Home security and automation software provider Alarm.com (NASDAQ:ALRM) reported Q3 CY2024 results exceeding the market’s revenue expectations , with sales up 8.4% year on year to $240.5 million. The company’s full-year revenue guidance of $934.8 million at the midpoint came in slightly above analysts’ estimates. Its GAAP profit of $0.67 per share was also 60.6% above analysts’ consensus estimates.

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Alarm.com (ALRM) Q3 CY2024 Highlights:

• Revenue: $240.5 million vs analyst estimates of $231.4 million (3.9% beat)

• EPS: $0.67 vs analyst estimates of $0.42 (60.6% beat)

• EBITDA: $49.98 million vs analyst estimates of $41.69 million (19.9% beat)

• The company slightly lifted its revenue guidance for the full year to $934.8 million at the midpoint from $926 million

• EBITDA guidance for the full year is $175 million at the midpoint, above analyst estimates of $166.2 million

• Gross Margin (GAAP): 64.8%, up from 63.3% in the same quarter last year

• Operating Margin: 13.8%, up from 7.3% in the same quarter last year

• EBITDA Margin: 20.8%, up from 18.7% in the same quarter last year

• Free Cash Flow Margin: 31%, up from 9% in the previous quarter

• Billings: $241.6 million at quarter end, up 8.2% year on year

• Market Capitalization: $2.86 billion

Company Overview

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

Reviewing a company’s long-term performance can reveal insights into its business quality. Any business can have short-term success, but a top-tier one sustains growth for years. Unfortunately, Alarm.com’s 8.7% annualized revenue growth over the last three years was sluggish. This shows it failed to expand in any major way, a rough starting point for our analysis.

This quarter, Alarm.com reported year-on-year revenue growth of 8.4%, and its $240.5 million of revenue exceeded Wall Street’s estimates by 3.9%.

Looking ahead, sell-side analysts expect revenue to grow 4.4% over the next 12 months, a deceleration versus the last three years. This projection doesn't excite us and indicates the market believes its products and services will see some demand headwinds.