Alarm.com Holdings, Inc. 2026 Q2 Earnings Call

Please go ahead. Thank you, operator.

Good afternoon, everyone. Welcome to Alarm.com's second quarter 2026 earnings conference call. Please note that this call is being recorded. Joining us today are Stephen Trundle, our CEO, and Kevin Bradley, our CFO. During today's call, we will be making forward-looking statements, which are predictions, projections, estimates, and/or other statements about future events. These statements are based on current expectations and assumptions that are subject to risks and uncertainties that may cause actual results to differ materially from our current expectations. We refer you to the risk factors discussed in our Form 8-K and the associated press release, which were filed with the SEC earlier today. The call is subject to these risk factors. We encourage you to review them. Alarm.com assumes no obligation to update 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. I'll now turn the call over to Stephen Trundle.

Steve? Thank you, Matt. Good afternoon.

Welcome to everyone. We're pleased to report second quarter results that exceeded our expectations. Our SaaS and licensed revenue in the quarter was $188.8 million, up 11% year-over-year. Our adjusted EBITDA in the quarter was $57.7 million. Our Q2 performance reflects continued execution by our service provider partners and our employees. I want to thank them for their contributions during the quarter. Today, I'll review the key drivers of our performance, discuss a recent expansion of our commercial platform, provide an update on the continued growth we see in our EnergyHub utility programs. Generally speaking, we saw most areas of the business perform above plan. Our residential business was steady as revenue retention continued to provide a modest tailwind. In our commercial business, OpenEye delivered strong SaaS and hardware revenue results as enterprise customers continued to expand their video surveillance deployments.

They often did so with increased adoption of our more powerful AI-enabled services. EnergyHub also delivered healthy SaaS growth as utility customers expanded the scale and capabilities of their distributed energy resource programs. During the quarter, our international business also surpassed 1 million active subscriber accounts. This milestone is only possible because of the work we have invested in localizing our platform and developing a productive network of international service provider partners in over 70 countries. The commercial business continues to progress as our service provider partners and commercial integrators adopt more components of our unified video, access control, and commercial intrusion platform. We recently expanded into an additional commercial category with the launch of our Fire Communicator. Our new offering transmits alarm signals to a monitoring station while simultaneously delivering notifications to designated users through the Alarm.com applications and services.

Many of our existing partners already service a number of commercial fire monitoring installations and use Fire Communicators routinely, just not ours. Fire Communicators are typically replaced independently of the fire alarm control panel. This tends to occur when legacy communicators fail regular tests or lose network support as cellular networks evolve. Our new Fire Communicator leverages our cellular communication infrastructure and our back-end platform to deliver a more efficient product for our service providers to manage at scale. We designed our Fire Communicator to be compatible with most new and existing fire panels, which are widely required in commercial buildings. We estimate that the addressable market for our new product consists of 4 million-5 million fire panels in the U.S. and Canada. As with any newly launched product, driving adoption through our service provider channel will take some work.

We see a long-term opportunity to build a position in the commercial fire space and are excited to now have this product and service in the market. Turning to EnergyHub, utilities continue to grow their flexibility programs that increasingly rely upon EnergyHub to maintain grid reliability, particularly during periods of high demand. The leverage from EnergyHub's technology was evident earlier this summer during periods of extreme heat. Over the July 4th weekend, utilities dispatched more than 300 demand response events across more than 30 states and Ontario through EnergyHub. Collectively, these events shifted 17.5 gigawatt hours of electricity, roughly equal to New York City's total electricity consumption for more than two hours. Back on the security side, I also want to share a couple of recent examples of how our technology and service provider partners protect lives and property.

A few weeks ago, I was made aware of an incident where one of our remote video monitoring deployments spotted an individual attempting to set fire to an occupied home by dousing it with what appeared to be gasoline and then igniting it. Using our technology, a central station operator was alerted to the arsonist's presence, verified what was happening, and quickly contacted authorities. The family inside the home escaped without injury. In a separate recent incident, one of our outdoor gunshot detection sensors detected gunfire directly at a busy outdoor area. Authorities quickly responded to the gunshot signal and secured the area. They were able to apprehend a suspect before there was any loss of life.

We don't often report on these incidents, but just as EnergyHub is enabling a more reliable grid in the heat of the summer, our life safety solutions are operating all the time, protecting communities and while providing a durable foundation for our business. We are thankful to have established partnerships with many service providers through the years that treat this life safety mission as importantly as we do and then do a great job on the ground every day. We believe deeply in our mission and in the enduring value of security. In summary, I'm pleased with our strong second quarter results. Our performance reflects the diversity of our business, and we are excited to continue our progress in the second half of the year. I'll now turn the call over to Kevin Bradley, our CFO, to review our financial results.

Kevin? Thanks, Steve. I'll begin by reviewing highlights from our second quarter financial results and then close with our updated guidance for the third quarter and full year 2026.

Midway through the year, I'm pleased to report another quarter of execution against our financial plan. SaaS and license revenue grew 11.1% year-over-year to approximately $188.8 million during the quarter, exceeding the midpoint of our guidance by approximately $3.2 million. For the third consecutive quarter, revenue retention remained in the 95% range. Our commercial initiatives and EnergyHub also contributed nicely, collectively growing more than 30% year-over-year. Hardware and other revenue totaled approximately $89 million, an increase of 5.5% year-over-year. During the second quarter, we saw particularly strong demand from enterprise buyers in our commercial video segment. We also benefited from increased activity in EnergyHub's low carbon and renewable fuel credit business.

Through this business, EnergyHub uses charging data from its electric vehicle manufacturing partners to facilitate the generation and sale of low carbon transportation credits to obligated fuel suppliers in certain states, retaining a portion of the value generated as revenue. This mix of enterprise hardware sales drove a 180 basis point expansion in hardware gross margin year-over-year, allowing us to fund just over 70% of our sales and marketing costs in the quarter from hardware gross profit. During the second quarter, total operating expenses, including depreciation and amortization, were $149.6 million. Total operating expenses, excluding depreciation and amortization, stock-based compensation, and other items we adjust from G&A for non-GAAP purposes, were approximately $123.7 million, a 4.6% increase year-over-year. R&D expense in the quarter, inclusive of stock-based compensation, was approximately $71 million, a 2.8% increase year-over-year. We ended Q2 with 1,148 employees in R&D functions.