Alarm.com Q2 2025 Earnings Report

Alarm.com EPS Results

• Actual EPS: $0.60
• Consensus EPS: $0.52
• Beat/Miss: Beat by +$0.08
• One Year Ago EPS: $0.58

Alarm.com Revenue Results

• Actual Revenue: $254.31 million
• Expected Revenue: $243.96 million
• Beat/Miss: Beat by +$10.35 million
• YoY Revenue Growth: +8.80%

Alarm.com Announcement Details

• Quarter: Q2 2025
• Date: 8/7/2025
• Time: After Market Closes
• Conference Call Date: Thursday, August 7, 2025
• Conference Call Time: 4:30PM ET

Alarm.com (NASDAQ:ALRM) provides various Internet of Things (IoT) and solutions for residential, multi-family, small business, and enterprise commercial markets in North America and internationally. The company operates through two segments, Alarm.com and Other. It offers solutions to control and monitor security systems, as well as to IoT devices, including door locks, garage doors, thermostats, and video cameras; and video monitoring and analytics solutions, such as video analytics, escalated events, video doorbells, intelligent integration, live streaming, secure cloud storage, and video alerts. The company also provides scenes, video analytics triggers, thermostat schedules, responsive savings, precision comfort, energy usage monitoring, places feature, whole home water safety, and solar monitoring solutions, as well as heating, ventilation, and air conditioning monitoring services. In addition, it offers demand response programs, commercial grade video, commercial video analytics, access control, cell connectors, enterprise dashboard and multi-site management, energy savings, protection for valuables and inventory, temperature monitoring, and daily safeguard solutions. Further, the company provides a permission-based online portal that provides account management, sales, marketing, training, and support tools; a unified interface that displays key operational and customer experience indicators, including technician performance, system reliability and customer engagement metrics; installation and support services; MobileTech Application and Remote Toolkit; video health reports; smart gateway; AI-powered enhancements to professional monitoring and false alarm reduction; Web services and business intelligence; sales, marketing, and training services; and home builder programs. Additionally, it offers electric utility grid and water management, indoor gunshot detection, and health and wellness and data-rich emergency response solutions. The company was founded in 2000 and is based in Tysons, Virginia.

Alarm.com Q2 2025 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: Q2 SaaS and license revenue rose 9% year-over-year to $170 million and adjusted EBITDA climbed 13% to $48.4 million, exceeding expectations.
• Positive Sentiment: Full-year 2025 guidance was raised at the midpoint for both SaaS and license revenue (up $5.2 million) and adjusted EBITDA, reflecting confidence in second-half momentum.
• Positive Sentiment: Growth initiatives—commercial, international and EnergyHub—now contribute ~30% of SaaS revenue and sustained ~25% year-over-year growth, aided by new AI-powered tools in the OpenEye platform.
• Neutral Sentiment: A 10% tariff on hardware was passed through to service providers, modestly diluting margins but keeping gross profit dollars stable and inventory positions shielding 2025 outlook.
• Positive Sentiment: Alarm.com ended Q2 with $1.02 billion in cash and produced $18.2 million in free cash flow, and expects ~\$200 million in tax-savings over five years from revised R&D deduction rules.

Presentation

[Operator]

Good day and thank you for standing by. Welcome to the alarm.com Second Quarter twenty twenty five Earnings Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there'll be a question and answer session. To ask a question during the session, you'll need to press 11 on your telephone.

[Operator]

You will then hear an automated message advising your hand is raised. Please be advised today's conference is being recorded. I would now like to hand the conference over to your speaker today, Matthew Zartman, Vice President of Investor Relations. Please go ahead.

[Matthew Zartman, VP - Strategic Communications & IR at Alarm.com]

Thank you, Kevin. Good afternoon, everyone. Joining us on today's call are Steve Trundle, alarm.com's CEO and Kevin Bradley, our CFO. During today's call, we will be making forward looking statements, 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.

[Matthew Zartman, VP - Strategic Communications & IR at Alarm.com]

We refer you to these risk factors discussed in our quarterly report on Form 10 Q and our Form eight ks, which will be filed shortly with the SEC along with the associated press release. This call is subject to these factors and we encourage you to review them. Alarm.com assumes no obligation to update these forward looking statements or other information that speak as of their respective dates. In addition, several non GAAP financial measures will be discussed on the call. A reconciliation of GAAP to non GAAP measures can be found in today's press release on our Investor Relations website.

[Matthew Zartman, VP - Strategic Communications & IR at Alarm.com]

I'll now turn the call over to Steve Trundle. Steve?

[Stephen Trundle, President, CEO & Director at Alarm.com]

Thank you, Matt. Good afternoon and welcome to everyone. We are pleased to report financial results for the second quarter that were above our expectations. SaaS and license revenue in the second quarter grew to $170,000,000 and adjusted EBITDA was $48,400,000 A significant highlight of the second quarter was the celebration of our tenth year anniversary as a publicly traded company. We were invited by NASDAQ to ring in the opening of the market on June 30.

[Stephen Trundle, President, CEO & Director at Alarm.com]

A few of our investors have been with us throughout our entire public journey, and I am thankful for their continued support. While going public is a big deal for most tech companies, I'm even more pleased with what the team has achieved in the ten years since. At the time of our IPO, we forecasted total annual revenues of $195,000,000 including $139,000,000 in SaaS and $56,000,000 in hardware, and nearly all of that was coming from the North American residential security market. We were a good single line business. The mission I set for the company early on was to deliver a cloud based sensor into every property in the world.

[Stephen Trundle, President, CEO & Director at Alarm.com]

We decided to go public because we believe that we could continue to build the company and expand the business in pursuit of this mission. We wanted to create more opportunities for our employees, expand into new markets and deliver safety, security and energy efficiency to the world. Since our IPO, we have saved dozens of lives and have kept millions and millions of people safer than they would be in a world without alarm.com. And we have grown the business significantly and profitably without any material dilution to our shareholders. As Kevin will present, our current revenue run rate is more than five times greater than when we went public and places us on an annual pace of $1,000,000,000 in revenues.

[Stephen Trundle, President, CEO & Director at Alarm.com]

The diversity of the revenues that we have built across the North American, international, residential, commercial and energy markets provides tremendous durability for the future. But we're here today to report on our quarter, so let me turn back to the business at hand. The major components of our business performed well during the quarter and all contributed nicely to our better than expected results. Revenue outperformance, particularly in hardware revenue, resulted in stronger adjusted EBITDA. Our residential business continued to deliver steady growth and strong cash flow during the second quarter.

[Stephen Trundle, President, CEO & Director at Alarm.com]

We remain committed to the large residential market in The United States and Canada. Millions of potential subscribers have yet to adopt integrated video solutions and security based use cases continue to be the primary driver of the adoption of smart home products and services. Most consumers in the market for security desire professional services, including a professionally designed, installed and serviced system. These tend to be the more serious customers and they typically engage with one of our 12,000 professional service provider partners. We are well positioned to serve the continued demand in the residential market as the provider of choice for those who are serious about security.

[Stephen Trundle, President, CEO & Director at Alarm.com]

Our channel partners serve as the sales and marketing engine for the business, enabling a highly efficient customer acquisition model. Our sales and marketing spend has remained around 12% of total revenue in recent years, well below peer averages. At times, we will also invest into our channel to strengthen our national sales and service footprint and enable greater adoption of the full ecosystem of alarm.com products and services for residential subscribers. We're pleased to have completed a couple of minority investments consistent with this strategy during the second quarter. Shifting to our growth initiatives, the most prominent drivers of performance continue to be the commercial, international and energy hub businesses.

[Stephen Trundle, President, CEO & Director at Alarm.com]

Their collective contributions to our consolidated SaaS revenue approached 30% in the second quarter. Their combined year over year growth rate held at around 25%, in line with what we have articulated in prior quarters. The commercial business continues to progress as our service provider partners and commercial integrators adopt increasing components of our unified video access control platform. One element of our commercial business is our subsidiary, OpenEye, which provides a cloud based video surveillance platform designed for multi site commercial and enterprise customers. OpenEye delivers enterprise video compatibility and integration with many different products in the market.

[Stephen Trundle, President, CEO & Director at Alarm.com]

The OpenEye team recently introduced new AI powered tools to accelerate and simplify forensic video review. Subscribers can now search video footage across multiple locations and multiple cameras by visual characteristics such as a red jacket or a white pickup truck. They can also select a reference object in a video feed and the AI software will search for similar matches. These capabilities are designed to help commercial users respond faster and more effectively to security incidents. The new features are included in OpenEye's premium services tier.

[Stephen Trundle, President, CEO & Director at Alarm.com]

I also want to quickly touch on tariffs, which Kevin will cover in more detail when he discusses our financials in a moment. Like other companies, we continue to monitor framework announcements and watch for the details in any formal trade agreements that are reached. Based on the frameworks that we've seen to date, we feel that with our current U. S.-based and in transit inventory positions, we're able to manage through the rest of 2025 on our plan and provide a predictable environment for our service provider partners. In closing, I'd like to thank our service provider partners and our alarm.comteam for their dedication and our investors for their ongoing support, particularly as we celebrate our tenth year as a public company.

[Stephen Trundle, President, CEO & Director at Alarm.com]

With that, I'll turn the call over to Kevin Bradley for a review of our financial performance. Kevin?

[Kevin Bradley, CFO at Alarm.com]

Thank you, Steve. At the halfway point of the year, we continued to see good momentum during the quarter. New account origination activity during the quarter slightly exceeded our expectations despite uncertainty due to tariffs and economic conditions. SaaS and license revenue grew 9% year over year to $170,000,000 exceeding the midpoint of our guide for the second quarter of one hundred and sixty seven point one million dollars Broad based contributions from across the diverse components of the business contributed to our overperformance. Our growth initiatives, which consist of our commercial, EnergyHub and international businesses continued to deliver year over year SaaS revenue growth within the range of our past disclosures.

[Kevin Bradley, CFO at Alarm.com]

Their contributions to our total SaaS revenue during the quarter approached 30%. Total revenue grew 8.8% year over year to $254,300,000 during the quarter. As Steve noted, this marks a milestone as the first quarter with an annual run rate in excess of 1,000,000,000 Total gross profit grew 9.4% year over year to $166,800,000 and gross margins improved by 40 basis points, while revenue mix was consistent. I want to spend a moment to frame our hardware business and its financial and strategic value to our business model. As an IoT based software business, our SaaS revenue is primarily associated with the installation of physical products and our solutions are often based on the integration of software and hardware devices.

[Kevin Bradley, CFO at Alarm.com]

This model creates higher barriers against end customer defection and technology disruption and distinguishes alarm.com from typical vertical software companies as it relates to AI replacement risk or otherwise. Our hardware business can also be thought of as a structural contributor to our highly efficient SaaS revenue acquisition model. Based on our historical financials, gross profits from hardware sales cover over 50% of our sales and marketing customer acquisition costs. Along with the generally low levels of sales and marketing spending that Steve noted, the sale and installation of physical hardware products adds to the efficiency of our go to market model, the quality and capability of the services we enable and the value of our service provider partnerships. Total operating expenses were $134,800,000 during the second quarter.

[Kevin Bradley, CFO at Alarm.com]

Excluding stock based compensation and other items we adjust from G and A for non GAAP purposes, total operating expenses were $118,300,000 a 9.1% increase year over year. R and D expense in the quarter inclusive of stock based compensation was $69,100,000 up 5.1% year over year. Excluding stock based comp, it was $63,200,000 up 8% year over year. We saw strong EBITDA and operating leverage performance in the quarter, primarily due to revenue growth and quality. GAAP net income grew 3.1% year over year to $34,600,000 and our GAAP EPS per diluted share was $0.63 Non GAAP adjusted EBITDA grew 13% year over year to $48,400,000 Non GAAP adjusted net income grew 6.5% year over year to $34,100,000 Non GAAP adjusted EPS grew 3.4% year over year to $0.60 per diluted share.

[Kevin Bradley, CFO at Alarm.com]

We ended the quarter with $1,020,000,000 of cash and cash equivalents and produced $18,200,000 of free cash flow during the quarter. This includes what was our final domestic Section 174 cash tax payment of $33,500,000 in April. I want to speak for a moment about tariffs. We implemented a price increase in early June to reflect the 10% baseline tariff. This pass through will slightly dilute margins, but gross profit dollars will remain roughly unchanged.

[Kevin Bradley, CFO at Alarm.com]

We have also been closely watching the recent announcements of trade frameworks with various countries and multilateral groups. As you know, these are simply frameworks for further negotiations. Once trade agreements have been finalized and we understand the fine print, we can fully evaluate potential impacts and our options. In the meantime, we have taken steps to shield ourselves and our service provider partners from the uncertain environment. The uncertainty around tariffs likely prompted some of our service provider partners to build their product inventories during the quarter and minimize near term tariff risks.

[Kevin Bradley, CFO at Alarm.com]

Despite this demand, we were able to maintain our inventory levels. We believe that between our current inventory and products in transit, we have largely insulated our 2025 outlook from further tariff exposure based on the framework agreements we've seen so far. We also continue to have a healthy balance sheet and strong cash flow from our growing base of durable recurring revenue and efficient go to market model. Steve discussed our strategy of deploying capital to support some of our technology and channel partners and the recent minority equity investments we executed during the quarter. These strategic investments are designed to help us solidify our long term service provider footprint, while also delivering strong return characteristics on a standalone basis.

[Kevin Bradley, CFO at Alarm.com]

As of July, these non operating assets are generating just under a 9% cash flow yield on an annualized basis. Given the partnership structure of these businesses, these cash distributions are not characterized as taxable income for tax purposes and when received by us will simply be net against the new investments line item on our balance sheet. Medium term, there is another structural tailwind to our cash flow outlook given the recent change to the R and D capitalization and amortization requirements in Section 174 of The U. S. Federal tax code that I'd like to mention.

[Kevin Bradley, CFO at Alarm.com]

The federal budget signed into law in early July includes a provision that allows companies to transition back to immediately and fully deducting all domestic R and D expenses incurred during the year for tax purposes. Like most companies with intensive R and D business models, we're still evaluating the full benefit and timing, but we currently estimate that this change eliminates what would have been a little under $200,000,000 in total cash tax payments over the next five years under prior law. This will provide additional balance sheet strength for our long term capital allocation planning horizon. More broadly, we believe this change reinforces the long term attractiveness of capital efficient R and D businesses like ours. I'll turn now to our financial outlook.

[Kevin Bradley, CFO at Alarm.com]

For the 2025, we expect SaaS and license revenue of 171,400,000.0 to $171,600,000 For the full year of 2025, we are raising our expectations for SaaS and license revenue to between 6 and $81,000,000 and 6 and $81,400,000 This is an increase of $5,200,000 over our prior guidance at the midpoint. Our raise is also a flow through of our second quarter beat of 180%, reflecting the confidence we have in our second half outlook. We are now projecting total revenue for 2025 of between $990,000,000 and 9 and $96,400,000 which includes estimated hardware and other revenue of $3.00 9,000,000 to $315,000,000 We are also raising our estimate for non GAAP adjusted EBITDA for 2025 to between $195,000,000 and $196,500,000 an increase from our prior guidance of between 190,000,000 and $193,000,000 due to the beat from the second quarter. Non GAAP adjusted net income for 2025 is projected to be between 136,000,000 to $136,500,000 or $2.4 per diluted share. This is an increase from our prior guidance of $131,500,000 to $132,500,000 or $2.32 to $2.33 per diluted share.

[Kevin Bradley, CFO at Alarm.com]

EPS is based on an estimate of 60,300,000.0 weighted average diluted shares outstanding, down from our estimate last quarter due in part to the buybacks we executed during Q2. As a reminder, this share count includes a full year of dilution associated with our outstanding convertible notes on an if converted basis of 9,125,000.000 shares across two issuances. We currently project our non GAAP tax rate for 2025 to remain at 21% under current tax rules. We expect full year 2025 stock based compensation expense of $37,000,000 to $38,000,000 In closing, I'm pleased with the broad based momentum in the business that we've seen so far this year. We believe that we're well positioned to deliver continued revenue growth and profitability in the second half, while investing to expand our long term growth opportunities.

[Kevin Bradley, CFO at Alarm.com]

With that, operator, please open the call for Q and A.

[Operator]

Thank you. Our first question comes from Matt with Bank of America. Your line is open.

[Matt Bullock, Equity Research Associate at Bank of America Merrill Lynch]

Awesome. Thanks. This is Matt Bullock on for Koji Kada. Thanks for taking the question. I wanted to drill down a little bit more onto the growth levers here.

[Matt Bullock, Equity Research Associate at Bank of America Merrill Lynch]

Can you just help us understand what's driving the sustainability of the commercial, international and energy hub? Feels like we've been chugging along 25% plus for some time now and particularly choppy software demand environment. So help me understand what's driving the success there and how sustainable that 25% growth rate is for those elements of the business? Thanks.

[Stephen Trundle, President, CEO & Director at Alarm.com]

Hey, Matt. This is Steve speaking. Yes, so there are really three different areas. I'm going to touch on each one. I'll start with energy.

[Stephen Trundle, President, CEO & Director at Alarm.com]

In energy category, there's sort of a secular trend underway where a combination of massive build out of AI data centers with some reshoring of manufacturing underway now is just driving a ton of demand and a need for capacity amongst our large utility customers. And EnergyHub is benefiting from that secular trend. At the same time, they are expanding, the range of devices that we support and the range of sort of the derm solution we bring to market. So that appears to be a pretty durable trend at the moment and that's helped us there. On the commercial side, it's two things really.

[Stephen Trundle, President, CEO & Director at Alarm.com]

It's us finishing the build out of the commercial platform. You've seen us do some of that organically, some of it inorganically. The most recent, inorganic move was the acquisition of Checked and our expansion of our remote video monitoring solution. But it's also at some level driven by, the unfortunate events we see in the news from time to time. And the last couple of weeks certainly remind us of the need, for commercial customers to continue to focus on security and upgrading the things they do to protect both their customers and their employees.

[Stephen Trundle, President, CEO & Director at Alarm.com]

So, we think that's probably going to continue to be healthy. You've got also a technology trend there that is moving a lot of the tech from on prem to the cloud and we're beneficiary of that. And then on the international side, would say it's more, the thing driving growth there is more still much earlier days than the North American market and then our team doing a lot of spade work market by market, developing relationships with service providers, our tech team working through the nuances of what's needed for each market and bringing people sort of online and then conditioning them to go sell really a comprehensive smart security solution, as opposed to some of the legacy stuff that they're more familiar with. So those are the three areas and each one has a little different story, but we feel pretty good. You're right that, growth rates have held on an aggregate basis.

[Stephen Trundle, President, CEO & Director at Alarm.com]

And as a result of that, as a component of SaaS, they're becoming more meaningful.

[Matt Bullock, Equity Research Associate at Bank of America Merrill Lynch]

Super helpful. And then just one quick follow-up, if I could. Are all three of those businesses growing around 25%? Or is there an outlier driving the growth there of the consolidated 25% growth? And given all those tailwinds you just outlined, is there any consideration of accelerating investments in those areas Or is it really steady as we go in terms of how you're allocating capital?

[Stephen Trundle, President, CEO & Director at Alarm.com]

Right. So, yes, the combination is sort of at that 25% growth rate. The individual components are, I would say, plus or minus 500 bps on that is sort of the range I'd say we see. So, or two a little above, one maybe a little below, but right in that range. In terms of the way we think about investments and can we accelerate their growth, we run sort of with a consolidated number that is our baseline planning tool.

[Stephen Trundle, President, CEO & Director at Alarm.com]

And then we make decisions incrementally or individually around each growth area based on what we're seeing with their sort of growth potential and what type of investment or burn in some cases, we think makes sense. So if we see further opportunities to scale up investment there, then I think we will. We sort of lock in on '25, but at the moment, we're already beginning to examine and evaluate that decision for '26. And, we may see opportunities to, in a couple of cases to further extend their growth with some additional investment.

[Matt Bullock, Equity Research Associate at Bank of America Merrill Lynch]

Really helpful. Thanks so much.

[Operator]

One moment for our next question. Our next question comes from Adam Tindle with Raymond James. Your line is open.

[Adam Tindle, Managing Director at Raymond James Financial]

Okay. Thanks. Good afternoon. Steve, I just wanted to maybe start with a very high level question. I've got a more tactical one for Kevin after this.

[Adam Tindle, Managing Director at Raymond James Financial]

But given we're celebrating sort of the ten year anniversary on this call and you talked about investors who have stuck with you during that time, might be an appropriate forum for investors thinking about the next ten years, for you to maybe just touch at a high level and you sort of think about that, but how you would describe your vision, the investors today signing up for the next ten years?

[Stephen Trundle, President, CEO & Director at Alarm.com]

Well, fortunately, think that the base vision or the base mission of a cloud connected sensor in every property in the world is still holding up. That's still a lofty goal for us to shoot for. There are lots of ways we can get there. We have to find ways to get there profitably. But I expect that hopefully we'll be able to look back ten years from now and say that and be sort of as enthusiastic about the prior ten years as we are sort of now.

[Stephen Trundle, President, CEO & Director at Alarm.com]

I would say that we're probably a little bit more set in some tracks that should continue for the next decade. So if you go back ten years, we really were a single line of business, had a nice business, but didn't have the diversity of revenues that we enjoy today, didn't have the knowledge and experience with inorganic activity, didn't have the balance sheet. So at this point, I think our markets are probably a little more defined where commercial and residential security, and energy. And I don't, see us dramatically sort of shifting out of those tracks. But I think that, we're in just sort of a more a better scaled position to further build those out over the next decade.

[Adam Tindle, Managing Director at Raymond James Financial]

Got it. That's helpful. And maybe just a follow-up, Kevin, obviously hardware is strong. It sounds like you're kind of eyes wide open that there may have been a little bit of pull forward demand from some of the service providers. Kind of a two part question on this.

[Adam Tindle, Managing Director at Raymond James Financial]

The first one would be, as we think about modeling out hardware for the rest of the year, we would typically expect Q3 to be a little bit better than Q4 just on weather. But I wonder if that pull forward dynamic makes the split between Q3 and Q4 hardware revenue a little bit different this year. And then the second part would be, I know you're not guiding to 2026 but just conceptually we're going to have to model that and as we think about 2026, you obviously covered through year end as you mentioned wisely, but once that kind of coverage rolls off, how do the economics change as we kind of think beyond year end?

[Kevin Bradley, CFO at Alarm.com]

Yes, sure. Hey, Adam. So based on our guide, you can see we're implying somewhere between 150,000,000 and $150,000,000 of hardware revenue in the second half. I think that's likely to be mostly ratably split between Q3 and Q4. If you were to divide that by two, I'd probably add a couple of million dollars above that average for Q3 and then put the residual in Q4. So, still a little bit of a skew towards Q3, but maybe a little bit less than historical seasonality suggests. I think as we look forward to 2026, there is the potential for higher tariffs if the Framework deals get codified into HDS codes. Putting that aside, I think what you do is you'd probably say, hey, alarm.com talked about rolling through $7,500,000 of higher hardware revenue in the second half of the year related to the baseline tariffs. And if you annualize that, it'd probably be growth in 2026 of about $7,500,000 on top of what we guided to for 2025. And assume that besides that demand and sales are probably roughly equal to what they had been in 2025.

[Kevin Bradley, CFO at Alarm.com]

So, probably somewhere between 5,000,000 and $10,000,000 higher for 2026 than now.

[Adam Tindle, Managing Director at Raymond James Financial]

Got it. Just real quick to wrap a bow on that. In your prepared remarks, talked about how the hardware and the profit dollars that you get from that help to cover the cost of acquiring a subscriber. And I just wonder if you're kind of thinking about the framework and the current differences in the economics in the hardware business. Are there things that you might think about differently from a business model going forward?

[Adam Tindle, Managing Director at Raymond James Financial]

Perhaps, maybe it doesn't make sense to acquire as many subs, for example, just how you're thinking about that impacts the overall business model? Thanks.

[Kevin Bradley, CFO at Alarm.com]

I don't think it's changing really the way that we're thinking about that. I think if we have tariffs come through and it's a pure pass through, we're going to have the same roughly the same amount of gross profit from hardware available to us, we think, next year than this year. I suspect that we'll probably be viewing the way that we budget sales and marketing like we typically do based on that. There's not I don't think we see sweeping structural changes to gross profit contribution from hardware. And so we'll approach revenue planning and sales and marketing budgeting, I think, much like we do historically.

[Adam Tindle, Managing Director at Raymond James Financial]

Got it. Thank you very much.

[Operator]

Our next question comes from Samana with Jefferies. Your line is open.

[Billy Fitzsimmons, VP - Equity Research & Enterprise Software at Jefferies]

Hey, guys. This is Billy Fitzsimons on for Samad. Maybe I'll ask this. We're midway through the year, and it's been a busy week for software earnings, and we're hearing very different narratives from different companies where some are citing weakening consumers, slowdowns, and other names are citing strength and improvement for the back half. So can you just level set for us what assumptions and considerations went into the back half guide?

[Billy Fitzsimmons, VP - Equity Research & Enterprise Software at Jefferies]

Just remind us what you're thinking about around macro deal volume, top of funnel renewals and kind of the visibility over the next couple of quarters?

[Stephen Trundle, President, CEO & Director at Alarm.com]

Sure, Billy. Yes, I guess we don't we're not anticipating or modeling a significant change in the macro in the back half of the year. Our experience has been macros haven't been perfect for the first half, but have not been horrible. And part of that is, we're a little different probably than a lot of the other companies in that we're engaged a business that's a visceral need that many people have. It's security.

[Stephen Trundle, President, CEO & Director at Alarm.com]

And whether you're in a good economy or maybe a weaker economy, people in both cases feel like it's a must have type of service. And therefore, we tend not to have quite as much volatility in our performance when there are macro level shifts. I'd say the macro backdrop, the one thing we watch very carefully that is still a backdrop to the business is new home sales. And we've seen that metric be weak since 2023. Haven't seen a dramatic change there lately.

[Stephen Trundle, President, CEO & Director at Alarm.com]

As new home sales pick up, then we would expect to see two things really occur and they sort of offset. One, you would see higher demand, the creation of more new subscribers as they move into a home and they begin to shift to protect it. This is on the residential side. And then to offset that some, you would see a bit lower revenue retention as people move and sometimes cancel a service when they're no longer occupying their home. That's an important macro metric.

[Stephen Trundle, President, CEO & Director at Alarm.com]

But generally, we think the outlook our service providers are doing pretty well. The outlook for the second half is, in our view, about the same as the first half.

[Billy Fitzsimmons, VP - Equity Research & Enterprise Software at Jefferies]

Thanks very much guys. Appreciate it.

[Operator]

Thank you. One moment for our next question. Our next question comes from Saket Kalia with Barclays. Your line is open.

[Alyssa Lee, AVP - Equity Research at Barclays]

Hi, guys. This is Alyssa Lee on for for Saket at Barclays. Thank you for taking my question. Kevin, I think you touched on this briefly, but was wondering if you could give us any color on retention rates for the quarter. And then maybe for the back half of the year, how should we think about the puts and takes here under different scenarios of the housing market?

[Alyssa Lee, AVP - Equity Research at Barclays]

And maybe as a follow-up after that, what does retention look like here for commercial versus residential for the quarter? Thank you.

[Kevin Bradley, CFO at Alarm.com]

Sure. Thanks for the question. Yes, as we noted after our call last quarter, the retention rate for the consolidated company was inching towards 95%. It rounded actually up to 95%. It was 94.7 We at the time noted that we didn't anticipate that perpetuating for each of the rest of the quarters for this year and that we thought it would actually return back down towards our historical range.

[Kevin Bradley, CFO at Alarm.com]

That for the most part played out. We rounded to 94% during the second quarter. It was actually 94.1%. So, it came down about 60 basis points. That's still at the high end or slightly above our historical range that we've seen, so a little bit better than we had actually anticipated.

[Kevin Bradley, CFO at Alarm.com]

And for Q3 and Q4, what we're expecting is that that will kind of be hovering around that same area, somewhere between 93.794% is how we're thinking about it. The things that could shift that from a macro perspective are things that Steve touched on in the prior question. Obviously, if activation rates fell and the housing market sort of somehow seized up more than it is now, that probably leads to higher retention than what we're modeling and vice versa. They'll probably roughly balance each other out from a revenue perspective over those two quarters, but those would be the puts and takes.

[Alyssa Lee, AVP - Equity Research at Barclays]

Perfect. Thank you so much. Very helpful.

[Operator]

Our next question comes from Jack Vander Aarde with Maxim Group. Your line is open.

[Jack Vander Aarde, SVP & Senior Research Analyst at Maxim Group]

Okay. Great. Great results, and I appreciate the detailed update. Steve, touching on the core North America residential business, you mentioned new home builds and sales as those pick up eventually, it could drive a pickup in new account activations, maybe a near term headwind on retention rates. But just to pick your brain, do you see home sales?

[Jack Vander Aarde, SVP & Senior Research Analyst at Maxim Group]

Do you see an environment where home sales do end up picking up again in 2026? Probably going be very sensitive to the rate discussion, but is that sort of a fair assumption that you guys are thinking about? And then just also quite curious how many alarm residential customers own multiple alarm connected residential properties?

[Stephen Trundle, President, CEO & Director at Alarm.com]

Okay. Well, let me start with the first one, just macro on the housing market. I mean, we're probably all watching the healthy political debate about what exactly the Fed should be doing, what should be happening to interest rates going forward, that the outcome there might affect what we see with home sales. I think it's pretty early, but if I were reading the tea leaves, I feel like in talking to our service providers, particularly those that are working with builders, is they're probably feeling a little more positive as of now in August about the next six months than they were in January about those six months. It just feels like there's a couple of things going on perhaps, a bit of pent up demand and then people that have been on the sidelines and afraid.

[Stephen Trundle, President, CEO & Director at Alarm.com]

And I think that a lot of people are just sort of getting used to the higher interest rate environment now accepting it and beginning to make their plans around that, the current set of metrics. So folks are seemingly a tad more, not dramatically more, but just slightly more positive about the next anyway six to nine months. And the second question was, I think you asked how many or what percentage or do many of our subscribers have multiple properties, is that correct? That's right.

[Jack Vander Aarde, SVP & Senior Research Analyst at Maxim Group]

Yes.

[Stephen Trundle, President, CEO & Director at Alarm.com]

That's always been a real source of strength for subscribers that do have multiple properties, both on the residential side and especially on the small business side. And so do I know the exact percentage? I would imagine in the commercial world that it's a pretty high percentage of subscribers. I would be guessing, but I would expect that it would be north of a third are commercial accounts that are affiliated with other accounts. On the residential side, it would be less than that, but still meaningful.

[Stephen Trundle, President, CEO & Director at Alarm.com]

People that have second homes sometimes have multiple rental properties. It is a differentiating capability. It requires more of a back end to provide good service across properties. So it fairly is high percentage of subscribers. I just don't know the exact percentage.

[Jack Vander Aarde, SVP & Senior Research Analyst at Maxim Group]

That's very helpful color. I appreciate that, Steve. And then maybe just a follow-up for Kevin. You mentioned in June, you rolled out a 10% price increase on the hardware. Have you thought about or are you actively thinking about potential general price hikes on the base monthly ARPU rate on the residential or commercial SaaS service side of the business?

[Kevin Bradley, CFO at Alarm.com]

Yes. Hey, Jack. One slight clarification. So we passed through the 10% most of the 10% cost of the tariffs, which given our gross margin profile, wound up being about 7.5% in terms of pricing to service providers. At this point, we don't have any general expectations, whether in the second half of this year or for next year to be visiting broad based service price increases. That's not currently part of our planning.

[Jack Vander Aarde, SVP & Senior Research Analyst at Maxim Group]

And I appreciate the clarification on the gross margin, or the cost of the tariffs pass through on the hardware there. And maybe just internationally, which countries or regions are the largest installed base of alarm customers? Are there any just particular regions that are growing faster than others more so now than that might just jump out at you?

[Stephen Trundle, President, CEO & Director at Alarm.com]

You said countries or states,

[Jack Vander Aarde, SVP & Senior Research Analyst at Maxim Group]

Jack? Countries and regions outside of The U. S.

[Stephen Trundle, President, CEO & Director at Alarm.com]

Oh, outside of The U. S? Yes, I mean this year so far, LatAm has been a faster growing region or area than most. And then in The Middle East as well, we've seen some growth and particularly very fast adoption of the remote video monitoring capability that we recently brought to market. So those are two areas where we're probably seeing a little more growth than what we expected on the international side.

[Jack Vander Aarde, SVP & Senior Research Analyst at Maxim Group]

Okay, great. I appreciate the color. I'll hop back in the queue. Okay.

[Operator]

And I'm not showing any further questions at this time. And as such, this does conclude today's presentation. We thank you for your participation. You may now disconnect, and have a wonderful

Participants

Executives

• Matthew Zartman, VP - Strategic Communications & IR
• Stephen Trundle, President, CEO & Director
• Kevin Bradley, CFO

Analysts

• Matt Bullock, Equity Research Associate at Bank of America Merrill Lynch
• Adam Tindle, Managing Director at Raymond James Financial
• Billy Fitzsimmons, VP - Equity Research & Enterprise Software at Jefferies
• Alyssa Lee, AVP - Equity Research at Barclays
• Jack Vander Aarde, SVP & Senior Research Analyst at Maxim Group