Alarm.com Reports Second Quarter 2020 Results

Aug 05 2020


-- Second quarter SaaS and license revenue increased 16.2% year-over-year to $95.7 million --
-- Second quarter total revenue increased 16.4% year-over-year to $141.6 million --
-- Second quarter GAAP net income attributable to common stockholders of $17.0 million, compared to $13.8 million for the second quarter of 2019 --
-- Second quarter non-GAAP adjusted EBITDA increased 5.4% year-over-year to $29.2 million, compared to $27.7 million for the second quarter of 2019 --

TYSONS, VA., August 5, 2020 -- Alarm.com Holdings, Inc. (Nasdaq: ALRM), the leading platform for the intelligently connected property, today reported financial results for its second quarter ended June 30, 2020. Alarm.com also provided its financial outlook for SaaS and license revenue for the third quarter of 2020 and increased its guidance for the full year of 2020.

“While we saw some modest disruption, Alarm.com’s service provider partners and our team continued to execute effectively in delivering innovative technology solutions to millions of properties through the ongoing COVID-19 pandemic,” said Steve Trundle, President and CEO of Alarm.com. “As a result, I’m pleased to report solid second quarter results. Our markets continued to show positive momentum, and we remain in a strong position to manage through the uncertainty caused by the pandemic.”

Second Quarter 2020 Financial Results as Compared to Second Quarter 2019

SaaS and license revenue increased 16.2% to $95.7 million, compared to $82.3 million.
Total revenue increased 16.4% to $141.6 million, compared to $121.7 million.
GAAP net income attributable to common stockholders was $17.0 million, or $0.34 per diluted share, compared to $13.8 million, or $0.27 per diluted share.
Non-GAAP adjusted EBITDA increased to $29.2 million, compared to $27.7 million.
Non-GAAP adjusted net income attributable to common stockholders increased to $20.6 million, or $0.41 per diluted share, compared to $19.9 million or $0.40 per diluted share.

Balance Sheet and Cash Flow

Total cash and cash equivalents increased to $205.8 million as of June 30, 2020, compared to $119.6 million as of December 31, 2019.
For the quarter ended June 30, 2020, cash flows from operations was $35.1 million and free cash flow was $31.8 million, compared to cash flows from operations of $24.1 million and free cash flow of $21.3 million for the quarter ended June 30, 2019.

Recent Business Highlights

Award-Winning Technology: Alarm.com earned New Product Showcase Awards from the Security Industry Association in two categories. The Alarm.com Smart Water Valve+Meter, which redefines water management in smart homes and businesses, won the Smart Home Solutions category. On-Site Wrap Up, a software solution which helps service providers validate system installations to ensure dependable system performance and improve customer satisfaction, was recognized in the Design, Diagnostic and Installation Tools category.

OpenEye Team Launches Software-as-a-Service Application: OpenEye’s OWS 24/7 Lite is a highly scalable and flexible subscription software service that simplifies system management, improves cyber and physical security, and increases operational intelligence. It supports up to 24 recording channels per system and offers advanced capabilities such as video analytics, system health monitoring and intelligent alerting. The SaaS application enables OpenEye to provide lower upfront deployment costs, flexible service tiers and easier licensing and user management making OWS 24/7 Lite a cost-effective service for the mid-tier commercial market.

Selected by Johnson Controls as its Global Interactive Services Platform: Alarm.com has been selected by ADT International, a Johnson Controls business, as its primary Interactive Services provider in 13 countries in Asia, Europe, and Latin America. Through this expanded partnership, the companies will collaborate on the consumer adoption of Alarm.com's services, and business development in these markets.

Introduced Role-Based Permissions for Commercial Subscribers: Businesses that manage property and system access for a large number of users or locations can use Role-Based Permissions to save time, reduce errors and improve security. Subscribers can now create custom roles based on their business, specify system permissions for each role and assign it to new or existing user logins. Integrating the subscribers’ operational and organizational structure into Alarm.com’s services creates a more efficient, valued and engaging enterprise-grade solution.
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Financial Outlook

At this time, it remains challenging to predict the full scope and duration of the impacts driven by the COVID-19 pandemic. While Alarm.com service provider partners are continuing to operate at various levels, some have experienced more difficult selling or installation conditions as a result of local social distancing guidelines or local market sentiments. While new installation rates continue to trend in a positive direction, Alarm.com cannot be sure that this trend will continue. Alarm.com is providing guidance for the third quarter of 2020 and increasing its guidance for the full year of 2020 based upon what it currently sees in its markets.

For the third quarter of 2020:

SaaS and license revenue is expected to be in the range of $96.6 million to $96.8 million.

For the full year of 2020:

SaaS and license revenue is expected to be in the range of $382.7 million to $383.1 million.
Total revenue is expected to be in the range of $552.7 million to $563.1 million, which includes anticipated hardware and other revenue in the range of $170.0 million to $180.0 million.
Non-GAAP adjusted EBITDA is expected to be in the range of $106.0 million to $107.0 million.
Non-GAAP adjusted net income attributable to common stockholders is expected to be in the range of $74.2 million to $74.9 million, based on an estimated tax rate of 21.0%.
Based on an expected 50.8 million weighted average diluted shares outstanding, non-GAAP adjusted net income attributable to common stockholders is expected to be $1.46 to $1.47 per diluted share.

The guidance provided above is forward-looking in nature. Actual results may differ materially. See the cautionary note regarding “Forward-Looking Statements” below. The guidance provided above is based on expectations as of the date of this press release and Alarm.com undertakes no obligation to update guidance after such date.

Conference Call and Webcast Information

Alarm.com will host a conference call to discuss its second quarter 2020 financial results and its outlook for the third quarter and full year of 2020. A live audio webcast is scheduled to begin at 4:30 p.m. ET on August 5, 2020. To participate on the live call, analysts and investors should dial 866.588.3290 (U.S./Canada) or 262.558.6169 (International) at least ten minutes prior to the start time of the call. A telephonic replay of the call will be available through August 13, 2020 by dialing 855.859.2056 (U.S./Canada) or 404.537.3406 (International) and providing Conference ID: 7886043. Alarm.com will also offer a live and archived webcast of the conference call accessible on Alarm.com’s Investor Relations website at http://investors.alarm.com.

About Alarm.com Holdings, Inc.

Alarm.com is the leading platform for the intelligently connected property. Millions of consumers and businesses depend on Alarm.com's technology to manage and control their property from anywhere. Our platform integrates with a growing variety of Internet of Things (IoT) devices through our apps and interfaces. Our security, video, access control, intelligent automation, energy management, and wellness solutions are available through our network of thousands of professional service providers in North America and around the globe. Alarm.com's common stock is traded on Nasdaq under the ticker symbol ALRM. For more information, please visit www.alarm.com.

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Non-GAAP Financial Measures

To supplement our consolidated selected financial data presented on a basis consistent with GAAP, this press release contains certain non-GAAP financial measures, including adjusted EBITDA, non-GAAP adjusted income before income taxes, non-GAAP adjusted net income, non-GAAP adjusted income attributable to common stockholders before income taxes, non-GAAP adjusted net income attributable to common stockholders, non-GAAP adjusted net income attributable to common stockholders per share and free cash flow. We have included non-GAAP measures in this press release because they are financial, operating or liquidity measures used by our management to (i) understand and evaluate our core operating performance and trends and generate future operating plans, (ii) make strategic decisions regarding the allocation of capital and investments in initiatives that are focused on cultivating new markets for our solutions and (iii) provide useful information to management about the amount of cash generated by the business after necessary capital expenditures. We also use certain non-GAAP financial measures, including adjusted EBITDA, as performance measures under our executive bonus plan. Further, we believe that these non-GAAP measures of our financial results provide useful information to investors and others in understanding and evaluating our results of operations, business trends and financial condition. While we believe the use of these non-GAAP measures provides useful information to investors and management in analyzing our financial performance, non-GAAP measures have inherent limitations in that they do not reflect all of the amounts and transactions that are included in our financial statements prepared in accordance with GAAP. Non-GAAP measures do not serve as an alternative to GAAP nor do we consider our non-GAAP measures in isolation, accordingly we present non-GAAP financial measures only in connection with GAAP results. We urge investors to consider non-GAAP measures only in conjunction with our GAAP financials and to review the reconciliation of our non-GAAP financial measures to the comparable GAAP financial measures, which are included in this press release.

We consider free cash flow to be a liquidity measure, which we define as cash flows from operating activities less purchases of property and equipment.

With respect to our expectations under “Financial Outlook” above, reconciliation of adjusted EBITDA and adjusted net income guidance to the closest corresponding GAAP measure is not available without unreasonable efforts on a forward-looking basis due to the high variability, complexity and low visibility with respect to the charges excluded from these non-GAAP measures, in particular, non-ordinary course litigation expense, acquisition-related (benefit) / expense and tax windfall adjustments can have unpredictable fluctuations based on unforeseen activity that is out of our control and/or cannot reasonably be predicted. We expect the above charges to have a significant and potentially highly variable impact on our future GAAP financial results.

We exclude one or more of the following items from non-GAAP financial and operating measures:

Stock-based compensation expense: We exclude stock-based compensation expense, which relates to stock options and other forms of equity incentives primarily awarded to employees of Alarm.com, because they are non-cash charges that we do not consider when assessing the operating performance of our business. Additionally, the determination of stock-based compensation expense can be calculated using various methodologies and is dependent upon subjective assumptions and other factors that vary on a company-by-company basis. Therefore, we believe that excluding stock-based compensation expense from our non-GAAP financial measures improves the comparability of our results to the results of other companies in our industry.

Secondary offering expense: We exclude secondary offering expense because we do not consider costs associated with the secondary offering to be indicative of our core operating performance and we believe that the exclusion of this expense allows us to better provide meaningful information about our operating performance, facilitates comparisons to our historical operating results and improves the comparability of our results to the results of other companies in our industry.

Litigation expense: We exclude non-ordinary course litigation expense because we do not consider legal costs and settlement fees incurred in litigation and litigation-related matters of non-ordinary course lawsuits and other disputes, particularly costs incurred in ongoing intellectual property litigation, to be indicative of our core operating performance. We do not adjust for ordinary course legal expenses, including those expenses resulting from maintaining and enforcing our intellectual property portfolio and license agreements.

Acquisition-related (benefit) / expense: Included in operating expenses are incremental costs directly related to business and asset acquisitions as well as changes in the fair value of contingent consideration liabilities, when applicable. We exclude acquisition-related (benefit) / expense from our non-GAAP financial measures because we believe that the exclusion of this expense allows us to better provide meaningful information about our operating performance, facilitates comparisons to our historical operating results, improves the comparability of our results to the results of other companies in our industry, and ultimately, we believe helps investors better understand the acquisition-related (benefit) / expense and the effects of the transaction on our results of operations.

Depreciation expense: We record depreciation primarily for investments in property and equipment. We exclude depreciation in calculating adjusted EBITDA because we do not consider depreciation when we evaluate our ongoing business operations. For non-GAAP adjusted net income, non-GAAP adjusted net income attributable to common stockholders and non-GAAP adjusted net income attributable to common stockholders per share, basic and diluted, we do not exclude depreciation.

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Amortization expense: GAAP requires that operating expenses include the amortization of acquired intangible assets, which principally include acquired customer relationships, developed technology and trade names. We exclude amortization of intangibles from our non-GAAP financial measures because we do not consider amortization expense when we evaluate our ongoing business operations, nor do we factor amortization expense into our evaluation of potential acquisitions, or our measurement of the performance of those acquisitions. We believe that the exclusion of amortization expense enables the comparison of our performance to other companies in our industry as other companies may be more or less acquisitive than us and therefore, amortization expense may vary significantly by company based on their acquisition history.

Interest expense: We record interest expense primarily related to our debt facility. We exclude interest expense in calculating our adjusted EBITDA calculation. For non-GAAP adjusted net income, non-GAAP adjusted net income attributable to common stockholders and non-GAAP adjusted net income attributable to common stockholders per share, basic and diluted, we do not exclude interest expense.

Interest income and other income, net: We exclude interest income and other income, net from our non-GAAP financial measures because we do not consider it part of our ongoing results of operations.

Income taxes: We exclude the impact related to our (benefit from) / provision for income taxes from our adjusted EBITDA calculation. We do not consider this tax adjustment to be part of our ongoing results of operations.

Forward-Looking Statements

This press release includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements may be identified by their use of terms and phrases such as “anticipate,” “believe,” “continue,” “designed,” “enable,” “ensure,” “expect,” “intend,” “will,” and other similar terms and phrases, and such forward-looking statements include, but are not limited to, the statements regarding the Company’s positioning, the benefits of recently launched offerings, and the Company’s guidance for the third quarter and full year of 2020 described under “Financial Outlook” above and key assumptions related thereto. The events described in these forward-looking statements involve known and unknown risks, uncertainties and other factors that could cause actual results to differ materially from the results anticipated by these forward-looking statements, including, but not limited to: the Company's results and business operations may be negatively impacted by the COVID-19 pandemic, the Company’s actual operating results may differ significantly from any guidance provided, certain precautions the Company is taking due to the COVID-19 pandemic could harm its business, the Company’s quarterly results may fluctuate, downturns in general economic and market conditions, including due to the COVID-19 pandemic, may reduce demand, the reliability of the Company’s network operations centers, the Company’s ability to retain service provider partners and residential and commercial subscribers and sustain its growth rate, the Company’s ability to manage growth and execute on its business strategies, the effects of increased competition and evolving technologies, the Company’s ability to integrate acquired assets and businesses and to manage service provider partners, customers and employees, consumer demand for interactive security, video monitoring, intelligent automation, energy management and wellness solutions, the Company’s reliance on its service provider network to attract new customers and retain existing customers, the Company's dependence on its suppliers, the reliability of the Company’s hardware and wireless network suppliers and enhanced United States tax, tariff, import/export restrictions, or other trade barriers, particularly tariffs from China as well as other risks and uncertainties discussed in the “Risk Factors” section of the Company’s Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on May 7, 2020 and other subsequent filings the Company makes with the Securities and Exchange Commission from time to time, including its Form 10-Q for the quarter ended June 30, 2020. In addition, the forward-looking statements included in this press release represent the Company’s views and expectations as of the date hereof and are based on information currently available to the Company. The Company anticipates that subsequent events and developments may cause the Company’s views to change. However, while the Company may elect to update these forward-looking statements at some point in the future, the Company specifically disclaims any obligation to do so except as required by law. These forward-looking statements should not be relied upon as representing the Company’s views as of any date subsequent to the date hereof.


Investor Relations:
David Trone
Alarm.com
dtrone@alarm.com

Media Relations:
Matthew Zartman
Alarm.com
mzartman@alarm.com
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ALARM.COM HOLDINGS, INC.
Consolidated Statements of Operations
(in thousands, except share and per share data)
(unaudited)

Three Months Ended
June 30,
Six Months Ended
June 30,
 2020201920202019
Revenue:
SaaS and license revenue$95,704  $82,334  $187,654  $162,389  
Hardware and other revenue45,933  39,326  105,922  71,606  
Total revenue141,637  121,660  293,576  233,995  
Cost of revenue:
Cost of SaaS and license revenue13,001  12,665  25,329  24,990  
Cost of hardware and other revenue36,004  31,891  81,656  58,516  
Total cost of revenue49,005  44,556  106,985  83,506  
Operating expenses:
Sales and marketing16,920  15,631  33,995  28,859  
General and administrative17,359  13,872  38,224  33,084  
Research and development36,636  28,418  76,366  54,914  
Amortization and depreciation6,723  5,138  13,145  10,366  
Total operating expenses77,638  63,059  161,730  127,223  
Operating income14,994  14,045  24,861  23,266  
Interest expense(868) (786) (1,513) (1,607) 
Interest income157  806  616  1,614  
Other income, net65  44  157  88  
Income before income taxes14,348  14,109  24,121  23,361  
(Benefit from) / provision for income taxes(2,277) 313  (1,075) 555  
Net income16,625  13,796  25,196  22,806  
Net loss attributable to redeemable noncontrolling interest370  —  606  —  
Net income attributable to common stockholders$16,995  $13,796  $25,802  $22,806  
Per share information attributable to common stockholders:
Net income per share:
Basic$0.35  $0.29  $0.53  $0.47  
Diluted$0.34  $0.27  $0.51  $0.45  
Weighted average common shares outstanding:
Basic48,792,280  48,388,696  48,758,922  48,281,068  
Diluted50,551,632  50,283,990  50,443,526  50,244,384  
Stock-based compensation expense included in operating expenses:Three Months Ended
June 30,
Six Months Ended
June 30,
 2020201920202019
Sales and marketing$772  $471  $1,529  $851  
General and administrative2,097  1,781  3,879  3,048  
Research and development4,226  3,168  8,045  5,787  
Total stock-based compensation expense$7,095  $5,420  $13,453  $9,686  
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ALARM.COM HOLDINGS, INC.
Consolidated Balance Sheets
(in thousands, except share and per share data)
(unaudited)

June 30,
2020
December 31,
2019
Assets
Current assets:
Cash and cash equivalents$205,827  $119,629  
Accounts receivable, net of allowance for credit losses of $3,788 and $2,584, respectively, and net of allowance for product returns of $1,253 and $1,075, respectively76,591  76,373  
Inventory, net50,406  34,168  
Other current assets, net of allowance for credit losses of $35 and $16, respectively15,265  13,504  
Total current assets348,089  243,674  
Property and equipment, net40,627  38,548  
Intangible assets, net95,402  103,438  
Goodwill105,662  104,963  
Deferred tax assets21,554  19,137  
Operating lease right-of-use assets33,821  30,523  
Other assets, net of allowance for credit losses of $48 and $0, respectively17,490  17,516  
Total assets$662,645  $557,799  
Liabilities, redeemable noncontrolling interest and stockholders’ equity
Current liabilities:
Accounts payable, accrued expenses and other current liabilities$63,702  $48,727  
Accrued compensation16,327  16,342  
Deferred revenue3,542  3,043  
Operating lease liabilities9,198  7,683  
Total current liabilities92,769  75,795  
Deferred revenue7,995  7,455  
Long-term debt112,000  63,000  
Operating lease liabilities38,486  37,199  
Other liabilities7,426  7,489  
Total liabilities258,676  190,938  
Redeemable noncontrolling interest10,716  11,210  
Stockholders’ equity
Preferred stock, $0.001 par value, 10,000,000 shares authorized; no shares issued and outstanding as of June 30, 2020 and December 31, 2019—  —  
Common stock, $0.01 par value, 300,000,000 shares authorized; 49,070,699 and 48,700,963 shares issued; and 48,923,546 and 48,700,713 shares outstanding as of June 30, 2020 and December 31, 2019, respectively491  487  
Additional paid-in capital383,388  365,627  
Treasury stock, at cost; 147,153 and 0 shares as of June 30, 2020 and December 31, 2019, respectively(5,149) —  
Retained earnings / (accumulated deficit)14,523  (10,463) 
Total stockholders’ equity393,253  355,651  
Total liabilities, redeemable noncontrolling interest and stockholders’ equity$662,645  $557,799  
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ALARM.COM HOLDINGS, INC.
Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
 Six Months Ended
June 30,
Cash flows from operating activities:20202019
Net income$25,196  $22,806  
Adjustments to reconcile net income to net cash from operating activities:
Provision for credit losses on accounts receivable965  460  
Reserve for product returns1,000  (44) 
Recovery of credit losses on notes receivable(382) (3,319) 
Amortization on patents and tooling401  334  
Amortization and depreciation13,145  10,366  
Amortization of debt issuance costs54  54  
Amortization of operating leases4,234  3,638  
Deferred income taxes(2,526) (627) 
Change in fair value of contingent liability(2,289) —  
Stock-based compensation13,453  9,686  
Acquired in-process research and development3,297  —  
Changes in operating assets and liabilities:
Accounts receivable(2,549) (10,927) 
Inventory(16,238) (905) 
Other current and non-current assets(3,270) (2,161) 
Accounts payable, accrued expenses and other current liabilities17,332  (2,528) 
Deferred revenue1,039  (196) 
Operating lease liabilities(4,728) (3,928) 
Other liabilities(86) 158  
Cash flows from operating activities48,048  22,867  
Cash flows used in investing activities:
Additions to property and equipment(7,116) (5,708) 
Purchases of in-process research and development(3,297) —  
Issuances or purchases of notes receivable—  (20,061) 
Receipt of payment on notes receivable2,007  7,400  
Purchases of patents and patent licenses(900) —  
Cash flows used in investing activities(9,306) (18,369) 
Cash flows from financing activities:
Proceeds from credit facility50,000  —  
Repayments of credit facility(1,000) (2,000) 
Payments of deferred consideration for business acquisitions(819) —  
Purchases of treasury stock(5,149) —  
Issuances of common stock from equity-based plans4,424  2,292  
Cash flows from financing activities47,456  292  
Net increase in cash and cash equivalents86,198  4,790  
Cash and cash equivalents at beginning of the period119,629  146,061  
Cash and cash equivalents at end of the period$205,827  $150,851  
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ALARM.COM HOLDINGS, INC.
Reconciliation of Non-GAAP Measures
(in thousands)
(unaudited)

Three Months Ended
June 30,
Six Months Ended
June 30,
2020201920202019
Adjusted EBITDA:
Net income$16,625  $13,796  $25,196  $22,806  
Adjustments:
Interest expense, interest income and other income, net646  (64)