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Alarm.com is the leading platform for the intelligently connected property.
−Removed: We offer a comprehensive suite of cloud-based solutions for smart residential and commercial properties, including interactive security, video monitoring, intelligent automation, access control, energy management and wellness solutions.
−Removed: Millions of property owners depend on our technology to intelligently secure, automate and manage their residential and commercial properties.
+Added: Our cloud-based platform offers an expansive suite of IoT solutions that address opportunities in the residential, multi-family, small business and enterprise commercial markets.
+Added: Alarm.com’s solutions include security, video and video analytics, energy management, access control, electric utility grid management, indoor gunshot detection, water management, health and wellness and data-rich emergency response.
+Added: As of December 31, 2022, 9.1 million homes and businesses around the world depend on our Alarm.com platform or our non-hosted software to intelligently and conveniently secure, automate and manage their properties.
In the last year alone, our platforms processed more than 300 billion data points generated by over 100 million connected devices.
We believe that this scale of subscribers, connected devices and data operations makes us the leader in the connected property market.
−Removed: Our solutions are delivered through an established network of over 10,900 trusted service providers, who are experts at selling, installing and supporting our solutions.
−Removed: We primarily generate Software-as-a-Service, or SaaS, and license revenue through our service provider partners, who resell these services and pay us monthly fees.
+Added: Our solutions are delivered through an established network of trusted service providers, who are experts at selling, installing and supporting our solutions.
+Added: The number of our service provider partners exceeded 11,000 as of December 31, 2022.
+Added: We primarily generate SaaS and license revenue through our service provider partners, who resell these services and pay us monthly fees.
These service provider contracts typically have an initial term of one year, with subsequent renewal terms of one year.
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Our hardware sales include connected devices that enable our services, such as video cameras, video recorders, gunshot detection sensors, gateway modules and smart thermostats.
−Removed: We believe that the length of our service relationships with residential and commercial property owners, combined with our robust platforms and over 20 years of operating experience, contribute to a compelling business model.
+Added: We believe that our network of service providers and the length of our service relationships with residential and commercial property owners, combined with our robust SaaS platforms and over 20 years of operating experience, contribute to a compelling business model.
Our solutions are designed to make both residential and commercial properties safer, smarter and more efficient.
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This market includes the residential and commercial property owners who subscribe to our services, the hardware partners who manufacture devices that integrate with our platforms and the service provider partners who install and maintain our solutions.
−Removed: The Alarm.com platform enables our service provider partners to deploy our interactive security, video monitoring, intelligent automation, energy management and wellness solutions as stand-alone offerings or as combined solutions to address the needs of a broad range of customers.
+Added: The Alarm.com platform enables our service provider partners to deploy our interactive security, video monitoring, intelligent automation, access control, energy management and wellness solutions as stand-alone offerings or as combined solutions to address the needs of a broad range of customers.
Executive Overview and Highlights of 2022 and 2021 Results
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Our hardware and other revenue also includes our revenue from the sale of perpetual licenses that provide our customers in the commercial market the right to use our video surveillance software for an indefinite period of time in exchange for a one-time license fee.
−Removed: Our hardware and other revenue also includes our revenue from the sale of licenses that provide our customers the right to use our gunshot detection solution in exchange for license fees.
+Added: Additionally, our hardware and other revenue includes our revenue from the sale of licenses that provide our customers the right to use our gunshot detection solution in exchange for license fees.
Hardware and other revenue represented 38%, 39% and 36% of our revenue in 2022, 2021 and 2020, respectively.
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SaaS and license revenue increased 17% to $460.4 million in 2021 from $393.3 million in 2020.
+Added: Software license revenue decreased to $26.8 million in 2022 from $32.3 million in 2021.
• Total revenue increased 12% to $842.6 million in 2022 from $749.0 million in 2021.
Total revenue increased 21% to $749.0 million in 2021 from $618.0 million in 2020.
−Removed: • Net income decreased 33% to $51.2 million in 2021 from $76.7 million in 2020.
• Net income increased 9% to $55.6 million in 2022 from $51.2 million in 2021.
−Removed: Net income attributable to common stockholders decreased 33% to $52.3 million in 2021 from $77.9 million in 2020.
+Added: Net income decreased 33% to $51.2 million in 2021 from $76.7 million in 2020.
Net income attributable to common stockholders increased 8% to $56.3 million in 2022 from $52.3 million in 2021.
+Added: Net income attributable to common stockholders decreased 33% to $52.3 million in 2021 from $77.9 million in 2020.
• Adjusted EBITDA, a non-GAAP measurement of operating performance, increased to $146.8 million in 2022 from $142.5 million in 2021.
Adjusted EBITDA increased to $142.5 million in 2021 from $125.3 million in 2020.
−Removed: Please see Non-GAAP Measures below in this section of this Annual Report for a discussion of the limitations of Adjusted EBITDA (a non-GAAP measure) and a reconciliation of Adjusted EBITDA to net income, the most comparable GAAP measure, for the years ended December 31, 2021, 2020 and 2019.
+Added: Please see Non-GAAP Measures below in this section of this Annual Report for a discussion of the limitations of Adjusted EBITDA (a non-GAAP measure) and a reconciliation of Adjusted EBITDA from net income, the most directly comparable GAAP measure, for the years ended December 31, 2022, 2021 and 2020.
Historical Trends within the Financial Results
Information about current period and prior period acquisitions that may affect the comparability of our historical financial information is included in Item 1.
−Removed: Information about the 2026 Notes issued in January 2021 and the related interest expense, which may affect the comparability of historical financial information, is disclosed in the Comparison of Years Ended December 31, 2021 to December 31, 2020 section below within Item 7.
−Removed: "Management’s Discussion and Analysis of Financial Condition and Results of Operations." Information about the $24.7 million gain on the sale of an investment recorded in other (expense) / income, net, in 2020, which relates to the sale of an investment in one of our platform partners, and may affect the comparability of historical financial information, is disclosed in the Comparison of Years Ended December 31, 2021 to December 31, 2020 section below within Item 7.
+Added: Business – Governance – Corporate Information.
+Added: Information about the 2026 Notes issued in January 2021 and the related interest expense, the adoption of 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):
+Added: Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity ," and the elimination of non-cash interest expense related to the amortization of the debt discount associated with the equity component for the 2026 Notes as well as increases in costs for freight shipments and inventory component costs, which may affect the comparability of historical financial information, is disclosed in the Comparison of Years Ended December 31, 2022 to December 31, 2021 section below within Item 7.
"Management’s Discussion and Analysis of Financial Condition and Results of Operations."
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Recent Developments
−Removed: 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.
−Removed: The COVID-19 pandemic also disrupted and may intermittently continue to disrupt our sales channels due to restrictions on our service providers’ ability to meet with residential and commercial property owners who use our solutions.
−Removed: We have taken precautionary measures intended to help protect our employees, service providers and subscribers, as well as the communities in which we participate, including enabling substantially all of our employees to work remotely.
−Removed: 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.
−Removed: While vaccines have been approved for use in the United States and in many other countries, and vaccination efforts are well underway, it remains difficult to assess or predict the ultimate duration and economic impact of the COVID-19 pandemic due to a resurgence of COVID-19 and the emergence and severity of COVID-19 variants.
−Removed: 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.
−Removed: While our business and those of our service providers showed some resiliency beginning in 2020, with the start of the pandemic, and continuing into 2021, if the economy fails to fully recover or there are additional shutdowns of non-essential businesses due to a resurgence of COVID-19 and the emergence and severity of COVID-19 variants, our SaaS and license revenue growth rate may be lower in future periods, with a corresponding reduction in hardware revenue, if some consumers or small businesses defer or cancel previously anticipated purchases.
−Removed: The challenges posed by COVID-19 on our business continue to evolve rapidly and we will continue to evaluate our business and operations in light of future developments.
−Removed: On December 16, 2021, EnergyHub, Inc., one of our wholly-owned subsidiaries, acquired certain assets of an unrelated third party.
−Removed: Substantially all of the acquired assets consisted of developed technology.
−Removed: 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.
−Removed: 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.
−Removed: 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.
−Removed: 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.
+Added: On October 27, 2022, we filed a demand for arbitration of a dispute arising under the Patent Cross License Agreement between Alarm.com and Vivint, Inc., or Vivint, executed in November 2013.
+Added: Vivint has stopped paying license fees to Alarm.com under the agreement.
+Added: Vivint has paid the required license fees to Alarm.com since the agreement was executed in November 2013.
+Added: Alarm.com disputes Vivint's refusal of payment and is seeking continued payments of license fees in the arbitration, as well as interest and declaratory relief.
+Added: As a result of Vivint’s refusal to pay license fees under the agreement, which began during the fourth quarter of 2022, SaaS and license revenue and total revenue will decrease by approximately $6.0 million on a quarterly basis.
+Added: We also believe that quarterly earnings and cash flow will be impacted by the aforementioned $6.0 million estimate, plus additional legal fees.
+Added: In December 2022, we paid $5.1 million in cash to a technology partner to purchase 4,231,717 shares of its Series A Preferred Stock.
+Added: The $5.1 million equity investment, which is included in the Alarm.com segment, does not meet the criteria for consolidation and is accounted for using the measurement alternative.
+Added: As of December 31, 2022, our investment in the technology partner supplier was $5.1 million.
+Added: 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, the Macroeconomic Conditions).
+Added: 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.
+Added: In particular, the COVID-19 pandemic also disrupted and may intermittently continue to disrupt our sales channels due to restrictions on our service providers’ ability to meet with residential and commercial property owners who use our solutions.
+Added: 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.
+Added: In response to the COVID-19 pandemic, we have taken precautionary measures intended to help protect our employees, service providers and subscribers, as well as the communities in which we participate, including enabling substantially all of our employees to partially work remotely.
+Added: After evaluating the public health situation in the United States regarding COVID-19, including revised guidance from public health authorities, the rise in vaccinated individuals, and decline of hospitalizations due to COVID-19 in the year ended December 31, 2022, as compared to 2020 and 2021, we continue to follow our previously implemented hybrid return to office plan that includes voluntary remote workdays and mandatory in-office workdays.
+Added: Prolonged uncertainty with respect to Macroeconomic Conditions could cause further economic slowdown or cause other unpredictable events, each of which could adversely affect our business, results of operations or financial condition.
Other Business Metrics
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Adjusted EBITDA
−Removed: Adjusted EBITDA is a non-GAAP measure that represents our net income before interest expense, interest income, other (expense) / income, net, (benefit from) / provision for income taxes, amortization and depreciation expense, stock-based compensation expense, secondary offering expense, acquisition-related expense and legal costs and settlement fees incurred in connection with non-ordinary course litigation and other disputes, particularly costs involved in ongoing intellectual property litigation.
+Added: Adjusted EBITDA is a non-GAAP measure that represents our net income before interest expense, interest income, certain activity within other (expense) / income, net, provision for / (benefit from) income taxes, amortization and depreciation expense, stock-based compensation expense, acquisition-related expense and legal costs and settlement fees incurred in connection with non-ordinary course litigation and other disputes, particularly costs involved in ongoing intellectual property litigation.
We do not consider these items to be indicative of our core operating performance.
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We exclude interest expense in calculating Adjusted EBITDA because we believe that the exclusion of interest expense will provide for more meaningful information about our financial performance.
−Removed: We exclude interest income and other (expense) / income, net from Adjusted EBITDA because we do not consider it part of our ongoing results of operations.
−Removed: We exclude the impact related to our (benefit from) / provision for income taxes from Adjusted EBITDA because we do not consider this tax adjustment to be part of our ongoing results of operations.
+Added: We exclude interest income and certain activity within other (expense) / income, net including gains, losses or impairments on investments and other assets as well as losses on the early extinguishment of debt, when applicable, from Adjusted EBITDA because we do not consider it part of our ongoing results of operations.
+Added: We exclude the impact related to our provision for / (benefit from) income taxes from Adjusted EBITDA because we do not consider this tax adjustment to be part of our ongoing results of operations.
GAAP requires that operating expenses include the amortization of acquired intangible assets, which principally include acquired customer relationships, developed technology and trade names.
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Adjusted EBITDA is a key measure that our management uses to understand and evaluate our core operating performance and trends to generate future operating plans, to make strategic decisions regarding the allocation of capital, and to make investments in initiatives that are focused on cultivating new markets for our solutions.
−Removed: In particular, the exclusion of certain expenses in calculating Adjusted EBITDA facilitates comparisons of our operating performance on a period-to-period basis and, in the case of exclusion of acquisition-related adjustments and certain historical legal expenses, excludes items that we do not consider to be indicative of our core operating performance.
−Removed: Adjusted EBITDA is not a measure calculated in accordance with
−Removed: GAAP and should not be considered in isolation from, or as a substitute for, financial information prepared in accordance with GAAP.
−Removed: Please see Non-GAAP Measures in this section for a discussion of the limitations of Adjusted EBITDA and a reconciliation of Adjusted EBITDA to net income, the most comparable GAAP measurement, for the years ended December 31, 2021, 2020 and 2019.
+Added: In particular, the exclusion of certain expenses in calculating Adjusted EBITDA facilitates comparisons of our operating performance on a period-to-period basis and, in the case of exclusion of acquisition-related adjustments and certain historical legal expenses, excludes items that we do not
+Added: consider to be indicative of our core operating performance.
+Added: Adjusted EBITDA is not a measure calculated in accordance with GAAP and should not be considered in isolation from, or as a substitute for, financial information prepared in accordance with GAAP.
+Added: Please see Non-GAAP Measures in this section for a discussion of the limitations of Adjusted EBITDA and a reconciliation of Adjusted EBITDA from net income, the most directly comparable GAAP measurement, for the years ended December 31, 2022, 2021 and 2020.
SaaS and License Revenue Renewal Rate
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Our SaaS and license revenue renewal rate is expressed as an annualized percentage and it is calculated across our entire subscriber base on the Alarm.com platform excluding subscribers of service providers that may use one of our other platforms as a substitute for the Alarm.com platform.
−Removed: Our service provider partners, who resell our services to our subscribers, have indicated that they typically have three to five-year service contracts with our subscribers.
−Removed: Our SaaS and license revenue renewal rate is calculated across our entire subscriber base on the Alarm.com platform, including subscribers whose contract with their service provider reached the end of its contractual term during the measurement period, as well as subscribers whose contract with their service provider has not reached the end of its contractual term during the measurement period, and is not intended to estimate the rate at which our subscribers renew their contracts with our service provider partners.
+Added: 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.
+Added: Our SaaS and license revenue renewal rate includes subscribers whose contract with their service provider reached the end of its contractual term during the measurement period, as well as subscribers whose contract with their service provider has not reached the end of its contractual term during the measurement period, and is not intended to estimate the rate at which our subscribers renew their contracts with our service provider partners.
We believe that our SaaS and license revenue renewal rate allows us to measure our ability to retain and grow our SaaS and license revenue and serves as an indicator of the lifetime value of our subscriber base.
+Added: Adoption of Recent Accounting Pronouncements
+Added: On August 5, 2020, the FASB issued 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.
+Added: The new guidance eliminates two of the three models in Subtopic 470-20 that require separating embedded conversion features from convertible instruments.
+Added: The guidance also addresses how convertible instruments are accounted for in the diluted earnings per share calculation.
+Added: The amendment in this update is effective for fiscal years beginning after December 15, 2021.
+Added: 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.
+Added: 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.
+Added: We also recombined the liability and equity components of the debt issuance costs.
+Added: 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.
+Added: 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.
+Added: The adoption resulted in the recording of the following increases / (decreases) on our consolidated balance sheets (in thousands):
+Added: Balance Sheet Caption As of January 1, 2022
+Added: Deferred tax assets $ 15,356
+Added: Additional paid-in capital (56,515)
+Added: Convertible senior notes, net 61,899
+Added: Retained earnings 9,972
+Added: Our net income attributable to common stockholders increased $2.0 million and $8.1 million during the three and twelve months ended December 31, 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.
+Added: 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 and twelve months ended December 31, 2022.
+Added: 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 $0.16 per share and an increase to diluted net income attributable to common stockholders of $0.03 and $0.13 per share during the three and twelve months ended December 31, 2022, respectively.
+Added: See Note 16 to our consolidated financial statements for details on the components of basic and diluted earnings per share.
Components of Operating Results
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In addition, in certain markets, our EnergyHub subsidiary sells its demand response service for an annual service fee, with pricing based on the number of subscribers or amount of aggregate electricity demand made available for a utility’s or market’s control.
+Added: On October 27, 2022, we filed a demand for arbitration of a dispute arising under the Patent Cross License Agreement between Alarm.com and Vivint executed in November 2013.
+Added: Vivint has stopped paying license fees to Alarm.com under the agreement.
+Added: Vivint has paid the required license fees to Alarm.com since the agreement was executed in November 2013.
+Added: Alarm.com disputes Vivint's refusal of payment and is seeking continued payments of license fees in the arbitration, as well as interest and declaratory relief.
+Added: As a result of Vivint’s refusal to pay license fees under the agreement, which began during the fourth quarter of 2022, SaaS and license revenue and total revenue will decrease by approximately $6.0 million on a quarterly basis.
+Added: We also believe that quarterly earnings and cash flow will be impacted by the aforementioned $6.0 million estimate, plus additional legal fees.
Software License Revenue .
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We record a reserve against revenue for hardware returns based on historical returns.
−Removed: Our hardware and other revenue also includes our revenue from the sale of perpetual licenses that provide our customers in the commercial market the right to use our OpenEye video surveillance software for an indefinite period of time in exchange for a
−Removed: one-time license fee, which is generally paid at contract inception.
−Removed: Our hardware and other revenue also includes our revenue from Shooter Detection Systems related to the sale of licenses that provide our customers the right to use our indoor gunshot detection solution in exchange for license fees, which are generally paid at contract inception.
+Added: Our hardware and other revenue also includes our revenue from the sale of perpetual licenses that provide our customers in the commercial market the right to use our OpenEye video surveillance software for an indefinite period of time in exchange for a one-time license fee, which is generally paid at contract inception.
+Added: Additionally, our hardware and other revenue includes our revenue from Shooter Detection Systems related to the sale of licenses that provide our customers the right to use our indoor gunshot detection solution in exchange for license fees, which are generally paid at contract inception.
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.
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.
−Removed: As a result of the COVID-19 pandemic, governments, public institutions and other organizations in many countries and localities where COVID-19 has been detected have taken certain emergency measures, and may from time to time take additional emergency measures, to combat its spread, including imposing lockdowns, shelter-in-place orders, quarantines, restrictions on travel and gatherings and the extended shutdown non-essential businesses that cannot be conducted remotely.
+Added: As a result of the COVID-19 pandemic, governments, public institutions and other organizations in many countries and localities where COVID-19 has been detected have taken certain emergency measures, and may from time to time take additional emergency measures, to combat its spread, including imposing lockdowns, shelter-in-place orders, quarantines, restrictions on travel and gatherings and the extended shutdown of non-essential businesses that cannot be conducted remotely.
These emergency measures remain in place to varying degrees.
−Removed: We have seen and anticipate we may continue to see disruption to our hardware supply chain, including limited inventory availability, increased lead times, and shipping delays, due to the impact of COVID-19 on manufacturing, production and global transportation, as well as to our sales channels due to restrictions on our service providers’ ability to meet with residential and commercial property owners who use our solutions, reluctance of service providers and property owners to meet even where such restrictions have been lifted and general economic conditions.
−Removed: In addition, the COVID-19 pandemic has 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.
−Removed: While vaccines have been approved for use in the United States and in many other countries, and vaccination efforts are well underway, it remains difficult to assess or predict the ultimate duration and economic impact of the COVID-19 pandemic due to a resurgence of COVID-19 and the emergence and severity of COVID-19 variants.
+Added: We have seen and anticipate we may continue to see
+Added: disruption to our hardware supply chain, including limited inventory availability, increased lead times, and shipping delays, due to the impact of COVID-19 on manufacturing, production and global transportation, as well as to our sales channels due to restrictions on our service providers’ ability to meet with residential and commercial property owners who use our solutions, reluctance of service providers and property owners to meet even where such restrictions have been lifted and general economic conditions.
+Added: 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.
As the future impact on global supply chains from COVID-19 is difficult to predict, the extent to which COVID-19 may negatively affect our hardware revenue is uncertain.
−Removed: however, if the economy fails to fully recover or there are additional shutdowns of non-essential businesses due to a resurgence of COVID-19 and the emergence and severity of COVID-19 variants, our SaaS and license revenue growth rate may be lower in future periods, with a corresponding reduction in hardware revenue, if some consumers or small businesses defer or cancel previously anticipated purchases.
+Added: If the economy fails to fully recover or there are additional shutdowns of non-essential businesses due to a resurgence of COVID-19 and the emergence and severity of COVID-19 variants, our SaaS and license revenue growth rate may be lower in future periods, with a corresponding reduction in hardware revenue, if some consumers or small businesses defer or cancel previously anticipated purchases.
Cost of Revenue
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Our cost of SaaS and license revenue also includes our cost of software license revenue, which primarily includes the payroll and payroll-related costs of the department dedicated to providing service exclusively to those service providers that host the Software platform.
−Removed: Our cost of hardware and other revenue primarily includes cost of raw materials, tooling and amounts paid to our third-party manufacturer for production and fulfillment of our cellular radio modules and image sensors, and procurement costs for our video cameras, video recorders and gunshot detection sensors, which we purchase from an original equipment manufacturer, and other devices.
−Removed: Our cost of hardware and other revenue also includes royalty costs in connection with technology licensed from third-party providers.
+Added: Our cost of hardware and other revenue primarily includes cost of raw materials, tooling, freight shipments and amounts paid to our third-party manufacturer for production and fulfillment of our cellular radio modules and image sensors, and procurement costs for our video cameras, video recorders and gunshot detection sensors, which we purchase from an original equipment manufacturer, and other devices.
+Added: Additionally, our cost of hardware and other revenue includes royalty costs in connection with technology licensed from third-party providers.
We record the cost of SaaS and license revenue as expenses are incurred, which corresponds to the delivery period of our services to our subscribers.
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Our costs of hardware revenue increased during the second half of 2021 primarily due to an increase in costs for freight shipments, including expedited shipping costs, as well as an increase in inventory component costs.
−Removed: We currently expect our hardware revenue margins to increase in 2022 as compared to the hardware revenue margins we experienced during the fourth quarter of 2021 as a result of price increases we have implemented on some of our products in 2022 to cover some of our increases in costs.
+Added: We currently expect our hardware revenue margins in 2023 to approximate the hardware revenue margins experienced during the third and fourth quarters of 2022 as opposed to the hardware revenue margins experienced during the fourth quarter of 2021 and first quarter of 2022 as a result of price increases we have implemented on some of our products during the first six months of 2022 to cover some of our increases in costs.
Operating Expenses
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This includes cost increases related to human resources, accounting, finance, and legal personnel, additional external legal, audit fees and other expenses associated with regulations governing public companies.
−Removed: While somewhat unpredictable, we also expect to continue to incur costs related to litigation involving intellectual property.
+Added: While somewhat unpredictable, we also expect to continue to incur costs related to litigation involving intellectual property as well as additional legal fees related to the dispute arising under the Patent Cross License Agreement between Alarm.com and Vivint.
See the section of this Annual Report titled "Legal Proceedings" for additional information regarding litigation matters.
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Also included are non-personnel costs such as consulting and professional fees paid to third-party development resources as well as acquisition costs of IPR&D with no alternative future use.
−Removed: The number of employees in research and development functions grew from 780 as of January 1, 2021 to 837 as of December 31, 2021.
+Added: The number of employees in research and development functions increased from 837 as of January 1, 2022 to 1,004 as of December 31, 2022.
Our research and development efforts are focused on innovating new features and enhancing the functionality of our platforms and the solutions we offer to our service provider partners and subscribers.
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We record interest expense associated with our 2026 Notes and our 2017 Facility, which was terminated in January 2021.
−Removed: Interest expense is expected to decrease in 2022, as compared to 2021, due to the adoption of Accounting Standards Update, or 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):
−Removed: Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity " as of
−Removed: January 1, 2022, which will eliminate the non-cash interest expense related to the amortization of the debt discount associated with the equity component for 2026 Notes issued on January 20, 2021.
−Removed: However, there will be no impact to our liquidity or cash flows as a result of the adopting this guidance.
+Added: Interest expense in 2023 is expected to remain relatively consistent with the interest expense in 2022 and is expected to decrease as compared to 2021, due to the adoption of ASU 2020-06 as of January 1, 2022, which eliminated the non-cash interest expense related to the amortization of the debt discount associated with the equity component for 2026 Notes issued on January 20, 2021.
+Added: There was no impact to our liquidity or cash flows as a result of the adopting this guidance.
Interest Income
−Removed: Interest income consists of interest income earned on our cash and cash equivalents and our notes receivable.
+Added: Interest income consists of interest income earned on our cash and cash equivalents, our notes receivable and our restricted cash.
+Added: Interest income in 2023 will depend, in part, on our use of cash and fluctuations in interest rates.
Other (Expense) / Income, Net
−Removed: Other (expense) / income, net primarily consists of gains earned on the sale of our investments, changes in the fair value of our investments and gains earned on our notes receivable and conversion of our outstanding notes receivable balance into an equity investment, partially offset by an impairment of one of our investments and one of our intangible assets.
−Removed: (Benefit from) / Provision for Income Taxes
+Added: Other (expense) / income, net primarily consists of non-operating and miscellaneous expense and income.
+Added: Provision for / (Benefit from) Income Taxes
We are subject to U.S.
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As a result, we recognize tax liabilities based on estimates of whether additional taxes will be due.
−Removed: Our effect ive tax rates were below the statuto ry rate primarily due to tax windfall benefits from employee stock-based payment transactions, research and development tax credits claimed and foreign derived intangible income deductions, partially offset by the impact of foreign withholding taxes, nondeductible compensation and other nondeductible expenses.
−Removed: We recognize excess tax windfall benefits on a discrete basis during the quarter in which they occur, and we anticipate that our effective tax rate will vary from quarter to quarter depending on our stock price and exercises of stock options under our equity incentive plans each period.
+Added: Our effective tax rates were below the 21.0% statutory rate primarily due to research and development tax credits claimed, foreign derived intangible income deductions and tax windfall benefits from employee stock-based payment transactions, partially offset by the impact of nondeductible expenses, foreign withholding taxes and state taxes.
+Added: We recognize excess tax windfall benefits on a discrete basis during the quarter in which they occur, and we anticipate that our effective tax rate will vary from quarter to quarter depending on our stock price as well as the vesting and exercises of various forms of equity compensation under our equity incentive plans each period, including restricted stock units and stock options.
Results of Operations
−Removed: The following table sets forth our selected consolidated statements of operations and data as a percentage of revenue for the periods presented (in thousands):
+Added: The following table sets forth our selected consolidated statements of operations (in thousands) and data as a percentage of revenue for the periods presented:
Consolidated Statements of Operations
22 unchanged sentences
Income before income taxes 56,593 7 46,069 6 80,160 13
−Removed: (Benefit from) / provision for income taxes (5,106) (1) 3,500 1 5,566 1
+Added: Provision for / (benefit from) income taxes 962 — (5,106) (1) 3,500 1
Net income $ 55,631 7 % $ 51,175 7 % $ 76,660 12 %
27 unchanged sentences
The SaaS and license revenue for our Other segment increased $8.7 million in 2022 as compared to 2021 primarily due to an increase in sales of our energy management and demand response solutions.
−Removed: The increase in hardware and other revenue in 2021 as compared to 2020 was primarily from the $64.9 million increase in hardware and other revenue, net of intersegment eliminations, for the Alarm.com segment due to an increase in the volume of video cameras and video recorders sold, as well as the increased revenue from our acquisition of SDS on December 14, 2020.
−Removed: Hardware and other revenue, net of intersegment eliminations, in our Other segment decreased 13%, or $1.0 million, in 2021 as compared to 2020 primarily due to a decrease in sales related to our property management solution.
+Added: The increase in hardware and other revenue in 2022 as compared to 2021 was primarily from the $32.2 million increase in hardware and other revenue, net of intersegment eliminations, for the Alarm.com segment due to an increase in the volume of video cameras and video recorders sold as well as price increases we have implemented on some of our products to cover some of our increases in costs.
+Added: Hardware and other revenue, net of intersegment eliminations, in our Other segment increased 19%, or $1.4 million, in 2022 as compared to 2021 primarily due to an increase in sales related to our property management solution and our HVAC solution.
Cost of Revenue
12 unchanged sentences
The cost of SaaS and license revenue for the Alarm.com segment increased $3.9 million in 2022 as compared to 2021 primarily due to the growth in our subscriber base, which drove a corresponding increase in amounts paid to wireless network providers.
−Removed: The cost of SaaS and license revenue for the Other
−Removed: segment increased $3.5 million in 2021 as compared to 2020 primarily due to an increase in sales of our energy management and demand response solutions, which drove a corresponding increase in amounts paid to distributed energy resource providers.
−Removed: Cost of hardware and other revenue as a percentage of hardware and other revenue was 83% and 77% for the years ended December 31, 2021 and 2020, respectively.
−Removed: The increase in cost of hardware and other revenue as a percentage of hardware and other revenue in 2021 as compared to 2020 is primarily due to the increase in costs for freight shipments and inventory component costs as well as a reflection of the mix of product sales during the periods.
−Removed: Cost of SaaS and license revenue as a percentage of SaaS and license revenue was 15% and 14% for the years ended December 31, 2021 and 2020, respectively.
−Removed: The increase in cost of SaaS and license revenue as a percentage of SaaS and license revenue in 2021 as compared to 2020 is a reflection of the mix of sales of services during the periods.
−Removed: Cost of software license revenue as a percentage of software license revenue was 4% and 3% for the years ended December 31, 2021 and 2020, respectively.
+Added: The cost of SaaS and license revenue for the Other segment increased $3.2 million in 2022 as compared to 2021 primarily due to an increase in sales of our energy management and demand response solutions, which drove a corresponding increase in amounts paid to distributed energy resource providers.
+Added: Cost of hardware and other revenue as a percentage of hardware and other revenue remained relatively consistent at 83% in 2022 and 2021.
+Added: The increase in costs for freight shipments and inventory component costs during part of 2022 was partially offset by price increases we implemented on some of our products during 2022.
+Added: Cost of SaaS and license revenue as a percentage of SaaS and license revenue was 14% and 15% 2022 and 2021, respectively.
+Added: The decrease in cost of SaaS and license revenue as a percentage of SaaS and license revenue in 2022 as compared to 2021 is a reflection of the mix of sales of services during the periods.
+Added: Cost of software license revenue as a percentage of software license revenue was 2% and 4% in 2022 and 2021, respectively.
Sales and Marketing Expense
3 unchanged sentences
% of total revenue 11 % 11 %
−Removed: The $10.7 million increase in sales and marketing expense in 2021 as compared to 2020 was primarily due to a $7.9 million increase in personnel and related costs for our Alarm.com segment, including salary, benefits, stock-based compensation and travel expenses, attributable in part to increases in the headcount for our sales team to support our growth.
−Removed: Sales and marketing expense from our Other segment increased $2.4 million in 2021 as compared to 2020, primarily due to increases in personnel and related costs, attributable in part to increases in the expected payout of the subsidiary long-term incentive plan as well as increases in the headcount for our sales team.
+Added: The $6.1 million increase in sales and marketing expense in 2022 as compared to 2021 was primarily due to a $4.2 million increase in personnel and related costs for our Alarm.com segment, attributable in part to increases in the headcount for our sales team to support our growth, as well as a $0.6 million increase in our expenses for external consultants.
+Added: Personnel and related costs includes salary, benefits, stock-based compensation and travel expenses.
+Added: These increases in sales and marketing expense were partially offset by a $2.4 million decrease in marketing expense for our Alarm.com segment, including advertising costs.
+Added: Sales and marketing expense from our Other segment increased $3.3 million in 2022 as compared to 2021, primarily due to increases in personnel and related costs, attributable in part to increases in the headcount for our sales team and the termination of the subsidiary long-term incentive plan and concurrent grant of performance-based restricted stock units.
The overall number of employees in our sales and marketing teams increased from 476 as of December 31, 2021 to 511 as of December 31, 2022.
4 unchanged sentences
% of total revenue 13 % 12 %
−Removed: The $8.8 million increase in general and administrative expense in 2021 as compared to 2020 was primarily due to a $5.5 million increase in personnel and related costs for our Alarm.com segment due in part to an increase in employee headcount to support our operational growth as well as a $2.6 million decrease to the contingent consideration liability that occurred in 2020 which did not occur in 2021.
−Removed: See Note 10 to our consolidated financial statements for details regarding the changes to the contingent consideration liability.
−Removed: Additionally, the increase in general and administrative expense in 2021 as compared to 2020 was due to a $1.8 million increase in legal expenses within our Alarm.com segment resulting from intellectual property litigation.
−Removed: These increases were partially offset by a $1.0 million decrease in the provision for credit losses for our Alarm.com segment in 2021 as compared to a $1.5 million increase in the provision for credit losses for our Alarm.com segment in 2020.
−Removed: General and administrative expenses from our Other segment remained relatively consistent during 2021 as compared to 2020.
+Added: The $19.3 million increase in general and administrative expense in 2022 as compared to 2021 was primarily due to a $7.7 million increase in personnel and related costs for our Alarm.com segment due in part to an increase in employee headcount to support our operational growth.
+Added: Additionally, legal costs related to intellectual property litigation increased $1.5 million, the provision for credit losses increased $0.6 million, insurance-related costs increased $0.6 million, recruiting costs increased $0.5 million and rent expense increased $0.5 million for our Alarm.com segment in 2022 as compared to 2021.
+Added: General and administrative expenses from our Other segment increased by $3.8 million during 2022 as compared to 2021, primarily due to a $2.4 million increase in personnel and related costs, attributable in part to increases in headcount and the termination of the subsidiary long-term incentive plan and concurrent grant of performance-based restricted stock units, as well as a $1.1 million increase in the provision for credit losses.
The overall number of employees in general and administrative functions increased from 187 as of December 31, 2021 to 218 as of December 31, 2022.
5 unchanged sentences
The $40.9 million increase in research and development expense in 2022 as compared to 2021 was primarily due to a $31.5 million increase in personnel and related costs for our Alarm.com segment, attributable in part to an increase in headcount of employees in research and development functions as well as a $2.5 million increase in our expenses for external consultants.
−Removed: These increases were partially offset by $4.4 million of in-process research and development we acquired in 2020 which did not occur in 2021.
−Removed: Research and development expense from our Other segment increased by $7.2 million in 2021 as compared to 2020 primarily due to a $4.2 million increase in our personnel and related costs, including salary, benefits and stock-based compensation and a $2.7 million increase in expense for external consultants.
+Added: Research and development expense from our Other segment increased by $4.6 million in 2022 as compared to 2021 primarily due to an increase in our personnel and related costs, attributable in part to increases in headcount and the termination of the subsidiary long-term incentive plan and concurrent grant of performance-based restricted stock units.
The overall number of employees in research and development functions increased from 837 as of December 31, 2021 to 1,004 as of December 31, 2022.
4 unchanged sentences
% of total revenue 3 % 4 %
−Removed: Amortization and depreciation increased $2.2 million in 2021 as compared to 2020, primarily due to the intangible assets that were acquired in connection with the purchase of SDS on December 14, 2020.
+Added: Amortization and depreciation increased $1.2 million in 2022 as compared to 2021, primarily due to the intangible assets that were acquired in connection with our acquisitions of Shooter Detection Systems, LLC on December 14, 2020 as well as the intangible assets that were acquired in connection with the purchase of certain assets of an unrelated third party by EnergyHub, Inc., one of our wholly-owned subsidiaries, on December 16, 2021.
Interest Expense
3 unchanged sentences
% of total revenue — % (2) %
−Removed: Interest expense increased $13.4 million in 2021 as compared to 2020, primarily due to the amortization of the debt discount and debt issuance costs related to the 2026 Notes.
+Added: Interest expense decreased $12.8 million in 2022 as compared to 2021, primarily due to the adoption of ASU 2020-06, which eliminated the non-cash interest expense related to the amortization of the debt discount associated with the equity component for 2026 Notes issued on January 20, 2021.
Interest Income
3 unchanged sentences
% of total revenue 1 % — %
−Removed: Interest income decreased $0.3 million in 2021 as compared to 2020, primarily due to a decrease in interest rates, partially offset by interest income earned on the cash from the proceeds of the 2026 Notes.
+Added: Interest income increased $8.2 million in 2022 as compared to 2021, primarily due to an increase in interest income earned on cash and cash equivalents during the year ended December 31, 2022.
Other (Expense) / Income, Net
3 unchanged sentences
% of total revenue — % — %
−Removed: Other (expense) / income, net changed by $25.7 million during 2021 as compared to 2020, primarily due to recording a gain on the sale of an investment in one of our platform partners of $24.7 million within our Alarm.com segment in 2020 which did not occur in 2021 as well as recording a gain on the investment in one of our technology partners of $0.7 million within our Alarm.com segment in 2020 which did not occur in 2021.
−Removed: (Benefit from) / Provision for Income Taxes
+Added: Other (expense) / income, net remained relatively consistent during 2022 as compared to 2021.
+Added: Provision for / (Benefit from) Income Taxes
Year Ended December 31, % Change
2022 2021 2022 vs.
−Removed: (Benefit from) / provision for income taxes $ (5,106) $ 3,500 (246) %
+Added: Provision for / (benefit from) income taxes $ 962 $ (5,106) (119) %
% of total revenue — % (1) %
−Removed: The (benefit from) / provision for income taxes changed by $8.6 million in 2021 as compared to 2020.
+Added: The provision for / (benefit from) income taxes increased $6.1 million in 2022 as compared to 2021.
Our effective tax rate was 1.7% in 2022 as compared to (11.1)% in 2021.
−Removed: The change in the (benefit from) / provision for income taxes was primarily due to increased tax windfall benefits from employee stock-based payment transactions, changes in estimated research and development tax credits and a decrease in income before income taxes in 2021 as compared to 2020.
+Added: The increase in the provision for / (benefit from) income taxes was primarily due to decreased tax windfall benefits from employee stock-based payment transactions in 2022 as compared to 2021.
Comparison of Years Ended December 31, 2021 to December 31, 2020
26 unchanged sentences
Because of the use of estimates inherent in the financial reporting process 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.
−Removed: To the extent that there are differences between our estimates and actual results, our future financial statement presentation, financial condition, results of operations and cash flows
−Removed: will be affected.
+Added: To the extent that there are differences between our estimates and actual results, our future financial statement presentation, financial condition, results of operations and cash flows will be affected.
Our most critical accounting estimates are summarized below.
3 unchanged sentences
We sell our platform and hardware solutions to service provider partners that resell our solutions and hardware to residential and commercial property owners, who are the service provider partners’ customers.
−Removed: We have variable consideration in the form of retrospective volume discounts, rebate incentives, restocking fees and assurance-type warranties, which contain uncertainties and require us to make estimates of the amount of consideration to which we will be entitled.
+Added: We have variable consideration in the form of retrospective volume discounts, rebate incentives and restocking fees, which contain uncertainties and require us to make estimates of the amount of consideration to which we will be entitled.
The significant inputs related to our estimates of variable consideration include the volume and amount of products and services sold historically and expected to be sold in the future, the availability and performance of our services and the historical and expected number of returns.
13 unchanged sentences
Fair value is defined as the price that would be received for an asset or the exit price that would be paid to transfer a liability in the principal or most advantageous market in an orderly transaction between market participants on the measurement date.
−Removed: 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.
−Removed: During 2020 and 2021, we estimated the fair value of the liability by using a Monte Carlo simulation model which involves several Level 3 unobservable inputs.
−Removed: The significant unobservable inputs used in the valuation as of December 31, 2021 included a weighted average revenue volatility of 7.5% and a revenue risk adjustment of 2.4%.
−Removed: We do not expect any significant changes to the underlying assumptions used to determine the unobservable inputs used to calculate the fair value of the liability related to the subsidiary long-term incentive plan as of December 31, 2021.
−Removed: However, if changes in these assumptions occur, and, should those changes be significant, we may be exposed to increases or decreases in operating expenses.
−Removed: The liability for the contingent consideration contains uncertainties and 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.
+Added: 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.
+Added: During 2021 and until the termination of the subsidiary long-term incentive plan in May of 2022, we estimated the fair value of the liability by using a Monte Carlo simulation model which involves several Level 3 unobservable inputs.
+Added: 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.
+Added: 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.
+Added: As a result, no further estimates related to the subsidiary long-term incentive plan were necessary as of December 31, 2022.
+Added: See the Stock-Based Compensation section below for details on the judgement required in determining the probable outcome of performance conditions related to performance-based restricted stock units.
+Added: A separate liability for the contingent consideration contained uncertainties and 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.
−Removed: 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.
+Added: 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.
We estimated the fair value of the liability by using a Monte Carlo simulation model for determining each of the projected measures by using an expected distribution of potential outcomes.
The contingent consideration liability was valued with Level 3 significant unobservable inputs, including the revenue volatility and the discount rate.
−Removed: All contingencies related to the contingent consideration liability were resolved as of December 31, 2020 and no further estimates were necessary as of December 31, 2021.
+Added: All contingencies related to the contingent consideration liability were resolved as of December 31, 2020 and no further estimates were necessary during 2021 and 2022.
We did not make any material changes in the accounting methodology used to determine the fair value of the contingent consideration liability for the year ended December 31, 2022.
We do not expect any material changes in the near term to the underlying assumptions used to determine the significant unobservable inputs used to calculate the fair value of the contingent consideration given that all contingencies have been resolved as of December 31, 2020.
−Removed: Stock-Based Compensation
−Removed: 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.
−Removed: 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.
−Removed: 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.
−Removed: We estimate the fair value of each option granted on the date of 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.
−Removed: The risk-free interest rate assumption is based upon observed interest rates for constant maturity U.S.
−Removed: Treasury securities consistent with the expected term of our stock options.
−Removed: We use the "simplified method" to calculate the expected term, which is presumed to be the mid-point between the vesting date and the end of the contractual term.
−Removed: Beginning in November 2019, the expected volatility for options granted is based on historical volatilities of our stock over the estimated expected term of the stock options.
−Removed: The expected volatility for options granted prior to November 2019 was based on historical volatilities of our stock and publicly traded stock of comparable companies over the estimated expected term of the stock options.
−Removed: We did not make any material changes to the underlying assumptions used to calculate stock-based compensation expense for the year ended December 31, 2021 and we do not expect any material changes in the near term to the underlying assumptions used to calculate stock-based compensation expense for the year ended December 31, 2021.
−Removed: However, if changes in these assumptions occur, and, should those changes be significant, they could have a material impact on our stock-based compensation expense.
Business Combinations
1 unchanged sentence
This valuation contains uncertainties and requires management to apply significant judgment in estimating the fair value of long-lived and intangible assets acquired, which involves the use of significant estimates and assumptions.
−Removed: Significant estimates and assumptions in valuing intangible assets include estimates about future expected cash flows, discount rates, attrition rates related to acquired customer relationships, royalty rates and obsolescence factors related to acquired developed technology and royalty rates relate to acquired trade names.
−Removed: We did not make any material changes to the underlying assumptions used as of the acquisition date to calculate the purchase price of the acquisition of SDS.
−Removed: We do not expect any material changes in the near term to the underlying assumptions used to calculate purchase price of the acquisition of SDS for the year ended December 31, 2021 given that the purchase price allocation was finalized during 2021.
+Added: Significant estimates and assumptions in valuing certain acquired customer relationship intangible assets include estimates about future expected cash flows and discount rates.
+Added: Significant estimates and assumptions in valuing acquired developed technology intangible assets include estimates about future expected cash flows, obsolescence factors and discount rates.
+Added: Significant estimates and assumptions in valuing acquired trade name intangible assets include estimates about future expected cash flows, royalty rates and discount rates.
+Added: We did not make any material changes to the underlying assumptions used as of the acquisition date to calculate the purchase price of the acquisition of Noonlight during 2022.
+Added: We do not expect any material changes in the near term to the underlying assumptions used to calculate purchase price of the acquisition of Noonlight during 2022.
+Added: However, if changes in these assumptions occur, and, should those changes be significant, they could have a material impact on our purchase price allocation for the acquisition of Noonlight.
Goodwill, Intangible Assets and Long-lived Assets
3 unchanged sentences
Qualitative factors we consider include, but are not limited to, macroeconomic conditions, industry and market conditions, company specific events, changes in circumstances and market capitalization.
−Removed: For our 2021 annual impairment review, we performed a qualitative assessment for our Alarm.com reporting unit, our only reporting unit with a goodwill balance.
−Removed: We did not make any material changes to the underlying assumptions used in our qualitative assessment of our goodwill as of October 1, 2021 and we do not expect any material changes in the near term to the underlying assumptions used in our qualitative assessment of our goodwill as of October 1, 2021.
−Removed: However, if changes in these assumptions occur, including as a result of performing a quantitative assessment instead of a qualitative assessment, and, should those changes be significant, they could have a material impact on our goodwill and potentially our other (expense) / income, net, if those significant changes result in an impairment.
+Added: For our 2022 annual impairment review, we performed a quantitative assessment for our Alarm.com reporting unit, our only reporting unit with a goodwill balance.
+Added: Significant estimates and assumptions in the quantitative assessment include estimates about future expected cash flows and discount rates.
+Added: There were no triggering events that occurred between our annual impairment test performed as of October 1, 2022 and December 31, 2022.
+Added: If triggering events arise in the future that require changes in the underlying assumptions used in our assessment of our goodwill, and, should those changes be significant, they could have a material impact on our goodwill and potentially our other (expense) / income, net, if those significant changes result in an impairment.
Intangible Assets and Long-lived Assets
5 unchanged sentences
For the year ended December 31, 2021, we determined there was an impairment of $0.1 million for an intangible asset acquired in 2014 related to customer relationships that no longer existed after December 31, 2021.
−Removed: There were no other indicators of impairment of our intangible assets with definite lives or long-lived assets.
−Removed: We did not make any material changes to the underlying assumptions used in our assessment of intangible assets and long-lived assets for the year ended December 31, 2021 and we do not expect any material changes in the near term to the underlying assumptions used in our assessment of intangible assets and long-lived assets for the year ended December 31, 2021.
−Removed: However, if changes in these assumptions occur, and, should those changes be significant, they could have a material impact on our intangible assets and long-lived assets and potentially our other (expense) / income, net, if those significant changes result in an impairment.
+Added: There were no indicators of impairment of our intangible assets with definite lives or long-lived assets during the year ended December 31, 2022.
+Added: If triggering events arise in the future, depending on the significance of the underlying assumptions in the impairment analysis, they could have a material impact on our intangible assets and long-lived assets and potentially our other (expense) / income, net, if those significant changes result in an impairment.
Accounting for Income Taxes
6 unchanged sentences
We did not make any material changes to the underlying assumptions used to calculate deferred tax assets and liabilities as well as uncertain tax positions for the year ended December 31, 2022 and we do not expect any material changes in the near term to the underlying assumptions used to calculate deferred tax assets and liabilities as well as uncertain tax positions for the year ended December 31, 2022.
−Removed: However, if changes in these assumptions occur, and, should those changes be significant, they could have a material impact on our deferred tax assets and liabilities as well as our (benefit from) / provision for income taxes.
+Added: However, if changes in these assumptions occur, and, should those changes be significant, they could have a material impact on our deferred tax assets and liabilities as well as our provision for / (benefit from) income taxes.
Convertible Senior Notes
−Removed: In accounting for the issuance of our 2026 Notes, we separate the notes into liability and equity components.
−Removed: 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.
−Removed: 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.
−Removed: 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.
−Removed: 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.
−Removed: Transaction costs attributable to the equity component are netted with the equity component of the notes in additional paid-in capital in the consolidated balance sheets.
−Removed: We did not make any material changes to the underlying assumptions used to separate the notes into liability and equity components for the year ended December 31, 2021.
−Removed: We will adopt 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):
−Removed: Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity " on January 1, 2022, using the modified retrospective approach.
−Removed: We will record a reclassification from equity to debt through an adjustment upon adoption that will decrease additional paid-in capital by $56.5 million, net of tax;
−Removed: decrease deferred tax liabilities and deferred tax assets by $15.8 million and $0.4 million, respectively;
−Removed: increase convertible senior notes, net by $61.9 million;
−Removed: and increase retained earnings by $10.0 million, net of tax.
−Removed: Specific to the 2026 Notes, we will also record less interest expense in 2022 and beyond 2022 as compared to 2021, due to eliminating the amortization of the debt discount on the equity component, which represented the embedded conversion feature.
−Removed: Additionally, this guidance requires that we adopt the if-converted method for computing diluted earnings per share, which will increase our diluted weighted average common shares outstanding and impact our earnings per share upon adoption.
−Removed: There will be no impact to our liquidity or cash flows as a result of adopting this guidance.
+Added: We adopted ASU 2020-06 on January 1, 2022, using the modified retrospective approach.
+Added: Prior to the adoption of this standard, the 2026 Notes were separated into liability and equity components.
+Added: In accounting for the issuance of our 2026 Notes, we separated the 2026 Notes into liability and equity components.
+Added: The carrying amount of the liability component was calculated by measuring the fair value of a similar liability that did not have an associated convertible feature, using a discounted cash flow model with a risk adjusted yield.
+Added: 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 as a whole.
+Added: This difference between the aggregate principal amount and the liability component represented a debt discount that was amortized to interest expense using the effective interest method over the term of the 2026 Notes.
+Added: Transaction costs attributable to the liability component were netted with the liability component and amortized to interest expense using the effective interest method over the term of the 2026 Notes.
+Added: Transaction costs attributable to the equity component were netted with the equity component of the 2026 Notes in additional paid-in capital in the consolidated balance sheets.
+Added: Upon adoption of ASU 2020-06, 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.
+Added: We also recombined the liability and equity components of the debt issuance costs.
+Added: 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.
+Added: 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.
+Added: We no longer consider estimates related to the 2026 Notes to contain critical accounting estimates due to the adoption of ASU 2020-06 as this guidance removed any significant judgements involved with the initial accounting assessment of the 2026 Notes.
+Added: Stock-Based Compensation
+Added: We compensate our executive officers, board of directors, employees and consultants with stock-based compensation plans under our 2015 Equity Incentive Plan.
+Added: 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.
+Added: 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.
+Added: 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.
+Added: Beginning upon the first grant of
+Added: 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
9 unchanged sentences
Our cash and cash equivalents as of December 31, 2022 are available for working capital purposes.
−Removed: We do not enter into investments for trading purposes, and our investment policy is to invest any excess cash in short term, highly liquid investments that limit the risk of principal loss;
−Removed: therefore, our cash and cash equivalents are held in demand deposit accounts that generate very low returns.
+Added: Our investment policy defines allowable investments and establishes guidelines relating to credit quality, diversification and maturities of our investments to preserve capital, maintain liquidity and limit the amount of credit risk exposure.
+Added: As of December 31, 2022, our cash and cash equivalents were held in demand deposit accounts that generated very low returns.
Liquidity and Capital Resources
2 unchanged sentences
To date, we have principally financed our operations through cash generated by operating activities and through private and public equity and debt financings.
−Removed: On January 20, 2021, we issued $500.0 million aggregate principal amount of 0% convertible senior notes due January 15, 2026 in a private placement to qualified institutional buyers and received proceeds of $484.3 million, net of $15.7 million of transaction fees and other debt issuance costs.
−Removed: We used some of the proceeds to repay the $110.0 million outstanding principal balance under our 2017 Facility and also used some of the proceeds to pay accrued interest, fees and expenses related to the 2017 Facility.
−Removed: We terminated the 2017 Facility effective January 20, 2021.
−Removed: 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.
−Removed: In February 2021, we paid $5.0 million in cash to purchase 1,000,000 shares of Series B-2 Preferred Stock from one of our technology partners as part of a financing round that included other investors.
−Removed: On December 16, 2021, EnergyHub, Inc., acquired certain assets of an unrelated third party.
−Removed: Substantially all of the acquired assets consisted of developed technology.
−Removed: 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.
−Removed: 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.
−Removed: 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.
+Added: In February 2022, we entered into a purchase and sale agreement to purchase developable land consisting of 2.4 acres in close proximity to our headquarters in Tysons, Virginia, which was non-binding pending our completion of due diligence.
+Added: Upon executing the purchase and sale agreement, we paid a deposit of $0.3 million during the first quarter of 2022.
+Added: Upon completion of due diligence in April 2022, we paid an additional deposit of $0.1 million in order to close the land purchase and paid the remaining $21.4 million during the second quarter of 2022 for the land purchase.
+Added: 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.
+Added: 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.
+Added: 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.
+Added: On September 23, 2022, Alarm.com Incorporated acquired 85% of the issued and outstanding shares of capital stock of Noonlight.
+Added: In consideration for the purchase of 85% of the issued and outstanding shares of capital stock of Noonlight, we paid $31.9 million in cash on September 23, 2022, after deducting $1.5 million related to the settlement of an outstanding loan issued to Noonlight during May of 2022 and $4.9 million related to agreed holdback provisions.
+Added: Pursuant to the terms of the stock purchase agreement, following the preliminary determination of the working capital of Noonlight as of the closing date, the purchase price decreased by $0.1 million.
+Added: The working capital adjustment is expected to be finalized by the first quarter of 2023 and $0.3 million of the holdback is expected to be paid to the stockholders of Noonlight at that time.
+Added: The remaining amount of the holdback of $4.6 million is expected to be paid to the stockholders of Noonlight by the end of the first quarter of 2024, subject to offset for any indemnification obligations.
+Added: On October 27, 2022, we filed a demand for arbitration of a dispute arising under the Patent Cross License Agreement between Alarm.com and Vivint executed in November 2013.
+Added: Vivint has stopped paying license fees to Alarm.com under the agreement.
+Added: Vivint has paid the required license fees to Alarm.com since the agreement was executed in November 2013.
+Added: Alarm.com disputes Vivint's refusal of payment and is seeking continued payments of license fees in the arbitration, as well as interest and declaratory relief.
+Added: As a result of Vivint’s refusal to pay license fees under the agreement, which began during the fourth quarter of 2022, cash flows from operating activities will decrease by approximately $6.0 million on a quarterly basis, plus additional legal fees.
+Added: In December 2022, we paid $5.1 million in cash to a technology partner to purchase 4,231,717 shares of its Series A Preferred Stock.
+Added: As of December 31, 2022, our investment in the technology partner supplier was $5.1 million.
+Added: Beginning in 2022, the Tax Cuts and Jobs Act of 2017 amended Internal Revenue Code Section 174, or Section 174, to eliminate the option to immediately deduct research and development expenditures in the year incurred, requiring these expenditures to be capitalized and amortized.
+Added: While we calculated the 2022 Federal and state cash tax increase from Section 174 to be $38.1 million, we did not pay this additional cash tax liability as part of our 2022 estimated tax payments due to the possible deferral, modification or repeal of Section 174.
+Added: The additional 2022 Federal cash tax liability is included in current income taxes payable as of December 31, 2022, and was paid in February 2023.
+Added: The increased 2022 state tax liability will be paid in April 2023.
+Added: The Section 174 impact on 2023 cash flows from operating activities will depend on, among other factors, our 2023 operating results and the level of 2023 research and development activity.
+Added: Based on information currently available to us, we estimate the increased 2023 Section 174 Federal and state cash tax payable for our 2023 taxable income to be in the range of $40.0 million to $45.0 million if the requirement to capitalize and amortize research and development expenditures is not deferred, modified or repealed.
+Added: This estimate is based on the limited information that is currently available and is subject to change.
We believe our existing cash and cash equivalents and our future cash flows from operating activities will be sufficient to meet our anticipated operating cash needs for at least the next 12 months.
Over the next 12 months, we expect our capital expenditure requirements to be between $7.5 million and $9.5 million, primarily related to purchases of computer software and equipment as well as the continued build out of our leased and owned office space.
−Removed: The estimated capital expenditure requirements exclude land and real estate purchases, if we decide to make such purchases.
Maturities of lease liabilities for our various office leases are as follows:
$13.4 million in 2023, $12.1 million in 2024, $9.9 million in 2025, $5.7 million in 2026, $0.8 million in 2027 and $0.3 million in 2028 and thereafter.
−Removed: Our future working capital, capital expenditure and cash requirements will depend on many factors, including the impact of the COVID-19 pandemic on the economy and our operations, the rate of our revenue growth, the amount and timing of our investments in human resources and capital equipment, future acquisitions and investments, and the timing and extent of our introduction of new solutions and platform and solution enhancements.
−Removed: As the impact of the COVID-19 pandemic on the economy and our operations evolves, we will continue to assess our liquidity needs.
+Added: Our future working capital, capital expenditure and cash requirements will depend on many factors, including the impact of Macroeconomic Conditions and inflation, on the economy and our operations, the rate of our revenue growth, the amount and timing of our investments in human resources and capital equipment, future acquisitions and investments, and the timing and extent of our introduction of new solutions and platform and solution enhancements.
+Added: As the impact of Macroeconomic Conditions and inflation, on the economy and our operations evolves, we will continue to assess our liquidity needs.
To the extent our cash and cash equivalents and cash flows from operating activities are insufficient to fund our future activities, we may need to borrow additional funds or raise funds from public or private equity or debt financings.
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The 2026 Notes will be convertible at the option of the holders at any time prior to the close of business on the business day immediately preceding August 15, 2025, only under the following circumstances:
−Removed: (1) during any calendar quarter commencing after the calendar quarter ending on June 30, 2021 (and only during such calendar quarter), if the last reported sale price of our common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the
−Removed: conversion price for the 2026 Notes on each applicable trading day;
−Removed: (2) during the five business day period immediately after any ten consecutive trading day period in which, for each trading day of that period, the trading price per $1,000 principal amount of 2026 Notes for such trading day was less than 98% of the product of the last reported sale price of our common stock and the conversion rate for the 2026 Notes on each such trading day;
+Added: (1) during any calendar quarter commencing after the calendar quarter ending on June 30, 2021 (and only during such calendar quarter), if the last reported sale price of our common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price for the 2026 Notes on each applicable trading day;
+Added: (2) during the five business day period immediately after any 10 consecutive trading day period in which, for each trading day of that period, the trading price per $1,000 principal amount of 2026 Notes for such trading day was less than 98% of the product of the last reported sale price of our common stock and the conversion rate for the 2026 Notes on each such trading day;
(3) if we call any or all of the 2026 Notes for redemption, at any time prior to the close of business on the scheduled trading day immediately preceding the redemption date, but only with respect to the 2026 Notes called (or deemed called) for redemption;
2 unchanged sentences
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.
−Removed: It is our current intent to settle the principal amount of the 2026 Notes with cash.
+Added: our current intent to settle the principal amount of the 2026 Notes with cash.
The initial conversion rate for the 2026 Notes is 6.7939 shares of our common stock per $1,000 principal amount of 2026 Notes, which is equivalent to an initial conversion price of $147.19 per share of our common stock, subject to adjustment under certain circumstances in accordance with the terms of the Indenture.
16 unchanged sentences
The 2017 Facility also carried an unused line commitment fee of 0.20%.
−Removed: For the years ended December 31, 2020 and 2019, the effective interest rate on the 2017 Facility was 2.65% and 4.45%, respectively.
−Removed: The carrying value of the 2017 Facility was zero and $110.0 million as of December 31, 2021 and 2020, respectively.
−Removed: 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.
+Added: The carrying value of the 2017 Facility was zero as of December 31, 2022 and 2021.
Sources of Liquidity
9 unchanged sentences
We currently anticipate that we will retain all of our future earnings, if any, for use in the operation and expansion of our business and we do not anticipate paying cash dividends in the foreseeable future.
−Removed: Additionally, our ability to pay dividends on our common stock was limited during a portion of 2021 by restrictions under the terms of the agreements governing the 2017 Facility.
Payment of future cash dividends, if any, will be at the discretion of the board of directors after taking into account various factors, including our financial condition, operating results, current and anticipated cash needs, the requirements of current or then-existing debt instruments and other factors the board of directors deems relevant.
2 unchanged sentences
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.
−Removed: During the year ended December 31, 2020, we repurchased 147,153 shares of our common stock under the program that expired on November 29, 2020 in open market purchases for a total consideration of $5.1 million.
−Removed: No shares were purchased under these programs during the years ended December 31, 2021 and 2019.
+Added: During the years ended December 31, 2022, 2021 and 2020, we repurchased 1,385,592, zero, and 147,153 shares of our common stock under this program for $78.8 million, zero and $5.1 million, respectively, which includes applicable commissions and fees.
Shares Withheld
−Removed: As permitted under the terms of the 2015 Plan, in 2021 the Compensation Committee authorized the withholding of shares of common stock in connection with the vesting of restricted stock unit awards issued to employees to satisfy applicable tax withholding requirements.
+Added: As permitted under the terms of the 2015 Equity Incentive Plan, or 2015 Plan, in 2021 the Compensation Committee authorized the withholding of shares of common stock in connection with the vesting of restricted stock unit awards issued to employees to satisfy applicable tax withholding requirements.
These withheld shares are not issued or considered common stock repurchases under our stock repurchase program.
We paid $4.5 million of tax withholdings related to vesting of restricted stock units during the year ended December 31, 2021.
+Added: No tax withholdings related to the vesting of restricted stock units were paid during the years ended December 31, 2022 and 2020.
Prior to using the withholding method to satisfy applicable tax withholding requirements for employees, we utilized the sell-to-cover method in which shares of our restricted stock unit awards were sold into the market on behalf of the employee upon vesting to cover tax withholding liabilities.
6 unchanged sentences
Cash flows used in investing activities (68,319) (20,365) (20,274)
−Removed: Cash flows from / (used in) financing activities 374,370 52,024 (130)
+Added: Cash flows (used in) / from financing activities (76,324) 374,370 52,024
Operating Activities
1 unchanged sentence
For 2022, cash flows from operating activities were $56.9 million, compared to $103.2 million for 2021.
+Added: This $46.3 million decrease in cash flows from operating activities was due to a $38.3 million decrease in non-cash and other reconciling items and a $12.4 million decrease in cash from operating assets and liabilities, partially offset by a $4.4 million increase in net income.
+Added: The $38.3 million decrease in non-cash and other reconciling items was primarily due to a $44.9 million change in deferred income taxes, which was driven by an increase in estimated taxable income during 2022 pursuant to the capitalization requirements under Section 174 of the Internal Revenue Code, as compared to 2021.
+Added: The decrease in non-cash and other reconciling items during 2022 as compared to 2021 was also due to a $12.7 million decrease in amortization of the debt discount and debt issuance costs related to the adoption of ASU 2020-06 for the 2026 Notes.
+Added: These decreases in non-cash and other reconciling items were partially offset by a $14.0 million increase in stock-based compensation resulting from additional grants of restricted stock units during 2022 as well as an increase in the changes to the provision for credit losses and reserve for product returns of $4.1 million during 2022 as compared to 2021.
+Added: The $12.4 million decrease in cash from operating assets and liabilities
+Added: was primarily due to a $8.9 million change in inventory resulting from an increase in purchased inventory as we seek to reduce risks and uncertainties in our supply chain as well as a $6.5 million change in accounts payable, accrued expenses and other liabilities primarily due to differences in the timing of disbursements during 2022 as compared to 2021.
+Added: For 2021, cash flows from operating activities were $103.2 million, compared to $102.1 million for 2020.
This $1.1 million increase in cash flows from operating activities was due to a $43.8 million increase in non-cash and other reconciling items, partially offset by a $25.5 million decrease in net income and a $17.2 million decrease in cash from operating assets and liabilities.
4 unchanged sentences
To a lesser extent, the decrease in cash from operating assets and liabilities was due to increases in prepayments for long lead-time parts related to inventory and other assets, partially offset by differences in timing of collection of receipts and payments of disbursements in 2021 as compared to 2020.
−Removed: For 2020, cash flows from operating activities were $102.1 million, compared to $47.1 million for 2019.
−Removed: This $55.0 million increase in cash flows from operating activities was due to a $34.3 million increase in cash from operating assets and liabilities as well as a $23.3 million increase in net income, partially offset by a $2.6 million decrease in non-cash items.
−Removed: The $34.3 million increase in cash from operating assets and liabilities was primarily due to differences in timing of payments of disbursements and collection of receipts totaling $36.9 million, due in part to the $28.0 million payment made in 2019 for the agreement reached to settle the legal matter alleging violations of the Telephone Consumer Protection Act ,or TPCA, that did not occur in 2020.
−Removed: This increase in cash from operating assets and liabilities was partially offset by a $3.7 million change in inventory resulting from additional purchased inventory in 2020 that did not occur in 2019, which is due in part to the impacts of the COVID-19 pandemic and the uncertainty surrounding the potential disruption to our supply chain.
−Removed: The $2.6 million decrease in non-cash and other reconciling items was primarily due to a $24.7 million gain on the sale of an investment in one of our platform partners in 2020 that did not occur in 2019, which was adjusted from net income within operating activities and presented as cash flows from investing activities.
−Removed: This decrease in noncash and other reconciling items was partially offset by an $8.6 million increase in stock-based compensation resulting from additional grants of stock options and restricted stock units in 2020 and a gain of $6.9 million related to a promissory note with one of our hardware suppliers recorded in 2019 that did not occur in 2020.
−Removed: Additionally, the decrease in non-cash and other reconciling items was also partially offset by a $5.4 million increase in amortization and depreciation primarily from intangible assets that were acquired in connection with the purchase of 85% of the issued and outstanding capital stock of OpenEye on October 21, 2019.
Investing Activities
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Our capital expenditures have primarily been for general business use, including leasehold improvements as we have expanded our office space to accommodate our growth in headcount, computer equipment used internally and expansion of our network operations centers.
−Removed: For 2021, our cash flows used in investing activities was $20.4 million as compared to $20.3 million in 2020.
+Added: For 2022, our cash flows used in investing activities was $68.3 million, compared to $20.4 million in 2021.
+Added: The $47.9 million increase in cash used in investing activities was primarily due to the $31.9 million paid to purchase 85% of the issued and outstanding shares of capital stock of Noonlight and the $21.8 million paid for developable land during 2022, which did not occur during 2021.
+Added: These increases in cash used in investing activities were partially offset by $4.4 million paid for developed technology in 2021, which did not occur during 2022.
+Added: For 2021, our cash flows used in investing activities was $20.4 million, compared to $20.3 million in 2020.
The $0.1 million increase in cash used in investing activities was primarily due to our payment of $26.3 million, net of cash acquired, for 100% of the issued and outstanding ownership interest units of SDS in 2020 as well as $3.3 million used to acquire in-process research and development in 2020 that did not occur 2021.
The increase in cash used in investing activities in 2021 as compared to 2020 was partially offset by $25.7 million in proceeds received from the sale of an investment in one of our platform partners in 2020, which did not occur in 2021 as well as $5.0 million used to purchase 1,000,000 shares of Series B-2 Preferred Stock from one of our technology partners in 2021, which did not occur in 2020.
−Removed: For 2020, our cash flows used in investing activities was $20.3 million as compared to $73.4 million in 2019.
−Removed: The $53.1 million decrease in cash used in investing activities was primarily due to our payment of $58.8 million, net of cash acquired, for 85% of the issued and outstanding capital stock of OpenEye in 2019, partially offset by our payment of $26.3 million, net of cash
−Removed: acquired, for 100% of the issued and outstanding ownership interest units of SDS in 2020.
−Removed: Additionally, the decrease in cash used in investing activities was due to $25.7 million in proceeds received from the sale of an investment in one of our platform partners in 2020, which did not occur in 2019, a payment of $22.4 million in 2019 to acquire a promissory note as well as $3.7 million of funding provided to one of our hardware suppliers that did not occur in 2020.
−Removed: The decrease in cash used in investing activities in 2020 as compared to 2019 was partially offset by $30.7 million received from one of our hardware suppliers for the amounts due under various promissory notes in 2019 that did not occur in 2020.
Financing Activities
1 unchanged sentence
Cash used in financing activities typically includes repurchases of common stock and repayments of debt.
+Added: For 2022, cash flows used in financing activities was $76.3 million, compared to cash flows from financing activities of $374.4 million in 2021.
+Added: The $450.7 million decrease in cash flows from financing activities was primarily due to $484.3 million in proceeds from the issuance of the 2026 Notes, net of issuance costs paid during 2021 that did not occur during 2022.
+Added: The decrease in cash flows from financing activities was also due to the repurchase of 1,385,592 shares of our common stock for $78.8 million during 2022 that did not occur during 2021.
+Added: These decreases in cash flows from financing activities were partially offset by the repayment of $110.0 million to terminate the 2017 Facility in 2021 that did not occur in 2022.
For 2021, cash flows from financing activities was $374.4 million compared to $52.0 million in 2020.
1 unchanged sentence
This increase in cash flows from financing activities was partially offset by the repayment of $110.0 million to terminate the 2017 Facility in 2021 that did not occur in 2020 as well as the borrowing of $50.0 million under the 2017 Facility in 2020 that did not occur in 2021.
−Removed: For 2020, cash flows from financing activities was $52.0 million compared to cash flows used in financing activities of $0.1 million in 2019.
−Removed: The $52.1 million increase in cash flows used in financing activities was primarily due to the borrowing of $50.0 million under our 2017 Facility in 2020 as well as a $7.8 million increase in cash flows from the issuance of common stock from equity based plans.
−Removed: The increase in cash flows from financing activities in 2020 as compared to 2019 was partially offset by our use of $5.1 million to purchase shares of treasury stock in 2020 that did not occur in 2019.
Non-GAAP Measures
−Removed: We define Adjusted EBITDA as our net income before interest expense, interest income, other (expense) / income, net, (benefit from) / provision for income taxes, amortization and depreciation expense, stock-based compensation expense, secondary offering expense, acquisition-related expense and legal costs and settlement fees incurred in connection with non-ordinary course litigation and other disputes, particularly costs involved in ongoing intellectual property litigation.
+Added: We define Adjusted EBITDA as our net income before interest expense, interest income, certain activity within other (expense) / income, net, provision for / (benefit from) income taxes, amortization and depreciation expense, stock-based compensation expense, secondary offering expense, acquisition-related expense and legal costs and settlement fees incurred in connection with non-ordinary course litigation and other disputes, particularly costs involved in ongoing intellectual property litigation.
We do not consider these items to be indicative of our core operating performance.
2 unchanged sentences
Adjusted EBITDA is not a measure calculated in accordance with GAAP.
−Removed: See the table below for a reconciliation of Adjusted EBITDA to net income, the most directly comparable financial measure calculated and presented in accordance with GAAP.
+Added: See the table below for a reconciliation of Adjusted EBITDA from net income, the most directly comparable financial measure calculated and presented in accordance with GAAP.
We have included Adjusted EBITDA in this report because it is a key measure that our management uses to understand and evaluate our core operating performance and trends, to generate future operating plans, to make strategic decisions regarding the allocation of capital and to make investments in initiatives that are focused on cultivating new markets for our solutions.
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Because of these and other limitations, you should consider Adjusted EBITDA alongside our other GAAP-based financial performance measures, net income and our other GAAP financial results.
−Removed: The following table presents a reconciliation of Adjusted EBITDA to net income, the most directly comparable GAAP measure, for each of the periods indicated (in thousands):
+Added: The following table presents a reconciliation of Adjusted EBITDA from net income, the most directly comparable GAAP measure, for each of the periods indicated (in thousands):
Year Ended December 31,
2 unchanged sentences
Net income $ 55,631 $ 51,175 $ 76,660
−Removed: Interest expense, interest income and other (expense) / income, net 15,503 (23,862) (8,483)
−Removed: (Benefit from) / provision for income taxes (5,106) 3,500 5,566
+Added: Interest expense, interest income and certain activity within other (expense) / income, net (5,768) 15,503 (23,862)
+Added: Provision for / (benefit from) income taxes 962 (5,106) 3,500
Amortization and depreciation expense 30,870 29,715 27,520
6 unchanged sentences
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.