Alarm.com Holdings, Inc. (NASDAQ:ALRM) Q1 2024 Earnings Call Transcript May 9, 2024
Alarm.com Holdings, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Thank you for standing by. Welcome to Alarm.com’s First Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions]. As a reminder, today’s program is being recorded. And now I’d like to introduce your host for today’s program, Matthew Zartman, Vice President of Strategic Communications & Investor Relations. Please go ahead sir.
Matthew Zartman: Good afternoon, everyone, and welcome to Alarm.com’s first quarter 2024 earnings conference call. Please note that this call is being recorded. Joining us today from Alarm.com are Steve Trundle, our CEO; and Steve Valenzuela, our CFO. During today’s call, we will be making forward-looking statements which are predictions, projections, estimates and other statements about future events. These statements are based on current expectations and assumptions that are subject to risks and uncertainties that may cause actual results to differ materially from our current expectations. We refer you to the risk factors discussed in our quarterly report on Form 10-Q and our Form 8-K which will be filed shortly after this call with the SEC, along with the associated press release.
This call is subject to these risk factors, and we encourage you to review them. Alarm.com assumes no obligation to update forward-looking statements or information, which speak as of their respective dates. In addition, several non-GAAP financial measures will be discussed on the call. A reconciliation of the GAAP to the non-GAAP measures can be found in today’s press release on our Investor Relations website. I’ll now turn the call over to Steve Trundle. Steve?
Stephen Trundle: Thank you, Matt. Good afternoon, and welcome to everyone. We are pleased to report first quarter results that exceeded our expectations. Our SaaS and license revenue in the first quarter was $150.3 million up 11% over last year. Our adjusted EBITDA for the quarter was $37 million. I want to thank our service provider partners and our employees for their contributions to our results. On today’s call, I’ll share a few of my observations from our participation at ISC West, the largest Security Trade Conference in the U.S. And I’ll also update you on some of our recently released product capabilities before turning things over to Steve Valenzuela. In April, Alarm.com had a strong presence at ISC West, which was attended by nearly 30,000 security trade professionals.
The conference attracts a broad set of market participants from manufacturers and technology providers to a diverse range of North American and international service providers. So I had the opportunity to hear from many of our partners and update my feel for both the market and the competition that we see. There continues to be growing interest among service providers in our full range of commercial capabilities. One example that garnered attention during the conference is our recently launched cloud based vehicle management solution called Connected Fleet. The solution offers professional grade fleet management capabilities, including vehicle alerts, location tracking and fuel monitoring. Connected Fleet is also deeply integrated into our commercial software to extend operational visibility beyond the walls of the business.
Alarm.com’s robust enterprise reporting engine offers business management alerts and automated trip reporting. Connected Fleet also integrates with our enterprise dashboard capability enabling businesses to seamlessly monitor and manage vehicle fleets dispersed across thousands of locations. Many of our partners indicated that Connected Fleet’s product integration along with their existing trusted relationships with commercial end customers will allow them to cross sell effectively into the fleet management category. We began introducing Connected Fleet to our partners in April and expect a ramp up period as they evaluate the solution and develop their go-to-market plans. Over time, we believe that this category will contribute to our growth on the commercial side of the business similar to the gradual but steady ramp in production that we have seen with our cloud based access control solution.
Shifting to our video platform, we recently launched a new video analytics capability called Familiar Vehicle Analytics. Subscribers can tag a familiar vehicle in a video clip and personalize the AI model associated with their property to recognize that particular vehicle going forward. They can then use our rules engine to create customized video recording and notification rules based on when certain known vehicles or unknown ones are identified. Familiar Vehicle Analytics will be offered with our video analytics service package. We believe it will provide another high value system touch point and create meaningful subscriber engagement multiple times per day. Looking ahead, we are positioned to continue to innovate in AI and we plan to bring additional capabilities to market that allow customers to personalize the AI models associated with their specific property.
Overall, I’m pleased with our first quarter results. We continue to deliver products and capabilities that allow us to grow revenues in our increasingly diverse markets, including the residential smart home market and the commercial security, video, access control and fleet management markets. We also continue to build our energy business, EnergyHub and our international business with customers in over 60 countries around the world. Each of these initiatives has reached different stages of maturity and their operating margin structures range from negative to the high 20s. Our goal is to build out each of these areas while also producing adjusted EBITDA margins on an overall consolidated basis of 18% as we grow the business. I want to thank our service provider partners and our team for their hard work and our investors for their continued trust in our business.
With that, I’ll hand things over to Steve Valenzuela to review our financials. Steve?
Steve Valenzuela: Thanks, Steve. I’ll begin with a review of our first quarter 2024 financial results and then provide our updated guidance before opening the call for questions. First quarter staff and license revenue of $150.3 million grew 11% from the same quarter last year. Our SaaS and license revenue visibility remains high with a revenue renewal rate of 94% in the first quarter at the higher end of our expected range. Hardware and other revenue in the first quarter was $72.9 million down slightly from $74.3 million in Q1 2023, mainly due to fewer sales of door controllers and thermostats. Total revenue of $223.3 million for the first quarter grew 6.5% year-over-year. SaaS and license gross margin for the first quarter was 86.4%, up about 90 basis points from 85.5% in the year ago quarter.
Hardware gross margin was 23.1% for the first quarter, down from 23.9% in the year ago quarter, mainly due to product mix. Total gross margin was 65.7% for the first quarter, up from 63.7% for Q1 2023 due to increased SaaS margins and a higher mix of SaaS revenue. Turning to operating expenses. R&D expenses in the first quarter were $66 million compared to $61.9 million in the first quarter of 2023, mainly due to increased headcount and related compensation expenses. We ended the first quarter with 1,139 employees in R&D, up from 1,042 employees in Q1 2023. Total headcount increased to 2,002 employees for the first quarter compared to 1,858 employees in the year ago quarter. Sales and marketing expenses in the first quarter were $25.5 million or 11.4% of total revenue down from $26.6 million or 12.7% of revenue in the same quarter last year, mainly due to less program spending.
Our G&A expenses in the first quarter were $29.3 million up from $28.5 million in the year ago quarter, mainly due to a $4 million bad debt reserve for a note receivable to service provider who defaulted on senior loans, partially offset by lower legal expenses. In the first quarter, GAAP net income was $23.6 million, up 63% from GAAP net income of $14.4 million for Q1 2023. Non-GAAP adjusted EBITDA in the first quarter was $37 million up 21.2% from $30.6 million for Q1 2023. Non-GAAP adjusted net income was $27.3 million or $0.50 per diluted share in the first quarter compared to $22 million or $0.41 per share for the first quarter of 2023. Turning to our balance sheet. We ended the first quarter with $747.9 million of cash and cash equivalents, up from $697 million at December 31, 2023.
In April this year, we paid $43.5 million for our 2023 R&D tax due to the change in Section 174 of the Internal Revenue Tax Code, requiring companies to capitalize their R&D costs over five to 15 years for tax purposes. Turning to our financial outlook. For the second quarter of 2024, we expect SaaS and license revenue of $153.8 million to $154 million. For the full-year of 2024, we are raising our expectations for SaaS and license revenue to be between $624.5 million to $625 million up from our prior guidance of $622.5 million to $623.5 million. We are projecting total revenue for 2024 of $914.5 million to $931 million, increased from our prior guidance of $912.5 million to $933.5 million which includes estimated hardware and other revenue of $290 million to $306 million.
We estimate that adjusted EBITDA for 2024 will be between $164 million to $166 million up from our prior guidance of $160 million to $164 million. We expect adjusted EBITDA for the second quarter of 2024 to represent approximately 22% to 23% of our annual guide. Non-GAAP net income for 2024 is projected to be $118.5 million to $119.5 million or $2.14 to $2.16 per diluted share, up from our prior guidance of $116 million to $118.1 million or $2.10 to $2.14 per diluted share. EPS is based on an estimate of 55.3 million weighted average diluted shares outstanding. We currently project our non-GAAP tax rate for 2024 to remain at 21% under current tax rules. We expect full-year 2024 stock based compensation expense of $54 million to $56 million.
In summary, we are focused on executing on our strategic business plan and investing in our long-term strategy, while continuing to deliver profitable growth. And with that, operator, please open the call for Q&A.
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