Good day, and thank you for standing by. Welcome to the Alarm.com Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] 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, Investor Relations. Please go ahead.

Thank you. Good afternoon, everyone, and welcome to Alarm.com's fourth quarter and full year 2025 earnings conference call. Please note, this call is being recorded. Joining us today are Steve 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 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 annual report on Form 10-K and our Form 8-K both of which will be filed shortly with the SEC, along with the associated press release. The call is subject to these risk factors, and 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 Steve Trundle. Steve?

Thank you, Matt. Good afternoon, and welcome to everyone. We are pleased to report fourth quarter and full year results that exceeded our expectations. Our SaaS and license revenue in the fourth quarter was $180 million, up 8.8% over the last year. Our adjusted EBITDA in the quarter was $55 million. I want to thank our service provider partners and our employees for their contributions to our performance in 2025. During the year, we reached a significant growth milestone generating more than $1 billion in annual total revenue. Achieving this scale reflects the strength of our technology and the business model that we have engineered. Our business is grounded in the long-term partnerships we have with our service providers. Those partnerships are based on our commitment to both innovation and strategic alignment, where our growth is predicated on our partner success with our technology. Our service providers integrate our technology platform across their business to deliver the best possible residential and commercial security solutions to their end customers. During the year, we continue to execute on our long-term growth strategy. We are leveraging our R&D program and delivery channels to expand into additional markets. As a result of these efforts, we have created a more diversified and durable business. Today, we provide mission-critical IoT-based solutions anchored by physical products that protect homes, businesses, enterprises, multifamily properties and critical grid infrastructure worldwide. I want to spend a moment reminding our investors of how our business model and value creation engine are unique compared to most other SaaS companies. The equity markets have recently become fearful that all SaaS businesses will be pressured by AI, impacting seat-based pricing models and performing tasks that could relegate incumbents. Alarm.com's SaaS software is priced around a different set of value drivers. Our service providers already…

Thanks, Steve. I'll begin by reviewing highlights from our fourth quarter and full year 2025 financial results, then cover key elements of our capital allocation framework and conclude with our guidance for the first quarter and full year 2026. I'm pleased to report another quarter of execution against our financial plan. Our quarterly and annual performance reflects continued broad-based contributions across the business's diverse components. As Steve just mentioned, one of the areas that outperformed was EnergyHub. EnergyHub's results were driven by higher-than-expected program participation as well as a modest contribution in the latter part of the quarter from the RGS acquisition. Growing the number of programs and increasing the number of enrolled devices in each program are among the multiple long-duration levers supporting EnergyHub's growth. There are network effects in the business that accrue with scale. The more programs and DERs that EnergyHub manages on behalf of utility clients, the more valuable they become to ecosystem device partners. And the more ecosystem device partners EnergyHub works with, the more capacity the virtual power plants can provide utility clients. The acquisition of RGS expands our number of managed programs and enrolled devices and deepens our relationships with ecosystem device partners, accelerating these effects. For full year 2025, SaaS and license revenue for the overall consolidated business grew 9.2% year-over-year to $689.4 million. Total revenue grew 8% year-over-year in the fourth quarter, and as Steve discussed, exceeded $1 billion for the full year. Total gross profit in the quarter was $172.6 million, an increase of 8.8% year-over-year, including 13.4% year-over-year growth in hardware gross profit to $19.1 million. Higher-than-expected hardware revenue and gross profit were driven by OpenEye's sales of enterprise-grade video cameras and devices as well as a favorable product mix of Alarm.com residential cameras. As Steve described, the physical…

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

Congrats on 2025. Kevin, I wanted to maybe just start with the raise of SaaS guidance. It's a little bit more meaningful than in the past. I know you guys tend to kind of outperform over time and inch that up. But this is a little bit of a bigger bump than we've seen in the past. I understand there might be some RGS contribution. And if you could maybe just break that out a little bit. And then also the organic assumption sounded like you were still expecting healthy organic growth. What are you seeing in the business to underpin that? I think that's obviously not consistent with what the stock has been doing, what kind of the general view on software that Steve outlined. So what's underpinning the organic assumption improvement as well?

Sure. Adam. Yes, as you noted, we -- since our first look, the SaaS guide at the midpoint went up by about $21 million. There's 2 components of that. Obviously, that we included RGS in late Q4 of last year. So most of the revenue from that is going to show up from a year-over-year perspective, obviously, in 2026. And then we outperformed excluding that during Q4. So I think the best way to think about it is we had some implied year-over-year SaaS growth rate embedded in our first look. I'd say things are maybe slightly better than that. If you excluded RGS, maybe about 10 basis points or so, 10, 20 basis points or so better than that growth rate that we projected. And the rest of the absolute dollar stack on there is really from RGS.

Got it. Okay. Maybe just a follow-up on RGS and EnergyHub in general, since I think it's becoming even more topical for Steve. You described some of the network effects that essentially that are kind of going on in that business. Wonder if you might just take a step back for investors that might be a little newer to this and talk about the competitive environment and EnergyHub's position with RGS, and have you taken a look at like sizing that total market? How big could that be over time? Sort of your vision for that business, especially now with the RGS acquisition?

Adam, good question. Yes, in terms of the network effects, I mean, essentially, we want to be the most appealing partner to various folks who may make a device that can play in the ecosystem. So hypothetically, if you're a thermostat maker and you decide to partner with a company that can enable VPPs, you want your thermostat to be used for that purpose in as many places as possible. And with the acquisition that we announced, we get to a wider array of utilities. And that, of course, makes the value of each device higher. Longer term, the thing we're really -- in terms of size of market, there are around 100 -- I believe, 130 million meters in North America. Currently, we're transacting business with electric utilities that cover around 50 million of those meters. But we're still in the very early days of enrollment against those meters. So we're getting about a 5% level of enrollment today on those 50 million meters that we're passing with the EnergyHub offering. And of course, we grow in a couple of different ways -- 3 different ways actually. First is to drive up that level of enrollment with our utility partners. Second is to continue to add utilities. We believe we're the share leader at the moment, but we'll continue to add utilities. And then third would be to add more devices and to add categories that are energy consumption categories. So -- that's what we're attempting to do. That's sort of the -- those are the growth drivers in the business. In terms of the competitive framework, there are some smaller competitors in this space, but it's pretty hard to sort of cover off all the different areas that a utility partner would want their VPP provider to cover off. So if I jumped into the business today and I'm an upstart, I might attack just, for example, EV charging stations or I might have tried to attack just, for example, swimming pool pumps or hot water heaters or whatever. The problem is it's almost too late to do that today. So we think that the utility wants to basically have one partner that can stabilize supply across a wide array of devices, and we think we're pretty well positioned to do that.

Our next question comes from Samad Samana with Jefferies.

This is Jordan on for Samad. Congrats on the strong quarter. Steve, you touched on kind of the primary concern we're hearing from investors around AI and software, which is the risk that software poses. Obviously, your business model seems to be in a position of strength relative to many others. I wanted to just double-click on how you're pivoting R&D internally to capture the opportunity here with AI and the strong SaaS guide you guys gave, how does that embed either a material demand or monetization that might come from the newer AI features that you're layering into the product?

Yes. Good question. Yes, Jordan, I think really 2 fronts there. So first, internally, we think about what are the capabilities that we can render that make the solution more accessible or that create more intelligence from each stream of data. So we've done some things already. We've been in market with what we call AI-based deterrence now for well over a year. We've been in the analytics business, leveraging AI for half a decade anyway. The capabilities are getting stronger every day. We're increasingly looking and working on efforts to make the consumers interface to all of our capabilities, much more streamlined leveraging LLM. So you've seen capability, I think we've mentioned called attribute search, which allows someone to interact with a rich amount of video data in a very efficient sort of text-based way. So I think you'll see us continue to drive functionality out, and then there's -- in terms of monetization, there's the other side of it, which is can we become more productive or can we do more things. And we're certainly -- it's there, I'd say it's a little bit more early days. There's a lot of evidence of amazing things that one will be able to do. And then there's sort of a question of how many of those things can one actually do today. So we continue to kind of walk down that path and we expect through time though, to drive up productivity on some.

Got it. That makes a lot of sense. That's great to hear. Maybe a quick call for you, Kevin. You mentioned the implied hardware guidance accounts for tariff cost pass-throughs, obviously, a positive for margins for the business. But I'm curious how you're thinking about how those pass-throughs impact demand broadly? Any feedback from your customers? And then, are you seeing any increase in manufacturing costs related to hardware and how are you thinking about managing those if those are coming up?

Yes. Jordan, thanks. We dealt with a similar [indiscernible] type of cost inflation back during COVID on the hardware line. And when -- last April, when tariffs started being released, we went back and examine what happened during that period of time related to demand, and we couldn't really discern any meaningful change in demand. So our thesis going into this when we first passed through tariffs, it was last June at the base 10% level was that we were going into it optimistic that there would be no demand impact. And I think that bore out through most of the year. We obviously outperformed our initial look last year, our guide. Now that includes about $7 million or $8 million of tariff pass-through revenue. But even excluding that, we would have exceeded it. So no material decrease or discernible decrease in demand yet. Those pass-throughs went up on January 1 to reflect the full tariff. So they went up by about 2x, and we're going into this, assuming that there will be no degradation in demand from that either. Related to other manufacturing costs, we've been watching the DRAM market, obviously, that impacts us to some degree. We haven't really seen any cost increases come through related to that yet. One thing that we're likely to do is probably extend the number of days of inventory that we have on hand by about 30 or 40 or so, early this year to try and derisk the supply chain a little bit from that. So we'll have a little bit more of an investment in working capital to start the year that will unfold over the next couple of months. But yes, no cost increases yet related to the memory -- potential memory shortages. Fortunately, our agreements tend to carry the right to pass through third-party costs. So we feel a little bit insulated from that and we'll just sort of deal with that as it comes.

That makes sense. Congrats.

Our next question comes from Saket Kalia with Barclays.

Great to see the results.

Thanks.

Steve, maybe for you. That was a helpful walk-through earlier on kind of the combined EnergyHub business. And I get the vision in terms of having more devices only makes each other device more valuable to a utility. That makes a lot of sense. Maybe more of a medium-term question. How do you kind of think about synergies there? Whether that's from a revenue or expense perspective, just as we think about that combined EnergyHub business becoming maybe a bigger, more strategic part of Alarm's overall business. Does that make sense?

Yes, it makes sense, Saket. Yes, in terms of synergies. So the way we think about it are -- in the early days, we're -- as of right now, we're managing 2 different platforms that enable the capabilities that RGS and EnergyHub have traditionally rendered. So synergies as of today are not very substantial. We, of course, have some customer synergies already in place. But our outlook is that over the next 12 to 24 months, working with our customer partners there. We will begin to fuse the capabilities -- any unique capabilities that exist in RGS will roll into the EnergyHub platform. And over time, we would begin to see synergies that come from a fusion of those 2 platforms and to sort of one greater whole, the benefit to the customer, of course, being that the greater whole will be supported by an overall larger R&D engine, a wider array of devices and become more valuable. So in terms of the way we've modeled it, it's sort of no synergy this year, very little and then on the -- in terms of EBITDA, but over -- as we sort of look into the 12- to 24-month period, we began to see more material synergies emerge there that will help us, by the way, kind of get EnergyHub. I mean you're seeing us begin to gain some confidence that EnergyHub by itself is a platform company and to gain more confidence there we need to gradually see the cash production capacity become more real. And I think that this will help us -- the synergies here will help us get there.

That makes a lot of sense. Kevin, maybe for my follow-up for you, just on a slightly different topic or a broader topic. I was wondering how you kind of think about the emerging areas growing in 2026. I think Steve Trundle said, the commercial plus energy, I think that's about 25% of SaaS, it grew about 25% in '25, of course, international would be additive on top of that. If we think about those 3 businesses sort of in aggregate, how do you think they kind of grow in '26 as we think about the different components next year?

Sure. Thanks, Saket. I would expect that they grow between 25% and 30%. Now that obviously includes a little bit of inorganic growth, but that's how we're thinking about it going forward. And by implication that if they grew at that rate, they'll wind up becoming more like 1/3 of total SaaS revenue, if not maybe slightly more.

Our next question comes from Stephen Sheldon with William Blair.

First, it seems like you're getting a lot of traction with commercial video solutions. I guess, so if you look at that, has there been anything surprising about how your video capabilities are getting utilized across end markets, property types, use cases, et cetera? And specifically, are there any notable pockets of strength to call out on the broader commercial video side? And then I think you also talked about expansion motion there as one of the factors supporting growth. So yes, I guess, I'd just love some more color on the growth you're seeing in commercial video.

Sure. This is Steve speaking. And yes, we -- the areas that are always best for what we're doing in video tend to be the areas with high crime and high assets. So certainly, strengths are places where those 2 phenomena exists in the same location. So some -- place like L.A., for example, is a great market for our commercial video solution. The strengths are coming right now. I think -- I wouldn't call them surprising because we saw it coming. But the acquisition we did and the commitment we made to Central Station augmented remote video monitoring is a source of strength in the commercial video market. It really enhances the ability to deter a crime before it occurs as opposed to just doing forensic analysis of what has occurred after it has occurred. So just a sort of a sea change in the way that we think about the role of a camera and what its value is to society and the shift to deterrent. So that's -- that's been the biggest driver. I would say we saw that coming. We've got the right product lineup. There's been a lesser driver, which is just on the commercial side beginning to get some uptick on the international markets. International always lags what we're doing in North America a bit. And in the last 6 months, I would say we've made more progress deploying some of the commercial assets, especially in Latin America, but gradually elsewhere.

Got it. That's helpful. And then as a follow-up, I guess, high level on spending plans. Can you talk more about areas where you're stepping up reinvestment across the business in 2026. I know R&D is always a major focus. So I guess, any color on kind of where you're maybe stepping up the investments in R&D in any other parts of the business where or maybe reinvesting more than you have historically?

Yes. I would say, in general, our view right now is that R&D as a percentage of revenue is about where we want it. So we're not planning to surge R&D spend. We're instead really focused on driving more productivity out of R&D. And in the past, we've talked about kind of where we want to end '27, I guess, in terms of overall operating margins in the business, and we're still committed to that. In the near term, yes, absorbing a couple of different platforms or a new platform on the EnergyHub side will require some effort and some surge capacity. And then I would say we're at a point in time now where -- and I would imagine other companies in a similar position where you have a set of R&D commitments that you've made 12 to 24 months ago that are in process, and then you're simultaneously doing a lot of work to get all of the goodness of what's going on with AI at the same time. So if there were a place where there's some surge, it would be attempting to basically spend both of those wheels at the same time. And I'd say that's underway here now.

Our next question comes from Adam Hotchkiss with Goldman Sachs.

I wanted to follow up on EnergyHub and Steve, something you brought up at the beginning of the call, could you just maybe take a step back and mechanically help investors think about how your EnergyHub business would benefit from the AI-driven data center demand? And then how should investors just more broadly as we track that business through the year? Is there anything in the market that we should be tracking to -- other than quarterly results to try and understand the trajectory of that business?

Adam, yes. So the data center phenomena is a demand driver for EnergyHub. It's a combination of sort of the requirement for more electricity. That's at the moment driven very much by growth in data centers as well as this phenomenon where the sources of supply on the grid themselves have become a bit more variable. So a smaller percentage of power is coming from, say, a constant rate nuclear facility, a higher percentage of power is coming from more variable sources like solar, wind and others. So those 2 things together, the data center, plus the increasingly variable sources of supply create more of a need for the utilities to find new sources of power. And I would say they're, therefore, more open to what we do with EnergyHub and the creation of virtual power plants to produce energy at certain points in time when the need is most acute. It's a great driver for us, I guess, I would say. In terms of the second part of the question, tracking how things are doing. I guess I have to point to sort of our updates as the best way to track what we're doing with EnergyHub and how the business is -- what its trajectory is. I can't think of another way to sort of easily second -- find a second source of information there.

Okay. Great. Really helpful. And then Kevin, for you, just on the -- just to sort of double click on the margin question. I know we've historically talked about R&D, a big portion of that investment being opportunistic and sort of looking ahead on growth ROI and opportunities. How should we think about the sort of flat margin trajectory next year? And how you thought about the trade-off between maybe getting some scale on the revenue growth that you're seeing and improving margins a little bit more quickly versus leading in on the investment side. I guess just trying to understand how we're progressing towards a medium-term margin number?

Sure. Thanks, Adam. I think one thing I would point out is that the -- our adjusted EBITDA margins in 2025, for example, contain $4.5 million of unrealized gains on a security in our treasury portfolio. So I think if you were not capturing that and you were focused on sort of more pure operating results, you'd wind up at something just south of a 20% adjusted EBITDA margin, 19.9%. And so on that basis, there's a little bit of progression embedded in our initial guide here from 2025 to what we've signaled is what we anticipate exiting 2027 at.

And the second component there, I just would highlight is we did complete an acquisition in the fourth quarter. We're not picking up EBITDA margin there. We're taking up sort of 0% EBITDA margin. So yet we sort of still work to absorb that and show a bit of a trajectory here on the bottom line.

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

Okay. Great. Congrats on the strong finish to the year and a strong outlook as well. A couple of questions. Maybe, Steve, two-part question on the competitive environment within Alarms or North America residential business. Just first, in general, any notable trends or changes in the competitive environment that you'd like to speak to? And then two, how has Alarm's core business performed relative to that original like 200 basis point headwind that you guys were initially I think forecasting for ADT? Anything you could speak to there and how the business performed up against that?

Sure. Jack. Yes. I don't think on the -- in the core business, we've seen any dramatic change in kind of the competitive landscape. There are always competitors. But we did a lot of the work over the last 15 years to cement a set of relationships with our service providers. I think the service providers are running meaningful chunks of their business on platform. And I would never say that we're insulated from a competitive threat. But we're in a strong position, especially if we continue to make our offering better and deliver on what we say we're going to deliver upon. So feeling relatively good about the competitive environment at the moment. In terms of the how much or what I can say about the 200 bps headwind. It didn't manifest as fully as expected. We sort of point folks to ADT's own comments about their transition and I think their comment was they had transitioned roughly, I believe, in the third quarter, I think they said 25% of the business or so. So that probably gives you a little bit of a directional input there on how that has gone. It hasn't been as dramatic in '25 as what maybe was initially expected, but is still something that we have modeled in to 2026.

Got it. Okay. That's very helpful. And then maybe just another one for Kevin, maybe on the core business as well. The outperformance in growth sounds like it's been heavily ARPU expansion driven. Certainly, strong video attach rates, can you maybe just touch on anything you're seeing in the installed base for the North American business? Has that performed? Is it up? Or is it kind of in line with your expectations? And then does that play a role at all in your raised SaaS guidance for 2026 for the installed base lever?

Yes. Jack, thanks. Yes. So as Steve mentioned, a lot of the growth in that segment or the majority of the growth sort of comes through ARPU dynamics. And it's kind of a 70-30, 75-25 kind of thing tilted between sort of pricing and ARPU. Most of that is related to just organic product-led feature adoption as opposed to just sort of pure -- pure pipe pricing increases. There's always a very little bit of that. But for the most part, that's basically just product adoption, led by video for the most part. And one data point that has consistently been true for the past number of years is that 20% to 25% of the cameras that we sell actually go into the installed base. And so there's a pretty constant movement sort of through the installed base, and that's been there for about 5 years where they start taking video, where they increased the number of video cameras they have, they're buying video cameras that support more capabilities, which leads to basically a package upgrade. That's a pretty consistent hallmark of the model.

Excellent. That's a great data point. I appreciate the time, guys. Solid results.

Our next question comes from Ella Smith with JPMorgan.

This is Bella on for Ella. So first, I wanted to ask, can you frame EnergyHub's growth using a few incremental operating KPIs such as total DER assets under management, gigawatts under control, opt-in or retention rates or the mix shift?

Yes. I think the main way we portray their growth is probably on the percentage of the market that they are in a position to service. So a moment ago, I mentioned that there are roughly 130 million meters in North America and EnergyHub is now in a position to service those residences on about 50 million of those meters. That's obviously -- that's a number that we watch closely is how many homes passed can we take advantage of with the EnergyHub offering. And the other one then is, of course, what -- you're passing that number of homes, what percentage of those are you actually enrolling in a program. There, I mentioned that we were enrolling roughly today around 5% of the homes we pass. Obviously, we'd like to drive that number up some. I think it's not inconceivable that we'll see that number move up to 10%. So as we think about the growth drivers, it's -- what percentage of homes in North America are we in a position to service with the relationships we have with the utilities. And then of those that we're in position for, what percentage are we actually enrolling in our program. Those are the 2 primary things. The third is really how many different categories of devices that consume power, are we simultaneously servicing. You've got the thermostat, you have the EV charger, you have the battery. In some cases, have pull pumps. In some cases, you have water heaters. The wider the number of devices, the better.

Got it. That's very helpful. And just as a follow-up, [indiscernible] penetration among large utilities is often cited at about 30% to 40% moving higher over time. So where do you see the next leg of adoption to move that penetration rate higher, and how are sales cycles and integration backlogs trending?

Yes, I would say that penetration today is probably -- sort of becomes a question of what are we actually measuring penetration on? So what's the denominator. But if we went back to that number of meters metric at 130 million. And then we said we're today at 50 million, we're getting to a number that's right in sort of the range that you said. So I would probably use that one, 30% to 40%. I think that the drivers are multifold. First, just the increased need that many utilities have for additional supply that's driven by electrification of vehicles, and it's driven by data centers. So that should be a driver we continue to see. In terms of the sales cycle, it is a very long sales cycle. I mean, oftentimes, it starts with a pilot, you sometimes have a regulatory body that needs to be involved or needs to approve a program. So the sales cycles can take years in some cases. But I think that the current shortage of supply is allowing us to shorten those sales cycles some and has given us some optimism about latter part of this year and next year.

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