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Software and Hardware Drive Growth for

By Timothy Green – Nov 15, 2016 at 4:58AM

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The company continued to add subscribers to its connected-home platform through its thousands of partners.

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Cloud-based connected-home platform provider (ALRM 1.31%) reported its third-quarter results after the market closed on Nov. 14. Revenue grew by more than 25% compared with the third quarter of 2015, driven by both software and hardware sales. Higher operating costs hurt GAAP profitability, but adjusted earnings grew faster than revenue. Here's what investors need to know about's third-quarter results. results: The raw numbers


Q3 2016

Q3 2015

Growth (YOY)


$67.8 million

$54.0 million


Net income

$2.6 million

$2.9 million






YOY = year over year. Data source: Q3 earnings report.

What happened with this quarter? reported strong revenue growth, while higher costs knocked down GAAP profits.

  • Software-as-a-service and license revenue was $44.6 million, up 23.4% year over year.
  • Hardware and other revenue was $23.2 million, up 30.1% year over year.
  • Adjusted EBITDA increased by 20.6% year over year to $11.7 million.
  • GAAP operating expenses rose 28.1% year over year, a bit faster than revenue, which contributed to a 26.6% decline in operating profit.
  • named Steve Valenzuela as its chief financial officer, effective Nov. 15.
  • Total cash and cash equivalents grew to $135.1 million, up from $128.4 million at the end of 2015.
  • Cash flow from operations through the first nine months of 2016 was $8.8 million, down from $21.2 million during the prior-year period. provided a limited amount of guidance for the fourth quarter, and it raised its outlook for the full year.

  • Fourth-quarter SaaS and license revenue is expected to be in the range of $45.8 million to $46.1 million.
  • Full-year SaaS and license revenue is expected to be in the range of $172.5 million to $172.8 million, with total revenue between $254.0 million and $256.3 million.
  • Full-year adjusted EBITDA is expected to be between $45.3 million and $45.8 million.
  • Full-year non-GAAP net income is expected to be in the range of $28.0 million to $28.5 million, or $0.58 to $0.59 per share.

What management had to say President and CEO Steve Trundle summed up the quarter:

We continued to execute our strategy in the third quarter and are pleased with the solid results. Along with our service providers, we remain well positioned to capture growing momentum in the market for connected home and business solutions. At the same time, we continued to invest in our platform to open new market opportunities for and our partners.

The company's earnings press release also highlighted the success of its platform during Hurricane Matthew:

More than 500,000 properties serviced by the platform are located in states affected recently by Hurricane Matthew. At the storm's peak, 9.4% of subscriber systems reported power failures and 9.3% reported broadband failure.'s resilient cellular technology helped to keep those homes and communities secure and the platform communicated more than one thousand panic alarms initiated by end-user customers for police or fire response.

Looking forward's strategy of partnering with over 6,000 service providers has caused its software to be widely used, with 2.6 million subscribers. The market for monitored home security systems in the U.S. is nearly 10 times as big as the company's current subscriber base, according to the company, leaving plenty of room for growth going forward.

With SaaS and license revenue renewal rates consistently topping 90%, is building a business defined by predictable revenue. The third quarter featured strong revenue growth and growing profits, adjusted for costs related to acquisitions and litigation. The company is expecting more of the same in the fourth quarter.

Timothy Green has no position in any stocks mentioned. The Motley Fool recommends Holdings. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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