Prospectus Summary
PROSPECTUS SUMMARY This summary highlights information contained elsewhere in this prospectus and does not contain all of the information that you should consider in making your investment decision. Before investing in our common stock, you should carefully read this entire prospectus, including our consolidated financial statements and the related notes and the information set forth under the sections titled “Risk Factors,” “Special Note Regarding Forward-Looking Statements,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in each case included in this prospectus. Unless the context otherwise requires, we use the terms “Alarm.com,” “company,” “our,” “us,” and “we” in this prospectus to refer to Alarm.com Holdings, Inc. and, where appropriate, our consolidated subsidiaries.Overview
We are the leading platform solution for the connected home. Through our cloud-based services, Alarm.com makes connected home technology broadly accessible to millions of home and business owners. Our multi-tenant software-as-a-service, or SaaS, platform enables home and business owners to intelligently secure their properties and automate and control a broad array of connected devices through a single, intuitive user interface. Our connected home platform currently has more than 2.3 million residential and business subscribers and connects to more than 25 million devices. More than 20 billion data points were generated and processed by those subscribers and devices in the last year alone. This scale of subscribers, devices and data makes Alarm.com the largest connected home platform.
Our solutions are delivered through an established network of over 5,000 trusted service providers, who are experts at designing, selling, installing and supporting our solutions. Our technology platform was purpose-built for the entire connected home ecosystem, including the consumers who use it, the service providers who deliver it and the hardware partners whose devices are enabled by the platform. Our solutions are used by both home and business owners, and we refer to this market as the connected home market.
We invented solutions that connect people in new ways with their properties and devices, making them safer, smarter and more efficient. Our scalable, flexible platform is designed to meet a wide range of user needs with its breadth of services, depth of feature capability and broad support for the growing Internet of Things devices in the home. We power four primary solutions, which can be used individually or combined and integrated within a single user interface accessible through the web and mobile apps:
suite of video services includes live streaming, smart clip capture, high definition continuous recording and instant video alerts delivered to users through the web and mobile apps.
Homes and businesses are now ripe for reinvention, as most properties lack even basic automation or security monitoring. The intersection of four significant technology trends are making the intelligent, connected home now possible: broad adoption of mobile devices, the emergence of the Internet of Things, the power of big data and the extensibility of the cloud. Security systems, thermostats, door locks, video cameras, lights, garage doors, appliances and other devices that were once inert now have the potential to become sensor-enabled, intelligent and connected. The majority of broadband households are interested in smart home features. According to data from a 2014 survey from Parks Associates, 67% of all broadband households find smart home features very appealing.
Our innovative solutions offer a new experience for home and business owners. Here are some common examples of how subscribers can engage with our platform:
Our solutions are delivered through an extensive network of service providers, primarily comprised of security system dealers who are experts at delivering connected home solutions. Security and safety continue to be the top smart home features for consumers. According to a 2014 survey from Parks Associates, security and safety are the leading features driving smart home adoption. We believe that the combination of our solutions and our service providers, with their strong pedigree in security, is the most effective way to drive mass market adoption of the connected home.
We primarily generate revenue through our service providers who resell our services and pay us monthly fees. Our service providers have indicated that they typically have three to five year service contracts with home or business owners, whom we call subscribers. We believe that the length of these contracts, combined with our SaaS model and over a decade of operating experience, provides us with reasonable visibility into our future operating results. In addition, we generate hardware and other revenue primarily by selling our service providers and distributors an Alarm.com gateway module that enables cellular communications between the devices installed in the home or business and our cloud-based platform. We also sell other hardware devices such as video cameras as part of our video monitoring solution.
We have experienced significant growth since inception. As of the fourth quarter of 2014, we had significantly more subscribers than the next largest platform provider in North America. According to data from a fourth quarter 2014 Parks Associates report, Alarm.com had approximately 50% more subscribers than the next largest platform provider in North America. We have increased the number of homes and businesses we served from 0.5 million as of December 31, 2010 to 2.3 million as of December 31, 2014. Additionally, we grew revenue at a 46% compound annual growth rate from December 31, 2010 to December 31, 2014.
For the year ended December 31, 2014, our revenue was $167.3 million, representing year-over-year revenue growth of 28%. For the first quarter of 2015, our revenue was $46.0 million, representing year-over-year revenue growth of 25%. For the year ended December 31, 2014, our SaaS and license revenue was $111.5 million, representing year-over-year SaaS and license revenue growth of 35%. For the first quarter of 2015, our SaaS and license revenue was $32.0 million, representing year-over-year revenue growth of 27%. Our SaaS and license revenue represented 67% of our total revenue for the year ended December 31, 2014 and 69% of our total revenue in the first quarter of 2015. Hardware and other revenue accounted for 33% of our total revenue for the year ended December 31, 2014 and 31% of our total revenue in the first quarter of 2015. For the year ended December 31, 2014, and on a consolidated basis, we generated net income of $13.5 million and Adjusted EBITDA, a non-GAAP metric, of $28.3 million. For the first quarter of 2015, we generated net income of $3.0 million and Adjusted EBITDA, a non-GAAP metric, of $7.0 million. Please see footnote 5 to the table contained in the section of this prospectus titled “Selected Consolidated Financial and Other Data” for a reconciliation of Adjusted EBITDA to net income, the most directly comparable financial measures calculated and presented in accordance with generally accepted accounting standards in the United States, or GAAP.
Key Trends Driving the Adoption of the Connected Home
The intersection of the following significant technology trends is driving mass adoption of connected home solutions.
What Consumers Want
Consumers increasingly are seeking a connected home solution as a way to make their lives more convenient, efficient and secure. They expect:
What Connected Home Service Providers Want
Service providers are a critical part of allowing the benefits of the connected home to be rapidly and effectively delivered to consumers. They want:
Limitations of Existing and Legacy Products
Existing and legacy approaches to home automation generally have several limitations:
Market Opportunity
Our addressable market consists of residential homes and businesses. Our residential subscribers are typically owners of single-family homes, while our business subscribers include retail businesses, restaurants, small-scale commercial facilities, offices of professional services providers and similar businesses. According to a Juniper Research report dated February 2014, the global opportunity for home automation and security, smart metering and smart health monitoring in the home is expected to grow from $5.8 billion in 2013 to $14.9 billion in 2018, representing a compound annual growth rate of 21%. Approximately 81% of the total market size in each period is attributable to the home automation and security market, which Juniper Research defines as a bundled solution, including camera, lighting, heating control, door locks and others. According to Parks Associates reports dated December 2013 and July 2014, there are approximately 124 million U.S. households, of which 95 million have broadband internet access, and 21% of U.S. households with broadband access, or approximately 20 million homes, have a professionally monitored home security system. However, according to April 2015 data from Parks Associates, smart home controller penetration was only at 7.8% of U.S. households in 2014. We believe there is an opportunity for penetration rates to significantly increase, largely driven by the mass market adoption of connected home solutions by households with no solution today. In addition, we believe there are commonalities between the residential and business markets for these services, and the business market therefore represents a sizable related opportunity.
Benefits of Our Solutions
Our platform powers the connected home through four primary solutions, which can be integrated within a single user experience: interactive security, intelligent automation, video monitoring and energy management. In addition, we provide a comprehensive suite of enterprise-grade business management solutions to our service providers.
Benefits to Consumers
Benefits to Service Providers
Competitive Advantages
We believe the benefits we deliver to our subscribers and our service providers create a significant competitive advantage for us in the connected home market. In addition, we believe there are a number of other factors that contribute to our competitive advantage:
Growth Strategy
We intend to maintain our leadership position in the connected home market while continuing to innovate, add advanced capabilities and increase penetration of our connected home solutions. Our key growth strategies include:
Selected Risks Affecting Our Business
Our business is subject to a number of risks you should be aware of before making an investment decision. These risks are discussed more fully in “Risk Factors” beginning on page 16 and include:
Corporate Information
We were founded in 2000 as a business unit within MicroStrategy Incorporated. We were incorporated in 2003 as a majority-owned subsidiary of MicroStrategy. MicroStrategy sold all of its interests in Alarm.com Incorporated in 2009 and we established Alarm.com Holdings, Inc. in connection with the sale transaction. Our principal executive offices are located at 8150 Leesburg Pike, Vienna, Virginia. Our telephone number is (877) 389-4033. Our website address is www.alarm.com. The information contained on, or that can be accessed through, our website is not incorporated by reference into this prospectus, and you should not consider any information contained on, or that can be accessed through, our website as part of this prospectus or in deciding whether to purchase our common stock.
“Alarm.com”, the Alarm.com logo, and other trademarks or service marks of Alarm.com Incorporated appearing in this prospectus are the property of Alarm.com Incorporated. This prospectus contains additional trade names, trademarks and service marks of others, which are the property of their respective owners. Solely for convenience, trademarks and trade names referred to in this prospectus may appear without the ® or TM symbols.
Implications of Being an Emerging Growth Company
We are an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. For so long as we remain an emerging growth company, we are permitted and intend to rely on exemptions from specified disclosure requirements that are applicable to other public companies that are not emerging growth companies. These exemptions include:
We may take advantage of these provisions for up to five years or such earlier time that we are no longer an emerging growth company. We would cease to be an emerging growth company if we have more than $1 billion in annual revenue, have more than $700 million in market value of our capital stock held by non-affiliates or issue more than $1 billion of non-convertible debt over a three-year period. We may choose to take advantage of some, but not all, of the available exemptions. We have taken advantage of some reduced reporting requirements in this prospectus. Accordingly, the information contained herein may be different than the information you receive from other public companies in which you hold stock.
In addition, the JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. This provision allows an emerging growth company to delay the adoption of some accounting standards until those standards would otherwise apply to private companies. We have irrevocably elected not to avail ourselves of this exemption from new or revised accounting standards and, therefore, we will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.
The Offering
Proposed NASDAQ Global Select Market Trading Symbol “ALRM” The number of shares of our common stock that will be outstanding after this offering is based on 37,846,440 shares of common stock outstanding as of March 31, 2015, and excludes:
Unless otherwise indicated, this prospectus reflects and assumes the following:
Summary Consolidated Financial and Other Data
In the following tables, we provide our summary consolidated financial and other data. We derived the summary consolidated statements of operations data for the years ended December 31, 2012, 2013, and 2014 from our audited consolidated financial statements included elsewhere in this prospectus. We derived the summary consolidated statements of operations data for the three months ended March 31, 2014 and 2015 and our summary consolidated balance sheet data as of March 31, 2015 from our unaudited condensed consolidated financial statements included elsewhere in this prospectus. We have prepared the unaudited condensed consolidated financial statements on the same basis as the audited consolidated financial statements, and the unaudited condensed consolidated financial statements include, in our opinion, all adjustments, consisting only of normal recurring adjustments, that we consider necessary for a fair statement of our financial position and results of operations for these periods. Our historical results are not necessarily indicative of the results to be expected in the future, and our operating results for the three months ended March 31, 2015 are not necessarily indicative of the results that may be expected for the entire year ending December 31, 2015. When you read this summary consolidated financial data, it is important that you read it together with the historical financial statements and related notes to those statements, as well as the sections of this prospectus titled “Selected Consolidated Financial and Other Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
The pro forma as adjusted information presented in the summary balance sheet data is illustrative only and will change based on the actual initial public offering price and other terms of this offering determined at pricing. Each $1.00 increase or decrease in the assumed initial public offering price of $ per share, the midpoint of the price range set forth on the cover page of this prospectus, would increase or decrease pro forma as adjusted cash and cash equivalents, total assets and total stockholders’ equity by approximately $ million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting underwriting discounts and commissions payable by us. We may also increase or decrease the number of shares we are offering. Each 1,000,000 share increase or decrease in the number of shares offered by us would increase or decrease pro forma as adjusted cash and cash equivalents, total assets and total stockholders’ equity by approximately $ million, assuming that the assumed initial price to public remains the same, and after deducting underwriting discounts and commissions payable by us.