Summary
Alarm.com closed the third quarter of 2021 with revenue of $192.3 million, up 21.1% from $158.9 million in the prior-year quarter. SaaS and license revenue, the largest piece at 61% of the total, rose 17.9% to $118.1 million. Hardware and other revenue climbed 26% to $74.3 million. Operating income was $19.1 million, up 5.7% from $18.1 million, but operating margin slipped to 9.9% from 11.4% a year earlier, a drop of 1.4 percentage points. The pressure sits in hardware. Cost of hardware and other revenue rose 34% to $63.0 million and reached 85% of hardware and other revenue, up from 80% a year ago, on product mix plus higher freight and component costs.
Profitability looked far worse on a GAAP basis. Net income attributable to common stockholders fell 62.5% to $13.5 million for the quarter from $36.1 million a year earlier, and diluted EPS dropped to $0.26 from $0.71. Most of that swing is a comparison effect. The third quarter of 2020 included a $24.7 million gain on the sale of an investment in one of Alarm.com's platform partners. Non-GAAP adjusted EBITDA, which excludes that gain and other items, rose 8.9% to $37.6 million from $34.5 million. Non-GAAP adjusted net income attributable to common stockholders was $27.4 million, or $0.53 per diluted share, against $24.8 million, or $0.49 per diluted share.
Cash generation was a bright spot. Operating cash flow was $37.9 million for the quarter, up 103.4% from $18.6 million a year earlier. Capital expenditures were $1.6 million, down 56.2% from $3.6 million. Non-GAAP free cash flow, which the company defines as operating cash flow less purchases of property and equipment, was $36.3 million, compared with $15.1 million. Those are different measures, and the gap this quarter was wide. Through nine months, operating cash flow was $83.2 million, up 24.8% from $66.7 million. Cash and cash equivalents stood at $700.3 million on September 30, 2021, versus $253.5 million on December 31, 2020, a jump helped by the January 2021 sale of $500.0 million of 0% convertible senior notes due 2026, which generated net proceeds of $484.3 million. Deferred revenue was $16.1 million at quarter end, up 24.9% from $12.9 million. Year-to-date revenue of $553.7 million rose 22.4% from $452.4 million, while year-to-date diluted EPS of $0.83 fell 32.0% from $1.22.
Product launches kept pace. Perimeter Guard uses video analytics to trigger audible alerts and flashing red lights when cameras spot suspicious activity. Business Activity Analytics brings occupancy tracking, people counting and queue monitoring to commercial subscribers. The company also shipped Pro-Series commercial video cameras built to National Defense Authorization Act standards and added a Service Dashboard to its Partner Services Platform. Headcount reached 1,482 employees at September 30, 2021, up from 1,361 a year earlier. The trailing 12-month SaaS and license revenue renewal rate was 96%, up from 94%.
Guidance points to a slower SaaS trajectory. For the fourth quarter of 2021, Alarm.com expects SaaS and license revenue of $118.1 million to $118.3 million. For the full year 2021, it lifted SaaS and license revenue guidance to $456.7 million to $456.9 million. Full-year non-GAAP adjusted EBITDA guidance is $138.0 million to $140.0 million, and non-GAAP adjusted net income attributable to common stockholders is guided to $97.3 million to $98.0 million, or $1.87 to $1.88 per diluted share, on 52.1 million weighted average diluted shares and an estimated 21.0% tax rate.
The risk list is familiar. Management warns that COVID-19 continues to disrupt the hardware supply chain and sales channels, with limited inventory availability, longer lead times and shipping delays. Tariffs remain a recurring cost item. Certain products made overseas carry import duties of up to 25%, and higher or broader tariffs could raise cost of hardware revenue and trim hardware margins. Software license revenue keeps shrinking as customers move to the cloud hosted platform, falling to $7.9 million in the quarter from $9.5 million a year earlier. Litigation expense was $1.6 million in the quarter and $10.7 million for the nine months. The company also leans on a network of more than 10,000 service providers to sell and support its products, and it faces evolving competition and a dependence on third-party suppliers.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q3 FY2021 | Q2 FY2021 | QoQ | Q3 FY2020 | YoY |
|---|---|---|---|---|---|
| Revenue | $192.3M | $188.9M | +1.8% | $158.9M | +21.1% |
| Gross profit | $111.9M | $111.5M | +0.4% | $97.7M | +14.6% |
| Gross margin | 58.2% | 59.0% | -0.8 pp | 61.5% | -3.3 pp |
| Research & development | $44.1M | $43.5M | +1.5% | $36.9M | +19.6% |
| Sales & marketing | $22.6M | $20.5M | +9.9% | $18.4M | +22.5% |
| General & administrative | $18.7M | $23.3M | -19.7% | $17.4M | +7.3% |
| Total operating expenses | $92.9M | $94.8M | -2.0% | $79.6M | +16.6% |
| Operating income (loss) | $19.1M | $16.7M | +14.1% | $18.1M | +5.7% |
| Operating margin | 9.9% | 8.9% | +1.1 pp | 11.4% | -1.4 pp |
| Net income (loss) | $13.5M | $14.7M | -8.2% | $36.1M | -62.5% |
| Net margin | 7.0% | 7.8% | -0.8 pp | 22.7% | -15.7 pp |
| Diluted EPS | $0.26 | $0.28 | -$0.02 | $0.71 | -$0.45 |
Risks
The COVID-19 pandemic continues to disrupt Alarm.com's hardware supply chain, causing limited inventory availability, increased lead times and shipping delays, and restrictions on service providers' ability to meet with property owners. The company increased inventory purchases, contributing to a $5.4 million decrease in cash from operating assets and liabilities for the nine months ended September 30, 2021.
Cost of hardware and other revenue as a percentage of hardware and other revenue rose to 85% for the three months ended September 30, 2021 from 80% in the prior-year period (and 81% versus 78% for the nine months), driven by product mix, higher freight shipment costs and increased inventory component costs.
Alarm.com faces multiple patent suits, including the July 22, 2021 Causam Enterprises district court action and a related July 28, 2021 ITC complaint naming Alarm.com and EnergyHub, plus ongoing Vivint and two EcoFactor cases. Legal expenses rose $2.4 million for the nine months ended September 30, 2021 due to intellectual property litigation.
The connected property market is highly competitive, with large technology companies active in the space, including Amazon (Ring, Amazon Key, Amazon Home Services), Google's Nest Labs, Apple's HomeKit, Samsung SmartThings and Arlo. Competitors with greater scale may deploy aggressive tactics such as discounting, bundling free products and asserting intellectual property claims, pressuring prices and market share.
U.S. tariffs on China-origin goods subject certain Alarm.com products to import duties of up to 25%, and the filing notes that approximately one-fifth to one-half of the hardware sold to service provider partners is imported from China. Increased or expanded tariffs could raise cost of hardware revenue and reduce hardware revenue margins.
A substantial portion of revenue comes from a limited number of service provider partners, and the loss of or significant reduction in orders from a major partner would decrease revenue and profitability. The company also has limited visibility into the end consumers who ultimately use its solutions.
The $500.0 million of 0% convertible senior notes issued January 20, 2021 may dilute stockholders or depress the common stock price upon conversion, and the company may lack the cash to settle conversions or repurchase notes on a fundamental change. Interest expense rose to $11.7 million for the nine months ended September 30, 2021 from $2.1 million in the prior-year period, mainly from debt discount and issuance cost amortization.
Headcount grew from 1,361 employees as of September 30, 2020 to 1,482 as of September 30, 2021, placing strain on management and infrastructure. Sales and marketing personnel rose from 450 to 476, general and administrative from 161 to 187, and research and development from 750 to 819 over the same period, increasing personnel-related costs.
SaaS KPIs
All quarters →SaaS and license revenue
Non-GAAP free cash flow
Adjusted EBITDA
Summary, forecast, risks and KPIs are extracted from Alarm.com Holdings, Inc.'s SEC filings for Q3 FY2021 (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.