Alarm.com Holdings, Inc. (ALRM) Q2 2020 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by and welcome to the Alarm.com Q2 2020 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. [Operator Instructions]. I would now like to introduce today's conference call to Mr. David Trone, Vice President of Investor Relations. You may begin.

Thank you. Good afternoon everyone and welcome to Alarm.com's second quarter 2020 earnings conference call. As a reminder, this call is being recorded. Joining us today from Alarm.com are Steve Trundle, President and CEO; and Steve Valenzuela, CFO. Before we begin, a quick reminder to our listeners. Management's discussion during the call today will include forward-looking statements, which include projected financial performance for the third quarter and full year 2020, anticipated impact of the global economic uncertainty caused by the COVID-19 pandemic and emerging market dynamics and trends on our business and on anticipated market demand for our offerings. Our business strategies, plans and objectives of future operation continued enhancement to our platform and offerings, opportunities for growth in our current markets and other forward looking statements. These forward-looking statements are based on our current expectations and beliefs and on information currently available to us. Statements containing words such as began, believe, continue, estimate, expect, indicates, may, project, trend, will, and other similar words are intended to identify such forward-looking statements. These statements are subject to risks and uncertainties, including those contained in the Risk Factors section of our most recent annual report on Form 10-K filed with the Securities and Exchange Commission on February 26, 2020, and in subsequent reports that we file with the Securities and Exchange Commission from time to time, including the updated risk factors section of our quarterly report on Form 10-Q that we intend to file with the Securities and Exchange Commission shortly after this call, that could cause actual results to differ materially from those contained in the forward-looking statements. Please note that the forward-looking statements made during this conference speak only as of today's date, and Alarm.com undertakes no obligation to update these statements to reflect subsequent events or circumstances, except to the extent required by law. Also during this call, management's commentaries will include non-GAAP financial measures and provide non-GAAP guidance. Management believes that the use of these non-GAAP financial measures provides an additional tool for investors to use in understanding the company's performance and trends, but notes that the presentation of non-GAAP financial information is not meant to be considered in isolation or as a substitute for the directly comparable financial measures prepared in accordance with GAAP. Reconciliations between GAAP and non-GAAP metrics for our reported results can be found in the financial statements tables of our earnings press release, which we have posted to our Investor Relations website at investors.alarm.com. This conference call is being webcast and is also available on our investor Relations website. The webcast of this call will be archived and a telephone replay will also be available on our website. So with these formalities out of the way, I'd now like to turn the call over to Steve Trundle. You may begin.

Thank you, David. Good afternoon, and welcome to everyone. We are please to report solid second quarter results. Our SaaS and license revenue in the second quarter was $95.7 million, up 16.2% over the same period last year. Our adjusted EBITDA in the second quarter was $29.2 million. I want to thank our service provider partners and the alarm.com team for their continued strong performance as we navigate these challenging times. Our results were driven by decent momentum in new account installation in the U.S. which picked up nicely in the back half of the quarter after a slowdown caused by the COVID-19 shutdowns in March and April. Our service provider partners adjusted to the environment and successfully implemented new safety procedures that allow them to return to conduct the installation. We believe that their trusted reputations reassure consumers who seemed mostly comfortable with allowing our partners to operate inside their property. On today's call I'll focus on our OpenEye team's recent product and integration development and then discuss initiative to help our service providers continue to adapt to the evolving market condition. I'll close by commenting on the recent announcement by ADT and by providing some additional details on the effect of COVID on the markets that we serve. Beginning with OpenEye, as you probably remember, we acquired the company last year to expand our commercial opportunity in the large enterprise and national accounts market. The cloud services component of the $4.4 billion video based security market in the Americas region is forecasted to increase from 9% of the total market in 2018 to 15% of the market in 2022. OpenEye is a leader in this transformation with its innovative solutions. I should note that OpenEye has experienced more disruption from COVID than the North American residential component of our business. They tend to service schools, financial institutions, restaurant chains, and other large or multi site customer locations. These sites have been less accessible for installations. In some cases, project budgets have also been paused, while companies manage these uncertain conditions. We view this disruption as temporary. Meanwhile, we have been very focused on executing our internal goals for alarm.com integration of OpenEye and the R&D program we have for the platform. OpenEye recently launched OWS 24/7 Lite, a pure SaaS offering optimized to address mid tier commercial customers. It supports up to 24 recording channels per system and provides access to streamlined versions of the OpenEye platforms robust enterprise feature set. We designed the OpenEye subscription service to provide a cost effective and highly flexible option for businesses that want to get started with OpenEye technology without a sizable upfront capital investment. Since launching OWS 24/7 Lite, a growing number of Alarm.com's traditional service providers have included the offering in their toolbox and started to engage their mid tier commercial customers. One recent example is Bargain Hunt. They have been an Alarm.com subscriber for several years with 90 locations. They were initially attracted to the capabilities Alarm.com offers for the efficient and secure management of multiple locations. After using our enterprise console, they expanded their deployment with our smarter access control service. Earlier this year, Bargain Hunt was introduced to OpenEye full suite of video services, and they will begin rolling it out to their retail locations this month. Next, I want to share how we're evolving our support for our service providers, so that they can continue to optimize their operations in the current COVID environment. Every year we typically take advantage of a number of in person opportunities to engage with our service providers and to conduct extensive training on the services and capabilities we offer. Recently, our training program the Alarm com Academy launched an entirely new catalogue of training programs, and we significantly expanded our digital platform for online learning. We've seen a strong increase in session participation throughout the year, including during the second quarter. The new training is designed to help our service providers leverage the extensive tools and services we provide for remote system configuration, testing, troubleshooting, and repair. We initially develop these capabilities to help reduce operating costs for our service providers in normal times. The COVID-19 pandemic has given these differentiated capabilities, significant new utility value. We also launched a new series of smart tip instructional videos, small group workshops, interactive troubleshooting scenarios, and live webinars to replace in person sessions. All of these were added during the second quarter and have been helpful in making sure that our service providers are well versed on the latest services and capabilities that we offer. Next, I want to comment on the announcement ADT made two days ago regarding their partnership with Google. I'm sure that our investors are wondering what this means for Alarm.com. ADT has indicated to me that it is day one for this initiative and they are working to further develop a view of both the initial objectives and their longer term plans. We believe that ADT continues to view Alarm.com as a strategic partner. Our software is the technology platform that powers the ADT command and control offering and provides the Smart Home Services for a large and growing percentage of their residential and commercial customers. The launch of command and control in 2019 was a significant undertaking, and has been a success by many measures. We expect to continue work with ADT to support and expand the deployment of this offering for the foreseeable future. As we have always done, we will continue to focus on our mission of delivering to our service providers and their end customers, the most innovative, secure and reliable platform available. We believe our focus on serving our partners and on technology innovation has served us well and we remain committed to our approach. Over the past quarter, we have continued to win awards for our innovation, as well as grow our partner base despite the challenging environment. We have more than 9000 service provider partners globally. Our large ecosystem of hardware partners enables a breadth of services and capabilities that span the DIY, full service residential multifamily help small business and commercial smart property verticals. Often we see that one of the advantages that Alarm.com brings to our service provider partners is the ability to provide a single platform with a full spectrum of IoT application services that address all these market segments. Lastly, I want to update you on market conditions and our sense about the overall effects of the COVID pandemic on our business. As I mentioned on last quarters call, the pandemic impacted new account sales and installations across all, but our energy hub lines of business in March and April, as shelter-in-place orders were implemented. The U.S. residential security market has improved considerably from this slowdown. Our commercial business, and especially our international business are seeing more of an ongoing impact from COVID. Overall momentum and new account installations continue to build through the second quarter, and our retention remain solid at pre COVID levels. We're also seeing a couple of market dynamics that tend to favor sales of new security systems. During challenging economic environments, consumers historically tend to worry more about asset protection and security and safety become more important. And now we are seeing an emerging suburbanization trend where a growing number of households are seeking to migrate away from dense, expensive major metro areas to smaller cities and suburbs where single family homes are more accessible. This appears to involve a high percentage of adults under 30 years of age, as a younger cohort of adults increasingly purchase single family homes, we see a strong fit for our professionally installed and serviced Smart Home Solutions. I also want to remind you that the course of the pandemic will likely continue to influence economic conditions for the foreseeable future. The exact outcomes remain difficult to predict. As such, we will remain cautious about projecting what future conditions may look like and we will continue to focus primarily on what we've already seen, or are currently seeing in our markets. In summary, I'm pleased with our second quarter results. We remain confident that we can continue to advance our strategy as we navigate this uncertain period. I want to thank our service provider partners, our ecosystem partners, and the Alarm.com team for their hard work and our investors for their trust in our business. And with that, let me turn things over to Steve Valenzuela. Steve?

Thank you, Steve. I will begin with a review of our second quarter 2020 financial results and then provide guidance for the third quarter and our raised outlook for the full year of 2020 before opening the call for questions. SaaS and license revenue in the second quarter grew 16.2% from the same quarter last year to $95.7 million. This includes Connect software license revenue of approximately $9.8 million for the second quarter, down from $11 million in the year ago quarter. Our SaaS and licensed revenue visibility remains high with a revenue renewal rate of 94% in the second quarter, at the high end of our historical range of 92% to 94%. And consistent with levels prior to the COVID pandemic. Hardware and other revenue in the second quarter was $45.9 million, up 16.8% over Q2, 2019. We continue to see strong sales over video cameras, which primarily accounted for a large increase in hardware sales. Total revenue of $141.6 million for the second quarter grew 16.4% from Q2, 2019. SaaS and license gross margin for the second quarter was 86.4%, up approximately 180 basis points from Q2 2019 gross margin of 84.6%, due to improved efficiencies we've been able to achieve in our operations. Hardware gross margin was 21.6% for the second quarter, compared to 18.9% for the same quarter last year, primarily due to product mix and inclusion of OpenEye which has a slightly higher hardware margin. Total gross margin was 65.4% for the second quarter compared to 63.4% for the same quarter last year, mainly due to favorable product mix. Turning to operating expenses. R&D expenses in the second quarter were $36.6 million, compared to $28.4 million in the second quarter of 2019. We ended the second quarter with 721 employees in R&D, and total headcount of 1317 employees, up from 554 employees in R&D, and total headcount of 1005 in the year ago quarter. We have continued to build our team during the pandemic, with particular focus on engineering staff, and have had success hiring for some positions that had been hard to fill in the past. Sales and marketing expenses in the second quarter were $16.9 million, or 11.9% of total revenue compared to $15.6 million or 12.8% of revenue in the same quarter last year. Our G&A expenses in the second quarter were $17.4 million, compared to $13.9 million in the year ago quarter. G&A expense in the second quarter includes expenses that we exclude from our measurement of our non-GAAP financial performance, which we refer to as adjusted measures. These include non-ordinary course litigation expenses of $1.6 million, compared to $3.1 million for Q2 2019. Q2 adjusted measures also includes non-ordinary course expenses of $543,000 for the secondary offering completed by TCV, and a reduction to expense of $1.7 million to adjust earn-out liability related to our acquisition of OpenEye due to the lower probability of OpenEye achieving their earn-out. Non-GAAP adjusted EBITDA on the second quarter was $29.2 million, up from $27.7 million for Q2 2019. In the second quarter GAAP net income was $17 million, compared to GAAP net income of $13.8 million for Q2 2019. Non-GAAP adjusted net income increased to $20.6 million in the second quarter, compared to $19.9 million for the second quarter of 2019. Turning to our balance sheet, we ended the second quarter with $205.8 million of cash and cash equivalents. A very strong increase of cash of $34.1 million quarter over quarter. Our DSOs in Q2 remain constant at 49 days and up slightly from a year ago when our DSOs were 45 days. We have a strong balance sheet and a cash flow positive business model. In the second quarter, we generated approximately $35.1 million cash flow from operations, up from $24.1 million cash flow in the second quarter of 2019. Our free cash flow for the second quarter was $31.8 million, compared to $21.3 million for the same quarter last year. In the second quarter, our capital equipment purchases were $3.4 million, compared to $2.7 million in Q2 2019. Next, I will review our outlook for the third quarter in 2020. This continues to be a challenging time to forecast as there are many unknowns with regard to the pandemic. While our second quarter results show that our service providers are operating fairly well overall, we cannot fully anticipate how future results might be affected by the pandemic and its impact on general economic conditions or our supply chain, among other factors. For the third quarter of 2020, we expect SaaS and license revenue of $96.6 million to $98.8 million. For all of 2020, we expect SaaS and license revenue to be between $382.7 million to $383.1 million, up from our prior guidance of $375 million to $380 million. We are raising our guidance for total revenue for 2020 to $552.7 million to $563.1 million, up from our prior guidance of $515 million to $535 million, which includes estimated hardware and other revenue of $170 million to 180 million. We're raising our guidance for non-GAAP adjusted EBITDA for 2020 to $160 million to $107 million, up from a prior guidance of $100 million to $103 million. Non-GAAP net income for 2020 is estimated to be $74.2 million to $74.9 million, or $1.46 to $1 47 per diluted share, up from our prior guidance of $69 million to 73.5 million or $1.36 to $1 45 per diluted share. We expect our non-GAAP tax rates remain at 21% for 2020. EPS is based on an estimate of $50.8 million weighted average diluted shares outstanding. We expect full year 2020 stock based compensation expense of $27 million to $29 million. In summary, we are pleased how well our service provider partners and our Alarm.com teams are performing in this environment. We will continue to work hard to support our service provider partners and their customers during these challenging times. And with that operator, please open the call for Q&A.

[Operator Instructions] Our first question comes from Adam Tindle of Raymond James.

Okay. Thanks. Good afternoon. Steve Trundle, I thought I would just maybe start with kind of a general strategic update. Your backdrop in the industry is -- environments very volatile, but your performance has been quite stable, probably pretty different from competitors. You got a healthy balance sheet, stable, predictable business, afford you some optionality to maybe get a little bit more on offense. So, maybe just talk about how you're thinking about using this business stability as a competitive advantage. Is now the time to start thinking about doing something larger? And then the key metrics or characteristics you're looking for in investments?

Sure. Adam, I think, yes, we're in a fortunate position. I think our service providers are doing generally pretty well. And that provides a good amount of stability. The businesses are very driven by recurring revenues, so makes them more predictable. I think as we look forward, I mean, we're not going to dramatically change our strategy. I think what you see us do continuously is reinvest back into R&D and steadily attempt to expand the footprint of the offering that we make available to our service providers, so they can expand their markets. So you've seen us over the years moved from residential to residential video, to commercial, to access control, et cetera. That's important for our service providers that we'd be able to sort of cover the full spectrum of IoT application services. Likewise, we've been expanding globally and that takes pretty intensive investment. So that said, there are couple of things probably that we continue to focus on a bit more. One is our corporate development function. We spoke a lot about OpenEye just a moment ago. And that's the result of an active corporate development operation. So we'll continue to sort of vet opportunities and look for places where we can add value. And then I think that we may shift to a slightly more aggressive marketing posture over the next year. So there'll be some steps like that. But generally, I think we're doing well. It's a challenging time to get so bullish, especially with the COVID uncertainty that sort of creates an overhang that you want to -- at this moment in time bet big on a new direction, but I think generally we're taking advantage of the dynamic to run our recruiting engine hot, look to fill key positions that are open and continue to grow in a lot of different directions.

Understood. That's helpful. Maybe just as a follow up more near term, SaaS revenue growth obviously accelerated this quarter, I think over 4% sequential growth. If you could just touch on some of the key drivers between ARPU, dealer ads, retention. And you also mentioned that I think subscriptions picked up at the end of the quarter. Could you give us an update what you're seeing here in early August? Did that pick up at the end of the quarter continue kind of linearly, as you sit here in early August? Thank you guys.

Yes. Good question. So the thing that probably surprised us in the quarter was the strength of the U.S., particularly the U.S. residential market, which picked up a little more quickly than we expected. And really, at this point, is running pretty well. And that, we have a number of partners that are doing extremely well. That kind of covered some of the weakness that we saw commercially and internationally. The international markets have not come back quite as quite as quickly. So a lot of the growth was driven by outperformance and U.S. residential. Now there also was some strong performance in the subs. If you look at the 10-Q, I don't know if it's out yet or not. But you'll see 60% year-over-year growth on the SaaS line in the subsidiary businesses and a good bit of that's driven by energy hub bringing on really moving to a more mature status in some of their electric utility relationships. And that's nice tailwind for the business. So some of it is ARPU driven. But at the moment, our posture on ARPU is to really focus on the value we're providing the service providers and make sure that we're not trying to get everything on the table necessarily, but instead deliver to the consumer steadily better experience. That said, video analytics has been continuing to pick up. And as customers use more, it really is a nice offering, as customers use more of the capabilities that we're able to render, then we get a trickle of improvement on the ARPU rate over time as well.

Thanks, Steve.

Yes. Thanks.

Our next question comes from Nikolay Beliov, Bank of America.

Hey, guys. Thanks for taking the questions. I have a two-part question for Steve Trundle. Part one, Steve, is this convergence between internet and home security around viewers. What does it mean at a high level from strategic point of view? And sound like, clearly the chess game against the -- now the chess game around the smart home has began just more complicated with this transaction this week. I mean, how do you think about this in the long term? What does it mean for your business? And how do you as a CEO think about this development?

So, that's two-part question. I'll start at the first part. Convergence of internet service provisioning with security, I think was your first question, if I understood it correctly, it cracked up a tad. That's been underway. I mean, we've gone from a world where we were putting in almost entirely wireless technology to one where more and more we're leveraging the consumers internet connectivity, particularly for video services, at times for integration of additional third party devices. So, as you leverage that communication pipe, in our world we have to make sure it's very reliable. We don't -- we're not doing games online with our teenagers here. We're trying to provide a very reliable security service. So our service providers have been sort of migrating in a bit into the business of offering or attempting to help the consumer improve the reliability of their internet services, and we are self ship. I don't think we've made a lot of noise about it. But we ship something called the Alarm.com smart gateway, specifically for that purpose and that it allows the dealer to remotely administer the connectivity inside the home that is feeding video cameras and other internet connected devices. And it's become -- that -- we did it to make the service providers more efficient, make it more easy for them to service customers remotely. But it's becoming sort of an additional piece of their offering. So I think that will continue. Of course, we also have some MSO customers. And there, the benefit is more of a bundled offering. But as I look at sort of the landscape, has the world gotten more complicated? I think it's sort of has and hasn't and that -- I think this announcement does demonstrate that the professional service provider company and channel is a very attractive place to be in the smart home market. We've been saying that for some period of time that there really are multiple market segments, and the one that we probably focus most intensely on is professional service provider. And that's been good for us over the years. So, you see an additional endorsement in a way of that strategy that we adopted over a decade ago. And at the same time, I think with this announcement in particular, it's just a little too early to tell. I think we've been a solid partner. We've got over 3 million customers in collaboration with ADT that we're servicing together. We've got a lot of competence and capability that I think will be valued as we look forward. So we're looking forward to a set of discussions and a roadmap planning session in the not-too-distant future and we'll see where things go. I don't necessarily -- it may be that we see some additional devices and whatnot integrated. But I think it's a little earlier -- early to tell exactly how that washes out.

I mean, just a clarification question, I can see how that makes from, okay, dual-brand strategy, ADT having DIY and professional services that at the same time. And that maybe didn't work out with Google, Brinks, that's well, but it was okay. And it sounds like Google wants to take it to the next level. But I guess the threat to you is that Google at some point might have a back end system for dealers that comparable in strength to your current technology. So maybe if you can help us compare and contrast what Google has today in that regard versus the capabilities of your system? Thank you.

Yes. I think a lot of that contrast is based on pedigree and that since 2004, so for quite a while we've been focused on first and foremost, the customer being the professional service provider, and building out the back end application software that allows professional service provider to manage a very large deployment when they themselves oftentimes have multiple dealers. So there's a lot of application where that's required that -- probably half of what we produces is not directly in front of the consumer. Certainly, when we get into commercial applications as well, we get into very rich login hierarchies and permissioning routines and whatnot that you have to do. We wouldn't have done them if we were just getting started the last few years. I think that, if I were to contrast, I think where Google has been very strong is on the consumer device side with very elegantly designed devices that are rich in functionality, that have been in some cases, market shifting. If you think about the Nest thermostat. And then the focus on the software side has really I think been on rendering an experience around those devices to the consumer. Not really a focus on rendering a platform for a service provider. So we're starting in a very different place and it may well be that with the right amount of collaboration, we can sort of accelerate on both sides. I'm not sure yet. But those are the basic -- some of the basic differences. I think if you look at what we do, we're also covering a lot of different market segments with a single platform. So whether you're dealer that servicing small business or residential or you're going DIY or you've got a health component in your business. You may be installing access control, whatever it is, we kind of tailored the offering to work for the service provider. And at the moment, that's a pretty different place than where Google is coming from, where they've had a strong focus on, really the devices that the consumer users in the home.

Perfect. Thank you.

Our next question comes from David Robinson with William Blair.

Hey, guys. I just had a question on the OpenEye SaaS offering. So I was just curious, how -- maybe you can kind of elaborate on how the selling process compares to the legacy offering? And I know in the past, you said that you intended to put some additional sales resources behind OpenEye. So Is that still the case? And will that kind of change? What the target customer will look like compared to the legacy offering as well?

Now good question. Really it's on two fronts when we think about Salesforce enhancement. On the one side, the OpenEye team is enhancing sort of the scale of their sales team and the number of -- the number -- the amount of outreach they can do. And then on the other hand, we're beginning to introduce the offering through the Alarm.com partner sales team that we've had in place for a long time. Now as we take components of OpenEye and begin to introduce that through the Alarm.com channel, it is made sense to tailor what I described a moment ago as OWS Lite, which is a sort of a less and not as much of an enterprise version product. But more of a true SaaS product that has very low upfront cost and that is more akin to what our service providers are use to using, use to reselling. We'll continue with the OpenEye platform in the enterprise sales segment. So there are always going to be a set of customers who want to pursue who are very large, typically institutions, universities, places like that, that want to pursue a more classical enterprise deployment with racks of servers and their own knock, running software, running the OpenEye package. Now that enterprise deployment is backed up by the way with a very nice fast software layer, so that we can remotely administer, remotely manage all of that infrastructure on the enterprise side. But I guess the short answer is going to keep doing enterprise. The build out has been lately on the sort of a lightweight SaaS offering which you think will be more applicable for slightly smaller locations, more applicable to a broader segment of the market and will have in our view, kind of using our traditional model slightly more attractive and durable long term economic model with less upfront cost to the to the subscriber.

Great.

Our next question comes from Jeff Kessler with Imperial Capital.

Hi. Congratulations on a good quarter in a tough environment. I'm interested in your announcement on the Johnson Controls International. That's the old ADT brand out there that actually rose kind of pushed aside in many ways, but by Verisure. And was considered in some cases and also ramp. But you've gotten into Europe with -- you got it to Europe with securitize, and now you're going to help out and with a potentially very large base of consumer types of systems are you going to be with Johnson Controls? Are you going to be targeting just to consumer? Or will you be moving up into like small business or even enterprise business with them over time? Can you talk about the European strategy because it seems that you're beginning to start covering the entire continent?

Yes. Now that's -- it's insightful you picked up that announcement. I think many people in the U.S. had forgotten about ADT International, but it's still a very large and successful business outside of U.S. And it's really not just Europe, it's parts of Asia. I think we're launching in 11 countries, parts of Asia, Europe, couple parts of Latin America. And initially the focus there is on the residential side of that business primarily and bringing the customer a richer set of services, upgrading a lot of existing customers to a richer set of Alarm.com powered services. And kind of managing that attrition but also freshening up the presentation of what ADT International brings to the consumer. So that's going --they've executed remarkably well in the first six, eight months of the year, and that's going pretty well. In terms of our overall ambition. Yes, I think our ambition is to leverage every investment we make for the North American market as much as possible for the international market. So when we make investments in commercial or access control or video analytics, we never sort of sit here and say, well, this is a U.S. only feature. We asked ourselves, is the feature going to be relevant based on the Intel we have to other segments and other partners elsewhere in the world. And therefore, much as we see here in North America, different service providers service different parts of the market, whether the enterprise, small business, et cetera. Some do it all. But because there's a lot of fragmentation we'll continue to work with lots of different partners and hopefully, over time upgrade the overall sort of smart property experience that a consumer can expect in these other markets.

And Will this be -- is this separate and apart from your key with secure cost? Is this going to be in conjunction with them? Is there going to be some overlap? How are you going to work this?

No. It's -- Jeff, it's similar to how we work with 9000 service providers already where, we take a little bit as much as we can have a Switzerland role. And we do a lot of R&D, which then we then amortize across a lot of different service providers. So we have a good relationship with Securitas. We intend to fully support them. But this is not -- ADT International is just a different company. So it's not an affiliation type of deal.

Right. Understood. Just quickly on energy hub. You had some kind of nice words for them as part of your growth, particularly in SaaS growth during the quarter. Could you expand on that a little bit? What is going on that's -- that's so successful right now in energy hub, since it seems to helped your numbers this quarter?

Yes. I'll talk tactics and then a little bit strategy. On tactics, I think we've from time to time have announced new energy hub partners, some of whom have been large -- fairly large and notable utilities. We have not been able to announce every deal they've signed, because some of those partners want to keep that information confidential and keep their deployment information confidential. So, we've announced some, we haven't announced them all. Last year, most of the -- a lot of those opportunities were sort of in the startup phase where you're running trials and pilots, you're getting things in place. And then, I think some of the accelerated growth we saw in the second quarter on that side of the business came from the fact that those relationships were maturing and are now reaching a full deployment. Now, let me back up talk a little about strategy there, which is the concept is that you connect to any energy consuming components that may exist in a primarily in a residential property. So we already do a lot of that through the Alarm.com business. But we also on the energy hub side partner with a lot of folks you might not typically expect us to partner with even people that we would traditionally describe as competitors, anyone making a device that can be tethered to a power line is someone that may be a partner of ours, whether it be an HVAC manufacturer or water heater manufacturer or a thermostat manufacturer, a pool pump, manufacturer, whoever it may be. And we then aggregate all of that data and a certain amount of control and put that into the hands of the electric utility, so they can better manage and control what's happening on the edge of their grids and at time -- at times even influence the way that they level load their production. So that's just becoming, it's a good business to be in. It takes scale. It takes a long time. You get some traction with a few and that then carries over into a few other relationships. So, that's sort of -- and of course, the edge of the grid for these guys is not getting easier. You've got batteries. You got solar inverters, you've got more and more there on the consumer side that you need to track, you need to manage, you need to understand. So all of those components generating additional data, which makes that good place for a software provider to prosper.

Okay. Thank you very much.

Thanks.

Our next question comes from Kevin McVeigh with Credit Suisse.

Great. Thank you. Hey, Steve, you mentioned unexpected strength in U.S. residential in the quarter. Maybe just help us understand what drove that just related to expectations?

Yes. So I think last quarter, we talked about generally new account creation been at around 70% of what we had planned. And that caused us to be a little bit -- to be more cautious as we gave an outlook for the rest of the year. We thought that would ramp, but we weren't sure when. I think what happened is it ramp inside of the quarter quite a bit. And I think what maybe surprised us a bit is how willing the consumer is to allow a company with a trusted reputation. So if you're someone -- if you're one of our service providers, whether it would be ADT, Brinks, anyone [Indiscernible] lots of them, they have great reputations. And customers are willing to let a well branded sort of trusted entity into their home, if they perceive that they're taking the proper safety precautions. At the same time, you've got a lot of consumers that are at home and can get stuff done. So to the extent they've been thinking about getting a smart home system or want to upgrade their system, they've been more available, more available. More available for sales visits, more available for installations. And I think we didn't see that kind of -- its ours. If you look at the size of the COVID pandemic in U.S. and you wouldn't necessarily expect that relative to the rest of the world, but even in markets, Florida, Texas elsewhere, where we perceive there being a more intense pandemic situation. We've seen the consumer be very resilient.

And then again, just going back to ADT, Google. From a market perspective have you think just the competitive landscape reset. To the extent obviously, you work through a lot of distributors. How do you think the other distributors react? I mean, I know, that's a hard question. But do you think it triggers other type of relationships similar to what Google ADT have or just any thoughts on if there is any kind of industry fundamental change?

Okay. I think I'm getting a little background noise there, but I'm not sure where that's coming from. But I'll say, that I think the -- first it's a little early to tell. We don't really know exactly how this recent announcement will shake out. What it means for the market. And therefore, I'm not -- it's difficult for me to predict exactly how other service providers will react. I would say, in general, though, that the market has been competitive for a long time, both on the technology side and the service provider side. And competition is generally, it can be a good thing for us and our relationship with our service providers, because it drives the need for innovation. And we're in a position where we're laying in place investments to maintain a very innovative posture. So if you want to stay current and deliver the consumer a Tier 1 experience, I hope and I think that we are the right partner for you and that it will, regardless of how things shake out that competitive technology environment will be good for Alarm.com.

Thank you.

Our last question comes from Jack Vander Aarde with Maxim Group.

Okay. Hi guys. Excellent quarter. Thanks for taking my questions. Okay. So, first question for Steve Trundle. In one of my favorite topics to explore is the premium services front and kind of what new potential solution, services or any offerings during the pipeline that may go overlooked. Do not talked about as much. But could be quite unique to the current market while also being a material ARPU expansion driver. One example in my mind is the recent acquisition of AirDog, a maker of unmanned aircrafts. That sounds exciting. Could you maybe talk about the vision or the plan for unmanned aircrafts? And then anything else in the pipeline or on the drawing board you might be able to talk about?

You're paying too much attention. Yes, so we're always attempting to expand the footprint of value that we can provide the consumer through our service providers. And I think you've been watching things. There have been a few things that are maybe not fully fruition yet, but that have that at times gotten a little bit of airplay. One being the connected car capabilities that we announced in the fourth quarter of 2019. That is sort of out there. But below the radar, not yet. In deployment. I think we've talked in the past about water and the importance of water monitoring and water management to the consumer. It's a place where we're making meaningful investments. And I have a lot of hope that within the next 12 months we'll see a very attractive offering there that's becoming more broadly deployed. With AirDog, we've been working for some time on making it possible for cameras to go where they need to go, to see what they need to see, as opposed to being absolutely in a fixed position or not able to track a dynamic event. So, kind of fundamental R&D there, but that's an ongoing initiative. And one that we'll continue to invest and don't have any immediate updates, but there are several things like that, that we -- our goal is to keep our service providers ahead. So we have to be looking out more than just sort of the next six months or 12 months. And be at times taking some fliers on things that to use upon, by the way on things that we think over time will generate differentiated value, but that take a while to do.

Got it. That's helpful. And then also, Steve Trundle, if you could provide maybe a status update on PointCentral, which I imagine it's been likely impacted or more disruptive than your residential business, giving a vacation and property rentals. But they did acquire Doorport back in early May, which is already announced I think last quarter too. But any additional color you can provide on PointCentral? And maybe just informally speaking, when you might -- when might you see them scale into a larger contributor to Alarm as a whole to the business?

Yes, exactly. So they were and are being impacted probably a bit more by COVID than some of the other segments. Their customers are the vacation rental companies. Now those companies are doing well again, right now. People are driving, staying in vacation homes much more than -- that's how most people are doing their summer vacation. So the market is good, but there's not a lot of opportunity to install new stuff this summer because everything's fully booked. The winter will be the time when we hopefully get back into the VRBO space with a faster install rate. They also though in the business of tying together and making available a full multifamily platform whether you're a company that owns thousands of rental homes, or whether you're an entity that's operating several 300 unit multifamily buildings, PointCentral provides a smart property solution for that segment that benefits both the property owner, the property manager and the tenant themselves. And Doorport was germane to that vision more on the multifamily side particularly with higher rise -- high rise residential, we wanted to add value at the access point that the tenant is using with a smart intercom solution. And we want to be able to do that both via set of partnerships. So we're partnering with several folks that are in the intercom business, but also with a fairly affordable retrofit solution that is not dependent on the building's internet connection. So a cellular retrofit solution and we thought that Doorport was an innovator in that domain and will fold into the PointCentral multifamily offering nicely and strengthen our technology position there.

Got it. That that's helpful as well. And then lastly, I'll take last one and then queue here. For Steve Valenzuela, so the SaaS and license revenue guidance for 2020 was raised. I know, a lot of analysts have already kind of questioned or had questions about this. But it does imply robust growth. And that's great to see. Just hoping you can maybe break it down though in terms of the underlying drivers. Would you say, what are the factors there that they're embedded there in terms of maybe international subscriber growth. Does embed international subscribers grow, commercial subscribers grow? And then how much it's split towards this ARPU expansion in general?

Yes, Jack, thanks for the question. I'm actually here. This is the first question I got. So it's good to get a question. So yes, the SaaS pro forma, as you've talked about, really is new subscriber ads, really in North American residential being the major driver. We continue to see really good progress and really good uptake with video analytics. And as Steve talked about that does inch up the ARPU a bit. But again, I think we're benefiting from a faster if you will V shaped recovery in North American residential, being a main driver, that's helping offset some slowdown and international. We have a number of new dealers internationally that are proceeding is just at a slow ramp given the COVID pandemic. And then commercial, of course, has been impacted a bit. But I think the main driver has been strong new subscriber ads in North American residential. The retention rates have been rock solid, even, compared. Basically at the same level prior to the pandemic. And so, we're getting a boost from new subscriber ads, and at a faster rate than we anticipated, with a same level of retention and ARPU inching up.

That's helpful. And maybe -- I'm sorry, go ahead.

That's really driving the SaaS growth.

And just because you reference the strong renewal rates or small attrition rates. Does that hold true for international as it does in North America? Or is there any difference there?

International is still relatively new. So we don't really break it out. I don't think that there's really any significant difference between the two. Of course, North American residential, we've been doing for many, many, many years from the very beginning. The International is still relatively new. And so you don't have that base of subscribers. But we typically don't break it out. I would say that I'm not aware of any major differences in retention between international and North American residential.

Again, in our work so far, it's look pretty similar, pretty similar to the point we don't model it differently. Yes, that's right.

Yes.

Fantastic. All right, guys. Again, great quarter, solid results and I appreciate the time. Thanks.

Thanks, jack.

Ladies and gentlemen, this does concludes today's presentation. You may now disconnect and have a wonderful day.