Summary
Alarm.com's second quarter of fiscal 2022 showed solid top-line momentum but weaker profitability. Total revenue for the quarter ended June 30, 2022 was $212.8 million, up 12.7% from $188.9 million in the prior-year quarter. SaaS and license revenue, the largest slice of the business, increased 14.4% to $129.5 million from $113.2 million. GAAP net income attributable to common stockholders fell to $10.8 million from $14.7 million. Diluted EPS was $0.21, down from $0.28 a year earlier. Operating income declined to $11.3 million from $16.7 million, and operating margin compressed to 5.3% from 8.9%. For the six months ended June 30, 2022, revenue was $418.3 million, up 15.8% from $361.4 million, while operating income was $20.2 million, down 36.2% from $31.7 million. Year-to-date diluted EPS was $0.38, down from $0.57.
Management attributed the profit decline to higher shipping and component costs for hardware, caused by global supply chain challenges. Cost of hardware and other revenue rose 14% to $68.6 million, and cost of hardware and other revenue as a percentage of hardware and other revenue was 82%, up from 80%. Research and development expense increased 25% to $54.2 million. General and administrative expense rose 26% to $29.3 million, including a $2.2 million increase in legal costs related to intellectual property litigation. Sales and marketing expense was $22.9 million, up 12%. The company ended the quarter with 1,606 employees, up from 1,421 as of June 30, 2021. Non-GAAP adjusted EBITDA decreased to $37.1 million from $38.0 million. Non-GAAP adjusted net income attributable to common stockholders was $26.9 million, or $0.49 per diluted share, compared with $27.7 million, or $0.54 per diluted share.
Cash flow told a mixed story. Operating cash flow for the quarter was $26.2 million, up 8.9% from $24.1 million. For the six months, operating cash flow was $12.3 million, down 72.9% from $45.3 million. The year-to-date decline reflected a $17.7 million change in inventory, a $15.6 million change in deferred income taxes, and lower net income. Free cash flow for the quarter, a non-GAAP measure, was $2.1 million, down from $20.8 million, mainly because of a $21.5 million purchase of developable land near the Tysons, Virginia headquarters. Capital expenditures were $24.1 million for the quarter, up 628.6% from $3.3 million. Cash and cash equivalents finished at $643.4 million, down from $710.6 million at December 31, 2021, after the repurchase of 834,654 shares for $51.5 million during the six months. Deferred revenue was $17.2 million, up 14.8% from $15.0 million.
Guidance for the third quarter of 2022 and the full year 2022 calls for more SaaS growth. For the third quarter, SaaS and license revenue is expected to be $130.9 million to $131.1 million. For the full year 2022, the company raised its SaaS and license revenue outlook to $518.5 million to $519.0 million. Total revenue for the full year is guided to $828.5 million to $859.0 million. Full year adjusted EBITDA is expected to be $149.0 million to $150.0 million, and non-GAAP adjusted net income attributable to common stockholders is guided to $104.3 million to $105.0 million, or $1.89 to $1.91 per diluted share, based on an estimated tax rate of 21.0% and 55.1 million weighted average diluted shares.
Risks remain significant. Supply chain disruptions, elevated freight and component costs, and tariffs of up to 25% on certain hardware imported from China could pressure hardware margins. The trailing 12-month SaaS and license revenue renewal rate slipped to 94% from 95%. Macroeconomic uncertainty, including inflation and geopolitical upheaval, may reduce demand and disrupt operations. The company also noted that Section 174 of the tax code could significantly increase cash taxes and reduce operating cash flow in 2022, though it should not affect the tax rate, results of operations or adjusted EBITDA. On the product side, Alarm.com launched Smart Arming for smart home subscribers, its Smart Thermostat HD won awards at the Electronic Security Expo and the HVAC Dealer Design Awards, and EnergyHub expanded its electric vehicle charging management solution.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q2 FY2022 | Q1 FY2022 | QoQ | Q2 FY2021 | YoY |
|---|---|---|---|---|---|
| Revenue | $212.8M | $205.4M | +3.6% | $188.9M | +12.7% |
| Gross profit | $125.5M | $115.3M | +8.8% | $111.5M | +12.6% |
| Gross margin | 59.0% | 56.1% | +2.8 pp | 59.0% | -0.1 pp |
| Research & development | $54.2M | $51.5M | +5.2% | $43.5M | +24.5% |
| Sales & marketing | $22.9M | $23.2M | -1.1% | $20.5M | +11.7% |
| General & administrative | $29.3M | $24.0M | +22.2% | $23.3M | +26.0% |
| Total operating expenses | $114.2M | $106.4M | +7.3% | $94.8M | +20.5% |
| Operating income (loss) | $11.3M | $8.9M | +27.2% | $16.7M | -32.2% |
| Operating margin | 5.3% | 4.3% | +1.0 pp | 8.9% | -3.5 pp |
| Net income (loss) | $10.8M | $8.9M | +21.8% | $14.7M | -26.5% |
| Net margin | 5.1% | 4.3% | +0.8 pp | 7.8% | -2.7 pp |
| Diluted EPS | $0.21 | $0.18 | +$0.03 | $0.28 | -$0.07 |
Risks
MD&A's Recent Developments highlights Macroeconomic Conditions, including COVID-19, inflation, energy prices, and Russia's incursion into Ukraine, which have caused supply chain and inventory disruptions and may reduce consumer discretionary spending. It states prolonged uncertainty could adversely affect the business, results of operations, or financial condition.
Risk factors cite limited inventory availability, increased lead times, shipping delays, and service providers' inability to source security panels and peripherals. MD&A notes inventory increased to reduce supply chain risks, contributing to operating cash flow down 72.9% for the six months ended June 30, 2022 vs the prior-year period.
A substantial portion of revenue comes from a limited number of service provider partners, and the loss of or significant reduction in orders from one or more major partners would decrease revenue and profitability. The company also depends on its service provider network to acquire and retain subscribers.
The connected property markets are highly competitive, with large technology companies such as Google Nest, Amazon Ring, and SimpliSafe and broadband and security providers. Competitors may use aggressive tactics like discounting or bundling at no charge, which could reduce Alarm.com's revenue or force price reductions.
The filing details patent infringement suits by Vivint, EcoFactor, and Causam, including a Causam ITC complaint, and says the company has indemnity obligations to certain service provider partners. Litigation expense was $5.3 million in the three months ended June 30, 2022 and $3.7 million in the prior-year quarter.
The business is subject to FTC, FCC, TCPA, state licensing, and evolving privacy and data security laws, and the company has incurred costs to settle alleged TCPA violations. Restrictions on service provider lead generation could materially reduce subscriber acquisition opportunities.
Tariffs of up to 25% on certain China-imported products affect one-fifth to one-half of hardware sold, and higher freight and component costs increased cost of hardware and other revenue to 82% of hardware revenue in Q2 2022 from 80% a year earlier and to 86% YTD from 79%.
Full-time headcount grew to 1,606 as of June 30, 2022 from 1,421 as of June 30, 2021, and the company must manage expansion and a hybrid return-to-office plan. Failure to manage growth could strain resources or reduce productivity.
Risk factors state that continued remote workdays and the transition back to in-office work may make the company more vulnerable to cyber-attacks, and cyber-attacks may increase following Russia's incursion into Ukraine. A breach could lead to fines, litigation, and loss of subscriber confidence.
The $500.0 million 0% convertible senior notes due 2026 may require cash settlement upon conversion or a fundamental change, and conversion could dilute stockholders or depress the stock price. The initial conversion price is $147.19 per share.
SaaS KPIs
All quarters →SaaS and license revenue
Non-GAAP free cash flow
Non-GAAP adjusted EBITDA
Summary, forecast, risks and KPIs are extracted from Alarm.com Holdings, Inc.'s SEC filings for Q2 FY2022 (10-Q / 10-K and the 8-K earnings release); GAAP figures in the summary are checked against the reported XBRL data. They can contain errors; the filings are authoritative. Processed Oct 2, 2026.