Supply Chain Woes Cut Alarm.com Profit

Big increases in component costs and higher logistics costs that include air freight and fuel prices affected the bottom line for Alarm.com (Nasdaq: ALRM) in its latest quarterly report.

The company reported higher revenues to $205.4 million for the first quarter of 2022, an increase of 19.1%. However, the company’s bottom line EBITDA was down 16% to $29.9 million, albeit still higher than executives were expecting. Its hardware margins alone was halved from its previous 22% to just 11%. As such, Alarm.com announced a price increase is set for Q2.

“We’re pleased with the level of demand for our products and services that we saw in the first quarter,” says Steve Trundle, president and CEO of Alarm.com.

“We navigated the many supply chain challenges during the quarter. We provided a high level of products to our service providers to support their subscriber additions, and incurred meaningfully higher shipping and inventory component costs while delivering higher Adjusted EBITDA than expected. Our research and development teams also delivered innovative, award-winning technology, including expanding our video analytics platform to address additional market segments.”

Trundle says the company absorbed the increased component and freight costs in Q1 that pressured its hardware gross margins, and as a result Alarm.com is facing in a second price increase of the year on select products.

CFO Steve Valenzuela adds more details, “Hardware gross margin was 11% for the first quarter, which was flat quarter-over-quarter and down from 22.3% during the same quarter last year. Hardware gross margins were lower than expected due to additional cost increases for components and higher shipping costs.

“We continue to ship more products by air freight to meet demand and shipping costs increased due in part to increasing fuel prices. As a result of these additional costs, we announced our second price increase this year on some of the hardware products. The pricing changes will mostly take effect later in the second quarter. Barring any additional economic impacts or supply chain disruptions, we expect hardware gross margins to improve from Q1 levels each quarter this year.”

“We continue to ship more products by air freight to meet demand, and shipping costs increased due in part to increasing fuel prices. As a result of these additional costs, we announced our second price increase this year on some of the hardware products.”

Steve Valenzuela, CFO

Trundle notes, “Overall, my sense was that our partners [integrators] see a positive year developing, most of their concerns were focused on supply related issues, inflationary pressures and labor constraints rather than market challenges, competitors or product gaps.”

According to Trundle, one of the hottest segments for the company is the attachment of video to their intrusion systems.

“Consumers increasingly view security systems as the platform for an intelligent multi-device Smart Home. Alarm.com and our service providers are driving this trend and leading the industry, particularly in deploying video solutions. In 2021, our service provider partners attached video to nearly half of all new security and Smart Home accounts.”

That nearly 50% figure is much higher than the industry norm, according to Parks Associates, that shows about 30% of traditional home alarm systems have video surveillance attached.

In Q1, $123.2 million of Alarm.com’s revenues came from its SaaS and license monitoring fees, up from $107.4 million the previous year’s Q1. The company has $671.8 million in available cash.

The company says for the full year of 2022 it expects to hit its SaaS and license revenue targets in the range of $512.7 million to $513.3 million. Total revenue is expected to be in the range of $822.7 million to $853.3 million.

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