Full Transcript: Alarm.com Holdings Q2 2026 Earnings Call

com Holdings (NASDAQ: ALRM ) discussed second-quarter financial results during its earnings call. The full transcript is provided below. This content is powered APIs. 7 million.

The company expanded its commercial platform, launching a new fire communicator product, and saw significant growth in its Energy Hub utility programs. International business surpassed 1 million active subscriber accounts, reflecting effective localization and partnerships in over 70 countries. 089 billion. Management highlighted strong performance in the commercial segment, especially with AI-enabled video surveillance services, and emphasized a continued focus on R&D, which remains the largest investment area.

Full Transcript OPERATOR (Operator) Good day and thank you for standing by. com Holdings second quarter 2026 earnings conference call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question-and-answer session.

To ask a question during the session, you need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 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. Please go ahead. Matthew Zartman, Investor Relations Thank you, operator. com Holdings' second quarter 2026 earnings conference call.

Please note that 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, 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 and we encourage you to review them. com Holdings 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 Trundle, President & CEO Thank you, Matt. Good afternoon and welcome to everyone.

We're pleased to report second quarter results that exceeded our expectations. 8 million, up 11% year over year. 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, and provide an update on the continued growth we see in our Energy Hub 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, and they often did so with increased adoption of our more powerful AI-enabled services. Energy Hub 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. 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. S. and Canada. As with any newly launched product, driving adoption through our service provider channel will take some work, but 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 Energy Hub, utilities continue to grow their flexibility programs that increasingly rely upon Energy Hub to maintain grid reliability, particularly during periods of high demand. The leverage from Energy Hub'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 Energy Hub. 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 Energy Hub is enabling a more reliable grid in the heat of the summer, our life safety solutions are operating all the time, protecting communities while providing a durable foundation for our business.

We are thankful to have established partnerships with many, 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, CFO 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.

2 million. For the third consecutive quarter, revenue retention remained in the 95% range. Our commercial initiatives in Energy Hub also contributed nicely, collectively growing more than 30% year over year. 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 Energy Hub's low carbon and renewable fuel credit business. Through this business, Energy Hub 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. 6 million. 6% increase year over year. 8% increase year over year.

We ended Q2 with 1,148 employees in R&D functions. For those newer to our story, R&D is by design our largest area of investment. Our predominantly indirect business models allow us to sustain a high level of R&D investment while remaining capital efficient in our symbiotic relationships. Service provider partners are primarily responsible for customer acquisition and support, so our sales and marketing expense is well below most other SaaS businesses.

At the same time, our R&D investment supports high margin durable recurring revenue tied to connected devices that typically remain in service for nearly a decade. The result is a model that has averaged north of a 20% return on operating invested capital over the past eight years. 7 million. This comparison reflects the revised definition of our non-GAAP profitability metrics that we adopted last quarter, which removes the effect of mark-to-market gains and losses on equity securities in our treasury portfolio.

8%, approximately 115 basis points higher than in the year-ago quarter. 6 million a year ago. A key driver of the decline was lower interest income on excess cash following the retirement of $500 million of convertible notes in January. 1 million.

77 of non-GAAP earnings per diluted share, a 24% increase year over year. 4 million of cash on the balance sheet and produced $37 million of free cash flow. Free cash flow in the quarter was affected in part by working capital timing. We continue to expect adjusted EBITDA to free cash flow conversion of approximately 90% for the year.

8 million shares. We continue to operate under the $150 million buyback authorization our Board approved earlier this year. I'll turn now to our financial outlook for the third quarter of 2026. 3% growth at the midpoint.

4 million. 4% growth for the year. 089 billion, which includes hardware and other revenue of between $325 million and $335 million. This increases our hardware outlook by approximately $15 million at the midpoint from our previous guidance provided in May.

5 million at the midpoint. The increase flows our second quarter outperformance through to the full year and keeps us on a steady path toward our previously established target of a 21% adjusted EBITDA margin exiting 2027. 11 from our prior guidance. 3 million weighted average diluted shares outstanding for the year, down modestly from our prior estimate.

Given our buyback activity, we currently project our non-GAAP tax rate for 2026 to remain at approximately 21%. Under current tax rules, we expect full year 2026 stock-based compensation expense of between $34 million and $35 million. In closing, I'm pleased with the broad-based momentum we've seen across the business so far this year. We delivered a solid quarter against our plan and we believe we are well positioned to deliver continued revenue growth and profitability in the second half while investing to expand our long-term opportunities.

With that, operator, please open the call for Q&A. OPERATOR (Operator) Thank you, ladies and gentlemen. If you have a question or a comment at this time, please press star 1 1 on your telephone. If your question has been answered and you wish to remove yourself from the queue, please press star 1 1.

Again, we'll pause for a moment while we compile our Q&A roster. One moment for our first question. Our first question comes from Saket Kalia with Barclays. Your line is open.

Saket Kalia, Analyst at Barclays Okay, great. Hey guys, thanks for taking my questions here. Steve, maybe for you, could you talk about the market that Energy Hub competes in just a little deeper? And maybe more specifically, is this a rising tide market given everything that's happening in utilities, or do you feel like Energy Hub is able to take market share as well?

Steve Trundle, President & CEO Sure, I'll be glad to talk about that a bit more, I guess. To the last question, is it a rising tide? Yes, we think that the overall market is growing. The value from variable supply is going up.

There's, you know, I think it's well known there's a shortage of supply in the energy market. Data centers are eating more, we're electrifying cars, et cetera, et cetera. So from the utility perspective, you have to either pursue long-term, expensive buildouts to produce new supply, or you look for solutions like Energy Hub that can harvest supply off the grid and then repurpose that. And the latter is far less expensive.

And the need for the latter, which is what we do, increases as the variability of the supply actually increases. So as wind, solar and other sources become a bigger component of our grid's makeup, the value of the Energy Hub solution goes up. So in general, I think it's a rising market. I don't really know for sure if we're taking share from others.

I just know that we're benefiting as the leader in that market. And we've expanded the range of the Energy Hub solution now to move from really thermostat demand response types of solutions to a full solution that also includes EVs, EV chargers, batteries and thermostats. So we're attaching to more devices in the average property now than ever before. And yet we still have a ton of headroom there in the TAM.

At the moment we're probably 2% penetrated in the North American TAM, maybe a little higher than that in the base of utilities where we have programs, which is more than half of the utilities. But overall there's a lot of room to grow, sort of the attachment to the meters that we already are positioned to service and grow that business nicely. And then the market's demanding that we do that. Saket Kalia, Analyst at Barclays Got it, got it.

That makes a ton of sense. Kevin, maybe for my follow-up for you, staying on Energy Hub, I think it's been a couple quarters now of a little bit of acceleration in that SaaS revenue line. Maybe the question is how much of that has come from really what sounds like a few good quarters of Energy Hub, or is that really coming from that growing mix of broader emerging solutions? Kevin, CFO Yes, I think the answer is it's a little bit of both of those things.

I'd say more so Energy Hub, but also collectively what we call the growth initiatives.