Alarm.com - Earnings Call - Q2 2025

Executive Summary

• Q2 2025 was a clean beat: Total revenue $254.3M (+8.8% YoY) and non-GAAP adjusted EBITDA $48.4M (+13.0% YoY), with diluted non-GAAP EPS $0.60; management raised FY 2025 guidance across SaaS & license, total revenue, adjusted EBITDA, and adjusted net income.
• Versus consensus, ALRM beat Q2 revenue ($254.3M vs $244.0M*) and diluted non-GAAP EPS ($0.60 vs $0.51*), driven by broad-based strength and hardware outperformance; gross profit rose to $166.8M with ~40 bps gross margin improvement YoY. Values retrieved from S&P Global.
• Guidance catalysts: Q3 SaaS & license guide set at $171.4–$171.6M, and FY 2025 raised by ~$5.2M at the midpoint for SaaS & license, with increases to total revenue and adjusted EBITDA; share-count assumption trimmed partly due to Q2 buybacks, supporting FY adjusted EPS $2.40.
• Strategic momentum: growth initiatives (commercial/OpenEye, EnergyHub, international) approached ~30% of SaaS revenue at ~25% YoY growth; new AI/video features and platform extensions (e.g., Apple CarPlay) should support engagement and cross-sell.

What Went Well and What Went Wrong

What Went Well

• Hardware revenue outperformed, supporting EBITDA and reinforcing ALRM’s efficient go-to-market; management noted hardware gross profits historically cover >50% of sales & marketing customer acquisition costs.
• Gross profit rose to $166.8M (+9.4% YoY) with ~40 bps gross margin improvement, aided by revenue mix and quality.
• Growth initiatives momentum: commercial/OpenEye AI analytics, EnergyHub secular demand and device expansion, and faster international growth in LatAm/Middle East (strong RVM adoption).

What Went Wrong

• Operating cash flow moderated in 1H 2025 ($46.8M vs $72.8M 1H24), translating to lower non-GAAP FCF ($36.1M vs $67.8M), partially reflecting Section 174 cash tax timing earlier in the year.
• Retention rate normalized from ~95% in Q1 to 94.1% in Q2 (still high), with management expecting ~93.7–94% in 2H amid housing turnover dynamics.
• Tariff uncertainty required a June price pass-through (baseline 10% tariff; ~7.5% pricing to partners given margin) which may slightly dilute margins, even as gross profit dollars remain roughly unchanged; some partner inventory build likely pulled demand forward.

Transcript

Speaker 0

Good day and thank you for standing by. Welcome to the Alarm.com second quarter 2025 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press *11 on your telephone. You will then hear an automated message device and your hand is raised. To withdraw your question, please press *11 again. 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.

Speaker 3

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, which are predictions, projections, estimates, or other statements about future events. These statements are based on current expectations and assumptions that are subject to risks and uncertainties that may cause actual results to differ materially from our current expectations. We refer you to these risk factors discussed in our quarterly report on Form 10-Q and our Form 8-K, 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.

Reconciliation of GAAP and non-GAAP measures can be found in today's press release on our Investor Relations website. I'll now turn the call over to Steve Trundle. Steve?

Speaker 0

Thank you, Matt. Good afternoon and welcome to everyone. We're 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 million and adjusted EBITDA was $48.4 million. A significant highlight of the second quarter was the celebration of our 10th year anniversary as a publicly traded company. We were invited by NASDAQ to ring in the opening of the market on June 30th. 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 10 years since.

At the time of our IPO, we forecasted total annual revenues of $195 million, including $139 million in SaaS and $56 million 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. We decided to go public because we believed 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.

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 billion in revenues. 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. 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. 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. 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 EnergyHub businesses. Their collective contributions to our consolidated SaaS revenue approach 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 and commercial intrusion 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. 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. 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.com team for their dedication and our investors for their ongoing support, particularly as we celebrate our 10th year as a public company. With that, I'll turn the call over to Kevin Bradley for a review of our financial performance. Kevin.

Speaker 3

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 million, exceeding the midpoint of our guide for the second quarter of $167.1 million. 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. Their contributions to our total SaaS revenue during the quarter approached 30%. Total revenue grew 8.8% year over year to $254.3 million during the quarter. As Steve noted, this marks a milestone as the first quarter with an annual run rate in excess of $1 billion.

Total gross profit grew 9.4% year over year to $166.8 million, 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. 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 $134.8 million during the second quarter. Excluding stock-based compensation and other items we adjust from G&A for non-GAAP purposes, total operating expenses were $118.3 million, a 9.1% increase year over year. R&D expense in the quarter, inclusive of stock-based compensation, was $69.1 million, up 5.1% year over year. Excluding stock-based comp, it was $63.2 million, 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 $34.6 million, and our GAAP EPS per diluted share was $0.63.

Non-GAAP adjusted EBITDA grew 13% year over year to $48.4 million. Non-GAAP adjusted net income grew 6.5% year over year to $34.1 million. Non-GAAP adjusted EPS grew 3.4% year over year to $0.60 per diluted share. We ended the quarter with $1.02 billion of cash and cash equivalents and produced $18.2 million of free cash flow during the quarter. This includes what was our final domestic Section 174 cash tax payment of $33.5 million 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. 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. 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. 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&D capitalization and amortization requirements in Section 174 of the U.S. Federal Tax Code that I'd like to mention.

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&D expenses incurred during the year for tax purposes. Like most companies with intensive R&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 million 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&D businesses like ours. I'll turn now to our financial outlook. For the third quarter of 2025, we expect SaaS and license revenue of $171.4 to $171.6 million.

For the full year of 2025, we are raising our expectations for SaaS and license revenue to between $681 and $681.4 million. This is an increase of $5.2 million 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 $990.0 and $996.4 million, which includes estimated hardware and other revenue of $309.0 to $315 million. We are also raising our estimate for non-GAAP adjusted EBITDA for 2025 to between $195.0 and $196.5 million, an increase from our prior guidance of between $190.0 and $193.0 million due to the beat from the second quarter. Non-GAAP adjusted net income for 2025 is projected to be between $136.0 to $136.5 million, or $2.40 per diluted share.

This is an increase from our prior guidance of $131.5 to $132.5 million, or $2.32 to $2.33 per diluted share. EPS is based on an estimate of 60.3 million 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 million 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 million to $38 million. 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. With that, operator, please open the call for Q&A.

Speaker 0

Thank you, ladies and gentlemen. If you have a question or a comment at this time, please press *11 on your telephone. If your question has been answered and you wish to move yourself from the queue, please press *11 again. We'll pause for a moment while we compile our Q&A roster. Our first question comes from Matt Bullock with Bank of America. Your line is open.

Awesome, thanks. This is Matt Bullock, Officer Co-G of Canada. Thanks for taking the question. I wanted to drill down a little bit more onto the growth levers here. Can you just help us understand what's driving the sustainability of the, you know, commercial, international, and EnergyHub? Feels like we've been chugging along at, you know, 25% plus for some time now, and, you know, particularly choppy software demand environment. Help me understand what's driving the success there and how sustainable that 25% growth rate is for those elements of the business. Thanks.

Speaker 2

Hey, hey Matt. This is Steve speaking. There are really three different areas. I'm going to touch on each one. I'll start with energy. In the energy category, there's sort of a secular trend underway where the 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. EnergyHub is benefiting from that secular trend. At the same time, they're expanding the range of devices that we support and the range of the DERM solution we bring to market. 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. 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 Check, then our expansion of our remote video monitoring solution. It's also at some level driven by the unfortunate events we see in the news from time to time. 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. 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 a beneficiary of that. On the international side, I would say the thing driving growth there is more, you know, still much earlier days than the North American market.

Our team is 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 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. Those are the three areas. Each one has a little different story, but we feel pretty good. You're right that growth rates have held on an aggregate basis, and as a result of that, as a component of SaaS, they're becoming more meaningful.

Super helpful. 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? 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?

Right. The combination is sort of at that 25% growth rate. The individual components are, you know, I would say plus or minus 500 bps on that is sort of the range I would say we see. One 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. Then we make decisions incrementally or individually around each growth area based on what we're seeing with their potential and, you know, what type of investment or burn in some cases we think makes sense. 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 2026. We may see opportunities to, in a couple of cases, further extend their growth with some additional investment.

Really helpful. Thanks so much.

Speaker 0

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

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. Given we're celebrating sort of the 10-year anniversary on this call, and you talked about investors who have stuck with you during that time, it might be an appropriate forum for investors thinking about the next 10 years for you to maybe just touch at a high level as you sort of think about that, how you would describe your vision for the investors today signing up for the next 10 years.

Speaker 2

I 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. I expect that, hopefully, we'll be able to look back 10 years from now and say that, and be sort of as enthusiastic about the prior 10 years as we are now. I would say that we're probably a little bit more set in some tracks that should continue for the next decade. If you go back 10 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.

At this point, I think our markets are probably a little more defined. We're commercial and residential security, and energy. I don't see us dramatically shifting out of those tracks. I think that we're in just a more, a better scaled position to further build those out over the next decade.

Got it. That's helpful. Maybe just to 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. The first one would be, you know, 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. I wonder if that pull-forward dynamic makes the split between Q3 and Q4 hardware revenue a little bit different this year. The second part would be, you know, I know you're not guiding to 2026, but just conceptually, you know, we're going to have to model that. As we think about 2026, you know, you obviously are covered through year-end, as you mentioned, wisely.

Once that kind of coverage rolls off, how do the economics change, you know, as we kind of think beyond year-end?

Speaker 3

Yeah, sure. Hey, Adam. Based on our guide, you can see we're implying somewhere between $150 million and $150 million 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 million dollars above that average for Q3 and then put the residual on Q4. Still a little bit of a skew towards Q3, but maybe a little bit less than historical seasonality suggests. As we look forward to 2026, there's 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, you know, Alarm.com talked about rolling through $7.5 million of higher hardware revenue in the second half of the year related to the baseline tariffs.

If you annualize that, it'd probably be growth in 2026 of about $7.5 million 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. Probably somewhere between $5 million and $10 million higher for 2026 than now.

Got it. Just real quick to wrap a bow on that. You, 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. I just wonder if you're, you know, 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? Perhaps, you know, 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.

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 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. I don't think we see sweeping structural changes to gross profit contribution from hardware. We'll approach revenue planning and sales and marketing budgeting much like we do historically.

Got it. Thank you very much.

Speaker 0

Again, ladies and gentlemen, if you have a question or a comment at this time, please press *11 on your telephone. Our next question comes from Samad Zamana with Jefferies. Your line is open.

Speaker 4

Hey guys, this is William Fitzsimmons on for Matt Zartman. 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. Some are citing a weakening consumer, slowdowns, and other names are citing strength and improvement for the back half. Can you just level set for us what assumptions and considerations went into the back half guide? 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.

Speaker 2

Sure, Billy. Yeah, 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, you know, macros haven't been perfect for the first half, but have not been horrible. Part of that is, you know, we're a little different probably than a lot of the other companies in that we're engaged in, you know, a business that's a visceral need that many people have. I mean, it's security. 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. 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.

You know, we've seen that metric be weak since 2023. Haven't seen a dramatic change there. Lately, 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. To offset that sum, 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, 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.

Speaker 4

Thanks very much, guys. Appreciate it.

Speaker 2

Thank you.

Speaker 0

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

Speaker 1

Hi guys, this is Alyssa Lee on for Socket 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? Maybe as a follow-up after that, what does retention look like here for commercial versus residential for the quarter? Thank you.

Speaker 3

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

For Q3 and Q4, you know, what we're expecting is that that'll kind of be hovering around that same area, somewhere between, you know, 93.7% and 94% is how we're thinking about it. The things that could shift that from a macro perspective are things that Steve touched on on the prior question. Obviously, if activation rates, you know, fell and the housing market sort of somehow seized up more than it is now, that probably leads to a higher retention than what we're modeling. 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.

Speaker 1

Perfect. Thank you so much. Very helpful.

Speaker 0

Again, ladies and gentlemen, if you have a question or a comment at this time, please press *11 on your telephone. Our next question comes from Jack Vander Aarde with Maxim Group. Your line is open.

Okay, great. Great results, guys, 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. Just to pick your brain, do you see home sales? Do you see an environment where home sales do end up picking up again in 2026? Probably going to be very sensitive to the rate discussion, but is that sort of a fair assumption that you guys are thinking about? Also, quite curious, how many Alarm.com residential customers own multiple Alarm.com-connected residential properties?

Speaker 2

Okay. 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, you know, what exactly the Fed should be doing, what should be happening to interest rates going forward. The outcome there might affect what we see with home sales. I think, you know, 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, they're probably feeling a little more positive, you know, 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.

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. You know, folks are seemingly a tad more, not dramatically more, but just slightly more positive about the next, you know, anyway, six to nine months. The second question was, I think you asked how many or what % or do many of our subscribers have multiple properties. Is that correct?

That's right. That's right.

Yeah, that's always been a real source of strength for us, our subscribers that do have multiple properties, both on the residential side and especially on the small business side. 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. People that have second homes sometimes have multiple rental properties. It is a differentiating capability. It requires more of a backend to provide good service across properties. It is a fairly high percentage of subscribers. I just don't know the exact percentage.

That's very helpful color. I appreciate that, Steve. 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?

Speaker 3

Yeah, hey Jack. One slight clarification. 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.

Not at this moment.

Yeah.

I appreciate the clarification on the gross margin or the cost of the tariffs passed through on the hardware there. Internationally, which countries or regions are the largest install base of Alarm.com customers? Are there any particular regions that are growing faster than others, more so now, that might just jump out at you?

You said countries or states?

Countries and regions outside of the U.S.

Speaker 2

Oh, outside of the U.S. Yeah, I mean, this year so far, LATAM has been a faster growing region or area than most. 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. Those are two areas where we're probably seeing a little more growth than what we expected on the international side.

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

Okay.

Speaker 0

Ladies and gentlemen, if you have a question or a comment at this time, please press *11 on your telephone. I'm not showing any further questions at this time. As such, this does conclude today's presentation. We thank you for your participation. You may now disconnect and have a wonderful day.