What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2022-05-05 compared with 2021-11-04 · 296 added, 503 removed, 604 unchanged (57% of the section changed)

4 unchanged sentences

Three Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

SaaS and license revenue $ 123,225 $ 107,383

16 unchanged sentences

Income before income taxes 8,285 11,637

Provision for / (benefit from) income taxes 1,787 6,546 ( 2,864 ) 5,471

Benefit from income taxes ( 618 ) ( 2,913 )

Net income 8,903 14,550

14 unchanged sentences

(in thousands, except share and per share data)

September 30,

2022 December 31,

1 unchanged sentence

Cash and cash equivalents $ 671,753 $ 710,621

Accounts receivable, net of allowance for credit losses of $ 3,158 and $ 4,696 , respectively, and net of allowance for product returns of $ 1,025 and $ 1,480 , respectively

Accounts receivable, net of allowance for credit losses of $ 2,153 and $ 2,168 , and net of allowance for product returns of $ 1,162 and $ 1,181 as of March 31, 2022 and December 31, 2021 respectively

103,067 105,548

Inventory 86,436 75,276

Other current assets, net of allowance for credit losses of $ 3 and $ 17 , respectively

Other current assets, net of allowance for credit losses of $ 1 and $ 2 as of March 31, 2022 and December 31, 2021, respectively

27,322 26,175

5 unchanged sentences

Operating lease right-of-use assets 30,135 30,479

Other assets, net of allowance for credit losses of $ 76 and $ 72 , respectively

Other assets, net of allowance for credit losses of $ 1 and $ 78 as of March 31, 2022 and December 31, 2021, respectively

26,822 24,349

9 unchanged sentences

Convertible senior notes, net 488,024 425,345

Long-term debt — 110,000

Operating lease liabilities 31,764 32,591

5 unchanged sentences

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

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

no shares issued and outstanding as of March 31, 2022 and December 31, 2021

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

50,491,600 and 50,406,606 shares issued;

and 50,027,119 and 49,483,620 shares outstanding as of September 30, 2021 and December 31, 2020, respectively

and 49,990,324 and 50,259,453 shares outstanding as of March 31, 2022 and December 31, 2021, respectively

Additional paid-in capital 453,084 498,979

Treasury stock, at cost;

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

501,276 and 147,153 shares as of March 31, 2022 and December 31, 2021, respectively

( 28,480 ) ( 5,149 )

6 unchanged sentences

(in thousands)

Nine Months Ended

September 30,

Cash flows from operating activities:

Three Months Ended

Cash flows (used in) / from operating activities:

Net income $ 8,903 $ 14,550

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

Recovery of credit losses on accounts receivable ( 238 ) ( 237 )

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

Provision for credit losses on accounts receivable 54 32

Reserve for product returns 798 574

Recovery of credit losses on notes receivable ( 78 ) ( 11 )

Provision for excess and obsolete inventory 374 1,178

Amortization on patents and tooling 353 288

3 unchanged sentences

Deferred income taxes ( 10,650 ) ( 3,178 )

Change in fair value of contingent liability — ( 2,593 )

Stock-based compensation 12,110 7,888

Acquired in-process research and development — 3,297

Gain on sale of investment — ( 24,737 )

Loss on early extinguishment of debt — 185

7 unchanged sentences

Other liabilities ( 65 ) 162

Cash flows from operating activities 83,194 66,670

Cash flows (used in) / from investing activities:

Cash flows (used in) / from operating activities ( 13,961 ) 21,232

Cash flows used in investing activities:

Additions to property and equipment ( 2,171 ) ( 4,069 )

Purchases of in-process research and development — ( 3,297 )

Issuances of notes receivable — ( 600 )

Receipt of payments on notes receivable 16 2

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

Proceeds from sale of investment — 25,687

Purchases of patents and patent licenses — ( 900 )

Cash flows (used in) / from investing activities ( 13,897 ) 12,236

Cash flows from financing activities:

Proceeds from credit facility — 50,000

Cash flows used in investing activities ( 2,155 ) ( 9,067 )

Cash flows (used in) / from financing activities:

Repayments of credit facility — ( 110,000 )

4 unchanged sentences

Issuances of common stock from equity-based plans 1,080 1,989

Cash flows from financing activities 377,551 48,641

Net increase in cash and cash equivalents 446,848 127,547

Cash and cash equivalents at beginning of the period 253,459 119,629

Cash and cash equivalents at end of the period $ 700,307 $ 247,176

Cash flows (used in) / from financing activities ( 22,251 ) 376,548

Net (decrease) / increase in cash, cash equivalents and restricted cash ( 38,367 ) 388,713

Cash, cash equivalents and restricted cash at beginning of the period 710,621 253,459

Cash, cash equivalents and restricted cash at end of the period $ 672,254 $ 642,172

Reconciliation of cash, cash equivalents and restricted cash:

Cash and cash equivalents $ 671,753 $ 642,172

Restricted cash included in other assets 501 —

Total cash, cash equivalents and restricted cash $ 672,254 $ 642,172

See accompanying notes to the condensed consolidated financial statements.

6 unchanged sentences

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

Adoption of accounting standard on debt with conversion and other options — — — — — ( 56,515 ) — — 9,972 ( 46,543 )

Common stock issued in connection with equity-based plans — — — 85 1 1,079 — — — 1,080

Purchase of treasury stock — — — — — — 354 ( 23,331 ) — ( 23,331 )

Stock-based compensation expense — — — — — 12,110 — — — 12,110

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

Accretion adjustments of redeemable noncontrolling interest to redemption value 2,569 — — — — ( 2,569 ) — — — ( 2,569 )

1 unchanged sentence

Balance as of March 31, 2022 $ 15,281 — $ — 50,492 $ 505 $ 453,084 501 $ ( 28,480 ) $ 137,884 $ 562,993

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

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

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

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

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

Common stock issued in connection with equity-based plans — — — 133 1 1,541 — — — 1,542

Stock-based compensation expense — — — — — 9,418 — — — 9,418

Accretion adjustments of redeemable noncontrolling interest to redemption value 761 — — — — ( 761 ) — — — ( 761 )

Net income / (loss) attributable to common stockholders ( 244 ) — — — — — — — 13,538 13,538

Balance as of September 30, 2021 $ 11,889 — $ — 50,174 $ 501 $ 492,135 147 $ ( 5,149 ) $ 109,687 $ 597,174

See accompanying notes to the condensed consolidated financial statements.

ALARM.COM HOLDINGS, INC.

Condensed Consolidated Statements of Equity — (Continued)

(in thousands)

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

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

Shares Amount Shares Amount Shares Amount

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

Adoption of accounting standard on credit losses — — — — — — — — ( 816 ) ( 816 )

Common stock issued in connection with equity-based plans — — — 173 2 1,987 — — — 1,989

Purchases of treasury stock — — — — — — 147 ( 5,149 ) — ( 5,149 )

Stock-based compensation expense — — — — — 7,888 — — — 7,888

Net income / (loss) attributable to common stockholders ( 236 ) — — — — — — — 8,807 8,807

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

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

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

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

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

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

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

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

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

Accretion adjustments of redeemable noncontrolling interest to redemption value 473 — — — — ( 473 ) — — — ( 473 )

Net income / (loss) attributable to common stockholders ( 280 ) — — — — — — — 14,830 14,830

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

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

See accompanying notes to the condensed consolidated financial statements.

1 unchanged sentence

Notes to the Condensed Consolidated Financial Statements (Unaudited)

March 31, 2022 and 2021

Alarm.com Holdings, Inc.

15 unchanged sentences

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

In addition, the COVID-19 pandemic resulted in a global slowdown of economic activity and a recession in the United States and the economic situation remains fluid as parts of the economy appear to be recovering while others continue to struggle.

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

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

In addition, the COVID-19 pandemic resulted in a global slowdown of economic activity, inflation, 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, and vaccination efforts have been and are 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.

The results of operations for the three months ended March 31, 2022 are not necessarily indicative of the results that can be expected for our entire fiscal year ending December 31, 2022, which is increasingly true in periods of extreme uncertainty, such as the uncertainty caused by the COVID-19 pandemic and geopolitical tensions.

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

4 unchanged sentences

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 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.

Comprehensive Income

Our comprehensive income for the three and nine months ended September 30, 2021 and 2020 was equal to our net income disclosed in the condensed consolidated statements of operations.

Our comprehensive income for the three months ended March 31, 2022 and 2021 was equal to our net income disclosed in the condensed consolidated statements of operations.

ALARM.COM HOLDINGS, INC.

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

March 31, 2022 and 2021

Significant Accounting Policies

Other than those disclosed herein, there have been no other material changes to our significant accounting policies during the three and nine months ended September 30, 2021 from those disclosed in our Annual Report.

Convertible Senior Notes

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

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.

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 condensed consolidated balance sheets.

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

Other than those disclosed herein, there have been no other material changes to our significant accounting policies during the three months ended March 31, 2022 from those disclosed in our Annual Report.

Restricted Cash

We consider all cash reserved for a specific use and not available for immediate or general business use to be restricted cash.

As of March 31, 2022 we had a total of $ 0.5 million of restricted cash.

We had no restricted cash as of December 31, 2021.

As of March 31, 2022, all restricted cash was included in other assets.

Recent Accounting Pronouncements

On December 18, 2019, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update, or 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, 2021, we adopted Topic 740.

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

Not Yet Adopted

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

Facilitation of the Effects of Reference Rate Reform on Financial Reporting ," which provides optional guidance to ease the potential accounting burden associated with transitioning away from reference rates that are expected to be discontinued such as the Eurodollar Base Rate, or LIBOR.

The update allows entities to elect not to apply certain modification accounting requirements to contracts affected by the discontinuation of a reference rate if certain criteria are met.

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

Due to the termination of our credit facility on January 20, 2021 (see Note 12), this pronouncement is not expected to have an impact on our condensed 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):

Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity ," which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity.

On August 5, 2020, the Financial Accounting Standards Board, or 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):

Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity ," or ASU 2020-06, which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity.

The new guidance eliminates two of the three models in Subtopic 470-20 that require separating embedded conversion features from convertible instruments.

1 unchanged sentence

The amendment in this update is effective for fiscal years beginning after December 15, 2021.

Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020.

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

While we are still in the process of determining the impact of this guidance when we adopt the pronouncement on January 1, 2022, we anticipate that the new guidance will have a material impact on our consolidated financial statements and disclosures.

We currently expect to record a material reclassification from equity to debt, as well as a reduction in interest expense upon adoption, due to eliminating the amortization of the debt discount.

Additionally, this guidance is expected to increase our diluted weighted average common shares outstanding and impact our earnings per share upon adoption.

We adopted ASU 2020-06 effective January 1, 2022, using a modified retrospective adoption method, which required us to record the initial effect of this guidance as a cumulative-effect adjustment to retained earnings on January 1, 2022.

Upon adoption of ASU 2020-06, we recombined the liability and equity components of the convertible senior notes assuming that the instrument was accounted for as only a liability from inception to the date of adoption.

We also recombined the liability and equity components of the debt issuance costs.

The issuance costs are presented as a deduction from the outstanding principal balance of the convertible senior notes and are amortized to interest expense using the effective interest method over the contractual term of the convertible senior notes.

We also removed the temporary difference between the book and tax treatment of the debt discount and adjusted the temporary difference between the book and tax treatment of the debt issuance costs of the convertible senior notes.

The adoption resulted in the recording of the following increases / (decreases) on our condensed consolidated balance sheets (in thousands):

Balance Sheet Caption As of January 1, 2022

Deferred tax assets $ 15,356

Additional paid-in capital ( 56,515 )

Convertible senior notes, net 61,899

Retained earnings 9,972

Our net income attributable to common stockholders increased $ 2.0 million during the three months ended March 31, 2022 as a result of adopting ASU 2020-06 due to no longer recording non-cash interest expense related to the amortization of the debt discount associated with the previous equity component of the convertible senior notes.

Upon adoption of this guidance on January 1, 2022, we began using the if-converted method when calculating the dilutive impact of the convertible senior notes on net income per share, which required us to increase our diluted weighted average common shares outstanding by 3,396,950 shares for the three months ended March 31, 2022.

The impact of ASU 2020-06 on net income attributable to common stockholders and weighted average diluted shares resulted in an increase to basic net income attributable to common stockholders of $ 0.04 per share and an increase to diluted net income attributable to common stockholders of $ 0.04 per share, during the three months ended March 31, 2022.

See Note 15 for details on the components of basic and diluted earnings per share.

ALARM.COM HOLDINGS, INC.

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

March 31, 2022 and 2021

On March 31, 2022, the FASB issued ASU 2022-02, " Financial Instruments - Credit Losses (Topic 326):

Troubled Debt Restructurings and Vintage Disclosures " which includes requirements to disclose current period gross write-offs by year of origination for financing receivables.

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

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

The guidance over disclosing current period gross write-offs by year of origination for financial receivables should be applied prospectively.

We adopted this guidance during the three months ended March 31, 2022 and there was no impact to the disclosures within the "Allowance for Credit Losses - Notes Receivable" section of Note 8 as there were no write-offs of notes receivable during the three months ended March 31, 2022.

Not Yet Adopted

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

4 unchanged sentences

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.

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

Revenue from Contracts with Customers

7 unchanged sentences

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

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

O ur service provider partners have indicated that they typically have three to five -year service contracts with residential and commercial property owners who use our solutions.

When determining the amount of consideration we expect to be entitled to for the sale of our hardware, we estimate the variable consideration associated with customer returns.

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

For the twelve months ended September 30, 2021 and 2020, our reserve against revenue for hardware returns was approximately 1 %.

For the twelve months ended March 31, 2022 and 2021, 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.

9 unchanged sentences

This installation marks the beginning of the service period on our platforms and, on occasion, we earn activation revenue for fees charged for this service.

The activation fee is non-refundable, separately negotiated and specified in our contractual arrangements with our service provider partners and is charged to the service provider partner for each subscriber activated on our platforms.

The activation fee is non-refundable, separately negotiated and specified in our contractual arrangements with our service provider partners and is charged to the service provider partner for

ALARM.COM HOLDINGS, INC.

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

March 31, 2022 and 2021

each subscriber activated on our platforms.

The decision whether to charge an activation fee is based in part on the expected number of subscribers to be added by our service provider partners and as a result, many of our largest service provider partners do not pay an activation fee.

2 unchanged sentences

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

The balance of deferred revenue for activation fees was $ 6.3 million and $ 7.0 million as of September 30, 2021 and December 31, 2020, respectively, which combines current and long-term balances.

ALARM.COM HOLDINGS, INC.

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

The balance of deferred revenue for activation fees was $ 5.8 million and $ 6.0 million as of March 31, 2022 and December 31, 2021, respectively, which combines current and long-term balances.

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

18 unchanged sentences

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

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

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

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

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

We review the capitalized costs for impairment at least annually.

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

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

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

We did no t record an impairment loss on our contract assets during the three months ended March 31, 2022 and 2021.

ALARM.COM HOLDINGS, INC.

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

March 31, 2022 and 2021

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

Three Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

Beginning of period balance $ 4,520 $ 4,306

6 unchanged sentences

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.

ALARM.COM HOLDINGS, INC.

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

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

Three Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

Beginning of period balance $ 14,837 $ 12,529

5 unchanged sentences

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

September 30,

2022 December 31,

3 unchanged sentences

Accounts receivable, net $ 103,067 $ 105,548

For the three and nine months ended September 30, 2021, we recorded a reduction to the provision for credit losses of $ 0.4 million and $ 0.2 million on our accounts receivable, respectively.

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

For the three and nine months ended September 30, 2021, we recorded a reserve for product returns of $ 0.5 million and $ 1.6 million, respectively, as compared to $ 0.5 million and $ 1.5 million for the same periods in the prior year.

For the three months ended March 31, 2022, we recorded a provision for credit losses on our accounts receivable of $ 0.1 million, as compared to less than $ 0.1 million for the same period in the prior year.

For the three months ended March 31, 2022, we recorded a $ 0.8 million reserve for product returns in our hardware and other revenue, as compared to $ 0.6 million for the same period in the prior year.

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

ALARM.COM HOLDINGS, INC.

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

March 31, 2022 and 2021

Allowance for Credit Losses - Accounts Receivable

9 unchanged sentences

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

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

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

There were no changes to our portfolio segments for our accounts receivable during the three months ended March 31, 2022, and no changes to our policies or practices that influenced our estimate of expected credit losses for accounts receivable.

Additionally, there were no significant changes in the amount of accounts receivable write-offs during the three months ended March 31, 2022, as compared to historical periods other than a partial write-off of $ 0.7 million related to one of our distribution partners' outstanding balance during the three months ended March 31, 2021, upon the distributor being acquired by a third party.

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

For the three and nine months ended September 30, 2021, we recorded a reduction of credit loss expense for accounts receivable and notes receivable of $ 0.4 million, in general and administrative expense in our condensed consolidated statements of operations.

For the three and nine months ended September 30, 2020, we recorded a reduction of credit loss expense of $ 1.2 million and $ 0.7 million in general and administrative expense, respectively, in our condensed consolidated statements of operations.

The contractual term excludes expected extensions, renewals and

ALARM.COM HOLDINGS, INC.

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

modifications because extension and renewal options are unconditionally cancelable by us.

For the three months ended March 31, 2022, we recorded a reduction of credit loss expense for accounts receivable and notes receivable of $ 0.1 million, as compared to less than $ 0.1 million for the same period in the prior year, which were recorded in general and administrative expense, in our condensed consolidated statements of operations.

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

Write-offs of the amortized cost basis are recorded to the allowance for credit losses.

2 unchanged sentences

Three Months Ended

September 30, 2021 Three Months Ended

September 30, 2020 Nine Months Ended

September 30, 2021 Nine Months Ended

September 30, 2020

Subsidiaries All Other

Subsidiaries Alarm.com

Subsidiaries All Other

Subsidiaries Alarm.com

March 31, 2022 Three Months Ended

March 31, 2021

Subsidiaries All Other

2 unchanged sentences

Beginning of period balance $ ( 2,035 ) $ ( 133 ) $ ( 4,442 ) $ ( 254 )

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

Recovery of / (provision for) expected credit losses 415 ( 27 ) 1,146 56 268 ( 30 ) 195 42

(Provision for) / recovery of expected credit losses ( 155 ) 101 ( 36 ) 4

Write-offs 68 1 808 8

1 unchanged sentence

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

September 30,

2022 December 31,

2 unchanged sentences

Total inventory $ 86,436 $ 75,276

Asset Acquisitions

On March 12, 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 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 condensed consolidated statements of operations during the nine months ended September 30, 2020 , as the IPR&D had no alternative future use.

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

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

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

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

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

Acquisition of a Business - Shooter Detection Systems

On December 14, 2020, Alarm.com Incorporated acquired 100 % of the issued and outstanding ownership interest units of Shooter Detection Systems, LLC, or SDS.

SDS provides an indoor gunshot detection solution through the Guardian Indoor Active Shooter Detection System, which uses a combination of acoustic and infrared sensors and proprietary algorithms to detect gunshots and communicate shooting incident details to building occupants and security teams.

The acquisition of SDS expands our commercial solutions and helps our partners outfit commercial and enterprise customers with the indoor gunshot detection solution.

ALARM.COM HOLDINGS, INC.

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

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

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

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

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

December 14, 2020

Calculation of Purchase Consideration:

Cash paid, net of working capital adjustment $ 26,577

Total consideration $ 26,577

Tangible and Intangible Net Assets:

Accounts receivable 1,179

Inventory 917

Other current assets 240

Property and equipment 77

Operating lease right-of-use assets 384

Other assets 348

Customer relationships 2,362

Developed technology 13,522

Trade name 512

Accounts payable ( 19 )

Accrued expenses ( 111 )

Operating lease current liabilities ( 51 )

Operating lease liabilities ( 333 )

Goodwill 7,239

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 allocated the goodwill to the Alarm.com segment.

Fair Value of Net Assets Acquired and Intangibles

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

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

Customer Relationships

We recorded the customer relationships intangible separately from goodwill based on determination of the length, strength and contractual nature of the relationship that SDS shared with its customers.

We valued the single group of customer relationships using the with-and-without method, an income approach.

The significant assumptions used in the with-and-without method include estimates about future expected cash flows from customer contracts and the discount rate.

We are amortizing the customer relationships, valued at $ 2.4 million, on an attribution basis derived from the discounted cash flows of the model over an estimated useful life of six years .

ALARM.COM HOLDINGS, INC.

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

Developed Technology

Developed technology primarily consists of intellectual property of proprietary software that is marketed for sale.

We valued the developed technology by applying the multi-period excess earnings method, an income approach.

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 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.

The significant assumptions used in relief from royalty method include future expected cash flows from the trade name, the royalty rate and the discount rate.

We are amortizing the trade names, valued at $ 0.5 million, on an attribution basis derived from the discounted cash flows of the model over an estimated useful life of five years .

March 31, 2022 and 2021

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 .

Goodwill and Intangible Assets, Net

4 unchanged sentences

Goodwill acquired — — —

Measurement period adjustment 63 — 63

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

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

Balance as of March 31, 2022 $ 112,901 $ — $ 112,901

There were no impairments of goodwill during the three months ended March 31, 2022 and 2021.

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

4 unchanged sentences

Amortization ( 2,976 ) ( 1,446 ) ( 153 ) ( 4,575 )

Balance as of September 30, 2021 $ 62,801 $ 25,716 $ 1,959 $ 90,476

We recorded $ 4.3 million and $ 12.8 million of amortization related to our intangible assets for the three and nine months ended September 30, 2021, respectively, as compared to $ 4.0 million and $ 12.1 million for the same periods in the prior year.

There were no impairments of long-lived intangible assets during the three and nine months ended September 30, 2021 and 2020.

Balance as of March 31, 2022 $ 56,450 $ 28,711 $ 1,670 $ 86,831

We recorded $ 4.6 million of amortization related to our intangible assets for the three months ended March 31, 2022, as compared to $ 4.3 million for the same period in the prior year.

There were no impairments of long-lived intangible assets during the three months ended March 31, 2022 and 2021.

During the three months ended March 31, 2022 we wrote-off $ 0.7 million in fully amortized intangible assets in the Alarm.com segment that were acquired in 2014 related to customer relationships, developed technology, trade name and other intangible assets that no longer existed as of January 1, 2022.

ALARM.COM HOLDINGS, INC.

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

March 31, 2022 and 2021

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

September 30, 2021

March 31, 2022

Amount Accumulated

5 unchanged sentences

Trade name 3,787 ( 2,117 ) 1,670 2.9

Other 234 ( 234 ) — 0.0

Total intangible assets $ 178,815 $ ( 91,984 ) $ 86,831 7.1

December 31, 2021

Amount Accumulated

Amount Impairment of Intangible Assets Accumulated

Amortization Net

8 unchanged sentences

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

The carrying value, net of amortization, of our purchased patents and patent licenses was $ 2.4 million and $ 2.9 million as of September 30, 2021 and December 31, 2020, respectively.

As of September 30, 2021 and December 31, 2020, $ 0.7 million of patent costs were included in other current assets and $ 1.7 million and $ 2.2 million of patent costs were included in other assets, respectively.

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

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

Patent cost amortization of $ 0.1 million and $ 0.3 million was included in cost of SaaS and license revenue in our condensed consolidated statements of operations for the three and nine months ended September 30, 2021 and 2020, respectively.

Patent cost amortization of $ 0.1 million and $ 0.2 million was included in amortization and depreciation in our condensed consolidated statements of operations for the three and nine months ended September 30, 2021 and 2020, respectively.

The carrying value, net of amortization, of our purchased patents and patent licenses was $ 2.0 million and $ 2.2 million as of March 31, 2022 and December 31, 2021, respectively.

As of March 31, 2022 and December 31, 2021, $ 0.5 million and $ 0.6 million of patent costs were included in other current assets and $ 1.5 million and $ 1.6 million of patent costs were included in other assets, respectively.

We have $ 7.0 million of historical cost in purchased patents and patent licenses as of March 31, 2022.

We are amortizing the patent costs over the estimated useful lives of the patents, which range from three years to 18 years.

Patent amortization cost of $ 0.1 million was included in cost of SaaS and license revenue in our condensed consolidated statements of operations for each of the three months ended March 31, 2022 and 2021.

Patent amortization cost of $ 0.1 million was included in amortization and depreciation in our condensed consolidated statements of operations for each of the three months ended March 31, 2022 and 2021.

Loan to a Distribution Partner

In September 2016, we entered into dealer and loan agreements with a distribution partner.

The dealer agreement enables the distribution partner to resell our SaaS services and hardware to their subscribers.

Under the loan agreements, we agreed to loan the distribution partner up to $ 4.0 million, collateralized by all assets owned by the distribution partner.

The advance period for the loan was amended in August 2017 to begin each year on September 1 and end each year on December 31.

Interest on the outstanding principal accrued at a rate per annum equal to the greater of 6.0 % or LIBOR, plus 4.0 %, as determined on the first date of each annual advance period.

The repayment of principal and accrued interest was due in three installments beginning in July and ending in August following the advance period.

The maturity date of the loan was August 31, 2019;

however, the borrower had the option to extend the term of the loan for two successive terms of one year each.

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

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

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

ALARM.COM HOLDINGS, INC.

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

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

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

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

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

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

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

As of March 31, 2022 and December 31, 2021, there was no remaining amount outstanding related to the amended term loan.

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

As of September 30, 2021 and December 31, 2020, $ 4.5 million and $ 4.2 million of the notes receivable balance related to the subordinated credit agreement was included in other assets in our condensed consolidated balance sheets, respectively.

For the three and nine months ended September 30, 2021, we recognized $ 0.8 million and $ 2.4 million of revenue from the distribution partners associated with these loans, respectively, as compared to $ 0.5 million and $ 1.8 million for the same periods in the prior year.

Loans to a Service Provider Partner

As of March 31, 2022 and December 31, 2021, $ 4.7 million and $ 4.6 million of the notes receivable balance related to the subordinated credit agreement was included in other assets in our condensed consolidated balance sheets, respectively.

For the three months ended March 31, 2022, we recognized $ 0.6 million of revenue from the distribution partner associated with these loans, as compared to $ 0.7 million for the same period in the prior year.

ALARM.COM HOLDINGS, INC.

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

March 31, 2022 and 2021

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.

1 unchanged sentence

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

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

For each of the three and nine months ended September 30, 2021, we recognized $ 0.1 million of revenue from the service provider partner associated with this loan, as compared to less than $ 0.1 million and $ 0.1 million for the same periods in the prior year.

As of March 31, 2022 and December 31, 2021, $ 1.1 million and $ 1.2 million of principal was outstanding from the service provider partner under the loan agreement, respectively.

For each of the three months ended March 31, 2022 and 2021, we recognized less than $ 0.1 million of revenue from the service provider partner associated with this loan.

Investment in a Hardware Supplier

3 unchanged sentences

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

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

As of March 31, 2022 and December 31, 2021, our investment in the hardware supplier was $ 5.6 million.

Investment in a Technology Partner

2 unchanged sentences

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 o ther income, net, in our consolidate d statements of operations during the year ended December 31, 2020.

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 income / (expense), 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.

1 unchanged sentence

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

ALARM.COM HOLDINGS, INC.

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

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 condensed consolidated statements of operations during the three and nine months ended September 30, 2020.

As of September 30, 2021 and December 31, 2020, our investment in the platform partner was zero .

As of March 31, 2022 and December 31, 2021, our investment in the technology partner was $ 5.7 million.

Allowance for Credit Losses - Notes Receivable

1 unchanged sentence

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

There were no changes to our portfolio segments for our notes receivable during the three and nine months ended September 30, 2021, and no changes to our policies or practices involving the issuance of notes receivable, customer acquisitions or any other factors that influenced our estimate of expected credit losses for notes receivable.

There were no changes to our portfolio segments for our notes receivable during the three months ended March 31, 2022, and no changes to our policies or practices involving the issuance of notes receivable, customer acquisitions or any other factors that influenced our estimate of expected credit losses for notes receivable.

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

5 unchanged sentences

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

The accrued interest receivable as of each of September 30, 2021 and December 31, 2020 was less than $ 0.1 million, and is reflected in other current assets within our condensed consolidated balance sheets and excluded from the amortized cost basis of the notes receivable .

We did not write-off any accrued interest receivable during the three and nine months ended September 30, 2021 and 2020.

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

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

The accrued interest receivable as of March 31, 2022 and December 31, 2021 was less than $ 0.1 million, and is reflected in other current assets within our condensed consolidated balance sheets and excluded from the amortized cost basis of the notes receivable .

We did not write-off any accrued interest receivable during the three months ended March 31, 2022 and 2021.

There were no purchases or sales of financial assets during the three months ended March 31, 2022 and 2021.

There were no significant changes in the amount of note receivable write-offs during the three months ended March 31, 2022, as compared to historical periods.

ALARM.COM HOLDINGS, INC.

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

March 31, 2022 and 2021

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

Three Months Ended

September 30, 2021 Three Months Ended

September 30, 2020 Nine Months Ended

September 30, 2021 Nine Months Ended

September 30, 2020

Receivables Hardware

Receivables Loan

Receivables Hardware

Receivables Loan

March 31, 2022 Three Months Ended

March 31, 2021

Receivables Hardware

2 unchanged sentences

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

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

(Provision for) / recovery of expected credit losses ( 3 ) 2 ( 20 ) 6 ( 4 ) 14 368 —

Recovery of expected credit losses 78 — — 11

Write-offs — — — —

End of period balance $ ( 1 ) $ ( 1 ) $ ( 73 ) $ ( 5 )

ALARM.COM HOLDINGS, INC.

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

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

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

September 30, 2021

March 31, 2022

Loan Receivables:

13 unchanged sentences

Total $ — $ — $ — $ 2 $ — $ — $ 2

ALARM.COM HOLDINGS, INC.

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

March 31, 2022 and 2021

December 31, 2021

14 unchanged sentences

Total $ — $ — $ 21 $ — $ — $ — $ 21

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

September 30, 2021 December 31, 2020

Loan receivables $ — $ —

Hardware financing receivables — 9

Total $ — $ 9

ALARM.COM HOLDINGS, INC.

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

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

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

As of September 30, 2021 and December 31, 2020, there were no notes receivables that were 90 days or greater past due for which we continued to accrue interest income.

There were no notes receivables placed on nonaccrual status as of March 31, 2022 and December 31, 2021.

During the three months ended March 31, 2022 and 2021, there was no interest income recognized related to notes receivables that were in nonaccrual status.

As of March 31, 2022 and December 31, 2021, there were no notes receivables placed in nonaccrual status for which there was not a related allowance for credit losses.

As of March 31, 2022 and December 31, 2021, there were no notes receivables that were 90 days or greater past due for which we continued to accrue interest income.

Prepaid Expenses

As of September 30, 2021 and December 31, 2020, $ 14.4 million and $ 8.4 million of prepaid expenses were included in other current assets, respectively, primarily related to software licenses and for long lead-time parts related to our inventory .

As of March 31, 2022 and December 31, 2021, $ 20.7 million and $ 17.7 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 present our assets and liabilities measured at fair value on a recurring basis (in thousands):

Fair Value Measurements on a Recurring Basis as of

September 30, 2021

Fair value measurements in:

Level 1 Level 2 Level 3 Total

Money market accounts $ 671,598 $ — $ — $ 671,598

Total $ 671,598 $ — $ — $ 671,598

Fair Value Measurements on a Recurring Basis as of

December 31, 2020

Fair value measurements in:

Fair Value Measurements on a Recurring Basis

Level 1 Level 2 Level 3 Total

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

Total $ 221,407 $ — $ — $ 221,407

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

Three Months Ended

September 30, Nine Months Ended

September 30,

Money market accounts as of March 31, 2022

$ 639,990 $ — $ — $ 639,990

Money market accounts as of December 31, 2021

679,278 — — 679,278

Subsidiary long-term incentive plan as of March 31, 2022

$ — $ — $ 3,104 $ 3,104

Subsidiary long-term incentive plan as of December 31, 2021

— — 3,351 3,351

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

Three Months Ended

Beginning of period balance $ 3,351 $ 1,000

1 unchanged sentence

End of period balance $ 3,104 $ 1,195

The money market accounts are included in our cash and cash equivalents in our condensed consolidated balance sheets.

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

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

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

The earn-out payment was contingent on the satisfaction of certain calendar 2020 revenue targets and had a maximum potential payment of up to $ 11.0 million.

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

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

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

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

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 were recorded in general and administrative expense in our condensed consolidated statements of operations.

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

ALARM.COM HOLDINGS, INC.

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

March 31, 2022 and 2021

As of March 31, 2022, $ 639.5 million of our money market accounts was included in cash and cash equivalents and $ 0.5 million was included in other assets in our condensed consolidated balance sheets.

As of December 31, 2021, $ 679.3 million was included in cash and cash equivalents in our condensed consolidated balance sheets.

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

See Note 12 for the carrying amount and estimated fair value of our convertible senior notes as of March 31, 2022.

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 simulation model which involves several Level 3 unobservable inputs.

The significant unobservable inputs used in the valuation as of March 31, 2022 included a weighted average revenue volatility of 7.5 % and a revenue risk adjustment of 2.6 %.

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 condensed consolidated balance sheets (see Note 11).

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

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

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

There were no transfers in or out of Level 3 during the three months ended March 31, 2022 and 2021.

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

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

No other-than-temporary impairments occurred during the three months ended March 31, 2022 and 2021.

We lease office space, data centers and office equipment under non-cancelable operating leases with various expiration dates through 2027.

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

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

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

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

1 unchanged sentence

Three Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

Operating lease cost $ 2,473 $ 2,338

1 unchanged sentence

Operating lease right-of-use assets obtained in exchange for new operating lease liabilities 1,782 224

September 30,

2022 December 31,

1 unchanged sentence

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

ALARM.COM HOLDINGS, INC.

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

March 31, 2022 and 2021

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.

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

We did no t have any finance leases or subleases as of March 31, 2022 or December 31, 2021.

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

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

ALARM.COM HOLDINGS, INC.

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

Short-term lease costs were immaterial for the three months ended March 31, 2022 and 2021.

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

September 30,

2022 December 31,

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Accrued expenses 13,179 19,894

Income taxes payable 7,794 —

Other current liabilities 4,942 5,171

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

September 30,

2022 December 31,

Holdback liability from acquisitions $ 1,500 $ 1,500

Holdback liability from asset acquisition $ 850 $ 850

Subsidiary long-term incentive plan 3,104 3,351

Other liabilities 5,526 5,344

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

ALARM.COM HOLDINGS, INC.

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

March 31, 2022 and 2021

Convertible Senior Notes

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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

ALARM.COM HOLDINGS, INC.

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

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

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.

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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.

As discussed in Note 2, we adopted 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):

Accounting for Convertible Instruments and

ALARM.COM HOLDINGS, INC.

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

March 31, 2022 and 2021

Contracts in an Entity’s Own Equity " effective January 1, 2022, using a modified retrospective adoption method.

Prior to the adoption of the standard, 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 did 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 September 30, 2021, the fair value of our 2026 Notes was $ 450.0 million.

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

The debt discount for conversion option, debt issuance costs and net carrying amount of the equity component was $ 77.2 million, $ 2.4 million and $ 74.8 million, respectively, as of December 31, 2021.

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

Prior to the adoption of ASU 2020-06, 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.

Upon adoption of ASU 2020-06 on January 1, 2022, we recombined the liability and equity components of the 2026 Notes assuming that the instrument was accounted for as only a liability from inception to the date of adoption.

We also recombined the liability and equity components of the debt issuance costs.

The issuance costs are presented as a deduction from the outstanding principal balance of the 2026 Notes and are amortized to interest expense using the effective interest method over the contractual term of the 2026 Notes at a rate of 0.6 %.

Upon adoption of ASU 2020-06 on January 1, 2022, we also removed the temporary difference between the book and tax treatment of the debt discount and adjusted the temporary difference between the book and tax treatment of the debt issuance costs of the 2026 Notes.

As of March 31, 2022 and December 31, 2021, the fair value of our 2026 Notes was $ 427.7 million and $ 452.5 million, respectively.

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

Based on the closing price of our common stock of $ 78.19 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 September 30, 2021.

Based on the closing price of our common stock of $ 66.46 on the last trading day of the quarter, the if-converted value of the 2026 Notes did not exceed the principal amount of $ 500.0 million as of March 31, 2022.

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

September 30,

2022 December 31,

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Net carrying amount $ 488,024 $ 425,345

ALARM.COM HOLDINGS, INC.

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

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

September 30,

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):

Three Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

Amortization of debt discount $ — $ 2,812

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Total interest expense $ 780 $ 3,244

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.

2017 Facility

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

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.

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

ALARM.COM HOLDINGS, INC.

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

March 31, 2022 and 2021

financial markets resulting from the COVID-19 pandemic.

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

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

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

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.

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

For the nine months ended September 30, 2020, the effective interest rate on the 2017 Facility was 2.92 %.

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

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

ALARM.COM HOLDINGS, INC.

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

The carrying value of the 2017 Facility was zero as of March 31, 2022 and December 31, 2021.

Commitments and Contingencies

Contingent Consideration

On October 21, 2019, we acquired 85 % of the issued and outstanding capital stock of OpenEye.

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.

At October 21, 2019, the fair value of the contingent consideration liability was $ 2.8 million.

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 were recorded in the condensed consolidated statements of operations.

Indemnification Agreements

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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.

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.

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 these decisions to the Federal Circuit on July 1, 2020 and April 26, 2021.

On September 29, 2021, the Federal Circuit issued a decision as to one of the reexaminations finding that the PTO erred in granting reexamination and ordered the reexamination dismissed.

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.

On April 13, 2021, the Federal Circuit affirmed the PTAB decisions.

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.

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 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

ALARM.COM HOLDINGS, INC.

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

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

and others as respondents.

We answered the complaint on December 19, 2019.

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

An evidentiary hearing was held in November 2020.

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

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

EcoFactor appealed the ITC decision to the Federal Circuit on September 20, 2021.

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 until the ITC investigation described above is finally resolved.

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.

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.

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

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

On September 28, 2021, the court issued an order staying the lawsuit in light of EcoFactor’s appeal of the ITC decision and pending lawsuits that EcoFactor brought against other defendants that are scheduled for trial in January 2022.

A joint status report regarding the progress of the related cases is due by March 28, 2022.

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.

We moved to dismiss the case for failure to state a claim 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.

Two of the other three asserted patents are currently in ex parte reexamination proceedings at the PTO, and all claims of the third were found unpatentable by the PTAB in inter partes review on April 18, 2022.

Also on April 18, 2022, the district court stayed the case at the request of the parties pending the disposition of other proceedings involving the asserted patents, including the reexamination proceedings.

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.

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

ALARM.COM HOLDINGS, INC.

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

March 31, 2022 and 2021

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

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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.

District Court, District of Utah, alleging that ADT Pulse, Control, and Blue each infringe one or more 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 June 25, 2021, ADT filed a motion for judgment on the pleadings seeking judgment in its favor as to five of the six asserted patents on the grounds that the claimed inventions are directed to

ALARM.COM HOLDINGS, INC.

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

ineligible subject matter.

The motion has been fully briefed and is pending decision.

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.

Vivint filed a second amended complaint on March 8, 2022.

ADT answered the second amended complaint on March 22, 2022 and asserted defenses based on non-infringement and invalidity of all five asserted patents.

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

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

ADT moved to stay the case pending the outcome of the inter partes reviews on March 9, 2022.

The motion remains 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.

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Stock Repurchase Program

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 that ended on November 29, 2020.

On December 3, 2020, our board of directors authorized a 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 three months ended March 31, 2022, we repurchased 354,123 shares of our common stock under this program for $ 23.3 million, which includes applicable commissions and fees.

No shares were repurchased under this program during the three months ended September 30, 2020.

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

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

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

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

ALARM.COM HOLDINGS, INC.

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

March 31, 2022 and 2021

Stock-Based Compensation

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Three Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

Sales and marketing $ 1,058 $ 808

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Three Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

Stock options and assumed options $ 778 $ 617

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Tax windfall benefit from stock-based awards $ 529 $ 2,560

We granted no stock options pursuant to our 2015 Equity Incentive Plan, or the 2015 Plan, during the three months ended March 31, 2022 and March 31, 2021.

There were 14,020 stock options exercised during the three months ended March 31, 2022, as compared to 73,175 stock options for the same period in the prior year.

There was an aggregate of 156,543 restricted stock units without performance conditions granted to certain of our employees, during the three months ended March 31, 2022, as compared to an aggregate of 127,216 restricted stock units without performance conditions for the same period in the prior year.

There was an aggregate of 71,934 restricted stock units with performance conditions granted to certain of our employees during the three months ended March 31, 2022, as compared to no restricted stock units with performance conditions for the same period in the prior year.

There were 57,497 restricted stock units without performance conditions that vested during the three months ended March 31, 2022, as compared to 69,370 restricted stock units without performance conditions vested during the same period in the prior year.

There were no restricted stock units with performance conditions that vested during the three months ended March 31, 2022, as compared to 20,000 restricted stock units with performance conditions for the same period in the prior year.

ALARM.COM HOLDINGS, INC.

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

We granted an aggregate of 7,500 and 141,200 stock options pursuant to our 2015 Equity Incentive Plan, or the 2015 Plan, during the three and nine months ended September 30, 2021, as compared to an aggregate of 2,000 and 143,650 stock options for the same periods in the prior year.

There were 74,932 and 211,190 stock options exercised during the three and nine months ended September 30, 2021, respectively, as compared to 139,225 and 397,416 stock options for the same periods in the prior year.

We granted an aggregate of 173,005 and 728,415 restricted stock units during the three and nine months ended September 30, 2021, respectively, as compared to an aggregate of 169,699 and 488,771 restricted stock units for the same periods in the prior year.

There were no performance-based restricted stock units granted during the three months ended September 30, 2021.

The restricted stock units granted during the nine months ended September 30, 2021 included 120,314 of performance-based stock awards, as compared to 66,000 for the three and nine months ended September 30, 2020.

There were 49,263 and 312,186 restricted stock units that vested during the three and nine months ended September 30, 2021, respectively, as compared to 34,136 and 121,259 restricted stock units vested during the same periods in the prior year.

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

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

March 31, 2022 and 2021

Earnings Per Share

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Three Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

Net income $ 8,903 $ 14,550

Net loss attributable to redeemable noncontrolling interest 176 280

Net income attributable to common stockholders (A) $ 13,538 $ 36,084 $ 43,113 $ 61,886

Weighted average common shares outstanding — basic (B) 49,954,565 49,007,343 49,776,578 48,842,333

Dilutive effect of stock options and restricted stock units 1,881,674 1,972,336 2,102,483 1,831,419

Weighted average common shares outstanding — diluted (C) 51,836,239 50,979,679 51,879,061 50,673,752

Net income attributable to common stockholders - basic (A) 9,079 14,830

Add back interest expense, net of tax, attributable to convertible senior notes 586 —

Net income attributable to common stockholders - diluted (B) $ 9,665 $ 14,830

Weighted average common shares outstanding — basic (C) 50,206,179 49,561,887

Dilutive effect of convertible senior notes, stock options and restricted stock units 4,964,602 2,177,574

Weighted average common shares outstanding — diluted (D) 55,170,781 51,739,461

Net income per share:

Basic (A/B) $ 0.27 $ 0.74 $ 0.87 $ 1.27

Diluted (A/C) $ 0.26 $ 0.71 $ 0.83 $ 1.22

Basic (A/C) $ 0.18 $ 0.30

Diluted (B/D) $ 0.18 $ 0.29

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

Three Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

Stock options 172,500 —

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

Prior to the adoption of ASU 2020-06, since we expected to settle the principal amount on our outstanding 2026 Notes in cash and any excess in cash or shares of our common stock, we used 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 had 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 exceeded the conversion price of $ 147.19 per share for the 2026 Notes.

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

Upon adoption of ASU 2020-06 on January 1, 2022, we began using the if-converted method when calculating the dilutive impact of the 2026 Notes on net income per share.

As a result, we included 3,396,950 shares related to the 2026 Notes within the weighted average shares outstanding when calculating the diluted net income per share for the three months ended March 31, 2022.

Additionally, we included $ 0.6 million of debt issuance cost amortization, net of tax, within the numerator of the diluted net income per share for the three months ended March 31, 2022 .

ALARM.COM HOLDINGS, INC.

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

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.

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

March 31, 2022 and 2021

Significant Service Providers

During the three and nine months ended September 30, 2021, our 10 largest revenue service provider partners accounted for 48 % and 49 % of our consolidated revenue, respectively, as compared to 50 % and 49 % for the same periods in the prior year.

One of our service provider partners within the Alarm.com segment individually represented greater than 15 % but not more than 20 % of our revenue for each of the three and nine months ended September 30, 2021 and 2020.

No service provider partner in the Alarm.com segment represented more than 10% of accounts receivable as of September 30, 2021.

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

During each of the three months ended March 31, 2022 and 2021, our 10 largest revenue service provider partners accounted for 50 % of our consolidated revenue.

One of our service provider partners within the Alarm.com segment individually represented greater than 15 % but not more than 20 % of our revenue for the three months ended March 31, 2022 and 2021.

One service provider partner in the Alarm.com segment represented more than 10% of accounts receivable as of March 31, 2022 and December 31, 2021.

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

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

For the three and nine months ended September 30, 2021, we recorded a provision for income taxes of $ 1.8 million and a benefit from income taxes of $ 2.9 million, respectively, resulting in an effective income tax rate of 11.8 % and ( 7.3 )% for those periods.

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

For the three months ended March 31, 2022, we recorded a benefit from income taxes of $ 0.6 million, resulting in an effective income tax rate of ( 7.5 )%.

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

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

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

Due to the uncertainty of realization of certain deferred tax assets acquired in 2017 related to our Canadian net operating losses and research and development tax credits, we established a valuation allowance of $ 0.3 million during the second quarter of 2019, which remained at $ 0.3 million as of September 30, 2021 and December 31, 2020.

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

During 2020, we established a valuation allowance of $ 1.3 million for state research and development tax credit carryforwards, which increased to $ 1.9 million as of December 31, 2021 and remained at $ 1.9 million as of March 31, 2022.

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

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

We recorded an increase to the unrecognized tax benefits of $ 2.1 million primarily for research and development tax credits claimed during the nine months ended September 30, 2021.

We recorded an increase to the unrecognized tax benefits of $ 1.1 million for research and development tax credits claimed during the nine months ended September 30, 2020.

We recorded an increase to the unrecognized tax benefits liability of $ 0.6 million primarily for research and development tax credits claimed during the three months ended March 31, 2022.

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

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

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

As of September 30, 2021 and December 31, 2020, we accrued $ 0.1 million of total interest expense related to unrecognized tax benefits.

As of March 31, 2022 and December 31, 2021, we accrued $ 0.2 million of total interest expense related to unrecognized tax benefits.

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

ALARM.COM HOLDINGS, INC.

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

Segment Information

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

Our Alarm.com segment represents our cloud-based and Software platforms for the intelligently connected property and related solutions that contributed 94 % and 95 % of our revenue, net of intersegment eliminations, for the three and nine months ended September 30, 2021, respectively, as compared to 94 % for the same periods in the prior year.

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

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

Our Alarm.com segment represents our cloud-based and Software platforms for the intelligently connected property and related solutions that contributed 95 % of our revenue, net of intersegment eliminations, for each of the three months ended March 31, 2022 and 2021.

Our Other segment is focused on researching, developing and offering residential and commercial

ALARM.COM HOLDINGS, INC.

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

March 31, 2022 and 2021

automation solutions and energy management products and services in adjacent markets.

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

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

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

Three Months Ended September 30, 2021

Alarm.com Other Intersegment Alarm.com Intersegment Other Total

SaaS and license revenue $ 109,170 $ 8,889 $ — $ — $ 118,059

Hardware and other revenue

73,310 2,445 ( 847 ) ( 643 ) 74,265

Total revenue

182,480 11,334 ( 847 ) ( 643 ) 192,324

Operating income / (loss)

19,968 ( 1,021 ) 244 ( 107 ) 19,084

Three Months Ended September 30, 2020

Alarm.com Other Intersegment Alarm.com Intersegment Other Total

SaaS and license revenue $ 92,834 $ 7,292 $ — $ — $ 100,126

Hardware and other revenue

57,726 2,545 ( 554 ) ( 992 ) 58,725

Total revenue

150,560 9,837 ( 554 ) ( 992 ) 158,851

Operating income / (loss)

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

Nine Months Ended September 30, 2021

Three Months Ended March 31, 2022

Alarm.com Other Intersegment Alarm.com Intersegment Other Total

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12,754 ( 4,004 ) 185 ( 22 ) 8,913

Nine Months Ended September 30, 2020

Three Months Ended March 31, 2021

Alarm.com Other Intersegment Alarm.com Intersegment Other Total

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Alarm.com Other Intersegment Alarm.com Intersegment Other Total

Assets as of September 30, 2021 $ 1,217,403 $ 28,202 $ ( 63,870 ) $ 19 $ 1,181,754

Assets as of March 31, 2022 $ 1,265,081 $ 35,395 $ ( 75,719 ) $ 33 $ 1,224,790

Assets as of December 31, 2021 1,264,416 37,198 ( 69,595 ) ( 4 ) 1,232,015

Our SaaS and license revenue for the Alarm.com segment included software license revenue of $ 7.9 million and $ 24.9 million for the three and nine months ended September 30, 2021, respectively, as compared to $ 9.5 million and $ 29.0 million for the same periods in the prior year.

There was no software license revenue recorded for the Other segment during the three and nine months ended September 30, 2021 and 2020.

Depreciation and amortization expense was $ 7.3 million and $ 22.0 million for the Alarm.com segment for the three and nine months ended September 30, 2021, respectively, as compared to $ 6.7 million and $ 19.8 million for the same periods in the prior year.

Depreciation and amortization expense was $ 0.1 million and $ 0.3 million for the Other segment for the three and nine months ended September 30, 2021, respectively, as compared to $ 0.1 million and $ 0.2 million for the same periods in the prior year.

Additions to property and equipment were $ 1.2 million and $ 7.4 million for the Alarm.com segment for the three and nine

ALARM.COM HOLDINGS, INC.

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

months ended September 30, 2021, respectively, as compared to $ 4.7 million and $ 11.2 million for the same periods in the prior year.

Additions to property and equipment were $ 0.2 million and $ 0.3 million for the Other segment for the three and nine months ended September 30, 2021, respectively, as compared to $ 0.1 million and $ 1.0 million for the same periods in the prior year.

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

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

Our SaaS and license revenue for the Alarm.com segment included software license revenue of $ 7.1 million for the three months ended March 31, 2022, as compared to $ 8.7 million for the same period in the prior year.

There was no software license revenue recorded for the Other segment during the three months ended March 31, 2022 and 2021.

Depreciation and amortization expense was $ 7.5 million for the Alarm.com segment for the three months ended March 31, 2022, as compared to $ 7.3 million for the same period in the prior year.

Depreciation and amortization expense was $ 0.3 million for the Other segment for the three months ended March 31, 2022, as compared to $ 0.1 million for the same period in the prior year.

Additions to property and equipment were $ 1.6 million for the Alarm.com segment for the three months ended March 31, 2022, as compared to $ 3.5 million for the same period in the prior year.

Additions to property and equipment were $ 0.1 million for the Other segment for the three months ended March 31, 2022, as compared to less than $ 0.1 million for the same period in the prior year.

We derived substantially all revenue from North America for the three months ended March 31, 2022 and 2021.

Substantially all of our long-lived assets were in North America as of March 31, 2022 and December 31, 2021.

Related Party Transactions

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We account for this investment using the equity method.

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

During the three and nine months ended September 30, 2021, we recorded $ 0.1 million and $ 0.2 million of cost of hardware and other revenue in connection with this installation partner, respectively, as compared to $ 0.1 million and $ 0.3 million for the same periods in the prior year.

As of September 30, 2021 and December 31, 2020, the accounts payable balance to our installation partner was less than $ 0.1 million.

As of March 31, 2022 and December 31, 2021, our investment balance in our installation partner was zero .

During the three months ended March 31, 2022, we recorded less than $ 0.1 million and of cost of hardware and other revenue in connection with this installation partner, as compared to $ 0.1 million for the same period in the prior year.

As of March 31, 2022 and December 31, 2021, the accounts payable balance to our installation partner was zero and less than $ 0.1 million.

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

What changed 10-Q

Item 1. Financial Statements