Connected-home software provider Alarm.com (NASDAQ:ALRM) reported its fourth-quarter results after the market closed on Feb. 27. Revenue and adjusted earnings grew at a brisk pace, but the company's guidance for 2018 called for a fairly dramatic growth slowdown. Here's what investors need to know.

Alarm.com results: The raw numbers

Metric

Q4 2017

Q4 2016

Year-Over-Year Change

Revenue

$88.8 million

$69.8 million

27.2%

Net income

$0.3 million

$3.0 million

(89.2%)

Non-GAAP earnings per share

$0.26

$0.19

36.8%

Data source: Alarm.com.

Devices running Alarm.com's platform.

Image source: Alarm.com.

What happened with Alarm.com this quarter?

  • Software-as-a-service (SaaS) and license revenue jumped 39% year over year to $65.2 million.
  • Adjusted EBITDA was $22.2 million, up from $14.3 million in the prior-year period.
  • An $8.8 million charge related to the U.S. tax bill for the revaluation of deferred tax assets knocked down GAAP earnings. This was partially offset by a $1.1 million windfall benefit related to a newly adopted accounting standard. Both items are excluded from the non-GAAP numbers.
  • Cash flow from operations totaled $57.2 million for the full year, up from $22.6 million in 2016.
  • Cash and cash equivalents were $96.3 million at the end of the quarter, down from $140.6 million one year ago.
  • The company announced a new smart thermostat, introduced a machine-learning feature that monitors HVAC systems, and expanded the number of smart energy devices integrated with its EnergyHub Mercury 3.0 platform.

Alarm.com provided the following guidance:

  • For the first quarter, SaaS revenue is expected to be between $66.9 million and $67.1 million.
  • Full-year SaaS and license revenue is expected to be between $282.5 million and $283 million.
  • Full-year total revenue is expected between $380 million and $382 million, with hardware and other revenue contributing between $97.5 million and $99 million.
  • Full-year non-GAAP net income is expected to be between $56 million and $57 million, or between $1.12 and $1.14 per share.

What management had to say

Alarm.com CEO Steve Trundle summed up the company's performance:

We're pleased to report solid results for the quarter and the year and are thankful for the continued performance of our service providers with our solutions. The market continues to favor the type of innovative connected property services that we provide. In addition to our financial results for the quarter, we also expanded our energy management portfolio by announcing a new smart thermostat with advanced capabilities for energy-efficiency and proactive detection of maintenance issues.

Looking forward

While tax-related charges knocked down Alarm.com's bottom line, both revenue and adjusted earnings continued to grow at a double-digit pace during the fourth quarter. The company does see a slowdown coming this year, though. At the midpoint of its 2018 guidance, revenue will grow by just 12.4% compared to 2017. SaaS and license revenue is expected to grow at a faster 19.8% rate.

This expected slowdown may just be a consequence of Alarm.com's growth. The bigger the revenue base, the harder it is to put up giant percentage growth numbers. Given that the market for smart-home devices is still in its infancy, Alarm.com still has a long growth runway, even if that growth isn't quite as impressive as it has been in the past.

Timothy Green has no position in any of the stocks mentioned. The Motley Fool recommends Alarm.com Holdings. The Motley Fool has a disclosure policy.