Alarm.com Predicts Single-Digit Growth This Year

Connected-home software provider Alarm.com (ALRM 1.67%) reported its fourth-quarter results after the market closed on Feb. 28. Revenue grew at a solid double-digit pace, and the company improved upon its initial 2019 guidance. But growth is still set to slow way down this year, ending a long streak of robust 20%-plus growth.

Alarm.com results: The raw numbers

Data source: Alarm.com. GAAP = generally accepted accounting principles..

What happened with Alarm.com this quarter?

• Software-as-a-service (SaaS) and license revenue rose 19% year over year to $77.8 million. This number includes software license revenue of $10.7 million, which was up 11.5%.
• Alarm.com's non-GAAP net income was negatively affected by a $3.3 million impairment charge related to a promissory note provided to a supplier in 2018.
• Adjusted earnings before interest, taxes, depreciation, and amortization were $20.9 million, down from $22.2 million in the prior-year period. This figure was also affected by the impairment charge.
• Cash and cash equivalents totaled $146.1 million at the end of the quarter, up from $96.3 million one year prior.
• Alarm.com recently announced a preferred relationship with homebuilder D. R. Horton that will put the company's whole-home automation and control solutions into new homes.

Image source: Alarm.com.

What management had to say

Alarm.com CEO Stephen Trundle gave an update on the scope of the business during the earnings call: "Today, more than 8,000 service providers service our technology in more than 6.1 million properties globally, and more than 90 million connected devices and sensors are enabled in the solutions provided by our cloud services."

Trundle also talked about his expectations for the partnership with D. R. Horton: "I'd say that roughly, so assuming you have a relationship with the homebuilder and you have the opportunity to speak to the customer, that the range of the take rate or the acceptance rate is between 40% and 50% is what you're generally seeking to obtain there. And it may be you have a higher percentage that are using more of an automation-only type of offering, but when we get to security, that's the take rate that we'd like to be seeing as a minimum."

Click here for the latest earnings call transcript for Alarm.com.

Looking forward

Alarm.com expects to produce SaaS and license revenue between $78.5 million and $78.8 million in the first quarter of 2019. The company provided the following guidance for the full year:

• Total revenue between $440 million and $450 million, which includes hardware and other revenue between $112 million and $118 million. This represents 5.8% growth from 2018 at the midpoint.
• SaaS and license revenue between $328 million and $332 million, up 13.4% from 2018 at the midpoint.
• Non-GAAP adjusted EBITDA between $101 million and $103 million, up from $93.1 million in 2018.
• Non-GAAP earnings per share between $1.37 and $1.41, up from $1.33 in 2018.

Alarm.com's full-year revenue guidance is slightly higher than the initial outlook of $430 million to $440 million laid out during the third-quarter earnings call. Still, it represents a significant growth slowdown. Total revenue grew by 24% in 2018, and SaaS and license revenue jumped 23%.

Alarm.com does tend to increase its guidance throughout the year. "So, consistent with our past practice, when we're giving a guidance range, we're considering what we have or what we know today, and so we don't factor in additional upsides or we don't factor in a lot of the growth initiatives that we know are out there that are still early stages," CFO Steve Valenzuela said during the earnings call.

Alarm.com's growth rate may not end up quite as slow as its guidance suggests, but the era of strong double-digit growth appears to be over for the company, at least for now.