What changed in this filing

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Item 1A. Risk Factors

2021-08-05 compared with 2021-05-04 · 98 added, 95 removed, 840 unchanged (19% of the section changed)

Our business is subject to numerous risks.

You should consider carefully the risks and uncertainties described below, in addition to other information contained in this Quarterly Report on Form 10-Q as well as our other public filings with the Securities and Exchange Commission, or SEC.

You should consider carefully the risks and uncertainties described below, in addition to other information contained in this Quarterly Report on Form 10-Q, or Quarterly Report, as well as our other public filings with the Securities and Exchange Commission, or SEC.

Any of the following risks could have a material adverse effect on our business, financial condition, results of operations and prospects and cause the trading price of our common stock to decline.

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The COVID-19 pandemic has negatively impacted the global economy and global supply chains, and created significant disruption of global financial markets.

Governments, public institutions and other organizations in many countries and localities where COVID-19 has been detected have taken certain emergency measures and may from time to time take additional emergency measures, to combat its spread, including imposing lockdowns, shelter-in-place orders, quarantines, restrictions on travel and gatherings and the extended shutdown of non-essential businesses that cannot be conducted remotely.

Governments, public institutions and other organizations in many countries and localities where COVID-19 has been detected have taken certain emergency measures and may from time to time take additional emergency measures, to combat its spread, resurgences and variants, including imposing lockdowns, shelter-in-place orders, quarantines, restrictions on travel and gatherings and the extended shutdown of non-essential businesses that cannot be conducted remotely.

These emergency measures remain in place to varying degrees.

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.

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.

To date, the COVID-19 pandemic has, and it may continue to, disrupt our hardware supply chain, including limited inventory availability, increased lead times, and shipping delays, as well as cause disruptions to and restrictions on our service providers’ ability to travel and to meet with residential and commercial property owners who use our solutions, cancellations or postponement of certain events, or temporary closures of our facilities or the facilities of our service providers or suppliers.

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Because our service provider partners have indicated that they typically have three to five-year service contracts with residential and commercial property owners who use our solutions, any such adverse effects may not be fully reflected in our results of operation until future periods.

The uncertainty caused by and the unprecedented nature of the current COVID-19 pandemic makes the potential impact of the pandemic difficult to predict and the extent to which it may negatively affect our industry, our supply of hardware products, our business operations or our operating results is uncertain.

The uncertainty caused by and the unprecedented nature of the current COVID-19 pandemic makes the long-term impact of the pandemic difficult to predict and the full extent to which it may negatively affect our industry, our supply of hardware products, our business operations or our operating results is uncertain.

Weak global economic conditions, additional business disruptions or closures and spikes or surges in COVID-19 infection, also may exacerbate the impact of the pandemic.

Further, we do not yet know the full effects of the COVID-19 pandemic on our suppliers and service providers.

However, if the economy fails to fully recover or there are additional shutdowns of non-essential businesses due to a resurgence of COVID-19, our SaaS and license revenue growth rate may be lower in future periods, with a corresponding reduction in hardware revenue, if some consumers or small businesses defer or cancel previously anticipated purchases.

The ultimate impact to our results will depend to a large extent on currently unknowable developments, including the length of time the disruption and uncertainty caused by COVID-19 will continue, which will, in turn, depend on, among other things, the actions taken by authorities and other entities to effect a widespread roll-out of the available vaccines or otherwise contain COVID-19 or treat its impact, including the impact of any re-opening plans, additional closures and spikes or surges in COVID-19 infection, the emergence and severity of any COVID-19 variants and individuals’ and companies’ risk tolerance regarding health matters going forward, all of which are beyond our control.

However, if the economy fails to fully recover or there are additional shutdowns of non-essential businesses due to a resurgence of COVID-19 and the emergence and severity of COVID-19 variants, our SaaS and license revenue growth rate may be lower in future periods, with a corresponding reduction in hardware revenue, if some consumers or small businesses defer or cancel previously anticipated purchases.

The ultimate impact to our results will depend to a large extent on currently unknowable developments, including the length of time the disruption and uncertainty caused by COVID-19 will continue, which will, in turn, depend on, among other things, the actions taken by authorities and other entities to effect a widespread roll-out of the available vaccines or otherwise contain COVID-19 or treat its impact, including the impact of any re-opening plans, additional closures and spikes or surges in COVID-19 infection, the emergence and severity of COVID-19 variants and individuals’ and companies’ risk tolerance regarding health

matters going forward, all of which are beyond our control.

Accordingly, these potential impacts, while uncertain, could harm our business and adversely affect our operating results.

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Though we are taking these precautionary measures as well as preparing our systems for the likelihood of increased cybersecurity threats, there is no guarantee that our precautions will fully protect our employees or enable us to maintain our productivity and any illnesses linked or alleged to be linked to our employees or service providers, whether accurate or not, could further harm our business.

The extent to which COVID-19 and our precautionary measures related thereto may impact our business will depend on future developments, which are highly uncertain and cannot be predicted at this time.

The full extent to which COVID-19 and our precautionary measures related thereto may impact our business will depend on future developments, which are highly uncertain and cannot be predicted at this time.

Our quarterly results of operations have fluctuated and are likely to continue to fluctuate.

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Fluctuations in our quarterly operating results may be particularly pronounced in the current economic environment due to the uncertainty caused by and the unprecedented nature of the current COVID-19 pandemic.

Due to the foregoing factors and the other risks discussed in this Quarterly Report on Form 10-Q, you should not rely on quarter-to-quarter comparisons of our results of operations as an indication of our future performance.

Due to the foregoing factors and the other risks discussed in this Quarterly Report, you should not rely on quarter-to-quarter comparisons of our results of operations as an indication of our future performance.

You should not consider our recent revenue and Adjusted EBITDA growth or results of one quarter as indicative of our future performance.

See the Non-GAAP Measures section of Item 2.

"Management’s Discussion and Analysis of Financial Condition and Results of Operations - Non-GAAP Measures," for a discussion of the limitations of Adjusted EBITDA and a reconciliation of Adjusted EBITDA to net income, the most comparable GAAP measurement, for the three months ended March 31, 2021 and 2020.

Downturns in general economic and market conditions and reductions in spending may reduce demand for our platforms and solutions, which could harm our revenue, results of operations and cash flows.

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During weak economic times, the available pool of service providers may decline as the prospects for home building and home renovation projects diminish, which may have a corresponding impact on our growth prospects.

In addition, there is an increased risk during these periods that an increased percentage of our service provider partners will file for bankruptcy protection, which may harm our reputation, revenue, profitability and results of operations.

In addition, there is an

increased risk during these periods that an increased percentage of our service provider partners will file for bankruptcy protection, which may harm our reputation, revenue, profitability and results of operations.

In addition, we may determine that the cost of pursuing any claim may outweigh the recovery potential of such claim.

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Although we have taken precautionary measures to prepare for these threats and challenges, there is no guarantee that our precautions will fully protect our systems.

We continue to monitor the situation and may adjust our

current policies as more information and guidance become available.

We continue to monitor the situation and may adjust our current policies as more information and guidance become available.

If our platforms or solutions suffer from defects, we could experience harm to our branded reputation, claims by our subscribers or service provider partners or lost revenue during the period required to address the cause of the defects.

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Given our concentration of sales during the second and third quarters, any disruption in the business of our hardware vendors, service provider partners or subscribers that impacts sales during the second or third quarter of each year could have a greater impact on our annual results.

All of the aforementioned risks may be augmented if the disaster recovery plans for us, our service provider partners and our suppliers prove to be inadequate.

All of the aforementioned risks may be augmented if the disaster recovery plans for us, our

service provider partners and our suppliers prove to be inadequate.

To the extent that any of the above results in delays or cancellations of orders, or delays in the manufacture, deployment or shipment of our platforms and solutions, our business, financial condition, cash flows and results of operations would be harmed.

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We have experienced significant growth and also have substantially expanded our operations in a short period of time.

Our revenue increased from $338.9 million in 2017 to $618.0 million in 2020 and increased from $151.9 million for the three months ended March 31, 2020 to $172.5 million for the three months ended March 31, 2021.

Our revenue increased from $338.9 million in 2017 to $618.0 million in 2020 and increased from $293.6 million for the six months ended June 30, 2020 to $361.4 million for the six months ended June 30, 2021.

We do not expect to achieve similar growth rates in future periods.

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If we fail to manage the expansion of our operations and infrastructure effectively, we may be unable to execute our business plan, maintain high levels of service or address competitive challenges adequately.

We increased our number of full-time employees from 784 as of December 31, 2017 to 1,414 as of March 31, 2021.

We increased our number of full-time employees from 784 as of December 31, 2017 to 1,421 as of June 30, 2021.

Our growth has placed, and may continue to place, a significant strain on our managerial, administrative, operational, financial and other resources.

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For example, on June 2, 2015, Vivint filed a lawsuit against us alleging that our technology directly and indirectly infringes six patents purchased by Vivint.

On October 22, 2019, EcoFactor, Inc., or EcoFactor, filed a complaint with the U.S.

International Trade Commission, or ITC, alleging that Alarm.com’s smart thermostats infringe three U.S.

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

District Court, District of Massachusetts, alleging that Alarm.com’s smart thermostats infringe three U.S.

patents owned by EcoFactor.

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

District Court, District of Massachusetts, alleging infringement of the same three patents asserted against us in the ITC.

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

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

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

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

patents owned by EcoFactor.

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

On July 13, 2016, Applied Capital, Inc., or Applied Capital, filed a lawsuit against ADT, alleging that ADT’s sales of ADT Pulse directly and indirectly infringe two patents purchased by Applied Capital.

Applied Capital is seeking damages and attorney’s fees.

We are indemnifying ADT in this matter.

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.

On July 28, 2021, Causam filed a complaint with the U.S.

International Trade Commission, or 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.

See the section of this Quarterly Report titled "Legal Proceedings" for additional information regarding each of these matters and the other legal proceedings we are involved in.

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In addition, while the COVID-19 pandemic continues, consumers may prefer to purchase products that they can install themselves.

If there are continuing restrictions on our service providers’

ability to meet with residential and commercial property owners in person, our ability to compete will depend on our ability to make our products available for remote installation or to make certain of our products easily installable by consumers rather than solely by our service providers.

If there are continuing restrictions on our service providers’ ability to meet with residential and commercial property owners in person, our ability to compete will depend on our ability to make our products available for remote installation or to make certain of our products easily installable by consumers rather than solely by our service providers.

Our current competitors include providers of other technology platforms for the connected property with interactive security, including Alula (formed following the merger of ipDatatel, LLC and Resolution Products, LLC), Avigilon Corporation, Brivo Inc., Digital Monitoring Products Inc., Eagle Eye Networks Inc., Honeywell International Inc., Resideo Technologies Inc., SecureNet Technologies, LLC, Telular Corporation (acquired by AMETEK, Inc.), United Technologies Corporation, and Verkada Inc., which sell solutions to service providers, cable operators, technology retailers and other residential and commercial automation providers.

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Therefore, we receive less revenue on a per customer basis from Vivint compared to our SaaS subscriber base, which may result in a lower revenue growth rate.

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

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

agreement with ADT.

Under the terms of the license, beginning in 2023, 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.

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ADT also represented more than 10% of accounts receivable as of December 31, 2020.

We recently amended our master service agreement with ADT, or MSA, to extend the initial term through January 1, 2023 and to provide for the integration of certain third party products into the ADT Command and Control software platform which we operate.

We amended our master service agreement with ADT, or MSA, to extend the initial term through January 1, 2023 and to provide for the integration of certain third party products into the ADT Command and Control software platform which we operate.

In connection with the amendment to the MSA, we agreed to provide ADT a license to use certain Alarm.com intellectual property following the termination or expiration of the initial term of the MSA for which ADT will pay us a monthly royalty for each subscriber to its ADT branded residential interactive security, automation and video service offerings that is covered by any of our licensed patents and not enabled by one of our software platforms.

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Historically, ADT has accounted for, and continues to account for, substantially all of the revenue of the Connect business unit.

In connection with the Acquisition we amended our master service agreement with ADT to cover services provided with respect to the non-hosted software platform, or Software platform.

In connection with the Acquisition we amended our master service agreement with ADT to cover

services provided with respect to the non-hosted software platform, or Software platform.

We cannot assure you that ADT will use the Software platform for its new customers or keep existing customers on the Software platform.

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We rely on wireless carriers to provide access to wireless networks for machine-to-machine data transmissions, which are an integral part of our services.

Our wireless carriers may suspend wireless service to expand, maintain or improve their networks, or may discontinue or sunset older wireless networks as new technology evolves.

For example, certain cellular carriers have announced their intention to shut down their 3G and CDMA wireless networks in 2022 which may require our subscribers to upgrade to alternative and potentially more expensive technologies.

Our wireless carriers may suspend wireless service to expand, maintain or improve their

networks, or may discontinue or sunset older wireless networks as new technology evolves.

For example, certain cellular carriers have announced their intention to shut down their 3G and CDMA wireless networks by the end of 2022 which may require our subscribers to upgrade to alternative and potentially more expensive technologies.

See “The technology we employ may become obsolete, and we may need to incur significant capital expenditures to update our technology” below.

Further, wireless carriers from time to time suffer service outages which range from local to national in scale during which security control panels may be unable to transmit life safety signals to emergency responders.

Any such wireless carrier service disruptions could materially and adversely impact our ability to provide services to our service provider partners and subscribers and result in significant costs, which could

materially and adversely impact our business, results of operations and reputation.

In addition, product changes by wireless carriers, price increases or changes to existing contract terms or termination of our agreements could also have a material and adverse impact on our business, financial condition, cash flows and results of operations.

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For example, certain cellular carriers have announced their intention to shut down their 3G and CDMA wireless networks by the end of 2022.

We intend to work with our service providers to develop a transition plan over the next three years to convert or upgrade the equipment of end user accounts reliant upon 3G or CDMA networks, and we expect to incur incremental costs over the next two years related to the planned 3G and CDMA network shutdown.

We intend to work with our service providers to develop a transition plan over the next two years to convert or upgrade the equipment of end user accounts reliant upon 3G or CDMA networks, and we expect to incur incremental costs over the next two years related to the planned 3G and CDMA network shutdown.

If our service providers are not able to convert or upgrade the equipment of their customers who are currently using 3G or CDMA network technology, then those accounts may be terminated with us when such networks are no longer available.

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Reliance on suppliers, as well as industry supply conditions, generally involves several risks, including the possibility of defective parts, which can adversely affect the reliability and reputation of our platforms and solutions, and a shortage of components and reduced control over delivery schedules and increases in component costs, which can adversely affect our profitability.

These supply chain risks are heightened in the current environment where continuing travel restrictions and shelter-in-place orders as well as limitations on factory capacity and delays in shipping times due to the COVID-19 pandemic have and may continue to adversely affect production of and the timing of delivery of components.

These supply chain risks are heightened in the current environment where continuing travel restrictions and shelter-in-place orders as well as limitations on factory capacity, including labor shortages, and delays in shipping times due to the COVID-19 pandemic have and may continue to adversely affect production of and the timing of delivery of components.

Shortages of essential components of our products or significantly increased lead times for obtaining such components may lead to delays in our production, and we may be unable to fulfill orders for our hardware products on a timely basis or at all.

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We are working with our suppliers to secure components and materials to account for longer lead times and limited availability, but we cannot assure you that our efforts will be successful or that demand for our hardware products will continue at the same level.

In addition, global transportation disruptions have led to slower shipping times generally, while reductions in passenger air travel have also led to reduced capacity and increased costs for air freight shipments, which may continue to adversely affect the timing and cost of delivery of components, materials and products.

adversely affect the timing and cost of delivery of components, materials and products.

Any of these disruptions to our inventory and supply chain could have a material adverse effect on our business, financial condition, cash flows and results of operations.

We have several large hardware suppliers from which we procure hardware on a purchase order basis, including one supplier that supplied products and components which generated 14% of our hardware and other revenue for the three months ended March 31, 2021.

We have several large hardware suppliers from which we procure hardware on a purchase order basis, including one supplier that supplied products and components which generated 16% of our hardware and other revenue for the six months ended June 30, 2021.

From time to time we provide advance payments or loans to our vendors to, for example, secure procurement of long lead time parts or to provide bridge financing to ensure continuity of operations.

If these suppliers are unable to continue to provide a timely and reliable supply, we could experience interruptions in delivery of our platforms and solutions to our service provider partners, which could have a material adverse effect on our business, financial condition, cash flows and results of operations.

required to find alternative sources of supply, qualification of alternative suppliers and the establishment of reliable supplies could result in delays and a possible loss of sales, which could have a material adverse effect on our business, financial condition, cash flows and results of operations.

If we were required to find alternative sources of supply, qualification of alternative suppliers and the establishment of reliable supplies could result in delays and a possible loss of sales, which could have a material adverse effect on our business, financial condition, cash flows and results of operations.

Growth of our business will depend on market awareness and a strong brand, and any failure to develop, maintain, protect and enhance our brand would hurt our ability to retain or attract subscribers.

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For example, on October 21, 2019, we acquired 85% of the issued and outstanding shares of capital stock of PC Open Incorporated, doing business as OpenEye, and on December 14, 2020, we acquired Shooter Detection Systems, LLC.

We hav e acquired other businesses in the past.

We have acquired other businesses in the past.

For example, we acquired the assets of HiValley Technology Inc.

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We can offer no assurance that any such new business opportunities will prove to be successful.

Among other negative effects, our pursuit of such business opportunities could reduce operating margins and require more working capital, subject us to additional federal state, and local laws and regulations, materially and adversely affect our business, financial condition, cash flows or results of operations.

Among other negative effects, our pursuit of such business opportunities could

reduce operating margins and require more working capital, subject us to additional federal state, and local laws and regulations, materially and adversely affect our business, financial condition, cash flows or results of operations.

Evolving government and industry regulation and changes in applicable laws relating to the Internet and data privacy may increase our expenditures related to compliance efforts or otherwise limit the solutions we can offer, which may harm our business and adversely affect our financial condition.

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While the CJEU did not invalidate the use of SCCs as a valid mechanism for transferring personal data from the EEA to the United States, the CJEU required entities relying on SCCs to, among other things, verify on a case-by-case basis that the SCCs provide adequate protection of personal data under European Union, or EU, law by providing, where necessary, additional safeguards to those offered by the existing SCCs.

For data transfers to the United States, these additional safeguards may need to be added to existing SCCs in order for entities to continue using SCCs as a valid data transfer mechanism.

Furthermore, the CJEU advised European data protection authorities that they would need to closely examine the privacy practices of countries outside of the EEA where EEA personal data is transferred;

therefore, it is possible that data transfers to the United States from the EEA will be subject to more regulatory scrutiny following the CJEU decision.

For data transfers to the United States, these additional safeguards must be added to the SCCs in order for entities to use SCCs as a valid data transfer mechanism.

Furthermore, the CJEU and the European Data Protection Board advised European data protection authorities that they would need to closely examine the laws and practices of countries outside of the EEA where EEA personal data is transferred, with a particular focus on the United States, so data transfers to the United States from the EEA are subject to more regulatory scrutiny following the CJEU decision.

We have historically relied on both the EU-U.S.

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Privacy Shield to be covered under SCCs.

In November 2020, the European Commission released a draft version of revised SCCs.

After receiving public comments, the European Commission is currently working to adopt a final version of the revised SCCs.

Once final, we will have one year to implement the revised SCCs with all of our customers from the EEA.

Moreover, we will need to determine whether UK regulators will also require us to adopt the revised SCCs with our customers in the UK.

In June 2021, the European Commission adopted a new version of the SCCs, which we must begin using by September 27, 2021.

We have until December 27, 2022 to implement the new SCCs with all of our EEA customers and vendors who are sub-processors and receive access to personal data from our EEA customers.

Moreover, the UK data protection regulator is developing new SCCs for transferring personal data from the UK.

When those UK-specific SCCs are finalized, we will be required to execute those SCCs with our customers in the UK.

Our transition from relying on the EU-U.S.

Privacy Shield to relying on the SCCs for certain data transfers, future requirements to implement new versions of the SCCs or potential requirements to implement another valid data transfer mechanism may slow down our contracting process and increase our legal and compliance costs (including an increase in exposure to substantial fines under EEA data protection laws as well as injunctions against processing or transferring personal data from the EEA), which could adversely affect our cash flows and financial condition.

Privacy Shield to adopting, implementing and complying with the new SCCs may slow down our contracting process and increase our legal and compliance costs (including an increase in exposure to substantial fines under EEA data protection laws as well as injunctions against processing or transferring personal data from the EEA), which could adversely affect our cash flows and financial condition.

SCCs with additional safeguards and obligations put in place by EEA data protection authorities or customers may impose new restrictions on our business and could affect our operations in the EEA.

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data transfers.

As a result of the FDPIC decision, we will likely need to transition any data transfers covered under the Swiss-U.S.

Privacy Shield to be covered under SCCs.

Authorities in the UK whose data protection laws are similar to those of the EEA, may similarly invalidate reliance on the EU-U.S.

Privacy Shield Framework as a mechanism for data transfers from the UK to the United States.

As a result of the FDPIC decision, we will need to transition any data transfers covered under the Swiss-U.S.

Privacy Shield to be covered under SCCs, and the FDPIC will likely require us to adopt the new SCCs.

As a result of these ongoing changes, there will continue to be significant regulatory uncertainty surrounding the validity of data transfers from the EEA, UK and Switzerland to the United States.

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Prior to May 25, 2018, we updated our existing privacy and data security measures to comply with GDPR.

As guidance on compliance with GDPR from the EU data protection authorities evolves over time, our privacy or data security measures may be deemed or perceived to be in noncompliance with current or future laws and regulations, which may subject us to litigation, regulatory investigations or other

liabilities and could limit the products and services we can offer in certain jurisdictions.

Further, in the event of a breach of personal information that we hold, we may be subject to governmental fines, individual claims, remediation expenses and/or harm to our reputation.

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Privacy Shield, limit our ability to use and share this data or our ability to store, process and share data over the Internet, demand for our platforms and solutions could decrease, our costs could increase, and our business, financial condition, cash flows and results of operations could be harmed.

Furthermore, Brazil’s comprehensive privacy law, the General Data Protection Law, or LGPD, took effect on September 18, 2020 with federal regulatory enforcement set to begin on August 1, 2021.

Furthermore, Brazil’s comprehensive privacy law, the General Data Protection Law, or LGPD, took effect on September 18, 2020 and federal regulatory enforcement began on August 1, 2021.

However, private and state-level enforcement of the law began in September 2020.

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Certain of our service provider partner agreements currently, and may in the future, provide minimum service level commitments regarding items such as uptime, functionality or performance.

If we are unable to meet the stated service level commitments for these service provider partners or suffer extended periods of service unavailability, we are or may be contractually obligated to provide these service provider partners with credits for future services, provide services at no cost or pay other penalties, which could adversely impact our revenue.

If we are unable to meet the stated service level

commitments for these service provider partners or suffer extended periods of service unavailability, we are or may be contractually obligated to provide these service provider partners with credits for future services, provide services at no cost or pay other penalties, which could adversely impact our revenue.

We have incurred such penalties in the past, which have reduced our revenue.

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Any such liabilities, individually or in the aggregate, could have a material adverse effect on our business and our prospects.

The incurrence of debt may impact our financial position and subject us to additional financial and operating restrictions.

The incurrence or issuance of debt may impact our financial position and subject us to additional financial and operating restrictions.

On October 6, 2017, we entered into a $125.0 million senior secured revolving credit facility, or the 2017 Facility, with Silicon Valley Bank, or SVB, as administrative agent, PNC Bank, National Association, as documentation agent, and a syndicate of lenders.

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Goodwill and other identifiable intangible assets represent a significant portion of our total assets, and we may never realize the full value of our intangible assets.

As of March 31, 2021, we had $211.8 million of goodwill and identifiable intangible assets.

As of June 30, 2021, we had $207.6 million of goodwill and identifiable intangible assets.

Goodwill and other identifiable intangible assets are recorded at fair value on the date of acquisition.

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Although we believe our tax estimates are reasonable, the final determination of tax audits and any related litigation could be different from our historical tax practices, provisions and accruals.

If we receive an adverse ruling as a result of an audit, or we unilaterally determine that we have misinterpreted provisions of the tax regulations to which we are subject, our tax provision, results of operations or cash flows could be harmed.

If we receive an adverse ruling as a result of an audit, or we unilaterally determine that we have misinterpreted provisions of the tax regulations to

which we are subject, our tax provision, results of operations or cash flows could be harmed.

In addition, liabilities associated with taxes are often subject to an extended or indefinite statute of limitations period.

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Even though we take precautions to prevent our platforms and solutions from being shipped or provided to U.S.

sanctions targets, our

platforms and solutions could be shipped to those targets or provided by third-parties despite such precautions.

sanctions targets, our platforms and solutions could be shipped to those targets or provided by third-parties despite such precautions.

Any such shipment could have negative consequences, including government investigations, penalties and reputational harm.

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We anticipate that our efforts to operate and continue to expand our business internationally will entail additional costs and risks as we establish our international offerings and develop relationships with service provider partners to market, sell, install, and support our platforms, solutions and brand in other countries.

Revenue in countries outside of North America accounted for 4% and 2% of our total revenue for the three months ended March 31, 2021 and 2020, respectively.

Revenue in countries outside of North America accounted for 4% and 2% of our total revenue for the six months ended June 30, 2021 and 2020, respectively.

We have limited experience in selling our platforms and solutions in international markets outside of North America or in conforming to the local cultures, standards, or policies necessary to successfully compete in those markets, and we may be required to invest significant resources in order to do so.

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There is currently significant uncertainty about the future relationship between the United States and various other countries, including China, the European Union, Canada, and Mexico, with respect to trade policies, treaties, tariffs and customs duties, and taxes.

In 2019, the U.S.

administration imposed significant changes to U.S.

Since 2019, the U.S.

government has implemented significant changes to U.S.

trade policy with respect to China.

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The amount of the import tariff and the number of products subject to tariffs have changed numerous times based on action by the U.S.

administration.

We are addressing the risks related to these imposed and announced tariffs, which have affected, or have the potential to affect, at least some of our imports from China.

Between one-fifth to one-half of the finished goods hardware products that we sell to our customers are imported from China and could be subject to increased tariffs.

Other Alarm.com finished goods hardware products that are not manufactured in China may contain subcomponents made in China that could also be subject to increased tariffs.

While the additional import duties resulted in an increase to our cost of hardware revenue, these import duties had a modest impact on hardware revenue margins.

Between one-fifth to one-half of the hardware products that we sell to our customers are imported from China and could be subject to increased tariffs.

Other Alarm.com hardware products that are not manufactured in China may contain subcomponents made in China that could also be subject to increased tariffs.

While the additional import duties have resulted in an increase to our cost of hardware revenue, these import duties had a modest impact on hardware revenue margins.

If tariffs, trade restrictions, or trade barriers are expanded or interpreted by a court or governmental agency to apply to more of our products, then our exposure to future taxes and duties on such imported products and components could be significant and could have a material effect on our financial results.

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Any of these factors could have a material adverse effect on our business, financial condition and results of operations.

The LIBOR calculation method may change and LIBOR is expected to be phased out after 2021.

On July 27, 2017, the U.K.

Financial Conduct Authority, or the FCA, announced that it will no longer require banks to submit rates for the calculation of LIBOR after 2021.

In the meantime, actions by the FCA, other regulators or law enforcement agencies may result in changes to the method by which LIBOR is calculated.

At this time, it is not possible to predict the effect of any such changes or any other reforms to LIBOR that may be enacted in the United Kingdom or elsewhere.

On June 17, 2021, the U.S.

Federal Communications Commission, or the FCC, adopted a proposed rule that would effectively ban in the United States all communications equipment provided by entities identified on a “Covered List” that it maintains pursuant to the Secure and Trusted Communications Networks Act of 2019.

The Covered List currently consists of video surveillance and telecommunications equipment produced by five Chinese electronics companies, including one of our suppliers.

Although the proposed rule does not include language regarding retroactive application of the proposed ban, the FCC has asked for comment on whether and under what circumstances it should revoke existing authorizations of communications equipment from companies on the Covered List.

If the final rule issued by the FCC restricts our ability to sell any of our existing inventory of products on the Covered List or applies retroactively to products already sold, this would likely adversely affect our business, financial condition, cash flows and results of operations.

Our financial results may be adversely affected by changes in accounting principles applicable to us.

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Many of these policies are highly complex and involve many assumptions, estimates and judgments.

A change in accounting standards or practices, in particular with respect to revenue recognition, could harm our operating results and may even affect our reporting of transactions completed before the change is effective.

A change in accounting standards or practices, in particular with respect to revenue recognition, could harm our operating results and may even affect our reporting

of transactions completed before the change is effective.

GAAP rules are subject to interpretation by the Financial Accounting Standards Board, or FASB, the SEC and other various bodies formed to promulgate and interpret appropriate accounting principles.

For example, we adopted Accounting Standards Update, or ASU, 2016-13, " Financial Instruments - Credit Losses (Topic 326)," or Topic 326, effective January 1, 2020, which provides guidance designed to provide financial statement users with more information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date.

See Note 2 to our condensed consolidated financial statements for additional information about the impact of this accounting standard and other new accounting pronouncements.

Implementation of new accounting standards could have a significant effect on our financial results, and any difficulties in implementing these pronouncements

could cause us to fail to meet our financial reporting obligations, which could result in regulatory discipline and harm investors’ confidence in us.

See Note 2 to our condensed consolidated financial statements for new accounting pronouncements.

Implementation of new accounting standards could have a significant effect on our financial results, and any difficulties in implementing these pronouncements could cause us to fail to meet our financial reporting obligations, which could result in regulatory discipline and harm investors’ confidence in us.

Our accounting is becoming more complex, and relies upon estimates or judgments relating to our critical accounting policies.

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However, various factors are causing our accounting to become complex.

For example, as a result of our acquisition of the Connect business unit of Icontrol, we now recognize revenue relating to the delivery of software relating to the Software platform under different revenue recognition standards than those that apply to delivery of our services under the Alarm.com platforms.

Ongoing evolution of our business, and the COVID-19 pandemic and resulting uncertainty have, and any future acquisitions may, compound these complexities.

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While we believe we have valid defenses to Vivint’s claims, any of these outcomes could result in a material adverse effect on our business.

In addition, on October 22, 2019, EcoFactor, filed a complaint with the ITC, and on November 22, 2019, the ITC instituted an investigation into EcoFactor’s allegations, naming us, among several others, as respondents, alleging with respect to Alarm.com that Alarm.com’s smart thermostats infringe three U.S.

patents owned by EcoFactor.

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

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

District Court, District of Massachusetts, alleging infringement of the same three patents asserted against us in the ITC, seeking permanent injunctions, enhanced damages and attorneys' fees.

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

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

In addition, on November 11, 2019, EcoFactor filed a lawsuit against us in the U.S.

District Court, District of Massachusetts, alleging that our smart thermostats infringe three U.S.

patents owned by EcoFactor, seeking permanent injunctions, enhanced damages and attorneys' fees.

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

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

patents owned by EcoFactor.

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See the section of this Quarterly Report titled "Legal Proceedings" for additional information on each of these matters.

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

Should EcoFactor prevail in either of its district court lawsuits we could be required to pay damages in the amount of EcoFactor’s lost profits 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 or we are unable to design around such patents, 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, any of these outcomes could result in a material adverse effect on our business.

On July 22, 2021, 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.

On July 28, 2021, Causam filed a complaint with the ITC alleging infringement of the same four patents.

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

See the section of this Quarterly Report titled "Legal Proceedings" for additional information on each of these matters.

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.

Even if we were to prevail in any of these matters, ongoing litigation could continue to be costly and time-consuming, divert the attention of our management and key personnel from our business operations and dissuade potential customers from purchasing our solution, which would also materially harm our business.

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We expect that some of our service provider partners may seek indemnification from us in connection with infringement claims brought against them.

For example, on July 13, 2016, Applied Capital, Inc., or Applied Capital, filed a lawsuit against ADT, alleging that ADT’s sales of ADT Pulse directly and indirectly infringe two patents purchased by Applied Capital.

Applied Capital is seeking damages and attorney’s fees.

We are indemnifying ADT in this matter.

In addition, we may elect to indemnify service provider partners where we have no contractual obligation to indemnify them and we will evaluate each such request on a case-by-case basis.

If a service provider partner elects to invest resources in enforcing a claim for indemnification against us, we could incur significant costs disputing it.

If we do not succeed in disputing it, we could face substantial liability.

If we do not succeed in

disputing it, we could face substantial liability.

See the section of this Quarterly Report titled "Legal Proceedings" for additional information regarding this matter and the other legal proceedings we are involved in.

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The market price of our common stock may be highly volatile and may fluctuate substantially as a result of a variety of factors, some of which are related in complex ways.

Since shares of our common stock were sold in our initial public offering in June 2015 at a price of $14.00 per share, our stock price has ranged from an intraday low of $10.26 to an intraday high of $108.67 through March 31, 2021 .

The market price of our common stock may decline regardless of our operating performance, resulting in the potential for substantial losses for our stockholders, and may fluctuate significantly in response to numerous factors, many of which are beyond our control, including the factors listed below and other factors described in this "Risk Factors" section:

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• establish an advance notice procedure for stockholder proposals to be brought before an annual meeting, including proposed nominations of persons for director nominees;

• establish that our board of directors is divided into three classes, with directors in each class serving three-year staggered terms;

• prohibit cumulative voting in the election of directors;

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Accordingly, both state and federal courts have jurisdiction to entertain such claims.

Our amended and restated certificate of incorporation provides that any person or entity purchasing or otherwise acquiring any interest in shares of our common stock is deemed to have notice of and consented to the foregoing provision.

to the foregoing provision.

The forum selection clause in our amended and restated certificate of incorporation may limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us.

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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 1A. Risk Factors