in an understanding kind of mode at the moment, I would say they are because most of our peers and competitors in the industry push through the multiple price increases last year. Our focus has been sort of to provide the best value we can and where possible to be the last to increase prices. So I think most of our service providers were conditioned to expect something. And now they're working through the process of increasing the prices that they take to the market as part of this inflationary cycle. So we're -- we felt like we handled it well, it's pretty much done at this point. And will we get back to 20% hardware margins. That's going to be a function primarily of mix. There are some places where our real focus on the hardware is enabling SaaS. And if we see, a situation where lower hardware margin can be a driver of much higher service revenue, then that will be our approach. And that's the approach in some parts of the market today, I would say particularly on the residential side. In other places, the SaaS contribution from hardware is not quite as high. So when we look at the commercial side, on dollar-per-dollar basis, it's more typical than to run some higher margin on the commercial side. For every $1,000 of hardware sold, you're not generating quite as much flat as you do on the residential side, even though you're getting higher ARPU per side. So there will see higher margins and I would say that will gradually pull the overall blended up some through time as well. And that's probably about where I'd leave it. Do I know that we're going to get to 20% I don't it is still our kind of preferred practice. There's a level where, just to cover your cost, the capital allocation cost, the inventory management costs, that sort of thing. If you're running much below that, then then you really have to have a good reason for it.

Thank you.

Thank you. Our next question or comment comes from the line of Darren Aftahi from ROTH Capital. Your line is open.

Hi, thanks for taking my questions. It's Dillon [ph] for Darren. First one, could you talk about with some of the mass mandates dropping across the country if you've seen any pickup for RFPs or activity in the commercial channel and comment on a little bit how that pipeline might look now versus three or four months ago?

Yes, I'm not sure it's been coupled to a dates dropping. We saw recovery in the commercial channels really start to happen in third quarter of last year, certainly that's when we started seeing the pipelines fill back up we saw. [Technical Difficulty].

Ladies and gentlemen, please stand by the line disconnected. We're waiting for them to call back in.

Hi, we're back. We had a long cut.

Go ahead sir.

We're back. I think the last question that I answered this is Steve Trundle speaking was regarding the commercial pipeline. The summary on that was simply that the pipeline began to strengthen in the third quarter of last year. And we -- whether it's going to continue that as a result of mask mandates being dropped? I don't know. But I believe that as small businesses are more robust with more customers out and about that we would continue to see that that part of the business be strong. I indicated that on the open eyes indication, which is very focused on enterprise level sales, grew their business 51% last year. So that was the -- that's a summary of the last question I had before we realized the line had dropped. And I'll take any other questions we have. Dillon, did you have any other questions? I think you were the last person to ask the question.

Yes, I have one more if you can hear me.

Sure.

Yes. So I think you mentioned about 25% international growth. Care to call out any countries that you're seeing some over indexing?

Yes, we can call out, the one that has pleasantly surprised me has been Argentina, can't play because a very strong service provider in that market that's been doing well. I'd say LATAM in general has been stronger over the last year. International as a whole. I mean, I'm happy with 25% because it was a tough kind of COVID environment last year for international service providers. And I think on several calls, we talked about the international market being tougher than the North American market as a result of COVID. Even with that, our international team still grew that business 25% clip and I think we're really kind of anxious as we move into this year to get a very, very focused there and hopefully see more growth coming out of Europe and Southeast Asia as well.

Great, thank you.

Thanks.

Thank you. Our next question or comment comes from the line Jack Vander Aarde from Maxim Group. Your line is open.

Great. Nice quarter, guys. Thanks for taking my question.

Thanks.

Steve Trundle, I think you said in your prepared remarks. I mean, you laid out your 2022 kind of key growth focus areas, and then I think I heard an update total subscriber count was that 8.4 million?

That's right. 8.4 million subscribers. Yes, sir.

Got you. Okay, cool. Well, that's great growth in the subscriber count, just maybe for some contacts and Steve Valenzuela, I'm sure you can help too. Wherever you're able to provide I know you don't explicitly do this normally. But just to get context, a rough break out of maybe residential versus commercial versus international residential within that subscriber group?

Sure, I can give you a just some ballpark numbers. It's Steve Trundle speaking. So international, we're right up against about half a million subscribers now. So very happy with how the team has built that business getting to the point that their real numbers there. And if we can begin to grow that business, at sort of the current level of scale, that'd be great. Commercial, same type of range, I'm going to say 400,000 to 500,000 total subscribers, maybe closer to 400,000 right now. Adding around 25,000 sites per quarter on commercial subscription. So pretty happy with that as well. Still have a lot of time to explore there. But and then the rest, I would say break those two categories. How we breakout commercial, breakout international. Now there is a little bit of overlap between international and commercial, some of our international customers are commercial, but you break those out, and then everything left is going to be primarily residential, either single family home or multi-family or vacation only.

Great, that's really helpful color. And then just maybe over the next couple, maybe this year, maybe the next year, two or three years out. It's great to see the international subscriber count hit that kind of half a million, but where do you -- how do you see that trending? Is there a way to quantified in anyway, maybe like one you expected a million or more?

As soon as possible. But I would say it's -- well, let me think out. But the internationals growing at the moment and probably will continue to grow faster than the company's overall growth rate. We believe that will continue to be the case, if we look forward some period of time, our belief has always been that our rest of world market would be about the same in terms of size and contribution as the domestic and we include Canada, our friends in Canada in the domestic market. So that's what we're shooting for. I can't right now give you a timeline where we get to a million. I don't have that in front of me. I'm not sure, but I just say that we -- our goal is certainly for international to be off the same size as our North American business.

Okay, great. I appreciate the color. That's it for me. Thanks.

Thank you.

Thank you.

Thank you. I'm sure, no additional questions in the queue at this time. Ladies and gentlemen this concludes today's program. Thank you for participating. You may now disconnect. Everyone have a wonderful day.