What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2023-02-24 compared with 2022-02-24 · 503 added, 589 removed, 1271 unchanged (46% of the section changed)

19 unchanged sentences

Change in Accounting Principle

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

As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts for convertible instruments and earnings per share in 2022.

Basis for Opinions

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

As described in Management’s Report on Internal Control over Financial Reporting, management has excluded Noonlight, Inc.

from its assessment of internal control over financial reporting as of December 31, 2022, because it was acquired by the Company in a purchase business combination during 2022.

We have also excluded Noonlight, Inc.

from our audit of internal control over financial reporting.

Noonlight, Inc.

is an 85% owned subsidiary whose total assets and total revenues excluded from management’s assessment and our audit of internal control over financial reporting represent less than 1% of the related consolidated financial statement amounts as of and for the year ended December 31, 2022.

Definition and Limitations of Internal Control over Financial Reporting

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

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

(ii) provide reasonable assurance that transactions are recorded as necessary to permit

preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

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

2 unchanged sentences

Critical Audit Matters

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

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

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

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

Revenue recognition

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

Convertible Senior Notes Transaction

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

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

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

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

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

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

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

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

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

/s/ PricewaterhouseCoopers LLP

25 unchanged sentences

Income before income taxes 56,593 46,069 80,160

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

Provision for / (benefit from) income taxes 962 ( 5,106 ) 3,500

Net income 55,631 51,175 76,660

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

Net loss attributable to redeemable noncontrolling interests 707 1,084 1,193

Net income attributable to common stockholders $ 56,338 $ 52,259 $ 77,853

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Cash and cash equivalents $ 622,165 $ 710,621

Accounts receivable, net of allowance for credit losses of $ 2,168 and $ 4,696 , respectively, and net of allowance for product returns of $ 1,181 and $ 1,480 , respectively

Accounts receivable, net of allowance for credit losses of $ 2,835 and $ 2,168 , respectively, and net of allowance for product returns of $ 1,551 and $ 1,181 , as of December 31, 2022 and 2021, respectively

124,283 105,548

Inventory 115,584 75,276

Other current assets, net of allowance for credit losses of $ 2 and $ 17 , respectively

Other current assets, net of allowance for credit losses of $ 0 and $ 2 , as of December 31, 2022 and 2021, respectively

29,056 26,175

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Operating lease right-of-use assets 28,933 30,479

Other assets, net of allowance for credit losses of $ 78 and $ 72 , respectively

Other assets, net of allowance for credit losses of $ 2 and $ 78 , as of December 31, 2022 and 2021, respectively

37,356 24,349

Total assets $ 1,329,375 $ 1,232,015

Liabilities, redeemable noncontrolling interest and stockholders’ equity

Liabilities, redeemable noncontrolling interests and stockholders’ equity

Current liabilities:

6 unchanged sentences

Convertible senior notes, net 490,370 425,345

Long-term debt — 110,000

Operating lease liabilities 27,380 32,591

2 unchanged sentences

Commitments and contingencies (Note 13)

Redeemable noncontrolling interest 12,888 10,691

Redeemable noncontrolling interests 23,988 12,888

Stockholders’ equity

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Treasury stock, at cost;

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

1,532,745 and 147,153 shares as of December 31, 2022 and 2021, respectively

( 83,993 ) ( 5,149 )

1 unchanged sentence

Total stockholders’ equity 598,859 613,167

Total liabilities, redeemable noncontrolling interest and stockholders’ equity $ 1,232,015 $ 731,687

Total liabilities, redeemable noncontrolling interests and stockholders’ equity $ 1,329,375 $ 1,232,015

See accompanying notes to the consolidated financial statements.

6 unchanged sentences

Net income $ 55,631 $ 51,175 $ 76,660

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

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

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

Provision for / (recovery of) credit losses on accounts receivable 1,156 ( 775 ) 2,162

Reserve for product returns 4,746 2,494 1,795

8 unchanged sentences

Stock-based compensation 52,654 38,694 29,176

Gain on notes receivable — — ( 6,931 )

Acquired in-process research and development — — 3,297

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Cash flows used in investing activities:

Business acquisitions, net of cash acquired — ( 26,299 ) ( 58,833 )

Business acquisition, net of cash acquired ( 31,730 ) — ( 26,299 )

Additions to property and equipment ( 28,640 ) ( 11,062 ) ( 16,141 )

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

Issuances or purchases of notes receivable — ( 1,200 ) ( 26,103 )

Issuances of notes receivable ( 3,000 ) — ( 1,200 )

Receipt of payments on notes receivable 61 59 2,026

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Cash flows used in investing activities ( 68,319 ) ( 20,365 ) ( 20,274 )

Cash flows from / (used in) financing activities:

Cash flows (used in) / from financing activities:

Proceeds from credit facility — — 50,000

6 unchanged sentences

Issuances of common stock from equity-based plans 4,020 5,704 11,711

Cash flows from / (used in) financing activities 374,370 52,024 ( 130 )

Net increase / (decrease) in cash and cash equivalents 457,162 133,830 ( 26,432 )

Cash and cash equivalents at beginning of the period 253,459 119,629 146,061

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

Cash flows (used in) / from financing activities ( 76,324 ) 374,370 52,024

Net (decrease) / increase in cash, cash equivalents and restricted cash ( 87,742 ) 457,162 133,830

Cash, cash equivalents and restricted cash at beginning of the period 710,621 253,459 119,629

Cash, cash equivalents and restricted cash at end of the period $ 622,879 $ 710,621 $ 253,459

ALARM.COM HOLDINGS, INC.

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2022 2021 2020

Reconciliation of cash, cash equivalents and restricted cash:

Cash and cash equivalents $ 622,165 $ 710,621 $ 253,459

Restricted cash included in other current assets and other assets 714 — —

Total cash, cash equivalents and restricted cash $ 622,879 $ 710,621 $ 253,459

Supplemental disclosures:

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Cash not yet paid for business and asset acquisitions - holdback 4,833 850 1,017

Contingent liability from business acquisition — — 2,595

See accompanying notes to the consolidated financial statements.

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(in thousands)

Redeemable Noncontrolling Interest Preferred Stock Common Stock Additional

Redeemable Noncontrolling Interests Preferred Stock Common Stock Additional

Capital Treasury Stock Retained Earnings / (Accumulated Deficit) Total

2 unchanged sentences

Balance as of December 31, 2019 $ 11,210 — $ — 48,701 $ 487 $ 365,627 — $ — $ ( 10,463 ) $ 355,651

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

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

Common stock issued in connection with equity-based plans — — — 930 9 11,702 — — — 11,711

Vesting of common stock subject to repurchase — — — 1 — 8 — — — 8

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

Stock-based compensation expense — — — — — 29,176 — — — 29,176

Noncontrolling interest assumed through acquisition 11,411 — — — — — — — — —

Accretion adjustments of redeemable noncontrolling interest to redemption value 674 — — — — ( 674 ) — — — ( 674 )

Net income / (loss) attributable to common stockholders ( 1,193 ) — — — — — — — 77,853 77,853

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

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

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

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

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

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

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

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

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

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

Common stock issued in connection with equity-based plans — — — 578 6 4,014 — — — 4,020

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

Purchases of treasury stock — — — — — — 1,386 ( 78,844 ) — ( 78,844 )

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

Stock-based compensation expense — — — — — 52,654 — — — 52,654

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

Noncontrolling interest assumed through acquisition 6,770 — — — — — — — — —

Accretion adjustments of redeemable noncontrolling interest to redemption value 5,037 — — — — ( 5,037 ) — — — ( 5,037 )

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(referred to herein as Alarm.com, the Company, or we) is the leading platform for the intelligently connected property.

We offer a comprehensive suite of cloud-based solutions for the smart residential and commercial property, including interactive security, video monitoring, intelligent automation and energy management.

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

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

Our cloud-based platform offers an expansive suite of Internet of Things, or IoT, solutions that address opportunities in the residential, multi-family, small business and enterprise commercial markets.

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.

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.

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

The number of our service provider partners exceeded 11,000 as of December 31, 2022.

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

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

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

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

Reclassifications

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

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

Cash and Cash Equivalents

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

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

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).

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

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

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

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

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

ALARM.COM HOLDINGS, INC.

1 unchanged sentence

December 31, 2022, 2021 and 2020

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

Reclassifications

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

Cash and Cash Equivalents

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

As of December 31, 2022 and 2021, we have invested $ 510.3 million and $ 679.3 million in cash equivalents in the form of money market funds with one financial institution, respectively.

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

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

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

Revenue in countries outside of North America accounted for 4 %, 3 % and 3 % of our total revenue for the years ended December 31, 2022, 2021 and 2020, respectively.

Accounts receivable balances related to service providers partners outside of North America were 5 % and 4 % as of December 31, 2022 and 2021, respectively.

Our accounts receivable are stated at estimated realizable value.

Restricted Cash

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

As of December 31, 2022, we had a total of $ 0.7 million of restricted cash, of which less than $ 0.1 million was included in other current assets and $ 0.7 million was included in other assets within our consolidated balance sheets.

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

Notes Receivable

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Factors considered in determining impairment include payment status, collateral value and the probability of collecting payments when due.

See Note 9 for further details on loans provided to one of our distribution partners, suppliers and service provider partners.

See Note 9 for further details on loans provided to one of our distribution partners, technology partners, suppliers and service provider partners.

Credit Losses

12 unchanged sentences

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

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

There were no changes to our portfolio segments during the years ended December 31, 2022 and 2021, and no changes to our policies or practices involving the issuance of notes receivable, customer acquisitions or any other factors that influenced our estimate of expected credit losses.

Additionally, there were no significant changes in the amount of accounts receivable or notes receivable write-offs during the year ended December 31, 2022 as compared to historical periods other than a partial accounts receivable write-off of $ 0.7 million related to one of our distribution partners' outstanding balance during the year ended December 31, 2021.

There were no purchases or sales of financial assets during the years ended December 31, 2022 and 2021.

There were no hardware financing receivables outstanding as of December 31, 2022.

ALARM.COM HOLDINGS, INC.

Notes to the Consolidated Financial Statements — (Continued)

December 31, 2022, 2021 and 2020

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

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

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

For the years ended December 31, 2022 and 2020 we recorded credit loss expense of $ 0.8 million and $ 1.7 million in general and administrative expense in our consolidated statements of operations, respectively.

For the year ended December 31, 2021, we recorded a reduction to credit loss expense of $ 1.0 million in general and administrative expense in our consolidated statements of operations.

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

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

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

ALARM.COM HOLDINGS, INC.

Notes to the Consolidated Financial Statements — (Continued)

December 31, 2021, 2020 and 2019

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

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

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We periodically evaluate our inventory quantities for obsolescence based on criteria such as customer demand and changing technology and record an obsolescence write-off when necessary.

On January 1, 2019, we adopted ASU 2016-02, “ Leases (Topic 842) .” We determine if an arrangement contains a lease at the inception of the arrangement.

We determine if an arrangement contains a lease at the inception of the arrangement.

As part of the lease determination process, we assess several factors, including, but not limited to, whether we have the right to control and direct the use of the asset and whether the other party has a substantive substitution right.

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Leases with an initial lease term of twelve months or less are considered short-term leases.

Short-term leases are not recorded on our consolidated balance sheets.

Short-term leases are

ALARM.COM HOLDINGS, INC.

Notes to the Consolidated Financial Statements — (Continued)

December 31, 2022, 2021 and 2020

not recorded on our consolidated balance sheets.

Expenses associated with short-term leases are recognized on a straight-line basis over the term of the lease and are recorded in general and administrative expense.

2 unchanged sentences

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

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

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

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

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

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

ALARM.COM HOLDINGS, INC.

Notes to the Consolidated Financial Statements — (Continued)

December 31, 2021, 2020 and 2019

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

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

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

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

Prior to the January 1, 2022 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):

Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity ," we separated the 2026 Notes into liability and equity components.

In accounting for the issuance of our convertible senior notes, 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.

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.

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 notes.

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.

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

The equity component was not remeasured as long as it continued to meet the conditions for equity classification.

See the Recent Accounting Pronouncements section below within Note 2 for details on the adoption of ASU 2020-06 and the impact the adoption had on our consolidated financial statements.

Redeemable Noncontrolling Interests

Noncontrolling interests with redemption features that are not solely within our control are considered redeemable noncontrolling interests.

Our redeemable noncontrolling interest relates to our 85 % equity ownership interest in PC Open Incorporated, a Washington corporation, doing business as OpenEye (see Note 7).

The OpenEye stockholder agreement contains a put option that gives the minority OpenEye stockholders the right to sell their OpenEye shares to us based on the fair value of the shares.

The OpenEye stockholder agreement also contains a call option that gives us the right to purchase the remaining OpenEye shares from the minority OpenEye stockholders based on the fair value of the shares.

The put and call options can each be exercised beginning in the first quarter of 2023.

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

The amount of the net income or loss attributable to redeemable noncontrolling interests is recorded in the consolidated statements of operations and the accretion of the redemption value is recorded as an adjustment to additional paid-in capital.

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

Our redeemable noncontrolling interests relate to our 85 % equity ownership interest in PC Open Incorporated, a Washington corporation, doing business as OpenEye and our 85 % equity ownership interest in Noonlight, Inc., or Noonlight, a Delaware corporation (see Note 7).

The OpenEye and Noonlight stockholder agreements contain a put option that gives the minority stockholders the right to sell their shares to us based on the fair value of the shares and also contain a call option that gives us the right to purchase the remaining shares from the minority stockholders based on the fair value of the shares.

The put and call options related to OpenEye can each be exercised beginning in the first quarter of 2023.

The put and call options related to Noonlight can each be exercised beginning in the first quarter of 2026.

These redeemable noncontrolling interests are considered temporary equity and we report them between liabilities and stockholders’ equity in the consolidated balance sheets.

The amount of the net income or loss attributable to the redeemable noncontrolling interests are recorded in the consolidated statements of operations and the accretion of the redemption values are recorded as an adjustment to additional paid-in capital.

The aggregate redemption values of the of the noncontrolling interest was $ 24.0 million and $ 12.9 million as of December 31, 2022 and 2021.

Internal-Use Software

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Costs incurred in researching and developing a computer software product that will be marketed and sold are charged to expense when incurred until technological feasibility is established.

Technological feasibility is established upon completion of a detailed program design or, in its absence, completion of a working model (a beta version).

Technological feasibility is established upon completion of a detailed program design or, in its absence, completion of a working model.

After technological feasibility is established, certain payroll and payroll-related costs are capitalized for engineers and product development employees directly associated with the development project.

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Agile development results in a short duration between completion of the detailed program design and beta release.

Accordingly, as of December 31, 2021 and 2020, we did not have any capitalized external software due to the shorter development cycle associated with agile development.

Accordingly, as of December 31,

ALARM.COM HOLDINGS, INC.

Notes to the Consolidated Financial Statements — (Continued)

December 31, 2022, 2021 and 2020

2022 and 2021, we did not have any capitalized external software due to the shorter development cycle associated with agile development.

Revenue Recognition

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We enter into contracts with our service provider partners that establish pricing for access to our platform solutions and for the sale of hardware.

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

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

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

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

Our hardware includes cellular radio modules that enable access to our cloud-based platforms, as well as video cameras, video recorders, image sensors, gunshot detection sensors and other peripherals.

1 unchanged sentence

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

The performance obligation is primarily satisfied when the hardware

ALARM.COM HOLDINGS, INC.

Notes to the Consolidated Financial Statements — (Continued)

December 31, 2021, 2020 and 2019

is received by our service provider partner or distributor.

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

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

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We consider the terms of the contract and our customary business practices, which typically do not include financing components or non-cash consideration.

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

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

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.

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Any discount within the contract is allocated proportionately to all of the separate performance obligations in the contract unless the terms of discount relate specifically to the entity’s efforts to satisfy some but not all of the performance obligations.

ALARM.COM HOLDINGS, INC.

Notes to the Consolidated Financial Statements — (Continued)

December 31, 2022, 2021 and 2020

For our standard service provider agreements, we have used a portfolio approach for purposes of revenue recognition, as each agreement has similar characteristics and we do not expect the effects of applying this approach would have a material impact on our financial statements as compared to assessing each agreement individually.

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We typically transfer the promised SaaS services to our customers over time, which is evidenced by the fact that the customers receive and consume the benefits provided by our performance of the services as such services are rendered.

As a result, we recognize revenue from SaaS services on a monthly basis as we satisfy our performance obligations.

As a result, we recognize revenue from SaaS services on a monthly basis as we satisfy our performance obligations over the period of service.

We have demonstrated that we can sell our SaaS offering on a stand-alone basis, as it can be sold separately from hardware and activation services.

As there is neither a minimum required initial service term nor a stated renewal term in our contractual arrangements, we recognize revenue over the period of service, which is monthly.

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

ALARM.COM HOLDINGS, INC.

Notes to the Consolidated Financial Statements — (Continued)

December 31, 2021, 2020 and 2019

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

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Software License Revenue

Our SaaS and license revenue also includes our software license revenue from monthly fees charged to service providers sold on a per subscriber basis for access to our Software platform.

Our SaaS and license revenue also includes our software license revenue from monthly fees charged to service providers on a per subscriber basis for access to our Software platform.

The non-hosted software for interactive security, automation and related solutions is typically deployed and operated by the service provider in its own network operations center.

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Amounts due from the sale of hardware are payable in accordance with the terms of our agreements with our service provider partners or distributors, and are not contingent on resale to end-users, or to service provider partners in the case of sales of hardware to distributors.

Payment for our hardware is typically due within 30 days from shipment, with the exception of certain hardware finance arrangements, which are paid over a 36-month period.

Payment for our hardware is typically due within 30 days from shipment.

Our distributors sell directly to our service provider partners under terms between the two parties.

ALARM.COM HOLDINGS, INC.

Notes to the Consolidated Financial Statements — (Continued)

December 31, 2022, 2021 and 2020

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

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

Historically, our returns of hardware have not significantly differed from our estimated reserve.

Hist orically, our returns of hardware have not significantly differed from our estimated reserve.

Additionally, we provide warranties related to the intended functionality of the products and services provided and those warranties typically allow for the return of hardware up to one year past the date of sale.

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

ALARM.COM HOLDINGS, INC.

Notes to the Consolidated Financial Statements — (Continued)

December 31, 2021, 2020 and 2019

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

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Our cost of software license revenue during the years ended December 31, 2022, 2021 and 2020 was $ 0.5 million, $ 1.1 million and $ 1.3 million, respectively.

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.

Our cost of hardware and other revenue also includes royalty costs in connection with technology licensed from third-party providers.

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.

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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We record a contract asset when we satisfy a performance obligation by transferring a promised good or service.

Contract assets can be conditional or unconditional depending on whether another performance obligation must be satisfied before payment can be received.

Contract assets can be conditional or unconditional depending on whether another performance

ALARM.COM HOLDINGS, INC.

Notes to the Consolidated Financial Statements — (Continued)

December 31, 2022, 2021 and 2020

obligation must be satisfied before payment can be received.

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

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

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

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

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

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

ALARM.COM HOLDINGS, INC.

Notes to the Consolidated Financial Statements — (Continued)

December 31, 2021, 2020 and 2019

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

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

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

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Level 3 - Unobservable inputs supported by little or no market activity.

The carrying amount of financial assets, including cash and cash equivalents, accounts receivable and accounts payable approximates fair value because of the short maturity and liquidity of those instruments.

The carrying amount of financial assets, including cash and cash equivalents and accounts receivable, as well as accounts payable approximates fair value because of the short maturity and liquidity of those instruments.

Assets and Liabilities Measured at Fair Value on a Recurring Basis - In 2022 and 2021, we recorded assets for our money market accounts.

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

In 2021 and prior to the termination of the long-term incentive plan with one of our subsidiaries in May 2022, we recorded liabilities for the long-term incentive plan at fair value on a recurring basis with any changes recorded as a cumulative adjustment.

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

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

These assets are recognized at fair value when they are deemed to be other-than-temporarily impaired.

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

These assets are recognized at fair value

ALARM.COM HOLDINGS, INC.

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December 31, 2022, 2021 and 2020

when they are deemed to be other-than-temporarily impaired.

Concentration of Credit Risk

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

The fair value of these options is measured using the Black-Scholes option pricing model reflecting the same assumptions as applied to employee options in each of the reported periods, other than the expected life, which is assumed to be the remaining contractual life of the option.

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

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

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

Our Employee Stock Purchase Plan, or 2015 ESPP, allows eligible employees to purchase shares of our common stock at 90 % of the fair market value of the closing price on the purchase date.

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For the years ended December 31, 2022, 2021 and 2020, our discretionary match was 100 % of employee contributions up to 10 % of salary and up to a $ 5,000 maximum match.

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

We recognized compensation expense of $ 6.4 million, $ 5.5 million and $ 5.0 million for the years ended December 31, 2022, 2021 and 2020, respectively, related to our matching contributions.

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This valuation 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.

Significant estimates and assumptions in valuing intangible assets include estimates about future expected cash flows, discount rates, attrition rates related to certain acquired customer relationships, royalty rates and obsolescence factors related to acquired developed technology and royalty rates relate to acquired trade names.

During the measurement period, we may record adjustments to the assets acquired and liabilities assumed.

Any adjustments to provisional amounts that are identified during the measurement period are recorded in the reporting period in which the adjustment amounts are determined.

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

Significant estimates and assumptions in valuing certain acquired customer relationship intangible assets include estimates about future expected cash flows and discount rates.

Significant estimates and assumptions in valuing acquired developed technology intangible assets include estimates about future expected cash flows, obsolescence factors and discount rates.

ALARM.COM HOLDINGS, INC.

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December 31, 2022, 2021 and 2020

Significant estimates and assumptions in valuing acquired trade name intangible assets include estimates about future expected cash flows, royalty rates and discount rates.

During the measurement period, we may record adjustments to the assets acquired and liabilities assumed.

Any adjustments to provisional amounts that are identified during the measurement period are recorded in the reporting period in which the adjustment amounts are determined.

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

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

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The amount of goodwill impairment is calculated as the amount by which a reporting unit's carrying value exceeds its fair value, not to exceed the carrying amount of goodwill.

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.

Based on the results of our qualitative assessment, we determined that it was not more likely than not that the fair value of our reporting unit was less than its carrying amount, including goodwill.

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.

Based on the results of our quantitative assessment, we determined that it was not more likely than not that the fair value of our reporting unit was less than its carrying amount, including goodwill.

Therefore, we concluded that there was no goodwill impairment as of October 1, 2022.

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

For the years ended December 31, 2022 and 2020, we determined there were no impairments of our intangible assets with definite lives or other long-lived assets.

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

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

There were no impairments of any other long-lived assets for the year ended December 31, 2021.

Advertising Costs

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Advertising costs are included within sales and marketing expenses on our consolidated statements of operations.

ALARM.COM HOLDINGS, INC.

Notes to the Consolidated Financial Statements — (Continued)

December 31, 2022, 2021 and 2020

Accounting for Income Taxes

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

ALARM.COM HOLDINGS, INC.

Notes to the Consolidated Financial Statements — (Continued)

December 31, 2021, 2020 and 2019

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

In making such a determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies and results of recent operations.

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

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

Due to the uncertainty of realization of certain deferred tax assets related to our Canadian net operating losses and research and development tax credits, we established a valuation allowance of $ 0.3 million during the second quarter of 2019, which remained at $ 0.3 million as of December 31, 2021 and, due to evidence indicating it was more likely than not that the Canadian tax attributes would be realized prior to expiration, the Canadian valuation allowance was reduced to zero as of December 31, 2022.

During 2020, we established a valuation allowance of $ 1.3 million for state research and development tax credit carryforwards, which increased to $ 1.9 million as of December 31, 2021 and increased to $ 2.6 million as of December 31, 2022.

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

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

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

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

The conversion spread has a dilutive impact on diluted net income per share of common stock when the average market price of our common stock for a given period exceeds the conversion price of $ 147.19 per share for the 2026 Notes.

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

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

As a result, net income attributable to the common stockholders is equal to the net income less (i) dividends paid on unvested shares with any remaining earnings allocated in accordance with the bylaws between the outstanding common and preferred stock and (ii) net loss attributable to redeemable noncontrolling interest as of the end of each period.

Recent Accounting Pronouncements

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

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

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

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

On January 1, 2021, we adopted Topic 740.

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

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

On January 20, 2021, we issued the 2026 Notes.

Prior to the adoption of ASU 2020-06, since we expected to settle the principal amount on our outstanding 2026 Notes in cash and any excess in cash or shares of our common stock, we used the treasury stock method for calculating any potential dilutive effect of the conversion spread on diluted net income per share, if applicable.

The conversion spread had a dilutive impact on diluted net income per share of common stock when the average market price of our common stock for a given period exceeded the conversion price of $ 147.19 per share for the 2026 Notes.

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

As a result, we included 3,396,950 shares related to the 2026 Notes within the weighted average shares outstanding when calculating the diluted net income per share.

Additionally, we included debt issuance cost amortization, net of tax, within the numerator of the diluted net income per share.

Our redeemable noncontrolling interests are related to our 85 % equity ownership interest in OpenEye and Noonlight.

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

ALARM.COM HOLDINGS, INC.

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December 31, 2022, 2021 and 2020

Not Yet Adopted

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

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

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

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

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

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

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

outstanding common and preferred stock and (ii) net loss attributable to redeemable noncontrolling interests as of the end of each period.

Recent Accounting Pronouncements

On August 5, 2020, the Financial Accounting Standards Board, or 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.

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

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

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

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

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

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

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

increase convertible senior notes, net by $ 61.9 million;

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

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

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

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

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

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

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

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

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

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

Balance Sheet Caption As of January 1, 2022

Deferred tax assets $ 15,356

Additional paid-in capital ( 56,515 )

Convertible senior notes, net 61,899

Retained earnings 9,972

Our net income attributable to common stockholders increased $ 2.0 million 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.

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.

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.

See Note 16 for details on the components of basic and diluted earnings per share.

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

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

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

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

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

We adopted this guidance during the three months ended March 31, 2022 and there was no impact to the disclosures within the "Allowance for Credit Losses - Notes Receivable" section of Note 9 as there were no write-offs of notes receivable during the year ended December 31, 2022.

ALARM.COM HOLDINGS, INC.

Notes to the Consolidated Financial Statements — (Continued)

December 31, 2022, 2021 and 2020

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

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

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

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

We adopted this guidance during the three months ended September 30, 2022 and the adoption did not have a material impact on our consolidated financial statements during the year ended December 31, 2022.

Any future financial impact will be dependent on the magnitude and nature of future business combinations.

Revenue from Contracts with Customers

Contract Assets

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

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

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

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We did no t record an impairment loss on our contract assets during the years ended December 31, 2022, 2021 and 2020.

ALARM.COM HOLDINGS, INC.

Notes to the Consolidated Financial Statements — (Continued)

December 31, 2021, 2020 and 2019

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

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Beginning of period balance $ 14,837 $ 12,529 $ 10,498

Revenue deferred and acquired in current period 13,947 12,247 6,127

Revenue deferred and acquired in period 18,617 13,947 12,247

Revenue recognized from amounts included in contract liabilities ( 15,122 ) ( 11,639 ) ( 10,216 )

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The revenue recognized from amounts included in contract liabilities primarily relates to prepayment contracts with customers as well as payments of activation fees.

ALARM.COM HOLDINGS, INC.

Notes to the Consolidated Financial Statements — (Continued)

December 31, 2022, 2021 and 2020

Accounts Receivable, Net

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Accounts receivable, net $ 124,283 $ 105,548

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

For the years ended December 31, 2022 and 2020, we recorded a provision for credit losses on our accounts receivable of $ 1.2 million and $ 2.2 million, respectively.

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

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

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

For the years ended December 31, 2022, 2021 and 2020, we recorded a $ 4.7 million, $ 2.5 million and $ 1.8 million reserve for product returns in our hardware and other revenue, respectively.

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

ALARM.COM HOLDINGS, INC.

Notes to the Consolidated Financial Statements — (Continued)

December 31, 2021, 2020 and 2019

Allowance for Credit Losses - Accounts Receivable

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

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

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

(Provision for) / recovery of expected credit losses ( 1,199 ) 43 860 ( 85 )

Write-offs 479 10 1,547 206

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Real property is amortized on a straight-line basis over lives ranging from 15 to 39 years and the improvements related to real property are amortized on a straight-line basis over the shorter of the life of the underlying real property or the asset lives.

ALARM.COM HOLDINGS, INC.

Notes to the Consolidated Financial Statements — (Continued)

December 31, 2022, 2021 and 2020

The components of property and equipment, net are as follows (in thousands):

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We had no disposals and write-offs of property and equipment that impacted the consolidated statements of operations during the years ended December 31, 2022, 2021 and 2020.

Acquisition of a Business – Noonlight

On September 23, 2022, Alarm.com Incorporated, one of our wholly-owned subsidiaries, acquired 85 % of the issued and outstanding shares of capital stock of Noonlight.

Noonlight provides a connected safety and event management software and services platform that enables new applications and provides enhanced emergency response capabilities.

We believe the acquisition of Noonlight will enhance our comprehensive suite of interactive cloud-based services and allow us to expand markets for emergency response services as well as accelerate innovation in those services.

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 an outstanding loan issued to Noonlight during May of 2022 and $ 4.9 million related to agreed holdback provisions.

See Note 9 for further details on the loan to Noonlight, including the settlement of the outstanding principal and interest.

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 less than $ 0.1 million.

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.

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 q uarter of 2024, subject to offset for any indemnification obligations.

As a result of the acquisition of Noonlight, we recorded approximately $ 0.8 million in acquisition-related costs for the year ended December 31, 2022.

These costs include expenses directly related to acquiring Noonlight, are expensed as incurred and are included in general and administrative expense in our consolidated statements of operations.

We recorded a measurement period adjustment related to changes in working capital, which resulted in an increase to the purchase consideration by $ 0.2 million, a decrease to accounts payable of $ 0.1 million, a decrease accrued expenses by less than $ 0.1 million and an increase to other current assets of less than $ 0.1 million.

Additionally, we recorded a measurement period adjustment related to the assessment of the net operating losses acquired, which resulted in us recording a deferred tax asset of $ 2.6 million, which is presented net of the deferred tax liability of $ 2.3 million previously recorded in the acquisition, and a decrease to goodwill of $ 2.6 million.

The purchase price allocation was not finalized as of December 31, 2022 and is pending the final determination of the working capital adjustment as well as potential future tax adjustments.

ALARM.COM HOLDINGS, INC.

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December 31, 2022, 2021 and 2020

Asset Acquisitions

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

Substantially all of the acquired assets consisted of developed technology.

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

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

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

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

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

Substantially all of the acquired assets consisted of in-process research and development, or IPR&D.

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

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

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

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

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

We believe the acquisition of the IPR&D will continue to strengthen our smart intercom capability, including building access security and convenience within the multiple dwelling unit market for residents, guests and deliveries.

In consideration for the purchase of the IPR&D, we paid $ 1.2 million in cash on March 12, 2020 and the remaining $ 0.3 million in September 2021.

The $ 1.5 million consideration related to IPR&D was expensed at the time of the asset acquisition and was included in research and development expense in our consolidated statements of operations during 2020, as the IPR&D had no alternative future use.

On September 18, 2019, Alarm.com Incorporated acquired certain assets of an unrelated third party.

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

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

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

The $ 1.0 million consideration related to IPR&D was expensed at the time of the asset acquisition and was included in research and development expense in our consolidated statements of operations during 2019, as the IPR&D had no alternative future use.

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

September 23, 2022

Calculation of Purchase Consideration:

Cash paid, net of working capital adjustment $ 31,840

Outstanding principal and interest of loan provided to Noonlight 1,537

Holdback consideration 4,910

Total consideration $ 38,287

Estimated Tangible and Intangible Net Assets:

Accounts receivable 291

Other current and non-current assets 200

Property and equipment 45

Deferred tax assets 272

Developed technology 9,335

Trade names 150

Accounts payable ( 321 )

Accrued expenses and other current liabilities ( 318 )

Deferred revenue ( 67 )

Redeemable noncontrolling interest ( 6,770 )

Goodwill 35,282

Total tangible and intangible net assets $ 38,287

Goodwill of $ 35.3 million reflects the value of acquired workforce and synergies we expect to achieve from integrating Noonlight's suite of emergency response cloud-managed application program interfaces into our existing comprehensive suite of interactive cloud-based services.

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

We allocate goodwill to reporting units based on expected benefit from synergies and have allocated the goodwill to the Alarm.com segment.

Fair Value of Net Assets Acquired and Intangibles

The acquired activities and assets in the purchase of Noonlight constituted a business and with the exception of contract liabilities accounted for under Topic 606, in accordance with ASC 805, " Business Combinations ," the assets and liabilities were recorded at their respective fair values as of September 23, 2022.

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

Developed Technology

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

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

The significant assumptions used in the income approach include estimates about future expected cash flows from the developed technology, the obsolescence factor and the discount rate.

We are amortizing the Noonlight developed technology, valued at $ 9.3 million, on an attribution method based on the discounted cash flows of the model over an estimated useful life of seven years .

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

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

We are amortizing the trade names, valued at $ 0.2 million, on an attribution basis derived from the discounted cash flows of the model over an estimated useful life of five years .

ALARM.COM HOLDINGS, INC.

Notes to the Consolidated Financial Statements — (Continued)

December 31, 2022, 2021 and 2020

Redeemable Noncontrolling Interests

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

The Noonlight stockholder agreement contains a put option that gives the minority Noonlight stockholders the right to sell their remaining 15 % equity ownership interest to us based on the fair value of the shares and also contains a call option that gives us the right to purchase the remaining Noonlight shares from the minority Noonlight stockholders based on the fair value of the shares.

The put and call options can each be exercised beginning in the first quarter of 2026.

The redeemable noncontrolling interest was recorded at fair value on September 23, 2022, by applying the income approach using unobservable inputs for projected cash flows, including projected financial results and a discount rate, which are considered Level 3 inputs.

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

The redemption value of the Noonlight noncontrolling interest was $ 6.8 million as of September 23, 2022 and $ 6.6 million as of December 31, 2022.

Business Combinations in Operations - Noonlight

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

The pro forma information as well as the revenue and net losses of the business combination were not material to the consolidated financial statements for the year ended December 31, 2022.

Acquisition of a Business - Shooter Detection Systems

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Fair Value of Net Assets Acquired and Intangibles

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

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

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

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

Acquisition of a Business - OpenEye

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

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

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

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

Pursuant to the terms of the stock purchase agreement, following the preliminary determination of the working capital of OpenEye as of the closing date, the purchase price increased by $ 0.2 million.

The working capital adjustment was finalized and paid to the stockholders of OpenEye in the second quarter of 2020 along with a portion of the holdback.

The remaining amount of the holdback is expected to be paid to the stockholders of OpenEye by the fourth quarter of 2022, subject to offset for any indemnification obligations.

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

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

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

October 21, 2019

Calculation of Purchase Consideration:

Cash paid, net of working capital adjustment $ 61,403

Holdback consideration 2,820

Contingent consideration 2,793

Total consideration $ 67,016

Tangible and Intangible Net Assets:

Accounts receivable 5,742

Inventory 4,687

Other current assets 216

Property and equipment 296

Customer relationships 19,805

Developed technology 16,583

Trade name 2,219

Accounts payable ( 2,746 )

Accrued expenses ( 1,017 )

Other current liabilities ( 1,683 )

Deferred tax liability ( 9,209 )

Deferred revenue ( 889 )

Redeemable noncontrolling interest ( 11,411 )

Goodwill 42,071

Total tangible and intangible net assets $ 67,016

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

ALARM.COM HOLDINGS, INC.

Notes to the Consolidated Financial Statements — (Continued)

December 31, 2021, 2020 and 2019

for domestic and international commercial enterprises.

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

We allocate goodwill to reporting units based on expected benefit from synergies and have allocated the goodwill to the Alarm.com segment.

The purchase price allocation for the purchase of 85 % of the issued and outstanding capital stock of OpenEye was finalized during the second quarter of 2020.

The final fair value of the assets and liabilities reflects an increase of $ 0.7 million in the deferred tax liability and an increase of $ 0.7 million in goodwill based on a measurement period adjustment determined upon filing of the pre-acquisition period tax return related to our purchase of 85 % of the issued and outstanding capital stock of OpenEye.

Fair Value of Net Assets Acquired and Intangibles

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

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

Customer Relationships

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

We valued the single group of customer relationships using the multi-period excess earnings method, an income approach.

The significant assumptions used in the income approach include estimates about future expected cash flows from customer contracts, the attrition rate and the discount rate.

We are amortizing the customer relationships, valued at $ 19.8 million, on an attribution basis derived from the discounted cash flows of the model over an estimated useful life of 13 years.

Developed Technology

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

We valued the developed technology by applying the relief from royalty method, an income approach.

The significant assumptions used in the relief from royalty method include estimates about future expected cash flows from the developed technology, the royalty rate, the obsolescence factor and the discount rate.

We are amortizing the OpenEye developed technology, valued at $ 16.6 million, on an attribution method based on the discounted cash flows of the model over an estimated useful life of nine years .

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

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

We are amortizing the trade names, valued at $ 2.2 million, on an attribution basis derived from the discounted cash flows of the model over an estimated useful life of five years .

Redeemable Noncontrolling Interests

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

The OpenEye stockholder agreement contains a put option that gives the minority OpenEye stockholders the right to sell their remaining 15 % equity ownership interest to us based on the fair value of the shares.

The put and call options can each be exercised beginning in the first quarter of 2023.

The redeemable noncontrolling interest was recorded at fair value on October 21, 2019, by applying the income approach using unobservable inputs for projected cash flows, including projected financial results and a discount rate, which are considered Level 3 inputs.

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

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

Contingent Consideration

We accounted for the contingent consideration related to the potential earn-out payment 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.

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

As of December 31, 2020, the 2020 revenue targets were not met and the fair value of the contingent consideration related to the potential earn-out payment decreased to zero .

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

ALARM.COM HOLDINGS, INC.

Notes to the Consolidated Financial Statements — (Continued)

December 31, 2021, 2020 and 2019

Unaudited Pro Forma Information - SDS

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Net loss ( 413 )

Unaudited Pro Forma Information - OpenEye

The following unaudited pro forma data is presented as if OpenEye were included in our historical consolidated statements of operations beginning January 1, 2018.

These pro forma results do not necessarily represent what would have occurred if all the business combination had taken place on January 1, 2018, nor do they represent the results that may occur in the future.

This pro forma financial information includes our historical financial statements and those of our OpenEye business combination with the following adjustments:

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

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

Year Ended December 31,

Revenue $ 527,550 $ 451,013

Net income attributable to common stockholders 51,075 13,264

Net income attributable to common stockholders per share - basic $ 1.05 $ 0.27

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

Asset Acquisitions

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

Substantially all of the acquired assets consisted of developed technology.

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

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

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

Substantially all of the acquired assets consisted of in-process research and development, or IPR&D.

ALARM.COM HOLDINGS, INC.

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December 31, 2022, 2021 and 2020

Business Combinations in Operations - OpenEye

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

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

Year Ended December 31, 2019

Revenue $ 5,863

Net loss ( 1,646 )

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

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

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

In consideration for the purchase of the IPR&D, we paid $ 1.2 million in cash on March 12, 2020 and the remaining $ 0.3 million in September 2021.

Goodwill and Intangible Assets, Net

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

Goodwill acquired — — —

Goodwill acquired - initial measurement 37,907 — 37,907

Measurement period adjustment ( 2,625 ) — ( 2,625 )

Balance as of December 31, 2022 $ 148,183 $ — $ 148,183

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

On September 23, 2022, we acquired 85 % of the issued and outstanding shares of capital stock of Noonlight and initially recorded $ 37.9 million of goodwill in the Alarm.com segment.

Additionally, we recorded a measurement period adjustment related to the assessment of the net operating losses acquired, which resulted in us recording a decrease to goodwill of $ 2.6 million.

There were no impairments of goodwill recorded during the years ended December 31, 2022, 2021 or 2020.

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Intangible assets acquired — 5,307 — 5,307

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

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

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Intangible assets acquired — 9,335 150 9,485

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

Amortization ( 11,904 ) ( 5,939 ) ( 590 ) ( 18,433 )

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We recorded $ 18.4 million, $ 17.1 million and $ 16.6 million of amortization related to our intangible assets for the years ended December 31, 2022, 2021 and 2020, respectively.

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

There were no impairments of long-lived intangible assets during the years ended December 31, 2022 and 2020.

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

ALARM.COM HOLDINGS, INC.

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December 31, 2022

Amount Impairment of Intangible Assets Accumulated

Amount Accumulated

Amortization Net

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Trade name 3,937 ( 2,554 ) 1,383 2.4

Other 234 — ( 234 ) — 0.0

Total intangible assets $ 188,300 $ ( 105,842 ) $ 82,458 6.5

December 31, 2021

Amount Accumulated

Amount Impairment of Intangible Assets Accumulated

Amortization Net

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

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

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

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

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

Patent amortization cost of $ 0.3 million, $ 0.4 million and $ 0.4 million was included in cost of SaaS and license revenue in our consolidated statements of operations for each of the years ended December 31, 2022, 2021 and 2020.

Patent amortization cost of $ 0.3 million, $ 0.3 million and $ 0.2 million was included in amortization and depreciation in our consolidated statements of operations for the year ended December 31, 2022, 2021 and 2020, respectively.

ALARM.COM HOLDINGS, INC.

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Loan to a Distribution Partner

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

As of December 31, 2021 and 2020, none of the notes receivable balance related to the amended term loan was outstanding.

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

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

In December 2022, we amended the subordinated credit agreement with the affiliated entity of the distribution partner.

The amended subordinated credit agreement matures on June 18, 2027 and interest on the outstanding principal balance accrues at a rate of 12.0 % per annum and is payable in kind.

Under the amended terms, the distribution partner paid us $ 1.0 million in paid-in-kind interest in December 2022.

As of December 31, 2022 and 2021, $ 4.0 million and $ 4.6 million of the notes receivable balance related to the subordinated credit agreement was included in other assets in our consolidated balance sheets, respectively.

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

For the years ended December 31, 2022, 2021 and 2020, we recognized $ 2.7 million, $ 3.0 million and $ 2.4 million of revenue from the distribution partner associated with these loans, respectively.

Loan to a Service Provider Partner

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

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

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

Loan to and Investment in a Hardware Supplier

In October 2018, we entered into a subordinate convertible promissory note with one of our hardware suppliers, or the October 2018 Promissory Note, which was subsequently amended.

In March 2019, we entered into a separate secured promissory note with the same hardware supplier, which, together with the October 2018 Promissory Note, we refer to as the Promissory Notes.

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

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

The Acquired Promissory Note had an outstanding balance of $ 26.6 million as of December 31, 2018, including interest.

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

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

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

For the years ended December 31, 2022, 2021 and 2020, we recognized $ 0.2 million, $ 0.2 million and $ 0.1 million of revenue from the service provider partner associated with this loan, respectively.

Loan to Noonlight

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

Interest on the outstanding principal accrued at a rate per annum equal to 7.0 %.

The outstanding interest and principal balances were previously included in other current assets in our consolidated balance sheet and were used to reduce the payment we made on September 23, 2022 to acquire 85 % of the issued and outstanding shares of capital stock of Noonlight.

As of December 31, 2022, no principal or interest was outstanding from Noonlight under the loan agreement.

Prior to the acquisition of Noonlight on September 23, 2022, for the years ended December 31, 2022, 2021 and 2020, we did no t record any revenue from Noonlight.

Loan to a Technology Partner

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

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

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

As of December 31, 2022, $ 1.5 million of principal was outstanding from the technology partner under the convertible promissory note.

For the years ended December 31, 2022, 2021 and 2020, we did not record any revenue from the technology partner associated with this convertible promissory note.

Investment in a Hardware Supplier

In October 2018, we entered into a subordinate convertible promissory note with one of our hardware suppliers.

In July 2019, we converted the outstanding notes receivable balance of $ 5.6 million into 9,520,832 shares of Series B preferred stock in the hardware supplier.

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

Under the alternative, we measure investments without readily determinable fair values at cost, less impairment, adjusted for observable price changes

ALARM.COM HOLDINGS, INC.

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December 31, 2022, 2021 and 2020

measured as of May 4, 2019.

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

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

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

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

from orderly transactions for identical or similar investments.

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

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

Investment in a Technology Partner

Investments in Technology Partners

In December 2016, we paid $ 0.3 million for a convertible promissory note with a technology partner.

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

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

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

Our investment in the technology partner was $ 5.7 million as of December 31, 2022 and 2021, respectively.

In December 2022, we paid $ 5.1 million in cash to another technology partner to purchase 4,231,717 shares of its Series A Preferred Stock.

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.

As of December 31, 2022, our investment in the technology partner supplier was $ 5.1 million.

Investment in a Platform Partner

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

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

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

As of December 31, 2022 and 2021 , our investment in the platform partner was zero .

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

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

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

Recovery of / (provision for) expected credit losses 77 1 ( 6 ) 15

Write-offs — — — —

End of period balance $ ( 2 ) $ — $ ( 79 ) $ ( 1 )

ALARM.COM HOLDINGS, INC.

Notes to the Consolidated Financial Statements — (Continued)

December 31, 2021, 2020 and 2019

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

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

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

December 31, 2022

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Total $ 1,500 $ — $ 1,093 $ 1 $ — $ 4,015 $ 6,609

Hardware Financing Receivables:

Current $ — $ — $ 4 $ — $ — $ — $ 4

30-59 days past due — — 6 — — — 6

60-89 days past due — — 11 — — — 11

90-119 days past due — — — — — — —

120+ days past due — — — — — — —

Total $ — $ — $ 21 $ — $ — $ — $ 21

ALARM.COM HOLDINGS, INC.

Notes to the Consolidated Financial Statements — (Continued)

December 31, 2022, 2021 and 2020

December 31, 2021

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Total $ — $ — $ 21 $ — $ — $ — $ 21

ALARM.COM HOLDINGS, INC.

Notes to the Consolidated Financial Statements — (Continued)

December 31, 2021, 2020 and 2019

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

December 31, 2021 December 31, 2020

Loan receivables $ — $ —

Hardware financing receivables — 9

Total $ — $ 9

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

During the years ended December 31, 2022, 2021 and 2020, there was no interest income recognized related to notes receivables that were in nonaccrual status.

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Prepaid Expenses

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

As of December 31, 2022 and 2021, $ 14.5 million and $ 17.7 million of prepaid expenses were included in other current assets, respectively, primarily related to software licenses, long lead-time parts related to our inventory and insurance.

Fair Value Measurements

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

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

Fair Value Measurements on a Recurring Basis

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679,278 — — 679,278

Subsidiary long-term incentive plan December 31, 2021

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

$ — $ — $ — $ —

Subsidiary long-term incentive plan December 31, 2020

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

— — 3,351 3,351

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

ALARM.COM HOLDINGS, INC.

Notes to the Consolidated Financial Statements — (Continued)

December 31, 2022, 2021 and 2020

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

Year Ended December 31,

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

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

Changes in fair value included in earnings ( 247 ) 2,351

Reclassification to additional paid in capital upon modification

End of period balance $ — $ 3,351

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

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

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

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

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

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

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

ALARM.COM HOLDINGS, INC.

Notes to the Consolidated Financial Statements — (Continued)

December 31, 2021, 2020 and 2019

simulation model which involves several Level 3 unobservable inputs.

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

As of December 31, 2022, $ 509.6 million of our money market accounts was included in cash and cash equivalents and $ 0.7 million was included in other assets in our consolidated balance sheets.

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

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

See Note 13 for the carrying amount and estimated fair value of the 2026 Notes as of December 31, 2022 and 2021.

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

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

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

We estimated the fair value of the liability by using a Monte Carlo simulation model which involves several Level 3 unobservable inputs.

The significant unobservable inputs used in the valuation included a weighted average revenue volatility and the revenue risk adjustment.

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

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

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

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

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

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

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

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

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

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

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

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

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

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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, 2022 .

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

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

There were no transfers in or out of Level 3 during the years ended December 31, 2021, 2020 and 2019.

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

No other-than-temporary impairments occurred during the years ended December 31, 2021, 2020 and 2019.

There were no transfers into Level 3 or reclassifications between levels of the fair value hierarchy during the years ended December 31, 2022, 2021 and 2020.

ALARM.COM HOLDINGS, INC.

Notes to the Consolidated Financial Statements — (Continued)

December 31, 2022, 2021 and 2020

We lease office space, data centers and office equipment under non-cancelable operating leases with various expiration dates through 2031.

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Weighted-average discount rate — operating leases 3.9 % 3.6 %

ALARM.COM HOLDINGS, INC.

Notes to the Consolidated Financial Statements — (Continued)

December 31, 2021, 2020 and 2019

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

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

ALARM.COM HOLDINGS, INC.

Notes to the Consolidated Financial Statements — (Continued)

December 31, 2022, 2021 and 2020

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

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Accrued expenses 17,539 19,894

Income taxes payable 43,576 —

Other current liabilities 5,421 5,171

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2022 December 31,

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

Holdback liability from asset acquisition and business combination $ 4,560 $ 850

Subsidiary long-term incentive plan — 3,351

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

ALARM.COM HOLDINGS, INC.

Notes to the Consolidated Financial Statements — (Continued)

December 31, 2021, 2020 and 2019

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

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

No sinking fund is provided for the 2026 Notes.

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(1) during any calendar quarter commencing after the calendar quarter ending on June 30, 2021 (and only during such calendar quarter), if the last reported sale price of our common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130 % of the conversion price for the 2026 Notes on each applicable trading day;

(2) during the five business day period immediately after any 10 consecutive trading day period in which, for each trading day of that period, the trading price per $1,000 principal amount of 2026 Notes for such trading day was less than 98 % of the product of the last reported sale price of our common stock and the conversion rate for the 2026 Notes on each such trading day;

(2) during the 5 business day period immediately after any 10 consecutive trading day period in which, for each trading day of that period, the trading price per $1,000 principal amount of 2026 Notes for such trading day was less than 98 % of the product of the last reported sale price of our common stock and the conversion rate for the 2026 Notes on each such trading day;

(3) if we call any or all of the 2026 Notes for redemption, at any time prior to the close of business on the scheduled trading day immediately preceding the redemption date, but only with respect to the 2026 Notes called (or deemed called) for redemption;

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

On or after August 15, 2025, until the close of business on the second scheduled trading day immediately preceding the maturity date of the 2026 Notes, holders of the 2026 Notes may convert all or any portion of their 2026 Notes at any time, regardless of the foregoing conditions.

ALARM.COM HOLDINGS, INC.

Notes to the Consolidated Financial Statements — (Continued)

December 31, 2022, 2021 and 2020

regardless of the foregoing conditions.

Upon conversion, we may satisfy our conversion obligation by paying or delivering, as the case may be, cash, shares of our common stock or a combination of cash and shares of our common stock, at our election.

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We are using the remaining net proceeds from the issuance of the 2026 Notes for working capital and other general corporate purposes, which may include acquisitions or strategic investments in complementary businesses or technologies.

In accounting for the transaction, the 2026 Notes were separated into liability and equity components.

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

As discussed in Note 2, we adopted ASU 2020-06, " Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40):

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

Prior to the adoption of the standard, the 2026 Notes were separated into liability and equity components.

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

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

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

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

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

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

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

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

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

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

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

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

Prior to the adoption of ASU 2020-06, the difference between the book and tax treatment of the debt discount and debt issuance costs of the 2026 Notes resulted in a difference between the carrying amount and tax basis of the 2026 Notes.

This taxable temporary difference resulted in the recognition of a $ 18.3 million net deferred tax liability which was recorded as an adjustment to additional paid-in capital during the three months ended March 31, 2021.

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

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

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

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

As of December 31, 2022 and 2021, the fair value of our 2026 Notes was $ 411.5 million and $ 452.5 million, respectively.

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

Based on the closing price of our common stock of $ 49.48 on the last trading day of the quarter, the if-converted value of the 2026 Notes did not exceed the principal amount of $ 500.0 million as of December 31, 2022.

ALARM.COM HOLDINGS, INC.

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December 31, 2022, 2021 and 2020

the fair value hierarchy.

Based on the closing price of our common stock of $ 84.81 on the last trading day of the quarter, the if-converted value of the 2026 Notes did not exceed the principal amount of $ 500.0 million as of December 31, 2021.

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

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Net carrying amount $ 490,370 $ 425,345

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

2021 December 31,

Debt discount for conversion option $ 77,199 $ —

Debt issuance costs ( 2,424 ) —

Net carrying amount $ 74,775 $ —

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

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Total interest expense $ 3,126 $ 15,817 $ —

The difference between the book and tax treatment of the debt discount and debt issuance costs of the 2026 Notes resulted in a difference between the carrying amount and tax basis of the 2026 Notes.

2017 Facility

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

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

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

There were no amounts outstanding under the 2017 Facility as of December 31, 2022 and 2021 as a result of the termination of the 2017 Facility on January 20, 2021.

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

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

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

ALARM.COM HOLDINGS, INC.

Notes to the Consolidated Financial Statements — (Continued)

December 31, 2021, 2020 and 2019

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

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

Commitments and Contingencies

Contingent Consideration

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

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

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

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

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

As of December 31, 2020, the 2020 revenue targets were not met and the fair value of the contingent consideration related to the potential earn-out payment decreased to zero as compared to the initial liability recorded at the acquisition date, primarily due to OpenEye's 2020 actual revenue being less than the projected revenue (see Note 10).

Indemnification Agreements

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

ALARM.COM HOLDINGS, INC.

Notes to the Consolidated Financial Statements — (Continued)

December 31, 2022, 2021 and 2020

Legal Proceedings

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These decisions were affirmed on appeal.

Vivint is proceeding with its case on three patents.

Discovery closed on October 29, 2021.

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both motions are pending decision.

Vivint has also moved to assert previously abandoned claims from two of the patents in a new proceeding.

We have opposed the motion.

No trial date has been set.

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

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

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

District Court, Eastern District of Virginia granted the PTO’s motion to dismiss the case for lack of jurisdiction on June 22, 2021.

We appealed the dismissal to the Federal Circuit on June 24, 2021.

Should Vivint prevail in proving Alarm.com infringes one or more of its patent claims, we could be required to pay damages of Vivint’s lost profits and/or a reasonable royalty for sales of our solution.

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

Further related to Vivint, 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.

Vivint has stopped paying license fees to Alarm.com under the agreement.

Vivint has paid the required license fees to Alarm.com since the agreement was executed in November 2013.

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.

There can be no assurance that Alarm.com will be successful in the arbitration proceedings.

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.

We also believe that quarterly earnings and cash flow will be impacted by the aforementioned $ 6.0 million estimate, plus additional legal fees.

We also filed a lawsuit against Vivint on January 4, 2023 in U.S.

District Court, Eastern District of Texas, alleging that Vivint infringes 15 of our patents.

The case is docketed as No.

2:23-CV-0004-JRG-RSP (E.D.

We are seeking compensatory and enhanced damages, a permanent injunction and other relief.

Vivint’s response to the complaint is due February 27, 2023.

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

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

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

We moved to dismiss the case for failure to state a claim on March 28, 2022.

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

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

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

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

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

Should EcoFactor prevail in its lawsuit we could be required to pay damages and/or a reasonable royalty for sales of our solution, we could be enjoined from making, using and selling our solution if a license or other right to continue selling such elements is not made available to us, and we could be required to pay ongoing royalties and comply with unfavorable terms if such a license is made available to us.

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patents owned by Causam.

Causam is seeking preliminary

ALARM.COM HOLDINGS, INC.

Notes to the Consolidated Financial Statements — (Continued)

December 31, 2021, 2020 and 2019

and permanent injunctions, enhanced damages and attorneys’ fees.

Causam is seeking preliminary and permanent injunctions, enhanced damages and attorneys’ fees.

We have not yet responded to the complaint.

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

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

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

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

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

On February 16, 2023, the ITC issued a final decision in favor of Alarm.com and EnergyHub.

Causam has until April 17, 2023 to file an appeal of the decision in federal court.

ALARM.COM HOLDINGS, INC.

Notes to the Consolidated Financial Statements — (Continued)

December 31, 2022, 2021 and 2020

Should Causam prevail in its district court lawsuit we could be required to pay damages and/or a reasonable royalty for sales of our solution, we could be enjoined from making, using and selling our solution if a license or other right to continue selling such elements is not made available to us, and we could be required to pay ongoing royalties and comply with unfavorable terms if such a license is made available to us.

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On February 25, 2021, Vivint filed a lawsuit against ADT LLC a/k/a ADT LLC of Delaware d/b/a ADT Security Services in U.S.

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

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

Vivint is seeking damages and attorneys’ fees.

Vivint filed an amended complaint on March 24, 2021.

ADT answered the amended complaint on April 30, 2021 and asserted defenses based on non-infringement and invalidity of all the patents in question, and inequitable conduct as to one of the patents.

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

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

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

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

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

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

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

Two of the asserted patents are under inter partes review at the PTAB.

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

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

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

Further, on November 4, 2022 and January 13, 2023, IOT Innovations LLC sued our service provider Monitronics International, Inc.

d/b/a Brinks in U.S.

District Court, Eastern District of Texas, alleging patent infringement of certain products and services sold by Monitronics.

Monitronics filed a Motion to Dismiss the first-filed case on January 24, 2023.

The cases are in the preliminary stages and the extent of Alarm.com’s indemnify obligations to Monitronics has not yet been determined, however should IOT Innovations prevail on the claims that one or more elements of Monitronics’ products or services infringe, we could be required to indemnify Monitronics for damages in the form of a reasonable royalty or Monitronics could be enjoined from making, using and selling our solution if a license or other right to continue selling our technology is not made available or we are unable to design around such patents, and required to pay ongoing royalties and comply with unfavorable terms if such a license is made available to us.

The outcome of these legal claims cannot be predicted with certainty.

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

We may also be a party to litigation and subject to claims incident to the ordinary course of business.

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

ALARM.COM HOLDINGS, INC.

Notes to the Consolidated Financial Statements — (Continued)

December 31, 2021, 2020 and 2019

Common and Preferred Stock

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Each outstanding share of common stock is entitled to one vote per share.

ALARM.COM HOLDINGS, INC.

Notes to the Consolidated Financial Statements — (Continued)

December 31, 2022, 2021 and 2020

Stock Repurchase Programs

On November 29, 2018, our board of directors authorized a stock repurchase program, under which we were authorized to purchase up to an aggregate of $ 75.0 million of our outstanding common stock during the two-year period that ended on November 29, 2020.

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

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

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

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

During the 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.

On February 15, 2023, our board of directors authorized, to be effective February 23, 2023, the cancellation of the balance under the stock repurchase program ending December 3, 2023 and also authorized a stock repurchase program, under which we are authorized to purchase up to an aggregate of $ 100.0 million of our outstanding common stock during the two-year period ending February 23, 2025.

Shares Withheld

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

No tax withholdings related to the vesting of restricted stock units were paid during the year ended December 31, 2022.

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.

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Stock-Based Compensation

Stock-based compensation expense was included in the following line items in the consolidated statements of operations (in thousands):

Stock-based compensation expense is included in the following line items in the consolidated statements of operations (in thousands):

Year Ended December 31,

Stock-based compensation expense data:

2022 2021 2020

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

ALARM.COM HOLDINGS, INC.

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December 31, 2022, 2021 and 2020

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

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

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

The number of shares of common stock reserved for issuance under the 2015 Plan will automatically increase on January 1 each year, for a period of not more than 10 years, commencing on January 1, 2016 through January 1, 2024, by 5.0 % of the total number of shares of common stock outstanding on December 31 of the preceding calendar year, or a lesser number of shares as may be determined by the board of directors.

As a result of the adoption of the 2015 Plan, no further grants may be made under the 2009 Plan.

As of December 31, 2022, 7,620,703 shares remained available for future grant under the 2015 Plan.

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

In November 2022, our board of directors determined that the January 1, 2023 increase in the number of shares reserved for issuance under the 2015 Plan would be 5.0 % of the total number of shares of common stock outstanding on December 31, 2022, or 2,472,635 shares.

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

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

Stock Options

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We did not repurchase any unvested shares of common stock related to early exercised stock options in connection with employee terminations during the years ended December 31, 2022, 2021 and 2020.

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

There were no proceeds from the early exercise of the unvested stock options reflected in accounts payable, accrued expenses and other current liabilities on our consolidated balance sheets as of December 31, 2022 and 2021.

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Treasury securities consistent with the expected term of our stock options.

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

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

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

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.

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

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

The expected volatility for options granted is based on historical volatilities of our stock over the estimated expected term of the stock options.

There were 184,500 , 143,700 and 143,650 stock options granted during the years ended December 31, 2022, 2021 and 2020, respectively.

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Cash received from exercises of stock options was $ 2.5 million, $ 4.2 million and $ 10.2 million during the years ended December 31, 2022, 2021 and 2020, respectively.

Stock Options Assumed from Acquisition

On March 8, 2017, we acquired certain assets and assumed certain liabilities of the Connect line of business and all of the outstanding equity interests of the two subsidiaries through which Icontrol Networks, Inc., or Icontrol, conducted its Piper line of business, or the Acquisition, and assumed the Icontrol 2013 Equity Incentive Plan and Icontrol 2003 Stock Plan, or collectively, the Icontrol Plans.

The assumed unvested stock options are exercisable for 70,406 shares of Alarm.com common stock.

On March 15, 2017, we filed a Form S-8 Registration Statement related to the Acquisition.

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

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

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

We applied our graded vesting accounting policy to the fair value of these assumed options and determined $ 1.4 million of the fair value was attributable to pre-combination services and was included as a component of total purchase consideration.

The remaining $ 0.3 million of the fair value was determined to be attributable to post-combination services and will be recognized over the remaining service periods of the stock options.

The following table summarizes the assumptions used for estimating the fair value of stock options assumed from the Connect business unit of Icontrol:

Year Ended December 31,

Volatility 42.7 - 44.4 %

Expected term 2.5 - 5.0 years

Risk-free interest rate 1.4 - 2.0 %

Dividend rate — %

ALARM.COM HOLDINGS, INC.

Notes to the Consolidated Financial Statements — (Continued)

December 31, 2021, 2020 and 2019

The following table summarizes the assumed stock option activity:

Options Weighted

Average Exercise

Price Per Share Weighted Average

Contractual Life

(in years) Aggregate

Intrinsic Value

(in thousands)

Outstanding as of December 31, 2020 7,633 $ 6.09 4.6 $ 743

Exercised ( 745 ) 4.57 58

Expired ( 361 ) 4.55

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

Vested and expected to vest as of December 31, 2021 6,527 $ 6.35 3.7 $ 512

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

The weighted average grant date fair value for the assumed stock options granted during the year ended December 31, 2017 was $ 4.78 .

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

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

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

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

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

Restricted Stock Units

There was an aggregate of 1,123,076 , 837,576 and 498,416 RSUs without performance conditions granted to certain of our employees and directors during the years ended December 31, 2022, 2021 and 2020, respectively.

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

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

There was an aggregate of 168,223 , 120,314 and 66,000 RSUs with performance conditions granted to certain of our employees during the years ended December 31, 2022, 2021 and 2020, respectively.

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

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

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

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

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

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

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

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

As of December 31, 2022, the total unrecognized compensation expense related to RSUs without performance conditions was $ 82.9 million, which is expected to be recognized over a weighted average period of 2.5 years.

As of December 31, 2022, the total unrecognized compensation expense related to RSUs with performance conditions was $ 12.3 million, which is expected to be recognized over a weighted average period of 2.9 years.

The following table summarizes RSU activity:

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The total fair value of RSUs without performance conditions vested during the years ended December 31, 2022, 2021 and 2020 was $ 24.3 million, $ 20.9 million and $ 9.0 million, respectively.

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

The total fair value of RSUs with performance conditions vested during the years ended December 31, 2022, 2021 and 2020 was zero , $ 1.1 million and zero , respectively.

Employee Stock Purchase Plan

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Net income $ 55,631 $ 51,175 $ 76,660

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

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

Weighted average common shares outstanding — basic (B) 49,869,857 48,950,328 48,427,446

Dilutive effect of stock options and restricted stock units 2,050,045 2,012,862 1,846,443

Weighted average common shares outstanding — diluted (C) 51,919,902 50,963,190 50,273,889

Net loss attributable to redeemable noncontrolling interests 707 1,084 1,193

Net income attributable to common stockholders - basic (A) $ 56,338 $ 52,259 $ 77,853

Add back interest expense, net of tax, attributable to convertible senior notes 2,352 — —

Net income attributable to common stockholders - diluted (B)

$ 58,690 $ 52,259 $ 77,853

Weighted average common shares outstanding — basic (C) 49,926,236 49,869,857 48,950,328

Dilutive effect of convertible senior notes, stock options and restricted stock units 5,006,521 2,050,045 2,012,862

Weighted average common shares outstanding — diluted (D) 54,932,757 51,919,902 50,963,190

Net income per share:

Basic (A/B) $ 1.05 $ 1.59 $ 1.11

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

Basic (A/C) $ 1.13 $ 1.05 $ 1.59

Diluted (B/D) $ 1.07 $ 1.01 $ 1.53

ALARM.COM HOLDINGS, INC.

Notes to the Consolidated Financial Statements — (Continued)

December 31, 2022, 2021 and 2020

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

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Restricted stock units 242,842 11,630 62,194

Common stock subject to repurchase — — 250

ALARM.COM HOLDINGS, INC.

Notes to the Consolidated Financial Statements — (Continued)

December 31, 2021, 2020 and 2019

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

The OpenEye stockholder agreement contains a put option that gives the minority OpenEye stockholders the right to sell their OpenEye shares to us based on the fair value of the shares.

The put and call options can each be exercised beginning in the first quarter of 2023.

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

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

Our redeemable noncontrolling interests relate to our 85 % equity ownership interest in OpenEye and Noonlight.

See Note 2 and Note 7 for details on the put options and call options contained in the OpenEye and Noonlight stockholder agreements.

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

Significant Service Providers

During the years ended December 31, 2021, 2020 and 2019, our 10 largest revenue service provider partners accounted for 47 %, 48 % and 52 % of our consolidated revenue.

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

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

Additionally, we included $ 2.4 million of debt issuance cost amortization, net of tax, within the numerator of the diluted net income per share for the year ended December 31, 2022.

Significant Service Providers and Distributors

During the years ended December 31, 2022, 2021 and 2020, our 10 largest revenue service provider partners or distributors accounted for 49 %, 47 % and 48 % of our consolidated revenue.

One of our service provider partners within the Alarm.com segment individually represented greater than 15 % but not more than 20 % of our revenue for the years ended December 31, 2022, 2021 and 2020.

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

Two service provider partners or distributors in the Alarm.com segment represented more than 10% of accounts receivable as of December 31, 2022.

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

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

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Tax windfall benefits ( 3.0 ) ( 18.8 ) ( 8.8 )

Change in tax rate — ( 0.2 ) 0.4

Foreign withholding tax 1.2 1.9 0.5

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Subsidiary unit compensation — 804

Equity investments — 31

Inventory reserve 654 439

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Tax credits 3,085 9,405

Capitalized research and development expenditures 53,901 —

Other 786 577

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Sales commissions ( 1,138 ) ( 896 )

Contingent liability — ( 171 )

Internally developed software — ( 147 )

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Our effective income tax rates were 1.7 %, ( 11.1 )% and 4.4 % for the years ended December 31, 2022, 2021 and 2020, respectively.

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

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.

ALARM.COM HOLDINGS, INC.

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December 31, 2022, 2021 and 2020

based payment transactions, research and development tax credits claimed and foreign derived intangible income deductions, partially offset by the impact of foreign withholding taxes, nondeductible compensation and other nondeductible expenses.

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

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

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

Due to the uncertainty of realization of certain deferred tax assets acquired in 2017 related to our Canadian net operating losses and research and development tax credits, we established a valuation allowance of $ 0.3 million during the second quarter of 2019, which remained at $ 0.3 million as of December 31, 2021 and, due to evidence indicating it was more likely than not that the Canadian tax attributes would be realized prior to expiration, the Canadian valuation allowance was reduced to zero as of December 31, 2022.

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

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

We recorded an increase to the unrecognized tax benefits of $ 1.4 million, $ 1.1 million and $ 0.6 million primarily for research and development tax credits claimed during the years ended December 31, 2021, 2020 and 2019, respectively.

As of December 31, 2021 and 2020, we accrued $ 0.2 million and $ 0.1 million of total interest related to unrecognized tax benefits, respectively.

We recorded an increase to the unrecognized tax benefits liability of $ 2.1 million, $ 1.4 million and $ 1.1 million primarily for research and development tax credits claimed during the years ended December 31, 2022, 2021 and 2020, respectively.

We believe that it is reasonably possible within the next 12 months that a decrease of up to $ 0.7 million in unrecognized tax benefits may be recognized as a result of a lapse of the statute of limitations.

Our unrecognized tax benefits as of December 31, 2022 and 2021 includes unrecognized tax benefits of $ 7.4 million and $ 5.4 million, respectively, that if recognized, would reduce our income tax expense and effective tax rate.

As of December 31, 2022 and 2021, we accrued $ 0.3 million and $ 0.2 million of total interest expense related to unrecognized tax benefits, respectively.

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

We are not aware of any events that make it reasonably possible that there would be a significant change in our unrecognized tax benefits over the next twelve months.

Our cumulative liability for uncertain tax positions was $ 5.4 million and $ 4.2 million as of December 31, 2021 and 2020, respectively, and if recognized, would reduce our income tax expense and the effective tax rate.

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

As of December 31, 2022, we had gross U.S.

federal net operating loss carryforwards of $ 15.1 million, which will begin to expire in 2031 and we had Canadian Federal net operating loss carryforwards of $ 0.6 million, which are scheduled to begin to expire in 2034.

As of December 31, 2022, we had state net operating loss carryforwards of $ 2.0 million, which will begin to expire in 2034.

As of December 31, 2022, we had no federal research and development tax credit carryforwards.

As of December 31, 2022, we had state research and development tax credit carryforwards of $ 3.5 million, which will begin to expire in 2030.

The federal net operating loss carryforward arose in connection with the 2013 acquisition of EnergyHub and the 2022 acquisition of Noonlight.

Utilization of the acquired EnergyHub and Noonlight net operating loss carryforwards may be subject to annual limitations due to ownership change limitations as provided by the Internal Revenue Code of 1986, as amended.

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

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

We are no longer subject to U.S.

income tax examinations for years prior to 2018, with the exception that operating loss carryforwards generated prior to 2018 may be subject to tax audit adjustment.

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

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

for 2018, which is ongoing.

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

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

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

As of December 31, 2021, we had federal research and development tax credit carryforwards of $ 5.9 million, on a more likely than not basis, which are scheduled to begin to expire in 2041.

As of December 31, 2021, we had state research and development tax credit carryforwards of $ 3.8 million, on a more likely than not basis, which are scheduled to begin to expire in 2024.

The federal net operating loss carryforward arose in connection with the 2013 acquisition of EnergyHub.

Utilization of net operating loss carryforwards may be subject to annual limitations due to ownership change limitations as provided by the Internal Revenue Code of 1986, as amended.

On October 13, 2021, the Internal Revenue Service commenced an examination of our federal income tax return for 2018 and on August 12, 2022, the Internal Revenue Service expanded the examination to include our federal income tax return for 2019, both of which are ongoing.

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

In August 2022, the Inflation Reduction Act of 2022 was enacted in the United States which, among other provisions, includes a minimum 15.0% tax on companies that have a three-year average annual adjusted financial statement income of more than $1.0 billion and a 1.0% excise tax on the value of net corporate stock repurchases.

Both provisions are effective for tax years beginning after December 31, 2022.

We do not currently believe the 15.0% corporate minimum tax or the 1.0% tax on net corporate stock repurchases will have a material impact on our financial condition or results of operations.

Segment Information

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Our Alarm.com segment represents our cloud-based and Software platforms for the intelligently connected property and related solutions that contributed 94 %, 95 % and 94 % of our revenue, net of intersegment eliminations, for the years ended December 31, 2022, 2021 and 2020, respectively.

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

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

Our Other segment is focused on researching, developing and offering

ALARM.COM HOLDINGS, INC.

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December 31, 2022, 2021 and 2020

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

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

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

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Depreciation and amortization expense was $ 29.6 million, $ 29.3 million and $ 27.2 million for the Alarm.com segment for the years ended December 31, 2022, 2021 and 2020, respectively.

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

Depreciation and amortization expense was $ 1.2 million, $ 0.4 million and $ 0.3 million for the Other segment for the years ended December 31, 2022, 2021 and 2020, respectively.

Additions to property and equipment were $ 28.4 million, $ 9.7 million and $ 16.4 million for the Alarm.com segment for the years ended December 31, 2022, 2021 and 2020, respectively.

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We derived substantially all revenue from North America for the years ended December 31, 2022, 2021 and 2020.

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

Related Party Transactions

Installation Partner

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

We account for this investment using the equity method.

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

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

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

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

ALARM.COM HOLDINGS, INC.

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December 31, 2022, 2021 and 2020

Affiliate Lease

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

The one-year lease term expired on October 20, 2020 and was subsequently converted to a month-to-month lease until it was terminated on March 31, 2021.

Total minimum lease payments over the term of the lease were $ 0.2 million During the years ended December 31, 2021, 2020 and 2019, we recorded $ 0.1 million, $ 0.3 million and less than $ 0.1 million of rent of rent expense in connection with this lease arrangement.

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

Quarterly Financial Data (unaudited)

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In the opinion of management, the information for each of these quarters has been prepared on the same basis as our audited financial statements and include all adjustments, consisting of normal recurring adjustments and accruals, necessary for the fair statement of financial information in accordance with GAAP.

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

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

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

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

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

However, the global economy, credit markets and financial markets have and may continue to experience significant volatility as a result of Macroeconomic Conditions.

Additionally, increases in freight shipment and inventory component costs have resulted in an increase to our cost of hardware revenue during 2021 and portions of 2022.

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

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

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

Information about the adoption of ASU 2020-06 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, which may affect the comparability of the quarterly financial data presented below, is included in Note 2.

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

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Allowance for credit losses on accounts receivable $ 4,696 $ — $ ( 775 ) $ ( 1,753 ) $ 2,168

$ ( 418 ) $ 4,696

Allowance for product returns 1,480 2,494 — ( 2,793 ) 1,181

3 unchanged sentences

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

$ ( 418 ) $ 4,696

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

2 unchanged sentences

_______________

(1) Includes the 2020 impact of the adoption of Topic 326 of $ 0.4 million for the allowance for credit losses on accounts receivable and $ 0.4 million for the allowance for credit losses on note receivable (see Note 4 and Note 9).

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

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

What changed 10-K

Item 8. Financial Statements and Supplementary Data