What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2020-08-05 compared with 2020-05-07 · 380 added, 226 removed, 686 unchanged (47% of the section changed)

4 unchanged sentences

Three Months Ended

June 30, Six Months Ended

2020 2019 2020 2019

SaaS and license revenue $ 95,704 $ 82,334 $ 187,654 $ 162,389

16 unchanged sentences

Income before income taxes 14,348 14,109 24,121 23,361

Provision for income taxes

(Benefit from) / provision for income taxes ( 2,277 ) 313 ( 1,075 ) 555

Net income 16,625 13,796 25,196 22,806

Net loss attributable to redeemable noncontrolling interest 370 — 606 —

2 unchanged sentences

Net income per share:

Basic $ 0.35 $ 0.29 $ 0.53 $ 0.47

Diluted $ 0.34 $ 0.27 $ 0.51 $ 0.45

Weighted average common shares outstanding:

Basic 48,792,280 48,388,696 48,758,922 48,281,068

Diluted 50,551,632 50,283,990 50,443,526 50,244,384

_______________

4 unchanged sentences

(in thousands, except share and per share data)

2020 December 31,

Current assets:

1 unchanged sentence

Accounts receivable, net of allowance for credit losses of $ 3,788 and $ 2,584 , respectively, and net of allowance for product returns of $ 1,253 and $ 1,075 , respectively

76,591 76,373

Inventory, net 50,406 34,168

Other current assets, net of allowance for credit losses of $ 35 and $ 16 , respectively

15,265 13,504

Total current assets 348,089 243,674

1 unchanged sentence

Intangible assets, net 95,402 103,438

Goodwill 105,662 104,963

Deferred tax assets 21,554 19,137

1 unchanged sentence

Other assets, net of allowance for credit losses of $ 48 and $ 0 , respectively

17,490 17,516

Total assets $ 662,645 $ 557,799

Liabilities, redeemable noncontrolling interest and stockholders’ equity

14 unchanged sentences

Preferred stock, $ 0.001 par value, 10,000,000 shares authorized;

no shares issued and outstanding as of March 31, 2020 and December 31, 2019.

no shares issued and outstanding as of June 30, 2020 and December 31, 2019

Common stock, $ 0.01 par value, 300,000,000 shares authorized;

49,070,699 and 48,700,963 shares issued;

and 48,660,454 and 48,700,713 shares outstanding as of March 31, 2020 and December 31, 2019, respectively.

and 48,923,546 and 48,700,713 shares outstanding as of June 30, 2020 and December 31, 2019, respectively

Additional paid-in capital 383,388 365,627

Treasury stock, at cost;

147,153 and 0 shares as of March 31, 2020 and December 31, 2019, respectively.

Accumulated deficit

147,153 and 0 shares as of June 30, 2020 and December 31, 2019, respectively

Retained earnings / (accumulated deficit) 14,523 ( 10,463 )

Total stockholders’ equity 393,253 355,651

4 unchanged sentences

(in thousands)

Three Months Ended March 31,

Cash flows from / (used in) operating activities:

Adjustments to reconcile net income to net cash from / (used in) operating activities:

Six Months Ended

Cash flows from operating activities:

Net income $ 25,196 $ 22,806

Adjustments to reconcile net income to net cash from operating activities:

Provision for credit losses on accounts receivable 965 460

Reserve for product returns 1,000 ( 44 )

Pro vision for credit losses on notes receivable

Recovery of credit losses on notes receivable ( 382 ) ( 3,319 )

Amortization on patents and tooling 401 334

8 unchanged sentences

Accounts receivable ( 2,549 ) ( 10,927 )

Inventory ( 16,238 ) ( 905 )

Other current and non-current assets ( 3,270 ) ( 2,161 )

3 unchanged sentences

Other liabilities ( 86 ) 158

Cash flows from / (used in) operating activities

Cash flows from operating activities 48,048 22,867

Cash flows used in investing activities:

3 unchanged sentences

Receipt of payment on notes receivable 2,007 7,400

Purchases of patents and patent licenses ( 900 ) —

Cash flows used in investing activities ( 9,306 ) ( 18,369 )

2 unchanged sentences

Repayments of credit facility ( 1,000 ) ( 2,000 )

Payments of deferred consideration for business acquisitions ( 819 ) —

Purchases of treasury stock ( 5,149 ) —

1 unchanged sentence

Cash flows from financing activities 47,456 292

Net increase / (decrease) in cash and cash equivalents

Net increase in cash and cash equivalents 86,198 4,790

Cash and cash equivalents at beginning of the period 119,629 146,061

4 unchanged sentences

(in thousands)

Redeemable Noncontrolling Interest

Additional Paid-In Capital

Accumulated Deficit

Total Stockholders’ Equity

Preferred Stock

Treasury Stock

Redeemable Noncontrolling Interest Additional Paid-In Capital Retained Earnings / (Accumulated Deficit) Total Stockholders’ Equity

Preferred Stock Common Stock Treasury Stock

Shares Amount Shares Amount Shares Amount

Balance as of December 31, 2019 $ 11,210 — $ — 48,701 $ 487 $ 365,627 — $ — $ ( 10,463 ) $ 355,651

5 unchanged sentences

Balance as of March 31, 2020 $ 10,974 — $ — 48,808 $ 488 $ 373,349 147 $ ( 5,149 ) $ ( 2,472 ) $ 366,216

Redeemable Noncontrolling Interest

Preferred Stock

Additional Paid-In Capital

Accumulated Deficit

Total Stockholders’ Equity

Common stock issued in connection with equity-based plans — — — 263 3 3,056 — — — 3,059

Stock-based compensation expense — — — — — 7,095 — — — 7,095

Accretion adjustments of redeemable noncontrolling interest to redemption value 112 — — — — ( 112 ) — — — ( 112 )

Net income / (loss) attributable to common stockholders ( 370 ) — — — — — — — 16,995 16,995

Balance as of June 30, 2020 $ 10,716 — $ — 49,071 $ 491 $ 383,388 147 $ ( 5,149 ) $ 14,523 $ 393,253

ALARM.COM HOLDINGS, INC.

Condensed Consolidated Statements of Equity — (Continued)

(in thousands)

Redeemable Noncontrolling Interest Preferred Stock Common Stock Additional Paid-In Capital Accumulated Deficit Total Stockholders’ Equity

Shares Amount Shares Amount

Balance as of December 31, 2018 $ — — $ — 48,103 $ 481 $ 341,139 $ ( 64,031 ) $ 277,589

3 unchanged sentences

Stock-based compensation expense — — — — — 4,267 — 4,267

Net income / (loss) attributable to common stockholders

Net income attributable to common stockholders — — — — — — 9,010 9,010

Balance as of March 31, 2019 $ — — $ — 48,250 $ 482 $ 346,998 $ ( 54,984 ) $ 292,496

Common stock issued in connection with equity-based plans — — — 232 3 698 — 701

Vesting of common stock subject to repurchase — — — — — 2 — 2

Stock-based compensation expense — — — — — 5,433 — 5,433

Net income attributable to common stockholders — — — — — — 13,796 13,796

Balance as of June 30, 2019 $ — — $ — 48,482 $ 485 $ 353,131 $ ( 41,188 ) $ 312,428

See accompanying notes to the condensed consolidated financial statements.

1 unchanged sentence

Notes to the Condensed Consolidated Financial Statements

March 31, 2020 and 2019

June 30, 2020 and 2019

Alarm.com Holdings, Inc.

12 unchanged sentences

The condensed consolidated balance sheet as of December 31, 2019 was derived from our audited financial statements, but does not include all disclosures required by GAAP for annual financial statements.

In the opinion of management, these condensed consolidated financial statements include all normal recurring adjustments necessary for a fair statement of the results of operations, financial position and cash flows.

Since December 2019, a novel strain of coronavirus, SARS-CoV-2, causing a disease referred to as COVID-19, has spread globally, including to the United States.

In March 2020, the World Health Organization declared the COVID-19 outbreak a pandemic.

The COVID-19 pandemic has been disrupting and will continue to disrupt our supply chain and sales channels for an unknown period of time due to the impact of COVID-19 on manufacturing, production and global transportation, as well as to our sales channels due to restrictions on our service providers’ ability to meet with residential and commercial property owners who use our solutions.

In addition, the COVID-19 pandemic has resulted in a global slowdown of economic activity that has and for an unknown period of time will likely continue to decrease demand for a broad variety of goods and services.

The results of operations for the three months ended March 31, 2020 are not necessarily indicative of the results that can be expected for our entire fiscal year ending December 31, 2020 , which is increasingly true in periods of extreme uncertainty, such as the uncertainty caused by the COVID-19 pandemic.

In the opinion of management, these condens ed consolidated financial statements include all normal recurring adjustments necessary for a fair statement of the results of operations, financial position and cash flows for the periods presented.

However, the COVID-19 pandemic has been disrupting and may continue to disrupt our supply chain for an unknown period of time due to its impact on manufacturing, production and global transportation.

The COVID-19 pandemic has also been disrupting and may continue to disrupt our sales channels due to restrictions imposed from time to time on our service providers’ ability to meet with residential and commercial property owners who use our solutions.

In addition, the COVID-19 pandemic has resulted in a global slowdown of economic activity and a recession in the United States that has and for an unknown period of time will likely continue to decrease demand for a broad variety of goods and services.

The results of operations for the three and six months ended June 30, 2020 are not necessarily indicative of the results that can be expected for our entire fiscal year ending December 31, 2020, which is increasingly true in periods of extreme uncertainty, such as the uncertainty caused by the COVID-19 pandemic.

Use of Estimates

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However, our estimates, judgments and assumptions are continually evaluated based on available information and experience and may change as new events occur and additional information is obtained.

Because of the use of estimates inherent in the financial reporting process and given the additional or unforeseen effects from the COVID-19 pandemic, actual results could differ from those estimates and any such differences may be material.

Because of the use of estimates inherent in the financial reporting process and given the additional unknowable duration and effects of the COVID-19 pandemic, actual results could differ from those estimates and any such differences may be material.

Estimates are used when accounting for revenue recognition, allowances for credit losses, allowance for hardware returns, estimates of obsolete inventory, long-term incentive compensation, stock-based compensation, income taxes, legal reserves, contingent consideration and goodwill and intangible assets.

Reclassifications

Certain previously reported amounts in the condensed consolidated statements of operations for the three months ended March 31, 2019 have been reclassified to conform to our current presentation to reflect interest income as a separate line item, which was previously included in other income, net .

Certain previously reported amounts in the condensed consolidated statements of cash flows for the three months ended March 31, 2019 have been reclassified to conform to our current presentation, including the addition of an operating lease liabilities separate line item, which was previously included in other liabilities and accounts payable, accrued expenses and other current liabilities.

Certain previously reported amounts in the condensed consolidated statements of operations for the three and six months ended June 30, 2019 have been reclassified to conform to our current presentation to reflect interest income as a separate line item, which was previously included in other income, net.

Certain previously reported amounts in the condensed consolidated statements of cash flows for the six months ended June 30, 2019 have been reclassified to conform to our current presentation, including the addition of an operating lease liabilities separate line item, which was previously included in other liabilities and accounts payable, accrued expenses and other current liabilities.

ALARM.COM HOLDINGS, INC.

Notes to the Condensed Consolidated Financial Statements (Unaudited) — (Continued)

March 31, 2020 and 2019

June 30, 2020 and 2019

Comprehensive Income

Our comprehensive income for the three months ended March 31, 2020 and 2019 was equal to our net income disclosed in the condensed consolidated statements of operations.

Our comprehensive income for the three and six months ended June 30, 2020 and 2019 was equal to our net income disclosed in the condensed consolidated statements of operations.

Significant Accounting Policies

Other than those disclosed herein, there have been no other material changes to our significant accounting policies during the three months ended March 31, 2020 from those disclosed in our Annual Report.

Other than those disclosed herein, there have been no other material changes to our significant accounting policies during the three and six months ended June 30, 2020 from those disclosed in our Annual Report.

Treasury Stock

16 unchanged sentences

There were no changes to our portfolio segments since the adoption of Accounting Standards Update, or ASU, 2016-13, " Financial Instruments - Credit Losses (Topic 326)," or Topic 326, and no changes to our policies or practices involving the issuance of notes receivable, customer acquisitions or any other factors that influenced our estimate of expected credit losses.

Additionally, there were no significant changes in the amount of write-offs during the three months ended March 31, 2020 as compared to historical periods.

There were no purchases or sales of financial assets during the three months ended March 31, 2020 and 2019 .

Additionally, there were no significant changes in the amount of write-offs during the three and six months ended June 30, 2020 as compared to historical periods.

There were no purchases or sales of financial assets during the three and six months ended June 30, 2020 and 2019.

Expected credit losses are estimated over the contractual term of the financial assets and we adjust the term for expected prepayments when appropriate.

For the three months ended March 31, 2020 , credit loss expense of $ 1.4 million was recorded in general and administrative expense in our condensed consolidated statements of operations.

For the three months ended June 30, 2020, we recorded a reduction of credit loss expense of $ 0.9 million and for the six months ended June 30, 2020, we recorded credit loss expense of $ 0.5 million in general and administrative expense in our condensed consolidated statements of operations.

The contractual term excludes expected extensions, renewals and modifications because extension and renewal options are unconditionally cancelable by us.

8 unchanged sentences

We write-off any accrued interest on notes receivable that are considered impaired or are 90 days or greater past due based on their contractual payment terms by reversing interest income.

The accrued interest receivable as of March 31, 2020 and December 31, 2019 was less than $ 0.1 million and is reflected in other current assets within our condensed consolidated balance sheets and excluded from the amortized cost basis of the notes receivable .

We did not write-off any accrued interest receivable during the three months ended March 31, 2020 and 2019 .

The accrued interest receivable as of June 30, 2020 and December 31, 2019 was less than $ 0.1 million and is reflected in other current assets within our condensed consolidated balance sheets and excluded from the amortized cost basis of the notes receivable .

We did not write-off any accrued interest receivable during the three and six months ended June 30, 2020 and 2019.

ALARM.COM HOLDINGS, INC.

Notes to the Condensed Consolidated Financial Statements (Unaudited) — (Continued)

March 31, 2020 and 2019

June 30, 2020 and 2019

Recent Accounting Pronouncements

5 unchanged sentences

The adoption of Topic 326 resulted in the recording of the following amounts on our condensed consolidated balance sheets (in thousands):

Balance Sheet Caption

As of January 1, 2020

Balance Sheet Caption As of January 1, 2020

Accumulated deficit $ 816

1 unchanged sentence

Other current assets ( 83 )

Other assets ( 366 )

The adoption of Topic 326 did not materially impact our condensed consolidated statements of operations, condensed consolidated statement of equity or our condensed consolidated statements of cash flows.

22 unchanged sentences

Notes to the Condensed Consolidated Financial Statements (Unaudited) — (Continued)

March 31, 2020 and 2019

June 30, 2020 and 2019

The amendment in this update is effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years.

14 unchanged sentences

We enter into contracts with our service provider partners that establish pricing for access to our platform solutions and for the sale of hardware.

These service provider contracts typically have an initial term of one year, with subsequent renewal terms of one year.

These service provider c ontracts typically have an initial term of one year, with subsequent renewal terms of one year.

Our service provider partners typically enter into contracts with our subscribers, which our service provider partners have indicated range from three to five years in length.

1 unchanged sentence

We record a reserve against revenue for hardware returns based on historical returns.

For the twelve months ended March 31, 2020 and 2019 , our reserve against revenue for hardware returns was 1 % .

We evaluate our hardware reserve on a quarterly basis or if there is an indication of significant changes in return experience.

For the twelve months ended June 30, 2020 and 2019, our reserve against revenue for hardware returns was 1 %.

We evaluate our h ardware reserve on a quarterly basis or if there is an indication of significant changes in return experience.

Historically, our returns of hardware have not significantly differed from our estimated reserve.

11 unchanged sentences

We record activation fees initially as deferred revenue and we recognize these fees ratably over the expected term of the subscribers’ account which we estimate is ten years based on our annual attrition rate.

The portion of these activation fees included in current and long-term deferred revenue as of our balance sheet date represents the amounts that will be recognized ratably as revenue over the following twelve months, or longer as appropriate, until the ten-year expected term is complete.

The balance of deferred revenue for activation fees was $ 7.8 million and $ 8.1 million as of March 31, 2020 and December 31, 2019 , respectively, which combines current and long-term balances.

The portion of these activation fees included in current and long-term deferred revenue as of our balance sheet date represents the amounts that will be recognized ratably as revenue over the following twelve months, or longer as approp riate, until the ten-year expected term is complete.

The balance of deferred revenue for activation fees was $ 7.5 million and $ 8.1 million as of June 30, 2020 and December 31, 2019, respectively, which combines current and long-term balances.

SaaS and license revenue associated with our contracts is invoiced and revenue is recognized at an amount that corresponds directly with the value of the performance completed to date.

3 unchanged sentences

Notes to the Condensed Consolidated Financial Statements (Unaudited) — (Continued)

March 31, 2020 and 2019

June 30, 2020 and 2019

expedient related to the amount of transaction price allocated to the unsatisfied performance obligations and therefore, we have not disclosed the total remaining revenue expected to be recognized on all contracts or the expected period over which the remaining revenue would be recognized.

5 unchanged sentences

We receive payments from our service provider partners based on the billing schedule established in our contracts.

All of the accounts receivable presented in the balance sheet represent unconditional rights to consideration.

All of the accounts receivable presented in the condensed consolidated balance sheets represent unconditional rights to consideration.

We do not have any assets from contracts containing conditional rights and we do not have any assets from satisfied performance obligations that have not been invoiced.

10 unchanged sentences

The non-current portion of capitalized commission costs and upfront payments made to customers are reflected in other assets within our condensed consolidated balance sheets.

Our amortization of contract assets during the three months ended March 31, 2020 was $ 0.8 million , as compared to $ 0.5 million during the same period in the prior year.

Our amortization of contract assets during the three and six months ended June 30, 2020 was $ 0.9 million and $ 1.7 million, respectively, as compared to $ 0.6 million and $ 1.1 million during the same periods in the prior year.

We review the capitalized costs for impairment at least annually.

Impairment exists if the carrying amount of the asset recognized from contract costs exceeds the remaining amount of consideration we expect to receive in exchange for providing the goods and services to which such asset relates, less the costs that relate directly to providing those good and services and that have not been recognized as an expense.

We did no t record an impairment loss on our contract assets during the three months ended March 31, 2020 and 2019 .

Impairment exists if the carrying amount of the asset recognized from contract costs exceeds the remaining amount of consideration we expect to receive in exchange for providing the goods and services to which such asset r elates, less the costs that relate directly to providing those good and services and that have not been recognized as an expense.

We did not record an impairment loss on our contract assets during the three and six months ended June 30, 2020 and 2019.

The changes in our contract assets are as follows (in thousands):

Three Months Ended

June 30, Six Months Ended

2020 2019 2020 2019

Beginning of period balance $ 4,932 $ 3,083 $ 4,578 $ 2,881

8 unchanged sentences

Notes to the Condensed Consolidated Financial Statements (Unaudited) — (Continued)

March 31, 2020 and 2019

June 30, 2020 and 2019

The changes in our contract liabilities are as follows (in thousands):

Three Months Ended

June 30, Six Months Ended

2020 2019 2020 2019

Beginning of period balance $ 12,102 $ 11,536 $ 10,498 $ 11,176

5 unchanged sentences

The components of accounts receivable, net are as follows (in thousands):

2020 December 31,

Accounts receivable $ 81,632 $ 80,032

2 unchanged sentences

Accounts receivable, net $ 76,591 $ 76,373

For the three months ended March 31, 2020 , we recorded a provision for credit losses of $ 1.9 million on our accounts receivable, as compared to $ 0.3 million for the same period in the prior year.

For the three months ended March 31, 2020 , we recorded a reserve for product returns of $ 0.3 million , as compared to a reduction to the reserve for product returns of $ 0.1 million recorded for the same period in the prior year.

For the three months ended June 30, 2020, we recorded a reduction to the provision for credit losses of $ 0.9 million.

For the six months ended June 30, 2020, we recorded a provision for credit losses of $ 1.0 million on our accounts receivable.

For the three and six months ended June 30, 2019, we recorded a provision for credit losses $ 0.2 million and $ 0.5 million respectively.

For the three and six months ended June 30, 2020, we recorded a reserve for product returns of $ 0.7 million and $ 1.0 million, respectively.

For the three months ended June 30, 2019, we recorded a reserve for product returns in our hardware and other revenue of $ 0.1 million and for the six months ended June 30, 2019, we recorded a reduction to the reserve for product returns in our hardware and other revenue of less than $ 0.1 million.

Historically, we have not experienced write-offs for uncollectible accounts or sales returns that have differed significantly from our estimates.

2 unchanged sentences

Three Months Ended

March 31, 2020

Beginning of period balance, prior to adoption of Topic 326

June 30, 2020 Six Months Ended

June 30, 2020

Subsidiaries All Other

Subsidiaries Alarm.com

Subsidiaries All Other

Beginning of period balance $ ( 4,555 ) $ ( 234 ) $ ( 2,500 ) $ ( 84 )

Impact of adopting Topic 326 — — ( 212 ) ( 155 )

Provision for expected credit losses

End of period balance, subsequent to adoption of Topic 326

Provision for / (recovery of) expected credit losses 935 ( 15 ) ( 951 ) ( 14 )

Write-offs 70 11 113 15

End of period balance $ ( 3,550 ) $ ( 238 ) $ ( 3,550 ) $ ( 238 )

ALARM.COM HOLDINGS, INC.

Notes to the Condensed Consolidated Financial Statements (Unaudited) — (Continued)

June 30, 2020 and 2019

Inventory, Net

The components of inventory, net are as follows (in thousands):

2020 December 31,

Raw materials $ 11,620 $ 8,921

1 unchanged sentence

Total inventory, net $ 50,406 $ 34,168

ALARM.COM HOLDINGS, INC.

Notes to the Condensed Consolidated Financial Statements (Unaudited) — (Continued)

March 31, 2020 and 2019

Acquisition of a Business - OpenEye

4 unchanged sentences

Pursuant to the terms of the stock purchase agreement, following the preliminary determination of the working capital of OpenEye as of the closing date, the purchase price increased by $ 0.2 million.

The working capital adjustment is expected to be finalized and paid to the stockholders of OpenEye in the second quarter of 2020 along with a portion of the holdback.

The remaining amount of the holdback is expected to be paid to the stockholders of OpenEye by the fourth quarter of 2022, subject to offset for any indemnification obligations.

The working capital adjustm ent was finalized and paid to the stockholders of OpenEye in the second quarter of 2020 along with a portion of the holdback.

The remaining amount of the holdback is expected to be paid to the stockholders of OpenEye by the fourth quarter of 2022, subject to off set for any indemnification obligations.

An earn-out of up to an additional $ 11.0 million is payable if certain calendar 2020 revenue targets are met, of which contingent consideration of $ 2.8 million was recorded at October 21, 2019.

The purchase price allocation, which is pending the final determination of the working capital and tax adjustments, was not finalized as of the filing date of this Quarterly Report on Form 10-Q.

The table below sets forth the purchase consideration and the preliminary allocation to estimate the fair value of the tangible and intangible net assets acquired (in thousands):

ALARM.COM HOLDINGS, INC.

Notes to the Condensed Consolidated Financial Statements (Unaudited) — (Continued)

June 30, 2020 and 2019

The table below sets forth the purchase consideration and the fair value allocation of the tangible and intangible net assets acquired (in thousands):

October 21, 2019

4 unchanged sentences

Total consideration $ 67,016

Estimated Tangible and Intangible Net Assets:

Tangible and Intangible Net Assets:

Accounts receivable 5,742

Inventory 4,687

Other current assets 216

2 unchanged sentences

Developed technology 16,583

Trade name 2,219

Accounts payable ( 2,746 )

4 unchanged sentences

Redeemable noncontrolling interest ( 11,411 )

Total estimated tangible and intangible net assets

Goodwill 42,071

Total tangible and intangible net assets $ 67,016

Goodwill of $ 42.1 million reflects the value of acquired workforce and synergies we expect to achieve from integrating OpenEye's cloud-managed video surveillance solutions into our existing comprehensive suite of interactive cloud-based services for domestic and international commercial enterprises.

None of the goodwill recognized is expected to be deductible for income tax purposes in future periods.

We allocate goodwill to reporting units based on expected benefit from synergies and have preliminarily allocated the goodwill to the Alarm.com segment.

ALARM.COM HOLDINGS, INC.

Notes to the Condensed Consolidated Financial Statements (Unaudited) — (Continued)

March 31, 2020 and 2019

None of the goodwill recognized is exp ected to be deductible for income tax purposes in future periods.

We allocate goodwill to reporting units based on expected benefit from synergies and have allocated the goodwill to the Alarm.com segment.

The purchase price allocation for the purchase of 85 % of the issued and outstanding capital stock of OpenEye was finalized during the second quarter of 2020.

The final fair value of the assets and liabilities reflects an increase of $ 0.7 million in the deferred tax liability and an increase of $ 0.7 million in goodwill based on a measurement period adjustment determined upon filing of the pre-acquisition period tax return related to our purchase of 85 % of the issued and outstanding capital stock of OpenEye.

Fair Value of Net Assets Acquired and Intangibles

6 unchanged sentences

We are amortizing the customer relationships, valued at $ 19.8 million, on an attribution basis derived from the discounted cash flows of the model over an estimated useful life of 13 years.

ALARM.COM HOLDINGS, INC.

Notes to the Condensed Consolidated Financial Statements (Unaudited) — (Continued)

June 30, 2020 and 2019

Developed Technology

13 unchanged sentences

This redeemable noncontrolling interest is considered temporary equity and we report it between liabilities and stockholders’ equity in the condensed consolidated balance sheets.

The redemption value of the noncontrolling interest was $ 11.4 million as of October 21, 2019 , and decreased to $ 11.0 million as of March 31, 2020 .

The redemption value of the noncontrolling interest was $ 11.4 million as of October 21, 2019, and decreased to $ 10.7 million as of June 30, 2020.

Contingent Consideration

8 unchanged sentences

The $ 1.5 million consideration related to IPR&D was expensed at the time of the asset acquisition, as the IPR&D had no alternative future use.

ALARM.COM HOLDINGS, INC.

Notes to the Condensed Consolidated Financial Statements (Unaudited) — (Continued)

March 31, 2020 and 2019

On March 31, 2020, Alarm.com Incorporated, one of our wholly-owned subsidiaries, acquired certain assets of an unrelated third party.

3 unchanged sentences

The $ 2.9 million consideration related to IPR&D was expensed at the time of the asset acquisition, as the IPR&D had no alternative future use.

ALARM.COM HOLDINGS, INC.

Notes to the Condensed Consolidated Financial Statements (Unaudited) — (Continued)

June 30, 2020 and 2019

Goodwill and Intangible Assets, Net

The changes in goodwill by reportable segment are outlined below (in thousands):

Alarm.com Other Total

Balance as of January 1, 2020 $ 104,963 $ — $ 104,963

Goodwill acquired — — —

Balance as of March 31, 2020

Due to the current uncertainty in the financial markets resulting from the global COVID-19 pandemic, we assessed our goodwill for indicators of impairment during the three months ended March 31, 2020 .

We elected to perform a qualitative assessment as of March 31, 2020 and determined there was no impairment of goodwill during the three months ended March 31, 2020 .

There was also no impairment of goodwill during the three months ended March 31, 2019 .

Measurement period adjustment 699 — 699

Balance as of June 30, 2020 $ 105,662 $ — $ 105,662

Due to the current uncertainty in the financial markets resulting from the COVID-19 pandemic, we assessed our goodwill for indicators of impairment during the three and six months ended June 30, 2020.

We elected to perform a qualitative assessment as of June 30, 2020 and determined there was no impairment of goodwill during the three and six months ended June 30, 2020.

There was also no impairment of goodwill during the three and six months ended June 30, 2019.

The following table reflects changes in the net carrying amount of the components of intangible assets (in thousands):

Relationships

Relationships Developed

Technology Trade Name Total

Balance as of January 1, 2020 $ 84,396 $ 16,820 $ 2,222 $ 103,438

Balance as of March 31, 2020

We recorded $ 4.0 million of amortization related to our intangible assets for the three months ended March 31, 2020 , as compared to $ 3.5 million for the same period in the prior year.

There were no impairments of long-lived intangible assets during the three months ended March 31, 2020 and 2019 .

ALARM.COM HOLDINGS, INC.

Notes to the Condensed Consolidated Financial Statements (Unaudited) — (Continued)

March 31, 2020 and 2019

Amortization ( 6,941 ) ( 914 ) ( 181 ) ( 8,036 )

Balance as of June 30, 2020 $ 77,455 $ 15,906 $ 2,041 $ 95,402

We recorded $ 4.0 million and $ 8.0 million of amortization related to our intangible assets for the three and six months ended June 30, 2020, respectively, as compared to $ 3.4 million and $ 6.9 million for the same periods in the prior year.

There were no impairments of long-lived intangible assets during the three and six months ended June 30, 2020 and 2019.

The following tables reflect the weighted average remaining life and carrying value of finite-lived intangible assets (in thousands, except weighted-average remaining life):

March 31, 2020

June 30, 2020

Amount Accumulated

Amortization Net

Value Weighted-

Remaining Life

1 unchanged sentence

Developed technology 30,542 ( 14,636 ) 15,906 8.2

Trade name 3,304 ( 1,263 ) 2,041 4.3

Other 234 ( 234 ) — 0.0

Total intangible assets $ 157,811 $ ( 62,409 ) $ 95,402

December 31, 2019

Amount Accumulated

Amortization Net

Value Weighted-

Remaining Life

1 unchanged sentence

Developed technology 30,542 ( 13,722 ) 16,820 8.7

Trade name 3,304 ( 1,082 ) 2,222 4.8

Other 234 ( 234 ) — 0.0

Total intangible assets $ 157,811 $ ( 54,373 ) $ 103,438

ALARM.COM HOLDINGS, INC.

Notes to the Condensed Consolidated Financial Statements (Unaudited) — (Continued)

June 30, 2020 and 2019

Purchases of Patents and Patent Licenses

From time to time, we enter into agreements to purchase patents or patent licenses.

The carrying value, net of amortization, of our purchased patents and patent licenses was $ 2.3 million and $ 2.4 million as of March 31, 2020 and December 31, 2019 , respectively.

As of March 31, 2020 and December 31, 2019 , $ 0.5 million of patent costs were included in other current assets and $ 1.8 million and $ 1.9 million of patent costs were included in other assets, respectively.

We have $ 5.9 million of historical cost in purchased patents and patent licenses as of March 31, 2020 .

In April 2020, we purchased 30 patents for $ 0.9 million.

The carrying value, net of amortization, of our purchased patents and patent licenses was $ 3.1 million and $ 2.4 million as of June 30, 2020 and December 31, 2019, respectively.

As of June 30, 2020 and December 31, 2019, $ 0.7 million and $ 0.5 million of patent costs were included in other current assets, respectively, and $ 2.4 million and $ 1.9 million of patent costs were included in other assets, respectively.

We have $ 6.8 million of historical cost in purchased patents and patent licenses as of June 30, 2020.

We are amortizing the patent costs over the estimated useful lives of the patents, which range from three years to twelve years .

Patent cost amortization of $ 0.1 million for the three months ended March 31, 2020 and 2019 was included in cost of SaaS and license revenue in our condensed consolidated statements of operations.

Patent cost amortization of less than $ 0.1 million was included in amortization and depreciation in our condensed consolidated statements of operations for the three months ended March 31, 2020 and 2019 .

In April 2020, we purchased 30 patents for $ 0.9 million , which increased our historical patent costs related to purchased patents and patent licenses to $ 6.8 million .

Patent cost amortization of $ 0.1 million and $ 0.2 million was included in cost of SaaS and license revenue in our condensed consolidated statements of operations for the three and six months ended June 30, 2020 and 2019, respectively.

Patent cost amortization of $ 0.1 million was included in amortization and depreciation in our condensed consolidated statements of operations for each of the three and six months ended June 30, 2020, as compared to less than $ 0.1 million in each of the same periods in the prior year.

Loan to a Distribution Partner

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In May 2018, the loan agreement with our distribution partner was amended to convert the entire $ 4.0 million note receivable outstanding into a $ 4.0 million term loan.

The term loan matures on July 31, 2022 and requires annual principal repayments of $ 1.0 million on July 31 of each year, commencing on July 31, 2019.

The term loan also requires monthly interest payments, with interest accruing on the outstanding principal balance at a rate per annum equal to 6.0 % through June 30, 2018 and a rate per annum equal to the LIBOR rate on the first of any interest period plus 7.0 % beginning on July 1, 2018.

As of March 31, 2020 and December 31, 2019 , $ 1.0 million of the note receivable balance was included in other current assets in our condensed consolidated balance sheets.

As of March 31, 2020 and December 31, 2019 , $ 2.0 million of the note receivable balance was included in other assets in our condensed consolidated balance sheets, respectively.

ALARM.COM HOLDINGS, INC.

Notes to the Condensed Consolidated Financial Statements (Unaudited) — (Continued)

March 31, 2020 and 2019

The term loan had a maturity date of July 31, 2022 and required annual principal repayments of $ 1.0 million on July 31 of each year, commencing on July 31, 2019.

The term loan also required monthly interest payments, with interest accruing on the outstanding principal balance at a rate per annum equal to 6.0 % through June 30, 2018 and a rate per annum equal to the LIBOR rate on the first of any interest period plus 7.0 % beginning on July 1, 2018.

In April 2017, we entered into a subordinated credit agreement with an affiliated entity of the distribution partner and loaned the affiliated entity $ 3.0 million, with a maturity date of November 21, 2022.

Interest on the outstanding principal balance accrues at a rate of 8.5 % per annum and requires monthly interest payments.

The $ 3.0 million loan receivable balance was included in other assets as of March 31, 2020 and December 31, 2019 .

For the three months ended March 31, 2020 and 2019 , we recognized $ 0.4 million of revenue from the distribution partners associated with these loans.

Interest on the outstanding principal balance accrued at a rate of 8.5 % per annum and required monthly interest payments.

In June 2020, we amended the term loan with our distribution partner and also amended the subordinated credit agreement with the affiliated entity of the distribution partner.

At the time of the amended term loan and subordinated credit agreement in June 2020, the outstanding balance of the term loan was $ 3.0 million and the outstanding balance of the subordinated credit agreement was $ 3.0 million.

Under the amended terms, the distribution partner paid us $ 2.0 million in principal for the term loan on June 9, 2020 and the remaining $ 1.0 million was transferred to the amended subordinated credit agreement with the affiliated entity of the distribution partner.

As of June 30, 2020, none of the notes receivable balance related to the amended term loan was outstanding.

As of December 31, 2019, $ 1.0 million of the note receivable balance related to the term loan was included in other current assets in our condensed consolidated balance sheet and $ 2.0 million of the note receivable balance was included in other assets in our condensed consolidated balance sheet.

The amended subordinated credit agreement with the affiliated entity of the distribution partner matures on September 9, 2025 and interest on the outstanding principal balance accrues at a rate of 9.0 % per annum and is payable in kind.

As of June 30, 2020 and December 31, 2019, $ 4.0 million and $ 3.0 million of the notes receivable balance related to the subordinated credit agreement was included in other assets in our condensed consolidated balance sheets, respectively.

For the three and six months ended June 30, 2020, we recognized $ 0.9 million and $ 1.3 million of revenue from the distribution partners associated with these loans, respectively, as compared to $ 0.5 million and $ 0.9 million for the same periods in the prior year.

Loan to and Investment in a Hardware Supplier

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Under the Promissory Notes, we agreed to provide the hardware supplier loans of up to $ 7.4 million, collateralized by all assets owned by the supplier.

ALARM.COM HOLDINGS, INC.

Notes to the Condensed Consolidated Financial Statements (Unaudited) — (Continued)

June 30, 2020 and 2019

In March 2019, we also purchased and acquired a secured promissory note, or the Acquired Promissory Note, that matured on March 30, 2019 and was originally executed between our hardware supplier and another third-party secured creditor.

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As of September 30, 2019, there was no remaining outstanding balance of the Promissory Notes and the Acquired Promissory Note.

The total equity investment in the hardware supplier was $ 5.6 million as of March 31, 2020 and December 31, 2019 .

The total equity investment in the hardware supplier was $ 5.6 million as of June 30, 2020 and December 31, 2019.

Loan to a Service Provider Partner

In July 2020, we entered into a loan agreement with a service provider partner, under which we agreed to loan the service provider partner up to $ 2.5 million, collateralized by the assets of the service provider partner.

Interest on the outstanding principal accrues at a rate per annum equal to 9.0 % and requires monthly interest and principal payments beginning in February 2021.

The maturity date of the loan is July 24, 2025.

To date, $ 0.2 million has been loaned to the service provider partner under the loan agreement.

Investment in a Platform Partner

In 2013, we paid $ 3.5 million in cash to purchase 3,548,820 Series A convertible preferred shares from one of our platform partners.

In 2014, we entered into a Series 1 Preferred Stock purchase agreement with the platform partner and another investor.

The other investor purchased shares of the platform partner’s Series 1 Preferred Stock.

As a result of the purchase, our 3,548,820 shares of Series A convertible preferred shares converted into 3,548,820 shares of common stock.

Based upon the level of equity investment at risk, the platform partner is a variable interest entity, or VIE.

We are not the primary beneficiary of the platform partner VIE because we do not direct the activities of the platform partner that most significantly impact its economic performance.

We account for the equity investment in the platform partner using the measu rement alternative.

As of June 30, 2020 and December 31, 2019, our investment in the platform partner was $ 1.0 million and was included in other assets in our condensed consolidated balance sheets.

On July 31, 2020, the platform partner was sold to an unrelated third party and, as a result of the sale, we are entitled to receive total proceeds of $ 25.7 million in exchange for our shares of common stock, subject to a holdback of approximately $ 1.8 million and other adjustments as set forth in t he purchase agreement.

ALARM.COM HOLDINGS, INC.

Notes to the Condensed Consolidated Financial Statements (Unaudited) — (Continued)

June 30, 2020 and 2019

Allowance for Credit Losses - Notes Receivable

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Three Months Ended

March 31, 2020

Beginning of period balance, prior to adoption of Topic 326

June 30, 2020 Six Months Ended

June 30, 2020

Receivables Hardware

Receivables Loan

Receivables Hardware

Beginning of period balance $ ( 87 ) $ ( 29 ) $ — $ ( 16 )

Impact of adopting Topic 326 — — ( 434 ) ( 15 )

Provision for expected credit losses

End of period balance, subsequent to adoption of Topic 326

ALARM.COM HOLDINGS, INC.

Notes to the Condensed Consolidated Financial Statements (Unaudited) — (Continued)

March 31, 2020 and 2019

Provision for / (recovery of) expected credit losses 41 ( 8 ) 388 ( 6 )

Write-offs — — — —

End of period balance $ ( 46 ) $ ( 37 ) $ ( 46 ) $ ( 37 )

We manage our notes receivables using delinquency as a key credit quality indicator.

Current and delinquent notes receivable by class of financing receivables and by year of origination as of March 31, 2020 are as follows (in thousands):

Current and delinquent notes receivable by class of financing receivables and by year of origination as of June 30, 2020 are as follows (in thousands):

Loan Receivables:

2020 2019 2018 2017 2016 Prior Total

Current $ — $ 36 $ — $ 4,022 $ — $ — $ 4,058

30-59 days past due — — — — — — —

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120+ days past due — — — — — — —

Total $ — $ 36 $ — $ 4,022 $ — $ — $ 4,058

Hardware Financing Receivables:

Current $ — $ 29 $ 127 $ — $ — $ — $ 156

30-59 days past due — — — — — — —

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120+ days past due — — — 16 — — 16

Total $ — $ 178 $ 127 $ 44 $ — $ — $ 349

The amortized cost of notes receivables placed on nonaccrual status is as follows (in thousands):

March 31, 2020

December 31, 2019

June 30, 2020 December 31, 2019

Loan receivables $ — $ —

Hardware financing receivables 29 16

During the three months ended March 31, 2020 and 2019 , there was no interest income recognized related to notes receivables that were in nonaccrual status.

As of March 31, 2020 and December 31, 2019 , there were no notes receivables placed in nonaccrual status for which there was not a related allowance for credit losses that did not return to accrual status due to subsequent collections in April 2020.

As of March 31, 2020 and December 31, 2019 , there were no notes receivables that were 90 days or greater past due for which we continued to accrue interest income.

Total $ 29 $ 16

During the three and six months ended June 30, 2020 and 2019, there was no interest income recognized related to notes receivables that were in nonaccrual status.

As of June 30, 2020 and December 31, 2019, there were no notes receivables placed in nonaccrual status for which there was not a related allowance for credit losses.

As of June 30, 2020 and December 31, 2019, there were no notes receivables that were 90 days or greater past due for which we continued to accrue interest income.

Prepaid Expenses

As of March 31, 2020 and December 31, 2019 , $ 11.6 million and $ 6.1 million of prepaid expenses were included in other current assets, respectively.

In February 2020, we made a prepayment of $ 4.7 million for long lead-time parts related to our inventory.

As of June 30, 2020 and December 31, 2019, $ 7.4 million and $ 6.1 million of prepaid expenses were included in other current assets, respectively, primarily related to software licenses.

ALARM.COM HOLDINGS, INC.

Notes to the Condensed Consolidated Financial Statements (Unaudited) — (Continued)

June 30, 2020 and 2019

Fair Value Measurements

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Fair Value Measurements on a Recurring Basis as of

March 31, 2020

June 30, 2020

Fair value measurements in:

Level 1 Level 2 Level 3 Total

Money market accounts $ 185,341 $ — $ — $ 185,341

Total $ 185,341 $ — $ — $ 185,341

Contingent consideration liability from acquisitions $ — $ — $ 306 $ 306

ALARM.COM HOLDINGS, INC.

Notes to the Condensed Consolidated Financial Statements (Unaudited) — (Continued)

March 31, 2020 and 2019

Total $ — $ — $ 306 $ 306

Fair Value Measurements on a Recurring Basis as of

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Fair value measurements in:

Level 1 Level 2 Level 3 Total

Money market accounts $ 93,303 $ — $ — $ 93,303

Total $ 93,303 $ — $ — $ 93,303

Contingent consideration liability from acquisitions $ — $ — $ 2,595 $ 2,595

Total $ — $ — $ 2,595 $ 2,595

The following table summarizes the change in fair value of the Level 3 liabilities for contingent consideration liabilities from acquisitions with significant unobservable inputs (in thousands):

Three Months Ended

June 30, Six Months Ended

2020 2019 2020 2019

Beginning of period balance $ 2,027 $ — $ 2,595 $ —

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Changes in the fair value resulting from information that existed subsequent to the acquisition date are recorded in general and administrative expense in our condensed consolidated statements of operations.

During the three months ended March 31, 2020 , the contingent consideration liability decreased $ 0.6 million from December 31, 2019 to $ 2.0 million , primarily due to a change to OpenEye's 2020 projected revenue.

The significant unobservable inputs used in the valuation as of March 31, 2020 included a revenue volatility of 51 % and a discount rate of 6 % .

During the six months en ded June 30, 2020, the contingent consideration liability decreased $ 2.3 million from December 31, 2019 to $ 0.3 million, primarily due to a change to OpenEye's 2020 projected revenue.

The significant unobservable inputs used in the valuation as of June 30, 2020 included a revenue volatility of 68 % and a discount rate of 4 %.

Selecting another revenue volatility or discount rate within an acceptable range would not result in a significant change to the fair value of the contingent consideration liability.

The contingent consideration liability is included in other liabilities in our condensed consolidated balance sheet as of December 31, 2019 (see Note 12 ).

ALARM.COM HOLDINGS, INC.

Notes to the Condensed Consolidated Financial Statements (Unaudited) — (Continued)

June 30, 2020 and 2019

The contingent consideration liability was included in accounts payable, accrued expenses and other current liabilities in our condensed consolidated balance sheet as of June 30, 2020, and included in other liabilities in our condensed consolidated balance sheet as of December 31, 2019 (see Note 12).

We monitor the availability of observable market data to assess the appropriate classification of financial instruments within the fair value hierarchy.

Changes in economic conditions or model-based valuation techniques may require the transfer of financial instruments from one fair value level to another.

There were no transfers in or out of Level 3 during the three months ended March 31, 2020 and 2019 .

There were no transfers in or out of Level 3 during the three and six months ended June 30, 2020 and 2019.

We also monitor the value of the investments for other-than-temporary impairment on a quarterly basis.

No other-than-temporary impairments occurred during the three months ended March 31, 2020 and 2019 .

No other-than-temporary impairments occurred during the three and six months ended June 30, 2020 and 2019.

We lease office space, data centers and office equipment under non-cancelable operating leases with various expiration dates through 2026.

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The lease term ends in 2026, includes a five -year renewal option and a cumulative tenant improvement allowance of $ 11.8 million, including the tenant improvement allowance within the March 2020 lease amendment.

ALARM.COM HOLDINGS, INC.

Notes to the Condensed Consolidated Financial Statements (Unaudited) — (Continued)

March 31, 2020 and 2019

Supplemental information related to leases is presented in the table below (in thousands, except weighted-average term and discount rate):

Three Months Ended

June 30, Six Months Ended

2020 2019 2020 2019

Operating lease cost $ 2,188 $ 1,835 $ 4,233 $ 3,638

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Operating lease right-of-use assets obtained in exchange for new operating lease liabilities 625 792 6,647 2,251

Weighted-average remaining lease term — operating leases

2020 December 31,

Weighted-average remaining lease term — operating leases 5.4 years 5.7 years

Weighted-average discount rate — operating leases 3.8 % 4.0 %

ALARM.COM HOLDINGS, INC.

Notes to the Condensed Consolidated Financial Statements (Unaudited) — (Continued)

June 30, 2020 and 2019

Maturities of lease liabilities are as follows (in thousands):

Year Ended December 31,

Operating Leases (1)

Year Ended December 31, Operating Leases (1)

Remainder of 2020 $ 5,410

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(2) Imputed interest was calculated using the incremental borrowing rate applicable for each lease.

We did no t have any finance leases or subleases as of March 31, 2020 or December 31, 2019 .

We did no t have any finance leases or subleases as of June 30, 2020 or December 31, 2019.

Our lease agreements do not contain any material residual value guarantees, restrictive covenants or variable lease payments.

Short-term lease costs were immaterial for the three months ended March 31, 2020 and 2019 .

ALARM.COM HOLDINGS, INC.

Notes to the Condensed Consolidated Financial Statements (Unaudited) — (Continued)

March 31, 2020 and 2019

Short-term lease costs were immaterial for the three and six months ended June 30, 2020 and 2019.

The components of accounts payable, accrued expenses and other current liabilities are as follows (in thousands):

2020 December 31,

Accounts payable $ 48,571 $ 32,878

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The components of other liabilities are as follows (in thousands):

2020 December 31,

Contingent consideration liability from acquisitions $ — $ 2,595

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Costs incurred in connection with the 2017 Facility were capitalized and are being amortized as interest expense over the term of the 2017 Facility.

The 2017 Facility is secured by substantially all of our assets, including our intellectual property.

During the three months ended March 31, 2020 , we borrowed $ 50.0 million under the 2017 Facility as a precautionary measure in order to provide financial flexibility in light of current uncertainty in the financial markets resulting from the global COVID-19 pandemic.

During the three months ended March 31, 2019 , we repaid $ 1.0 million of the outstanding balance of the 2017 Facility.

The 2017 Facility is secured by substantially all of our assets, including our intelle ctual property.

On March 25, 2020, we borrowed $ 50.0 million under the 2017

ALARM.COM HOLDINGS, INC.

Notes to the Condensed Consolidated Financial Statements (Unaudited) — (Continued)

June 30, 2020 and 2019

Facility as a precautionary measure in order to provide financial flexibility in light of current uncertainty in the financial markets resulting from the COVID-19 pandemic.

D uring the three and six months ended June 30, 2020, we repaid $ 1.0 million of the outstanding balance of the 2017 Facility.

D uring the three and six months ended June 30, 2019, we repaid $ 1.0 million and $ 2.0 million of the outstanding balance of the 2017 Facility, respectively.

The outstanding principal balance on the 2017 Facility accrues interest at a rate equal to, at our option, either (1) LIBOR, plus an applicable margin based on our consolidated leverage ratio, or (2) the highest of (a) the Wall Street Journal prime rate, (b) the Federal Funds rate plus 0.50 %, or (c) LIBOR plus 1.00 % plus an applicable margin based on our consolidated leverage ratio.

For the three months ended March 31, 2020 , we elected for the outstanding principal balance to accrue interest at LIBOR plus 1.50 % , LIBOR plus 1.75 % , LIBOR plus 2.00 % , and LIBOR plus 2.50 % when our consolidated leverage ratio is less than 1.00 :1.00, greater than or equal to 1.00 :1.00 but less than 2.00 :1.00, greater than or equal to 2.00 :1.00 but less than 3.00 :1.00 and greater than or equal to 3.00 :1.00, respectively.

For each of the three and six months ended June 30, 2020, we elected for the outstanding principal balance to accrue interest at LIBOR plus 1.50 %, LIBOR plus 1.75 %, LIBOR plus 2.00 %, and LIBOR plus 2.50 % when our consolidated leverage ratio is less than 1.00 :1.00, greater than or equal to 1.00 :1.00 but less than 2.00 :1.00, greater than or equal to 2.00 :1.00 but less than 3.00 :1.00 and greater than or equal to 3.00 :1.00, respectively.

The 2017 Facility also carries an unused line commitment fee of 0.20 %.

For the three months ended March 31, 2020 , the effective interest rate on the 2017 Facility was 3.79 % , as compared to 4.88 % for the same period in the prior year.

The carrying value of the 2017 Facility was $ 113.0 million and $ 63.0 million as of March 31, 2020 and December 31, 2019 , respectively.

The 2017 Facility includes a variable interest rate that approximates market rates and, as such, we classified the liability as Level 2 within the fair value hierarchy and determined that the carrying amount of the 2017 Facility approximated its fair value as of March 31, 2020 and December 31, 2019 .

For the six months ended June 30, 2020, the effective interest rate on the 2017 Facility was 3.42 %, as compared to 4.78 % for the same period in the prior year.

The carrying value of the 2017 Facility was $ 112.0 million and $ 63.0 million as of June 30, 2020 and December 31, 2019, respectively.

The 2017 Facility contains various financial and other covenants that require us to maintain a maximum consolidated leverage ratio not to exceed 3.25 :1.00 and a consolidated fixed charge coverage ratio of at least 1.25 :1.00.

As of March 31, 2020 , we were in compliance with all financial and non-financial covenants and there were no events of default.

As of June 30, 2020, we were in compliance with all financial and non-financial covenants and there were no events of default.

On November 30, 2018, we amended the 2017 Facility to incorporate the parameters that must be met for us to repurchase our outstanding common stock under the stock repurchase program authorized by our board of directors on November 29, 2018.

ALARM.COM HOLDINGS, INC.

Notes to the Condensed Consolidated Financial Statements (Unaudited) — (Continued)

March 31, 2020 and 2019

Commitments and Contingencies

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Changes in the fair value resulting from information that existed subsequent to the acquisition date are recorded in the condensed consolidated statements of operations.

The contingent consideration liability is included in other liabilities in our condensed consolidated balance sheet as of March 31, 2020 and December 31, 2019 (see Note 9 ).

During the six months ended June 30, 2020, the contingent consideration liability decreased $ 2.3 million from December 31, 2019 to $ 0.3 million, primarily due to a change to OpenEye's 2020 projected revenue.

The contingent consideration liability is included in accounts payable, accrued expenses and other current liabilities in our condensed consolidated balance sheets as of June 30, 2020, and included in other liabilities in our condensed consolidated balance sheets as of December 31, 2019 (see Note 9).

Indemnification Agreements

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Letters of Credit

As of March 31, 2020 and December 31, 2019 , we had no outstanding letters of credit under the 2017 Facility.

As of June 30, 2020 and December 31, 2019, we had no outstanding letters of credit under the 2017 Facility.

Legal Proceedings

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Court of Appeals for the Federal Circuit, or the Federal Circuit, and we cross-appealed.

In July 2018, the Federal Circuit issued orders affirming the PTAB’s March 2017 decisions that invalidated all challenged claims of two patents.

In July 2018, the Federal Circuit issued orders affirming the

ALARM.COM HOLDINGS, INC.

Notes to the Condensed Consolidated Financial Statements (Unaudited) — (Continued)

June 30, 2020 and 2019

PTAB’s March 2017 decisions that invalidated all challenged claims of two patents.

District Court, District of Utah lifted the stay on the litigation on June 26, 2017, with Vivint proceeding with its case on four of the six patents in its complaint.

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EcoFactor is seeking a permanent limited exclusion order and permanent cease and desist order.

On November 22, 2019, the ITC instituted an investigation into

ALARM.COM HOLDINGS, INC.

Notes to the Condensed Consolidated Financial Statements (Unaudited) — (Continued)

March 31, 2020 and 2019

EcoFactor’s allegations naming Alarm.com Incorporated, Alarm.com Holdings, Inc.

On November 22, 2019, the ITC instituted an investigation into EcoFactor’s allegations naming Alarm.com Incorporated, Alarm.com Holdings, Inc.

and others as respondents.

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On December 26, 2019, the court issued an order staying the lawsuit pending the conclusion of the related ITC investigation.

On January 31, 2020, EcoFactor filed a second lawsuit against us in U.S.

District Court, Western District of Texas, alleging Alarm.com’s products and services infringe four additional U.S.

On May 26, 2020, EcoFactor filed a second lawsuit against us in U.S.

District Court, District of Massachusetts, alleging Alarm.com’s products and services infringe four additional U.S.

patents owned by EcoFactor.

EcoFactor is seeking permanent injunctions, enhanced damages and attorneys' fees.

Our response to the complaint is due on May 27, 2020.

We have not yet been served with the complaint.

Should EcoFactor prevail in the ITC investigation, Alarm.com thermostats manufactured abroad could be excluded from importation into the United States.

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Based on currently available information, we have determined a loss is not probable or reasonably estimable at this time.

On May 8, 2020, a putative class action lawsuit was filed against us by Craig Hicks in the U.S.

District Court for the Eastern District of Virginia, alleging violations of the Telephone Consumer Protection Act, or the TCPA, and the Virginia Telephone Privacy Protection Act, or the VTPPA.

The complaint seeks statutory damages under the TCPA and VTPPA, injunctive relief, and other relief, including attorneys' fees.

We filed a motion to dismiss the complaint on July 2, 2020, and plaintiff filed his response on July 16, 2020.

We filed our reply on July 22, 2020.

The matter remains pending.

Based on currently available information, we have determined a loss is not probable or reasonably estimable at this time.

On July 29, 2020, a putative class action was filed against Alarm.com Incorporated d/b/a ICN Acquisition, among other defendants, by Abante Rooter and Plumbing Inc.

and Sidney Naiman in the U.S.

District Court for the Northern District of California, alleging violations of the TCPA.

The complaint seeks statutory damages under the TCPA, injunctive relief, and other relief.

We have agreed to waive service of the complaint, and our response is due September 29, 2020.

Based on currently available information, we have determined a loss is not probable or reasonably estimable at this time.

ALARM.COM HOLDINGS, INC.

Notes to the Condensed Consolidated Financial Statements (Unaudited) — (Continued)

June 30, 2020 and 2019

In addition to the matters described above, we may be required to provide indemnification to certain of our service provider partners for certain claims regarding our solutions.

For example, we are incurring costs associated with the indemnification of our service provider ADT, LLC in two ongoing patent infringement suits:

Applied Capital, Inc.

The ADT Corporation et al.

and Varatec, LLC v.

For example, we are incurring costs associated with the indemnification of our service provider ADT, LLC in ongoing patent infringement suits.

On July 13, 2016, Applied Capital, Inc., or Applied Capital, filed a lawsuit against ADT, LLC, the ADT Corporation, and Icontrol Networks, Inc.

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Fox reached settlement and stipulated to dismissal of the New Mexico State Court action on October 31, 2019.

The court issued its claim construction order on August 12, 2019, fact discovery closed on November 12, 2019, expert discovery closed on March 9, 2020, and the parties filed opening summary judgment and Daubert motions on April 20, 2020.

Applied Capital filed its Second Amended Complaint on January 27, 2020 and ADT answered, adding a claim of inequitable conduct, on February 10, 2020.

The court issued its claim construction order on August 12, 2019, fact discovery closed on November 12, 2019, expert discovery closed on March 9, 2020, and summary judgment and Daubert motions briefing closed on June 3, 2020.

The pretrial conference is scheduled for September 30, 2020, and trial is set for October 19, 2020.

On March 4, 2019, Varatec, LLC, or Varatec, sued ADT, LLC d/b/a ADT Security Services in U.S.

On July 2, 2020, Port us Singapore Pte.

and Portus Pty.

Ltd., or Portus, sued ADT, LLC d/b/a ADT Security Services in U.S.

District Court for the Western District of Texas.

Portus alleges that ADT’s sales of ADT Pulse directly and indirectly infringe U.S.

8,914,526 and 9,961,097, which were assigned to Portus.

Portus is seeking damages and attorneys’ fees.

ADT’s response to the complaint is due August 31, 2020.

On March 4, 2019, Va ratec, LLC, or Varatec, sued ADT, LLC d/b/a ADT Security Services in U.S.

District Court for the Northern District of Illinois.

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The outcome of these legal claims cannot be predicted with certainty.

We believe there are valid defenses to the claims made by Applied Capital and Varatec.

We believe there are valid defenses to the claims made by Applied Capital, Portus and Varatec.

Based on currently available information, we have determined a loss is not probable or reasonably estimable at this time.

ALARM.COM HOLDINGS, INC.

Notes to the Condensed Consolidated Financial Statements (Unaudited) — (Continued)

March 31, 2020 and 2019

We may also be a party to litigation and subject to claims incident to the ordinary course of business.

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During the three months ended March 31, 2020, we repurchased 147,153 shares of our common stock under this program for $ 5.1 million, which includes applicable commissions and fees.

No shares of our common stock were repurchased under this program during the three months ended March 31, 2019 .

No shares of our common stock were repurchased under this program during the three months ended June 30, 2020 or during each of the three and six months ended June 30, 2019.

ALARM.COM HOLDINGS, INC.

Notes to the Condensed Consolidated Financial Statements (Unaudited) — (Continued)

June 30, 2020 and 2019

Stock-Based Compensation

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Three Months Ended

June 30, Six Months Ended

2020 2019 2020 2019

Sales and marketing $ 772 $ 471 $ 1,529 $ 851

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Three Months Ended

June 30, Six Months Ended

2020 2019 2020 2019

Stock options and assumed options $ 1,015 $ 1,102 $ 1,816 $ 1,895

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Tax benefit from stock-based awards $ 1,610 $ 2,171 $ 2,188 $ 3,485

We granted an aggregate of 5,000 stock options pursuant to our 2015 Equity Incentive Plan, or the 2015 Plan, during the three months ended March 31, 2020 , as compared to an aggregate of 8,000 stock options for the same period in the prior year.

There were 63,748 stock options exercised during the three months ended March 31, 2020 , as compared to 85,466 stock options for the same period in the prior year.

We granted an aggregate of 100,728 restricted stock units during the three months ended March 31, 2020 , as compared to an aggregate of 190,250 restricted stock units for the same period in the prior year.

There were 23,048 restricted stock units that vested during the three months ended March 31, 2020 , as compared to 43,460 restricted stock units vested during the same period in the prior year.

ALARM.COM HOLDINGS, INC.

Notes to the Condensed Consolidated Financial Statements (Unaudited) — (Continued)

March 31, 2020 and 2019

We granted an aggregate of 136,650 and 141,650 stock options pursuant to our 2015 Equity Incentive Plan, or the 2015 Plan, during the three and six months ended June 30, 2020, respectively, as compared to an aggregate of 102,500 and 110,500 stock options for the same periods in the prior year.

There were 194,443 and 258,191 stock options exercised during the three and six months ended June 30, 2020, respectively, as compared to 113,159 and 198,625 stock options for the same periods in the prior year.

We granted an aggregate of 218,344 and 319,072 restricted stock units during the three and six months ended June 30, 2020, respectively, as compared to an aggregate of 146,766 and 337,016 restricted stock units for the same periods in the prior year.

There were 64,075 and 87,123 restricted stock units that vested during the three and six months ended June 30, 2020, respectively, as compared to 118,606 and 162,066 restricted stock units vested during the same periods in the prior year.

Earnings Per Share

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Three Months Ended

June 30, Six Months Ended

2020 2019 2020 2019

Net income $ 16,625 $ 13,796 $ 25,196 $ 22,806

Net loss attributable to redeemable noncontrolling interest 370 — 606 —

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Net income per share:

Basic (A/B) $ 0.35 $ 0.29 $ 0.53 $ 0.47

Diluted (A/C) $ 0.34 $ 0.27 $ 0.51 $ 0.45

ALARM.COM HOLDINGS, INC.

Notes to the Condensed Consolidated Financial Statements (Unaudited) — (Continued)

June 30, 2020 and 2019

The following securities have been excluded from the calculation of diluted weighted average common shares outstanding as the inclusion of these securities would have an anti-dilutive effect:

Three Months Ended

June 30, Six Months Ended

2020 2019 2020 2019

Stock options 360,032 148,393 360,032 148,393

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Significant Service Providers

During the three months ended March 31, 2020 , our 10 largest revenue service provider partners accounted for 49 % of our consolidated revenue, as compared to 53 % for the same period in the prior year.

One of our service provider partners within the Alarm.com segment individually represented greater than 15 % but not more than 20 % of our revenue for the three months ended March 31, 2020 and 2019 .

One individual service provider partner in the Alarm.com segment represented more than 10% of accounts receivable as of March 31, 2020 and December 31, 2019 .

During the three and six months ended June 30, 2020, our 10 largest revenue service provider partners accounted for 46 % and 48 % of our consolidated revenue, respectively, as compared to 51 % and 52 % fo r the same periods in the prior year.

One of our service provider partners within the Alarm.com segment individually represented greater than 15 % but not more than 20 % of our revenue for the three and six months ended June 30, 2020 and 2019.

One individual service provider partner in the Alarm.com segment represented more than 10% of accounts receivable as of June 30, 2020 and December 31, 2019.

For purposes of interim reporting, our annual effective income tax rate is estimated in accordance with ASC 740-270, "Interim Reporting." This rate is applied to the pre-tax book income of the entities expected to be benefited during the year.

Discrete items that impact the tax provision are recorded in the period incurred.

ALARM.COM HOLDINGS, INC.

Notes to the Condensed Consolidated Financial Statements (Unaudited) — (Continued)

March 31, 2020 and 2019

For the three months ended March 31, 2020 , we recorded a provision for income taxes of $ 1.2 million , resulting in an effective income tax rate of 12.3 % .

For the three months ended March 31, 2019 , we recorded a provision from income taxes of $ 0.2 million , resulting in an effective income tax rate of 2.6 % .

For the three and six months ended June 30, 2020, we recorded a benefit from income taxes of $ 2.3 million and $ 1.1 million, respectively, resulting in an effective income tax rate of ( 15.9 )% and ( 4.5 )% for those periods.

For the three and six months ended June 30, 2019, we recorded a provision from income taxes of $ 0.3 million and $ 0.6 million, respectively, resulting in an effective income tax rate of 2.2 % and 2.4 % for those periods.

Our effective tax rates were different from the statutory rate primarily due to research and development tax credits claimed, tax windfall benefits from employee stock-based payment transactions and foreign derived intangible income deductions, partially offset by the impact of state taxes and non-deductible meal and entertainment expenses.

We recognize a valuation allowance if, based on the weight of available evidence, both positive and negative, it is more likely than not that some portion, or all, of net deferred tax assets will not be realized.

Due to the uncertainty of realization of certain deferred tax assets acquired in 2017 related to our Canadian net operating losses and research and development tax credits, we established a valuation allowance of $ 0.3 million during the second quarter of 2019, which remained at $ 0.3 million as of March 31, 2020 and December 31, 2019 .

Due to the uncertainty of realization of certain deferred tax assets acquired in 2017 related to our Canadian net operating losses and research a nd development tax credits, we established a valuation allowance of $ 0.3 million during the second quarter of 2019, which remained at $ 0.3 million as of June 30, 2020 and December 31, 2019.

We apply guidance for uncertainty in income taxes that requires the application of a more likely than not threshold to the recognition and de-recognition of uncertain tax positions.

If the recognition threshold is met, this guidance permits us to recognize a tax benefit measured at the largest amount of the tax benefit that, in our judgment, is more likely than not to be realized upon settlement.

We recorded unrecognized tax benefits of $ 0.3 million for research and development tax credits claimed during the three months ended March 31, 2020 .

We did no t record an unrecognized tax benefit during the three months ended March 31, 2019 .

As of March 31, 2020 and December 31, 2019 , we accrued $ 0.4 million and $ 0.2 million of total interest expense related to unrecognized tax benefits, respectively.

We recorded unrecognized tax benefits of $ 1.9 million primarily for research and development tax credits claimed during the six months ended June 30, 2020.

We did no t record an unrecognized tax benefit during the six months ended June 30, 2019.

As of June 30, 2020 and December 31, 2019, we accrued $ 0.2 million of total interest expense related to unrecognized tax benefits.

We recognize interest and penalties related to unrecognized tax benefits as a component of income tax expense.

ALARM.COM HOLDINGS, INC.

Notes to the Condensed Consolidated Financial Statements (Unaudited) — (Continued)

June 30, 2020 and 2019

Segment Information

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Management bases strategic goals and decisions on these segments and the data presented below is used to measure financial results.

Our Alarm.com segment represents our cloud-based and Software platforms for the intelligently connected property and related solutions that contributed 95 % of our revenue for the three months ended March 31, 2020 , as compared to 93 % for the same period in the prior year.

Our Alarm.com segment represents our cloud-based and Software platforms for the intelligently connected property and related solutions that contributed 94 % of our revenue for each of the three and six months ended June 30, 2020 as compared to 93 % for the same periods in the prior year.

Our Other segment is focused on researching, developing and offering residential and commercial automation solutions and energy management products and services in adjacent markets.

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Notes to the Condensed Consolidated Financial Statements (Unaudited) — (Continued)

March 31, 2020 and 2019

June 30, 2020 and 2019

Management evaluates the performance of its segments and allocates resources to them based on operating income / (loss) as compared to prior periods and current performance levels.

The reportable segment operational data is presented in the tables below (in thousands):

Three Months Ended March 31, 2020

Intersegment Alarm.com

Intersegment Other

Three Months Ended June 30, 2020

Alarm.com Other Intersegment Alarm.com Intersegment Other Total

SaaS and license revenue $ 88,922 $ 6,782 $ — $ — $ 95,704

Hardware and other revenue

44,547 4,926 ( 703 ) ( 2,837 ) 45,933

Total revenue

133,469 11,708 ( 703 ) ( 2,837 ) 141,637

Operating income / (loss)

Three Months Ended March 31, 2019

Intersegment Alarm.com

Intersegment Other

15,800 ( 609 ) 16 ( 213 ) 14,994

Three Months Ended June 30, 2019

Alarm.com Other Intersegment Alarm.com Intersegment Other Total

SaaS and license revenue $ 78,104 $ 4,230 $ — $ — $ 82,334

Hardware and other revenue

36,521 5,914 ( 1,078 ) ( 2,031 ) 39,326

Total revenue

114,625 10,144 ( 1,078 ) ( 2,031 ) 121,660

Operating income / (loss)

Intersegment Alarm.com

Intersegment Other

Assets as of March 31, 2020

14,754 ( 737 ) 44 ( 16 ) 14,045

Six Months Ended June 30, 2020

Alarm.com Other Intersegment

Alarm.com Intersegment

SaaS and license revenue $ 176,334 $ 11,320 $ — $ — $ 187,654

Hardware and other revenue

102,075 10,484 ( 1,564 ) ( 5,073 ) 105,922

Total revenue

278,409 21,804 ( 1,564 ) ( 5,073 ) 293,576

Operating income / (loss)

26,618 ( 1,482 ) 57 ( 332 ) 24,861

Six Months Ended June 30, 2019

Alarm.com Other Intersegment

Alarm.com Intersegment

SaaS and license revenue $ 153,506 $ 8,883 $ — $ — $ 162,389

Hardware and other revenue

66,868 10,325 ( 2,077 ) ( 3,510 ) 71,606

Total revenue

220,374 19,208 ( 2,077 ) ( 3,510 ) 233,995

Operating income / (loss)

24,410 ( 1,222 ) 9 69 23,266

Alarm.com Other Intersegment Alarm.com Intersegment Other Total

Assets as of June 30, 2020 $ 692,689 $ 22,677 $ ( 52,736 ) $ 15 $ 662,645

Assets as of December 31, 2019 589,952 17,844 ( 49,997 ) — 557,799

Our SaaS and license revenue for the Alarm.com segment included software license revenue of $ 9.7 million for the three months ended March 31, 2020 , as compared to $ 11.0 million for the same period in the prior year.

There was no software license revenue recorded for the Other segment during the three months ended March 31, 2020 and 2019 .

Depreciation and amortization expense was $ 6.4 million for the Alarm.com segment for the three months ended March 31, 2020 , as compared to $ 5.2 million for the same period in the prior year.

Depreciation and amortization expense was less than $ 0.1 million for the Other segment for each of the three months ended March 31, 2020 and 2019 .

Additions to property and equipment were $ 2.6 million for the Alarm.com segment for the three months ended March 31, 2020 , as compared to $ 2.3 million for the same period in the prior year.

Additions to property and equipment were $ 0.8 million for the Other segment for the three months ended March 31, 2020 .

There were no additions to property and equipment for the Other segment for the three months ended March 31, 2019 .

We derived substantially all of our revenue from North America for the three months ended March 31, 2020 and 2019 .

Substantially all of our long-lived assets were in North America as of March 31, 2020 and December 31, 2019 .

Our SaaS and license revenue for the Alarm.com segment included software license revenue of $ 9.8 million and $ 19.5 million for the three and six months ended June 30, 2020, respectively, as compared to $ 11.0 million and $ 22.0 million for the same periods in the prior year.

There was no software license revenue recorded for the Other segment during the three and six months ended June 30, 2020 and 2019.

Depreciation and amortization expense was $ 6.7 million and $ 13.1 million for the Alarm.com segment for the three and six months ended June 30, 2020, respectively, as compared to $ 5.1 million and $ 10.4 million for the same periods in the prior year.

Depreciation and amortization expense was les s than $ 0.1 million for the Other segment for each of the three and six months ended June 30, 2020 and 2019.

Additions to property and equipment were $ 3.9 million and $ 6.5 million for the Alarm.com

ALARM.COM HOLDINGS, INC.

Notes to the Condensed Consolidated Financial Statements (Unaudited) — (Continued)

June 30, 2020 and 2019

segment for the three and six months ended June 30, 2020, respectively, as compared to $ 1.5 million and $ 3.8 million for the same periods in the prior year.

Additions to property and equipment were $ 0.1 million and $ 0.9 million for the Other segment for the three and six months ended June 30, 2020, respectively, as compared to less than $ 0.1 million for the same periods in the prior year.

We derived substantia lly all of our revenue from North America for the three and six months ended June 30, 2020 and 2019.

Substantially all of our long-lived assets wer e in North America as of June 30, 2020 and December 31, 2019.

Related Party Transactions

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We account for this investment using the equity method.

As of March 31, 2020 and December 31, 2019 , our investment balance in our installation partner was zero .

During each of the three months ended March 31, 2020 and 2019 , we recorded $ 0.1 million of cost of hardware and other revenue in connection with this installation partner.

As of March 31, 2020 and December 31, 2019 , the accounts payable balance to our installation partner was less than $ 0.1 million .

ALARM.COM HOLDINGS, INC.

Notes to the Condensed Consolidated Financial Statements (Unaudited) — (Continued)

March 31, 2020 and 2019

As of June 30, 2020 and December 31, 2019, our investment balance in our installation partner was zero .

During the three and six months ended June 30, 2020 and 2019, we recorded $ 0.1 million and $ 0.2 million of cost of hardware and other revenue in connection with this installation partner, respectively.

As of June 30, 2020 and December 31, 2019, the accounts payable balance to our installation partner was less than $ 0.1 million.

Affiliate Lease

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Total minimum lease payments over the term of the lease are $ 0.2 million.

During the three months ended March 31, 2020 , we recorded less than $ 0.1 million of rent expense in connection with this lease arrangement.

There was no rent expense recorded in connection with the lease arrangement during the three months ended March 31, 2019 .

There was no accounts payable balance due to the Landlord under this lease arrangement as of March 31, 2020 or December 31, 2019 .

During each of the three and six months ended June 30, 2020, we recorded $ 0.1 million of rent expense in connection with this lease arrangement.

There was no rent expense recorded in connection with the lease arrangement during the three and six months ended June 30, 2019.

There was no accounts payable balance due to the Landlord under this lease arrangement as of June 30, 2020 or December 31, 2019.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements