Stenlis brought Alarm.com to the board a little over a week ago: http://discussion.fool.com/alrm-32804693.aspx
This is a company I have been watching since early Spring. I rec’d them in CAPS on 3/21, and finally bought shares after they reported June quarter. Let’s take a look.
History
The company was founded in 2000, and IPO’d in 2015.
They currently have 788 employees. Their go to market strategy is to partner with security service providers (currently over 6,000 of them), and Alarm.com contributes the software interface for these providers’ customers (currently over 5M of them). Demand seems to be growing especially for Smart Home solutions they offer including video. They have residential and commercial customers.
Speaking of those 5M customers, that’s up from 2M at the end of 2014, 1M in 2012.
They acquired Connect and Piper from Icontrol Networks, which was extraordinarily well received when it was announced in June 2016. William Blair said that this cemented Alarm.com as the market leader, and noted:
not only because it gives the company a key customer in ADT, but also eliminates a potential competitor: “We believe Icontrol had plans to compete more directly with Alarm.com.”
My only negative regarding the merger is that I haven’t seen any organic growth numbers since. I’d love to know if that was the large contributor to why SaaS revenue growth jumped to 40% (was averaging mid-20’s) this quarter, but I simply haven’t seen a definitive answer.
I did see a Fool.com article (https://www.fool.com/investing/2017/05/10/a-bottom-line-boos…) that said “The acquisition of those business units closed on March 8.” So perhaps that answers my question – ie, yes, they contributed less than a month in Q1, and a full quarter in Q2, so that’s why the SaaS revenue growth jumped from 26% to 40%. I’d still like to see confirmation of this, as well as organic growth numbers.
Numbers
Revenue
Mar Jun Sep Dec
2015: 52 54 57
2016: 59 64 68 70
2017: 74 86
EPS
Mar Jun Sep Dec
2015: 0.14 0.14
2016: 0.13 0.15 0.19 0.19
2017: 0.23 0.33
Market Cap: ~2.1B
PS ~7
PE ~45
Customer Count: 5M+
SaaS and license revenue renewal rate: 93%
Numbers I would like to have but don’t:
ARPU
Organic growth rate
Net expansion rate
June 2017 quarter
SaaS revenue up 40% YoY
Total Revenue up 33%
GAAP net income was $9.9 million, or $0.20 per diluted share for the second quarter of 2017 compared to $1.9 million or $0.04 per diluted share for the second quarter of 2016. Net income was helped out because of a lower tax rate in 2017, and they also benefited from a $4.5 million tax benefit due to additional research and development (R&D) tax credits. I noticed their R&D spend was also up 5.5M from Q1 to Q2, though…it will be interesting to see how all this shakes out in September. My guess is they’ve been developing some cool stuff, but will try to stem the R&D increases soon. We’ll see.
Even though there are those caveats to Net Income, Operating Income also soared 110% just because revenue increased more than costs…even with R&D increasing YoY from 10.8M to 20M! I think they can continue this trend.
Total cash and cash equivalents was $68.9 million.
Guidance (specifically EPS guidance)
In December, they projected $0.73 - $0.75 EPS in 2017.
After March, they raised that (sheepishly) to $0.74 - $0.76. (Not much of a raise after beating by 8 cents in Q1 alone)
After June, they couldn’t hide anymore and raised expectations to $0.96 - $0.98! (Had to after beating by 18 cents in Q2!)
I expect that will get another big increase when the September quarter is reported.
Conclusions
I like their predictable revenue stream. I think they have a lot of room to balance spending and growing revenue with increasing profitability. They are relatively unfollowed and fairly boring – I think this is one reason valuation looks really good. I think by simply containing spending and dropping more and more revenue to the bottom line they can keep growing EPS rapidly, making the company a lot more valuable in the near future.
I also have to admit that I don’t know the company that well yet, and I haven’t been able to find out everything I’d like to. So I’m keeping my position small. 3.2% right now.
Bear
