What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2022-08-09 compared with 2022-05-05 · 287 added, 193 removed, 707 unchanged (40% of the section changed)

4 unchanged sentences

Three Months Ended

June 30, Six Months Ended

2022 2021 2022 2021

SaaS and license revenue $ 129,475 $ 113,186 $ 252,700 $ 220,569

16 unchanged sentences

Income before income taxes 11,672 12,752 19,957 24,389

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

Provision for / (benefit from) income taxes 844 ( 1,738 ) 226 ( 4,651 )

Net income 10,828 14,490 19,731 29,040

17 unchanged sentences

Cash and cash equivalents $ 643,380 $ 710,621

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

Accounts receivable, net of allowance for credit losses of $ 2,508 and $ 2,168 , and net of allowance for product returns of $ 1,231 and $ 1,181 as of June 30, 2022 and December 31, 2021, respectively

108,256 105,548

Inventory 108,321 75,276

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

Other current assets, net of allowance for credit losses of $ 1 and $ 2 as of June 30, 2022 and December 31, 2021, respectively

26,038 26,175

5 unchanged sentences

Operating lease right-of-use assets 31,850 30,479

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

Other assets, net of allowance for credit losses of $ 1 and $ 78 as of June 30, 2022 and December 31, 2021, respectively

30,213 24,349

16 unchanged sentences

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

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

no shares issued and outstanding as of June 30, 2022 and December 31, 2021

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

50,697,378 and 50,406,606 shares issued;

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

and 49,715,571 and 50,259,453 shares outstanding as of June 30, 2022 and December 31, 2021, respectively

Additional paid-in capital 468,698 498,979

Treasury stock, at cost;

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

981,807 and 147,153 shares as of June 30, 2022 and December 31, 2021, respectively

( 56,648 ) ( 5,149 )

6 unchanged sentences

(in thousands)

Three Months Ended

Cash flows (used in) / from operating activities:

Six Months Ended

Cash flows from operating activities:

Net income $ 19,731 $ 29,040

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

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

Provision for credit losses on accounts receivable 547 150

7 unchanged sentences

Stock-based compensation 24,899 17,944

Gain on investment ( 140 ) —

Loss on early extinguishment of debt — 185

7 unchanged sentences

Other liabilities ( 394 ) 265

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

Cash flows from operating activities 12,258 45,308

Cash flows used in investing activities:

Additions to property and equipment ( 26,302 ) ( 7,381 )

Issuances of notes receivable ( 3,000 ) —

Receipt of payments on notes receivable 32 5

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

Proceeds from investment 140 —

Cash flows used in investing activities ( 29,130 ) ( 12,376 )

29 unchanged sentences

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 — — — 205 2 581 — — — 583

Purchase of treasury stock — — — — — — 481 ( 28,168 ) — ( 28,168 )

Reclassification of subsidiary long-term incentive plan liability related to modification — — — — — 3,104 — — — 3,104

Stock-based compensation expense — — — — — 12,789 — — — 12,789

Accretion adjustments of redeemable noncontrolling interest to redemption value 860 — — — — ( 860 ) — — — ( 860 )

Net income / (loss) attributable to common stockholders ( 14 ) — — — — — — — 10,842 10,842

Balance as of June 30, 2022 $ 16,127 — $ — 50,697 $ 507 $ 468,698 982 $ ( 56,648 ) $ 148,726 $ 561,283

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 Retained Earnings Total Stockholders’ Equity

7 unchanged sentences

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

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

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

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

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

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

See accompanying notes to the condensed consolidated financial statements.

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Notes to the Condensed Consolidated Financial Statements (Unaudited)

March 31, 2022 and 2021

June 30, 2022 and 2021

Alarm.com Holdings, Inc.

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Millions of property owners depend on our technology to intelligently secure, automate and manage their residential and commercial properties.

Our solutions are delivered through an established network of over 10,900 trusted service provider partners, who are experts at selling, installing and supporting our solutions.

Our solutions are delivered through an established network of trusted service provider partners, who are experts at selling, installing and supporting our solutions.

The number of our service provider partners exceeded 10,900 in 2021.

We derive revenue from the sale of our cloud-based Software-as-a-Service, or SaaS, services, license fees, software, hardware, activation fees and other revenue.

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In the opinion of management, these condensed consolidated financial statements include all normal recurring adjustments necessary for a fair statement of the results of operations, financial position and cash flows for the periods presented.

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

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, 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.

However, the global economy, credit markets and financial markets have and may continue to experience significant volatility as a result of significant worldwide events, including public health crises, such as the COVID-19 pandemic, and geopolitical upheaval, such as Russia’s incursion into Ukraine (collectively Macroeconomic Conditions).

These Macroeconomic Conditions have and may continue to create supply chain disruptions, inventory disruptions, and fluctuations in economic growth, including fluctuations in employment rates, inflation, energy prices and consumer sentiment.

In particular, 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.

It remains difficult to assess or predict the ultimate duration and economic impact of the Macroeconomic Conditions including, the path of the COVID-19 pandemic, the evolution of COVID-19 variants or the emergence of other public health crises.

The results of operations for the three and six months ended June 30, 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 Macroeconomic Conditions.

Prolonged uncertainties could cause further economic slowdown or cause other unpredictable events, each of which could adversely affect our business, results of operations or financial condition.

Use of Estimates

2 unchanged sentences

However, our estimates, judgments and assumptions are continually evaluated based on available information and experience and may change as new events occur and additional information is obtained.

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.

Because of the use of estimates inherent in the financial reporting process and in light of the continuing uncertainty arising from the Macroeconomic Conditions, 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 and goodwill and intangible assets.

Comprehensive Income

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.

Our comprehensive income for the three and six months ended June 30, 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

June 30, 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 months ended March 31, 2022 from those disclosed in our Annual Report.

Other than those disclosed herein, there have been no other material changes to our significant accounting policies during the three and six months ended June 30, 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.

As of June 30, 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.

As of June 30, 2022, all restricted cash was included in other assets.

Stock-Based Compensation

We compensate our executive officers, board of directors, employees and consultants with stock-based compensation plans under our 2015 Equity Incentive Plan, or 2015 Plan.

We record stock-based compensation expense related to time-based restricted stock units based upon the award’s grant date fair value and use an accelerated attribution method, net of actual forfeitures, in which compensation cost for each vesting tranche in an award is recognized ratably from the service inception date to the vesting date for that tranche.

We record stock-based compensation expense related to performance-based restricted stock units based on management’s determination of the probable outcome of the performance conditions, which requires considerable judgment.

We estimate the fair value of each option granted on the date of the grant using the Black-Scholes option-pricing model, which contains uncertainties and requires us to estimate the risk-free interest rate, expected term, expected stock price volatility and dividend yield.

In prior years, we used the "simplified method" to calculate the expected term, which was presumed to be the mid-point between the vesting date and the end of the contractual term.

Beginning upon the first grant of options in 2022, the expected term for options granted is estimated using our historical experience, including information related to options we have granted.

Recent Accounting Pronouncements

15 unchanged sentences

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.

Our net income attributable to common stockholders increased $ 2.0 million and $ 4.0 million during the three and six months ended June 30, 2022, respectively, 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

ALARM.COM HOLDINGS, INC.

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

March 31, 2022 and 2021

June 30, 2022 and 2021

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 and six months ended June 30, 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 and $ 0.08 per share and an increase to diluted net income attributable to common stockholders of $ 0.04 and $ 0.07 per share, during the three and six months ended June 30, 2022, respectively.

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

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

3 unchanged sentences

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

18 unchanged sentences

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

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.

For the twelve months ended June 30, 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.

6 unchanged sentences

Accordingly, for licenses of functional intellectual property, revenue is recognized at the point-in-time when control has been transferred to the customer, which occurs once the software has been made available to the customer.

ALARM.COM HOLDINGS, INC.

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

June 30, 2022 and 2021

Hardware and other revenue may also include activation fees charged to some of our service provider partners for activation of a new subscriber account on our platforms, as well as fees paid by service provider partners for our marketing services.

1 unchanged sentence

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

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 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 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 $ 5.8 million and $ 6.0 million as of March 31, 2022 and December 31, 2021, respectively, which combines current and long-term balances.

The balance of deferred revenue for activation fees was $ 5.6 million and $ 6.0 million as of June 30, 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.

11 unchanged sentences

We recognize an asset from the costs incurred to fulfill a contract if the costs (i) are specifically identifiable to a contract, (ii) enhance resources that will be used in satisfying performance obligations in future and (iii) are expected to be recovered.

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

Our assets related to costs incurred to obtain a contract consist of capitalized commission costs and upfront payments made to a customer.

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

8 unchanged sentences

Impairment exists if the carrying amount of the asset recognized from contract costs exceeds the remaining amount of consideration we expect to receive in exchange for providing the goods and services to which such asset 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.

We did no t record an impairment loss on our contract assets during the three and six months ended June 30, 2022 and 2021.

ALARM.COM HOLDINGS, INC.

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

March 31, 2022 and 2021

June 30, 2022 and 2021

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

Three Months Ended

June 30, Six Months Ended

2022 2021 2022 2021

Beginning of period balance $ 4,480 $ 4,603 $ 4,520 $ 4,306

8 unchanged sentences

Three Months Ended

June 30, Six Months Ended

2022 2021 2022 2021

Beginning of period balance $ 15,619 $ 13,656 $ 14,837 $ 12,529

10 unchanged sentences

Accounts receivable, net $ 108,256 $ 105,548

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.

For the three and six months ended June 30, 2022, we recorded a provision for credit losses of $ 0.4 million and $ 0.5 million on our accounts receivable, respectively.

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

For the three and six months ended June 30, 2022, we recorded a reserve for product returns of $ 0.9 million and $ 1.7 million, respectively, as compared to $ 0.5 million and $ 1.1 million for the same periods in the prior year.

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

1 unchanged sentence

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

March 31, 2022 and 2021

June 30, 2022 and 2021

Allowance for Credit Losses - Accounts Receivable

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

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

There were no changes to our portfolio segments for our accounts receivable during the three and six months ended June 30, 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 and six months ended June 30, 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 six months ended June 30, 2021, upon the distributor being acquired by a third party.

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

For the three months ended March 31, 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.

For the three and six months ended June 30, 2022, we recorded credit loss expense for accounts receivable and notes receivable of $ 0.4 million and $ 0.3 million, respectively, in general and administrative expense in our condensed consolidated statements of operations.

For the three and six months ended June 30, 2021, we recorded credit loss expense of $ 0.1 million and less than $ 0.1 million, respectively, in general and administrative expense in our condensed consolidated statements of operations.

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

3 unchanged sentences

Three Months Ended

March 31, 2022 Three Months Ended

March 31, 2021

June 30, 2022 Three Months Ended

June 30, 2021 Six Months Ended

June 30, 2022 Six Months Ended

June 30, 2021

Subsidiaries All Other

1 unchanged sentence

Subsidiaries All Other

Subsidiaries Alarm.com

Subsidiaries All Other

Subsidiaries Alarm.com

Subsidiaries All Other

Beginning of period balance $ ( 2,122 ) $ ( 31 ) $ ( 3,670 ) $ ( 242 ) $ ( 2,035 ) $ ( 133 ) $ ( 4,442 ) $ ( 254 )

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

March 31, 2022 and 2021

June 30, 2022 and 2021

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

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Goodwill acquired — — —

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.

Balance as of June 30, 2022 $ 112,901 $ — $ 112,901

There were no impairments of goodwill during the three and six months ended June 30, 2022 and 2021.

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

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Amortization ( 5,952 ) ( 2,892 ) ( 298 ) ( 9,142 )

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.

Balance as of June 30, 2022 $ 53,474 $ 27,265 $ 1,525 $ 82,264

We recorded $ 4.5 million and $ 9.1 million of amortization related to our intangible assets for the three and six months ended June 30, 2022, respectively, as compared to $ 4.3 million and $ 8.5 million for the same periods in the prior year.

There were no impairments of long-lived intangible assets during the three and six months ended June 30, 2022 and 2021.

During the six months ended June 30, 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

June 30, 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):

March 31, 2022

June 30, 2022

Amount Accumulated

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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 $ 2.0 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.

The carrying value, net of amortization, of our purchased patents and patent licenses was $ 1.9 million and $ 2.2 million as of June 30, 2022 and December 31, 2021, respectively.

As of June 30, 2022 and December 31, 2021, $ 0.5 million and $ 0.6 million of patent costs were included in other current assets and $ 1.4 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 June 30, 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.

Patent amortization cost of $ 0.1 million and $ 0.2 million was included in cost of SaaS and license revenue in our condensed consolidated statements of operations for each of the three and six months ended June 30, 2022 and 2021, respectively.

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 and six months ended June 30, 2022 and 2021.

Loan to a Distribution Partner

2 unchanged sentences

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

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

As of June 30, 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 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.

As of June 30, 2022 and December 31, 2021, $ 4.8 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 and six months ended June 30, 2022, we recognized $ 0.9 million and $ 1.5 million of revenue from the distribution partner associated with these loans, respectively, as compared to $ 0.9 million and $ 1.6 million for the same periods in the prior year.

ALARM.COM HOLDINGS, INC.

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

March 31, 2022 and 2021

June 30, 2022 and 2021

Loan to a Service Provider Partner

2 unchanged sentences

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

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.

As of June 30, 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 three and six months ended June 30, 2022 and 2021, we recognized less than $ 0.1 million and $ 0.1 million of revenue, respectively, from the service provider partner associated with this loan.

Loan to a Technology Company

In May 2022, we entered into a loan agreement with a technology company, under which we agreed to loan the technology company $ 1.5 million, collateralized by the assets of the technology company.

Interest on the outstanding principal accrues at a rate per annum equal to 7.0 % and interest and principal payments are due on the maturity date of the loan, which is expected to be during the third quarter of 2022.

As of June 30, 2022, $ 1.5 million of principal was outstanding from the technology company under the loan agreement.

For the three and six months ended June 30, 2022 and 2021, we did not record any revenue from the technology company associated with this loan.

Loan to a Technology Partner

In June 2022, we entered into a convertible promissory note with a technology partner, under which we agreed to loan the technology partner $ 1.5 million.

Interest on the outstanding principal accrues at a rate per annum equal to 6.5 %, starting one year from the effective date of the loan.

Interest and principal payments are due on the maturity date of the loan, which is June 27, 2029, unless the loan is converted prior to the maturity date, which may occur upon a qualified financing event, as defined in the convertible promissory note, upon a sale of the technology partner or upon our election on the maturity date of the loan.

As of June 30, 2022, $ 1.5 million of principal was outstanding from the technology partner under the convertible promissory note.

For the three and six months ended June 30, 2022 and 2021, we did not record any revenue from the technology partner associated with this convertible promissory note.

Investment in a Hardware Supplier

3 unchanged sentences

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

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

As of June 30, 2022 and December 31, 2021, our investment in the hardware supplier was $ 5.6 million.

Investment in a Technology Partner

6 unchanged sentences

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

As of June 30, 2022 and December 31, 2021, our investment in the technology partner was $ 5.7 million.

ALARM.COM HOLDINGS, INC.

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

June 30, 2022 and 2021

Allowance for Credit Losses - Notes Receivable

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

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

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

There were no hardware financing receivables outstanding as of June 30, 2022.

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

5 unchanged sentences

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

The accrued interest receivable as of March 31, 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 accrued interest receivable as of June 30, 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 and six months ended June 30, 2022 and 2021.

There were no purchases or sales of financial assets during the three and six months ended June 30, 2022 and 2021.

There were no significant changes in the amount of note receivable write-offs during the three and six months ended June 30, 2022, as compared to historical periods.

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

Three Months Ended

March 31, 2022 Three Months Ended

March 31, 2021

June 30, 2022 Three Months Ended

June 30, 2021 Six Months Ended

June 30, 2022 Six Months Ended

June 30, 2021

Receivables Hardware

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Receivables Hardware

Receivables Loan

Receivables Hardware

Receivables Loan

Receivables Hardware

Beginning of period balance $ ( 1 ) $ ( 1 ) $ ( 73 ) $ ( 5 ) $ ( 79 ) $ ( 1 ) $ ( 73 ) $ ( 16 )

Recovery of expected credit losses 78 — — 11

(Provision for) / recovery of expected credit losses ( 1 ) 1 ( 1 ) 1 77 1 ( 1 ) 12

Write-offs — — — — — — — —

2 unchanged sentences

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

March 31, 2022

June 30, 2022

Loan Receivables:

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Total $ 3,000 $ — $ 1,123 $ 3 $ — $ 4,811 $ 8,937

Hardware Financing Receivables:

Current $ — $ — $ — $ — $ — $ — $ —

30-59 days past due — — — 2 — — 2

60-89 days past due — — — — — — —

90-119 days past due — — — — — — —

120+ days past due — — — — — — —

Total $ — $ — $ — $ 2 $ — $ — $ 2

ALARM.COM HOLDINGS, INC.

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

March 31, 2022 and 2021

June 30, 2022 and 2021

December 31, 2021

14 unchanged sentences

Total $ — $ — $ 21 $ — $ — $ — $ 21

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.

There were no notes receivables placed on nonaccrual status as of June 30, 2022 and December 31, 2021.

During the three and six months ended June 30, 2022 and 2021, there was no interest income recognized related to notes receivables that were in nonaccrual status.

As of June 30, 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 June 30, 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 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.

As of June 30, 2022 and December 31, 2021, $ 17.9 million and $ 17.7 million of prepaid expenses were included in other current assets, respectively, primarily related to software licenses and long lead-time parts related to our inventory.

Fair Value Measurements

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Level 1 Level 2 Level 3 Total

Money market accounts as of March 31, 2022

Money market accounts as of June 30, 2022

$ 609,640 $ — $ — $ 609,640

1 unchanged sentence

679,278 — — 679,278

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

Subsidiary long-term incentive plan as of June 30, 2022

$ — $ — $ — $ —

1 unchanged sentence

— — 3,351 3,351

ALARM.COM HOLDINGS, INC.

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

June 30, 2022 and 2021

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

June 30, Six Months Ended

2022 2021 2022 2021

Beginning of period balance $ 3,104 $ 1,195 $ 3,351 $ 1,000

Changes in fair value included in earnings — ( 185 ) ( 247 ) 10

Reclassification to additional paid in capital upon modification ( 3,104 ) — ( 3,104 ) —

End of period balance $ — $ 1,010 $ — $ 1,010

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 June 30, 2022, $ 609.1 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 %.

See Note 12 for the carrying amount and estimated fair value of our convertible senior notes as of June 30, 2022.

The liability for the subsidiary long-term incentive plan consisted 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 depended on the fair market value of the subsidiary, which was determined in part by the subsidiary’s projected financial results.

We accounted for the subsidiary long-term incentive plan using fair value and established 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 estimated 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 included a weighted average revenue volatility and the revenue risk adjustment.

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).

In May 2022, we terminated the subsidiary long-term incentive plan.

The fair value of the liability related to the subsidiary long-term incentive plan as of the termination date was consistent with the liability as of March 31, 2022.

Concurrent with the termination of the subsidiary long-term incentive plan, we granted performance-based restricted stock units to those employees who previously participated in the subsidiary long-term incentive plan.

We accounted for the termination of the subsidiary long-term incentive plan and concurrent grant of performance-based restricted stock units as a modification of the original subsidiary long-term incentive plan.

As a result, we reclassified the $ 3.1 million liability related to the subsidiary long-term incentive plan to additional paid-in capital during the three months ended June 30, 2022.

Additionally, we recorded $ 1.2 million in incremental compensation costs as additional stock-based compensation expense to the applicable operating expense category based on the respective employee’s function (sales and marketing, general and administrative or research and development) during the three months ended June 30, 2022.

The incremental compensation costs represented the excess of the fair value of the performance-based restricted stock units over the fair value of the subsidiary long-term incentive plan as of the modification date of the subsidiary long-term incentive plan.

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

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

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

There were no transfers in or out of Level 3 during the three and six months ended June 30, 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 months ended March 31, 2022 and 2021.

No other-than-temporary impairments occurred during the three and six months ended June 30, 2022 and 2021.

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

2 unchanged sentences

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

ALARM.COM HOLDINGS, INC.

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

June 30, 2022 and 2021

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

Three Months Ended

June 30, Six Months Ended

2022 2021 2022 2021

Operating lease cost $ 2,592 $ 2,357 $ 5,065 $ 4,695

4 unchanged sentences

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

ALARM.COM HOLDINGS, INC.

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

March 31, 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 March 31, 2022 or December 31, 2021.

We did no t have any finance leases or subleases as of June 30, 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 months ended March 31, 2022 and 2021.

Short-term lease costs were immaterial for the three and six months ended June 30, 2022 and 2021.

ALARM.COM HOLDINGS, INC.

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

June 30, 2022 and 2021

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

13 unchanged sentences

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

14 unchanged sentences

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

ALARM.COM HOLDINGS, INC.

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

June 30, 2022 and 2021

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.

8 unchanged sentences

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.

Accounting for Convertible Instruments and 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.

10 unchanged sentences

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.

As of June 30, 2022 and December 31, 2021, the fair value of our 2026 Notes was $ 402.5 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 $ 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.

Based on the closing price of our common stock of $ 61.86 on the last trading day of the quarter, the if-converted value of the 2026 Notes did not exceed the principal amount of $ 500.0 million as of June 30, 2022.

ALARM.COM HOLDINGS, INC.

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

June 30, 2022 and 2021

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

6 unchanged sentences

Three Months Ended

June 30, Six Months Ended

2022 2021 2022 2021

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

7 unchanged sentences

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

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

The outstanding principal balance on the 2017 Facility accrued interest at a rate equal to, at our option, either (1) LIBOR, plus an applicable margin based on our consolidated leverage ratio, or (2) the highest of (a) the Wall Street Journal prime rate, (b) the Federal Funds rate plus 0.50 %, or (c) LIBOR plus 1.00 % plus an applicable margin based on our consolidated leverage ratio.

1 unchanged sentence

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

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

The carrying value of the 2017 Facility was zero as of June 30, 2022 and December 31, 2021.

Commitments and Contingencies

3 unchanged sentences

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

ALARM.COM HOLDINGS, INC.

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

June 30, 2022 and 2021

Legal Proceedings

35 unchanged sentences

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.

5 unchanged sentences

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

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

An evidentiary hearing in the investigation was held from June 28, 2022 through July 1, 2022.

An initial decision by the presiding administrative judge is expected by November 16, 2022.

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

6 unchanged sentences

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 patents owned by Vivint.

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

ALARM.COM HOLDINGS, INC.

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

June 30, 2022 and 2021

Vivint is seeking damages and attorneys’ fees.

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.

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

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.

On June 17, 2022, the court entered an order staying the case in view of the pending proceedings before the PTAB, with the exception of certain discovery of source code.

A joint status report is due to be filed by October 21, 2022 .

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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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 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

During the three and six months ended June 30, 2022, we repurchased 480,531 and 834,654 shares of our common stock under this program for $ 28.2 million and $ 51.5 million, respectively, which includes applicable commissions and fees.

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

Stock-Based Compensation

1 unchanged sentence

Three Months Ended

June 30, Six Months Ended

2022 2021 2022 2021

Sales and marketing $ 1,440 $ 1,235 $ 2,498 $ 2,043

4 unchanged sentences

Three Months Ended

June 30, Six Months Ended

2022 2021 2022 2021

Stock options and assumed options $ 950 $ 1,159 $ 1,728 $ 1,776

3 unchanged sentences

Tax windfall benefit from stock-based awards $ 504 $ 3,120 $ 1,033 $ 5,680

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)

March 31, 2022 and 2021

June 30, 2022 and 2021

We granted 95,000 stock options pursuant to our 2015 Plan during each of the three and six months ended June 30, 2022 as compared to an aggregate of 133,700 stock options for the same periods in the prior year.

There were 25,242 and 39,262 stock options exercised during the three and six months ended June 30, 2022, respectively, as compared to 63,083 and 136,258 stock options for the same periods in the prior year.

There was an aggregate of 433,881 and 590,424 restricted stock units without performance conditions granted to certain of our employees and directors, during the three and six months ended June 30, 2022, respectively, as compared to an aggregate of 307,880 and 435,096 restricted stock units without performance conditions for the same periods in the prior year.

There were zero and an aggregate of 71,934 restricted stock units with performance conditions granted to certain of our employees during the three and six months ended June 30, 2022, respectively, as compared to 120,314 restricted stock units with performance conditions for the same periods in the prior year.

There were 179,998 and 237,495 restricted stock units without performance conditions that vested during the three and six months ended June 30, 2022, respectively, as compared to 173,553 and 242,923 restricted stock units without performance conditions vested during the same periods in the prior year.

There were no restricted stock units with performance conditions that vested during both the three and six months ended June 30, 2022 as compared to zero and 20,000 restricted stock units with performance conditions for the same periods in the prior year.

Earnings Per Share

2 unchanged sentences

Three Months Ended

June 30, Six Months Ended

2022 2021 2022 2021

Net income $ 10,828 $ 14,490 $ 19,731 $ 29,040

11 unchanged sentences

Three Months Ended

June 30, Six Months Ended

2022 2021 2022 2021

Stock options 329,826 133,700 327,959 133,700

Restricted stock units 314,174 149,291 356,290 123,091

ALARM.COM HOLDINGS, INC.

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

June 30, 2022 and 2021

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

6 unchanged sentences

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.

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

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)

March 31, 2022 and 2021

Additionally, we included $ 0.6 million and $ 1.2 million of debt issuance cost amortization, net of tax, within the numerator of the diluted net income per share for the three and six months ended June 30, 2022, respectively .

Significant Service Providers

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.

During the three and six months ended June 30, 2022 and 2021 our 10 largest revenue service provider partners accounted for 48 % and 49 % of our consolidated revenue, respectively.

One of our service provider partners within the Alarm.com segment individually represented greater than 15 % but not more than 20 % of our revenue for each of the three and six months ended June 30, 2022.

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

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

For the three and six months ended June 30, 2022, we recorded a provision for income taxes of $ 0.8 million and $ 0.2 million, respectively, resulting in an effective income tax rate of 7.2 % and 1.1 % for those periods.

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

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

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

Due to the uncertainty of realization of certain deferred tax assets acquired in 2017 related to our Canadian net operating losses and research and development tax credits, we established a valuation allowance of $ 0.3 million during the second quarter of 2019, which remained at $ 0.3 million as of March 31, 2022 and December 31, 2021.

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 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.

We recorded an increase to the unrecognized tax benefits liability of $ 1.1 million primarily for research and development tax credits claimed during the six months ended June 30, 2022.

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

ALARM.COM HOLDINGS, INC.

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

June 30, 2022 and 2021

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

2 unchanged sentences

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

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

As of June 30, 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.

6 unchanged sentences

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

Our Alarm.com segment represents our cloud-based and Software platforms for the intelligently connected property and related solutions that contributed 95 % of our revenue, 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

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 six months ended June 30, 2022, respectively, as compared to 95 % 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.

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.

June 30, 2022 and 2021

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

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

Three Months Ended March 31, 2022

Three Months Ended June 30, 2022

Alarm.com Other Intersegment Alarm.com Intersegment Other Total

6 unchanged sentences

16,918 ( 5,725 ) 168 ( 25 ) 11,336

Three Months Ended March 31, 2021

Three Months Ended June 30, 2021

Alarm.com Other Intersegment Alarm.com Intersegment Other Total

6 unchanged sentences

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

Six Months Ended June 30, 2022

Alarm.com Other Intersegment Alarm.com Intersegment Other Total

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

SaaS and license revenue $ 234,476 $ 18,224 $ — $ — $ 252,700

Hardware and other revenue

163,379 4,958 ( 2,243 ) ( 512 ) 165,582

Total revenue

397,855 23,182 ( 2,243 ) ( 512 ) 418,282

Operating income / (loss)

29,671 ( 9,728 ) 354 ( 48 ) 20,249

Six Months Ended June 30, 2021

Alarm.com Other Intersegment Alarm.com Intersegment Other Total

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

Hardware and other revenue

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

Total revenue

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

Operating income / (loss)

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

Alarm.com Other Intersegment Alarm.com Intersegment Other Total

Assets as of June 30, 2022 $ 1,295,908 $ 39,651 $ ( 80,061 ) $ 43 $ 1,255,541

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 $ 7.1 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.

Our SaaS and license revenue for the Alarm.com segment included software license revenue of $ 6.9 million and $ 14.0 million for the three and six months ended June 30, 2022, respectively, as compared to $ 8.3 million and $ 17.0 million for the same periods in the prior year.

There was no software license revenue recorded for the Other segment during the three and six months ended June 30, 2022 and 2021.

Depreciation and amortization expense was $ 7.5 million and $ 14.9 million for the Alarm.com segment for the three and six months ended June 30, 2022, respectively, as compared to $ 7.4 million and $ 14.7 million for the same periods in the prior year.

Depreciation and amortization expense was $ 0.3 million and $ 0.6 million for the Other segment for the three and six months ended June 30, 2022, 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 $ 24.1 million and $ 25.7 million for the Alarm.com segment for the three and six months ended

ALARM.COM HOLDINGS, INC.

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

June 30, 2022 and 2021

June 30, 2022, respectively, as compared to $ 2.7 million and $ 6.2 million for the same periods in the prior year.

Additions to property and equipment were less than $ 0.1 million and $ 0.1 million for the Other segment for the three and six months ended June 30, 2022, respectively, as compared to $ 0.1 million for the same periods in the prior year.

We derived substantially all revenue from North America for the three and six months ended June 30, 2022 and 2021.

Substantially all of our long-lived assets were in North America as of June 30, 2022 and December 31, 2021.

Related Party Transactions

Installation Partner

Our installation partner in which we have a 48.2 % ownership interest performs installation services for security service providers and also provides installation services for us and certain of our subsidiaries.

We account for this investment using the equity method.

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.

Our installation partner in which we had a 48.2 % ownership interest performed installation services for security service providers and also provided installation services for us and certain of our subsidiaries.

We accounted for this investment using the equity method.

In June 2022, our installation partner ceased operations and we recorded a gain of $ 0.1 million in other income / (expense), net in our condensed consolidated statements of operations during the three months ended June 30, 2022 related to proceeds received from our initial investment.

As of June 30, 2022 and December 31, 2021, our investment balance in our installation partner was zero .

During the three and six months ended June 30, 2022, we recorded zero and less than $ 0.1 million, respectively, of cost of hardware and other revenue in connection with this installation partner, as compared to $ 0.1 million and $ 0.2 million for the same periods in the prior year.

As of June 30, 2022 and December 31, 2021, the accounts payable balance to our installation partner was zero and less than $ 0.1 million, respectively.

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