Jonathan Schaffer - The Blueshirt Group Steve Trundle - President and CEO Steve Valenzuela - CFO.

Chris Rochester - Credit Suisse Chelsea Jurman - Goldman Sachs Nikolay Beliov - Bank of America Bhavan Suri - William Blair Mike Koban - Raymond James David Gearhart - First Analysis Darren Aftahi - Roth Jeff Kessler - Imperial Capital Nehal Chokshi - Maxim.

Good day, ladies and gentlemen, and welcome to the Alarm.com Q1 2017 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the conference over to Jonathan Schaffer with The Blueshirt Group. Please go ahead..

Thank you. Good afternoon, everyone, and welcome to Alarm.com's 2017 First Quarter 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.

During today's call, management may make forward-looking statements, which may include projected financial results or operating metrics, business strategies, anticipated future products and services, anticipated investment and expansion, anticipated market demand or opportunities and other forward-looking statements.

These statements are subject to risks and uncertainties that could cause actual results to differ materially from those contained in the forward-looking statements.

Actual results and the timing of certain events may differ materially from the results or timing predicted or implied by such forward-looking statements, and reported results should not be considered as an indication of future performance.

Please note that these forward-looking statements made during this conference call speak only as of today's date, and the company undertakes no obligation to update them to reflect subsequent events or circumstances, other than to the extent required by law.

Please refer to our SEC filings as well as our financial results press release for a more detailed description of the risk factors that may affect our results. Also during this call, management's commentary will include non-GAAP financial measures.

Reconciliations between GAAP and non-GAAP metrics for our reported results can be found in the 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 through the Investor Relations website.

So with these formalities out of the way, I'd now like to turn the call over to Steve Trundle. You may begin..

Thanks, Jonathan, and thanks to everyone for joining our call today. We've had a busy quarter, and I am pleased to report that we are off to a solid start for the year. Our SaaS and license revenue in the first quarter grew 26% from a year ago to $50.2 million. Our adjusted EBITDA in the first quarter was $14.1 million, up 30% over last year.

In addition to our solid financial performance, our team continued to execute on initiatives to extend our position as the leading platform for the intelligently connected property. We enhanced and expanded our subscriber solutions.

We introduced new tools for our service provider partners that help them operate more efficiently and increase account retention, and we began to integrate the Connect and Piper business units that we acquired from Icontrol in March. In early April, we had a strong presence at the International Security Conference & Exposition, known as ISC West.

This is the largest event in the U.S. for the physical security industry. This year's show included a record number of attendees and exhibitors with increased emphasis on connected devices and cloud services. It's gratifying to see how our innovations have driven the industry in this direction.

ISC West gives us an opportunity to take the pulse of our channel by engaging with a broad cross section of our service provider partners in direct meetings, training sessions and hosted events. We also introduced a couple of new product initiatives that I'd like to highlight.

We demonstrated the way our hardware ecosystem is expanding with new connected devices. For example, we added a new Slim Line Edition of our successful video doorbell product. This new form factor will give our service providers more installation flexibility when deploying Alarm.com's integrated perimeter security solution.

We also announced enhancements to our business intelligence offering for our service providers. Business intelligence is a key differentiator for Alarm.com and enables us to better align with the goals of our service providers.

Our enterprise grade analytics solution helps our service providers implement a specific set of installation and service best practices that have been proven to increase account retention.

Business intelligence reports allow executives and managers to monitor implementation of the identified best practices across the sales, installation and support processes of their businesses.

They can see how branches, teams and individuals are performing, track account installation quality and identify and address service hotspots, so that they can better direct resources to ensure a superior customer experience. I also want to share some of the market feedback and observations that I took away from ISC West.

First, my conversations with our service provider partners reinforced that we offer the right set of services and have the right go to market strategy. Security centric services delivered by professionals are driving the broad adoption of IoT technology for both homes and businesses.

Supported by the Alarm.com platform, our service provider partners are leading the security industry's transformation from traditional alarm monitoring services to broader and more highly valued monitoring and automation solutions.

Most service providers are now eagerly adopting new technology instead of resisting change, and our newer offerings generate consistent interest. With these favorable market conditions, we see significant opportunities for continued growth in the North American security channel.

A second takeaway is the ongoing proliferation of devices capable of being integrated into an Alarm.com installation. As we deploy fully integrated solutions around otherwise disparate devices, our service providers can extend security, awareness and convenience to more aspects of their customer's home or business.

We have seen a steady increase in the attachment rate of home automation devices. This includes both third party products and those that we have engineered. For example, we introduced the Alarm.com Smart Thermostat in mid 2015.

Many of our service provider partners have trained their technicians to install and support Smart Thermostats and other automation devices. In the last quarter, the installation rate of our Smart Thermostat increased more than 30% over the same period in 2016. We expect continued growth as we get into the summer season.

Finally, as the Internet of Things makes more interesting installations and applications attainable, consumers are looking to service providers for a full complement of installation, monitoring and support services.

The Alarm.com platform enables our service providers to efficiently deliver the level of service necessary to capture this high value and growing market segment. Our fully integrated solutions address the needs of these consumers, and our partner services capabilities make supporting them more efficient.

Before I turn the call over to Steve Valenzuela, I also want to briefly update you on the integration of the Connect and Piper business units that we acquired from Icontrol in March. Our initial focus has been to ensure that the existing Icontrol customers and subscribers receive consistent service.

We've now had a few weeks to dig into the business, and we remain excited about the talented people who have progressed through the on boarding process to join our team. Currently, we are conducting detailed technical reviews of product plans to make sure that we are working together optimally with these new units.

We have not encountered any significant surprises, and the integration efforts are proceeding as we had anticipated. To conclude, we are off to a solid start for 2017, and we're looking forward to the year ahead as we continue to execute across a broad set of opportunities. The integration of Connect and Piper is underway.

And with our combined engineering talent, we are excited to be in a position to accelerate the development of market leading solutions for our service provider partners and their customers. With that, I'll turn the call over to Steve Valenzuela, who will review our first quarter 2017 financial results and provide updated guidance for 2017.

Steve?.

Thank you, Steve, and good afternoon, everyone. I will begin with a review of our first quarter 2017 financial results and then initiate guidance for the second quarter and provide our raised outlook for full year 2017 before opening the call for questions. We posted solid results across the board to start off the year.

In the first quarter of 2017, SaaS and license revenue grew 26% over the same quarter last year to $50.2 million. This includes a partial quarter contribution from Connect, following the closing of the acquisition on March 8.

I'd also like to mention that our other segment achieved growth of 121% year over year in the first quarter, albeit off a small base. Our SaaS and license revenue visibility remains high with a revenue renewal rate of 93% in the first quarter. As expected, this is slightly below our revenue renewal rate of 94% in the fourth quarter of 2016.

We indicated in our last conference call that we expected some impact in 2017 from AT&T's 2G sensor program that took effect at the end of 2016. Taking this into consideration, we still expect our revenue renewal rate to stay within our long-term expectation of 92% to 94%.

Hardware and other revenue in the first quarter was $24 million, an increase of 26% year over year. Video camera and video doorbell sales continued to drive growth in hardware. We are pleased to have introduced our new Slim Line Edition of our video doorbell this quarter to add to our portfolio of video products.

Total revenue for the first quarter of 2017 increased 26% over the same quarter last year to $74.2 million. Gross margin for our SaaS and license revenue was 84% for the first quarter, up about 200 basis points sequentially from the fourth quarter of 2016 and up 100 basis points from the same quarter last year.

This is mainly due to the contribution of Connect, which has a higher gross margin percentage than Alarm.com because of a different model. With Connect, we provide the software and the service provider deploys, manages and operates the software in their own network operation center with their own personnel.

The service provider also needs to purchase around server capacity, network operations bandwidth and cellular services. With Alarm.com, all the services I just mentioned are managed by Alarm.com on a turnkey basis for the service provider. Like Alarm.com, Connect also charges a monthly per-subscriber fee but at a lower amount.

Comparing the models from a financial perspective, Connect has a lower per-subscriber fee and less costs as the service provider incurs the cost of operating the service. Alarm.com has a higher per-subscriber fee to cover the additional cost of service.

This results in Alarm.com having a slightly lower gross margin percentage but higher gross margin dollars per subscriber. Hardware and other gross margin was 23% for the first quarter of 2017. This is down about 200 basis points from Q1 2016 due to the larger contribution from video products.

Total gross margin was 64% for the first quarter of 2017, up about 200 basis points sequentially from 62% in the fourth quarter of 2016. This is mainly due to the higher SaaS and license gross margin in the first quarter of 2017 as I just reviewed. Turning to operating expenses.

R&D expense in the first quarter was $14.5 million or 19.6% of revenue, up from first quarter 2016 R&D expense of $10 million or 17% of revenue. We added 121 employees in the first quarter from the acquisitions of ObjectVideo, Connect and Piper, who are mostly in R&D.

We ended the first quarter with 436 employees in R&D, which represents more than half of our total company headcount of 764 employees. Sales and marketing expenses in the first quarter were $10.3 million or 13.9% of first quarter revenue compared to $9 million or 15.2% of revenue in the first quarter of 2016.

We expect sales and marketing expense to increase sequentially on an absolute basis in the second quarter of 2017 due largely to our participation at the ISC West conference, as Steve mentioned, that was held in April as in past years. G&A expenses in the first quarter were $15.4 million.

G&A expense includes costs for adjusted measures such as acquisition and integration expenses of $3.6 million and non-ordinary course litigation expense of $1.8 million.

Excluding these amounts that are also excluded from adjusted EBITDA, first quarter adjusted G&A expense was $9.9 million or 13.4% of revenue compared to $9 million or 15.3% of revenue in the same quarter last year. We held our annual all-employee off-site meeting this year in April, whereas last year's event was held in January.

The cost for this off-site are mostly accounted for in G&A. This contributed to the higher adjusted G&A expense as a percentage of revenue in the first quarter of 2016 compared to Q1 2017. We therefore expect G&A expenses to be sequentially higher in the second quarter of 2017.

At the off-site, our teams hold meetings over the course of several days to review our plans and align everyone to our company goals. We were fortunate with the timing of this year's event as we were able to include our newly added employees from our recent acquisitions.

Non-GAAP adjusted EBITDA increased to $14.1 million in the first quarter of 2017, up 30% from $10.8 million in the same quarter last year. Given the aforementioned timing of the annual events in the second quarter, we expect just a modest increase in adjusted EBITDA sequentially in the second quarter from the first quarter of 2017.

GAAP net income in Q1 2017 was $4 million, up from $2.7 million in the first quarter of 2016. Non-GAAP adjusted net income was $11 million in the first quarter of 2017, up 80% from non-GAAP adjusted net income of $6.1 million for the first quarter of 2016. Turning to our balance sheet.

We ended the first quarter with $63.2 million of cash and cash equivalents compared to $140.6 million at the end of 2016. As a reminder, in the first quarter of 2017, we used $87.5 million of our cash and drew $67 million from our bank line to fund the acquisitions of Connect, Piper and ObjectVideo.

We ended the quarter with $73.7 million of bank debt. In the first quarter of 2017, we generated approximately $13 million in cash flow from operations, up from $7.3 million in the same quarter last year. Our free cash flow in the first quarter was $10.3 million compared to $4.7 million for the first quarter of 2016. Turning to our financial outlook.

We are providing initial guidance for SaaS and license revenue for the second quarter of 2017 of $57.8 million to $58 million. For the full year of 2017, we are raising our guidance for SaaS and license revenue to be between $231.7 million to $232.7 million, representing year-over-year growth of 34% at the midpoint of this range.

We are also raising our guidance for total revenue for 2017 to $322.7 million to $325.7 million. This includes our guidance for hardware and other revenue of $91 million to $93 million. We are also increasing our expectations for non-GAAP adjusted EBITDA for 2017 to be between $65.5 million to $66.5 million.

We're also raising our guidance for non-GAAP adjusted net income for 2017 to $36.5 million to $37.5 million or $0.74 to $0.76 per diluted share. This is based on an estimate of 49.4 million weighted average diluted shares outstanding. We expect full year 2017 stock-based compensation expense of $5.5 million to $6 million.

We adopted the new accounting standard for employee share-based payments effective with Q1, resulting in a lower tax rate for the first quarter of 12%. We now expect a full year tax rate of approximately 36% for 2017. In summary, we are off to a good start to the year.

We are looking forward to the year ahead as we continue to execute on our business strategy and work to integrate our newly acquired teams. With that, operator, please open the call for Q&A..

[Operator Instructions] And our first question comes from Michael Nemeroff of Credit Suisse. Your line is now open..

This is Chris Rochester on for Michael.

Just curious, what was the organic SaaS and license revenue growth in the quarter? Have there been any changes to your expectations for full year revenue contribution from the Icontrol assets?.

This is Steve Valenzuela. No, we're actually right on track. When we did the acquisition, we actually gave guidance for a 12 month period. We said SaaS and license would be -- 12 months, $35 million at the midpoint. And that's for a full 12 months, and it takes into account a ramp over that period of time.

So the way to look at this is -- that's over 365 days.

There's 296 days in 2017, so if you back into [Indiscernible] Was there a second part?.

Can you guys hear me? Yes, sorry. Cut out a little bit there, but I can look back at the transcript. Maybe just a quick follow up for Steve T.

Looking at kind of the last quarter, now that you've had some time to talk a little bit more with ADT and with the new Icontrol assets under your belt, have there been any discussions to offer the Alarm platform the new Pulse customers? Or is that still too early in the process?.

Yes. It's still early in the process. But I guess, it would be safe to say that we're having very open discussions with ADT and planning the right path forward to make sure that we're both working together to bring the subscriber the best capabilities possible there.

It's worth reminding folks that ADT, for some period of time now, has used Alarm.com for a subset of its business, particularly in Canada and then what used to be called the Protection one business. And then recently, we've had a few dealers pick it up as well.

So there's a mix already occurring, and I think we're working kind of hand in hand with ADT to figure out the best way from a road map standpoint to reconcile that mix over time..

Thank you. And our next question comes from Gabriela Borges of Goldman Sachs. Your line is open..

This is Chelsea Jurman on for Gabriela. You mentioned that you'd had some strong attach rates for your thermostat product this year, and so I was wondering if you can give any update on what the overall attach rate is for home automation devices and how this is tracking versus 12 months ago or what you see the opportunity is being longer term..

All right. Chelsea, yes, the overall attach rate on new activations for automation currently is about one out of four installations. Then all of the things that we can overtime do if that data to make either prosperities more efficient or at times even as we've demonstrated with the energy health business at times made utilities more efficient.

So that's the trend that's sort of in the right direction and I think we will expect the summer season comes along to see that continue upward..

Great.

And then can you give any update into what full year guidance includes for some of the adjacent markets in terms of vacation rentals or commercial or even international and whether that is a meaningful portion in 2017?.

Gabriela, it's Steve Valenzuela. We did say on the call we saw good growth from our other segment quarter over quarter, year over year. We actually saw growth of SaaS revenue from other segment of 121%. Now it is off a small number, and it's a smaller contribution.

We expect -- in the guidance that we provided, we expect to continue to see good growth from the other segment. But just keep in mind, it is a small percentage of our total revenue. So I would just keep that in mind as you look at the guidance number we provided..

Thank you. And our next question comes from Nikolay Beliov of Bank of America. Your line is now open..

Question for Steve Valenzuela. Steve, relatively, recently you came on board. And looking at the margin structure provided a couple of years back during the IPO, EBITDA margins of 20% to 25%.

And when you compare the last quarter numbers versus the IPO framework in terms of margins, you're pretty close, and you're already within the framework, 20% to 25% EBITDA margins. And gross margin and OpEx are pretty much more or less within the framework.

How should we think about -- are you comfortable with this framework? How should we think about EBITDA margin expansion going forward over the next, let's say, two to five years? And then in light of that question, also, Steve Trundle, the organic subscription growth rate, if you exclude Icontrol, has been -- has come down to around 20%, maybe high teens.

Is that sustainable? How should we think about the growth rate going forward in light of the multiple -- so like revenue leverage you guys have?.

Let me take the first part of your question. So the actual -- if you look at our guidance for the year, if you look at the SaaS growth, we're coming at about 20.4% growth on an organic basis, 35% for the total.

And if you factor in the adjusted EBITDA, 20% that we've incurred in the past, we actually said -- and if you look at the past at the IPO, we gave a five-year range of 20% to 25% adjusted EBITDA. And we said that, that was about two years ago at the time of IPO.

So given the guidance we've given now for the year of 20%, I think we're comfortable with that level given that there's still a lot of opportunity for growth. We're not ready to really raise that, and we're comfortable with that 20% range for adjusted EBITDA..

Yes. I guess I would just reiterate. I think the two are kind of linked, which are the more comfortable you are with the growth opportunities in the market and sort of the megatrend towards IoT deployment, then the more excited we're going to be about investing to take advantage of that trend line.

And that would lead us naturally to not necessarily want to take the adjusted EBITDA margins up to the high end of that range. But that said, I think we're comfortable with the range still, and we'll see sort of how the world unfolds over the next four to five years. With regard to the growth rate, yes, I think we're about where we expect it to be.

And we're obviously a much larger business than we were when we went public. But as we build off sort of a larger base, we would expect to see the growth rate taper back from the 20%-plus range a bit, but that's going to be a gradual process..

And our next question comes from Bhavan Suri of William Blair. Your line is now open..

Maybe my first question is for Steve T. I'll focus on the commercial opportunity a little bit. Just remind us sort of as you -- the go-to-market has been really efficient sort of for consumers, and you've seen some great leverage there. We've talked about the commercial for a little while.

What's the overlap between the dealers that sell to commercial businesses? And how is that progressing in terms of penetration? You sort of have pretty solid penetration within the dealers itself to consumers.

I'm just trying to get the overlap of that channel and sort of what that penetration might look like as we start executing on that opportunity..

Yes. That's a good question. We seen, it varies. So out of 6,000 service providers that are going to be all over the map, a handful are probably purely residential. But the majority, especially when we get down into what we call the carriage trade component of the service provider base, the majority are doing residential and commercial already.

That mix can be as high as 50-50 in some cases. We also see a couple of our larger partners that we've talked about, the Guardian or at Vector or an ADT also selling both commercial and residential. So the market is a little smaller than residential, probably in terms of number of sites.

The commercial markets in the U.S., more like 4 million as opposed to 22 million that we associate with monitor and security. But I think there's significant overlap.

And therefore, we think that as we begin to progressively deploy more and more of the commercial future set and go after a couple of the components that are needed for a full solution, one of these being access control, that we'll see pretty reasonable uptake. That will take time.

The one challenge with commercial is most of the sites are already monitored and have some amount of existing equipment, existing service that they're receiving. So you have to wait for a cycle of those sites who are going through an upgrade, and we would hope to be in a place to, with our service providers take some gains there..

Got it. That was really helpful. And then just turning to guidance, Steve V., here. When you look at the hardware guidance, it sort of implies that you're not, despite of the comments about sort of solid growth in thermostat and stuff, it doesn't feel like you're accepting any growth in hardware for the rest of the year.

Maybe my math is slightly off, but it feels like you're being just a tad sort of conservative on that.

How should we think about sort of full year guide vis-à-vis sort of the outperformance that we saw in Q1?.

Yes. We did see hardware revenue in Q1, up $24 million, 26% year-over-year growth, but we just want to be cautious here. Hardware is not a recurring item like SaaS and license revenue, so we don't see any benefit of really putting a large number out there. So I think we're comfortable with the guidance we provided..

So that's a good straightforward answer. I'll just add, though, that we do see -- one of our goals is always to drive as much cost out of the components as possible. So we want the customer to benefit from as many devices as they can, and there's an economic equation there.

So it's in our interest to try to shift down the cost structure of some of these elements such as video cameras, doorbell cameras, thermostats, et cetera. I think what we're seeing in our work and our models is higher unit sales, so unit sales turning up.

But at the same time, we're doing everything we can to drive down cost to the consumer, and I think we're making some meaningful gains there. So you end up with sort of a flat line sort of top line, but we get probably better impact and better customers, which helps us with the SaaS line..

Great. So one quick follow-up, and just because I'll push back a little bit. So obviously, also really good SaaS outperformance in the quarter, and it feels like you were also conservative on that line.

And so a directive answer because that would be great, just to help me understand how you guys are thinking about that because obviously that is recurring. And it feels like you did well in Q1, but the flow through is maybe a little more muted than I might have thought..

Well, we did raise the guidance for the year, right? So if you look at the. So we did raise the guidance. So we said for the year, the range is now $231.7 million to $232.7 million. So we raised the right range, and we also raised -- we also initiated guidance for Q2 of $57.8 million to $58 million. So those equate to very good growth numbers..

Thank you. And our next question comes from Mike Koban of Raymond James. Your line is open..

This is Mike Koban on for Tavis McCourt. Honestly, a bunch of mine have already been answered. Just kind of some general stuff here. You guys have mentioned that the integration was going very smoothly, and then everything seems to be on track.

So I guess my first question is what do you -- if everything continues in an ideal world to go as smoothly as it did this quarter, how long do you think this integration process will take?.

Yes. So this is Steve Trundle speaking. We've -- in the quarter, we had about eight days to work on things, and we've had about 1.5 months, a little more than, I guess, about 1.5 months afterwards. And so far, so good.

We're -- we haven't -- I think one of the biggest things is when you do an acquisition like this and you're not able to sort of embed in the company until the day after the deal is completed, one of the things that you're concerned about is what are your surprises going to be.

What are the things that you weren't able to discover because you were somewhat -- I mean, if you remember the challenges we have with the FTC, we weren't really able to embed very deeply in any sort of normal diligence process. So, so far, we've been pleased that we haven't had any surprises. Integration is going smoothly.

We're seeing opportunities to grab some synergies on R&D work, so domains where the Connect team may have expertise that's particularly strong, and domain is certainly where we know Alarm.com has strong demand expertise. So I think we'll let that continue to unfold throughout the year.

I would bet that by the end of the year, we'll have a pretty good picture of how the teams are working together. And we'll have very common set of shared objectives, and we'll also have an understanding with the largest customers of Connect on exactly how they would like to move forward into '18 and '19. So that's roughly the way I look at it.

And there will be a lot of activity. It's not as if we're waiting, putting off, procrastinating till the end of year or anything. There's a lot of activity sort of every day. But I would expect by end of year, really we're talking about one entity at that point..

Great. And I guess just kind of on the -- while we're looking at these acquisitions. If I'm remembering correctly, you completed the acquisition of ObjectVideo before the quarter was over.

Did that have any contribution to, in any financial material way, this quarter?.

It did not have a contribution in a material way. It didn't have a slight contribution. I think the important point with ObjectVideo, we acquired some great technology and some great people, so that's really the focus there and some video analytics capability that -- with some great technology. So that was really the focus of the acquisition..

It drove up -- to the extent there was impact, it really wasn't on top line. It was on our R&D cost structure. So we obviously made some moves in the first quarter to expand R&D. ObjectVideo is a big component of that. And that's probably where we saw more impact than anywhere, first quarter..

And then my last question is just on this hardware line item, seeing that the gross margin clearly seems to bounce around a reasonable amount.

And I know it's not as much of a strategic imperative for you guys, but I believe you said as the video line and the video doorbell windows are higher proportion of revenue or a higher proportion of that line sales tends to affect the gross margin.

So do you have any plan to try and sell hardware items within this that are higher gross margin? Or are you just kind of viewing that as a way to get people in the door, into the ecosystem?.

No. Generally, our strategy with hardware, first, is to defer to our hardware partners whenever we can and whenever we think that's a reasonable approach. But if it's hardware that we're producing, then our goal is -- typically, that's going to be a hardware that enables a -- that directly enables a service. So a video camera enables a video service.

A cellular module enables an interactive home security experience. So in those cases, we're generally going to lean towards running that -- those efforts at margins like what we've done in the past. And there'll be some volatility quarter-over-quarter, just because the mix will shift to product, new product comes out.

And they have slightly different margin profile, or people may buy more of one thing at one quarter versus another. But generally, the range we've shown is probably where I think we'll keep that..

Thank you. And our next question comes from David Gearhart of First Analysis. Your line is now open..

I was wondering if you could talk a little bit about the international business, if you can give an update there. I think on the last quarter call, you're running at about 3,500 additions per month. Just wondered if we can get an update on what the current run rate is and what you're seeing in international..

Yes. In terms of what we're seeing there, we're not -- we're probably not going to update the run rate each quarter, but we have continued to make progress. The pipeline is solid. We're in the process now of -- with Securitas of launching in Belgium, the Netherlands, Sweden, Norway and Iceland.

I think in a couple of those markets, we still have to localize the app. I know in Iceland, for example, we need localization. Seeing more opportunities in other sort of markets, so we've got active cycles now with an entity in Israel. And generally, it looks to us -- I've seen a little bit more uptake in Latin America so far.

So things are generally going as we expected. I think international is still a place where the business is less predictable than the North American market. We do hit issues occasionally that take us a quarter or two to work through, particularly on the product side. But that gives you a little bit of color, so things are moving.

And generally, by end of year, we think we'll be ahead -- be about where we expected to be..

And then if we could shift back to ObjectVideo.

Just wondering if you could shed any insight into some product ideas that you're thinking about or is it too early to expect any color there?.

No. I think I can give a little bit because we showcased this or at least talked some of our thoughts at ISC West. So ObjectVideo has a track record in video analytics that's almost unmatched, and we're trying to bring a lot of those capabilities to residential-grade, low-cost cameras that traditionally haven't had much processing power.

So it starts with fairly simple stuff, like filtering out events that might trigger a motion to cliff when the event is meaningless to the user, so we want to be able to train the system. And if something like a moving tree branch is generally a motion in a video clip, we want to filter that out.

We want to be able to do things like tell the direction that someone is moving, whether coming in or out of a door. If they've left a package on the front step, we want to be able to make that determination.

So there's a whole slew of, basically taking a device that's been relatively, at least on the residential side, been sort of short of an intelligent device and making it intelligent, so that it becomes far more valued and useful to the consumer. And a lot of this also will be applicable to what we're trying to do on commercial.

So those are a few things that we see going forward that the team is focused on..

Okay. And then last question for me. You talk about the 20 million-plus homes that have some sort of security system in place.

Just wondering, as you look at do-it-yourself, monitor-it-yourself solutions, do you see a path to using those kind of capabilities or solutions to attack more of the market that may not have professional installation or have somebody professionally monitor it? Do you see it as a potential additive to your business over the next few years?.

Our experience so far in that segment has been one where, two parts to the answer. One is do we have the technology to enable that segment? I think the answer is probably yes. The second question is does it make rational economic sense to compete in that segment.

And thus far, our calculation has been no, that we're better off focusing on our service providers. We think they're going after probably the more attractive part of the market.

And therefore, in the near term, anyway, next couple of years, I think we'll remain focused on doing everything we can to make our service providers as successful as they can be and probably not getting into as much of the self-monitoring business, unless one or two or more of our service providers sort of pull us in that direction and implement a business model that we think works for the long term..

And our next question comes from Darren Aftahi of Roth. Your line is now open..

Just 2 questions, I think, for Steve Trundle. One, you always had good growth last year on video products. I you know you talked a lot about attach rates with thermostat.

I'm just kind of curious if you're seeing any change in the demand for video products and whether people are looking for video doorbells versus a full-service kind of peripheral solution.

And then your time at ISC, any feedback in terms of any kind of hardware, whether you're internally developing or OEM that may be missing on the platform that some of your service providers are looking for?.

Sure.

So on doorbells, just to make sure I understand that you're asking for sort of the mix of doorbell uptake versus regular video uptake?.

Yes. Wondering if you're seeing any kind of general slowdown in that demand..

No. I mean, doorbell seems to be probably gaining momentum. We're shipping this quarter a new instantiation of the doorbell that's called the Slim Line which is more rectangular and narrow, so it fits more different types of door frames. It has a slightly lower price point in some cases. So I think we'll continue to see that item perform.

It does pull through some video sales. And video, once you have one camera and you're watching your front door, it's not atypical for someone to say, Look, I can see that. I might also want to see my driveway or my backdoor. And likewise, if someone gets video, they often want doorbells. So there's quite a bit of overlap there.

I would say the majority, probably two thirds of the installations that get doorbell get a full video service, and something less than one thirds choose doorbell only.

So that's sort of the trend line we're seeing, and I think we'll see that sort of continue to inch up, particularly as we bring to market some more elegant video monitoring capabilities for the consumer. With regard to the device mix, yes.

We're always working on taking feedback from the dealers, from the service providers on what they need for devices and trying to execute upon that. And we have a mix of cameras coming out throughout the year that are either more industrial grade in some cases; in another case, some slightly lower cost.

We've added audio to a number of the cameras, so there are upgrade cycles on the video cameras and a couple new form factors that will show up as the year progresses..

Thank you. And your next question comes from Jeff Kessler of Imperial Capital. Your line is open..

You may -- I may have missed this part, but have you been able to pair? As you move into small business and other non-resi businesses, have you been able to start pairing things like EnergyHub or other ancillary apps that you've been producing with your moves into small business where they might be taking -- that might be taking a broader range of product?.

Right. To your question, Jeff, I think EnergyHub -- so EnergyHub is applicable to really any location.

And if a small business is deployed with either our Smart Thermostat or one from a variety of our competitors even and they happen to be in one of the markets, which is ever growing, where there are programs for thermostats from the utility, then we can enroll that device, and we can generate some EnergyHub revenue and also some revenue for our service provider, which is the cool thing about that program.

With regard to some of the other technology, I think what we're going to see is that some of the things we've built for the PointCentral business around unattended access and unattended delivery are going to make their way into our commercial offering for small businesses towards the end of the year, so we'll get some probably pickup there.

Beyond that, no, I think those are probably two good examples. And -- but energy definitely is a part of the -- is part of the equation with the small businesses.

If you've got hundreds of facilities out there and you're trying to reduce the cost and we can tell a story that energy management will, in some way, shape or form, begin to pay for your security services, that's a pretty compelling message. So we do use that..

I noticed that when I was over in Europe that -- and I get it is a different business model. I get that at the beginning. That Verisure is running around with kind of standardized -- I'm not going to say suitcases, but standardized presentations to homeowners.

And I'm wondering if you're seeing a more standardized type of marketing approach by -- particularly by your midsize and smaller dealers who may have -- who may not have all the flexibility that your largest dealers have. Are they beginning to -- here's the line of products that we offer. Here are the apps that we offer.

Here is the way Alarm.com fits into it to make that sale a little bit more easily understood by the end user and get you into that house a little more quickly?.

So we've seen progress on that, but that still represents an opportunity for us.

So by progress in prior quarters, I've talked about Customer Connections and the adoption by our service providers have a lot of our marketing materials and everything from content for their websites to live blogs that are rebranded to, in some cases, lead services and then the CRM component, which is Customer Connections, to drive referrals and to drive upsell activity.

So where we've been successful with that, I think we're getting good results. We're not where I would absolutely like to be. And that in a perfect world, all of our smaller midsize dealers would have migrated to more thematic marketing that's consistent with a lot of our messages. And that process is underway. It just takes a long period of time.

And it's not something we are completely in control of. But I think we're seeing the trend in the right direction, but it would be too early for me to say that we've seen and gotten to the point where folks are as consistent as we would like..

Thank you. And our final question comes from the line of Nehal Chokshi of Maxim. Your line is now open..

Now that the Connect business of Icontrol has closed, are you seeing any evidence of pricing pressure or pricing power from your dealer network?.

I would say we always see evidence of pricing pressure, meaning our service providers are always working in a competitive market, competing with large new entrants and others, and whenever possible, would like us to be as aggressive as we can in the way that we price our services. So that hasn't changed.

It's been sort of a fact of life since we got started. So I haven't seen anything that's dramatically new there. In terms of pricing power, no. Likewise, I would say we haven't really seen any evidence that we have newfound pricing power.

It's a big market with lots of folks sort of approaching the market with different business models, everything from retail products that customers invest in, installing themselves and expect free service for, to cable bundling with lots of different offerings.

So no, I don't think we've, we're seeing a market that's any less competitive than the one that existed before we completed the acquisition..

Okay. And I do have a separate question. I want to follow up on Bhavan's assertion that the guidance is conservative. I did notice that the EBITDA, at least for the March quarter, was about $1 million. And I believe that the raise for the full year is about $0.5 million.

So what I'm going to have to do with my model here is take the remainder, remaining three quarters down by $0.5 million on the EBITDA. I think it's kind of a similar story on the SaaS as well, though not as much.

And just want to understand what's the dynamic there, and why isn't this a forbearer of things are getting a little bit more tough as opposed to just being conservative?.

Well, starting with the EBITDA component, I think what Steve Valenzuela referenced in his component of the call was some expense shift from Q1, Q2 that, to Q2, which is fairly material expense. We held our all-hands company meetings in the first month of the second quarter.

We had all of the new employees, the 121 new employees we talked about it, at those meetings. So that entire event moved from, moved into Q2. And therefore, it's a little, it's not, we can't just sort of extrapolate Q1 EBIT performance and push that out in all the subsequent quarters, just because there's been a little bit of a shift there.

With regard to general degrees of conservatism, I don't know if I can comment on us being more conservative or less conservative this quarter than prior quarters. We attempt to guide in a way that we think is consistent with our management plan, and we hope to overachieve.

I will say that we are going into our first full quarter now after the acquisition, so we certainly want to make sure we understand all those dynamics, and that's underway..

Yes. We only have 24 days, really, in the first quarter with the acquisition of Connect and Piper, so it makes sense to take that into account as we look at the guidance for the year..

Thank you, that’s very helpful. Thank you..

So I believe that's our last call, and I understand the conference call provider had some technical difficulties. So we will be posting the prepared remarks on our website or the Investors section of our website. Okay, great. So with that, I think we're done. So..

Ladies and gentlemen, thank you for participating in today's conference. We do apologize for any technical issues experienced on today's call. Thank you for your participation. You may all disconnect. Everyone, have a great day..