What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2020-11-05 compared with 2020-08-05 · 218 added, 195 removed, 871 unchanged (32% of the section changed)

4 unchanged sentences

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2020 2019 2020 2019

17 unchanged sentences

Income before income taxes 42,371 20,563 66,492 43,924

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

Provision for income taxes 6,546 2,873 5,471 3,428

Net income 35,825 17,690 61,021 40,496

14 unchanged sentences

(in thousands, except share and per share data)

September 30,

2020 December 31,

31 unchanged sentences

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

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

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

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

49,256,397 and 48,700,963 shares issued;

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

and 49,109,244 and 48,700,713 shares outstanding as of September 30, 2020 and December 31, 2019, respectively

Additional paid-in capital 392,765 365,627

Treasury stock, at cost;

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

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

Retained earnings / (accumulated deficit) 50,607 ( 10,463 )

5 unchanged sentences

(in thousands)

Six Months Ended

Nine Months Ended

September 30,

Cash flows from operating activities:

1 unchanged sentence

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

Provision for credit losses on accounts receivable 965 460

Provision for / (recovery of) credit losses on accounts receivable ( 237 ) 722

Reserve for product returns 1,491 ( 105 )

Recovery of credit losses on notes receivable ( 368 ) ( 3,319 )

Provision for excess and obsolete inventory 1,178 15

Amortization on patents and tooling 604 506

5 unchanged sentences

Stock-based compensation 20,901 14,721

Gain on notes receivable — ( 6,931 )

Acquired in-process research and development 3,297 850

Gain on sale of investment ( 24,737 ) —

Impairment of investment — 605

Changes in operating assets and liabilities:

7 unchanged sentences

Cash flows from operating activities 66,670 23,847

Cash flows used in investing activities:

Cash flows from / (used in) investing activities:

Additions to property and equipment ( 10,677 ) ( 10,660 )

2 unchanged sentences

Receipt of payment on notes receivable 2,023 31,695

Proceeds from sale of investment 25,687 —

Purchases of patents and patent licenses ( 900 ) —

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

Cash flows from / (used in) investing activities 12,236 ( 5,889 )

Cash flows from financing activities:

27 unchanged sentences

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

Common stock issued in connection with equity-based plans — — — 185 2 2,183 — — — 2,185

Stock-based compensation expense — — — — — 7,448 — — — 7,448

Accretion adjustments of redeemable noncontrolling interest to redemption value 254 — — — — ( 254 ) — — — ( 254 )

Net income / (loss) attributable to common stockholders ( 259 ) — — — — — — — 36,084 36,084

Balance as of September 30, 2020 $ 10,711 — $ — 49,256 $ 493 $ 392,765 147 $ ( 5,149 ) $ 50,607 $ 438,716

ALARM.COM HOLDINGS, INC.

15 unchanged sentences

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

Common stock issued in connection with equity-based plans — — — 90 1 1,011 — 1,012

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

Stock-based compensation expense — — — — — 5,034 — 5,034

Net income attributable to common stockholders — — — — — — 17,690 17,690

Balance as of September 30, 2019 $ — — $ — 48,572 $ 486 $ 359,178 $ ( 23,498 ) $ 336,166

See accompanying notes to the condensed consolidated financial statements.

1 unchanged sentence

Notes to the Condensed Consolidated Financial Statements

June 30, 2020 and 2019

September 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 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.

In the opinion of management, these condens ed consolidated fin ancial 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 disrupted and may intermittently 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 also disrupted and may intermittently 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 resulted in a global slowdown of economic activity and a recession in the United States and the economic situation remains fluid as parts of the economy appear to be recovering while others continue to struggle.

The results of operations for the three and nine months ended September 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

5 unchanged sentences

Reclassifications

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.

Certain previously reported amounts in the condensed consolidated statements of cash flows for the nine months ended September 30, 2019 have been reclassified to conform to our current presentation, including the addition of a provision for excess and obsolete inventory separate line item, which was previously included in inventory, as well as changes to the presentation of line items related to operating leases.

Comprehensive Income

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

ALARM.COM HOLDINGS, INC.

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

June 30, 2020 and 2019

Comprehensive Income

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.

September 30, 2020 and 2019

Significant Accounting Policies

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.

Other than those disclosed herein, there have been no other material changes to our significant accounting policies during the three and nine months ended September 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 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.

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

There were no purchases or sales of financial assets during the three and nine months ended September 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 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.

For the three and nine months ended September 30, 2020, we recorded a reduction of credit loss expense of $ 1.2 million and $ 0.7 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 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.

The accrued interest receivable as of September 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 nine months ended September 30, 2020 and 2019.

ALARM.COM HOLDINGS, INC.

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

June 30, 2020 and 2019

September 30, 2020 and 2019

Recent Accounting Pronouncements

34 unchanged sentences

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

June 30, 2020 and 2019

September 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.

18 unchanged sentences

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

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

For the twelve months ended September 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.

13 unchanged sentences

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.

The balance of deferred revenue for activation fees was $ 7.2 million and $ 8.1 million as of September 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.

Additionally, the consideration received from hardware sales corresponds directly with the stand-alone selling price of the hardware.

As a result, we have elected to use the practical

Additionally, the consideration received from hardware

ALARM.COM HOLDINGS, INC.

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

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.

September 30, 2020 and 2019

sales corresponds directly with the stand-alone selling price of the hardware.

As a result, we have elected to use the practical 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.

Contract Assets

17 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 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.

Our amortization of contract assets during the three and nine months ended September 30, 2020 was $ 1.0 million and $ 2.7 million, respectively, as compared to $ 0.6 million and $ 1.8 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 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.

W e did not recor d an impairment loss on our contract assets during the three and nine months ended September 30, 2020 and 2019.

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

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2020 2019 2020 2019

9 unchanged sentences

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

June 30, 2020 and 2019

September 30, 2020 and 2019

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

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2020 2019 2020 2019

6 unchanged sentences

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

September 30,

2020 December 31,

3 unchanged sentences

Accounts receivable, net $ 81,883 $ 76,373

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.

For the three and nine months ended September 30, 2020, we recorded a reduction to the provision for credit losses of $ 1.2 million and $ 0.2 million on our accounts receivable.

For the three and nine months ended September 30, 2019, we recorded a provision for credit losses $ 0.2 million and $ 0.7 million, respectively.

For the three and nine months ended September 30, 2020, we recorded a reserve for product returns of $ 0.5 million and $ 1.5 million, respectively.

For the three and nine months ended September 30, 2019, we recorded a reduction to the reserve for product returns in our hardware and other revenue of $ 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

June 30, 2020 Six Months Ended

June 30, 2020

September 30, 2020 Nine Months Ended

September 30, 2020

Subsidiaries All Other

3 unchanged sentences

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

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

Recovery of expected credit losses 1,146 56 195 42

Write-offs 170 16 283 31

2 unchanged sentences

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

June 30, 2020 and 2019

September 30, 2020 and 2019

Inventory, Net

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

September 30,

2020 December 31,

13 unchanged sentences

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

June 30, 2020 and 2019

September 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):

36 unchanged sentences

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

June 30, 2020 and 2019

September 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 $ 10.7 million as of June 30, 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 September 30, 2020.

Contingent Consideration

6 unchanged sentences

We believe the acquisition of the IPR&D will strengthen our smart intercom capability, including building access security and convenience within the multiple dwelling unit market for residents, guests and deliveries.

In consideration for the purchase of the IPR&D, we paid approximately $ 1.2 million in cash on March 12, 2020, with the remaining $ 0.3 million expected to be paid 18 months following the acquisition date, subject to offset for any indemnification obligations.

In consideration for the purchase of the IPR&D, we paid $ 1.2 million in cash on March 12, 2020, with the remaining $ 0.3 million expected to be paid 18 months following the acquisition date, subject to offset for any indemnification obligations.

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.

6 unchanged sentences

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

June 30, 2020 and 2019

September 30, 2020 and 2019

Goodwill and Intangible Assets, Net

4 unchanged sentences

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.

Balance as of September 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 nine months ended September 30, 2020.

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

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

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

3 unchanged sentences

Amortization ( 10,412 ) ( 1,371 ) ( 271 ) ( 12,054 )

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.

Balance as of September 30, 2020 $ 73,984 $ 15,449 $ 1,951 $ 91,384

We recorded $ 4.0 million and $ 12.1 million of amortization related to our intangible assets for the three and nine months ended September 30, 2020, respectively, as compared to $ 3.4 million and $ 10.3 million for the same periods in the prior year.

There were no impairments of long-lived intangible assets during the three and nine months ended September 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):

June 30, 2020

September 30, 2020

Amount Accumulated

19 unchanged sentences

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

June 30, 2020 and 2019

September 30, 2020 and 2019

Purchases of Patents and Patent Licenses

1 unchanged sentence

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.

In October 2020, we purchased one patent for $ 0.2 million.

The carrying value, net of amortization, of our purchased patents and patent licenses was $ 2.9 million and $ 2.4 million as of September 30, 2020 and December 31, 2019, respectively.

As of September 30, 2020 and December 31, 2019, $ 0.7 million and $ 0.5 million of patent costs were included in other current assets, respectively, and $ 2.2 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 September 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 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.

Patent cost amortization of $ 0.1 million and $ 0.3 million was included in cost of SaaS and license revenue in our condensed consolidated statements of operations for the three and nine months ended September 30, 2020 and 2019, respectively.

Patent cost amortization of $ 0.1 million and $ 0.2 million was included in amortization and depreciation in our condensed consolidated statements of operations for the three and nine months ended September 30, 2020, as compared to less than $ 0.1 million and $ 0.1 million in the same periods in the prior year.

Loan to a Distribution Partner

15 unchanged sentences

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 September 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.

As of September 30, 2020 and December 31, 2019, $ 4.1 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 nine months ended September 30, 2020, we recognized $ 0.5 million and $ 1.8 million of revenue from the distribution partners associated with these loans, respectively, as compared to $ 0.4 million and $ 1.3 million for the same periods in the prior year.

Loan to and Investment in a Hardware Supplier

In October 2018, we entered into a subordinate convertible promissory note with one of our hardware suppliers, or the October 2018 Promissory Note, which was subsequently amended.

In March 2019, we entered into a separate secured promissory note with the same hardware supplier, which, together with the October 2018 Promissory Note, we refer to as the Promissory Notes.

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.

In March 2019, we entered into a separate secured promissory note with the same hardware supplier, which, together with the October 2018 Promissory Note, we refer to as the

ALARM.COM HOLDINGS, INC.

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

June 30, 2020 and 2019

September 30, 2020 and 2019

Promissory Notes.

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.

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.

11 unchanged sentences

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 June 30, 2020 and December 31, 2019.

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

Loan to a Service Provider Partner

2 unchanged sentences

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.

As of September 30, 2020, $ 0.6 million of principal was outstanding from the service provider partner under the loan agreement.

For the three and nine months ended September 30, 2020, we recognized less than $ 0.1 million and $ 0.1 million of revenue from the distribution partners associated with these loans, respectively, as compared to less than $ 0.1 million for the same periods in the prior year

Investment in a Platform Partner

6 unchanged sentences

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.

On July 31, 2020, the platform partner was acquired by an unrelated third party and, as a result of the sale, we received proceeds of $ 25.7 million in exchange for our shares of common stock.

As a result of the sale, we recorded a gain of $ 24.7 million within other income, net, in our condensed consolidate d statements of operations during the three and nine months ended September 30, 2020.

As of September 30, 2020 , our investment in the platform partner was zero and as of 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.

ALARM.COM HOLDINGS, INC.

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

June 30, 2020 and 2019

September 30, 2020 and 2019

Allowance for Credit Losses - Notes Receivable

1 unchanged sentence

Three Months Ended

June 30, 2020 Six Months Ended

June 30, 2020

September 30, 2020 Nine Months Ended

September 30, 2020

Receivables Hardware

3 unchanged sentences

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

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

Recovery of / (provision for) expected credit losses ( 20 ) 6 368 —

Write-offs 1 — 1 —

1 unchanged sentence

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 June 30, 2020 are as follows (in thousands):

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

Loan Receivables:

14 unchanged sentences

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

June 30, 2020 December 31, 2019

September 30, 2020 December 31, 2019

Loan receivables $ — $ —

1 unchanged sentence

Total $ 25 $ 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 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.

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

As of September 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 September 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.

ALARM.COM HOLDINGS, INC.

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

June 30, 2020 and 2019

September 30, 2020 and 2019

Prepaid Expenses

As of September 30, 2020 and December 31, 2019, $ 10.9 million and $ 6.1 million of prepaid expenses were included in other current assets, respectively, primarily related to software licenses.

Fair Value Measurements

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Fair Value Measurements on a Recurring Basis as of

June 30, 2020

September 30, 2020

Fair value measurements in:

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Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2020 2019 2020 2019

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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 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.

During the nine months ended September 30, 2020, the contingent consideration liability decreased $ 2.6 million from December 31, 2019 to less than $ 0.1 million, primarily due to a change to OpenEye's 2020 projected revenue.

The si gnificant unobservable inputs used in the valuation as of September 30, 2020 included a revenue volatility of 64 % and a discount rate of

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).

September 30, 2020 and 2019

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 was included in accounts payable, accrued expenses and other current liabilities in our condensed consolidated balance sheet as of September 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 and six months ended June 30, 2020 and 2019.

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

No other-than-temporary impairments occurred during the three and nine months ended September 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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In March 2020, we entered into an amendment to the lease for our corporate headquarters, which provides for additional office space, additional parking spaces and additional tenant improvement allowance.

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.

The lease term ends in 2026, includes a five-year renewal option and a cumulative tenant improvement allowance of $ 11.8 million, including $ 0.7 million tenant improvement allowance within the March 2020 lease amendment.

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

September 30, Nine Months Ended

September 30,

2020 2019 2020 2019

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Operating lease right-of-use assets obtained in exchange for new operating lease liabilities 1,998 1,133 8,645 3,384

September 30,

2020 December 31,

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

June 30, 2020 and 2019

September 30, 2020 and 2019

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

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_______________

(1) Operating lease payments exclude $ 2.8 million of legally binding minimum lease payments for leases executed but not yet commenced and includes $ 0.6 million for options to extend lease terms that were reasonably certain of being exercised.

(1) Operating lease payments exclude less than $ 0.1 million of legally binding minimum lease payments for leases executed but not yet commenced and includes $ 0.6 million for options to extend lease terms that were reasonably certain of being exercised.

(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 June 30, 2020 or December 31, 2019.

We did no t have any finance leases or subleases as of September 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 and six months ended June 30, 2020 and 2019.

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

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

September 30,

2020 December 31,

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

September 30,

2020 December 31,

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

June 30, 2020 and 2019

September 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.

During the three and nine months ended September 30, 2020, we repaid $ 1.0 million and $ 2.0 million of the outstanding balance of the 2017 Facility, respectively.

During the three and nine months ended September 30, 2019, we repaid $ 1.0 million and $ 3.0 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 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.

For each of the three and nine months ended September 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 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 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 June 30, 2020 and December 31, 2019.

For the nine months ended September 30, 2020, the effective interest rate on the 2017 Facility was 2.92 %, as compared to 4.61 % for the same period in the prior year.

The carrying value of the 2017 Facility was $ 111.0 million and $ 63.0 million as of September 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 June 30, 2020, we were in compliance with all financial and non-financial covenants and there were no events of default.

As of September 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.

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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 .

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).

The contingent consideration liab ility is included in accounts payable, accrued expenses and other current liabilities in our condensed consolidated balance sheets as of September 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 June 30, 2020 and December 31, 2019, we had no outstanding letters of credit under the 2017 Facility.

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

Legal Proceedings

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

June 30, 2020 and 2019

September 30, 2020 and 2019

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

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On October 30, 2018 and November 5, 2018, the PTO issued final office actions in the pending reexaminations rejecting all claims being examined as unpatentable over the prior art.

Nine claims asserted in the litigation were found unpatentable in the PTO rejections.

Vivint appealed these rejections to the PTAB on March 29, 2019 and April 4, 2019.

On February 28, 2020, the PTAB issued a decision affirming the rejections in one of the reexaminations.

The PTAB issued decisions affirming the rejections on February 28, 2020 and May 4, 2020.

Vivint appealed one of these decisions to the Federal Circuit on July 1, 2020, and requested rehearing from the PTAB on the other decision.

On December 20, 2018, the Federal Circuit issued an order regarding the inter partes review of three of the remaining patents in suit that vacated, reversed and remanded the PTAB’s ruling with regard to the construction of a term (“communication device identification code”) as requested by Alarm.com and affirmed the PTAB’s May 2017 rulings invalidating certain of the Vivint patents in all other respects.

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Vivint appealed the July 24, 2019 decisions to the Federal Circuit on September 25, 2019.

On April 16, 2020, the U.S.

District Court, District of Utah issued an order granting a temporary stay of the litigation, to expire on August 10, 2020, due to the COVID-19 pandemic and based on the stipulation of both parties.

Oral argument of the appeal is scheduled for December 8, 2020.

Should Vivint prevail in proving Alarm.com infringes one or more of its patent claims, we could be required to pay damages of Vivint’s lost profits and/or a reasonable royalty for sales of our solution.

11 unchanged sentences

Among other things, we asserted defenses based on non-infringement and invalidity of the patents in question.

The administrative law judge presiding over the investigation has set March 15, 2021 as the target date for completion of the investigation.

The administrative law judge presiding over the investigation scheduled an evidentiary hearing to begin on November 16, 2020 and set March 15, 2021 as the target date for completion of the investigation.

On November 11, 2019, EcoFactor filed a lawsuit against us in U.S.

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

We have not yet been served with the complaint.

On October 27, 2020, the court issued an order staying the lawsuit until January 25, 2021 in light of the related ITC investigation.

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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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 August 6, 2020, the Court granted our motion to dismiss the complaint in its entirety.

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.

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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.

We have agreed to waive service of the complaint, and our response is due November 20, 2020.

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

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

June 30, 2020 and 2019

September 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.

19 unchanged sentences

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.

The pretrial conference is scheduled for March 22, 2021, and trial is set for April 5, 2021.

On July 2, 2020, Port us Singapore Pte.

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District Court for the Western District of Texas.

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

Portus alle ges 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.

Varatec, LLC v.

ADT, LLC d/b/a ADT Security Services , N.D.

Illinois Case No.

1-19-cv-01543.

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

7,792,256, which was assigned to Varatec.

Varatec seeks a permanent injunction, enhanced damages, and attorneys’ fees.

On May 23, 2019, ADT filed a motion seeking to dismiss the complaint for failure to state a claim, on the basis that the asserted patent fails to claim patent eligible subject matter.

On July 3, 2019, third-party Unified Patents Inc.

filed a petition seeking inter parties review of the asserted patent by the PTAB.

After the completion of briefing of ADT’s motion to dismiss, the parties agreed to stay the case pending resolution of the inter partes review, and the court granted the parties’ motion on August 14, 2019.

Unified Patent’s petition for inter parties review was instituted on December 31, 2019 and is currently pending.

Varatec filed a notice of voluntary dismissal without prejudice under Fed.

41(a) on April 15, 2020, and the court has ratified the dismissal.

ADT answered the complaint on August 31, 2020.

The claim construction hearing is set for March 19, 2021.

The court has not yet otherwise entered a schedule.

Should the plaintiffs prevail on the claims that one or more elements of ADT’s products infringe, we could be required to indemnify ADT for damages in the form of a reasonable royalty or ADT could be enjoined from making, using and selling our solution if a license or other right to continue selling our technology is not made available to us or we are unable to design around such patents, and required to pay ongoing royalties and comply with unfavorable terms if such a license is made available to us.

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

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

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

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

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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 June 30, 2020 or during each of the three and six months ended June 30, 2019.

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

ALARM.COM HOLDINGS, INC.

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

June 30, 2020 and 2019

September 30, 2020 and 2019

Stock-Based Compensation

1 unchanged sentence

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2020 2019 2020 2019

5 unchanged sentences

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2020 2019 2020 2019

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Tax benefit from stock-based awards $ 1,658 $ 565 $ 3,846 $ 4,050

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.

We granted an aggregate of 2,000 and 143,650 stock options pursuant to our 2015 Equity Incentive Plan, or the 2015 Plan, during the three and nine months ended September 30, 2020, respectively, as compared to an aggregate of 30,000 and 140,500 stock options for the same periods in the prior year.

There were 139,225 and 397,416 stock options exercised during the three and nine months ended September 30, 2020, respectively, as compared to 60,043 and 258,668 stock options for the same periods in the prior year.

We granted an aggregate of 169,699 and 488,771 restricted stock units during the three and nine months ended September 30, 2020, respectively, as compared to an aggregate of 88,308 and 425,324 restricted stock units for the same periods in the prior year.

There were 34,136 and 121,259 restricted stock units that vested during the three and nine months ended September 30, 2020, respectively, as compared to 15,880 and 177,946 restricted stock units vested during the same periods in the prior year.

ALARM.COM HOLDINGS, INC.

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

September 30, 2020 and 2019

Earnings Per Share

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Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2020 2019 2020 2019

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Diluted (A/C) $ 0.71 $ 0.35 $ 1.22 $ 0.81

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

September 30, Nine Months Ended

September 30,

2020 2019 2020 2019

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Significant Service Providers

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.

During the three and nine months ended September 30, 2020, our 10 largest revenue service provider partners accounted for 50 % and 49 % of our consolidated revenue, respectively, as compared to 52 % for 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 nine months ended September 30, 2020 and 2019.

One individual serv ice provider partner in the Alarm.com segment represented more than 10% of accounts receivable as of September 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.

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.

ALARM.COM HOLDINGS, INC.

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

September 30, 2020 and 2019

For the three and nine months ended September 30, 2020, we recorded a provision for income taxes of $ 6.5 million and $ 5.5 million, respectively, resulting in an effective income tax rate of 15.4 % and 8.2 % for those periods.

For the three and nine months ended September 30, 2019, we recorded a provision for income taxes of $ 2.9 million and $ 3.4 million, respectively, resulting in an effective income tax rate of 14.0 % and 7.8 % 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 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 $ 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 recorded an increase to the unrecognized tax benefits of $ 1.1 million primarily for research and development tax credits claimed during the nine months ended September 30, 2020.

We recorded a reduction to the unrecognized tax benefits of $ 0.2 million for research and development tax credits claimed during the nine months ended September 30, 2019.

As of September 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 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 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 nine months ended September 30, 2020, as compared to 94 % and 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)

June 30, 2020 and 2019

September 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 June 30, 2020

Three Months Ended September 30, 2020

Alarm.com Other Intersegment Alarm.com Intersegment Other Total

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18,810 ( 889 ) 189 ( 54 ) 18,056

Three Months Ended June 30, 2019

Three Months Ended September 30, 2019

Alarm.com Other Intersegment Alarm.com Intersegment Other Total

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12,772 ( 561 ) 62 ( 78 ) 12,195

Six Months Ended June 30, 2020

Nine Months Ended September 30, 2020

Alarm.com Other Intersegment

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45,427 ( 2,370 ) 246 ( 386 ) 42,917

Six Months Ended June 30, 2019

Nine Months Ended September 30, 2019

Alarm.com Other Intersegment

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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 September 30, 2020 $ 729,845 $ 24,527 $ ( 56,356 ) $ 29 $ 698,045

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 $ 9.8 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

Our SaaS and license revenue for the Alarm.com segment included software license revenue of $ 9.5 million and $ 29.0 million for the three and nine months ended September 30, 2020, respectively, as compared to $ 10.8 million and $ 32.8 million for the same periods in the prior year.

There w as no softwar e license revenue recorded for the Other segment during the three and nine months ended September 30, 2020 and 2019.

Depreciation and amortization expense was $ 6.7 million and $ 19.8 million for the Alarm.com segment for the three and nine months ended September 30, 2020, respectively, as compared to $ 5.5 million and $ 15.8 million for the same periods in the prior year.

Depreciation and amortization expense was $ 0.1 million and $ 0.2 million for the Other segment for the three and nine months ended September 30, 2020 and less than $ 0.1 million for each of the three and nine months ended September 30, 2019.

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.

September 30, 2020 and 2019

Additions to property and equipment were $ 4.7 million and $ 11.2 million for the Alarm.com segment for the three and nine months ended September 30, 2020, respectively, as compared to $ 4.7 million and $ 8.5 million for the same periods in the prior year.

Additions to property and equipment were $ 0.1 million and $ 1.0 million for the Other segment for the three and nine months ended September 30, 2020, respectively, as compared to $ 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 nine months ended September 30, 2020 and 2019.

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

Related Party Transactions

2 unchanged sentences

We account for this investment using the equity method.

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.

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

During the three and nine months ended September 30, 2020 and 2019, we recorded $ 0.1 million and $ 0.3 million of cost of hardware and other revenue in connection with this installation partner, respectively.

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

Affiliate Lease

OpenEye leases its production and administration operations facility from a company that is controlled by certain employees of OpenEye, or the Landlord.

The lease term is one year with an expiration date of October 20, 2020.

The one year lease term expired on October 20, 2020 and was subsequently converted to a month-to-month lease.

OpenEye can terminate the lease at any time by providing 30 days' prior written notice and the Landlord can terminate the lease by providing 90 days' prior written notice.

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

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.

During the three and nine months ended September 30, 2020, we recorded $ 0.1 million and $ 0.2 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 nine months ended September 30, 2019.

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

Subsequent Event

On November 4, 2020, we and ADT LLC, or ADT, entered into an amendment to our existing master service agreement, the Amendment.

The Amendment extends the initial term of the master service agreement through January 1, 2023 and sets forth certain terms relating to the integration of certain Google Nest products and services into the platform we operate on behalf of ADT, and assures that subject to certain conditions and exceptions, ADT will enable its end customers to continue as subscribers on an Alarm.com platform after the initial term expires for the natural lifetime of such end customer account.

Concurrently with the Amendment, we entered into a patent license agreement pursuant to which we granted ADT a license to use certain Alarm.com intellectual property following the termination or expiration of the initial term of the master service agreement.

Under the terms of the patent license, ADT will pay us a monthly royalty for each subscriber to its branded residential interactive security, automation and video service offerings that is covered by any of our licensed patents and not supported on our platforms.

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