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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Ladies and gentlemen, thank you for standing by, and welcome to the Alarm.com Third Quarter 2020 Earnings Conference Call. At this time, all participant lines are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. Please be advised that today's conference is being recorded.
I would now like to hand the conference over to your speaker today, Mr. David Trone, Vice President, Investor Relations. Please go ahead, sir.
Thank you. Good afternoon, everyone, and welcome to Alarm.com's third quarter 2020 earnings conference call. As a reminder, this call is being recorded. Joining us today from Alarm.com are Steve Trundle, President and CEO; and Steve Valenzuela, CFO.
Before we begin, a quick reminder to our listeners. Management's discussion during the call today will include forward-looking statements, which include projected financial performance for the fourth quarter 2020 and full year 2020 as well as early thoughts on 2021; emerging market dynamics and trends on our business and on anticipated market demand for our offerings; possible impact of the global economic uncertainty caused by the COVID-19 pandemic; our business strategies, plans and objectives for future operations including expectations regarding our future relationship with ADT; continued enhancements to our platform and offerings; opportunities for growth in our current markets; and other forward-looking statements.
These forward-looking statements are based on our current expectations and beliefs and on information currently available to us. Statements containing words such as began, believe, continue, estimate, expect, forecast, may, project, trend, will and other similar words are intended to identify such forward-looking statements.
These statements are subject to risks and uncertainties including the risks that any anticipated developments in respect of ADT may not occur or may unfold differently than we anticipate, and those contained in the Risk Factors section of our most recent Annual Report on Form 10-Q (sic) [Form 10-K] (00:02:28) filed with the Securities and Exchange Commission on February 26, 2020 and in subsequent reports that we file with the Securities and Exchange Commission from time-to-time including the updated Risk Factors section of our Quarterly Report on Form 10-Q that we intend to file with the Securities and Exchange Commission shortly after this call, that could cause actual results to differ materially from those contained in the forward-looking statements.
Please note that the forward-looking statements made during this conference call speak only as of today's date and Alarm.com undertakes no obligation to update these statements to reflect subsequent events or circumstances, except to the extent required by law.
Also during this call, management's commentary will include non-GAAP financial measures and provide non-GAAP guidance. Management believes that the use of these non-GAAP financial measures provides an additional tool for investors to use in understanding the company's performance and trends, but notes that the presentation of non-GAAP financial information is not meant to be considered in isolation or as a substitute for the directly comparable financial measures prepared in accordance with GAAP.
Reconciliations between GAAP and non-GAAP metrics for our reported results can be found in the financial statement tables of our earnings press release, which we have posted to our investor relations website at investors.alarm.com.
This conference call is being webcast and is also available on our investor relations website. The webcast of this call will be archived and a telephone replay will also be available on our website.
So, with these formalities out of the way, I'd now like to turn the call over to Steve Trundle, you may begin.
Thank you, David. Good afternoon, and welcome to everyone. We are very pleased to report strong third quarter results. Our SaaS and license revenue in the third quarter was $100.1 million, up 17.9% over the same period last year. Our adjusted EBITDA in the third quarter was $34.5 million. I want to thank our service provider partners and the Alarm.com team for their continued strong performance as we navigate these challenging times.
During the third quarter, we've seen ongoing strength in the professionally serviced smart home market in the US and Canada. The commercial market, while not fully recovered to pre-COVID levels, also began showing some positive momentum in the third quarter. The strength of the recovery and the overall performance of our service provider partners, particularly in the residential segment, exceeded our expectations and drove the strong results.
On today's call, I will highlight the new products we've recently launched and review the progress we've made against our growth initiatives and their contributions to our overall business. I'll begin with our product initiatives. We recently launched an innovative new device called Flex I/O. Flex I/O is a security sensor that does not require a connection to a control panel or a hub or a Wi-Fi network. It can stand on its own or be fully integrated into an existing multi-sensor control panel environment.
The sensor is integrated with an LTE CAT-M cellular communication capability and is battery powered so it can be deployed anywhere it may be needed. We designed Flex I/O for outdoor applications where we can extend security and awareness to any location on a property or even to other very distant properties.
Flex I/O addresses an entire set of new security use cases where existing sensors and devices that are directly connected to the control panel via low voltage wires or RF connectivity are not enough. For example, residential subscribers can monitor driveway gates or pool gates, detached garages, remote storage units, barns or mobile items such as boats, tractors, RVs or lawnmowers.
In the commercial market, we see a strong fit with industrial facilities and other properties with diverse physical footprint. Flex I/O sends data to our cloud and allows subscribers to create customized alerts or to use the sensor's event data to trigger Alarm.com automation scenes and video recordings. The device enables a new service plan with an incremental subscription fee and will allow our professional service providers to extend the breadth of solutions that they can bring to their customers.
We also released our Smart Water Valve + Meter solution this quarter, which had been announced earlier in the year at CES. This solution can automatically shut off the property's water supply when its two onboard flow sensors detect burst pipes, major leaks and even slow persistent drips. Unlike standalone water valve devices, our solution also works with water sensors deployed anywhere in the property to provide a whole home water safety solution. After a positive introduction to the Building36 service provider partners, who are primarily HVAC and plumbing companies, the solution is now also available to all Alarm.com service providers.
Another strategic area focus for our R&D program is intelligent integration with central monitoring stations. Over the last few years, we've been working closely with our monitoring station partners to improve service efficiency, reduce or eliminate false alarms and false dispatches and differentiate the monitoring services provided by systems powered by Alarm.com. I wanted to update you on the positive results of one of the products we've introduced.
In 2019, we introduced a capability called Smart Signal, which allows subscribers to easily cancel or verify alarms from our mobile app. This capability received several industry awards when it was released, including Security Product of the Year at CES. Rapid Response is a longtime central monitoring station partner of ours and they moved aggressively to introduce Smart Signal to their Alarm.com service providers. Rapid Response recently reported to us by enabling the Smart Signal capability for a dealer has reduced dispatched alarm events by 25% to 30%.
Next, I want to talk about the progress we're making against some of our key growth initiatives. As I have discussed on prior calls, we have been investing in video and video analytics, the commercial security vertical, international markets and then adjacent IoT application opportunities in order to fully capitalize on the growth opportunities we see.
I'm pleased with the overall progress we've made. These growth initiatives accounted for 22.5% of our SaaS revenue in the third quarter and grew 42% year-over-year. We continued to see strong growth in residential video. During the third quarter, 40% of our new subscribers opted to include video services with their systems. The growing contribution from video is the result of lots of hard work and investment to advance every aspect of our video service. We have a strong product and engineering team in place to continue to advance and differentiate our video capabilities.
As the commercial market continues to recover, we're making good progress expanding our service provider base and tailoring our commercial platform to service an even wider diversity of property types, customer requirements and opportunities. In the last 12 months, about 50% of our service provider partners have created a new account with an Alarm.com commercial service plan. In addition, Alarm.com service providers are beginning to bring OpenEye's enterprise grade video monitoring solution to a growing number of sales opportunities.
Meanwhile, EnergyHub continue to grow its network of energy utility partners this quarter. They recently announced that over 50 utilities now use the Mercury platform to manage distributed energy resource programs that include thermostats, electric vehicle chargers, batteries, solar inverters, water heaters and for commercial and industrial sites and aggregators.
According to a recent report from Wood Mackenzie, a global research firm, EnergyHub manages the largest portfolio of flexible customer-owned load of any distributed energy resource management system provider in the United States.
One of EnergyHub's recent utility additions the Los Angeles Department of Water and Power, the largest municipal utility in the country. This past summer, EnergyHub's Mercury platform managed their thermostat-driven demand response program and initiated seven demand response events to offset peaking requirements during the summer heat waves in California.
As I said, the combination of the initiatives I just covered, now constitutes 22.5% of our SaaS and license revenue, and each of these areas shows continuing promise. I believe that the R&D investments that we are making in these areas are serving the company very well.
Before I hand things over to Steve Valenzuela, I also want to provide an update on ADT. Since the announcement of a $450 million investment by Google in August, we have been in discussions with ADT. These discussions have recently matured into a renewal of our agreement, which will extend our partnership. I would like to highlight some of the terms of this extended agreement as well as our expectations.
Under the extended agreement, ADT will continue to promote and install their highly successful Command and Control offering to nearly all new professionally installed smart security subscribers until early 2023. Under the terms, we will support ADT with the integration of certain specified Google products into the Command and Control platform in early 2021.
After the extended period ends, ADT has indicated that in 2023, they intend to begin activating professionally installed accounts in their residential business on a software platform that they are developing in concert with Google. We have agreed to support this initiative with a royalty-bearing IP license.
We see no material changes in our business in 2021 or 2022 under this plan. And it's important to note that our agreement with ADT also anticipates that Alarm.com will continue to provide service to all existing ADT subscribers on both of the Alarm.com software platforms for the full service life of the subscriber accounts.
Overall, we're excited to resolve this uncertainty by extending our agreement with ADT until 2023 and we expect to continue to support ADT and millions of ADT subscribers who are serviced by our software platforms over the next decade. We have a strong and positive working relationship with ADT and expect that to continue for many years and on many fronts.
In summary, I'm pleased with our third quarter financial results and the work we have done this quarter on both the product side and commercial side of the business in the face of a pandemic. I want to thank our service provider partners, our ecosystem partners and the Alarm.com team for their hard work and our investors for their trust in our business.
And with that, let me turn things over to Steve Valenzuela. Steve?
Thanks, Steve. I'll start with a review of our third quarter 2020 financial results and then provide guidance for the fourth quarter as well as our raised outlook for the full year of 2020. I'll conclude with our initial thoughts on 2021 before opening the call for questions.
SaaS and license revenue in the third quarter grew 17.9% from the same quarter last year to $100.1 million. This includes Connect software license revenue of approximately $9.5 million for the third quarter, down as expected from $10.8 million in the year ago quarter.
Our SaaS and license revenue visibility remains high with a revenue renewal rate of 94% in the third quarter, at the high end of our historical range of 92% to 94%, and consistent with levels prior to the COVID pandemic. This high retention rate contributes to our favorable SaaS metrics with a very positive LTV to CAC ratio of approximately 3.9 due to our long lifetime customer value.
Hardware and other revenue in the third quarter was $58.7 million, up 36.7% over Q3 2019. We continue to see strong sales of our video cameras, which primarily accounted for a large increase in hardware sales.
Total revenue of $158.9 million for the third quarter grew 24.2% from Q3 2019. SaaS and license gross margin for the third quarter was 85.7%, up approximately 30 basis points from the same quarter last year.
Hardware gross margin was 20.2% for the third quarter compared to 18.3% for the same quarter last year primarily due to product mix. Total gross margin was 61.5% for the third quarter compared to 62.8% for the same quarter last year, mainly due to higher hardware revenue.
Turning to operating expenses. R&D expenses in the third quarter were $36.9 million compared to $29.5 million in the third quarter of 2019. We ended the third quarter with 750 employees in R&D and total head count of 1,361 employees, up from 582 in R&D and total head count of 1,043 in the year ago quarter. Sales and marketing expenses in the third quarter were $18.4 million or 11.6% of total revenue, compared to $14.5 million or 11.4% of revenue in the same quarter last year.
Our G&A expenses in the third quarter were $17.4 million, down from $18.7 million in the year ago quarter. G&A expense in the third quarter includes expenses that we exclude from our measurement of our non-GAAP financial performance, which we refer to as adjusted measures. These include non-ordinary course litigation expense of $2.4 million compared to $2 million for Q3 2019.
In Q3, we also booked a gain of $24.7 million as a result of the payment we received when an unrelated third-party acquired an entity where we had an investment. The gain from this investment is reflected in our GAAP P&L as other income; however, it's excluded from operating income in our non-GAAP financial results as this gain is not related to our operating performance.
Non-GAAP adjusted EBITDA in the third quarter was $34.5 million, up 31.1% from $26.3 million in Q3 2019. In the third quarter, GAAP net income was $36.1 million compared to GAAP net income of $17.7 million for Q3 2019. Non-GAAP adjusted net income increased to $24.6 million in the third quarter, up 32.3% from $18.6 million for the third quarter of 2019.
Turning to our balance sheet. We ended the third quarter with $247.2 million of cash and cash equivalents. Our DSOs in Q3 were 46 days, which improved from 49 days in Q2 2020 and are flat compared to a year ago when our DSOs were also 46 days.
We continue to have a strong balance sheet and a cash flow positive business model. In the third quarter, we generated approximately $18.6 million in cash flow from operations, up from $1 million cash flow in the third quarter of 2019.
Our free cash flow for the third quarter was $15.1 million compared to a negative $4 million for the same quarter last year. On a year-to-date basis, through the first nine months of 2020, our operating cash flow was $66.7 million and free cash flow was $56 million, up significantly from the same period in 2019.
Next, I will review our outlook for the fourth quarter and full year 2020. For the fourth quarter of 2020, we expect SaaS and license revenue of $101.2 million to $101.4 million. For all of 2020, we expect SaaS and license revenue to be between $389 million to $389.2 million, up from our prior guidance of $382.7 million to $383.1 million. We are raising our guidance for total revenue for 2020 to $594 million to $604.2 million, up from our prior guidance of $552.7 million to $563.1 million, which includes estimated hardware and other revenue of $205 million to $215 million.
We are raising our guidance for non-GAAP adjusted EBITDA for 2020 to $113 million to $115 million, up from our prior guidance of $106 million to $107 million. Non-GAAP net income for 2020 is estimated to be $80 million to $81.5 million, or $1.57 to a $1.60 per diluted share, up from our prior guidance of $74.2 million to $74.9 million, or $1.46 to $1.47 per diluted share. We expect our non-GAAP tax rates remain at 21% for 2020 and EPS is based on an estimate of 51 million weighted average diluted shares outstanding. We expect full year 2020 stock-based compensation expense of $28 million to $29 million.
Finally, while we are in the initial planning stages, I will provide some early thoughts on 2021 with a caveat that we cannot forecast the impact if additional COVID shutdowns or other economic upheaval were to occur, including the impact on our service providers or our supply chain, among other factors.
With that said, we currently believe our SaaS and license revenue for 2021 will around $435 million. Total revenue is currently expected to be between $640 million and $650 million, with hardware and other revenue of about $205 million to $215 million. At this time, non-GAAP adjusted EBITDA for 2021 is estimated to be around $120 million. We will provide our initial guidance for 2021 when we report our fourth quarter 2020 results in February next year.
In summary, we are pleased how well our service provider partners and our Alarm.com teams are performing in this environment. We will continue to work hard to support our 9,000-plus service provider partners and their customers during these challenging times.
And with that, operator, please open the call for Q&A.
Thank you. Our first question comes from Adam Tindle of Raymond James. Your line is now open.
Okay. Thanks. Good afternoon. Steve, I first want to acknowledge the strong results. I'm afraid the focus is largely going to be on ADT. So, I wanted to ask a couple around that. I think you – thanks commentary there. It was helpful. You said you anticipate Alarm.com will provide service to all existing customers on both platforms for the full service life of the subscriber. What is the full service life of the subscriber, what are you expecting? I know they're going after this with a lot of marketing dollars, but may not make sense to truck roll. So, I'm just trying to (00:25:34) trying to understand that case cadence of the runoff and the service life of the subscriber.
Sure, Adam. Yeah. We're – so, when we say service life, normally you activate a subscriber and I think what we see if that's on the Alarm.com platform or on the Command and Control platform as that subscriber typically will have lower attrition than a normal industry subscriber. But that attrition rate can be anywhere from 10% to 15% depending on a number of factors. And what we would expect therefore is when a customer is activated that if you had a 1,000 customers, 15% – or 12% or so would probably attrit in the first couple of years and then you get to sort of a 10% to 15% steady rate.
So, average customer life tends to be around eight years, eight, nine years, something like that, is what I would think of as normal and – as a normal customer life. It depends on how well the service provider is doing. And I think in this case, the exciting thing as we started the quarter with a lot of uncertainty ahead a contract that was terminating in the middle part of next year and solved for that, extended that contract. So, we know what's occurring in 2021, we know what's occurring in 2022, and there'll be subscribers coming on and then they'll run for their full life.
Okay. That's helpful. I think you also mentioned that after it ends, you'll still support via a royalty or IP license agreement. Is there a way for us to maybe think about as that occurs – that transition occurs, just kind of a change in economics, generally speaking?
Well, it's obviously less. And I can't really go into the exact – unfortunately, I can't really communicate exactly the terms of our agreement there. But I think what I will say is it's a reasonable recurring royalty agreement and it includes a lot of incentives for different types of performance by our customer in different areas. So, it has some variability in it depending on how those incentives are going and – but I can't really give you the dollar number there, no.
Okay, then maybe I'll try one last one then – instead. Each company there is I think investing like an additional $150 million on top of the $450 million. It's a pretty expensive pursuit relative to your enterprise value given you're already scaled, you have over 9,000 dealers. I'm just, bigger picture, trying to understand how you think about chess moves and strategic alternatives, the optionality this creates, maybe the pros and cons to your partnering with a bigger entity, just kind of bigger picture strategic chess moves.
Yeah. So, I think the first was the decision to make – to support a certain set of Google products with ADT in their Command and Control offering, and we chose to do that. I think that enables our customer to market that set of products to new customers for the next couple of years as well as upgrade existing customers as that may make sense. So, that's how we sort of looked at that.
And in terms of longer term, I guess what I would say is we have a dynamic where if a customer that's roughly 15% of our revenue, that's probably slightly trending down, already was, primarily because of the growth that we have and some of the initiatives I talked about during our – during my prepared remarks. We've got a set of things that now represent 22%, 23% of our revenue and we're growing 40%. So, we already had a little bit of a natural decline in that number.
We I think got a nice healthy runway here and we'll continue to look at areas where we can focus that that we think will create durable long-term and diversified revenue stream. So, that's probably how I look at it. At the same time, I'm sort of relieved and happy that we have a clear plan here and clear runway for more than a couple of years.
Understood. Thanks, and congrats again on the results.
Thank you.
Thank you. And our next question comes from Nikolay Beliov of Bank of America. Your line is now open.
Hi. Thanks for taking my questions. Steve, last quarter you spoke about COVID potentially being a durable positive secular shift to the business on the residential side. Do you have any more data points over the last three months to confirm or maybe disprove that?
Yeah. Good question, Nikolay. I think we have been surprised and we're not – I can't 100% say it's all COVID induced, but almost from top to bottom, we've been surprised by the performance of our service providers over the last three or four months. And I think that what we're hearing from our service providers are that customers are home, they're ready to take meetings, they want to invest in their home because they're not traveling. So, they have a bit more discretionary income and some of them were adding second homes for which they need monitoring and that sort of thing and automation obviously (00:31:41) all the things we do so.
So, it appears – it's just appeared much stronger than what we expected. That's great. Commercial has not quite been as strong as I indicated, but has now gotten closer to sort of the pre-COVID levels. And the real question is, is this a long-term trend? Is suburbanization sort of an ongoing thing or are we looking at some short-term benefits here? I think that the nature of our business is one where you add a customer and you essentially hope to keep that customer for life and it may be life across several properties, but you really do hope that you can add enough value and convenience to their lifestyle that they remain with you or with your service provider for a long period of time.
So, I think we're probably seeing something that will have some long-term benefits to our business and our service providers because we're grabbing more ground right now. It may be induced by COVID, it may be something else going on, but we're grabbing more turf and more subscribers than what we anticipated at the beginning of the (00:32:48) year. And I think that will give us kind of perpetual optionality to bring in additional products like the Flex I/O or like the Smart Water Valve + Meter and hopefully create an expectation for convenience in the eyes of the subscriber that will last forever. So, I think it's positive.
I personally find the Flex I/O product quite interesting, and in my opinion, probably one of your most important innovations over the last few years. Is it in the marketplace? What has been customer reception so far from the beta proof of concept, what use case is do you think customers will gravitate towards and what's the price uplift from a customer deploying Flex I/O?
Yeah. So, it is just going into the market really this – as we speak right now, this month, and it has been in beta for a long time. We're using new cellular technology there. So, we wanted to make sure that the reliability and – we're in in life safety at times (00:33:56), so we want to make sure that we have industrial grade sort of life safety caliber reliability with that connectivity. It's battery powered, so you have a lot of testing of power management in different types of climate environments. So, we've been testing it for a long time with a set of marquee service providers.
And the feedback is variable, but I will say – not variable in a bad way, I mean, we have some folks that really think it's a game changer and are excited to use it for just a whole myriad of purposes. I think particularly if you're in an area where it's sort of a more spread out suburb where people are living on 3, 4, 5 acre types of lots and they have detached garages and they may have some equipment , some capital equipment that they use to maintain the property. They may have, I mean, even weird things. We've heard of people installing this thing on their chicken coop, for example, to make sure they didn't leave the door open on that.
So, pretty much anything you may have as a hobby, Flex I/O now allows us to add some value to, it allows us to monitor. If you have a second home, a cabin, a barn, a gate – gate has been a very heavy use case and people that have a gate either coming into their home or coming into their second property or into a farm. So, it's got a super wide set of use cases. It's difficult for us to predict just sort of how broad the distribution will be. I think some of that will be on us, how many different distribution engines do we create to enable us to maximally leverage that product. But the feedback has been very strong.
In terms of incremental subscription rates, with our service providers, there obviously are wholesale rates, wholesale costs that are between us and the service provider, then there is what (00:35:59) the service provider may charge the subscriber. And I'll start with what we think the consumer price is. We're thinking that if you have nothing else other than a Flex I/O system, so suppose you want to have – you have a barn and in that barn you're storing your favorite Massey Ferguson tractor and you just want to know if someone goes into the barn, that's about $9 to the end customer. Our dealer will obviously make margin on that and much cheaper to the dealer.
If it's in addition to your existing Alarm.com system, so hypothetically, I want to add a device, if I have a swimming pool and my swimming pool is too far from my home to sort of monitor with RF connectivity and I want to know if someone opens the gate, if the child goes into the swimming pool or whatever, then I'm just adding it to my existing Alarm.com system. It's already supported by a control panel and I'm already paying Alarm.com some type of subscription fee there. To the consumer, we think that's sort of a $3.5, $4 additional fee that the dealer will charge them. And as I said before, the dealer will then make money on that incremental (00:37:13) and on the hardware sale itself.
Got it. Thanks so much.
And you may add like 5 or 6 of them, it really depends on the use cases. So.
Got it. Thank you.
Thank you. And the next question comes from Jeff Kessler of Imperial Capital. Your line is now open.
Yeah. So, I have couple of questions about the growth of your other business. It seems that for quite a period of time it was in the 8% to 10% area of revenue and now all of a sudden it is quite a bit higher. Can you talk a little bit about what areas are really – are really driving – are driving this? I know that you've been – you've probably been strong in South America. You've probably been strong – these new data points you're giving us in EnergyHub. I know it's a very wide range of areas that we're talking about. But if you could just give us some color around why this has become such a bigger part of the company in a fairly short period of time?
Yeah. Jeff, it's a good question and a data point I was excited to toss out (00:38:32) there this quarter when we did the analysis. What we were looking at – last quarter, someone asked us how do we measure sort of return on investment around some of the R&D investments we're making. So, we looked at the domains where we're really kicking in and kicking into gear with a lot of R&D and those domains were commercial, international, video and our subsidiary businesses. And we put the revenue coming from those categories and as the numerator and denominator is all SaaS and license revenue, all. We excluded anything from ADT in the numerator, but we left everything from ADT in the denominator and we looked at how much is that. And as I said, it's around 23% right now. And the growth in those categories year-over-year is around 40%. So, it's a pretty quickly growing part of the business.
Each one has different drivers, and we can go through them one by one, but I'd cover them at different points and different conference calls. I think EnergyHub is reaching a new level of maturity, expanding the platform to shift from sort of a solely a demand response platform, but being to – being more of a software platform that allows the utility to manage all of the edge resources including batteries, and therefore, getting to sort of a larger and more important position with their customers.
Commercial, it's really a game where we're bringing the same ease and convenience that our platform affords to our service providers and, in some cases, teaching them how to go after the commercial and access control market. In other cases, they're already very well studied there and we're sort of just getting some additional wallet share.
International is a slog, but it's a slog where we're doing well and we've been continuing to make investments and getting to sort of a point where it's more mature now. And instead of people running pilots and tests, salespeople went out there (00:40:34) every day and selling Alarm.com in 40 different countries. So, a lot of these things are reaching a maturity that makes them more relevant and that maturity is sort of confirmatory of the investments we've been making for the last two or three years and showing nice return.
All right. Second question is, you know my long-term interest in the problem and the potential fix is for false alarms verification. You decide something that you were doing obviously with Rapid Response. There aren't that many really great independent monitoring companies that are out there. But Rapid Response obviously is one of them. Is this the type of business that you can – if you demonstrate it at some place like Rapid Response and it works, you can get out in front of other providers as well? I mean, clearly (00:41:45) been talking about the stuff it's been doing with (00:41:49) now for a while. And I'm just wondering what you are – not just what was your relationship there is, but also what are you doing with the universe of potential users to start cutting down on false alarms and fines and increasing (00:42:08) decreasing response times?
Right. No, great question. So, yeah, you're correct about Rapid Response. I think the industry does watch that central monitoring station, and you and I probably both know Russ. They're very high quality operators. And I was up there a few months ago and looking at all the different things they were doing. And in those conversations, we talked about Smart Signal and what its impact had been on, what we call, the false dispatch rate. False dispatch is obviously better – bad for everyone, bad for first responders, bad for the subscriber. It means that you had an alarm that was false and we dispatched on it or we and our partner did. So, we looked at the impact there of our work together on Smart Signal and obviously on their side there's education of the service provider and there's a lot of technology they bring to bear to make all this work with us. And the impact was very, very meaningful. If you're cutting down false dispatches by 25% with a capability like that that we've embedded in the consumer's mobile app, huge savings downstream, huge savings.
So, we were excited about that. We're continuing to do a lot more in this domain, every – across all elements of the offering, everything from AI in terms of the way we interpret different events coming in to much more sophisticated video analytics to more user control. And I think that working with our partners, I think everyone will – it's in the entire industry's interest and will continue to be in our interest to make sure the consumer has a great convenient experience and that we reduce all of the downstream costs we're generating. And so, I think you'll see people follow here.
Is your dream team of objects, video guys involved in this?
They are definitely involved in the initiative, yes.
Yeah. Okay. Okay. Thank you very much.
Thank you. And our next question comes from David Robinson of William Blair. Your line is now open.
Hey, guys, just a quick question on Flex I/O product. So, I realize this is kind of really days and has just been released. But I guess I was kind of wondering how long does it take for the service providers to kind of get ramped up on the product and then take it from there to kind of selling into the residential customers? And then, in terms of I guess growth rates and expectations, I was just curious what you're thinking, how you're pitching this (00:44:53) product kind of progressing relative to the success you've seen in video analytics category?
Okay. Yeah, good question. So, on the uptake, meaning that the complexity that service provider has to deal with, it's actually in this case very modest. We've eliminated the need for a power supply, if you don't have a power supply. It's cellular. It's sort of a put the battery and connect it and let it register and it works. So, for its most simple use case – simple use case is in terms of installability would be things that look and feel like what we've traditionally called a contact sensor where you have a sensor that's monitoring a door that opens or you have a tether sensor where you have a loop looks like a bicycle chain almost and you loop something into that bicycle chain and when the chain opens, you know that you had activity there. So, those are really pretty simple installs. And any of our service providers that are already familiar with the overall backend system of Alarm.com can add that very quickly.
And then, probably the heavy lift will be getting their sales teams to be aware of the types of solutions they now can render to the market. Technical impedance, very little. There's always a certain amount of educational impedance and education of sales teams particularly since these are third-party sales teams on how to find those use cases, how to present them to the subscriber. So, I think putting that together, it will look something – maybe not quite as quick as analytics, analytics is going very well. But I think we'll see kind of a similar dynamic where first six, nine months, we're seeing steady progress in terms of adoption, but we're not seeing it be sort of dollar moving (00:46:44) moving progress in our P&L. And then, once you get a year and a half or so out, you've got enough people trained, enough education, enough experience selling and installing that it becomes a part of the daily arsenal of 9,000 service providers and then it kicks in and begins to really contribute.
Awesome. Thanks for that.
Sure.
Thank you. And our next question comes from Darren Aftahi of ROTH Capital Partners (00:47:14). Your line is now open.
Hi, guys. Thanks for taking my questions, and congrats on the quarter. Hope you're well. Curious to – first, the percentage of subs, new subs in the quarter, what percentage of those were from existing subs? Meaning, Steve, you talked a little about people buying second home, I'm just kind of curious on that. And then, can you give what the other revenue was in the quarter, please? Thanks.
So, I will unfortunately have to acknowledge that I don't actually know the percentage of our – it's a great question. The percentage of our new subs, who are taking the offering for second homes, the other heavy situation there is your commercial enterprise and you have 80 different stores and you start with five in the 80 (00:48:01). I bet that's a pretty good number, but I don't know it and it's one we should check. And it's hard for us to totally know because our service providers are in charge of the subscriber. But oftentimes, if you have multiple properties or multiple stores, your tying those two user expenses together in the mobile app and (00:48:20) we could check that growth rate (00:48:23). I just don't have it on the top of my stack. I'm going to let Steve answer the second question, though.
Yeah. Darren, so the other segment revenue was $7.3 million in Q3 and it was up 46% year-over-year. That includes EnergyHub, PointCentral, Building36 where we announced the Smart Water Valve + Meter that we came out with this quarter. Of course, it's not in the sales numbers yet, but it's just been released.
So, if I could just sneak one more in. So, as we think about your – I think you said $435 million for 2021 SaaS revenue. Like, how should we think about that other segment in terms of the growth profile maybe relative to the overall business? Thank you.
The other segment has been growing. Depending upon the quarter and there is some seasonality within EnergyHub and timing differences, but generally, the other segment has been growing anywhere from 30% to 40% year-over-year. We don't see any reason why that would change in 2021. Operator?
Thank you. And our...
Thanks.
...next question comes from Jack Vander Aarde. Your line is now open.
Hi, Jack.
Hi. Great. Thanks. Hi, Steve T. Hi, Steve V. Excellent quarter.
Thank you.
Thanks for taking my questions. A lot of analysts have already touched on some of the stuff I wanted to ask. But let me revisit this topic. Maybe Steve T, you initially responded to an earlier question of the average customer life – or consistent customer life, I guess, is eight or nine years maybe for single property and you hope to maintain that customer though for the entire life as they move properties. So, either Steve T or Steve Valenzuela, do you have any data points or metrics you can maybe share on the total number of subscribers that have deactivated because they're moving properties and then have actually gone on to reactivate Alarm's properties? Any data points or metrics you have that would provide evidence of that?
Well, we do have a revenue retention rate that we – it's been pretty consistent at the high end of 94%. But I will say, based on our past experience, moves is probably one of the main reasons for attrition. Now, with the – obviously people expanding and adding second homes, generally people have not been moving as much though. They've been adding the second homes and adding other properties. They've been moving out of cities where generally you have apartments where typically you don't have an alarm system in your apartment. So, I think we've been benefiting from that trend and I think overall – but, yeah, movies is certainly one of the reasons why you have attrition.
There is a metric, Jack, in the industry and others report it that you may want to look at. We don't keep it because we don't always know if there's, what we call, a re-sign (00:51:34). But service providers that are public oftentimes report their re-signs and they report attrition net of re-sign. And the larger you are as a service provider, the more advantages you have when people move because you can re-sign them in a new market they may have moved in. But some of the service providers do report that. I don't think we have it right now. We could just probably find anecdotal examples by talking to folks.
Okay. That's helpful. That's helpful. And then, let me shift gears. There's a lot of talk – some talk on international, I'm hoping explicitly or specifically to get an update maybe on the partnership you announced last quarter on the latest developments and progress with your partnership with Johnson Controls and the countries and regions you're going after with Global Interactive Services?
Sure. Yeah. I think that partnership is going well. I think they've done a great job. I just would say in that case we had a time bound objective to upgrade a lot of existing subscribers that they were servicing internationally in several different markets. And it was a hard project and they executed on it very well. We obviously worked with them on that. So, we upgraded quite a few customers throughout the first nine months of the year there. But we also got the sales teams conditioned, the installers conditioned, and now have a nice – I would say both parties are now enjoy the fruits of that labor. We have a nice engine that is producing subscribers every day in Chile and Argentina and in many Latin American markets as well as UK and Australia.
So, that's going well. We're happy with it. We're continuing to upgrade the platform. But we're at this point up in about 40 different countries and have a whole litany or a whole set of service providers that we're at various stages with and still are working through some kinks market by market and in the technology, but are getting I think more mature. And overall, the segment – so, international was hit, I think I indicated last quarter, it took a little bit more of a dive with COVID than the US market and it was slower to come out of that. But we're just getting back to pre-COVID levels now internationally. We hope [Technical Difficulty] (00:54:17) doesn't reverse that. But it's come back and now we're back sort of into – beginning to get into the green growth area again in terms of daily installations.
Okay. Fantastic. That's it for me, guys. Again, great quarter...
Thank you.
...and a solid guidance.
Thanks, Jack.
Thank you very much.
Thank you. And ladies and gentlemen, this does conclude our question-and-answer session. Thank you for participating on today's conference call. You may now disconnect.