Alarm.com (NASDAQ:ALRM) Reports Sales Below Analyst Estimates In Q3 Earnings, But Stock Soars 8.8%
Home security and automation software provider Alarm.com (NASDAQ:ALRM) missed analysts' expectations in Q3 FY2023, with revenue up 2.6% year on year to $221.9 million. On the other hand, its full-year revenue guidance of $880 million at the midpoint came in slightly above analysts' estimates. Turning to EPS, Alarm.com made a GAAP profit of $0.37 per share, improving from its profit of $0.35 per share in the same quarter last year.
Is now the time to buy Alarm.com? Find out by accessing our full research report, it's free.
Alarm.com (ALRM) Q3 FY2023 Highlights:
Revenue: $221.9 million vs analyst estimates of $223.4 million (0.7% miss)
EPS: $0.37 vs analyst estimates of $0.14 ($0.23 beat)
The company reconfirmed its revenue guidance for the full year of $880 million at the midpoint
Free Cash Flow of $60.87 million, up 70.1% from the previous quarter
Gross Margin (GAAP): 63.3%, up from 60.4% in the same quarter last year
“We are pleased to report solid results in the quarter and continued contributions from our various growth initiatives,” said Steve Trundle, CEO of Alarm.com.
Founded in 2000 as a business unit within MicroStrategy, Alarm.com (NASDAQ:ALRM) is a software-as-a-service platform that enables users to control their security systems and smart home appliances from a single app.
Vertical Software
Software is eating the world, and while a large number of solutions such as project management or video conferencing software can be useful to a wide array of industries, some have very specific needs. As a result, vertical software, which addresses industry-specific workflows, is growing and fueled by the pressures to improve productivity, whether it be for a life sciences, education, or banking company.
Sales Growth
As you can see below, Alarm.com's revenue growth has been unremarkable over the last two years, growing from $192.3 million in Q3 FY2021 to $221.9 million this quarter.
Alarm.com's quarterly revenue was only up 2.6% year on year, which might disappoint some shareholders. On top of that, the company's revenue actually decreased by $2.02 million in Q3 compared to the $14.16 million increase in Q2 2023.
Looking ahead, analysts covering the company were expecting sales to grow 5.5% over the next 12 months before the earnings results announcement.
The pandemic fundamentally changed several consumer habits. There is a founder-led company that is massively benefiting from this shift. The business has grown astonishingly fast, with 40%+ free cash flow margins. Its fundamentals are undoubtedly best-in-class. Still, the total addressable market is so big that the company has room to grow many times in size. You can find it on our platform for free.
Cash Is King
If you've followed StockStory for a while, you know that we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can't use accounting profits to pay the bills. Alarm.com's free cash flow came in at $60.87 million in Q3, up 623% year on year.
Alarm.com has generated $124.6 million in free cash flow over the last 12 months, a solid 14.2% of revenue. This strong FCF margin stems from its asset-lite business model, giving it optionality and plenty of cash to reinvest in its business.
Key Takeaways from Alarm.com's Q3 Results
With a market capitalization of $2.60 billion, Alarm.com is among smaller companies, but its $680 million cash balance and positive free cash flow over the last 12 months give us confidence that it has the resources needed to pursue a high-growth business strategy.
Although its revenue missed analysts' expectations this quarter, Alarm.com beat analysts' gross margin, adjusted EBITDA, and EPS estimates. Its stronger profitability was driven by better-than-expected results in its SaaS and license segment, which is its highest-margin revenue stream. The company also raised next quarter's SaaS and license revenue, adjusted EBITDA, and EPS guidance for next quarter. Overall, this was a pretty good quarter. The stock is up 8.8% after reporting and currently trades at $55.95 per share.
Alarm.com may have had a tough quarter, but does that actually create an opportunity to invest right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.
One way to find opportunities in the market is to watch for generational shifts in the economy. Almost every company is slowly finding itself becoming a technology company and facing cybersecurity risks and as a result, the demand for cloud-native cybersecurity is skyrocketing. This company is leading a massive technological shift in the industry and with revenue growth of 50% year on year and best-in-class SaaS metrics it should definitely be on your radar.
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The author has no position in any of the stocks mentioned in this report.
