What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2022-02-24 compared with 2021-02-25 · 522 added, 503 removed, 1338 unchanged (43% of the section changed)

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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm

Report of Independent Registered Public Accounting Firm (PCAOB ID 238 )

Consolidated Financial Statements

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We have audited the accompanying consolidated balance sheets of Alarm.com Holdings, Inc.

and its subsidiaries (the “Company”) as of December 31, 2020 and 2019, and the related consolidated statements of operations, equity, and cash flows for each of the three years in the period ended December 31, 2020, including the related notes and financial statement schedule listed in the accompanying index (collectively referred to as the “consolidated financial statements”).

and its subsidiaries (the “Company”) as of December 31, 2021 and 2020, and the related consolidated statements of operations, of equity and of cash flows for each of the three years in the period ended December 31, 2021, including the related notes and financial statement schedule listed in the accompanying index (collectively referred to as the “consolidated financial statements”).

We also have audited the Company's internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

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Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.

Changes in Accounting Principles

As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts for leases in 2019 and the manner in which it accounts for revenues from contracts with customers in 2018.

Change in Accounting Principle

As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts for leases in 2019.

Basis for Opinions

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We believe that our audits provide a reasonable basis for our opinions.

As described in Management’s Report on Internal Control over Financial Reporting, management has excluded Shooter Detection Systems, LLC from its assessment of internal control over financial reporting as of December 31, 2020 because it was acquired by the Company in a purchase business combination during 2020.

We have also excluded Shooter Detection Systems, LLC from our audit of internal control over financial reporting.

Shooter Detection Systems, LLC is a wholly owned subsidiary whose total assets and total revenues excluded from management’s assessment and our audit of internal control over financial reporting represent less than 1% and 1%, respectively, of the related consolidated financial statement amounts as of and for the year ended December 31, 2020.

Definition and Limitations of Internal Control over Financial Reporting

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A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

company are being made only in accordance with authorizations of management and directors of the company;

(ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

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Critical Audit Matters

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Acquisition of Shooter Detection Systems - Valuation of Acquired Developed Technology Intangible Asset

As described in Notes 2 and 7 to the consolidated financial statements, the Company acquired Shooter Detection Systems (“SDS”) for total consideration of $26.5 million on December 14, 2020, which resulted in $16.4 million of intangible assets being recorded.

Intangible assets recorded by the Company in connection with the SDS acquisition primarily included developed technology of $13.5 million.

Management valued the developed technology by applying the multi-period excess earnings method.

This valuation requires management to apply significant judgment in estimating the fair value of intangible assets acquired, which involves the use of significant estimates and assumptions.

Significant assumptions in valuing these acquired developed technology intangible assets include estimates about future expected cash flows from the developed technology, the obsolescence factor, and the discount rate.

The principal considerations for our determination that performing procedures relating to the valuation of the acquired developed technology intangible asset recorded in the acquisition of SDS is a critical audit matter are the significant judgment by management in estimating the fair value of the acquired developed technology intangible asset.

This in turn led to significant auditor judgment, subjectivity, and effort in performing procedures and evaluating the significant assumptions relating to management’s estimate, such as future expected cash flows from the developed technology, the obsolescence factor, and the discount rate.

In addition, the audit effort involved the use of professionals with specialized skill and knowledge.

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that (i) relate to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Revenue recognition

As described in Note 2 to the consolidated financial statements, the Company’s revenue is generated from the sale of cloud-based SaaS services on its integrated Alarm.com platform, the sales of licenses and services on its non-hosted software platform, and the sale of hardware products.

Cloud-based SaaS services are billed monthly in advance and revenue is recognized on a monthly basis as the performance obligation is satisfied.

Licenses on non-hosted services are billed monthly and revenue is recognized on a monthly basis as the services are performed.

Hardware revenue is recognized when the customer obtains control.

The Company’s total revenue was $749.0 million for the year ended December 31, 2021.

The principal considerations for our determination that performing procedures relating to revenue recognition is a critical audit matter are the significant audit effort in performing procedures and evaluating audit evidence related to the accuracy and occurrence of revenue transactions.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements.

These procedures included testing the effectiveness of controls relating to the acquisition accounting, including controls over management’s valuation of the acquired developed technology intangible asset and controls over development of the future expected cash flows from the developed technology, the obsolescence factor, and the discount rate assumptions utilized in the valuation of the acquired developed technology intangible asset.

These procedures also included, among others (i) reading the purchase agreement and (ii) testing management’s process for estimating the fair value of the acquired developed technology intangible asset.

Testing management’s process included evaluating the appropriateness of the valuation method, testing the completeness and accuracy of data provided by management used in the valuation, and evaluating the reasonableness of significant assumptions related to the future expected cash flows from the developed technology, the obsolescence factor, and the discount rate.

Evaluating the reasonableness of the future expected cash flows from the developed technology involved considering the past performance of the acquired business, as well as economic and industry forecasts.

Professionals with specialized skill and knowledge were used to assist in evaluating the appropriateness of management’s valuation method and the obsolescence factor and discount rate assumptions.

These procedures included testing the effectiveness of controls relating to the revenue recognition process, including controls over the accuracy and occurrence of revenue transactions.

These procedures also included, among others, evaluating, on a test basis, the accuracy and occurrence of transactions recognized as revenue by obtaining and inspecting, where applicable, invoices, customer purchase orders, dealer and license agreements, shipping documents and cash receipts from customers.

Convertible Senior Notes Transaction

As described in Notes 2 and 13 to the consolidated financial statements, the Company issued $500.0 million aggregate principal amount of 0% convertible senior notes in January 2021.

The nature of the convertible senior notes (the “Notes”) required management to separate the Notes into liability and equity components.

The carrying amount of the liability component is calculated by measuring the fair value of a similar debt instrument that does not have an associated convertible feature.

Management determined the carrying amount of the equity component representing the conversion option by deducting the fair value of the liability component from the par value of the Notes as a whole.

The principal considerations for our determination that performing procedures relating to the convertible senior notes transaction is a critical audit matter are (i) the significant judgment by management in determining the fair value of the liability component of the Notes, (ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating management’s significant assumption related to the selection of the interest rate of a similar debt instrument that does not have an associated convertible feature, and (iii) the audit effort involved the use of professionals with specialized skill and knowledge.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements.

These procedures included testing the effectiveness of controls over management’s accounting for the Notes transaction and determining the fair value of the liability component of the Notes, including controls over management’s valuation method, significant assumptions, and data.

These procedures also included, among others, reading the agreements and evaluating the accounting for the Notes transaction, evaluating the methodology used by management to determine the liability by measuring the fair value of a similar note that does not have an associated conversion feature, and evaluating management’s selection of the interest rate of a comparable non-convertible note.

Professionals with specialized skill and knowledge were used to assist in evaluating whether the interest rate of a comparable non-convertible note used by management was reasonable considering consistency with external market data.

/s/ PricewaterhouseCoopers LLP

McLean, Virginia

Washington, DC

February 24, 2022

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Interest income 587 870 4,922

Other income, net 25,588 6,535 143

Other (expense) / income, net ( 134 ) 25,588 6,535

Income before income taxes 46,069 80,160 58,896

Provision for / (benefit from) income taxes 3,500 5,566 ( 9,825 )

(Benefit from) / provision for income taxes ( 5,106 ) 3,500 5,566

Net income 51,175 76,660 53,330

Net loss attributable to redeemable noncontrolling interest 1,084 1,193 201

Net income allocated to participating securities — — ( 3 )

Net income attributable to common stockholders $ 52,259 $ 77,853 $ 53,531

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Deferred revenue 9,140 8,492

Convertible senior notes, net 425,345 —

Long-term debt — 110,000

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Treasury stock, at cost;

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

Retained earnings / (accumulated deficit) 66,574 ( 10,463 )

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

( 5,149 ) ( 5,149 )

Retained earnings 118,833 66,574

Total stockholders’ equity 613,167 467,752

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Year Ended December 31,

Cash flows from operating activities:

2021 2020 2019

Cash flows from operating activities:

Net income $ 51,175 $ 76,660 $ 53,330

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

Provision for credit losses on accounts receivable 2,162 1,170 149

(Recovery of) / provision for credit losses on accounts receivable ( 775 ) 2,162 1,170

Reserve for product returns 2,494 1,795 ( 123 )

(Recovery of) / provision for credit losses on notes receivable ( 359 ) ( 3,272 ) 3,319

Recovery of credit losses on notes receivable ( 9 ) ( 359 ) ( 3,272 )

Provision for excess and obsolete inventory 448 1,451 485

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Amortization and depreciation 29,715 27,520 22,134

Amortization of debt issuance costs 108 108 108

Amortization of debt discount and debt issuance costs 15,823 108 108

Amortization of operating leases 9,692 8,888 7,600

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Gain on sale of investment — ( 24,737 ) —

(Gain on) / impairment of investment ( 676 ) 605 —

Disposal of property and equipment — — 1,410

(Gain on) / impairment of investment or intangible assets 86 ( 676 ) 605

Loss on early extinguishment of debt 185 — —

Changes in operating assets and liabilities (net of business acquisitions):

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Receipt of payments on notes receivable 59 2,026 31,696

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

Proceeds from sale of investment — 25,687 —

Purchases of patents and patent licenses ( 1,050 ) — ( 1,075 )

Purchases of patents, patent licenses and developed technology ( 4,362 ) ( 1,050 ) —

Cash flows used in investing activities ( 20,365 ) ( 20,274 ) ( 73,414 )

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Repayments of credit facility ( 110,000 ) ( 3,000 ) ( 4,000 )

Proceeds from issuance of convertible senior notes 500,000 — —

Payments of debt issuance costs ( 15,698 ) — —

Payments of deferred consideration for business acquisitions ( 1,160 ) ( 1,538 ) —

Purchases of treasury stock and repurchases of common stock ( 5,149 ) — ( 1 )

Purchases of treasury stock — ( 5,149 ) —

Payments of tax withholdings related to vesting of restricted stock units ( 4,476 ) — —

Issuances of common stock from equity-based plans 5,704 11,711 3,870

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Cash and cash equivalents at end of the period $ 710,621 $ 253,459 $ 119,629

See accompanying notes to the consolidated financial statements.

ALARM.COM HOLDINGS, INC.

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Cash paid for interest $ 114 $ 2,427 $ 2,730

Cash paid for / (received from) income taxes, net of refunds 7,369 2,254 ( 2,052 )

Cash paid for income taxes, net of refunds 4,146 7,369 2,254

Noncash investing and financing activities:

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Balance as of December 31, 2018 $ — — $ — 48,102 $ 481 $ 341,139 — $ — $ ( 64,031 ) $ 277,589

Adoption of accounting standard on revenue recognition — — — — — — — — 3,122 3,122

Common stock issued in connection with equity-based plans — — — 888 9 6,391 — — — 6,400

Vesting of common stock subject to repurchase — — — 12 — 55 — — — 55

Stock-based compensation expense — — — — — 13,661 — — — 13,661

Net income — — — — — — — — 21,524 21,524

Balance as of December 31, 2018 $ — — $ — 48,102 $ 481 $ 341,139 — $ — $ ( 64,031 ) $ 277,589

Adoption of accounting standard on leases — — — — — — — — 37 37

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Balance as of December 31, 2020 $ 10,691 — $ — 49,631 $ 496 $ 405,831 147 $ ( 5,149 ) $ 66,574 $ 467,752

Common stock issued in connection with equity-based plans — — — 776 8 5,696 — — — 5,704

Tax withholdings related to vesting of restricted stock units — — — — — ( 4,476 ) — — — ( 4,476 )

Stock-based compensation expense — — — — — 38,694 — — — 38,694

Equity component of convertible senior notes, net — — — — — 56,515 — — — 56,515

Accretion adjustments of redeemable noncontrolling interest to redemption value 3,281 — — — — ( 3,281 ) — — — ( 3,281 )

Net income / (loss) attributable to common stockholders ( 1,084 ) — — — — — — — 52,259 52,259

Balance as of December 31, 2021 $ 12,888 — $ — 50,407 $ 504 $ 498,979 147 $ ( 5,149 ) $ 118,833 $ 613,167

See accompanying notes to the consolidated financial statements.

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Equity investments without readily determinable fair values are recorded using the measurement alternative.

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.

Under the measurement 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.

We make a separate election to use the measurement alternative for each eligible investment, and reassess whether an investment qualifies for the alternative at each reporting period.

Adjustments resulting from impairment, fair value, or observable price changes are recorded in other income, net in our consolidated statements of operations.

Adjustments resulting from impairment, fair value or observable price changes are recorded in other (expense) / income, net in our consolidated statements of operations.

Use of Estimates

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Because of the use of estimates inherent in the financial reporting process and in light of the continuing uncertainty arising from the COVID-19 pandemic, actual results could differ from those estimates and any such differences may be material.

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

Estimates are used when accounting for revenue recognition, allowances for credit losses, allowance for hardware returns, estimates of obsolete inventory, long-term incentive compensation, the lease term and incremental borrowing rates for leases, stock-based compensation, income taxes, legal reserves, fair value of the debt component of convertible notes, contingent consideration and goodwill and intangible assets.

Reclassifications

Certain previously reported amounts in the consolidated statements of cash flows for the years ended December 31, 2019 have been reclassified to conform to our current presentation, including the addition of a provision for excess and obsolete inventory separate line item, which was previously included in inventory.

Certain previously reported amounts in the liabilities footnote for the year ended December 31, 2020 have been reclassified to conform to our current presentation, including the addition of the subsidiary long-term incentive plan as a separate line item within the presentation of other liabilities.

Certain previously reported amounts in the income taxes footnote for the years ended December 31, 2020 and 2019 have been reclassified to conform to our current presentation, including the addition of the foreign withholding tax line of the reconciliation between the federal statutory rate and the effective income tax rate.

Cash and Cash Equivalents

We consider all highly liquid instruments purchased with an original maturity from the date of purchase of three months or less to be cash equivalents.

As of December 31, 2020 and 2019, we have invested $ 221.4 million and $ 93.3 million in cash equivalents in the form of money market funds with one financial institution, respectively.

We consider these money market funds to be Level 1 financial instruments (see Note 10).

As of December 31, 2021 and 2020, we have invested $ 679.3 million and $ 221.4 million in cash

ALARM.COM HOLDINGS, INC.

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December 31, 2021, 2020 and 2019

equivalents in the form of money market funds with one financial institution, respectively.

We consider these money market funds to be Level 1 financial instruments (see Note 10).

Accounts Receivable

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Substantially all of our sales in Canada are transacted in U.S.

Revenue in countries outside of North America accounted for 3 %, 3 % and 2 % of our total revenue for the years ended December 31, 2020, 2019 and 2018, respectively.

Accounts receivable balances related to service providers partners outside of North America were 7 % as of December 31, 2020 and 2019.

Revenue in countries outside of North America accounted for 3 % of our total revenue for each of the years ended December 31, 2021, 2020 and 2019.

Accounts receivable balances related to service providers partners outside of North America were 4 % and 7 % as of December 31, 2021 and 2020, respectively.

Our accounts receivable are stated at estimated realizable value.

Notes Receivable

Notes receivable are presented net of an allowance for uncollectability, if any.

Notes receivable are presented net of an allowance for uncollectibility, if any.

We accrue interest on notes receivable based on the contractual terms of the note.

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

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

Additionally, there were no significant changes in the amount of accounts receivable or notes receivable write-offs during the year ended December 31, 2021 as compared to historical periods other than a partial accounts receivable write-off of $ 0.7 million related to one of our distribution partners' outstanding balance during the year ended December 31, 2021.

There were no purchases or sales of financial assets during the years ended December 31, 2021 and 2020.

See Note 9 for further details on our purchase of a secured promissory note in March 2019 that was originally executed by one of our hardware suppliers in favor of another third-party secured creditor.

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 years ended December 31, 2020 and 2018, we recorded credit loss expense of $ 1.7 million and $ 3.5 million in general and administrative expense in our consolidated statements of operations, respectively.

For the year ended December 31, 2019, we recorded a reduction of credit loss expense of $ 2.1 million in general and administrative expense in our consolidated statements of operations, primarily due to improvements in collections and improvements in the economic conditions used in the calculation of credit losses.

For the years ended December 31, 2021 and 2019, we recorded a reduction to credit loss expense of $ 1.0 million and $ 2.1 million in general and administrative expense in our consolidated statements of operations, respectively, primarily due to improvements in collections and improvements in the economic conditions used in the calculation of credit losses.

For the year ended December 31, 2020, we recorded credit loss expense of $ 1.7 million in general and administrative expense in our consolidated statements of operations.

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

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We have elected not to measure an allowance for credit losses for accrued interest receivables .

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 December 31, 2020 and 2019 was less than $ 0.1 million and is reflected in other current assets within our 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 years ended December 31, 2020, 2019 and 2018.

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

ALARM.COM HOLDINGS, INC.

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December 31, 2021, 2020 and 2019

The accrued interest receivable as of December 31, 2021 and 2020 was less than $ 0.1 million and is reflected in other current assets within our 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 years ended December 31, 2021, 2020 and 2019.

Our inventory, which is comprised of raw materials and finished goods, includes materials used to produce our wireless communications network enabled radios, video cameras, video recorders, gunshot detection sensors, home automation system parts and peripherals, is stated at the lower of cost or net realizable value, and is charged to cost of sales primarily on a first in, first out, or FIFO, basis when the inventory is shipped from our manufacturer and received by our service provider partners.

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Short-term lease costs were immaterial for the years ended December 31, 2021 and 2020.

Convertible Senior Notes

On January 20, 2021, we issued $ 500.0 million aggregate principal amount of 0 % convertible senior notes due January 15, 2026 in a private placement to qualified institutional buyers, or the 2026 Notes.

In accounting for the issuance of our convertible senior notes, we separate the notes into liability and equity components.

The carrying amount of the liability component is calculated by measuring the fair value of a similar liability that does not have an associated convertible feature, using a discounted cash flow model with a risk adjusted yield.

The carrying amount of the equity component representing the conversion option is determined by deducting the fair value of the liability component from the par value of the notes as a whole.

This difference between the aggregate principal amount and the liability component represents a debt discount that is amortized to interest expense using the effective interest method over the term of the notes.

The equity component is not remeasured as long as it continues to meet the conditions for equity classification.

ALARM.COM HOLDINGS, INC.

Notes to the Consolidated Financial Statements — (Continued)

December 31, 2021, 2020 and 2019

In accounting for the transaction costs related to the issuance of the notes, we allocate the total amount incurred to the liability and equity components using the same proportions as the proceeds from the notes.

Transaction costs attributable to the liability component are netted with the liability component and amortized to interest expense using the effective interest method over the term of the notes.

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

See Note 13 for the carrying amount and estimated fair value of the 2026 Notes as of December 31, 2021.

Redeemable Noncontrolling Interests

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The redemption value of the of the noncontrolling interest was $ 12.9 million and $ 10.7 million as of December 31, 2021 and 2020.

ALARM.COM HOLDINGS, INC.

Notes to the Consolidated Financial Statements — (Continued)

December 31, 2020, 2019 and 2018

Internal-Use Software

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Revenue Recognition

On January 1, 2018, we adopted ASU 2014-09, " Revenue from Contracts with Customers (Topic 606) ." We derive our revenue from three primary sources:

We derive our revenue from three primary sources:

the sale of cloud-based SaaS services on our integrated Alarm.com platform, the sale of licenses and services on our non-hosted software platform, or Software platform, and the sale of hardware products.

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The purchase of hardware occurs in a transaction that is separate and typically in advance of the purchase of our platform services.

The performance obligation is primarily satisfied when the hardware is received by our service provider partner or distributor.

The performance obligation is primarily satisfied when the hardware

ALARM.COM HOLDINGS, INC.

Notes to the Consolidated Financial Statements — (Continued)

December 31, 2021, 2020 and 2019

is received by our service provider partner or distributor.

Service provider partners transact with us to purchase our platform solutions and resell our solutions to a new subscriber, or to upgrade or downgrade the solutions of an existing subscriber, at which time the subscriber’s access to our platform solutions is enabled and the delivery of the services commences.

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We have variable consideration in the form of retrospective volume discounts, rebate incentives, restocking fees and assurance-type warranties.

The significant inputs related to variable consideration include the volume and amount of products and services sold historically and expected to be sold in the future, the availability and performance of our services and

ALARM.COM HOLDINGS, INC.

Notes to the Consolidated Financial Statements — (Continued)

December 31, 2020, 2019 and 2018

the historical and expected number of returns.

The significant inputs related to our estimates of variable consideration include the volume and amount of products and services sold historically and expected to be sold in the future, the availability and performance of our services and the historical and expected number of returns.

Depending on the type of variable consideration and its predictability, we may apply an "expected value" approach or a "most likely amount" approach.

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Our service provider partners typically incur and pay the same monthly fee per subscriber account for the entire period a subscriber account is active.

ALARM.COM HOLDINGS, INC.

Notes to the Consolidated Financial Statements — (Continued)

December 31, 2021, 2020 and 2019

We offer multiple service level packages for our platform solutions including a range of solutions and a range of a la carte add-ons for additional features.

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We apply the usage-based royalty exception to recognize license revenue associated with software hosted by our customers because the predominant item to which the royalty relates is the license of intellectual property.

ALARM.COM HOLDINGS, INC.

Notes to the Consolidated Financial Statements — (Continued)

December 31, 2020, 2019 and 2018

usage-based royalty exception, we recognize revenue on a monthly basis over the period during which the services are expected to be performed.

Under the usage-based royalty exception, we recognize revenue on a monthly basis over the period during which the services are expected to be performed.

Under the terms of our contractual arrangements with our service provider partners, we are entitled to payment of a monthly fee that is billed per subscriber for the month of service.

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

For the years ended December 31, 2020, 2019 and 2018, our reserve against revenue for hardware returns was 1 %, 1 % and 2 % of hardware and other revenue, respectively.

For each of the years ended December 31, 2021, 2020 and 2019, our reserve against revenue for hardware returns was approximately 1 % of hardware and other revenue.

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

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We determined that these warranties are not separate performance obligations as they cannot be purchased separately and do not provide a service in addition to an assurance the hardware will function as expected.

ALARM.COM HOLDINGS, INC.

Notes to the Consolidated Financial Statements — (Continued)

December 31, 2021, 2020 and 2019

Our hardware and other revenue also includes our revenue from the sale of perpetual licenses that provide our customers in the commercial market the right to use our OpenEye video surveillance software for an indefinite period of time in exchange for a one-time license fee, which is generally paid at contract inception.

Our hardware and other revenue also includes our revenue from Shooter Detection Systems from the sale of licenses that provide our customers the right to use our indoor gunshot detection solution in exchange for license fees, which are generally paid at contract inception.

Our hardware and other revenue also includes our revenue from Shooter Detection Systems related to the sale of licenses that provide our customers the right to use our indoor gunshot detection solution in exchange for license fees, which are generally paid at contract inception.

Our perpetual licenses and licenses to our indoor gunshot detection solution provide a right to use intellectual property that is functional in nature and has significant stand-alone functionality.

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Activation fees are not offered on a stand-alone basis separate from our SaaS offering and are billed and received at the beginning of the arrangement.

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.

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 10 years based on our annual attrition rate.

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

The balance of deferred revenue for activation fees was $ 6.0 million and $ 7.0 million as of December 31, 2021 and 2020, respectively, which combines current and long-term balances.

ALARM.COM HOLDINGS, INC.

Notes to the Consolidated Financial Statements — (Continued)

December 31, 2020, 2019 and 2018

Cost of Revenue

Our cost of SaaS and license revenue primarily includes the amounts paid to wireless network providers and, to a lesser extent, the costs of running our network operations centers which are expensed as incurred, as well as patent and royalty costs in connection with technology licensed from third-party providers.

Our cost of SaaS and license revenue also includes our cost of software license revenue, which primarily includes the payroll and payroll-related costs of the department dedicated to providing service exclusively to those service providers that host the Software platform.

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

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

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

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

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Based on the policy above, we capitalize a portion of our commission costs as an incremental cost of obtaining a contract.

When calculating the incremental cost of obtaining a contract, we exclude any commission costs related to metrics that could be satisfied without obtaining a contract, including training-related metrics.

When calculating the incremental cost of obtaining a contract, we exclude any

ALARM.COM HOLDINGS, INC.

Notes to the Consolidated Financial Statements — (Continued)

December 31, 2021, 2020 and 2019

commission costs related to metrics that could be satisfied without obtaining a contract, including training-related metrics.

We amortize our commission costs over a period of three years , which is consistent with the period over which the products and services related to the commission are transferred to the customer.

The three-year period was determined based on our review of historical enhancements and upgrades to our products and services.

We applied the portfolio approach to account for the amortization of contract costs as each contract has similar characteristics.

We applied the portfolio approach to account for the amortization of contract costs for those contracts that have similar characteristics.

Upfront payments made to a customer are capitalized and amortized over the expected period of benefit and are recorded as a reduction to revenue.

Contract liabilities include payments received in advance of performance under the contract and are realized with the associated revenue recognized under the contract.

All of the deferred revenue presented in the balance sheets represents contract liabilities resulting from advance cash receipts from customers or amounts billed in advance to customers from the sale of services.

All of the deferred revenue presented in the consolidated balance sheets represents contract liabilities resulting from advance cash receipts from customers or amounts billed in advance to customers from the sale of services.

Changes in deferred revenue are due to our performance under the contract as well as to cash received from new contracts for which services have not been provided.

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We invest substantial resources in research and development to enhance our platforms and applications, support our technology infrastructure, develop new capabilities and conduct quality assurance testing.

ALARM.COM HOLDINGS, INC.

Notes to the Consolidated Financial Statements — (Continued)

December 31, 2020, 2019 and 2018

Fair Value Measurements

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Assets and Liabilities Measured at Fair Value on a Recurring Basis - In 2021 and 2020, we recorded assets for our money market accounts.

During parts of 2020 and 2019, we recorded liabilities for a contingent consideration liability related to acquisitions at fair value on a recurring basis.

In 2021 and 2020, we recorded liabilities for a long-term incentive plan with one of our subsidiaries at fair value on a recurring basis with any changes recorded as a cumulative adjustment.

During parts of 2020, we recorded liabilities for a contingent consideration liability related to acquisitions at fair value on a recurring basis.

Assets Measured at Fair Value on a Nonrecurring Basis - We measure certain assets, including property and equipment, goodwill and intangible and long-lived assets at fair value on a nonrecurring basis.

1 unchanged sentence

Additionally, equity investments without readily determinable fair values are recognized at fair value on a nonrecurring basis when observable price changes from orderly transactions for identical or similar investments become available.

ALARM.COM HOLDINGS, INC.

Notes to the Consolidated Financial Statements — (Continued)

December 31, 2021, 2020 and 2019

Concentration of Credit Risk

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We have not experienced any losses on cash and cash equivalents to date.

To manage accounts receivable risk, we evaluate the credit worthiness of our service provider partners and maintain an allowance for doubtful accounts.

To manage accounts receivable risk, we evaluate the credit worthiness of our service provider partners and maintain an allowance for credit losses.

The majority of our accounts receivable balance is due from our service provider partners in North America.

We assess the concentrations of credit risk with respect to accounts receivables based on one industry and one geographic region and believe that our reserve for uncollectable accounts is appropriate based on our history and this concentration.

We assess the concentrations of credit risk with respect to accounts receivables based on one industry and one geographic region and believe that our reserve for uncollectible accounts is appropriate based on our history and this concentration.

Stock-Based Compensation

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Our equity awards generally vest over five years and are settled in shares of our common stock.

During 2020, 2019 and 2018, we recognized compensation expense of $ 29.2 million, $ 20.6 million and $ 13.4 million, respectively, and associated income tax benefit of $ 8.2 million, $ 5.2 million and $ 7.6 million, respectively, in connection with our stock-based compensation plans.

During 2021, 2020 and 2019, we recognized compensation expense of $ 38.7 million, $ 29.2 million and $ 20.6 million, respectively, and associated tax windfall benefit from stock-based awards of $ 10.1 million, $ 8.2 million and $ 5.2 million, respectively.

We account for stock-based compensation arrangements with non-employees based upon the award’s grant date fair value.

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Compensation expense is recognized for the amount of the discount, net of actual forfeitures, over the six-month purchase period.

ALARM.COM HOLDINGS, INC.

Notes to the Consolidated Financial Statements — (Continued)

December 31, 2020, 2019 and 2018

401(k) Defined Contribution Plan

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All of our employees are eligible to participate in the Plan.

For the year ended December 31, 2020, our discretionary match was 100 % of employee contributions up to 10 % of salary and up to a $ 5,000 maximum match.

For the years ended December 31, 2021 and 2020, our discretionary match was 100 % of employee contributions up to 10 % of salary and up to a $ 5,000 maximum match.

For the year ended December 31, 2019, our discretionary match was 100 % of employee contributions up to 10 % of salary and up to a $ 4,000 maximum match.

We recognized compensation expense of $ 5.5 million, $ 5.0 million and $ 3.2 million for the years ended December 31, 2021, 2020 and 2019, respectively, related to our matching contributions.

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Upon the conclusion of the measurement period, any subsequent adjustments are recorded to earnings.

ALARM.COM HOLDINGS, INC.

Notes to the Consolidated Financial Statements — (Continued)

December 31, 2021, 2020 and 2019

Some acquisitions may include contingent consideration, which is an obligation to make future payments to the seller contingent upon the achievement of future operational or financial targets.

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Certain stockholders of OpenEye had the right to receive an earn-out payment of up to an additional $ 11.0 million based upon satisfaction of certain calendar 2020 revenue targets.

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 was zero .

As of December 31, 2019, the estimated fair value of the contingent consideration related to the potential earn-out payment using a Monte Carlo simulation model was $ 2.6 million and this amount was recorded in accrued compensation in the consolidated balance sheets.

The 2020 revenue targets were not met and the fair value of the contingent consideration liability related to the potential earn-out payment was zero as of December 31, 2021 and 2020.

Goodwill, Intangible Assets and Long-lived Assets

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Therefore, we concluded that there was no goodwill impairment as of October 1, 2021.

Our assessment was performed as of October 1, 2020, and we have determined there have been no triggering events from our assessment date through December 31, 2020.

ALARM.COM HOLDINGS, INC.

Notes to the Consolidated Financial Statements — (Continued)

December 31, 2020, 2019 and 2018

Our assessment was performed as of October 1, 2021, and we have determined there has been no triggering events that resulted in goodwill impairment from our assessment date through December 31, 2021.

Intangible Assets and Long-lived Assets

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If the asset is considered to be impaired, the amount of any impairment is measured as the difference between the carrying value and the fair value of the impaired asset.

For the year ended December 31, 2021, we determined there was an impairment of $ 0.1 million for an intangible asset acquired in 2014 related to customer relationships that no longer existed after December 31, 2021.

For the years ended December 31, 2020 and 2019, we determined there were no impairments of our intangible assets with definite lives or long-lived assets.

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The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.

ALARM.COM HOLDINGS, INC.

Notes to the Consolidated Financial Statements — (Continued)

December 31, 2021, 2020 and 2019

We record net deferred tax assets to the extent we believe these assets will more likely than not be realized.

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Due to the uncertainty of realization of certain deferred tax assets 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 December 31, 2021 and 2020.

During 2020, we established a valuation allowance on state research and development tax credits of $ 1.3 million.

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 December 31, 2020.

This valuation allowance increased to $ 1.9 million as of December 31, 2021.

We are subject to income taxes in the United States and foreign jurisdictions based upon our business operations in those jurisdictions.

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Our diluted net income per share attributable to common stockholders is calculated by giving effect to all potentially dilutive common stock when determining the weighted-average number of common shares outstanding.

For purposes of the diluted net

ALARM.COM HOLDINGS, INC.

Notes to the Consolidated Financial Statements — (Continued)

December 31, 2020, 2019 and 2018

income per share calculation, options to purchase common stock, restricted stock units and unvested shares issued upon the early exercise of options that are subject to repurchase are considered to be potential common stock.

We have issued securities other than common stock that participate in dividends ("participating securities"), and therefore utilize the two-class method to calculate net income per share.

These participating securities include unvested shares issued upon the early exercise of options that are subject to repurchase which have non-forfeitable rights to participate in any dividends declared on our common stock.

The two-class method requires a portion of net income to be allocated to the participating securities to determine the net income attributable to common stockholders.

We also have redeemable noncontrolling interest related to our 85 % equity ownership interest in OpenEye.

For purposes of the diluted net income per share calculation, options to purchase common stock, restricted stock units and unvested shares issued upon the early exercise of options that are subject to repurchase are considered to be potential common stock.

Since we expect to settle the principal amount on our outstanding 2026 Notes in cash and any excess in cash or shares of our common stock, we use the treasury stock method for calculating any potential dilutive effect of the conversion spread on diluted net income per share, if applicable.

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.

We have redeemable noncontrolling interest related to our 85 % equity ownership interest in OpenEye.

When calculating net income attributable to the common stockholders, net loss attributable to redeemable noncontrolling interest should be excluded from net income.

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Recent Accounting Pronouncements

On June 16, 2016, the Financial Accounting Standards Board, or FASB, issued Topic 326 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.

From November 2018 to February 2020, amendments to Topic 326 were issued to clarify numerous accounting topics.

When determining such expected credit losses, the guidance requires companies to apply a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates.

The amendment was effective for us beginning on January 1, 2020.

On January 1, 2020, we adopted Topic 326 by applying the modified retrospective approach to our trade receivables and our notes receivable that were outstanding as of that date, which required us to record the initial effect of Topic 326 as a cumulative-effect adjustment to retained earnings on January 1, 2020.

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

Balance Sheet Caption As of January 1, 2020

Accumulated deficit $ 816

Accounts receivable, net ( 367 )

Other current assets ( 83 )

Other assets ( 366 )

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

On August 28, 2018, the FASB issued ASU 2018-13, " Fair Value Measurement (Topic 820):

Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement," which provides guidance designed to improve the effectiveness of fair value measurement disclosures in notes to the financial statements.

The update removes several existing disclosure requirements, including, but not limited to:

(i) the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, (ii) the policy for timing of transfers between levels and (iii) the valuation processes for Level 3 fair value measurements.

The update also adds additional disclosure requirements for public companies, including but not limited to:

(i) the changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period and (ii) the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements.

The update also modifies and clarifies several existing disclosure requirements.

On December 18, 2019, the Financial Accounting Standards Board, or FASB, issued ASU 2019-12, " Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes ," which simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740.

The update also simplifies GAAP for other areas of Topic 740 by clarifying and amending existing guidance to improve consistent application.

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

On January 1, 2020, we adopted Topic 820 and updated our fair value measurement disclosures (see Note 10).

On January 1, 2021, we adopted Topic 740.

This pronouncement did not have a material impact on our consolidated financial statements or disclosures.

On January 16, 2020, the FASB issued ASU 2020-1, " Investments-Equity Securities (Topic 321), Investments-Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815):

Clarifying the Interactions between Topic 321, Topic 323, and Topic 815 ," which provides guidance on the interaction between accounting standards related to equity securities, equity method investments and certain derivatives.

This amendment clarifies that an entity should consider observable transactions that require it to either apply or discontinue the equity method of accounting for the purposes of applying

ALARM.COM HOLDINGS, INC.

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December 31, 2021, 2020 and 2019

the measurement alternative immediately before applying, or upon discontinuing, the equity method.

The amendment also clarifies that an entity should not consider whether, upon the settlement of the forward contract or exercise of the purchased option, individually or with existing investments, the underlying securities would be accounted for under the equity method or the fair value option in accordance with the financial instruments guidance.

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

Early adoption is permitted.

On January 1, 2020, we adopted this amendment on a prospective basis and the adoption did not have a material impact on our consolidated financial statements.

Not Yet Adopted

On December 18, 2019, the FASB issued ASU 2019-12, " Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes, " which simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740.

The update also simplifies GAAP for other areas of Topic 740 by clarifying and amending existing guidance to improve consistent application.

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

Early adoption is permitted.

We are currently assessing the impact this pronouncement may have on our consolidated financial statements, but we do not believe the adoption will have a material impact on our consolidated financial statements or disclosures.

On March 12, 2020, the FASB issued ASU 2020-04, "Reference Rate Reform (Topic 848):

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The amendment was effective beginning March 12, 2020 and will continue to be effective through December 31, 2022.

We are currently assessing the timing of adoption as well as the impact this pronouncement may have on our consolidated financial statements.

Due to the termination of our credit facility on January 20, 2021 (see Note 13), which was our only material agreement that used LIBOR, this pronouncement is not expected to have an impact on our consolidated financial statements or disclosures.

On August 5, 2020, the FASB issued ASU 2020-06 , " Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40):

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The guidance allows for either full retrospective adoption or modified retrospective adoption.

Although we do not have any financial instruments impacted by this guidance as of December 31, 2020, due to the January 20, 2021 issuance of $ 500.0 million aggregate principal amount of 0 % convertible senior notes due January 15, 2026 in a private placement to qualified institutional buyers, we are currently assessing the impact this pronouncement may have on our consolidated financial statements when we adopt the pronouncement on January 1, 2022.

See Note 22 for details on the subsequent event related to the convertible senior notes.

We plan to use the modified retrospective adoption method, which will require us to record the effect of initially applying this guidance as a cumulative-effect adjustment to retained earnings on January 1, 2022.

We have finalized our assessment of this guidance and on January 1, 2022, we will record a reclassification from equity to debt through an adjustment upon adoption that will decrease additional paid-in capital by $ 56.5 million, net of tax;

decrease deferred tax liabilities and assets by $ 15.8 million and $ 0.4 million, respectively;

increase convertible senior notes, net by $ 61.9 million;

and increase retained earnings by $ 10.0 million, net of tax.

Specific to the 2026 Notes, we will also record less interest expense in 2022 and beyond 2022 as compared to 2021, due to eliminating the amortization of the debt discount on the equity component, which represented the embedded conversion feature.

Additionally, this guidance requires that we adopt the if-converted method for computing diluted earnings per share, which will increase our diluted weighted average common shares outstanding and impact our earnings per share upon adoption.

There will be no impact to our liquidity or cash flows as a result of adopting this guidance.

On October 28, 2021, the FASB issued ASU 2021-08, " Business Combinations (Topic 606):

Accounting for Contract Assets and Contract Liabilities from Contracts with Customers ," which requires that an entity recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606 as if it had originated the contracts.

Generally, this should result in an acquirer recognizing and measuring the acquired contract assets and contract liabilities consistent with how they were recognized and measured in the acquiree’s financial statements, if the acquiree prepared financial statements in accordance with GAAP.

The amendment in this update is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years.

Early adoption is permitted, including adoption in an interim period.

The guidance should be applied prospectively to business combinations occurring on or after the effective date of the amendment in this update.

We are currently assessing the impact this pronouncement may have on our consolidated financial statements, which will be dependent on the nature and size of any potential future acquisitions.

Revenue from Contracts with Customers

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Our contract assets consist of capitalized commission costs and upfront payments made to customers.

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

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

Our amortization of contract assets during the years ended December 31, 2020, 2019 and 2018 was $ 3.5 million, $ 2.4 million and $ 2.0 million, respectively.

The current portion of capitalized commission costs and upfront payments made to customers is included in other current assets within our consolidated balance sheets.

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

We review the capitalized costs for impairment at least annually.

27 unchanged sentences

Accounts receivable, net $ 105,548 $ 83,326

For the years ended December 31, 2020, 2019 and 2018, we recorded a provision for credit losses on our accounts receivable of $ 2.2 million, $ 1.2 million and $ 0.1 million, respectively.

For the year ended December 31, 2021, we recorded a reduction to the provision for credit losses on our accounts receivable of $ 0.8 million.

For the years ended December 31, 2020 and 2019, we recorded a provision for credit losses on our accounts receivable of $ 2.2 million and $ 1.2 million, respectively.

For the years ended December 31, 2021 and 2020, we recorded a $ 2.5 million and $ 1.8 million reserve for product returns in our hardware and other revenue, respectively.

For the year ended December 31, 2019, we recorded a reduction to the reserve for product returns of $ 0.1 million in our hardware and other revenue.

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

ALARM.COM HOLDINGS, INC.

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

Year Ended December 31, 2020

Year Ended December 31, 2021 Year Ended December 31, 2020

Subsidiaries All Other

Subsidiaries Alarm.com

Subsidiaries All Other

Beginning of period balance $ ( 4,442 ) $ ( 254 ) $ ( 2,500 ) $ ( 84 )

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

Provision for expected credit losses ( 2,109 ) ( 53 )

Recovery of / (provision for) expected credit losses 860 ( 85 ) ( 2,109 ) ( 53 )

Write-offs 1,547 206 379 38

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We record land at historical cost.

During the application development phase, we record capitalized development costs in our construction in progress account and then reclass the asset to internal-use software when the project is ready for its intended use, which is usually when the code goes into production.

During the application development phase, we record capitalized development costs in our construction in progress account and then reclassify the asset to internal-use software when the project is ready for its intended use, which is usually when the code goes into production.

Furniture, fixtures and office equipment and computer software and hardware are depreciated on a straight-line basis over lives ranging from three to five years .

16 unchanged sentences

We had no disposals and write-offs of property and equipment that impacted the consolidated statements of operations during the years ended December 31, 2021, 2020 and 2019.

Within the Alarm.com segment, we disposed of and wrote off $ 1.4 million of

ALARM.COM HOLDINGS, INC.

1 unchanged sentence

December 31, 2021, 2020 and 2019

capitalized costs to research and development expenses within the consolidated statements of operations primarily related to the design of internal-use software that no longer met the requirements for capitalization during the year ended December 31, 2018.

In December 2019, we purchased land and a commercial building located in Liberty Lake, Washington for $ 5.1 million.

This building will be used by OpenEye for sales and training, research and development, warehousing and administrative purposes.

Asset Acquisitions

On December 16, 2021, EnergyHub, Inc., one of our wholly-owned subsidiaries, acquired certain assets of an unrelated third party.

Substantially all of the acquired assets consisted of developed technology.

We believe the acquisition of the developed technology will continue to advance our load-shaping energy management solution allowing additional devices to participate in utility programs that reduce or shift power consumption during peak demand periods.

In consideration for the purchase of the developed technology, we paid $ 4.2 million in cash in December 2021, with the remaining $ 0.9 million expected to be paid 18 months following the acquisition date, subject to offset for any indemnification obligations.

Additionally, we incurred $ 0.2 million in direct transaction costs related to legal fees during 2021 that were capitalized as a component of the consideration transferred.

The combined $ 5.3 million consideration related to developed technology was recorded as an intangible asset at the time of the asset acquisition and will be amortized on a straight-line basis over an estimated useful life of seven years .

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

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 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.

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 consolidated statements of operations during 2020, as the IPR&D had no alternative future use.

On March 12, 2020, Alarm.com Incorporated acquired certain assets of an unrelated third party.

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.

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.

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

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 and the remaining $ 0.3 million in September 2021.

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 consolidated statements of operations during 2020, as the IPR&D had no alternative future use.

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

We believe the acquisition of the IPR&D will strengthen our comprehensive suite of cloud-based solutions.

In consideration for the purchase of the IPR&D, we paid $ 0.9 million in cash on September 18, 2019, with the remaining $ 0.1 million expected to be paid 18 months following the acquisition date, subject to offset for any indemnification obligations.

We believe the acquisition of the IPR&D will continue to strengthen our comprehensive suite of cloud-based solutions.

In consideration for the purchase of the IPR&D, we paid $ 0.9 million in cash on September 18, 2019 and the remaining $ 0.1 million in March 2021.

The $ 1.0 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 consolidated statements of operations during 2019, as the IPR&D had no alternative future use.

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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 purchase price decreased by $ 0.1 million.

The working capital adjustment is expected to be finalized in the first half of 2021.

The purchase price allocation, which is pending the final determination of the working capital, wa s not finalized as of the filing date of this Annual Report on Form 10-K.

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.

ALARM.COM HOLDINGS, INC.

1 unchanged sentence

December 31, 2021, 2020 and 2019

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):

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

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Total consideration $ 26,577

Estimated Tangible and Intangible Net Assets:

Tangible and Intangible Net Assets:

Accounts receivable 1,179

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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 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.

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The significant assumptions used in the multi-period excess earnings method include estimates about future expected cash flows from the developed technology, the obsolescence factor and the discount rate.

We are amortizing the SDS developed technology, valued

We are amortizing the SDS developed technology, valued at $ 13.5 million, on an attribution method based on the discounted cash flows of the model over an estimated useful life of seven years .

ALARM.COM HOLDINGS, INC.

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December 31, 2021, 2020 and 2019

at $ 13.5 million, on an attribution method based on the discounted cash flows of the model over an estimated useful life of seven years .

We valued the trade names acquired using a relief from royalty method.

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OpenEye provides cloud-managed video surveillance solutions for the enterprise commercial market.

We believe the acquisition of OpenEye will provide a key element to our comprehensive suite of interactive cloud-based services spanning video, access control, intrusion and automation for domestic and international commercial enterprises.

The acquisition of OpenEye provides a key element to our comprehensive suite of interactive cloud-based services spanning video, access control, intrusion and automation for domestic and international commercial enterprises.

In consideration for the purchase of 85 % of the issued and outstanding capital stock of OpenEye, we paid $ 61.2 million in cash on October 21, 2019, after deducting $ 2.8 million related to an agreed holdback.

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

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 .

The 2020 revenue targets were not met and the fair value of the contingent consideration liability related to the potential earn-out payment was zero as of December 31, 2021 and 2020.

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

21 unchanged sentences

Total tangible and intangible net assets $ 67,016

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

ALARM.COM HOLDINGS, INC.

1 unchanged sentence

December 31, 2021, 2020 and 2019

for domestic and international commercial enterprises.

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

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Fair Value of Net Assets Acquired and Intangibles

In accordance with ASC 805, OpenEye constituted a business and the assets and liabilities were recorded at their respective fair values as of October 21, 2019.

In accordance with ASC 805, “ Business Combinations ,” OpenEye constituted a business and the assets and liabilities were recorded at their respective fair values as of October 21, 2019.

We developed our estimate of the fair value of intangible net assets using a multi-period excess earnings method for customer relationships, the relief from royalty method for the developed technology and the relief-from-royalty method for the trade name.

19 unchanged sentences

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

The redemption value of the noncontrolling interest was $ 11.4 million as of October 21, 2019, and decreased to $ 10.7 million as of December 31, 2020.

The redemption value of the noncontrolling interest was $ 11.4 million as of October 21, 2019, and increased to $ 12.9 million as of December 31, 2021.

Contingent Consideration

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As of October 21, 2019, the fair value of the liability was $ 2.8 million.

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

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 .

See Note 10 for details on the significant unobservable inputs used in the fair value estimate and post-acquisition accounting.

ALARM.COM HOLDINGS, INC.

1 unchanged sentence

December 31, 2021, 2020 and 2019

payment decreased to zero .

See Note 10 for details on the significant unobservable inputs used in the fair value estimate and post-acquisition accounting.

Unaudited Pro Forma Information - SDS

11 unchanged sentences

The operations of the SDS business combination discussed above were included in the consolidated financial statements as of the acquisition date.

The following table presents the revenue and earnings of the business combination in the year of acquisition as reported within the consolidated financial statements (in thousands):

The following table presents the revenue and losses of the business combination in the year of acquisition as reported within the consolidated financial statements (in thousands):

Year Ended December 31, 2020

6 unchanged sentences

(i) we adjusted the pro forma amounts for income taxes, (ii) we adjusted for amortization expense assuming the fair value adjustments to intangible assets had been applied beginning January 1, 2018, and (iii) we adjusted for transaction fees incurred and reclassified them to January 1, 2018.

ALARM.COM HOLDINGS, INC.

Notes to the Consolidated Financial Statements — (Continued)

December 31, 2020, 2019 and 2018

The pro forma adjustments were based on available information and upon assumptions that we believe are reasonable to reflect the impact of these acquisitions on our historical financial information on a supplemental pro forma basis, as follows (in thousands, except per share data):

4 unchanged sentences

Net income attributable to common stockholders per share - diluted $ 1.02 $ 0.26

ALARM.COM HOLDINGS, INC.

Notes to the Consolidated Financial Statements — (Continued)

December 31, 2021, 2020 and 2019

Business Combinations in Operations - OpenEye

9 unchanged sentences

Goodwill acquired 7,176 — 7,176

Measurement period adjustment 699 — 699

Balance as of December 31, 2020 112,838 — 112,838

2 unchanged sentences

Balance as of December 31, 2021 $ 112,901 $ — $ 112,901

On October 21, 2019, we acquired 85 % of the issued and outstanding capital stock of OpenEye and recorded $ 42.1 million of goodwill in the Alarm.com segment.

On December 14, 2020, we acquired 100 % of the issued and outstanding ownership interest units of SDS and recorded $ 7.2 million of goodwill in the Alarm.com segment.

9 unchanged sentences

Intangible assets acquired — 5,307 — 5,307

Impairment of intangible assets ( 86 ) — — ( 86 )

Amortization ( 13,158 ) ( 3,373 ) ( 543 ) ( 17,074 )

Balance as of December 31, 2021 $ 59,426 $ 30,157 $ 1,823 $ 91,406

We recorded $ 17.1 million, $ 16.6 million and $ 14.2 million of amortization related to our intangible assets for the years ended December 31, 2021, 2020 and 2019, respectively.

We determined there was an impairment of $ 0.1 million for the remaining value of an intangible asset in the Alarm.com segment that was acquired in 2014 related to customer relationships that no longer existed after December 31, 2021, which was included in other (expense) / income, net in our consolidated statements of operations for the year ended December 31, 2021.There were no impairments of long-lived intangible assets during the years ended December 31, 2020 and 2019.

ALARM.COM HOLDINGS, INC.

1 unchanged sentence

December 31, 2021, 2020 and 2019

We recorded $ 16.6 million, $ 14.2 million and $ 15.2 million of amortization related to our intangible assets for the years ended December 31, 2020, 2019 and 2018, respectively.

There were no impairments of long-lived intangible assets during the years ended December 31, 2020, 2019 and 2018.

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

December 31, 2021

Amount Accumulated

Amount Impairment of Intangible Assets Accumulated

Amortization Net

21 unchanged sentences

Total future amortization expense $ 91,406

ALARM.COM HOLDINGS, INC.

Notes to the Consolidated Financial Statements — (Continued)

December 31, 2020, 2019 and 2018

Purchases of Patents and Patent Licenses

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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 $ 0.4 million, $ 0.4 million and $ 0.5 million was included in cost of SaaS and license revenue in our consolidated statements of operations for the years ended December 31, 2020, 2019 and 2018, respectively.

Patent cost amortization of $ 0.2 million, $ 0.1 million and less than $ 0.1 million was included in amortization and depreciation in our consolidated statements of operations for the year ended December 31, 2020, 2019 and 2018, respectively.

Patent cost amortization of $ 0.4 million was included in cost of SaaS and license revenue in our consolidated statements of operations for each of the years ended December 31, 2021, 2020 and 2019.

Patent cost amortization of $ 0.3 million, $ 0.2 million and $ 0.1 million was included in amortization and depreciation in our consolidated statements of operations for the year ended December 31, 2021, 2020 and 2019, respectively.

ALARM.COM HOLDINGS, INC.

Notes to the Consolidated Financial Statements — (Continued)

December 31, 2021, 2020 and 2019

Loan to a Distribution Partner

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

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

As of December 31, 2021 and 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.

1 unchanged sentence

For the years ended December 31, 2021, 2020 and 2019, we recognized $ 3.0 million, $ 2.4 million and $ 1.9 million of revenue from the distribution partners associated with these loans, respectively.

Loan to a Service Provider Partner

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

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

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

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

For the years ended December 31, 2021, 2020 and 2019, we recognized $ 0.2 million, $ 0.1 million and less than $ 0.1 million of revenue from the service provider partner associated with this loan, respectively.

Loan to and Investment in a Hardware Supplier

2 unchanged sentences

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

ALARM.COM HOLDINGS, INC.

Notes to the Consolidated Financial Statements — (Continued)

December 31, 2020, 2019 and 2018

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

1 unchanged sentence

We paid $ 16.4 million to the third-party secured creditor in exchange for all of the rights associated with the Acquired Promissory Note, including a security interest and a right to enforce that interest against all assets owned by the hardware supplier.

We also paid an additional $ 6.0 million to the third-party secured creditor in September 2019 based on the outcome of certain contingencies measured as of May 4, 2019.

We also paid an additional $ 6.0 million the third-party secured creditor in September 2019 based on the outcome of certain contingencies

ALARM.COM HOLDINGS, INC.

Notes to the Consolidated Financial Statements — (Continued)

December 31, 2021, 2020 and 2019

measured as of May 4, 2019.

The fair value of the Acquired Promissory Note at the date of purchase was $ 22.4 million, which represented the initial cash consideration paid in March 2019 and the contingent consideration paid in September 2019.

On June 24, 2019, we received a payment of $ 7.4 million from the supplier for the partial satisfaction of amounts due under the Promissory Notes and the Acquired Promissory Note.

On July 15, 2019, we received an additional payment of $ 25.0 million from the supplier and converted the remaining $ 5.6 million outstanding notes receivable balance into 9,520,832 shares of Series B preferred stock in the hardware supplier.

On July 15, 2019, we received an additional payment of $ 25.0 million from the supplier and converted the outstanding notes receivable balance of $ 5.6 million into 9,520,832 shares of Series B preferred stock in the hardware supplier.

We concluded that the $ 5.6 million equity investment, which is included in the Alarm.com segment, does not meet the criteria for consolidation and will be accounted for using the measurement alternative.

As a result of the payments received, we reversed the $ 3.3 million reserve related to the October 2018 Promissory Note that was previously recorded during the three months ended December 31, 2018.

The reversal of the reserve was recorded as a reduction to general and administrative expense in our consolidated statements of operations during the three months ended June 30, 2019.

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

As a result of the $ 25.0 million payment received and conversion of the $ 5.6 million outstanding notes receivable balance into an equity investment on July 15, 2019, we recorded interest of $ 1.7 million within interest income and a gain of $ 6.9 million within other income, net, in our consolidated statements of operations during the year ended December 31, 2019, related to the Promissory Notes and the Acquired Promissory Note.

As of December 31, 2020 and 2019, there was no remaining outstanding balance of the Promissory Notes and the Acquired Promissory Note.

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

Loan to a Service Provider Partner

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

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

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

For the years ended December 31, 2020, 2019 and 2018, we recognized $ 0.1 million, less than $ 0.1 million and less than $ 0.1 million of revenue from the distribution partner associated with these loans, respectively.

Investment in a Platform Partner

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

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

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

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

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

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

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

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

As a result of the sale, we recorded a gain of $ 24.7 million within other income, net, in our consolidate d statements of operations during the year ended December 31, 2020.

As of December 31, 2020 , our investment in the platform partner was zero a nd as of December 31, 2019 , our investment in the platform partner was $ 1.0 million and was included in other assets in our consolidated balance sheets.

Investment in a Technology Partner

1 unchanged sentence

In April 2018, the $ 0.3 million convertible promissory note converted into 135,135 shares of Series A-1 Preferred Stock.

At the time of conversion, we

ALARM.COM HOLDINGS, INC.

Notes to the Consolidated Financial Statements — (Continued)

December 31, 2020, 2019 and 2018

determined there was no value related to the Series A-1 Preferred Stock.

Based on observable price changes from orderly transactions for similar investments, we increased the amount of our investment by $ 0.7 million and recorded a gain within o ther income, net, in our consolidate d statements of operations during the year ended December 31, 2020.

Our investment in the technology partner was $ 0.7 million and zero as of December 31, 2020 and 2019, respectively.

Subsequent to December 31, 2020, in February 2021, we paid $ 5.0 million in cash to purchase 1,000,000 shares of Series B-2 Preferred Stock from the same technology partner as part of a financing round that included other investors.

At the time of conversion, we determined there was no value related to the Series A-1 Preferred Stock.

Based on observable price changes from orderly transactions for similar investments, we increased the amount of our investment by $ 0.7 million and recorded a gain within other (expense) / income, net , in our consolidate d statements of operations during the year ended December 31, 2020.

In February 2021, we paid $ 5.0 million in cash to purchase 1,000,000 shares of Series B-2 Preferred Stock from the same technology partner as part of a financing round that included other investors.

The $ 5.0 million equity investment, which is included in the Alarm.com segment, does not meet the criteria for consolidation and is accounted for using the measurement alternative.

Our investment in the technology partner was $ 5.7 million and $ 0.7 million as of December 31, 2021 and 2020, respectively.

Investment in a Platform Partner

On July 31, 2020, a platform partner, in which we held 3,548,820 shares of common stock of the platform partner, was acquired by an unrelated third party.

As a result of the sale, we received proceeds of $ 25.7 million in exchange for our shares of the platform partner's common stock and we recorded a gain of $ 24.7 million within other income, net, in our consolidate d statements of operations during the year ended December 31, 2020.

As of December 31, 2021 and 2020 , our investment in the platform partner was zero .

Allowance for Credit Losses - Notes Receivable

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

Year Ended December 31, 2020

Year Ended December 31, 2021 Year Ended December 31, 2020

Receivables Hardware

Receivables Loan

Receivables Hardware

Beginning of period balance $ ( 73 ) $ ( 16 ) $ — $ ( 16 )

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

Recovery of / (provision for) expected credit losses 360 ( 1 )

(Provision for) / recovery of expected credit losses ( 6 ) 15 360 ( 1 )

Write-offs — — 1 16

End of period balance $ ( 79 ) $ ( 1 ) $ ( 73 ) $ ( 16 )

ALARM.COM HOLDINGS, INC.

Notes to the Consolidated Financial Statements — (Continued)

December 31, 2021, 2020 and 2019

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 December 31, 2020 are as follows (in thousands):

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

December 31, 2021

Loan Receivables:

13 unchanged sentences

Total $ — $ — $ 21 $ — $ — $ — $ 21

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

ALARM.COM HOLDINGS, INC.

10 unchanged sentences

Prepaid Expenses

As of December 31, 2020 and 2019, $ 8.4 million and $ 6.1 million of prepaid expenses were included in other current assets, respectively, primarily related to software licenses.

As of December 31, 2021 and 2020, $ 17.7 million and $ 8.4 million of prepaid expenses were included in other current assets, respectively, primarily related to long lead-time parts related to our inventory and software licenses.

Fair Value Measurements

The following tables presents our assets and liabilities measured at fair value on a recurring basis (in thousands):

Fair Value Measurements on a Recurring Basis as of

December 31, 2020

Fair value measurements in:

Level 1 Level 2 Level 3 Total

Money market accounts $ 221,407 $ — $ — $ 221,407

Total $ 221,407 $ — $ — $ 221,407

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

Total $ — $ — $ — $ —

Fair Value Measurements on a Recurring Basis as of

December 31, 2019

Fair value measurements in:

Fair Value Measurements on a Recurring Basis

Level 1 Level 2 Level 3 Total

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

Total $ 93,303 $ — $ — $ 93,303

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

Total $ — $ — $ 2,595 $ 2,595

ALARM.COM HOLDINGS, INC.

Notes to the Consolidated Financial Statements — (Continued)

December 31, 2020, 2019 and 2018

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

Money market accounts as of December 31, 2021

$ 679,278 $ — $ — $ 679,278

Money market accounts as of December 31, 2020

221,407 — — 221,407

Subsidiary long-term incentive plan December 31, 2021

$ — $ — $ 3,351 $ 3,351

Subsidiary long-term incentive plan December 31, 2020

— — 1,000 1,000

The following table summarizes the change in fair value of the Level 3 liabilities for the subsidiary long-term incentive plan and contingent consideration liabilities from acquisitions with significant unobservable inputs (in thousands):

Year Ended December 31,

Subsidiary Long-Term Incentive Plan Contingent Consideration Liability from Acquisitions Subsidiary Long-Term Incentive Plan Contingent Consideration Liability from Acquisitions

Beginning of period balance $ 1,000 $ — $ 574 $ 2,595

Acquired liabilities — 2,793

Changes in fair value included in earnings 2,351 — 426 ( 2,595 )

2 unchanged sentences

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

See Note 13 for the carrying amount and estimated fair value of the 2026 Notes as of December 31, 2021.

The liability for the subsidiary long-term incentive plan consists of the potential cash payment contingent upon meeting certain financial milestones related to the agreement established with certain employees of one of our subsidiaries.

This incentive plan was established in November 2017 and the amount of compensation awarded to employees depends on the fair market value of the subsidiary, which is determined in part by the subsidiary’s projected financial results.

We account for the subsidiary long-term incentive plan using fair value and establish liabilities for the future payments under the terms of the incentive plan based on estimating revenue, EBITDA and EBITDA margin of the subsidiary over the period of the incentive plan through the anticipated achievement of the milestones.

We estimate the fair value of the liability by using a Monte Carlo

ALARM.COM HOLDINGS, INC.

Notes to the Consolidated Financial Statements — (Continued)

December 31, 2021, 2020 and 2019

simulation model which involves several Level 3 unobservable inputs.

The significant unobservable inputs used in the valuation as of December 31, 2021 included a weighted average revenue volatility of 7.5 % and a revenue risk adjustment of 2.4 %.

The revenue volatility was weighted using revenue volatility results from the subsidiary’s peer group as well as market transaction metrics.

The revenue risk adjustment was calculated using capital structure allocations from the subsidiary’s peer group, market transaction metrics as well as United States Treasury yields.

Selecting another revenue volatility or revenue risk adjustment within an acceptable range would not result in a significant change to the fair value of the subsidiary long-term incentive plan liability.

At each reporting date until the incentives are paid or expire, we will remeasure the liability, using the same valuation approach and we will record any changes as increases or decreases to the applicable operating expense category based on the respective employee’s function (sales and marketing, general and administrative or research and development) as a cumulative adjustment.

The remaining liability balances are included in other liabilities in our consolidated balance sheets (see Note 12).

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.

7 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.

The contingent consideration liability was included in other liabilities in our consolidated balance sheets as of December 31, 2019 (see Note 13).

All contingencies related to the contingent consideration liability were resolved as of December 31, 2020 and no further estimates were necessary as of December 31, 2021.

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

6 unchanged sentences

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

In March 2020, we entered into an amendment to the lease for our corporate headquarters, which provides for additional office space, additional parking spaces and additional tenant improvement allowance.

In December 2020, we entered into an amendment to the lease for our corporate headquarters to extend the lease term for additional storage space.

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

ALARM.COM HOLDINGS, INC.

Notes to the Consolidated Financial Statements — (Continued)

December 31, 2020, 2019 and 2018

The lease term ends in 2026, includes a five-year renewal option and a cumulative tenant improvement allowance of $ 12.1 million.

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

Year Ended December 31,

2021 2020 2019

Operating lease cost $ 9,692 $ 8,888 $ 7,600

1 unchanged sentence

Operating lease right-of-use assets obtained in exchange for new operating lease liabilities 5,158 10,073 7,886

2020 December 31, 2019

December 31, 2021 December 31, 2020

Weighted-average remaining lease term — operating leases 4.2 years 4.9 years

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

ALARM.COM HOLDINGS, INC.

Notes to the Consolidated Financial Statements — (Continued)

December 31, 2021, 2020 and 2019

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

8 unchanged sentences

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

Prior to our adoption of Topic 842, rent expense was $ 6.3 million for the year ended December 31, 2018.

The following table presents the future minimum lease payments under the non-cancelable operating leases as of December 31, 2018 prior to our adoption of Topic 842 (in thousands):

Year Ended December 31, Minimum Lease Payments

2024 and thereafter 14,838

Total $ 49,091

ALARM.COM HOLDINGS, INC.

Notes to the Consolidated Financial Statements — (Continued)

December 31, 2020, 2019 and 2018

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

6 unchanged sentences

2021 December 31,

Contingent consideration liability from acquisitions $ — $ 2,595

Holdback liability from acquisitions 1,500 1,650

Holdback liability from asset acquisitions and business combinations $ 850 $ 1,500

Subsidiary long-term incentive plan 3,351 1,000

Other liabilities 5,344 4,311

2 unchanged sentences

The debt, commitments and contingencies described below would require us, or our subsidiaries, to make payments to third parties under certain circumstances.

Convertible Senior Notes

On January 20, 2021, we issued $ 500.0 million aggregate principal amount of 0 % convertible senior notes due January 15, 2026 in a private placement to qualified institutional buyers.

The terms of the 2026 Notes are governed by an Indenture, or the Indenture, by and between Alarm.com Holdings, Inc.

Bank National Association, as trustee.

The 2026 Notes are senior unsecured obligations that do not bear regular interest and the principal amount of the 2026 Notes will not accrete.

The 2026 Notes may bear special interest under specified circumstances related to our failure to comply with our reporting obligations under the Indenture.

Special interest, if any, will be payable semiannually in arrears on January 15 and July 15 of each year, beginning on July 15, 2021.

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.

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

ALARM.COM HOLDINGS, INC.

Notes to the Consolidated Financial Statements — (Continued)

December 31, 2021, 2020 and 2019

price of our common stock has been at least 130 % of the conversion price for the 2026 Notes then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending on, and including, the trading day immediately preceding the date on which we provide notice of redemption.

No sinking fund is provided for the 2026 Notes.

The 2026 Notes will be convertible at the option of the holders at any time prior to the close of business on the business day immediately preceding August 15, 2025, only under the following circumstances:

(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 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;

or (4) upon the occurrence of specified corporate events as set forth in the Indenture.

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.

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

The initial conversion rate for the 2026 Notes is 6.7939 shares of our common stock per $1,000 principal amount of 2026 Notes, which is equivalent to an initial conversion price of $ 147.19 per share of our common stock, subject to adjustment under certain circumstances in accordance with the terms of the Indenture.

In addition, following certain corporate events that occur prior to the maturity date of the 2026 Notes or if we deliver a notice of redemption in respect of the 2026 Notes, we will, under certain circumstances, increase the conversion rate of the 2026 Notes for a holder who elects to convert its 2026 Notes (or any portion thereof) in connection with such a corporate event or convert its 2026 Notes called (or deemed called) for redemption during the related redemption period (as defined in the Indenture), as the case may be.

If we undergo a fundamental change (as defined in the Indenture), subject to certain exceptions and except as described in the Indenture, holders may require us to repurchase for cash all or any portion of their 2026 Notes at a fundamental change repurchase price equal to 100 % of the principal amount of the 2026 Notes to be repurchased, plus accrued and unpaid special interest, if any, to, but excluding, the fundamental change repurchase date.

The Indenture includes customary covenants and sets forth certain events of default after which the 2026 Notes may be declared immediately due and payable and sets forth certain types of bankruptcy or insolvency events of default involving us after which the 2026 Notes become automatically due and payable.

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 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.

The carrying amount of the liability component was calculated by measuring the fair value of a similar debt instrument that does not have an associated convertible feature.

The carrying amount of the equity component representing the conversion option was determined by deducting the fair value of the liability component from the par value of the 2026 Notes.

The equity component was recorded in additional paid-in capital and is not remeasured as long as it continues to meet the conditions for equity classification.

The excess of the principal amount of the liability component over its carrying amount is amortized to interest expense over the contractual term of the 2026 Notes at an effective interest rate of 4.0 %.

In accounting for the debt issuance costs of $ 15.7 million related to the 2026 Notes, we allocated the total amount incurred to the liability and equity components of the 2026 Notes based on their relative values.

Issuance costs attributable to the liability component were $ 13.3 million and will be amortized to interest expense using the effective interest method over the contractual term of the 2026 Notes.

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

As of December 31, 2021, the fair value of our 2026 Notes was $ 452.5 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

ALARM.COM HOLDINGS, INC.

Notes to the Consolidated Financial Statements — (Continued)

December 31, 2021, 2020 and 2019

the fair value hierarchy.

Based on the closing price of our common stock of $ 84.81 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 December 31, 2021.

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

2021 December 31,

Principal $ 500,000 $ —

Unamortized debt discount ( 63,520 ) —

Unamortized debt issuance costs ( 11,135 ) —

Net carrying amount $ 425,345 $ —

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

2021 December 31,

Debt discount for conversion option $ 77,199 $ —

Debt issuance costs ( 2,424 ) —

Net carrying amount $ 74,775 $ —

Interest expense related to the 2026 Notes is as follows (in thousands):

Year Ended December 31,

2021 2020 2019

Amortization of debt discount $ 13,678 $ — $ —

Amortization of debt issuance costs 2,139 — —

Total interest expense $ 15,817 $ — $ —

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 during the three months ended March 31, 2021.

2017 Facility

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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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 years ended December 31, 2020, 2019 and 2018, we repaid $ 3.0 million, $ 4.0 million, and $ 4.0 million of the outstanding balance of the 2017 Facility, respectively.

See Note 22 for further details on the repayment of all outstanding borrowings under, and the termination of, the 2017 Facility subsequent to December 31, 2020.

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 (expense) / income, net in our consolidated statements of operations during the year December 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.

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.

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

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 years ended December 31, 2020, 2019 and 2018, the effective interest rate on the credit facilities was 2.65 %, 4.45 % and 4.13 %, respectively.

The carrying value of the 2017 Facility was $ 110.0 million and $ 63.0 million as of December 31, 2020 and 2019, 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 and 2019.

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

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

For the years ended December 31, 2020 and 2019, the effective interest rate on the 2017 Facility was 2.65 % and 4.45 %, respectively.

ALARM.COM HOLDINGS, INC.

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December 31, 2021, 2020 and 2019

On November 30, 2018, we amended the 2017 Facility to incorporate the parameters that were required to be met for us to repurchase our outstanding common stock under the stock repurchase program authorized by our board of directors on November 29, 2018 (see Note 14).

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

Commitments and Contingencies

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At each reporting date until December 31, 2020, we remeasured the liability, using the same valuation approach.

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

The contingent consideration liability was included in other liabilities in our consolidated balance sheets as of December 31, 2019 (see Note 10).

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

Indemnification Agreements

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

Legal Proceedings

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

On August 19, 2016, the U.S.

District Court, District of Utah stayed the litigation pending inter partes review by the U.S.

Patent Trial and Appeal Board, or PTAB, of five of the patents in suit.

In March 2017, the PTAB issued final written decisions relating to two patents finding all challenged claims unpatentable.

In May 2017, the PTAB issued final written decisions relating to the remaining three patents that found certain claims unpatentable, while certain other claims were not found to be unpatentable.

Vivint appealed the decisions to the U.S.

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

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

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

In 2017 and 2019, the U.S.

Patent Trial and Appeal Board, or PTAB, issued final written decisions in inter partes reviews finding all or some of the claims in five of the asserted patents unpatentable.

These decisions were affirmed on appeal.

Vivint is proceeding with its case on three patents.

Discovery closed on October 29, 2021.

Vivint has moved for partial summary judgment and Alarm.com has moved for summary judgment;

both motions are pending decision.

No trial date has been set.

In September 2017, the U.S.

Patent and Trademark Office, or PTO, ordered ex parte reexaminations of certain claims of two of the remaining patents in suit, at our request.

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

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

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

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

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

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

On July 24, 2019, the PTAB issued further decisions with respect to two of the remaining patents in suit, finding additional claims unpatentable in view of the Federal Circuit’s December 20, 2018 decision.

One of the claims asserted in the litigation was found unpatentable in the July 14, 2019 decisions.

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

The appeal has been fully briefed and is now pending decision.

On February 12, 2021, we filed an action in U.S.

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 not yet responded to the complaint.

District Court, Eastern District of Virginia challenging the refusal by the U.S.

Patent and Trademark Office, or PTO, to proceed with ex parte reexaminations of the remaining patent claims asserted in the lawsuit.

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.

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

On January 10, 2022, EcoFactor, Inc., or EcoFactor, filed a lawsuit against us in U.S.

District Court, District of Oregon, alleging Alarm.com’s products and services directly and indirectly infringe five U.S.

patents owned by EcoFactor.

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

Our response to the complaint is due on March 28, 2022.

EcoFactor had previously asserted two of the same patents against us in an October 2019 complaint with the U.S.

International Trade Commission, or ITC.

In July 2021, the ITC found in favor of Alarm.com.

EcoFactor appealed the decision but withdrew its appeal in December 2021.

The other three asserted patents are currently in ex parte reexamination proceedings at the PTO, and one of them is also the subject of a pending inter partes review before the PTAB.

Should EcoFactor prevail in its 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 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 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

ALARM.COM HOLDINGS, INC.

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December 31, 2021, 2020 and 2019

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

International Trade Commission, or ITC, naming Alarm.com Incorporated and Alarm.com Holdings, Inc., among others, as proposed respondents.

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

and permanent injunctions, enhanced damages and attorneys’ fees.

We have not yet responded to the complaint.

On September 3, 2021, the court issued an order staying the lawsuit until the ITC investigation described below is finally resolved.

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.

On August 27, 2021, the ITC instituted an investigation into Causam’s allegations naming Alarm.com Incorporated, Alarm.com Holdings, Inc., EnergyHub Inc.

and others as respondents.

We answered the complaint on December 19, 2019.

We answered the complaint on October 4, 2021.

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

An evidentiary hearing was held in November 2020.

The administrative law judge presiding over the investigation has set August 20, 2021 as the target date for completion of the investigation.

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.

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

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

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

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

patents owned by EcoFactor.

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

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

On February 12, 2021, Alarm.com requested the PTO reexamine the claims of one of the patents asserted in the lawsuit.

The request is pending with the PTO.

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

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.

The administrative law judge presiding over the hearing has scheduled an evidentiary hearing in the investigation to begin on June 29, 2022.

The target date for completion of the investigation is March 16, 2023.

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.

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.

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

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

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

District Court, the District of New Mexico.

Applied Capital, Inc v.

The ADT Corporation et al.

New Mexico Case No.

1-16-cv-00815.

Icontrol was dismissed without prejudice on May 22, 2017.

Applied Capital alleges that ADT’s sales of ADT Pulse directly and indirectly infringes U.S.

8,378,817 and 9,728,082, which were allegedly purchased by Applied Capital.

Applied Capital is seeking damages and attorneys’ fees.

ADT answered Applied Capital’s amended complaint on July 16, 2018.

Among other things, ADT has asserted defenses based on non-infringement and invalidity of the patents-in-suit.

On April 5, 2019, Applied Capital filed a lawsuit for breach of contract against Rodney Fox, the inventor of the patents-in-suit, in the Second Judicial District Court, County of Bernalillo in New Mexico State Court (No.

D-202-CV-2019-02841).

Fox counterclaimed, alleging that he is the rightful owner of the patents-in-suit.

Based on the dispute of ownership, on October 15, 2019, ADT filed a motion to stay in this matter pending its resolution.

Applied Capital and Mr.

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

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

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

The pretrial conference is scheduled for March 22, 2021, and trial is set for June 15, 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 claim construction hearing is set for June 11, 2021.

Trial is scheduled for April 4, 2022.

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

ALARM.COM HOLDINGS, INC.

Notes to the Consolidated Financial Statements — (Continued)

December 31, 2020, 2019 and 2018

around such patents, and required to pay ongoing royalties and comply with unfavorable terms if such a license is made available to us.

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.

District Court, District of Utah, alleging that ADT Pulse, Control, and Blue each infringe one or more of six patents owned by Vivint.

Vivint is seeking damages and attorneys’ fees.

Vivint filed an amended complaint on March 24, 2021.

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.

On August 6, 2021, the parties to the case stipulated to the dismissal of Vivint’s claims as to one of the six patents, leaving five in the case.

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

On February 22, 2022, the court denied the motion without prejudice and granted Vivint leave to file a second amended complaint.

The case is currently in discovery, and no trial date has been set.

One of the asserted patents is under inter partes review at the PTAB, and ADT has filed petitions for inter partes review for three other asserted patents for which decisions on institution are pending.

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 Portus.

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.

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We are authorized to issue two classes of stock, common stock and preferred stock.

On June 9, 2015, the board of directors amended and restated our Amended and Restated Certificate of Incorporation, effective upon the closing of our IPO on July 1, 2015, and authorized us to issue up to 300,000,000 shares of common stock and 10,000,000 shares of undesignated preferred stock.

On June 9, 2015, the board of directors amended and restated our Amended and Restated Certificate of Incorporation, effective upon the closing of our initial public offering, or IPO, on July 1, 2015, and authorized us to issue up to 300,000,000 shares of common stock and 10,000,000 shares of undesignated preferred stock.

ALARM.COM HOLDINGS, INC.

Notes to the Consolidated Financial Statements — (Continued)

December 31, 2021, 2020 and 2019

Common and Preferred Stock

3 unchanged sentences

Stock Repurchase Programs

On November 29, 2018, our board of directors authorized a stock repurchase program, under which we were authorized to purchase up to an aggregate of $ 75.0 million of our outstanding common stock during the two-year period ended November 29, 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.

During the year ended December 31, 2020, we repurchased 147,153 shares of our common stock under the program that expired on November 29, 2020.

No shares were purchased under these programs during the years ended 2019 and 2018.

No shares were purchased under these programs during the years ended December 31, 2021 and 2019.

Shares Withheld

As permitted under the terms of the 2015 Plan, in 2021 the Compensation Committee authorized the withholding of shares of common stock in connection with the vesting of restricted stock unit awards issued to employees to satisfy applicable tax withholding requirements.

These withheld shares are not issued or considered common stock repurchases under our stock repurchase program.

We paid $ 4.5 million of tax withholdings related to vesting of restricted stock units during the year ended December 31, 2021.

Prior to using the withholding method to satisfy applicable tax withholding requirements for employees, we utilized the sell-to-cover method in which shares of our restricted stock unit awards were sold into the market on behalf of the employee upon vesting to cover tax withholding liabilities.

We may utilize either the withholding method or sell-to-cover method in the future.

Stock-Based Compensation

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Total stock-based compensation expense $ 38,694 $ 29,176 $ 20,603

ALARM.COM HOLDINGS, INC.

Notes to the Consolidated Financial Statements — (Continued)

December 31, 2020, 2019 and 2018

The following table summarizes the components of non-cash stock-based compensation expense (in thousands):

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Restricted stock units 34,799 25,605 16,627

Restricted stock awards — — 1

Employee stock purchase plan 188 165 193

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The 2015 Plan allows for the grant of stock options to employees and for the grant of nonqualified stock options, stock appreciation rights, restricted stock awards, restricted stock unit awards, or RSUs, performance-based stock awards, and other forms of equity compensation to our employees, directors and non-employee directors and consultants.

In June 2015, our board of directors adopted and our stockholders approved our 2015 Plan pursuant to which we initially reserved a total of 4,700,000 shares of common stock for issuance under the 2015 Plan, which included shares of our common stock previously reserved for issuance under our Amended and Restated 2009 Stock Incentive Plan, or the 2009 Plan.

ALARM.COM HOLDINGS, INC.

Notes to the Consolidated Financial Statements — (Continued)

December 31, 2021, 2020 and 2019

stock previously reserved for issuance under our Amended and Restated 2009 Stock Incentive Plan, or the 2009 Plan.

The number of shares of common stock reserved for issuance under the 2015 Plan will automatically increase on January 1 each year, for a period of not more than ten years , commencing on January 1, 2016 through January 1, 2024, by 5.0 % of the total number of shares of common stock outstanding on December 31 of the preceding calendar year, or a lesser number of shares as may be determined by the board of directors.

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In December 2021, our board of directors determined that the January 1, 2022 increase in the number of shares reserved for issuance under the 2015 Plan would be 5.0 % of the total number of shares of common stock outstanding on December 31, 2021, or 2,512,972 shares.

In December 2020, our board of directors determined that the January 1, 2021 increase in the number of shares reserved for issuance under the 2015 Plan would be 2.5 % of the total number of shares of common stock outstanding on December 31, 2020, or 1,237,090 shares.

There was no increase to the number of shares of common stock reserved for issuance under the 2015 Plan in the years ended December 31, 2020 and 2019.

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The proceeds from the early exercise of stock options are initially recorded as a current liability and are reclassified to common stock and additional paid-in capital as the awards vest and our repurchase right lapses.

There were zero and 250 unvested shares of common stock outstanding subject to our right of repurchase as of December 31, 2020 and 2019, respectively.

We repurchased zero and 27 of these unvested shares of common stock related to early exercised stock options in connection with employee terminations during the years ended December 31, 2020 and 2019, respectively.

We recorded zero and less than $ 0.1 million in accounts payable, accrued expenses and other current liabilities on our consolidated balance sheets for the proceeds from the early exercise of the unvested stock options as of December 31, 2020 and 2019.

There were no unvested shares of common stock outstanding subject to our right of repurchase as of December 31, 2021 and 2020.

We did not repurchase any unvested shares of common stock related to early exercised stock options in connection with employee terminations during the years ended December 31, 2021 and 2020.

We repurchased 27 unvested shares of common stock related to early exercised stock options in connection with employee terminations during the year ended December 31, 2019.

There were no proceeds from the early exercise of the unvested stock options reflected in accounts payable, accrued expenses and other current liabilities on our consolidated balance sheets as of December 31, 2021 and 2020.

We account for stock-based compensation options based on the fair value of the award as of the grant date.

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The expected term represents the period of time the stock options are expected to be outstanding and is based on the "simplified method." Under the "simplified method," the expected term of an option is presumed to be the mid-point between the vesting date and the end of the contractual term.

We use the "simplified method" due to the lack

ALARM.COM HOLDINGS, INC.

Notes to the Consolidated Financial Statements — (Continued)

December 31, 2020, 2019 and 2018

of sufficient historical exercise data to provide a reasonable basis upon which to otherwise estimate the expected term of the stock options.

We use the "simplified method" due to the lack of sufficient historical exercise data to provide a reasonable basis upon which to otherwise estimate the expected term of the stock options.

Beginning in November 2019, the expected volatility for options granted is based on historical volatilities of our stock over the estimated expected term of the stock options.

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6.2 - 6.7 years

6.3 - 7.5 years

Risk-free interest rate 1.0 - 1.2 %

Dividend rate — % — % — %

ALARM.COM HOLDINGS, INC.

Notes to the Consolidated Financial Statements — (Continued)

December 31, 2021, 2020 and 2019

The following table summarizes stock option activity:

24 unchanged sentences

The registration also covers an additional 2,308,615 shares of common stock that were automatically added to the shares authorized for issuance under the 2015 Plan pursuant to an evergreen provision contained in the 2015 Plan and an additional 461,723 shares of common stock that were automatically added to the shares authorized for issuance under the 2015 ESPP, pursuant to an evergreen provision contained in the 2015 ESPP.

In accordance with the terms of the asset purchase agreement, we were obligated to assume the Icontrol Plans, and converted the 2,001,387 unvested employee stock options into 70,406 Alarm.com stock options using a conversion ratio stated

ALARM.COM HOLDINGS, INC.

Notes to the Consolidated Financial Statements — (Continued)

December 31, 2020, 2019 and 2018

in the agreement to convert the original exercise price and number of options.

The fair value of the unvested stock options on the date of the Acquisition was $ 1.7 million calculated using a Black-Scholes model with a volatility and risk-free interest rate over the expected term of the options and the closing price of the Alarm.com common stock on the date of acquisition.

7 unchanged sentences

Dividend rate — %

ALARM.COM HOLDINGS, INC.

Notes to the Consolidated Financial Statements — (Continued)

December 31, 2021, 2020 and 2019

The following table summarizes the assumed stock option activity:

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Exercised ( 745 ) 4.57 58

Expired ( 361 ) 4.55

Outstanding as of December 31, 2021 6,527 $ 6.35 3.7 $ 512

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There were no new grants under the assumed Icontrol Plans in 2021, 2020 and 2019.

The total fair value of assumed stock options vested during the year ended December 31, 2020 was less than $ 0.1 million.

The total fair value of assumed stock options vested during each of the years ended December 31, 2019 and 2018 was $ 0.1 million.

The total fair value of assumed stock options vested during the years ended December 31, 2021, 2020 and 2019 was zero , less than $ 0.1 million and $ 0.1 million, respectively.

The aggregate intrinsic value of assumed stock options exercised during the years ended December 31, 2021, 2020 and 2019 was $ 0.1 million, $ 0.4 million and $ 0.3 million, respectively.

As of December 31, 2021, there were no compensation costs related to the nonvested awards not yet recognized.

Cash received from exercises of stock options was less than $ 0.1 million, less than $ 0.1 million and $ 0.1 million during the years ended December 31, 2020, 2019 and 2018, respectively.

Cash received from exercises of stock options was less than $ 0.1 million during each of the years ended December 31, 2021, 2020 and 2019, respectively.

Restricted Stock Units

There was an aggregate of 564,416 , 827,764 and 381,545 RSUs granted to certain of our employees during the years ended December 31, 2020, 2019 and 2018, respectively.

There was an aggregate of 837,576 , 498,416 and 827,764 RSUs without performance conditions granted to certain of our employees and directors during the years ended December 31, 2021, 2020 and 2019, respectively.

There was an aggregate of 120,314 and 66,000 RSUs with performance conditions granted to certain of our employees and directors during the years ended December 31, 2021 and 2020, respectively.

There were no RSUs with performance conditions granted to certain of our employees and directors during the year ended December 31, 2019.

The time-based RSUs vest over a five-year period from the vesting commencement date, which is generally the grant date.

The performance-based RSUs vest when the related performance conditions are met.

Vested RSUs presented below include the amount of shares withheld to satisfy tax withholding requirements to be paid by us on behalf of our employees when applicable.

We account for RSUs based on the fair value of the award as of the grant date.

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We recognize stock-based compensation expense for performance-based RSUs based on management’s determination of the probable outcome of the performance conditions and we record a cumulative adjustment in periods in which there is a change in the estimated number of shares expected to vest.

As of December 31, 2020, the total unrecognized compensation expense related to RSU awards granted amounted to $ 45.1 million, which is expected to be recognized over a weighted average period of 2.5 years.

ALARM.COM HOLDINGS, INC.

Notes to the Consolidated Financial Statements — (Continued)

December 31, 2020, 2019 and 2018

As of December 31, 2021, the total unrecognized compensation expense related to RSUs without performance conditions amounted to $ 69.2 million, which is expected to be recognized over a weighted average period of 2.6 years.

As of December 31, 2021, the total unrecognized compensation expense related to RSUs with performance conditions amounted to $ 6.6 million, which is expected to be recognized over a weighted average period of 4.0 years.

The following table summarizes RSU activity:

RSUs Weighted

Average Grant Date Fair Value Aggregate

Intrinsic Value

RSUs without Performance Conditions RSUs with Performance Conditions

RSUs Weighted Average

Fair Value Aggregate

(in thousands) Number of

RSUs Weighted Average

Fair Value Aggregate

(in thousands)

5 unchanged sentences

Vested and expected to vest as of December 31, 2021 1,797,899 $ 64.71 $ 152,480 114,063 $ 75.15 $ 9,674

ALARM.COM HOLDINGS, INC.

Notes to the Consolidated Financial Statements — (Continued)

December 31, 2021, 2020 and 2019

The weighted average grant date fair value for our RSUs without performance conditions granted during the years ended December 31, 2021, 2020 and 2019 was $ 86.35 , $ 50.61 and $ 52.16 , respectively.

The weighted average grant date fair value for our RSUs with performance conditions granted during the years ended December 31, 2021, 2020 and 2019 was $ 87.53 , $ 56.83 and $ 0.00 , respectively.

The total fair value of RSUs without performance conditions vested during the years ended December 31, 2021, 2020 and 2019 was $ 20.9 million, $ 9.0 million and $ 9.0 million, respectively.

The total fair value of RSUs with performance conditions vested during the years ended December 31, 2021, 2020 and 2019 was $ 1.1 million, zero and zero , respectively.

Employee Stock Purchase Plan

6 unchanged sentences

The 2015 ESPP is considered compensatory for purposes of share-based compensation expense due to the 10 % discount on the fair market value of the common stock.

For the years ended December 31, 2020, 2019 and 2018, an aggregate of 29,933 , 26,811 and 29,131 shares were purchased by employees for which we recognized $ 0.2 million, $ 0.2 million and $ 0.1 million of compensation expense, respectively.

An aggregate of 19,628 , 29,933 and 26,811 shares were purchased by employees for the years ended December 31, 2021, 2020 and 2019, respectively, for which we recognized $ 0.2 million of compensation expense during each of those years.

Compensation expense is recognized for the amount of the discount, net of actual forfeitures and voluntary withdrawals, over the six-month purchase period.

6 unchanged sentences

Net loss attributable to redeemable noncontrolling interest 1,084 1,193 201

Net income allocated to participating securities — — ( 3 )

Net income attributable to common stockholders (A) $ 52,259 $ 77,853 $ 53,531

5 unchanged sentences

Diluted (A/C) $ 1.01 $ 1.53 $ 1.06

ALARM.COM HOLDINGS, INC.

Notes to the Consolidated Financial Statements — (Continued)

December 31, 2020, 2019 and 2018

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

4 unchanged sentences

Common stock subject to repurchase — — 250

Participating securities are composed of certain stock options granted under the 2015 Plan, and previously granted under the 2009 Equity Incentive Plan, that may be exercised before the options have vested.

Unvested shares have a non-forfeitable right to dividends.

Unvested shares issued as a result of early exercise are subject to repurchase by us upon termination of employment or services at the original exercise price.

The common stock subject to repurchase is no longer classified as participating securities when shares revert to common stock outstanding as the awards vest and our repurchase right lapses.

ALARM.COM HOLDINGS, INC.

Notes to the Consolidated Financial Statements — (Continued)

December 31, 2021, 2020 and 2019

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

4 unchanged sentences

The amount of the net income or loss attributable to redeemable noncontrolling interests is recorded in the consolidated statements of operations.

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

Significant Service Providers

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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 years ended December 31, 2021, 2020 and 2019.

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

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

One and two service provider partners in the Alarm.com segment represented more than 10% of accounts receivable as of December 31, 2021 and 2020, respectively.

The components of our income tax expense are as follows (in thousands):

19 unchanged sentences

Nondeductible meals and entertainment 0.5 0.1 0.8

Nondeductible employee fringe benefits — — 1.3

Foreign-derived intangible income deduction ( 1.7 ) ( 1.4 ) ( 0.7 )

3 unchanged sentences

Change in tax rate — ( 0.2 ) 0.4

Foreign withholding tax 1.9 0.5 0.8

Nondeductible compensation 1.9 — —

Other 1.7 ( 0.1 ) 1.2

Effective rate ( 11.1 ) % 4.4 % 9.5 %

ALARM.COM HOLDINGS, INC.

Notes to the Consolidated Financial Statements — (Continued)

December 31, 2021, 2020 and 2019

The components of our net deferred tax assets (liabilities) are as follows (in thousands):

10 unchanged sentences

Inventory reserve 439 240

Debt issuance costs 402 —

Net operating losses 1,262 1,198

11 unchanged sentences

Internally developed software ( 147 ) ( 620 )

Equity investments ( 92 ) —

Convertible debt discount ( 15,758 ) —

Total deferred tax liabilities, non-current ( 33,778 ) ( 19,443 )

Net deferred tax assets, non-current $ 13,547 $ 21,692

ALARM.COM HOLDINGS, INC.

Notes to the Consolidated Financial Statements — (Continued)

December 31, 2020, 2019 and 2018

A reconciliation of the beginning and ending amounts of unrecognized tax benefits (without related interest expense) is as follows (in thousands):

8 unchanged sentences

Our effective income tax rates were ( 11.1 )%, 4.4 % and 9.5 % for the years ended December 31, 2021, 2020 and 2019, respectively.

Our effect ive 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 and valuation allowances recorded against state research and development tax credit carryforwards.

Our effect ive tax rates were below the statuto ry rate primarily due to tax windfall benefits from employee stock-

ALARM.COM HOLDINGS, INC.

Notes to the Consolidated Financial Statements — (Continued)

December 31, 2021, 2020 and 2019

based payment transactions, research and development tax credits claimed and foreign derived intangible income deductions, partially offset by the impact of foreign withholding taxes, nondeductible compensation 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 totaling $ 0.3 million, we established a valuation allowance of $ 0.3 million during the second quarter of 2019, which remained at $ 0.3 million as of December 31, 2020 and 2019.

During 2020, we established a valuation allowance of $ 1.3 million for state research and development tax credit carryforwards.

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 December 31, 2021 and 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 December 31, 2020.

This valuation allowance increased to $ 1.9 million as of December 31, 2021.

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.

6 unchanged sentences

We file income tax returns in the United States and Canada.

Our tax returns are subject to on-going review and examination by various tax authorities.

Tax authorities may not agree with the treatment of items reported in our tax returns, and therefore the outcome of tax reviews and examinations can be unpredictable.

We are no longer subject to U.S.

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We are generally no longer subject to state and local income tax examinations by tax authorities for years prior to 2018.

As of December 31, 2020, we had federal net operating loss carryforwards of $ 4.6 million, which are scheduled to begin to expire in 2030.

On October 13, 2021, the Internal Revenue Service commenced an examination of our federal income tax return

for 2018, which is ongoing.

The anticipated completion date of the Internal Revenue Service examination cannot be estimated at

As of December 31, 2021, we had gross federal net operating loss carryforwards of $ 4.2 million, which are scheduled to begin to expire in 2030.

As of December 31, 2021, we had state net operating loss carryforwards of $ 1.9 million, which are scheduled to begin to expire in 2034.

6 unchanged sentences

• Alarm.com segment

ALARM.COM HOLDINGS, INC.

Notes to the Consolidated Financial Statements — (Continued)

December 31, 2020, 2019 and 2018

• Other segment

2 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 94 %, 93 % and 93 % of our revenue for the years ended December 31, 2020, 2019 and 2018, respectively.

Our Alarm.com segment represents our cloud-based and Software platforms for the intelligently connected property and related solutions that contributed 95 %, 94 % and 93 % of our revenue, net of intersegment eliminations, for the years ended December 31, 2021, 2020 and 2019, respectively.

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

Inter-segment revenue includes sales of hardware between our segments.

ALARM.COM HOLDINGS, INC.

Notes to the Consolidated Financial Statements — (Continued)

December 31, 2021, 2020 and 2019

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

4 unchanged sentences

Hardware and other revenue 284,721 9,275 ( 3,089 ) ( 2,310 ) 288,597

219,826 14,254 ( 3,093 ) ( 6,241 ) 224,746

Total revenue 711,544 42,824 ( 3,089 ) ( 2,310 ) 748,969

586,641 40,696 ( 3,093 ) ( 6,241 ) 618,003

Operating income / (loss) 70,646 ( 9,590 ) 766 ( 250 ) 61,572

59,194 ( 2,908 ) 393 ( 381 ) 56,298

763,925 26,739 ( 58,983 ) 6 731,687

Assets 1,264,416 37,198 ( 69,595 ) ( 4 ) 1,232,015

Year Ended December 31, 2020

2 unchanged sentences

Hardware and other revenue 219,826 14,254 ( 3,093 ) ( 6,241 ) 224,746

156,265 20,919 ( 4,301 ) ( 7,895 ) 164,988

Total revenue 586,641 40,696 ( 3,093 ) ( 6,241 ) 618,003

473,845 40,714 ( 4,301 ) ( 7,895 ) 502,363

Operating income / (loss) 59,194 ( 2,908 ) 393 ( 381 ) 56,298

52,046 ( 1,639 ) 134 ( 128 ) 50,413

589,952 17,844 ( 49,997 ) — 557,799

Assets 763,925 26,739 ( 58,983 ) 6 731,687

Year Ended December 31, 2019

2 unchanged sentences

Hardware and other revenue 156,265 20,919 ( 4,301 ) ( 7,895 ) 164,988

119,221 20,316 ( 4,749 ) ( 5,366 ) 129,422

Total revenue 473,845 40,714 ( 4,301 ) ( 7,895 ) 502,363

397,234 33,375 ( 4,749 ) ( 5,366 ) 420,494

Operating income / (loss) 52,046 ( 1,639 ) 134 ( 128 ) 50,413

16,927 ( 4,708 ) ( 273 ) 256 12,202

Our SaaS and license revenue for the Alarm.com segment included software license revenue of $ 32.3 million, $ 38.0 million and $ 43.4 million for the years ended December 31, 2021, 2020 and 2019, respectively.

1 unchanged sentence

Depreciation and amortization expense was $ 29.3 million, $ 27.2 million and $ 22.1 million for the Alarm.com segment for the years ended December 31, 2021, 2020 and 2019, respectively.

Depreciation and amortization expense was $ 0.3 million, less than $ 0.1 million and $ 0.3 million for the Other segment for the years ended December 31, 2020, 2019 and 2018, respectively.

Depreciation and amortization expense was $ 0.4 million, $ 0.3 million and less than $ 0.1 million for the Other segment for the years ended December 31, 2021, 2020 and 2019, respectively.

Additions to property and equipment were $ 9.7 million, $ 16.4 million and $ 15.6 million for the Alarm.com segment for the years ended December 31, 2021, 2020 and 2019, respectively.

2 unchanged sentences

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

ALARM.COM HOLDINGS, INC.

Notes to the Consolidated Financial Statements — (Continued)

December 31, 2020, 2019 and 2018

Related Party Transactions

3 unchanged sentences

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

During each of the years ended December 31, 2020, 2019 and 2018, we recorded $ 0.4 million of cost of hardware and other revenue in connection with this installation partner.

During the years ended December 31, 2021, 2020 and 2019, we recorded $ 0.3 million, $ 0.4 million and $ 0.4 million of cost of hardware and other revenue in connection with this installation partner.

As of December 31, 2021 and 2020, the accounts payable balance to our installation partner was less than $ 0.1 million.

ALARM.COM HOLDINGS, INC.

Notes to the Consolidated Financial Statements — (Continued)

December 31, 2021, 2020 and 2019

Affiliate Lease

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

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

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

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

During the years ended December 31, 2020 and 2019, we recorded $ 0.3 million and less than $ 0.1 million of rent expense in connection with this lease arrangement.

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 years ended December 31, 2021, 2020 and 2019, we recorded $ 0.1 million, $ 0.3 million and less than $ 0.1 million of rent of rent expense in connection with this lease arrangement.

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

5 unchanged sentences

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.

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

Historical results are not necessarily indicative of the results that may be achieved in future periods, and operating results for quarterly periods are not necessarily indicative of operating results for a full year, which is increasingly true in periods of extreme uncertainty, such as the uncertainty caused by the COVID-19 pandemic.

Information about current period and prior period acquisitions that may affect the comparability of the selected financial information presented below is included in Note 7.

Information about the $ 1.7 million of interest recorded within interest income and the $ 6.9 million of gain recorded within other income, net, during the three months ended September 30, 2019, which relates to the Promissory Notes proceeds and the Acquired Promissory Note proceeds received from one of our hardware suppliers and may affect the comparability of the quarterly financial data presented below, is included in Note 9.

Information about the $ 24.7 million gain on the sale of an investment recorded in other income, net, during the three months ended September 30, 2020 , which relates to the sale of an investment in one of our platform partners and may affect the comparability of the quarterly financial data presented below, is included in Note 9.

Information about the $ 24.7 million gain on the sale of an investment recorded in other (expense) / income, net , during the three months ended September 30, 2020 , which relates to the sale of an investment in one of our platform partners and may affect the comparability of the quarterly financial data presented below, is included in Note 9 .

Information about the 2026 Notes issued in January 2021 and the related interest expense, which may affect the comparability of the quarterly financial data presented below, is included in Note 13.

The selected consolidated statements of operation data in amounts are presented below (in thousands, except per share data):

ALARM.COM HOLDINGS, INC.

Notes to the Consolidated Financial Statements — (Continued)

December 31, 2020, 2019 and 2018

Three Months Ended

2019 June 30,

2020 June 30,

Total revenue $ 151,939 $ 141,637 $ 158,851 $ 165,576 $ 172,498 $ 188,857 $ 192,324 $ 195,290

5 unchanged sentences

Diluted $ 0.18 $ 0.34 $ 0.71 $ 0.31 $ 0.29 $ 0.28 $ 0.26 $ 0.18

ALARM.COM HOLDINGS, INC.

Notes to the Consolidated Financial Statements — (Continued)

December 31, 2020, 2019 and 2018

Subsequent Events

Convertible Senior Notes

The terms of the 2026 Notes are governed by an Indenture, or the Indenture, by and between Alarm.com Holdings, Inc.

Bank National Association, as trustee.

The 2026 Notes are senior unsecured obligations that do not bear regular interest and the principal amount of the 2026 Notes will not accrete.

The 2026 Notes may bear special interest under specified circumstances related to our failure to comply with our reporting obligations under the Indenture.

Special interest, if any, will be payable semiannually in arrears on January 15 and July 15 of each year, beginning on July 15, 2021 .

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.

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

We may redeem for cash, all or any portion of the 2026 Notes, at our option, on or after January 20, 2024, at a redemption price equal to 100 % of the principal amount of the 2026 Notes to be redeemed, plus accrued and unpaid special interest, if any, to, but excluding, the redemption date, if the last reported sale price of our common stock has been at least 130 % of the conversion price for the 2026 Notes then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending on, and including, the trading day immediately preceding the date on which we provide notice of redemption.

No sinking fund is provided for the 2026 Notes.

(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;

or (4) upon the occurrence of specified corporate events as set forth in the Indenture.

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

We used some of the proceeds to repay the $ 110.0 million outstanding principal balance under our 2017 Facility and also used some of the proceeds to pay accrued interest, fees and expenses related to the 2017 Facility.

We terminated the 2017 Facility effective January 20, 2021.

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.

ALARM.COM HOLDINGS, INC.

Notes to the Consolidated Financial Statements — (Continued)

December 31, 2020, 2019 and 2018

Since we expect to settle the principal amount on our outstanding 2026 Notes in cash and any excess in cash or shares of our common stock, we will use the treasury stock method for calculating any potential dilutive effect of the conversion spread on diluted net income per share, if applicable.

The conversion spread will have 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.

Schedule II – Valuation and Qualifying Accounts and Reserves

5 unchanged sentences

Revenue Additions

Deductions Balance at

Accounts Deductions Balance at

Year Ended December 31, 2021

5 unchanged sentences

Allowance for credit losses on accounts receivable $ 2,584 $ — $ 2,530 (1)

$ ( 418 ) $ 4,696

Allowance for product returns 1,075 1,795 — ( 1,390 ) 1,480

5 unchanged sentences

Allowance for credit losses on notes receivable 3,319 — ( 3,272 ) ( 31 ) 16

(1) Includes the 2020 impact of the adoption of Topic 326 of $ 0.4 million for the allowance for credit losses on accounts receivable and $ 0.4 million for the allowance for credit losses on note receivable (see Note 2).

Deferred tax valuation allowance — — 322 — 322

_______________

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

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-K

Item 8. Financial Statements and Supplementary Data