Alarm.com Holdings, Inc. (ALRM) Q2 2026 Earnings: Revenue $278M (+9.2%)
ALRM — Q2 2026 Financial Report Analysis
Q2 · Fiscal year 2026 · Published by Pham Hop
Alarm.com's SaaS revenue rose 11% to $188.8M and revenue 9.2% to $277.7M, but EPS fell to $0.48 from $0.63 on IP litigation costs, lost interest income and a higher tax rate; full-year guidance raised.
Revenue
$278M
+9.2% YoY
Net income
$24M
-29.8% YoY
Diluted EPS
$0.48
-23.8% YoY
Operating margin
11.7%
This period vs a year ago
Same period last year
This period
Revenue▲+9.2%
≈$254M
$278M
Net income▼-29.8%
≈$34M
$24M
Diluted EPS▼-23.8%
≈$0.63
$0.48
Year-ago figures (≈) are worked out from the growth rate the company reported. Each row has its own scale.
Subscription revenue up 11%, but profit fell 30% because of lawsuit costs and lost interest income
Alarm.com sells the cloud software behind many professionally installed home and business security systems. It sells through security dealers and installers ("service provider partners"), who pay it a monthly fee per customer property, and it also sells the cameras, sensors and radio modules those systems use. In the second quarter of 2026 (April–June), total revenue rose 9.2% to $277.7 million. SaaS and license revenue grew 11.1% to $188.8 million. SaaS means software-as-a-service: recurring monthly software fees, the part of the business investors value most. GAAP net income attributable to shareholders still fell 29.8% to $24.2 million, and diluted earnings per share (EPS) fell from $0.63 to $0.48. (GAAP is the standard US accounting rulebook.) Almost none of that drop came from the operating business. It came from three things below the sales line: a $9.2 million jump in patent and trade-secret legal costs, $7.3 million less interest income after the company used $500 million of cash to repay a bond in January, and a tax rate that went from 13.8% to 24.9%.
At a glance
$188.8M SaaS and license revenue, +11.1%. Recurring software fees were 68% of revenue. About half of the $18.8 million increase came from the core security platform and half from the smaller energy-management unit, which was boosted by an acquisition.
$0.48 diluted EPS, down 23.8%. The fall was smaller than the 29.8% drop in net income because the diluted share count shrank 7.0% after the January bond repayment and $45 million of buybacks in the first half.
$86.8M free cash flow in the first half, up from $36.1M. Free cash flow is operating cash flow minus equipment and software spending. A US tax-law change that lets research costs be deducted immediately is a large part of the jump, so it overstates the underlying improvement.
The numbers
Metric
Q2 2026
Q2 2025
YoY Change
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Total revenue
$277.7M
$254.3M
+9.2%
SaaS and license revenue
$188.8M
$170.0M
+11.1%
Hardware and other revenue
$89.0M
$84.3M
+5.5%
SaaS gross margin
84.2%
86.1%
-1.9 pts
Hardware gross margin
26.1%
24.3%
+1.8 pts
Operating income
$32.5M
$32.0M
+1.4%
Operating margin
11.7%
12.6%
-0.9 pts
Net income attributable to common stockholders
$24.2M
$34.6M
-29.8%
Diluted EPS
$0.48
$0.63
-23.8%
Non-GAAP adjusted EBITDA
$57.7M
$49.9M
+15.7%
SaaS and license revenue renewal rate (trailing 12 months)
95%
94%
+1 pt
Gross margin is the share of revenue left after the direct cost of providing the service or product. Operating margin is the share of revenue left after all running costs, before interest and tax. Adjusted EBITDA is the company's own profit measure, which excludes interest, tax, depreciation and amortization, stock-based pay and certain legal costs. Margins are calculated from the 10-Q's income statement.
For the first half (January–June), revenue was $542.9 million (+10.1%). Net income attributable to common stockholders was $47.8 million, down from $62.5 million, and diluted EPS was $0.95, down from $1.15.
Where the growth came from
The company reports two segments, and they grew at very different rates:
Alarm.com segment (the core security platform): SaaS and license revenue rose 5.8%, from $151.0M to $159.8M. Management attributes this to "growth in our subscriber base, including the revenue impact from subscribers we added in 2025." Segment operating income rose 10.5% to $38.7M, and that figure already includes most of the legal-cost increase. The core business is mature, growing at mid-single digits and profitable.
Other segment (mainly EnergyHub energy management, plus newer smart-building products): SaaS and license revenue rose 52.6%, from $19.0M to $29.0M. Total segment revenue rose about 66% to $36.0M. The filing credits higher sales of "energy management and demand response solutions, including revenue from the purchase of RGS on November 21, 2025." Demand response means utilities pay to briefly turn down customers' thermostats and other devices during peak demand. Hardware revenue in this segment was helped by sales of energy credits from Bridge to Renewables (BTR), bought in August 2025. The segment's operating loss widened to $6.2M from about $2.9M. The company describes these units as being "in the investment stage."
This mix shift also explains why SaaS gross margin slipped from 86.1% to 84.2%. The Other segment's SaaS costs rose $5.5 million, mostly payments to "distributed energy resource providers," meaning the owners of the devices whose power use is being shifted. That is a lower-margin type of recurring revenue than the core platform's software fees. The core segment's SaaS cost rose only $0.8 million. The Other segment now makes up 13% of revenue, up from 8% a year ago.
Hardware revenue grew 5.5%. Most of the increase came from the Other segment, through energy credits and property-management devices. Core-segment hardware revenue rose only $0.1 million: price increases and video-surveillance software license sales were offset by tariff refunds paid back to customers (see below).
What the headline numbers hide
Most of the EPS drop came from outside operations. Pre-tax income fell $8.2M. Interest income fell $7.3M because cash dropped from $960.6M at year-end to $479.4M after the $500M 0% convertible bond due January 2026 was repaid. Other expense increased by $2.2M, mainly losses on stock investments the company holds. Operating income actually rose slightly, by $0.5M. The tax rate then rose to 24.9% from 13.8% because the company claimed fewer research and development tax credits than a year ago. At last year's rate, this quarter's tax bill would have been about $3.4M lower.
Litigation is the biggest cost item that management adds back. G&A expense (general and administrative, the overhead costs of running the company) rose $9.6M, of which $9.2M was "legal costs related to intellectual property legal matters." The adjusted EBITDA reconciliation lists $9.3M of litigation expense this quarter against $0.1M a year ago. Without it, operating income would have been about $41.8M, up roughly 30%. The cases are still active. SkyBell's trade-secret suit, amended on May 26 to add copyright claims, has discovery due to finish in September 2026. EcoFactor's patent suit is ongoing. Alarm.com is also paying to defend a utility customer (SMECO) in a patent suit over the EnergyHub-based demand-response program. Management says a loss is "not probable or reasonably estimable," so nothing has been set aside for possible damages.
The adjusted figures exclude a lot. Adjusted EBITDA ($57.7M) is more than twice GAAP net income ($24.2M). The gap includes $7.6M of stock-based compensation, which is a real cost to shareholders even though no cash is paid, along with depreciation and amortization, taxes and the legal costs. Non-GAAP adjusted EPS was $0.77, up from $0.62. The company also changed its definition this year to exclude gains and losses on publicly traded stock investments, and it restated the prior year to match.
The tariff refund is roughly a wash. In February 2026 the Supreme Court struck down the 2025 emergency tariffs. The company has filed for about $14.5M in refunds. It recorded "less than one third" of that as lower hardware costs and passed a similar amount back to customers as lower hardware revenue. The effect on gross profit dollars is small, but it does lift the reported hardware margin percentage slightly. The rest of the refund has not been recorded because recovery is uncertain.
Cash conversion looks very strong, but part of it won't repeat. First-half operating cash flow was $92.5M, nearly twice net income of $47.6M. About $21.9M came from a change in deferred taxes caused by the 2025 tax law (the One Big Beautiful Bill Act), which allows US research costs to be deducted immediately. Another $19.1M came from the timing of receivables and payables, and $6.4M from distributions paid by companies Alarm.com holds stakes in.
Receivables are growing faster than sales. Accounts receivable (money customers owe for goods already delivered) rose to $161.7M from $141.9M at year-end, up 14% in six months. The allowance for credit losses rose to $8.0M from $5.2M, and the Other segment booked a higher credit-loss provision this quarter. This is not alarming yet, but it is worth watching as the energy business grows.
Buybacks boost per-share figures. The company bought back 998,065 shares for $45.0M in the first half, compared with $10.2M a year earlier. It also set up a new $150M buyback program running to May 2028. Together with the bond repayment, which removed the shares that bond could have converted into, the diluted share count fell 7.0% to 55.9M.
Takeaway: The operating business improved this quarter: subscription revenue grew 11%, customer retention edged up to 95%, and operating income before the jump in legal costs rose about 30%. Shareholders still earned less per share because $500M of interest-earning cash was used to repay a bond, the tax rate rose, and the company is spending heavily on IP lawsuits. The open question is whether those legal bills fade, or whether the SkyBell or EcoFactor cases end in damages that adjusted EBITDA cannot exclude.
Retention and subscribers
The 10-Q does not give a subscriber count. The best retention signal it provides is the SaaS and license revenue renewal rate: of the recurring revenue Alarm.com would have earned from the properties it served a year ago if none had cancelled, it actually kept 95%, up from 94%. Dealers' contracts with property owners usually run three to five years, so a rate in the mid-90s means only a small share of recurring revenue is lost each year. Growth in the core segment therefore depends mostly on adding new properties and selling extra features to existing ones.
Outlook
The earnings release (August 6, 2026) raised full-year 2026 guidance:
Guidance item
FY2026 range
SaaS and license revenue
$754.0M–$754.4M (midpoint up $10.2M vs February guidance)
Total revenue
$1.0790B–$1.0894B
Hardware and other revenue
$325.0M–$335.0M
Non-GAAP adjusted EBITDA
$221.0M–$223.0M (raised)
Non-GAAP adjusted EPS
$2.92–$2.94 (56.3M diluted shares)
Q3 SaaS and license revenue guidance is $189.8M–$190.0M, which is almost flat compared with Q2's $188.8M. SaaS revenue grew about 4% from Q1 ($181.5M) to Q2, so the company is guiding to much slower sequential growth in the third quarter. The full-year SaaS guidance implies about $384M in the second half, around 3.7% more than the first half. Hardware guidance implies $152M–$162M in the second half, a step down from $172.6M in the first half.
Our read: The core platform looks like a steady mid-single-digit grower with stable retention. Most of the extra growth now comes from the energy business, which brings in revenue at lower gross margins and is still losing money. Higher guidance helps, but the flat Q3 SaaS figure suggests the energy contribution is lumpy or seasonal rather than a steady trend. GAAP earnings will stay under pressure for now. Interest income will not return now that the cash has been spent, and legal costs depend on how the SkyBell case moves after discovery ends. In the next reports, watch three things: whether core-segment SaaS growth stays above about 5%, whether the Other segment's loss starts to narrow as its revenue grows, and any ruling or settlement in the SkyBell or EcoFactor cases.