What changed in this filing

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Item 1. Financial Statements

2021-08-05 compared with 2021-05-04 · 267 added, 208 removed, 800 unchanged (37% of the section changed)

4 unchanged sentences

Three Months Ended

June 30, Six Months Ended

2021 2020 2021 2020

SaaS and license revenue $ 113,186 $ 95,704 $ 220,569 $ 187,654

14 unchanged sentences

Interest income 149 157 306 616

Other (expense) / income, net ( 155 ) 92

Other income / (expense), net 32 65 ( 123 ) 157

Income before income taxes 12,752 14,348 24,389 24,121

(Benefit from) / provision for income taxes ( 2,913 ) 1,202

Benefit from income taxes ( 1,738 ) ( 2,277 ) ( 4,651 ) ( 1,075 )

Net income 14,490 16,625 29,040 25,196

48 unchanged sentences

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

no shares issued and outstanding as of March 31, 2021 and December 31, 2020

no shares issued and outstanding as of June 30, 2021 and December 31, 2020

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

50,040,853 and 49,630,773 shares issued;

and 49,656,597 and 49,483,620 shares outstanding as of March 31, 2021 and December 31, 2020, respectively

and 49,893,700 and 49,483,620 shares outstanding as of June 30, 2021 and December 31, 2020, respectively

Additional paid-in capital 481,937 405,831

Treasury stock, at cost;

147,153 shares as of March 31, 2021 and December 31, 2020

147,153 shares as of June 30, 2021 and December 31, 2020

( 5,149 ) ( 5,149 )

6 unchanged sentences

(in thousands)

Three Months Ended

Six Months Ended

Cash flows from operating activities:

27 unchanged sentences

Purchase of investment in unconsolidated entity ( 5,000 ) —

Purchases of patents and patent licenses — ( 900 )

Cash flows used in investing activities ( 12,376 ) ( 9,306 )

25 unchanged sentences

Balance as of March 31, 2021 10,884 — — 49,804 498 471,748 147 ( 5,149 ) 81,404 548,501

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

Common stock issued in connection with equity-based plans — — — 237 2 876 — — — 878

Stock-based compensation expense — — — — — 10,056 — — — 10,056

Accretion adjustments of redeemable noncontrolling interest to redemption value 743 — — — — ( 743 ) — — — ( 743 )

Net income / (loss) attributable to common stockholders ( 255 ) — — — — — — — 14,745 14,745

Balance as of June 30, 2021 $ 11,372 — $ — 50,041 $ 500 $ 481,937 147 $ ( 5,149 ) $ 96,149 $ 573,437

See accompanying notes to the condensed consolidated financial statements.

ALARM.COM HOLDINGS, INC.

Condensed Consolidated Statements of Equity — (Continued)

(in thousands)

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

Shares Amount Shares Amount Shares Amount

6 unchanged sentences

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

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

See accompanying notes to the condensed consolidated financial statements.

ALARM.COM HOLDINGS, INC.

Notes to the Condensed Consolidated Financial Statements

March 31, 2021 and 2020

Notes to the Condensed Consolidated Financial Statements (Unaudited)

Alarm.com Holdings, Inc.

12 unchanged sentences

The condensed consolidated balance sheet as of December 31, 2020 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 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.

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 for the periods presented.

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

1 unchanged sentence

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.

While vaccines have been approved for use in the United States and in many other countries, supplies of the vaccine remain limited and it remains difficult to assess or predict the ultimate duration and economic impact of the COVID-19 pandemic.

The results of operations for the three months ended March 31, 2021 are not necessarily indicative of the results that can be expected for our entire fiscal year ending December 31, 2021, which is increasingly true in periods of extreme uncertainty, such as the uncertainty caused by the COVID-19 pandemic.

While vaccines have been approved for use in the United States and in many other countries, and vaccination efforts are underway, it remains difficult to assess or predict the ultimate duration and economic impact of the COVID-19 pandemic.

The results of operations for the three and six months ended June 30, 2021 are not necessarily indicative of the results that can be expected for our entire fiscal year ending December 31, 2021, which is increasingly true in periods of extreme uncertainty, such as the uncertainty caused by the COVID-19 pandemic.

Prolonged uncertainty with respect to COVID-19 could cause further economic slowdown or cause other unpredictable events, each of which could adversely affect our business, results of operations or financial condition.

6 unchanged sentences

Comprehensive Income

Our comprehensive income for the three months ended March 31, 2021 and 2020 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, 2021 and 2020 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)

March 31, 2021 and 2020

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, 2021 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, 2021 from those disclosed in our Annual Report.

Convertible Senior Notes

8 unchanged sentences

Transaction costs attributable to the equity component are netted with the equity component of the notes in additional paid-in capital in the condensed consolidated balance sheets.

See Note 12 for the carrying amount and estimated fair value of our convertible senior notes as of March 31, 2021.

See Note 12 for the carrying amount and estimated fair value of our convertible senior notes as of June 30, 2021.

Recent Accounting Pronouncements

21 unchanged sentences

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

March 31, 2021 and 2020

Revenue from Contracts with Customers

10 unchanged sentences

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

For the twelve months ended March 31, 2021 and 2020, our reserve against revenue for hardware returns was 1 %.

For the twelve months ended June 30, 2021 and 2020, 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.

13 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 approp riate, until the ten-year expected term is complete.

The balance of deferred revenue for activation fees was $ 6.8 million and $ 7.0 million as of March 31, 2021 and December 31, 2020, 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 appropriate, until the ten-year expected term is complete.

The balance of deferred revenue for activation fees was $ 6.5 million and $ 7.0 million as of June 30, 2021 and December 31, 2020, 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.

6 unchanged sentences

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

March 31, 2021 and 2020

based on customary business practices.

17 unchanged sentences

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 elat es, 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, 2021 and 2020.

We did no t record an impairment loss on our contract assets during the three and six months ended June 30, 2021 and 2020.

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

Three Months Ended

June 30, Six Months Ended

2021 2020 2021 2020

Beginning of period balance $ 4,603 $ 4,932 $ 4,306 $ 4,578

8 unchanged sentences

Three Months Ended

June 30, Six Months Ended

2021 2020 2021 2020

Beginning of period balance $ 13,656 $ 12,102 $ 12,529 $ 10,498

4 unchanged sentences

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

March 31, 2021 and 2020

The revenue recognized from amounts included in contract liabilities primarily relates to prepayment contracts with customers as well as payments of activation fees.

6 unchanged sentences

Accounts receivable, net $ 92,612 $ 83,326

For the three months ended March 31, 2021, we recorded a provision for credit losses of less than $ 0.1 million on our accounts receivable, as compared to $ 1.9 million for the same period in the prior year.

For the three months ended March 31, 2021, we recorded a reserve for product returns of $ 0.6 million, as compared to $ 0.3 million for the same period in the prior year.

For the three and six months ended June 30, 2021, we recorded a provision for credit losses of $ 0.1 million and $ 0.2 million on our accounts receivable, respectively.

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

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, 2021, we recorded a reserve for product returns of $ 0.5 million and $ 1.1 million, respectively, as compared to $ 0.7 million and $ 1.0 million for the same periods in the prior year.

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

10 unchanged sentences

(i) outstanding accounts receivable balances within Alarm.com and certain subsidiaries and (ii) outstanding accounts receivable balances within all other subsidiaries.

There were no changes to our portfolio segments for our accounts receivable during the three months ended March 31, 2021, and no changes to our policies or practices that influenced our estimate of expected credit losses for accounts receivable.

There were no significant changes in the amount of accounts receivable write-offs during the three months ended March 31, 2021, as compared to historical periods other than a partial write-off of $ 0.7 million related to one of our distribution partners' outstanding balance during the three months ended March 31, 2021, upon the distributor being acquired by a third party.

There were no changes to our portfolio segments for our accounts receivable during the three and six months ended June 30, 2021, and no changes to our policies or practices that influenced our estimate of expected credit losses for accounts receivable.

There were no significant changes in the amount of accounts receivable write-offs during the three and six months ended June 30, 2021, as compared to historical periods other than a partial write-off of $ 0.7 million related to one of our distribution partners' outstanding balance during the six months ended June 30, 2021, upon the distributor being acquired by a third party.

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, 2021, we recorded a reduction of credit loss expense for accounts receivable and notes receivable of less than $ 0.1 million and for the three months ended March 31, 2020, we recorded credit loss expense for accounts receivable and notes receivable of $ 1.4 million in general and administrative expense in our condensed consolidated statements of operations.

For the three and six months ended June 30, 2021, we recorded credit loss expense for accounts receivable and notes receivable of $ 0.1 million and less than $ 0.1 million, respectively, 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.

3 unchanged sentences

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

March 31, 2021 and 2020

The changes in our allowance for credit losses for accounts receivable are as follows (in thousands):

Three Months Ended

March 31, 2021 Three Months Ended

March 31, 2020

June 30, 2021 Three Months Ended

June 30, 2020 Six Months Ended

June 30, 2021 Six Months Ended

June 30, 2020

Subsidiaries All Other

1 unchanged sentence

Subsidiaries All Other

Subsidiaries Alarm.com

Subsidiaries All Other

Subsidiaries Alarm.com

Subsidiaries All Other

Beginning of period balance $ ( 3,670 ) $ ( 242 ) $ ( 4,555 ) $ ( 234 ) $ ( 4,442 ) $ ( 254 ) $ ( 2,500 ) $ ( 84 )

11 unchanged sentences

Substantially all of the acquired assets consisted of in-process research and development, or IPR&D.

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.

We believe the acquisition of the IPR&D will continue to 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 $ 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 and was included in research and development expense in our condensed consolidated statements of operations during the three months ended March 31, 2020 , as the IPR&D had no alternative future use.

The $ 1.5 million consideration related to IPR&D was expensed at the time of the asset acquisition and was included in research and development expense in our condensed consolidated statements of operations during the six months ended June 30, 2020 , as the IPR&D had no alternative future use.

On March 31, 2020, Alarm.com Incorporated acquired certain assets of an unrelated third party.

Substantially all of the acquired assets consisted of IPR&D.

We believe the acquisition of the IPR&D will further our commitment to make significant investments in innovative research and development in the intelligently connected property market to broaden our suite of solutions.

In consideration for the purchase of the IPR&D, we paid $ 2.1 million in cash on March 31, 2020 and $ 0.1 million in December 2019, with the remaining $ 0.7 million expected to be paid the later of approximately 12 months following the acquisition date or upon resolution of any pending indemnification claims, subject to offset for any indemnification obligations.

The $ 2.9 million consideration related to IPR&D was expensed at the time of the asset acquisition and was included in research and development expense in our condensed consolidated statements of operations during the three months ended March 31, 2020 , as the IPR&D had no alternative future use.

We believe the acquisition of the IPR&D will continue to further our commitment to make significant investments in innovative research and development in the intelligently connected property market to broaden our suite of solutions.

In consideration for the purchase of the IPR&D, we paid $ 2.1 million in cash on March 31, 2020, $ 0.1 million in December 2019 and the remaining $ 0.7 million in April 2021.

The $ 2.9 million consideration related to IPR&D was expensed at the time of the asset acquisition and was included in research and development expense in our condensed consolidated statements of operations during the six months ended June 30, 2020 , as the IPR&D had no alternative future use.

Acquisition of a Business - Shooter Detection Systems

4 unchanged sentences

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

March 31, 2021 and 2020

In consideration for the purchase of 100 % of the issued and outstanding ownership interest units of SDS, we paid $ 26.6 million in cash on December 14, 2020.

Pursuant to the terms of the unit purchase agreem ent, following the preliminary determination of the working capital of SDS as of the closing date, the purch ase price decreased by $ 0.1 million.

The working capital adjustment is expected to be finalized in the second quarter of 2021.

The purchase price allocation, which is pending the final determination of the working capital, 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):

Pursuant to the terms of the unit purchase agreement, following the preliminary determination of the working capital of SDS as of the closing date, the purchase price decreased by $ 0.1 million.

The purchase price allocation was finalized during the second quarter of 2021, including the working capital adjustment, resulting in a measurement period adjustment to increase the purchase consideration by $ 0.1 million and to increase goodwill by $ 0.1 million.

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

December 14, 2020

2 unchanged sentences

Total consideration $ 26,577

Estimated Tangible and Intangible Net Assets:

Tangible and Intangible Net Assets:

Accounts receivable 1,179

12 unchanged sentences

Goodwill 7,239

Total estimated tangible and intangible net assets $ 26,514

Total tangible and intangible net assets $ 26,577

Goodwill of $ 7.2 million reflects the value of acquired workforce and synergies we expect to achieve from expanding our commercial solutions through SDS's indoor gunshot detection solution.

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.

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

Fair Value of Net Assets Acquired and Intangibles

In accordance with ASC 805, SDS constituted a business and the assets and liabilities were recorded at their respective fair values as of December 14, 2020.

In accordance with Accounting Standards Codification, or ASC, 805, Business Combinations , SDS constituted a business and the assets and liabilities were recorded at their respective fair values as of December 14, 2020.

We developed our estimate of the fair value of intangible net assets using the with-and-without method for customer relationships, the multi-period excess earnings method for the developed technology and the relief-from-royalty method for the trade name.

6 unchanged sentences

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

March 31, 2021 and 2020

Developed Technology

12 unchanged sentences

Goodwill acquired — — —

Balance as of March 31, 2021 $ 112,838 $ — $ 112,838

There were no impairments of goodwill during the three months ended March 31, 2021 and 2020.

Measurement period adjustment 63 — 63

Balance as of June 30, 2021 $ 112,901 $ — $ 112,901

There were no impairments of goodwill during the three and six months ended June 30, 2021 and 2020.

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

4 unchanged sentences

Amortization ( 6,579 ) ( 1,671 ) ( 272 ) ( 8,522 )

Balance as of March 31, 2021 $ 69,380 $ 27,387 $ 2,231 $ 98,998

We recorded $ 4.3 million of amortization related to our intangible assets for the three months ended March 31, 2021, as compared to $ 4.0 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, 2021 and 2020.

Balance as of June 30, 2021 $ 66,091 $ 26,552 $ 2,094 $ 94,737

We recorded $ 4.3 million and $ 8.5 million of amortization related to our intangible assets for the three and six months ended June 30, 2021, respectively, as compared to $ 4.0 million and $ 8.0 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, 2021 and 2020.

ALARM.COM HOLDINGS, INC.

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

March 31, 2021 and 2020

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, 2021

June 30, 2021

Amount Accumulated

19 unchanged sentences

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 $ 2.7 million and $ 2.9 million as of March 31, 2021 and December 31, 2020, respectively.

As of March 31, 2021 and December 31, 2020, $ 0.7 million of patent costs were included in other current assets and $ 2.0 million and $ 2.2 million of patent costs were included in other assets, respectively.

We have $ 7.0 million of historical cost in purchased patents and patent licenses as of March 31, 2021.

The carrying value, net of amortization, of our purchased patents and patent licenses was $ 2.5 million and $ 2.9 million as of June 30, 2021 and December 31, 2020, respectively.

As of June 30, 2021 and December 31, 2020, $ 0.7 million of patent costs were included in other current assets and $ 1.8 million and $ 2.2 million of patent costs were included in other assets, respectively.

We have $ 7.0 million of historical cost in purchased patents and patent licenses as of June 30, 2021.

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

Patent cost amortization of $ 0.1 million was included in cost of SaaS and license revenue in our condensed consolidated statements of operations for the three months ended March 31, 2021 and 2020.

Patent cost amortization of $ 0.1 million was included in amortization and depreciation in our condensed consolidated statements of operations for the three months ended March 31, 2021, as compared to less than $ 0.1 million in the same period in the prior year.

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, 2021 and 2020, 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, 2021 and 2020.

Loan to a Distribution Partner

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

March 31, 2021 and 2020

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.

3 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 March 31, 2021 and December 31, 2020, none of the notes receivable balance related to the amended term loan was outstanding.

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 March 31, 2021 and December 31, 2020, $ 4.3 million and $ 4.2 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 months ended March 31, 2021, we recognized $ 0.7 million of revenue from the distribution partners associated with these loans, as compared to $ 0.4 million for the same period in the prior year.

As of June 30, 2021 and December 31, 2020, $ 4.4 million and $ 4.2 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, 2021, we recognized $ 0.9 million and $ 1.6 million of revenue from the distribution partners associated with these loans, respectively, as compared to $ 0.9 million and $ 1.3 million for the same periods in the prior year.

Loans to Service Provider Partners

2 unchanged sentences

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

As of March 31, 2021 and December 31, 2020, $ 1.2 million of principal was outstanding from the service provider partner under the loan agreement.

For the three months ended March 31, 2021 and 2020, we recognized less than $ 0.1 million of revenue from the service provider partner associated with this loan.

As of each of June 30, 2021 and December 31, 2020, $ 1.2 million of principal was outstanding from the service provider partner under the loan agreement.

For the three and six months ended June 30, 2021 and 2020, we recognized less than $ 0.1 million and $ 0.1 million of revenue from the service provider partner associated with this loan, respectively.

Investment in a Hardware Supplier

3 unchanged sentences

Under the alternative, we measure investments without readily determinable fair values at cost, less impairment, adjusted for observable price changes from orderly transactions for identical or similar investments.

As of March 31, 2021 and December 31, 2020, our investment in the hardware supplier was $ 5.6 million.

As of June 30, 2021 and December 31, 2020, our investment in the hardware supplier was $ 5.6 million.

Investment in a Technology Partner

6 unchanged sentences

As of March 31, 2021 and December 31, 2020, our investment in the technology partner was $ 5.7 million and $ 0.7 million, respectively.

As of June 30, 2021 and December 31, 2020, our investment in the technology partner was $ 5.7 million and $ 0.7 million, respectively.

ALARM.COM HOLDINGS, INC.

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

Allowance for Credit Losses - Notes Receivable

1 unchanged sentence

(i) loan receivables and (ii) hardware financing receivables.

There were no changes to our portfolio segments for our notes receivable during the three months ended March 31,

ALARM.COM HOLDINGS, INC.

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

March 31, 2021 and 2020

2021, 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 for notes receivable.

There were no changes to our portfolio segments for our notes receivable during the three and six months ended June 30, 2021, 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 for notes receivable.

We do not accrue interest on notes receivable that are considered impaired or are 90 days or greater past due based on their contractual payment terms.

5 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, 2021 and December 31, 2020 was $ 0.1 million and 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, 2021 and 2020.

There were no purchases or sales of financial assets during the three months ended March 31, 2021 and 2020.

There were no significant changes in the amount of note receivable write-offs during the three months ended March 31, 2021, as compared to historical periods.

The accrued interest receivable as of each of June 30, 2021 and December 31, 2020 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, 2021 and 2020.

There were no purchases or sales of financial assets during the three and six months ended June 30, 2021 and 2020.

There were no significant changes in the amount of note receivable write-offs during the three and six months ended June 30, 2021, as compared to historical periods.

The changes in our allowance for credit losses for notes receivable are as follows (in thousands):

Three Months Ended

March 31, 2021 Three Months Ended

March 31, 2020

June 30, 2021 Three Months Ended

June 30, 2020 Six Months Ended

June 30, 2021 Six Months Ended

June 30, 2020

Receivables Hardware

1 unchanged sentence

Receivables Hardware

Receivables Loan

Receivables Hardware

Receivables Loan

Receivables Hardware

Beginning of period balance $ ( 73 ) $ ( 5 ) $ ( 87 ) $ ( 29 ) $ ( 73 ) $ ( 16 ) $ — $ ( 16 )

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

Recovery of expected credit losses — 11 347 2

(Provision for) / recovery of expected credit losses ( 1 ) 1 41 ( 8 ) ( 1 ) 12 388 ( 6 )

Write-offs — — — — — — — —

End of period balance $ ( 74 ) $ ( 4 ) $ ( 46 ) $ ( 37 ) $ ( 74 ) $ ( 4 ) $ ( 46 ) $ ( 37 )

ALARM.COM HOLDINGS, INC.

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

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, 2021 are as follows (in thousands):

The following tables reflect the current and delinquent notes receivable by class of financing receivables and by year of origination (in thousands):

June 30, 2021

Loan Receivables:

13 unchanged sentences

Total $ — $ — $ 73 $ 33 $ — $ — $ 106

ALARM.COM HOLDINGS, INC.

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

March 31, 2021 and 2020

December 31, 2020

Loan Receivables:

2020 2019 2018 2017 2016 Prior Total

Current $ 1,200 $ 17 $ — $ 4,207 $ — $ — $ 5,424

30-59 days past due — — — — — — —

60-89 days past due — — — — — — —

90-119 days past due — — — — — — —

120+ days past due — — — — — — —

Total $ 1,200 $ 17 $ — $ 4,207 $ — $ — $ 5,424

Hardware Financing Receivables:

Current $ — $ 67 $ 49 $ — $ — $ — $ 116

30-59 days past due — — — 2 — — 2

60-89 days past due — 57 27 — — — 84

90-119 days past due — — — — — — —

120+ days past due — — — 9 — — 9

Total $ — $ 124 $ 76 $ 11 $ — $ — $ 211

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

March 31, 2021 December 31, 2020

June 30, 2021 December 31, 2020

Loan receivables $ — $ —

1 unchanged sentence

Total $ — $ 9

During the three months ended March 31, 2021 and 2020, there was no interest income recognized related to notes receivables that were in nonaccrual status.

As of March 31, 2021 and December 31, 2020, there were no notes receivables placed in nonaccrual status for which there was not a related allowance for credit losses.

As of March 31, 2021 and December 31, 2020, 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)

During the three and six months ended June 30, 2021 and 2020, there was no interest income recognized related to notes receivables that were in nonaccrual status.

As of June 30, 2021 and December 31, 2020, there were no notes receivables placed in nonaccrual status for which there was not a related allowance for credit losses.

As of June 30, 2021 and December 31, 2020, 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, 2021 and December 31, 2020, $ 10.7 million and $ 8.4 million of prepaid expenses were included in other current assets, respectively, primarily related to software licenses.

As of June 30, 2021 and December 31, 2020, $ 12.0 million and $ 8.4 million of prepaid expenses were included in other current assets, respectively, primarily related to software licenses and for long lead-time parts related to our inventory.

Fair Value Measurements

1 unchanged sentence

Fair Value Measurements on a Recurring Basis as of

March 31, 2021

June 30, 2021

Fair value measurements in:

10 unchanged sentences

Three Months Ended

June 30, Six Months Ended

2021 2020 2021 2020

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

3 unchanged sentences

Our money market assets are valued using quoted prices in active markets.

See Note 12 for the carrying amount and estimated fair value of our convertible senior notes as of March 31, 2021.

See Note 12 for the carrying amount and estimated fair value of our convertible senior notes as of June 30, 2021.

The contingent consideration liability consisted of the potential earn-out payment related to our acquisition of 85 % of the issued and outstanding capital stock of OpenEye on October 21, 2019.

1 unchanged sentence

During parts of 2019 and 2020, we accounted for the contingent consideration using fair value and established a liability for the future earn-out payment based on an estimation of revenue attributable to perpetual licenses and subscription licenses over the 2020 calendar year.

ALARM.COM HOLDINGS, INC.

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

March 31, 2021 and 2020

contingent consideration liability was valued with significant unobservable inputs, including the revenue volatility and the discount rate.

The contingent consideration liability was valued with significant unobservable inputs, including the revenue volatility and the discount rate.

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

3 unchanged sentences

As of December 31, 2020, the 2020 revenue targets were not met and the fair value of the contingent consideration related to the potential earn-out payment decreased to zero as compared to the initial liability recorded at the acquisition date, primarily due to OpenEye's 2020 actual revenue being less than the projected revenue.

ALARM.COM HOLDINGS, INC.

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

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, 2021 and 2020.

There were no transfers in or out of Level 3 during the three and six months ended June 30, 2021 and 2020.

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, 2021 and 2020.

No other-than-temporary impairments occurred during the three and six months ended June 30, 2021 and 2020.

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

In August 2014, we signed a lease for office space in Tysons, Virginia, where we relocated our headquarters to in February 2016.

We have subsequently entered into amendments to this lease to provide us with additional office space.

We have subsequently entered into amendments to this lease from 2015 to 2020 to provide us with additional office space.

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

1 unchanged sentence

Three Months Ended

June 30, Six Months Ended

2021 2020 2021 2020

Operating lease cost $ 2,357 $ 2,188 $ 4,695 $ 4,233

4 unchanged sentences

Weighted-average discount rate — operating leases 3.6 % 3.6 %

ALARM.COM HOLDINGS, INC.

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

March 31, 2021 and 2020

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

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_______________

(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 $ 1.0 million for options to extend lease terms that were reasonably certain of being exercised.

(1) Operating lease payments exclude $ 2.6 million of legally binding minimum lease payments for leases executed but not yet commenced and includes $ 1.0 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 March 31, 2021 or December 31, 2020.

We did no t have any finance leases or subleases as of June 30, 2021 or December 31, 2020.

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, 2021 and 2020.

Short-term lease costs were immaterial for the three and six months ended June 30, 2021 and 2020.

ALARM.COM HOLDINGS, INC.

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

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

19 unchanged sentences

We received proceeds from the issuance of the 2026 Notes of $ 484.3 million, net of $ 15.7 million of transaction fees and other debt issuance costs.

ALARM.COM HOLDINGS, INC.

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

March 31, 2021 and 2020

We may not redeem the 2026 Notes prior to January 20, 2024.

3 unchanged sentences

(1) during any calendar quarter commencing after the calendar quarter ending on June 30, 2021 (and only during such calendar quarter), if the last reported sale price of our common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130 % of the conversion price for the 2026 Notes on each applicable trading day;

(2) during the five business day period immediately after any ten consecutive trading day period in which, for each trading day of that period, the trading price per $1,000 principal amount of 2026 Notes for such trading day was less than 98 % of the product of the last reported sale price of our common stock and the conversion rate for the 2026 Notes on each such trading day;

(2) during the five business day period immediately after any 10 consecutive trading day period in which, for each trading day of that period, the trading price per $1,000 principal amount of 2026 Notes for such trading day was less than 98 % of the product of the last reported sale price of our common stock and the conversion rate for the 2026 Notes on each such trading day;

(3) if we call any or all of the 2026 Notes for redemption, at any time prior to the close of business on the scheduled trading day immediately preceding the redemption date, but only with respect to the 2026 Notes called (or deemed called) for redemption;

1 unchanged sentence

On or after August 15, 2025, until the close of business on the second scheduled trading day immediately preceding the maturity date of the 2026 Notes, holders of the 2026 Notes may convert all or any portion of their 2026 Notes at any time, regardless of the foregoing conditions.

Upon conversion, we may satisfy our conversion obligation by paying or delivering, as the case may be, cash, shares of our common stock or a combination of cash and shares of our common stock, at our election.

Upon conversion, we may satisfy our conversion obligation by paying or delivering, as the

ALARM.COM HOLDINGS, INC.

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

case may be, cash, shares of our common stock or a combination of cash and shares of our common stock, at our election.

It is our current intent to settle the principal amount of the 2026 Notes with cash.

4 unchanged sentences

We used some of the proceeds to repay the $ 110.0 million outstanding principal balance under our credit facility and also used some of the proceeds to pay accrued interest, fees and expenses related to our credit facility (see the section titled "2017 Facility" below).

We intend to use the remaining net proceeds from the issuance of the 2026 Notes for working capital and other general corporate purposes, which may include acquisitions or strategic investments in complementary businesses or technologies.

We are using the remaining net proceeds from the issuance of the 2026 Notes for working capital and other general corporate purposes, which may include acquisitions or strategic investments in complementary businesses or technologies.

In accounting for the transaction, the 2026 Notes were separated into liability and equity components.

6 unchanged sentences

Issuance costs attributable to the equity component were netted with the equity component in additional paid-in capital.

ALARM.COM HOLDINGS, INC.

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

March 31, 2021 and 2020

As of March 31, 2021, the fair value of our 2026 Notes was $ 465.8 million.

As of June 30, 2021, the fair value of our 2026 Notes was $ 467.1 million.

The fair value was determined based on the quoted price of the 2026 Notes in an inactive market on the last traded day of the quarter and has been classified as Level 2 in the fair value hierarchy.

Based on the closing price of our common stock of $ 86.38 on the last trading day of the quarter, the if-converted value of the 2026 Notes did not exceed the principal amount of $ 500.0 million as of March 31, 2021.

Based on the closing price of our common stock of $ 84.70 on the last trading day of the quarter, the if-converted value of the 2026 Notes did not exceed the principal amount of $ 500.0 million as of June 30, 2021.

The net carrying amount of the liability component of the 2026 Notes is as follows (in thousands):

Three Months Ended

2021 December 31,

Principal $ 500,000 $ —

2 unchanged sentences

Net carrying amount $ 416,921 $ —

ALARM.COM HOLDINGS, INC.

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

The net carrying amount of the equity component of the 2026 Notes is as follows (in thousands):

Three Months Ended

2021 December 31,

Debt discount for conversion option $ 77,199 $ —

3 unchanged sentences

Three Months Ended

June 30, Six Months Ended

2021 2020 2021 2020

Amortization of debt discount $ 3,592 $ — $ 6,404 $ —

2 unchanged sentences

The difference between the book and tax treatment of the debt discount and debt issuance costs of the 2026 Notes resulted in a difference between the carrying amount and tax basis of the 2026 Notes.

This taxable temporary difference resulted in the recognition of a $ 18.3 million net deferred tax liability which was recorded as an adjustment to additional paid-in capital.

This taxable temporary difference resulted in the recognition of a $ 18.3 million net deferred tax liability which was recorded as an adjustment to additional paid-in capital during the three months ended March 31, 2021.

2017 Facility

5 unchanged sentences

On March 25, 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 COVID-19 pandemic.

During the three months ended March 31, 2021, we repaid the entire outstanding principal balance of $ 110.0 million of the 2017 Facility with proceeds from the 2026 Notes.

The 2017 Facility was terminated on January 20, 2021 and we recognized an extinguishment loss of $ 0.2 million in other (expense) / income, net in our condensed consolidated statements of operations during the three months ended March 31, 2021 for previously capitalized debt issuance costs related to the 2017 Facility that were unamortized at the time of the termination of the 2017 Facility.

ALARM.COM HOLDINGS, INC.

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

March 31, 2021 and 2020

(b) the Federal Funds rate plus 0.50 %, or (c) LIBOR plus 1.00 % plus an applicable margin based on our consolidated leverage ratio.

On January 20, 2021, we repaid the entire outstanding principal balance of $ 110.0 million of the 2017 Facility with proceeds from the 2026 Notes.

The 2017 Facility was terminated on January 20, 2021 and we recognized an extinguishment loss of $ 0.2 million in other income / (expense), net in our condensed consolidated statements of operations during the six months ended June 30, 2021 for previously capitalized debt issuance costs related to the 2017 Facility that were unamortized at the time of the termination of the 2017 Facility.

The outstanding principal balance on the 2017 Facility accrued 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.

During 2021 until the termination of the 2017 Facility on January 20, 2021, 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 carried 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 %.

The carrying value of the 2017 Facility was zero and $ 110.0 million as of March 31, 2021 and December 31, 2020, respectively.

For the six months ended June 30, 2020, the effective interest rate on the 2017 Facility was 3.42 %.

The carrying value of the 2017 Facility was zero and $ 110.0 million as of June 30, 2021 and December 31, 2020, respectively.

The 2017 Facility included a variable interest rate that approximated 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 December 31, 2020.

ALARM.COM HOLDINGS, INC.

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

Commitments and Contingencies

10 unchanged sentences

Although we cannot predict the maximum potential amount of future payments that may become due under these indemnification agreements, we do not believe any potential liability that might arise from such indemnity provisions is probable or material.

Letters of Credit

As of March 31, 2021 and December 31, 2020, we had no outstanding letters of credit.

ALARM.COM HOLDINGS, INC.

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

March 31, 2021 and 2020

Legal Proceedings

28 unchanged sentences

District Court, Eastern District of Virginia challenging the refusal by the PTO to proceed with additional reexaminations of the remaining patent claims asserted in the lawsuit.

The PTO has moved to dismiss the complaint for lack of jurisdiction.

The PTO’s motion is scheduled to be heard on May 28, 2021.

District Court, Eastern District of Virginia granted the PTO’s motion to dismiss the case for lack of jurisdiction on June 22, 2021.

We appealed the dismissal to the Federal Circuit on June 24, 2021.

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.

10 unchanged sentences

We answered the complaint on December 19, 2019.

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

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

ALARM.COM HOLDINGS, INC.

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

patents in question.

An evidentiary hearing was held in November 2020.

On April 20, 2021, the administrative law judge presiding over the investigation issued a final initial determination finding in favor of Alarm.com.

That decision is subject to review by the ITC commissioners and the federal courts.

On July 20, 2021, the ITC commissioners issued a decision affirming the ruling in favor of Alarm.com and terminated the investigation.

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

6 unchanged sentences

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

On January 19, 2021, the court issued an order staying the lawsuit until May 19, 2021 in light of the related ITC investigation.

On March 9, 2021, the PTO ordered ex parte reexamination of one of the patents asserted in the lawsuit, at Alarm.com’s request.

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

On May 10, 2021, the PTAB instituted inter partes review of the same patent and subsequently stayed the ex parte reexamination pending the conclusion of its review.

On May 13, 2021, the court issued an order staying the lawsuit until September 3, 2021 in light of the related ITC investigation.

Should EcoFactor prevail in its district court lawsuits we could be required to pay damages and/or a reasonable royalty for sales of our solution, we could be enjoined from making, using and selling our solution if a license or other right to continue selling such elements is not made available to us, and we could be required to pay ongoing royalties and comply with unfavorable terms if such a license is made available to us.

While we believe we have valid defenses to EcoFactor’s claims, the outcome of these legal claims cannot be predicted with certainty and any of these outcomes could result

ALARM.COM HOLDINGS, INC.

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

March 31, 2021 and 2020

in an adverse effect on our business.

While we believe we have valid defenses to EcoFactor’s claims, the outcome of these legal claims cannot be predicted with certainty and any of these outcomes could result in an adverse effect on our business.

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 sought statutory damages under the TCPA, injunctive relief, and other relief.

The matter was resolved in December 2020.

On January 27, 2021, the Court entered an order dismissing the case.

On July 22, 2021, Causam Enterprises, Inc., or Causam, filed a lawsuit against us in U.S.

District Court, Western District of Texas, alleging that Alarm.com’s smart thermostats infringe four U.S.

patents owned by Causam.

Causam is seeking preliminary and permanent injunctions, enhanced damages and attorneys’ fees.

Our response is due on September 13, 2021.

On July 28, 2021, Causam filed a complaint with the ITC naming Alarm.com Incorporated, Alarm.com Holdings, Inc., and EnergyHub, Inc., among others, as proposed respondents.

The complaint alleges infringement of the same four patents Causam asserted in district court.

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

The ITC has not yet instituted an investigation into the allegations.

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

Should Causam prevail in its district court lawsuit we could be required to pay damages and/or a reasonable royalty for sales of our solution, we could be enjoined from making, using and selling our solution if a license or other right to continue selling such elements is not made available to us, and we could be required to pay ongoing royalties and comply with unfavorable terms if such a license is made available to us.

While we believe we have valid defenses to Causam’s claims, the outcome of these legal claims cannot be predicted with certainty, and any of these outcomes could result in an adverse effect on our business.

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

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.

3 unchanged sentences

Applied Capital, Inc v.

The ADT Corporation et al.

The ADT Corporation et al., D.

New Mexico Case No.

14 unchanged sentences

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 June 2, 2021, and trial is set for June 16, 2021.

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 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 answered the complaint on August 31, 2020.

The parties have reached settlement and have filed a stipulation for dismissal.

The parties reached settlement and the court dismissed the case on May 27, 2021.

ALARM.COM HOLDINGS, INC.

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

On February 25, 2021, Vivint filed a lawsuit against ADT LLC a/k/a ADT LLC of Delaware d/b/a ADT Security Services in U.S.

3 unchanged sentences

ADT answered the amended complaint on April 30, 2021 and asserted defenses based on non-infringement and invalidity of all the patents in question, and inequitable conduct as to one of the patents.

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 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.

On June 25, 2021, ADT filed a motion for judgment on the pleadings seeking judgment in its favor as to five of the six asserted patents on the grounds that the claimed inventions are directed to ineligible subject matter.

Should Vivint 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 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 and Vivint.

Based on currently available information, we have determined a loss in excess of the amount accrued is not reasonably estimable at this time.

We believe there are valid defenses to the claims made by Vivint.

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

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

3 unchanged sentences

Litigation is subject to many factors that are difficult to predict, so there can be no assurance that, in the event of a material unfavorable result in one or more claims, we will not incur material costs.

ALARM.COM HOLDINGS, INC.

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

March 31, 2021 and 2020

Stockholders' Equity

2 unchanged sentences

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 were repurchased under this program during the three months ended June 30, 2020.

On December 3, 2020, our board of directors authorized another stock repurchase program, under which we are authorized to purchase up to an aggregate of $ 100.0 million of our outstanding common stock during the three-year period ending December 3, 2023.

No shares of our common stock were repurchased under this program during the three months ended March 31, 2021.

No shares of our common stock were repurchased under this program during the three and six months ended June 30, 2021.

Additionally, no shares of our common stock were repurchased under this program from December 3, 2020 to December 31, 2020 .

ALARM.COM HOLDINGS, INC.

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

Stock-Based Compensation

1 unchanged sentence

Three Months Ended

June 30, Six Months Ended

2021 2020 2021 2020

Sales and marketing $ 1,235 $ 772 $ 2,043 $ 1,529

4 unchanged sentences

Three Months Ended

June 30, Six Months Ended

2021 2020 2021 2020

Stock options and assumed options $ 1,159 $ 1,015 $ 1,776 $ 1,816

3 unchanged sentences

Tax windfall benefit from stock-based awards $ 3,120 $ 1,610 $ 5,680 $ 2,188

We granted no stock options pursuant to our 2015 Equity Incentive Plan, or the 2015 Plan, during the three months ended March 31, 2021, as compared to an aggregate of 5,000 stock options for the same period in the prior year.

There were 73,175 stock options exercised during the three months ended March 31, 2021, as compared to 63,748 stock options for the same period in the prior year.

We granted an aggregate of 127,216 restricted stock units during the three months ended March 31, 2021, as compared to an aggregate of 100,728 restricted stock units for the same period in the prior year.

There were 89,370 restricted stock units that vested during the three months ended March 31, 2021, as compared to 23,048 restricted stock units vested during the same period in the prior year.

We granted an aggregate of 133,700 stock options pursuant to our 2015 Equity Incentive Plan, or the 2015 Plan, during each of the three and six months ended June 30, 2021, as compared to an aggregate of 136,650 and 141,650 stock options for the same periods in the prior year.

There were 63,083 and 136,258 stock options exercised during the three and six months ended June 30, 2021, respectively, as compared to 194,443 and 258,191 stock options for the same periods in the prior year.

We granted an aggregate of 428,194 and 555,410 restricted stock units during the three and six months ended June 30, 2021, respectively, as compared to an aggregate of 218,344 and 319,072 restricted stock units for the same periods in the prior year.

The restricted stock units granted during the three and six months ended June 30, 2021 included 120,314 of performance-based stock awards.

There were no performance-based restricted stock units granted during the three and six months ended June 30, 2020.

There were 173,553 and 262,923 restricted stock units that vested during the three and six months ended June 30, 2021, respectively, as compared to 64,075 and 87,123 restricted stock units vested during the same periods in the prior year.

There were no performance-based restricted stock units that vested during the three months ended June 30, 2021 and there were 20,000 performance-based restricted stock units that vested during the six months ended June 30, 2021.

There were no performance-based restricted stock units that vested during the three and six months ended June 30, 2020.

ALARM.COM HOLDINGS, INC.

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

March 31, 2021 and 2020

Earnings Per Share

2 unchanged sentences

Three Months Ended

June 30, Six Months Ended

2021 2020 2021 2020

Net income $ 14,490 $ 16,625 $ 29,040 $ 25,196

9 unchanged sentences

Three Months Ended

June 30, Six Months Ended

2021 2020 2021 2020

Stock options 133,700 360,032 133,700 360,032

Restricted stock units 149,291 12,965 123,091 105,015

Common stock subject to repurchase — 100

Our redeemable noncontrolling interest relates to our 85 % equity ownership interest in OpenEye.

6 unchanged sentences

The conversion spread has a dilutive impact on diluted net income per share of common stock when the average market price of our common stock for a given period exceeds the conversion price of $ 147.19 per share for the 2026 Notes.

Based on the initial conversion price and the average market price of our common stock for the three months ended March 31, 2021, there was no dilutive effect of the 2026 Notes on our earnings per share during the three months ended March 31, 2021.

Based on the initial conversion price and the average market price of our common stock for the three and six months ended June 30, 2021, there was no dilutive effect of the 2026 Notes on our earnings per share during the three and six months ended June 30, 2021.

Significant Service Providers

During the three months ended March 31, 2021, our 10 largest revenue service provider partners accounted for 50 % of our consolidated revenue, as compared to 49 % 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, 2021 and 2020.

During the three and six months ended June 30, 2021, our 10 largest revenue service provider partners accounted for 48 % and 49 % of our consolidated revenue, respectively, as compared to 46 % and 48 % for the same periods in the prior year.

One of our service provider partners within the Alarm.com segment individually represented greater than 10 % but not more than 15 % of our revenue for each of the three and six months ended June 30, 2021.

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

ALARM.COM HOLDINGS, INC.

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

March 31, 2021 and 2020

One service provider partner in the Alarm.com segment represented more than 10% of accounts receivable as of March 31, 2021.

One service provider partner in the Alarm.com segment represented more than 10% of accounts receivable as of June 30, 2021.

Two service provider partners in the Alarm.com segment represented more than 10% of accounts receivable as of December 31, 2020.

1 unchanged sentence

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

For the three months ended March 31, 2021, we recorded a benefit from income taxes of $ 2.9 million, resulting in an effective income tax rate of ( 25.0 )%.

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 and six months ended June 30, 2021, we recorded a benefit from income taxes of $ 1.7 million and $ 4.7 million, respectively, resulting in an effective income tax rate of ( 13.6 )% and ( 19.1 )% for those periods.

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.

Our effective tax rates were below 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, foreign withholding taxes and other nondeductible 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, 2021 and December 31, 2020.

During 2020, we established a valuation allowance of $ 1.3 million for state research and development tax credit carryforwards, which remained at $ 1.3 million as of March 31, 2021 and December 31, 2020.

During 2020, we established a valuation allowance of $ 1.3 million for state research and development tax credit carryforwards, which remained at $ 1.3 million as of June 30, 2021 and December 31, 2020.

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 an increase to the unrecognized tax benefits of $ 0.5 million primarily for research and development tax credits claimed during the three months ended March 31, 2021.

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

As of March 31, 2021 and December 31, 2020, we accrued $ 0.1 million of total interest expense related to unrecognized tax benefits.

We recorded an increase to the unrecognized tax benefits of $ 1.5 million primarily for research and development tax credits claimed during the six months ended June 30, 2021.

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

As of June 30, 2021 and December 31, 2020, we accrued $ 0.1 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.

6 unchanged sentences

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 each of the three months ended March 31, 2021 and 2020.

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

2 unchanged sentences

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

March 31, 2021 and 2020

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, 2021

Three Months Ended June 30, 2021

Alarm.com Other Intersegment Alarm.com Intersegment Other Total

6 unchanged sentences

19,456 ( 2,842 ) 233 ( 122 ) 16,725

Three Months Ended March 31, 2020

Three Months Ended June 30, 2020

Alarm.com Other Intersegment Alarm.com Intersegment Other Total

6 unchanged sentences

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

Six Months Ended June 30, 2021

Alarm.com Other Intersegment Alarm.com Intersegment Other Total

Assets as of March 31, 2021 $ 1,148,958 $ 24,440 $ ( 58,848 ) $ ( 5 ) $ 1,114,545

SaaS and license revenue $ 206,159 $ 14,410 $ — $ — $ 220,569

Hardware and other revenue

138,884 4,923 ( 1,684 ) ( 1,337 ) 140,786

Total revenue

345,043 19,333 ( 1,684 ) ( 1,337 ) 361,355

Operating income / (loss)

37,163 ( 5,696 ) 387 ( 126 ) 31,728

Six Months Ended June 30, 2020

Alarm.com Other Intersegment Alarm.com Intersegment Other Total

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

Alarm.com Other Intersegment Alarm.com Intersegment Other Total

Assets as of June 30, 2021 $ 1,191,907 $ 26,304 $ ( 61,408 ) $ ( 12 ) $ 1,156,791

Assets as of December 31, 2020 763,925 26,739 ( 58,983 ) 6 731,687

Our SaaS and license revenue for the Alarm.com segment included software license revenue of $ 8.7 million for the three months ended March 31, 2021, as compared to $ 9.7 million for the same period in the prior year.

There w as no softwar e license revenue recorded for the Other segment during the three months ended March 31, 2021 and 2020.

Depreciation and amortization expense was $ 7.3 million for the Alarm.com segment for the three months ended March 31, 2021, as compared to $ 6.4 million for the same period in the prior year.

Depreciation and amortization expense was $ 0.1 million for the Other segment for the three months ended March 31, 2021, as compared to less than $ 0.1 million for the same period in the prior year.

Additions to property and equipment were $ 3.5 million for the Alarm.com segment for the three months ended March 31, 2021, as compared to $ 2.6 million for the same period in the prior year.

Additions to property and equipment were less than $ 0.1 million for the Other segment for the three months ended March 31, 2021, as compared to $ 0.8 million for the same period in the prior year.

We derived substantially all reven ue from North America for the three months ended March 31, 2021 and 2020.

Substanti ally all of our long-lived assets wer e in North America as of March 31, 2021 and December 31, 2020.

Our SaaS and license revenue for the Alarm.com segment included software license revenue of $ 8.3 million and $ 17.0 million for the three and six months ended June 30, 2021, respectively, as compared to $ 9.8 million and $ 19.5 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, 2021 and 2020.

Depreciation and amortization expense was $ 7.4 million and $ 14.7 million for the Alarm.com segment for the three and six months ended June 30, 2021, respectively, as compared to $ 6.7 million and $ 13.1 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 six months ended June 30, 2021, respectively, as compared to less than $ 0.1 million for the same periods in the prior year.

Additions to property and equipment were $ 2.7 million and $ 6.2 million for the Alarm.com segment for the three and six months ended

ALARM.COM HOLDINGS, INC.

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

June 30, 2021, respectively, as compared to $ 3.9 million and $ 6.5 million for the same periods in the prior year.

Additions to property and equipment were $ 0.1 million for the Other segment for each of the three and six months ended June 30, 2021, as compared to $ 0.1 million and $ 0.9 million for the same periods in the prior year.

We derived substantially all revenue from North America for the three and six months ended June 30, 2021 and 2020.

Substantially all of our long-lived assets were in North America as of June 30, 2021 and December 31, 2020.

Related Party Transactions

2 unchanged sentences

We account for this investment using the equity method.

As of March 31, 2021 and December 31, 2020, our investment balance in our installation partner was zero .

During the three months ended March 31, 2021 and 2020, we recorded $ 0.1 million of cost of hardware and other revenue in connection with this installation partner.

As of March 31, 2021 and December 31, 2020, 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, 2021 and 2020

Affiliate Lease

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

The one-year lease term expired on October 20, 2020 and was subsequently converted to a month-to-month lease until it was terminated on March 31, 2021.

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

During the three months ended March 31, 2021, we recorded $ 0.1 million of rent expense in connection with this lease arrangement, as compared to less than $ 0.1 million for the same period in the prior year.

There was no accounts payable balance due to the Landlord under this lease arrangement as of March 31, 2021 or December 31, 2020.

As of June 30, 2021 and December 31, 2020, our investment balance in our installation partner was zero .

During the three and six months ended June 30, 2021 and 2020, 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, 2021 and December 31, 2020, the accounts payable balance to our installation partner was less than $ 0.1 million.

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