Earnings call transcript: Alarm.com Q3 2025 beats expectations, stock dips

Alarm.com Holdings Inc. reported its third-quarter 2025 earnings, surpassing analysts’ expectations with a notable increase in earnings per share (EPS) and revenue. Despite the positive earnings surprise, the company’s stock saw a decline in aftermarket trading.

Key Takeaways

• Alarm.com reported an EPS of $0.76, beating the forecast of $0.61.
• Total revenue reached $256.4 million, exceeding the forecast by $5.26 million.
• Stock price fell 1.3% in aftermarket trading, closing at $47.69.
• SaaS and license revenue grew by 10.1% year-over-year.
• The company launched new AI-driven products and expanded its Energy Hub platform.

Company Performance

Alarm.com demonstrated strong performance in Q3 2025, with a 6.6% year-over-year increase in total revenue. The company’s SaaS and license revenue, a key growth driver, saw a 10.1% rise. The adjusted EBITDA also showed impressive growth, increasing by 18.4% compared to the same quarter last year. This solid financial performance reflects the company’s effective strategies and robust demand in both residential and commercial markets.

Financial Highlights

• Revenue: $256.4 million, up 6.6% YoY
• EPS: $0.76, up 22.6% YoY
• Adjusted EBITDA: $59.2 million, up 18.4% YoY
• Free cash flow: $65.9 million
• Cash balance: $1.1 billion

Earnings vs. Forecast

Alarm.com outperformed expectations with an EPS of $0.76, compared to the forecasted $0.61, resulting in a 24.59% earnings surprise. Revenue also exceeded forecasts, coming in at $256.4 million against the anticipated $251.14 million, marking a 2.09% surprise. This positive deviation from forecasts underscores the company’s strong operational execution and market demand.

Market Reaction

Despite the earnings beat, Alarm.com’s stock declined by 1.3% in aftermarket trading, closing at $47.69. The stock’s movement may reflect investor concerns about broader market trends or specific company risks. The current price is closer to its 52-week low of $46.65, suggesting some market caution.

Outlook & Guidance

For 2026, Alarm.com projects SaaS and license revenue between $722 million and $724 million, with total revenue expected to range from $1.037 billion to $1.044 billion. The company aims for adjusted EBITDA margins of 21% by the end of 2027. These projections indicate confidence in sustained growth through strategic initiatives and product innovations.

Executive Commentary

CEO Steve Trundle emphasized the company’s strong cash flow generation and growth initiatives, stating, "We are getting to a place that I think is a bit more healthy and in a nice place where we’re generating strong cash flows." CFO Kevin Bradley highlighted the company’s strategic reinvestment, noting, "We continue to believe that our strong returns on invested capital and the positions we have established across multiple markets support organic reinvestment."

Risks and Challenges

• Market volatility may impact stock performance despite strong earnings.
• Supply chain disruptions could affect product availability and innovation.
• Increasing competition in the residential and commercial security markets.
• Economic downturns may reduce consumer and business spending on security solutions.
• Regulatory changes in energy management and data privacy could pose challenges.

Q&A

During the earnings call, analysts inquired about the durability of the company’s Energy Hub growth and strategic pricing initiatives. Executives confirmed a continued focus on these areas, along with an active but deliberate M&A strategy. The company also addressed international expansion opportunities, indicating a growing presence in global markets.

Full transcript - Alarm.com Holdings (ALRM) Q3 2025:

Conference Operator: Good day, and thank you for standing by. Welcome to the Alarm.com third quarter 2025 earnings conference call. At this time, all participants are on a listen-only mode. After the speaker’s presentation, there’ll be a question-and-answer session. To ask a question during the session, you’ll 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, Alarm.com: Thank you, Operator. Good afternoon, everyone, and welcome to Alarm.com’s third quarter 2025 earnings conference call. This call is being recorded. Joining us today are Steve Trundle, our CEO; Kevin Bradley, our CFO; and Dan Kirzner, President of our platform’s business. 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 quarterly report on Form 10Q and our Form 8K, 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 which 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.

Steve Trundle, CEO, Alarm.com: Thank you, Matt. Good afternoon and welcome to everyone. We are pleased to report financial results for the third quarter that were above our expectations. SaaS and license revenue in the third quarter grew to $175.4 million. Adjusted EBITDA was $59.2 million. We saw better-than-expected performance across the business during the quarter, with particular strength in our energy business. Following my remarks, Dan Kirzner, who is the President of our platform’s business, will walk through several new product releases and how we’re increasingly applying AI to our platform and business. Kevin Bradley, our CFO, will review our financial results, guidance, and provide our early initial look at next year. I’ll begin with our annual partner summit, which we held here in Washington, DC, in early October. We hosted about 200 key service provider partners from around the globe.

Our team presented newly released and upcoming products while simultaneously taking the pulse on what our partners are seeing in the markets they serve. In my conversations, partners expressed nice enthusiasm for our overall roadmap and particularly for our new residential and commercial video products, including our upcoming battery cameras. Our remote video monitoring capability, delivered through our subsidiary, Chekt, also drew strong partner interest. Chekt connects Central Station workflows with AI-driven video analytics to enable Central Station operators to cost-effectively monitor live video feeds, deter crime before it occurs, and seamlessly initiate an emergency response when the situation calls for escalation. I also spoke to a few of our end customers who have large commercial installations. It was good to hear that they are pleased with the direction of our product and the enhancements we have been making to our multi-site access control video and intrusion software solutions.

We continue to hear from our partners that our unified commercial solutions are winning in the market due to the ease of managing these complex systems through a single integrated interface. Over the last year, we’ve seen a healthy uptick in commercial video account creation, and our commercial access control subscriber base increased approximately 30%. Our growth initiatives, Commercial, International, and Energy Hub, collectively continue to drive SaaS revenue growth in the 20-25% year-over-year range and accounted for 30% of total SaaS revenue this quarter. I want to highlight Energy Hub’s progress with its platform strategy, which is enabling higher-value services for its utility clients and reinforcing its competitive advantage and leading market share in the North American residential market. As a reminder, Energy Hub’s software platform helps utilities match electricity demand and supply in real time.

It does this by orchestrating distributed energy resources such as smart thermostats, residential batteries, and EVs to provide load flexibility. Demand for Energy Hub is driven by the long-term grid challenges faced by utilities. These include increasing load from electrification of transportation and the growing footprint of data centers, along with growing variability in generation as the grid decarbonizes. Energy Hub’s load flexibility solutions are faster and more cost-effective to deploy than building new infrastructure. The Energy Hub team is focused on platform expansion to support more classes and manufacturers of edge devices. Last month, Energy Hub announced an expanded partnership with Tesla. Owners of Tesla’s Wall Connector EV chargers can enroll their product in Energy Hub programs directly in the Tesla app. A large U.S.

Utility is already using the integration to accelerate EV program enrollments, and it’s being introduced to many of the more than 30 EV-managed charging programs that Energy Hub supports in North America. The goal of Energy Hub’s ecosystem expansion is to drive platform adoption by providing a single orchestration layer across device classes. Energy Hub also provides AI-driven dynamic load shaping capabilities that increase flexibility and address a broader range of grid management use cases. In summary, I’m pleased with our third quarter results and the continued growth we see across the business. Alarm.com has developed strong, durable positions addressing diverse and dynamic opportunities in residential and commercial security and residential energy management. Our IoT-based software solutions are transforming those markets, and we are well-positioned to drive further growth over time.

I want to thank our service provider partners and our team for their hard work and our investors for their continued trust in our business. I’ll now turn things over to Dan Kirzner. Dan.

Dan Kirzner, President of Platform Business, Alarm.com: Thanks, Steve. I’m pleased to join our call this quarter and speak with our investors and analysts. For context, the platform business that I lead includes product development for our core residential and commercial platforms, shared services for our growth ventures, and sales and marketing for North America, our largest market. Our team drives profitable growth through innovation, delivering new capabilities that expand our addressable market and strengthen the competitive position of our service providers. I’ll begin with an update on several products we released recently and share some examples of how our AI is already intersecting with current elements of our service provider and subscriber offerings and platform. Video remains a strategic growth driver across our residential, commercial, and international markets. It’s central to our platform strategy because each new video capability extends system utility, both directly and by thoughtfully integrating video with other aspects of the offering.

This approach increases SaaS adoption and customer engagement and retention. To share a sense of the scale, the platform uploads roughly a million hours of video per day. This quarter, we introduced a variety of important updates to the lineup. We added to our outdoor video camera lineup with the new 730 Spotlight camera. It delivers high-quality video at night through an integrated spotlight and a 4-megapixel sensor. It also includes built-in 2-way audio so Central Station operators can communicate directly through the camera and Bluetooth enrollment that simplifies installation. The 730 also supports our intelligent video-based proactive deterrence capabilities. This includes AI deterrence, an upgraded video solution that identifies individuals and delivers AI-generated verbal warnings dynamically adapted to a person’s clothing, behavior, and location. The voice is designed to emulate a security professional and uses our service provider’s brand name to add authenticity and authority.

We recently enhanced this feature with a broader library of human-like, dynamically generated voices and built-in randomization that automatically varies tone, phrasing, and delivery to create more unpredictable and thus convincing deterrence messages. Capabilities like AI deterrence and remote video monitoring reflect our strategy to deploy software that evolves video cameras from passive sensors into active responsive devices that drive higher recurring revenue and subscriber lifetime value. As we continue to embed AI within the core platform, we can derive more insights from the IoT devices in a property and cost-effectively deliver unique value to consumers and businesses. Turning to our commercial solutions, we continue to expand the reach and flexibility of our video platform. Commercial properties often have diverse surveillance requirements, which are met by a wide variety of camera form factors.

By extending our software to operate with select third-party cameras, we’ve made it easier for service providers to bring Alarm.com’s video capabilities into these environments without developing proprietary hardware. This approach broadens our market coverage and enables more efficient targeted R&D investment and opens additional SaaS opportunities with existing commercial accounts. Since launching this capability, we’ve seen strong engagement. Accounts that leverage our third-party camera support connect roughly twice as many cameras to our video software as accounts without it. Revenue streams we may not have otherwise captured. We recently expanded support to include panoramic, multi-sensor, and pan-tilt zoom cameras, form factors widely used in airports, parking facilities, and industrial sites. We also enabled two-way audio and advanced analytics for our leading camera manufacturer partners. These integrations enable us to attach our premium remote video monitoring service to a broad range of widely deployed cameras. Another focus for our teams.

Is partner enablement. Our service provider relationships are cornerstone of both our durable market position and our growth strategy. We offer enterprise-grade tools that enable our partners to operate their businesses through our platform, from field installation to ongoing support and management of very large fleets of connected devices. Last year, we launched an initial version of our generative AI chatbot and our technician app to help field teams quickly troubleshoot installation issues. We recently released an upgraded version that can handle more complex questions and multi-step workflows. In the four months following the upgrade, the average number of inquiries handled by our chatbot increased by two and a half times, while customer satisfaction ratings rose more than 70% over the same period. Our goal is to provide service providers with streamlined multi-channel access to world-class support.

With more technicians using our AI-augmented support offerings, our teams can prioritize more complex challenges and first-time installations. Over time, this facilitates faster adoption of new features and enables our partners to expand their use of our commercial, residential, and video services. Overall, I’m pleased with the progress our R&D team made this quarter and throughout the year. These product introductions demonstrate how our platform strategy scales innovation efficiently across markets while creating tangible growth opportunities for our partners. With that, I’ll hand things over to Kevin to review our financials. Kevin.

Kevin Bradley, CFO, Alarm.com: Thank you, Dan. I’ll begin by reviewing our third-quarter financial results, then provide updated guidance for Q4 and full year 2025, and lastly, provide our initial thoughts on 2026. I’m pleased to report another quarter of financial results that exceeded our expectations and consensus estimates. Our performance reflects continued broad-based contributions across the diverse components of the business. SaaS and license revenue grew 10.1% year-over-year to $175.4 million. Exceeding the midpoint of our guide of $171.5 million. As Steve noted, our growth initiatives, which consist of our commercial, Energy Hub, and international efforts, continued to deliver SaaS revenue growth of roughly 20-25% year-over-year and represented 30% of total SaaS revenue in the quarter. Energy Hub delivered a particularly strong quarter, with the team both executing on new program launches and driving solid same-store growth.

Total revenue grew 6.6% year-over-year to $256.4 million during the quarter, and gross profit increased 8.4% to $168.8 million. Despite some anticipated and temporary headwinds to hardware gross margins, total gross margins increased 100 basis points year-over-year due to the improving quality of SaaS in both the Alarm.com and other segments, as well as a higher weighting towards SaaS overall. Hardware gross margins were impacted as we began selling through certain inventory and carrying reciprocal tariff costs towards the latter part of the quarter. We expect this to continue into Q4 before returning to a more normal margin range in January 2026 when we modify our tariff pass-through fees to incorporate the higher reciprocal tariff rates. We also chose to selectively use faster and more expensive shipping methods to support the recent launch of two of our new video cameras, the V516 and the V730 that Dan discussed.

This also contributed to some hardware gross margin compression. As I noted a moment ago, even with these temporary headwinds, our total gross margin rates were up 100 basis points year-over-year. During the third quarter, total operating expenses, including depreciation and amortization, were $131.8 million. Excluding depreciation and amortization, as well as stock-based compensation and other items we adjust from G&A for non-GAAP purposes, total operating expenses were $113.1 million, a 7% increase year-over-year. R&D expense in the quarter, inclusive of stock-based compensation, was $66.6 million, up 7.1% year-over-year. GAAP net income during the third quarter was $35.3 million, or 65 cents per diluted share. Non-GAAP adjusted net income grew 20.6% year-over-year to $42.4 million, and non-GAAP EPS increased by 22.6% year-over-year to 76 cents per diluted share.

Effective August 15th, 2025, the settlement method for our convertible notes that mature in January 2026 became locked into the paramount in cash, and as such, we began removing the 3.4 million of dilutive shares midway through the third quarter. Adjusted EBITDA grew 18.4% year-over-year to $59.2 million. Our adjusted EBITDA performance includes a $3.6 million benefit derived from a mark-to-market gain on a security in our treasury portfolio. Substantially all of our treasury is held in money market funds, but our policy allows for a small percentage to be held in other marketable securities. We produced $65.9 million of free cash flow and ended the quarter with $1.1 billion in cash. Our efficient go-to-market model and growing base of durable recurring revenue continues to generate strong cash flow and reinforce a healthy balance sheet.

I want to remind investors of the cash flow tailwind that should emerge based on the federal tax bill signed into law in July 2025, which included a provision that allows companies to transition back to immediately and fully deducting all domestic R&D expenses incurred during the year for tax purposes. We continue to estimate that this change eliminates what would have been a little under $200 million in total cash tax payments over the next five years under prior law. I’ll turn now to our financial outlook. For the fourth quarter of 2025, we expect SaaS and license revenue of between $176 million and $176.2 million. As a reminder, EnergyHub’s revenue recurs annually and is slightly seasonally weighted toward the second half of the year.

The fourth quarter is typically its largest revenue quarter in absolute dollars, but also tends to grow at a slower rate than other quarters on a year-over-year basis. Additionally, Energy Hub’s strong Q3 performance included some contributions that pulled forward from Q4. Collectively, these factors create a modest seasonal headwind to consolidated SaaS growth. For full year 2025, we are raising our SaaS and license revenue outlook to between $685.2-$685.4 million, an increase from prior guidance of $4.1 million at the midpoint. We now expect total revenue slightly above $1 billion, including $315-$316 million of hardware and other revenue. We are also raising our non-GAAP adjusted EBITDA outlook to $199 million, up from the midpoint of $195.8 million in prior guidance. This implies roughly 100 basis points of margin expansion compared to 2024.

We are projecting non-GAAP adjusted net income of $140.5 million, or $2.53 per diluted share. This is up from prior guidance of $136 million-$136.5 million, or $2.40 per diluted share. EPS is based on 58.9 million weighted average diluted shares outstanding for the year. Q4’s diluted shares will be around 56.7 million as we operate through a full quarter without the 3.4 million dilutive shares associated with the convertible notes through January 2026. We currently project our non-GAAP tax rate for 2025 to remain at 21% under current tax rules. We expect full year 2025 stock-based compensation expense of around $35 million. Before turning to our preliminary view of 2026, I want to comment on our annual planning process, which is well underway.

We continue to believe that our strong returns on invested capital and the positions we have established across multiple markets support organic reinvestment as the primary component of our capital allocation framework. As we go through our planning process each year, we begin with an analysis of all our existing initiatives to determine which ones best support ongoing investments and growth. We also identify initiatives that we have been working on for some time, but where progress has not developed as we had expected. That process forms a framework for reallocation within the portfolio. This year, much like last year, we are seeing that many of the higher growth areas of the business can self-fund a bit more than they did just a few years ago.

As we rotated out of a few initiatives and assessed productivity, we found ourselves in a position to let go of some existing jobs during October, which is always a difficult but sometimes necessary decision. While we are still focused on closing out 2025, we currently project a preliminary early-look estimate of SaaS and license revenue of between $722 million and $724 million in 2026. Total revenue could range between $1.037 billion and $1.044 billion. We currently project our non-GAAP adjusted EBITDA for 2026 to be in the range of $210 million-$212 million. We will be working to firm up our estimates and will provide our formal annual guidance for 2026 when we report our fourth quarter 2025 financial results early next year. As our early-look estimates suggest, we are complementing organic reinvestment with some margin expansion.

We have a midterm target to exit 2027 with adjusted EBITDA margins in the 21% range, assuming historically typical hardware margins of 22-24% and a similar mix of hardware revenue and SaaS revenue that we have today. Our plans beyond this will depend upon the growth profiles and prospects of the various initiatives that we are engaged in at that time. In the meantime, meaningful operating cash flows continue to contribute to our strong cash position, affording us additional flexibility across our broader capital allocation framework. In closing, we’re pleased with the broad-based momentum in the business that we’ve seen throughout the year. We believe that we’re well-positioned to deliver continued revenue growth and profitability while investing to expand our long-term opportunities. With that, Operator, please open the call for Q&A.

Conference Operator: Thank you. Ladies and gentlemen, if you have a question or a comment at this time, please press star 11 on your telephone. If your question has been answered and you wish to remove yourself from the queue, please press star 11 again. We’ll pause for a moment while we compile our Q&A roster. Our first question comes from Adam Tyndall with Raymond James. Your line is open.

All right. Thanks. Good afternoon. Kevin, I just wanted to start on the early framework for 2026. If I was just doing the math here quickly, correctly, it implies that the SaaS revenue growth is about 6%. And I was going back through my notes, and I think that’s about where you initially thought 2025 might be, and we’re now pushing maybe closer to 9% as we look to close out the year. I guess the question would be, as you formulated the initial SaaS guidance in particular, what are maybe some of the similarities and differences in moving parts in 2026 versus 2025, and what could be some potential upside drivers? Thanks.

Kevin Bradley, CFO, Alarm.com: Sure. Hey, Adam. Thanks for the question. As you noted, when we first looked at 2025, we were first looking at about 6.1%, so very similar to what we’re first looking at 2026 right now. And our updated guide for 2025 is about 8.5-8.6%, so about 250 basis points higher. Throughout the course of this year, we’ve had the growth initiatives contributing a little bit under 30% of SaaS revenue and growing 20%. I think as we look forward to 2026, the expectation would be roughly similar in terms of growth rate profile, meaning we think it’ll maintain 20-25% growth. That’ll be consistent. When we started 2025, we noted a 200 basis point headwind on the residential side. That has not really come to fruition this year as a combination of.

A little bit better account creation than we had anticipated at the beginning of the year, as well as a very little bit of currency tailwind, which probably added about 20 basis points of growth this year. As we look forward, we’re basically pushing right some of that growth rate headwind that we had signaled at the beginning of this year on the core residential business to next year, and then we’re basically assuming no additional currency headwinds.

Got it. Thanks. That’s helpful. Just to follow up for Steve, if I could, I’m noticing obviously very strong profitability here. If I’m looking at the implied EBITDA margin for this year, it’s looking like it’s going to be pushing towards 20%. The initial guidance for next year suggests another 20%, maybe even a little bit greater with some upside throughout the year. Very healthy profitability levels. I guess the question, Steve, would be your thoughts on the balance of growth and profitability going forward. I understand you’ve managed that well in the past, but you’re now reaching new levels of scale, a billion-dollar business at this point. Those incremental points in EBITDA are very high dollars. I just wonder if you could maybe just opine a little bit on how you’re thinking about the balance of growth and profitability. Thanks.

Steve Trundle, CEO, Alarm.com: Sure. Thanks, Adam. Yeah, I’d say we’re still primarily focused on where we can find growth and what type of investment we need to get that growth. So we’re still pretty excited about the growth initiatives. Kevin mentioned we always have a few other Skunk Works projects that we hope may come to fruition over the coming years. I’d say that’s where we start, is like, let’s look at where can we get growth sort of in the, I’d say, 5- to 10-year period. That said, we’ve been improving the efficiency of the company. We’re going to continue to do that. Kevin just telegraphed sort of an exit rate anyway for 2027 that suggests we’re going to continue to move the adjusted EBITDA margins up some in the business.

We’re getting to a place that I think is a bit more healthy and in a nice place where we’re generating strong cash flows, refilling the bucket for our growth definitions, and still able to sustain some growth.

Thank you.

Sure.

Conference Operator: One moment for our next question. Our next question comes from Samad Samaneh with Jefferies. Your line is open.

Hey, guys. This is actually Billy Fitzsimmons for Samad. I want to double-click on the Energy Hub business. There’s obviously a ton going on in the utility market right now. Data center demand is driving kind of record levels of investments, and consumers are also contending with higher bills in many cases as a result. Maybe against this backdrop, can you just walk me through how maybe your conversations have progressed with kind of key customers over the course of the year? Curious if you have any anecdotes on specific customer conversations. Can we just double-click on the commentary around how there was maybe a slight pull forward in that business from 4Q into 3Q?

Steve Trundle, CEO, Alarm.com: Hey, Billy. Sure. I’ll start with kind of the higher-level question about the market. Kevin may have a comment on the pull forward. Yeah, the macro trends there are advantageous to us at the moment. As you noted, the data center explosion, the electrification of transportation, all of these things are driving demand for electricity. It just so happens that what we do in the form of a virtual power plant is one of the least, probably the least expensive way to add capacity and also something that’s actionable and can contribute almost immediately. The macro framework is great for that business. As a result, our key customers, I think, are moving much faster and getting more serious about the contribution that VPP can make to their capacity challenge. We’re seeing less sort of.

Piloting trials, test and see type of approaches, and much more. Folks kind of moving towards this type of solution as a committed part of their capacity is what we’re seeing in the market. I’d say in terms of the pull forward, Kevin, do you have any comment on that?

Kevin Bradley, CFO, Alarm.com: Yeah, sure. Hey, Billy. I would characterize it as being in the hundreds of thousands of dollars, not millions of dollars. One of the longest-running programs at Energy Hub is a market-based program that’s run out of Texas. Historically, what happens there is we’re performing against that program throughout the year, predominantly the summer. That is sort of settled up in Q4, and the revenue associated with it is booked in Q4. That is one of the reasons that Energy Hub has always been somewhat seasonally weighted in terms of revenue towards Q4. Some of that settlement happened to occur in Q3 this year, and the rest will occur in Q4. There is just a little bit of pull forward there.

Got it, guys. Makes sense. Appreciate it.

Steve Trundle, CEO, Alarm.com: Thanks.

Conference Operator: One moment for our next question. Our next question comes from Steven Sheldon with William Blair. Your line is open.

Hey, team. You have Matt Filecon for Steven Sheldon. On Energy Hub, can you help give us a sense on the current growth rate and how you’re thinking about the durability of that growth over the next, call it, two to three years, especially in light of the strong demand you’re seeing and some of the secular themes you’re benefiting from?

Steve Trundle, CEO, Alarm.com: Sure. Just starting with the growth rate. We do not break out each growth initiative, but we commented the growth rate for our growth initiatives is sort of in the 20-25% range overall. Energy Hub is probably the most meaningful contributor to that growth initiative growth rate, meaning you can probably guess that they are a tad above that. The second part of the question, I guess, was the macro environment, what is driving it. Matt, is that what you asked?

Really more so how durable do you think that growth is in light of the secular themes you’re benefiting from?

Yeah. At the moment, we believe that growth is quite durable. There are a lot of different things going on. First, at the moment, we have about 45 million installed connected thermostats in the US. The penetration in terms of participation of those stats in a VPP program with us is around 3-5%. So we’ve got a lot of headroom in terms of adding more consumers onto the platform in our core sort of thermostat-driven business. At the same time, we’re out there building a business around EVs and building a business around batteries. We’ve had a couple of announcements recently on both of those fronts. You’ve got kind of another vector of growth there. Batteries, in particular, are very interesting for us to work with because we’re even more sort of able to control.

Utilization of stored kilowatt hours there than we are with a thermostat where we may impact actually someone’s temperature in their home. We are seeing growth there. The next thing we can do is sign up additional utilities. We are probably 30% share of the largest 150 utilities in North America at the moment, meaning those that are out there with over 100,000 meters. We have share opportunity as well. Because we are sort of the largest in this space, we are the preferred partner for anyone that makes a device. If someone wants to be contributing power to the grid and they want to participate in the economics associated with that, Energy Hub is the place to go.

I feel like the growth, putting all that together, the growth story there is durable and compelling, and we feel good about it going into certainly next year in 2027.

Thank you. That’s very helpful, Collar. It sounds like there’s plenty of runway there. Maybe shifting gears to the core residential business. I was wondering if you could maybe talk about how much of a focus subscription pricing increases have been there and how much of a focus do you expect pricing increases maybe to be over the near term?

Yeah. I’d say in the history of the company, we’ve driven growth without much pricing. That changed a couple of years ago. We began to incorporate pricing into the growth picture. That was driven by sort of the hard reality of a core inflation rate that had moved up dramatically. We’ve continued that practice, and we’ll have to continue it. Pricing is part of it. We’re routinely surveying what inflation rates are and moving on price sort of in that ballpark range, typically.

Got it. That’s helpful. Thank you for the questions.

Sure.

Conference Operator: Again, ladies and gentlemen, if you have a question or a comment at this time, please press star 11 on your telephone. One moment for our next question. Our next question comes from Ella Smith with JPMorgan. Your line is open.

Good evening. Thank you for taking my question. So I’m curious, SaaS continues to grow as a percentage of your overall revenue. To what extent do you expect this positive mix dynamic to support your gross profit margins over a multi-year period?

Steve Trundle, CEO, Alarm.com: Sure. Ella, at the moment, SaaS has been increasingly becoming a bigger chunk of the mix. That, of course, contributes to gross margin expansion on a percentage basis. Looking into next year, I think we expect that trend to probably continue somewhat. That said, we have a number of things that we’re excited about that are coming to market either right now or into next year. Dan spoke at length about some of the new form factors and new capabilities on our video product line. If we’re successful in promoting that line and driving demand, obviously, we’ll see higher hardware revenues as a result of that. That mix could shift a little bit. I don’t think you’re going to see it shift dramatically from where it is today. I’d say the trend line or where we are today is roughly where we’ll be.

You might see things move 100 or 200 basis points in terms of mix. In the next 12 months or so.

That’s very clear. Thank you. For a quick follow-up, how would you characterize your current M&A strategy, and do you expect to be acquisitive in 2026?

I would characterize our current strategy as active but deliberate. We are constantly assessing opportunities, different size classifications, and we’re well-positioned going into 2026. I would imagine you’ll see a pace in 2026 that’s not dissimilar from what you’ve seen in the last couple of years. We can’t guarantee that. We’re always optimistic, and we’re not in a race to go to acquisitions. When we see the right fit, that means great management team, that means synergistic with our channel, synergistic with our technology, and honestly, synergistic at some level with our P&L. When we see those things come together, then we do strike. I would expect that you’ll continue to see some activity next year.

Great. Thank you so much.

Conference Operator: Again, ladies and gentlemen, if you have a question or a comment at this time, please press star 11 on your telephone. One moment for our next question. Our next question comes from Saket Kalia with Barclays. Your line is open.

Hi. You’ve got Alyssa Lee on for Saket Kalia. Thank you for taking my question. I think you touched on commercial and Energy Hub a little bit out of your growth initiatives. How are you thinking about the international opportunity into next year? How is EBS progressing, and how do you see that into next year?

Steve Trundle, CEO, Alarm.com: Hey, Leslie. Sure. International continues to be one of the three legs of the stool in terms of growth initiatives. I would say of the three we have talked about, commercial, Energy Hub, and international, international is probably a bit more of the laggard of those three. We are not making quite as much progress there as I would like to see. We are continuing to work to build that out. On the positive, you roll the clock back 24 months, and international was 4% of revenue. I think when we put the queue out, you will see it be 6% of revenue at the moment. We are growing international, and we have got a nice strong foundation there to continue to build off. I guess the optimist in me says we have a lot of room to.

Drive a little more growth and some acceleration on the international piece so that it contributes a bit more to that overall range that we articulated, which was 20-25%. On the growth initiatives.

Super helpful. Thank you. Maybe as a follow-up, how did renewal rates and gross ads shape up this quarter, and how did macro backdrop sort of influence those?

How did the—yeah. Yeah, that’s what I was asking. Yeah. The renewal rate came in right where it was last quarter. They both rounded down to about 94%. They were, I’d say, 10-20 basis points above that, but rounded to 94%. That was substantially similar. Gross ads were sort of exactly where we expected them to be. They were neither higher nor lower. I think we attribute most of that to the fact that, from a housing market perspective, things basically stayed where they were in Q2. There was incrementally some excitement about potentially a lower rate environment that we thought might unblock that a little bit. I think we found, based on commentary from builders in the last couple of weeks, that fears about the job market have basically all but offset that. Here we are in about the same place sequentially.

Got it. Thank you so much.

Conference Operator: One moment for our next question. Our next question comes from Jack Vander Aarde with Maxim Group. Your line is open.

Great. Okay. Hey, Steven. Appreciate the time. Joined a little bit late, so I’ll try not to be too redundant. Two questions. Growth businesses continue to ramp well. I caught some of the Q&A on Energy Hub and the focus on utility, power grids, batteries, EVs. Maybe just outside of that, can you tie that into just your perspective on the autonomous. Robotics and delivery and drones? How does this fit into your Energy Hub and just your overall vision? Or does it? I know you have patents on some stuff, and you guys are a patent machine over there too. Just would love to get your thoughts, maybe taking the ball a step further with the autonomous delivery.

Steve Trundle, CEO, Alarm.com: Hey, Jack. Yeah, wide-ranging question there. Let’s start with kind of the relationship to Energy Hub. The devices that—these autonomous devices that we expect to see around the home—all actually act as little mini, can be mini batteries on the grid. I would expect, much as we attempt to connect to everything today, anything where there’s sort of a store of power. As these devices become more real, those batteries become attractive to us. Certainly, their charging cycles are things we can manage. You don’t want to be charging if you’re in a market where there are peak rates. You don’t want to be charging your army of robots during the hour when you’ll be paying peak rate. You want to charge them at some other point in time. I think that’s all good.

Whether there will be that much capacity there in these types of batteries or not, I do not think we fully know yet. It depends on the capability of these autonomous devices. The next piece is really, are these vehicles for security video cameras? We continue to believe that they are. We currently go to market with an autonomous drone unit for high-security outdoor applications. We are seeing that product deployed in places like shipyards or big tech parking lots, any place where you have a wide amount of acreage to cover and you have a need for high security and it is sort of unreasonable to ask a guard to very, very quickly monitor a large property. We are seeing uptake there. It is a relatively small part of our business still, but it is a place where we continue to have some energy. We are watching.

For the right partnering opportunities and/or right organic opportunities to build out more in that category. I wouldn’t say it’s as important to us at the moment as some of the things we’re doing with kind of AI and core video, but it’s something that we continue to watch.

Excellent. I appreciate all the color there. I know it was a wide question, but that was a great answer. One more for me. Outside of the M&A, I heard a question on that earlier. I know that’s part of the general strategy, but just maybe look at the balance sheet and the cash that you guys do have. It’s very noticeable, obviously. Any other uses for that cash? Another hot topic area is clearly you can’t get around is the digital asset space, treasuries, just integration with blockchain. Is any of this on your guys’ radar, or how do you just view the space in general?

I may toss some of this one to Kevin, but in terms of the balance sheet, balance sheets, yeah, big, as you know, right now. We’re closing out one of the convertibles in January, but we’ve got pretty strong cash flow production. We expect to have a nice amount of capacity on the balance sheet for all of next year. In terms of deployment, certainly, it’s primarily about CorpDev and having dry powder there. Do we consider other types of assets? We give them some consideration. At the moment, though, we’re pretty focused on deploying capital in a way that helps us, for the most part, grow our core business. We’re not looking to deviate too much from that strategy. Anything else, Kevin, you want to add, or?

Yeah, sure. Our primary motive, I think, with the balance sheet is for it to be a source of resilience and flexibility for the reasons that Steve mentioned. The primary reason to have that there is to be able to be opportunistic in the CorpDev space. You obviously see us do a little bit of buyback activity as well. It’s useful in that domain. We were more active than we had been in several quarters during Q3 as we saw the opportunity to buy it. It’s 7.5% plus cash flow yield on it. Those are the two things really that we focus on right now in terms of use of the balance sheet, less so crypto or other assets like that.

Understood. I appreciate the color, guys. Thanks for the time.

Sure thing.

Conference Operator: Again, ladies and gentlemen, if you have a question or a comment at this time, please press star 11 on your telephone. I’m not showing any further questions at this time. As such, this does conclude today’s presentation. We thank you for your participation. You may now disconnect and have a wonderful day.

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