Connected-home platform provider Alarm.com (ALRM -0.85%) reported its fourth-quarter results after the market closed on March 15. Both software-as-a-service and hardware put up solid growth numbers, and non-GAAP earnings surged. The company's guidance calls for continued growth in 2017, with high levels of subscriber retention providing a reliable source of revenue. Here's what investors need to know about Alarm.com's fourth-quarter report.

Alarm.com results: The raw numbers

Metric

Q4 2016

Q4 2015

Year-Over-Year Change

Revenue

$69.8 million

$56.9 million

22.6%

Net income

$2.98 million

$3.27 million

(9%)

Non-GAAP EPS

$0.19

$0.14

35.7%

Data source: Alarm.com.

Alarm.com software running on a variety of devices.

Image source: Alarm.com.

What happened with Alarm.com this quarter?

Both software-as-a-service and hardware drove growth during the fourth quarter.

  • SaaS and license revenue was $46.9 million, up 21.2% year over year.
  • Hardware and other revenue grew 25.6% year over year to $22.9 million.
  • Adjusted EBITDA jumped 47% year over year to $14.3 million.
  • GAAP gross margin came in at 38.3%, up from 35.3% during the prior-year period.
  • GAAP operating expense grew 21.3% year over year.
  • Total cash and cash equivalents reached $140.6 million, up from $128.4 million at the end of the prior-year period.
  • Cash flow from operations during 2016 totaled $17.5 million, down from $27.1 million during 2015.

Alarm.com provided various pieces of guidance for the first quarter and for 2017.

  • First-quarter SaaS and license revenue is expected between $49.3 million and $49.5 million.
  • Full-year SaaS and license revenue is expected between $231 million and $232.5 million, with total revenue between $322 million and $325.5 million. At the midpoint, this represents revenue growth of 24%.
  • Full-year adjusted EBITDA is expected in the range of $65 million to $66 million.
  • Full-year non-GAAP EPS is expected between $0.73 and $0.75.

What management had to say

Alarm.com President and CEO Steve Trundle discussed the progress made during the year:

We're pleased to report solid results for the quarter as we closed another year of continued growth and profitability. During the year, we launched innovative new technology for our service provider partners, and we continued to develop growth initiatives that we believe will allow us to extend the Alarm.com platform into new markets in the future. With the acquisition of Connect and Piper from Icontrol Networks now completed, we can grow our research and development capacity and further increase our participation in the Internet of Things secular trend.

Looking forward

Alarm.com now has 5 million subscribers, with the recent acquisition of Connect and Piper adding to its total. That's up from just 2 million subscribers in 2014. With a SaaS renewal rate of 94%, Alarm.com is building a reliable source of recurring revenue.

Alarm.com expects revenue growth to continue at about the same pace in 2017, driven by SaaS and hardware. With a network of over 6,000 service provider partners, the company is well-positioned to benefit from the trend toward smart-home technology.