Alarm.com (NASDAQ:ALRM) Surprises With Q1 Sales, Gross Margin Improves

Kayode Omotosho /
2023/05/10 4:11 pm EDT

Home security and automation software provider Alarm.com (NASDAQ:ALRM) reported Q1 FY2023 results topping analyst expectations, with revenue up 2.08% year on year to $209.7 million. Alarm.com made a GAAP profit of $14.2 million, improving on its profit of $8.9 million, in the same quarter last year.

Is now the time to buy Alarm.com? Access our full analysis of the earnings results here, it's free.

Alarm.com (ALRM) Q1 FY2023 Highlights:

  • Revenue: $209.7 million vs analyst estimates of $207.3 million (1.17% beat)
  • EPS: $0.28 vs analyst estimates of $0.04 ($0.24 beat)
  • The company reconfirmed revenue guidance for the full year, at $868.7 million at the midpoint
  • Free cash flow was negative $5.92 million, down from positive free cash flow of $33.9 million in previous quarter
  • Gross Margin (GAAP): 63.7%, up from 56.1% same quarter last year

“We’re pleased to report solid first quarter results and continued momentum across the business to start the new year,” 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.

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, there are industries that have very specific needs. Whether it is life-sciences, education or banking, the demand for so called vertical software, addressing industry specific workflows, is growing, fueled by the pressures on improving productivity and quality of offerings.

Sales Growth

As you can see below, Alarm.com's revenue growth has been mediocre over the last two years, growing from quarterly revenue of $172.5 million in Q1 FY2021, to $209.7 million.

Alarm.com Total Revenue

Alarm.com's quarterly revenue was only up 2.08% year on year, which might disappoint some shareholders. But at least the revenue increased $1.58 million quarter on quarter, a strong improvement on the $8 million decrease in Q4 2022, and a sign of acceleration of growth, which is very nice to see indeed.

Ahead of the earnings results the analysts covering the company were estimating sales to grow 4% over the next twelve months.

In volatile times like these we look for robust businesses with strong pricing power. Unknown to most investors, this company is one of the highest-quality software companies in the world, and their software products have been the default standard in critical industries for decades. The result is an impressive business that is up an incredible 18,152% since the IPO. You can find it on our platform for free.

Cash Is King

If you have followed StockStory for a while, you know that we put an emphasis on cash flow. Why, you ask? We believe that in the end cash is king, as you can't use accounting profits to pay the bills. Alarm.com burned through $5.92 million in Q1, reducing the cash burn by 63.3% year on year.

Alarm.com Free Cash Flow

Alarm.com has generated $38.5 million in free cash flow over the last twelve months, a decent 4.54% of revenues. This FCF margin is a result of Alarm.com asset lite business model, and provides it with optionality and decent amount of cash to invest in the business.

Key Takeaways from Alarm.com's Q1 Results

With a market capitalization of $2.36 billion Alarm.com is among smaller companies, but its more than $606.4 million in cash and positive free cash flow over the last twelve months give us confidence that Alarm.com has the resources it needs to pursue a high growth business strategy.

We enjoyed seeing Alarm.com’s improve their gross margin materially this quarter. And we were also happy to see it topped analysts’ revenue expectations, even if just narrowly. Overall, this quarter's results seemed pretty positive and shareholders can feel optimistic. The company is flat on the results and currently trades at $47.9 per share.

Should you invest in Alarm.com right now? It is important that you take into account its valuation and business qualities, as well as what happened in the latest quarter. We look at that in our actionable 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 70% year on year and best-in-class SaaS metrics it should definitely be on your radar.

The author has no position in any of the stocks mentioned.