Prime time for Alarm.com IPO

VIENNA, Va.—It has been a year since reports surfaced that Alarm.com owner ABS wanted to exit its investment. The wait may have been worthwhile, according to experts who spoke to Security Systems News. Now is a good time for Alarm.com, a fast-growing, market-leading provider of interactive services, to go public, they say.

“There's a lot of excitement and energy around the smart home right now, and to a certain degree the timing of this IPO may reflect that,” Tom Kerber, director of research for Parks Associates, told SSN.

“Interactive services have transformed the security industry,” Kerber said. Parks Associates estimates that 65 percent of new security systems “are smart or connected."

The smart home is becoming mainstream, and it's the security industry that “is leading the transition to the smart home,” he said.  

Alarm.com filed for the $75 million IPO late on May 22, the Friday before Memorial Day weekend. The 280-page filing includes financials which have drawn praise from financial market observers in the several days since.

Alarm.com has 5,000 dealers and the company boasts a 14 percent CAGR from 2010 to 2014. In 2014, Alarm.com had $167.3 million in revenue, up 28 percent over 2013. Its net income in 2014 was $13.5 million, up from $4.5 million in 2013. Its adjusted EBITDA was $28.3 million.

Its Q1 2015 performance includes $46 million in revenue, 28 percent higher than Q1 of 2014.  

The company is owned by ABS Capital Partners. In 2009, ABS, along with Alarm.com management and Egis Capital, acquired the company from former majority owner MicroStrategy for $27.7 million. In 2012, Technology Crossover Ventures invested $136 million in Alarm.com.

In a July 2013 video interview with Security Systems News, Egis Capital managing partner Robert Chefitz talked about the company's growth. “It grew from 250,000 homes when we bought the business with ABS [in 2009], and I'm proud to say that we now have 1.5 million homes. So it's worked well," he said.

Today, Alarm.com has 2.3 million subscribers, according to the filing. The filing cites a Parks Associates' estimate that Alarm.com is the market leader among connected home platform providers. “Alarm.com had approximately 50 percent more subscribers than the next largest platform provider in North America," the filing says.

Alarm.com derives 33 percent of its revenue from hardware and the rest from monitoring and licensing. Its 2014 monitoring and licensing revenue was $111 million, a 25 percent increase over 2013. In Q1 2015, Alarm.com had monitoring and licensing revenue of $32 million, a 27 percent increase over the first quarter of 2014.

Several mainstream reports discussed the competitive landscape and particularly the potential effect of Google and Apple's interest in the market.

Parks Associates' Kerber said both Apple and Google “have enormous resources and [you want to keep an eye on them] as potential disrupters for the broader smart home [market].” In terms of interactive services, however, Kerber said “it's hard to consider how Google and Apple could disrupt the security industry in terms of its core value proposition. … Security is a well-known value proposition that doesn't change despite what's happening around it.”

While it is possible, Kerber doubts that self-monitored systems—likely where Google and Apple will place their bets—will be disruptive to professionally installed security systems. 

Kerber said the outside players will not provide dealers with the kinds of services (technical support and CRM, for example) that companies like Alarm.com does. “Alarm.com is in a safe place. … and in the long term it's hard to imagine a time when professionally monitored security is not part of the equation."

Contacted by Security Systems News, Alarm.com declined comment on the deal.