What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2023-05-10 compared with 2022-11-09 · 306 added, 533 removed, 573 unchanged (59% of the section changed)

4 unchanged sentences

Three Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

SaaS and license revenue $ 135,394 $ 123,225

16 unchanged sentences

Income before income taxes 12,985 8,285

Provision for / (benefit from) income taxes 246 1,787 472 ( 2,864 )

Benefit from income taxes ( 1,222 ) ( 618 )

Net income 14,207 8,903

12 unchanged sentences

ALARM.COM HOLDINGS, INC.

Condensed Consolidated Statements of Comprehensive Income

(in thousands)

Three Months Ended

Net income $ 14,207 $ 8,903

Other comprehensive income

Foreign currency translation adjustment 170 —

Total other comprehensive income 170 —

Comprehensive income 14,377 8,903

Comprehensive loss attributable to redeemable noncontrolling interests 209 176

Comprehensive income attributable to common stockholders $ 14,586 $ 9,079

See accompanying notes to the condensed consolidated financial statements.

ALARM.COM HOLDINGS, INC.

Condensed Consolidated Balance Sheets

(in thousands, except share and per share data)

September 30,

2023 December 31,

1 unchanged sentence

Cash and cash equivalents $ 606,428 $ 622,165

Accounts receivable, net of allowance for credit losses of $ 3,536 and $ 2,168 , and net of allowance for product returns of $ 1,535 and $ 1,181 as of September 30, 2022 and December 31, 2021, respectively

Accounts receivable, net of allowance for credit losses of $ 3,199 and $ 2,835 , and net of allowance for product returns of $ 1,869 and $ 1,551 as of March 31, 2023 and December 31, 2022, respectively

125,885 124,283

Inventory 117,874 115,584

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

Other current assets, net of allowance for credit losses of $ 0 as of March 31, 2023 and December 31, 2022

30,676 29,056

5 unchanged sentences

Operating lease right-of-use assets 30,491 28,933

Other assets, net of allowance for credit losses of $ 3 and $ 78 as of September 30, 2022 and December 31, 2021, respectively

Other assets, net of allowance for credit losses of $ 2 as of March 31, 2023 and December 31, 2022

36,912 37,356

Total assets $ 1,357,530 $ 1,329,375

Liabilities, redeemable noncontrolling interest and stockholders’ equity

Liabilities, redeemable noncontrolling interests and stockholders’ equity

Current liabilities:

5 unchanged sentences

Deferred revenue 11,455 10,792

Convertible senior notes, net 489,586 425,345

Convertible senior notes, net and other long-term debt 492,000 490,370

Operating lease liabilities 28,279 27,380

5 unchanged sentences

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

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

no shares issued and outstanding as of March 31, 2023 and December 31, 2022

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

51,255,389 and 50,985,454 shares issued;

and 49,859,269 and 50,259,453 shares outstanding as of September 30, 2022 and December 31, 2021, respectively

and 49,722,644 and 49,452,709 shares outstanding as of March 31, 2023 and December 31, 2022, respectively

Additional paid-in capital 509,132 497,199

Treasury stock, at cost;

987,402 and 147,153 shares as of September 30, 2022 and December 31, 2021, respectively

1,532,745 shares as of March 31, 2023 and December 31, 2022

( 83,993 ) ( 83,993 )

Accumulated other comprehensive income 170 —

Retained earnings 199,559 185,143

5 unchanged sentences

(in thousands)

Nine Months Ended

September 30,

Cash flows from operating activities:

Three Months Ended

Cash flows used in operating activities:

Net income $ 14,207 $ 8,903

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

Provision for / (recovery of) credit losses on accounts receivable 1,606 ( 238 )

Adjustments to reconcile net income to net cash flows used in operating activities

Provision for credit losses on accounts receivable 540 54

Reserve for product returns 1,151 798

Recovery of credit losses on notes receivable — ( 78 )

Provision for excess and obsolete inventory — 374

Amortization on patents and tooling 316 353

Amortization and depreciation 7,673 7,761

Amortization of debt discount and debt issuance costs 2,342 11,590

Amortization of debt issuance costs 784 780

Amortization of operating leases 2,750 2,473

Deferred income taxes ( 26,895 ) ( 10,650 )

Change in fair value of contingent liability 13 —

Stock-based compensation 12,686 12,110

Gain on investment ( 140 ) —

Loss on early extinguishment of debt — 185

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

6 unchanged sentences

Other liabilities ( 3,511 ) ( 65 )

Cash flows from operating activities 22,455 83,194

Cash flows used in operating activities ( 3,521 ) ( 13,961 )

Cash flows used in investing activities:

3 unchanged sentences

Receipt of payments on notes receivable 13 16

Capitalized software development costs ( 362 ) —

Purchase of investment in unconsolidated entity ( 200 ) —

Proceeds from sale of investment 140 —

Cash flows used in investing activities ( 12,943 ) ( 2,155 )

Cash flows (used in) / from financing activities:

Repayments of credit facility — ( 110,000 )

Proceeds from issuance of convertible senior notes — 500,000

Payments of debt issuance costs — ( 15,698 )

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

Cash flows from / (used in) financing activities:

Purchases of treasury stock — ( 23,331 )

Payments of acquired debt ( 469 ) —

Issuances of common stock from equity-based plans 1,311 1,080

Cash flows (used in) / from financing activities ( 48,475 ) 377,551

Net (decrease) / increase in cash, cash equivalents and restricted cash ( 88,645 ) 446,848

Cash flows from / (used in) financing activities 842 ( 22,251 )

Effect of exchange rate changes on cash, cash equivalents and restricted cash 13 —

Net decrease in cash, cash equivalents and restricted cash ( 15,609 ) ( 38,367 )

Cash, cash equivalents and restricted cash at beginning of the period 622,879 710,621

8 unchanged sentences

(in thousands)

Redeemable Noncontrolling Interests Additional Paid-In Capital Retained Earnings Total Stockholders’ Equity

Preferred Stock Common Stock Treasury Stock

Shares Amount Shares Amount Shares Amount

Redeemable Noncontrolling Interests Additional Paid-In Capital Accumulated Other Comprehensive Income Retained Earnings Total Stockholders’ Equity

Common Stock Treasury Stock

Shares Amount Shares Amount

Balance as of December 31, 2022 $ 23,988 50,985 $ 510 $ 497,199 1,533 $ ( 83,993 ) $ — $ 185,143 $ 598,859

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 — 270 3 1,308 — — — — 1,311

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

Stock-based compensation expense — — — 12,686 — — — — 12,686

1 unchanged sentence

Net income / (loss) attributable to common stockholders ( 209 ) — — — — — — 14,416 14,416

Other comprehensive income — — — — — — 170 — 170

Balance as of March 31, 2023 $ 25,840 51,255 $ 513 $ 509,132 1,533 $ ( 83,993 ) $ 170 $ 199,559 $ 625,381

Common stock issued in connection with equity-based plans — — — 205 2 581 — — — 583

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

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

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

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

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

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

Common stock issued in connection with equity-based plans — — — 150 1 1,727 — — — 1,728

Purchase of treasury stock — — — — — — 5 ( 367 ) — ( 367 )

Stock-based compensation expense — — — — — 13,154 — — — 13,154

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

Accretion adjustments of redeemable noncontrolling interest to redemption value 354 — — — — ( 354 ) — — — ( 354 )

Net income / (loss) attributable to common stockholders ( 222 ) — — — — — — — 18,332 18,332

Balance as of September 30, 2022 $ 23,029 — $ — 50,847 $ 508 $ 483,225 987 $ ( 57,015 ) $ 167,058 $ 593,776

ALARM.COM HOLDINGS, INC.

Condensed Consolidated Statements of Equity — (Continued)

(in thousands)

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

Shares Amount Shares Amount Shares Amount

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

Shares Amount Shares Amount

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

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

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

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

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

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

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

1 unchanged sentence

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

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

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

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

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

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

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

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

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

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

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

See accompanying notes to the condensed consolidated financial statements.

1 unchanged sentence

Notes to the Condensed Consolidated Financial Statements (Unaudited)

September 30, 2022 and 2021

March 31, 2023 and 2022

Alarm.com Holdings, Inc.

(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 cloud-based platform offers an expansive suite of Internet of Things, or IoT, solutions addressing 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.

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

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

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.

8 unchanged sentences

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

However, the 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.

The results of operations for the three and nine months ended September 30, 2022 are not necessarily indicative of the results that can be expected for our entire fiscal year ending December 31, 2022, which is increasingly true in periods of extreme uncertainty, such as the uncertainty caused by the Macroeconomic Conditions.

It remains difficult to assess or predict the ultimate duration and economic impact of the Macroeconomic Conditions.

The results of operations for the three months ended March 31, 2023 are not necessarily indicative of the results that can be expected for our entire fiscal year ending December 31, 2023, which is increasingly true in periods of extreme uncertainty, such as the uncertainty caused by the Macroeconomic Conditions.

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

4 unchanged sentences

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

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

Comprehensive Income

Our comprehensive income for the three and nine months ended September 30, 2022 and 2021 was equal to our net income disclosed in the condensed consolidated statements of operations.

ALARM.COM HOLDINGS, INC.

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

September 30, 2022 and 2021

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 and goodwill, intangible assets and other long-lived assets.

Significant Accounting Policies

Other than those disclosed herein, there have been no other material changes to our significant accounting policies during the three and nine months ended September 30, 2022 from those disclosed in our Annual Report.

Restricted Cash

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

As of September 30, 2022, we had a total of $ 0.6 million of restricted cash, of which less than $ 0.1 million was included in other current assets and $ 0.6 million was included in other assets within our condensed consolidated balance sheets.

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

Redeemable Noncontrolling Interests

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

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 6).

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 value of the noncontrolling interests was $ 23.0 million and $ 12.9 million as of September 30, 2022 and December 31, 2021.

Stock-Based Compensation

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

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

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

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

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

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

Recent Accounting Pronouncements

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

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

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

The guidance also addresses how convertible instruments are accounted for in the diluted earnings per share calculation.

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

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

Other than those disclosed herein, there have been no other material changes to our significant accounting policies during the three months ended March 31, 2023 from those disclosed in our Annual Report.

ALARM.COM HOLDINGS, INC.

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

September 30, 2022 and 2021

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

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

Balance Sheet Caption As of January 1, 2022

Deferred tax assets $ 15,356

Additional paid-in capital ( 56,515 )

Convertible senior notes, net 61,899

Retained earnings 9,972

Our net income attributable to common stockholders increased $ 2.0 million and $ 6.0 million during the three and nine months ended September 30, 2022, respectively, as a result of adopting ASU 2020-06 due to no longer recording non-cash interest expense related to the amortization of the debt discount associated with the previous equity component of the convertible senior notes.

Upon adoption of this guidance on January 1, 2022, we began using the if-converted method when calculating the dilutive impact 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 nine months ended September 30, 2022.

The impact of ASU 2020-06 on net income attributable to common stockholders and weighted average diluted shares resulted in an increase to basic net income attributable to common stockholders of $ 0.04 and $ 0.12 per share and an increase to diluted net income attributable to common stockholders of $ 0.03 and $ 0.10 per share, during the three and nine months ended September 30, 2022, respectively.

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

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

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

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

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

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

We adopted this guidance during the three months ended March 31, 2022 and there was no impact to the disclosures within the "Allowance for Credit Losses - Notes Receivable" section of Note 8 as there were no write-offs of notes receivable during each of the three and nine months ended September 30, 2022.

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

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

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

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

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

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

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

March 31, 2023 and 2022

Comprehensive Income

Comprehensive income consists of net income and other comprehensive income.

Other comprehensive income refers to gains and losses that are recorded as an element of stockholders' equity and excluded from net income.

Our other comprehensive income consists of foreign currency translation adjustments.

Foreign Currency

For foreign operations where substantially all monetary transactions are in the local currency, we use the local currency as our functional currency.

For these foreign operations, assets and liabilities are translated at period-end exchange rates and revenue and expense items are translated at weighted-average exchange rates prevailing during the periods being reported.

The effects of translating financial statements of foreign operations into our reporting currency are recognized as a cumulative translation adjustment within accumulated other comprehensive income, a separate component of stockholders’ equity.

Gains or losses from foreign currency remeasurements that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in our results of operations.

Revenue from Contracts with Customers

Revenue Recognition

We derive our revenue from three primary sources:

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

We sell our platform and hardware solutions to service provider partners that resell our solutions and hardware to residential and commercial property owners, who are the service provider partners’ customers.

Our subscribers consist of all of the properties maintained by those residential and commercial property owners to which we are delivering at least one of our solutions.

We also sell our hardware to distributors who resell the hardware to service provider partners.

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

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

ALARM.COM HOLDINGS, INC.

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

September 30, 2022 and 2021

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

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

For the twelve months ended September 30, 2022 and 2021, our reserve against revenue for hardware returns was approximately 1 % of hardware and other revenue.

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

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.

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

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

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

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

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

Our service provider partners use services on our platforms, such as support tools and applications, to assist in the installation of our solutions in subscriber properties.

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

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

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

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

We record activation fees initially as deferred revenue and we recognize these fees ratably over the expected term of the subscribers’ account which we estimate is ten years based on our annual attrition rate.

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

The balance of deferred revenue for activation fees was $ 5.5 million and $ 6.0 million as of September 30, 2022 and December 31, 2021, respectively, which combines current and long-term balances.

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

Additionally, the consideration received from hardware sales corresponds directly with the stand-alone selling price of the hardware.

As a result, we have elected to use the practical expedient related to the amount of transaction price allocated to the unsatisfied performance obligations and therefore, we have not disclosed the total remaining revenue expected to be recognized on all contracts or the expected period over which the remaining revenue would be recognized.

Contract Assets

At contract inception, we assess the goods and services promised in our contracts with customers and identify a performance obligation for each distinct promise to transfer a good or service, or bundle of goods or services.

To identify the performance obligations, we consider all of the goods or services promised in the contract, whether explicitly stated or implied based on customary business practices.

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.

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

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

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

We recognize an asset related to the costs incurred to obtain a contract only if we expect to recover those costs and we would not have incurred those costs if the contract had not been obtained.

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 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 commission costs related to metrics that could be satisfied without obtaining a contract,

ALARM.COM HOLDINGS, INC.

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

September 30, 2022 and 2021

including training-related metrics.

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

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

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

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

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

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

We review the capitalized costs for impairment at least annually.

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

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

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

Three Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

Beginning of period balance $ 13,975 $ 4,520

3 unchanged sentences

Contract Liabilities

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

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

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

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

Three Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

Beginning of period balance $ 18,332 $ 14,837

Revenue deferred and acquired in period 4,373 3,682 13,750 11,131

Revenue deferred in period 5,940 3,990

Revenue recognized from amounts included in contract liabilities ( 4,041 ) ( 3,208 )

End of period balance $ 20,231 $ 15,619

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 Condensed Consolidated Financial Statements (Unaudited) — (Continued)

September 30, 2022 and 2021

Accounts Receivable, Net

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

September 30,

2023 December 31,

3 unchanged sentences

Accounts receivable, net $ 125,885 $ 124,283

For the three and nine months ended September 30, 2022, we recorded a provision for credit losses of $ 1.1 million and $ 1.6 million on our accounts receivable, respectively.

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

For the three and nine months ended September 30, 2022, we recorded a reserve for product returns of $ 2.0 million and $ 3.7 million, respectively, as compared to $ 0.5 million and $ 1.6 million for the same periods in the prior year.

For the three months ended March 31, 2023, we recorded a provision for credit losses of $ 0.5 million, as compared to $ 0.1 million for the same period in the prior year.

ALARM.COM HOLDINGS, INC.

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

March 31, 2023 and 2022

For the three months ended March 31, 2023, we recorded a $ 1.2 million reserve for product returns in our hardware and other revenue, as compared to $ 0.8 million for the same period in the prior year.

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

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

There were no changes to our portfolio segments for our accounts receivable during the three and nine months ended September 30, 2022, and no changes to our policies or practices that influenced our estimate of expected credit losses for accounts receivable.

Additionally, there were no significant changes in the amount of accounts receivable write-offs during the three and nine months ended September 30, 2022, as compared to historical periods other than a partial write-off of $ 0.7 million related to one of our distribution partners' outstanding balance during the nine months ended September 30, 2021, upon the distributor being acquired by a third party.

There were no changes to our portfolio segments for our accounts receivable during the three months ended March 31, 2023, and no changes to our policies or practices that influenced our estimate of expected credit losses for accounts receivable.

Additionally, there were no significant changes in the amount of accounts receivable write-offs during the three months ended March 31, 2023, as compared to historical periods.

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

For the three and nine months ended September 30, 2022, we recorded credit loss expense for accounts receivable and notes receivable of $ 1.0 million and $ 1.3 million, respectively, in general and administrative expense in our condensed consolidated statements of operations.

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

For the three months ended March 31, 2023, we recorded credit loss expense for accounts receivable and notes receivable of $ 0.5 million in general and administrative expense in our condensed consolidated statements of operations.

For the three months ended March 31, 2022, we recorded a reduction of credit loss expense of $ 0.1 million in general and administrative expense in our condensed consolidated statements of operations.

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

1 unchanged sentence

Any subsequent recoveries of previously written off balances are recorded as a reduction to credit loss expense.

ALARM.COM HOLDINGS, INC.

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

September 30, 2022 and 2021

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

Three Months Ended

September 30, 2022 Three Months Ended

September 30, 2021 Nine Months Ended

September 30, 2022 Nine Months Ended

September 30, 2021

Subsidiaries All Other

Subsidiaries Alarm.com

Subsidiaries All Other

Subsidiaries Alarm.com

March 31, 2023 Three Months Ended

March 31, 2022

Subsidiaries All Other

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

September 30,

2023 December 31,

Raw materials $ 38,684 $ 38,098

Work-in-process 489 —

Finished goods 78,701 77,486

Total inventory $ 117,874 $ 115,584

ALARM.COM HOLDINGS, INC.

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

March 31, 2023 and 2022

Acquisition of a Business - EBS

On January 18, 2023, one of our wholly-owned subsidiaries acquired 100 % of the issued and outstanding shares of capital stock of EBS Spółka z ograniczoną odpowiedzialnością, or EBS, an international producer of universal smart communicator devices, headquartered in Warsaw, Poland.

We believe this acquisition will assist in the continued expansion of our international operations as well as benefit our supply chain operations.

In consideration for the purchase of EBS, we paid $ 9.8 million in cash on January 18, 2023, after deducting $ 2.2 million related to agreed holdback provisions.

An earn-out up to an additional $ 2.5 million is payable if certain performance targets are met, which was recorded at the acquisition date fair value of $ 2.0 million.

The acquisition was accounted for as a business combination within our Alarm.com segment.

The overall impacts to our condensed consolidated financial statements were not considered material for the three months ended March 31, 2023.

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.

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, Inc., or Noonlight.

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

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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 8 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 $ 0.2 million.

The working capital adjustment is expected to be finalized by the first quarter of 2023 and $ 0.1 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 quarter of 2024, subject to off set for any indemnification obligations.

As a result of the acquisition of Noonlight, we recorded approximately $ 0.7 million in acquisition-related costs for each of the three and nine months ended September 30, 2022.

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

The purchase price allocation was not finalized as of the filing date of this Quarterly Report on Form 10-Q and is pending the final determination of the working capital adjustment as well as tax adjustments, including the assessment of any net operating losses acquired and the related limitations on any identified net operating losses.

The working capital adjustment was finalized during the first quarter of 2023 and $ 0.4 million will be paid during the second quarter of 2023.

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 quarte r of 2024, subject to off set for any indemnification obligations.

ALARM.COM HOLDINGS, INC.

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

September 30, 2022 and 2021

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):

March 31, 2023 and 2022

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

September 23, 2022

4 unchanged sentences

Total consideration $ 38,252

Estimated Tangible and Intangible Net Assets:

Tangible and Intangible Net Assets:

Accounts receivable 291

1 unchanged sentence

Property and equipment 45

Deferred tax assets 424

Developed technology 9,335

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Accrued expenses and other current liabilities ( 318 )

Deferred tax liability ( 2,353 )

Deferred revenue ( 67 )

1 unchanged sentence

Goodwill 35,095

Total estimated tangible and intangible net assets $ 38,121

Total tangible and intangible net assets $ 38,252

Goodwill of $ 35.1 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.

2 unchanged sentences

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 accounting standards codification, or ASC 805, 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.

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 Accounting Standards Codification, or ASC 805, " Business Combinations ," the assets and liabilities were recorded at their respective fair values as of September 23, 2022.

We developed 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

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

September 30, 2022 and 2021

Redeemable Noncontrolling Interests

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

March 31, 2023 and 2022

Redeemable Noncontrolling Interest

We have a redeemable noncontrolling interest related 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 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 condensed consolidated balance sheets.

The redemption value of the Noonlight noncontrolling interest was $ 6.8 million as of September 23, 2022 and September 30, 2022.

The redemption value of the Noonlight noncontrolling interest was $ 6.8 million as of September 23, 2022 and $ 6.6 million as of March 31, 2023.

Business Combinations in Operations - Noonlight

The operations of the Noonlight business combination discussed above were included in the condensed 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 condensed consolidated financial statements for the three and nine months ended September 30, 2022.

Asset Acquisition

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 .

The pro forma information as well as the revenue and net losses of the business combination were not material to the condensed consolidated financial statements in the year of acquisition.

Goodwill and Intangible Assets, Net

4 unchanged sentences

Goodwill acquired 7,200 — 7,200

Balance as of September 30, 2022 $ 150,808 $ — $ 150,808

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

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

Measurement period adjustment ( 187 ) — ( 187 )

Foreign currency translation adjustment 91 — 91

Balance as of March 31, 2023 $ 155,287 $ — $ 155,287

On January 18, 2023, we acquired 100 % of the issued and outstanding shares of capital stock of EBS and initially recorded $ 7.2 million of goodwill in the Alarm.com segment.

The measurement period adjustment relates to the finalization of the Noonlight working capital adjustment as well as the tax adjustment during the three months ended March 31, 2023.

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

Relationships Developed

Technology Trade Name Total

Technology Trade Name Capitalized Software Development Costs Total

Balance as of January 1, 2023

1 unchanged sentence

Intangible assets acquired 2,395 4,516 537 — 7,448

Capitalized software development costs — — — 362 362

Amortization ( 2,670 ) ( 1,776 ) ( 177 ) — ( 4,623 )

Balance as of September 30, 2022 $ 50,498 $ 35,143 $ 1,530 $ 87,171

We recorded $ 4.6 million and $ 13.7 million of amortization related to our intangible assets for the three and nine months ended September 30, 2022, respectively, as compared to $ 4.3 million and $ 12.8 million for the same periods in the prior year.

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

During the nine months ended September 30, 2022, we wrote-off $ 0.7 million in fully amortized intangible assets in the

Balance as of March 31, 2023 $ 47,247 $ 36,293 $ 1,743 $ 362 $ 85,645

We recorded $ 4.6 million of amortization related to our intangible assets for each of the three months ended March 31, 2023 and 2022.

There were no impairments of long-lived intangible assets during the three months ended March 31, 2023 and 2022.

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

ALARM.COM HOLDINGS, INC.

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

September 30, 2022 and 2021

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.

March 31, 2023 and 2022

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

September 30, 2022

March 31, 2023

Amount Accumulated

5 unchanged sentences

Trade name 4,474 ( 2,731 ) 1,743 3.0

Capitalized software development costs 362 — 362 5.0

Total intangible assets $ 196,110 $ ( 110,465 ) $ 85,645 6.2

December 31, 2022

Amount Impairment of

Intangible Assets Accumulated

Amount Accumulated

Amortization Net

4 unchanged sentences

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

Purchases of Patents and Patent Licenses

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

The carrying value, net of amortization, of our purchased patents and patent licenses was $ 1.7 million and $ 2.2 million as of September 30, 2022 and December 31, 2021, respectively.

As of September 30, 2022 and December 31, 2021, $ 0.5 million and $ 0.6 million of patent costs were included in other current assets and $ 1.2 million and $ 1.6 million of patent costs were included in other assets, respectively.

We have $ 7.0 million of historical cost in purchased patents and patent licenses as of September 30, 2022.

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

Patent amortization cost of $ 0.1 million and $ 0.3 million was included in cost of SaaS and license revenue in our condensed consolidated statements of operations for each of the three and nine months ended September 30, 2022 and 2021, respectively.

Patent amortization cost of $ 0.1 million and $ 0.2 million was included in amortization and depreciation in our condensed consolidated statements of operations for each of the three and nine months ended September 30, 2022 and 2021, respectively.

Loan to a 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 September 30, 2022 and December 31, 2021, there was no remaining amount outstanding related to the amended term loan.

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

As of September 30, 2022 and December 31, 2021, $ 4.9 million and $ 4.6 million of the notes receivable balance related to the subordinated credit agreement was included in other assets in our condensed consolidated balance sheets, respectively.

In December 2022, we amended a subordinated credit agreement with the affiliated entity of one of our distribution partners.

The amended subordinated credit agreement with the affiliated entity of the distribution partner 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.

As of March 31, 2023 and December 31, 2022, $ 4.1 million and $ 4.0 million of the notes receivable balance related to the subordinated credit agreement was included in other assets in our condensed consolidated balance sheets, respectively.

For the three months ended March 31, 2023, we recognized $ 0.8 million of revenue from the distribution partner associated with this loan, as compared to $ 0.6 million for the same period in the prior year.

ALARM.COM HOLDINGS, INC.

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

September 30, 2022 and 2021

For the three and nine months ended September 30, 2022, we recognized $ 0.8 million and $ 2.3 million of revenue from the distribution partner associated with these loans, respectively, as compared to $ 0.8 million and $ 2.4 million for the same periods in the prior year.

March 31, 2023 and 2022

Loan to a Service Provider Partner

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

As of September 30, 2022 and December 31, 2021, $ 1.1 million and $ 1.2 million of principal was outstanding from the service provider partner under the loan agreement, respectively.

For three and nine months ended September 30, 2022, we recognized less than $ 0.1 million and $ 0.1 million of revenue from the service provider partner associated with this loan, respectively, as compared to $ 0.1 million for the same periods in the prior year.

Loan to Noonlight

In May 2022, we entered into an agreement with Noonlight, under which we agreed to loan $ 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 condensed 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 September 30, 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 three and nine months ended September 30, 2022 and 2021, we did not record any revenue from Noonlight.

As of March 31, 2023 and December 31, 2022, $ 1.1 million of principal was outstanding from the service provider partner under the loan agreement.

For three months ended March 31, 2023 and 2022, we recognized less than $ 0.1 million of revenue from the service provider partner associated with this loan.

Loan to a Technology Partner

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

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

As of March 31, 2023 and December 31, 2022, $ 1.5 million of principal was outstanding from the technology partner under the convertible promissory note.

For the three months ended March 31, 2023 and 2022, we did not record any revenue from the technology partner associated with this convertible promissory note.

Investment in a Hardware Supplier

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

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

Investment in a Technology Partner

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

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

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

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

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

As of March 31, 2023 and December 31, 2022, our investment in the hardware supplier was $ 5.6 million.

Investments in Technology Partners

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

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

Under the alternative, we measure investments without readily determinable fair values at cost, less impairment,

ALARM.COM HOLDINGS, INC.

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

September 30, 2022 and 2021

adjusted for observable price changes from orderly transactions for identical or similar investments.

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

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.

As of March 31, 2023 and December 31, 2022, our investment in the technology partner was $ 5.7 million.

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 March 31, 2023 and December 31, 2022, our investment in the technology partner was $ 5.1 million.

Allowance for Credit Losses - Notes Receivable

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

There were no changes to our portfolio segments for our notes receivable during the three and nine months ended September 30, 2022, and no changes to our policies or practices involving the issuance of notes receivable, customer acquisitions or any other factors that influenced our estimate of expected credit losses for notes receivable.

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

There were no changes to our portfolio segments for our notes receivable during the three months ended March 31, 2023, and no changes to our policies or practices involving the issuance of notes receivable, customer acquisitions or any other factors that influenced our estimate of expected credit losses for notes receivable.

There were no hardware financing receivables outstanding as of March 31, 2023 and December 31, 2022.

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

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

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

The accrued interest receivable as of September 30, 2022 and December 31, 2021 was less than $ 0.1 million, and is reflected in other current assets within our condensed consolidated balance sheets and excluded from the amortized cost basis of the notes receivable .

We did not write-off any accrued interest receivable during the three and nine months ended September 30, 2022 and 2021.

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

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

We write-off any accrued interest on notes receivable

ALARM.COM HOLDINGS, INC.

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

March 31, 2023 and 2022

that are considered impaired or are 90 days or greater past due based on their contractual payment terms by reversing interest income.

The accrued interest receivable as of March 31, 2023 and December 31, 2022 was less than $ 0.1 million, and is reflected in other current assets within our condensed consolidated balance sheets and excluded from the amortized cost basis of the notes receivable .

We did not write-off any accrued interest receivable during the three months ended March 31, 2023 and 2022.

There were no purchases or sales of financial assets during the three months ended March 31, 2023 and 2022.

There were no significant changes in the amount of note receivable write-offs during the three months ended March 31, 2023, as compared to historical periods.

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

Three Months Ended

September 30, 2022 Three Months Ended

September 30, 2021 Nine Months Ended

September 30, 2022 Nine Months Ended

September 30, 2021

Receivables Hardware

Receivables Loan

Receivables Hardware

Receivables Loan

March 31, 2023 Three Months Ended

March 31, 2022

Receivables Hardware

2 unchanged sentences

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

(Provision for) / recovery of expected credit losses ( 1 ) — ( 3 ) 2 76 1 ( 4 ) 14

Recovery of expected credit losses — — 78 —

Write-offs — — — —

2 unchanged sentences

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

September 30, 2022

March 31, 2023

Loan Receivables:

6 unchanged sentences

Total $ 300 $ 1,500 $ — $ 1,079 $ 1 $ 4,134 $ 7,014

ALARM.COM HOLDINGS, INC.

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

September 30, 2022 and 2021

December 31, 2022

7 unchanged sentences

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

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

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

As of September 30, 2022 and December 31, 2021, there were no notes receivables placed in nonaccrual status for which there was not a related allowance for credit losses.

As of September 30, 2022 and December 31, 2021, there were no notes receivables that were 90 days or greater past due for which we continued to accrue interest income.

There were no notes receivable placed on nonaccrual status as of March 31, 2023 and December 31, 2022.

During the three months ended March 31, 2023 and 2022, there was no interest income recognized related to notes receivable that were in nonaccrual status.

As of March 31, 2023 and December 31, 2022, there were no notes receivable placed in nonaccrual status for which there was not a related allowance for credit losses.

As of March 31, 2023 and December 31, 2022, there were no notes receivable that were 90 days or greater past due for which we continued to accrue interest income.

Prepaid Expenses

As of September 30, 2022 and December 31, 2021, $ 17.1 million and $ 17.7 million of prepaid expenses were included in other current assets, respectively, primarily related to software licenses, insurance and long lead-time parts related to our inventory.

As of March 31, 2023 and December 31, 2022, $ 16.4 million and $ 14.5 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.

ALARM.COM HOLDINGS, INC.

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

March 31, 2023 and 2022

Fair Value Measurements

2 unchanged sentences

Level 1 Level 2 Level 3 Total

Money market accounts as of September 30, 2022

Money market accounts as of March 31, 2023

$ 593,730 $ — $ — $ 593,730

1 unchanged sentence

510,326 — — 510,326

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

$ — $ — $ — $ —

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

Contingent consideration liability from acquisition as of March 31, 2023

$ — $ — $ 2,006 $ 2,006

ALARM.COM HOLDINGS, INC.

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

September 30, 2022 and 2021

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

Contingent consideration liability from acquisition as of December 31, 2022

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

Three Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

Contingent Consideration Liability from Acquisition Subsidiary Long-Term Incentive Plan

Beginning of period balance $ — $ 3,351

Acquired liabilities 1,993 —

Changes in fair value included in earnings 13 ( 247 )

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

End of period balance $ 2,006 $ 3,104

As of September 30, 2022, $ 552.9 million of our money market accounts was included in cash and cash equivalents, less than $ 0.1 million was included in other current assets and $ 0.6 million was included in other assets in our condensed consolidated balance sheets.

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

As of March 31, 2023, $ 592.9 million of our money market accounts was included in cash and cash equivalents and $ 0.8 million was included in other assets in our condensed consolidated balance sheets.

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

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

See Note 12 for the carrying amount and estimated fair value of our convertible senior notes as of September 30, 2022 and December 31, 2021.

See Note 12 for the carrying amount and estimated fair value of our convertible senior notes as of March 31, 2023 and December 31, 2022.

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

12 unchanged sentences

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.

ALARM.COM HOLDINGS, INC.

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

March 31, 2023 and 2022

The contingent consideration liability consists of the potential earn-out payment related to our acquisition of 100 % of the issued and outstanding capital stock of EBS on January 18, 2023.

The earn-out payment is contingent on the satisfaction of certain performance targets related to the integration of EBS's hardware into the Alarm.com platform by December 31, 2025 and has a maximum potential payment of up to $ 2.5 million.

We account for the contingent consideration using fair value and established a liability for the future earn-out payment based on an estimation of the probability of the future achievement of the performance targets.

The contingent consideration liability was valued with Level 3 unobservable inputs, including the probability of expected achievement of the performance targets.

At January 18, 2023, the fair value of the liability was $ 2.0 million.

At each reporting date until December 31, 2025, or the achievement of the performance targets, we will remeasure the liability, using the same valuation approach.

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

During the three months ended March 31, 2023, the contingent consideration liability did not materially change from the acquisition date fair value of $ 2.0 million as there were no changes in the expected probability of achievement for the performance targets.

The unobservable inputs used in the valuation as of March 31, 2023 included a weighted average expected achievement percentage of 89.5 %, weighted by the potential payout of the performance targets, including a range of 80.0 % to 99.0 %.

The valuation also included a weighted average discount rate of 5.9 %, weighted by the probability of achievement of the performance targets at various dates, including a range of 5.7 % to 6.1 %.

Selecting another probability of expected achievement or discount rate within an acceptable range would not result in a significant change to the fair value of the contingent consideration liability.

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

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

There were no transfers in or out of Level 3 during the three and nine months ended September 30, 2022 and 2021.

There were no transfers in or out of Level 3 during the three months ended March 31, 2023 and 2022.

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

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

No other-than-temporary impairments occurred during the three months ended March 31, 2023 and 2022.

We lease office space, data centers and office equipment under non-cancelable operating leases with various expiration dates through 2030.

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

ALARM.COM HOLDINGS, INC.

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

September 30, 2022 and 2021

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

Three Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

Operating lease cost $ 2,750 $ 2,473

1 unchanged sentence

Operating lease right-of-use assets obtained in exchange for new operating lease liabilities 3,927 1,782

September 30,

2023 December 31,

1 unchanged sentence

Weighted-average discount rate — operating leases 4.5 % 3.9 %

ALARM.COM HOLDINGS, INC.

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

March 31, 2023 and 2022

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

6 unchanged sentences

_______________

(1) Operating lease payments exclude $ 6.3 million of legally binding minimum lease payments for leases executed but not yet commenced and include $ 1.0 million for options to extend lease terms that were reasonably certain of being exercised.

(1) There are no legally binding minimum lease payments for leases executed but not yet commenced and no options to extend lease terms that were reasonably certain of being exercised included in these balances.

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

We did no t have any finance leases or subleases as of September 30, 2022 or December 31, 2021.

We did no t have any finance leases or subleases as of March 31, 2023 or December 31, 2022.

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

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

ALARM.COM HOLDINGS, INC.

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

September 30, 2022 and 2021

Short-term lease costs were immaterial for the three months ended March 31, 2023 and 2022.

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

September 30,

2023 December 31,

2 unchanged sentences

Income taxes payable 31,445 43,576

Holdback liability from business combinations and asset acquisition 6,263 —

Other current liabilities 7,160 5,421

1 unchanged sentence

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

September 30,

2023 December 31,

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

Subsidiary long-term incentive plan — 3,351

Holdback liability from business combinations $ 1,800 $ 4,560

Contingent consideration liability from acquisition 2,006 —

Other liabilities 9,539 8,490

2 unchanged sentences

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

ALARM.COM HOLDINGS, INC.

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

March 31, 2023 and 2022

Convertible Senior Notes

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

ALARM.COM HOLDINGS, INC.

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

September 30, 2022 and 2021

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

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

We used some of the proceeds to repay the $ 110.0 million outstanding principal balance under our credit facility and also used some of the proceeds to pay accrued interest, fees and expenses related to our credit facility (see the section titled "2017 Facility" below).

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

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 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 September 30, 2022 and December 31, 2021, the fair value of our 2026 Notes was $ 412.8 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 $ 64.86 on the last trading day of the quarter, the if-converted value of the 2026 Notes did not exceed the principal amount of $ 500.0 million as of September 30, 2022.

ALARM.COM HOLDINGS, INC.

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

September 30, 2022 and 2021

March 31, 2023 and 2022

We account for the 2026 Notes as a liability.

The debt 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 %.

As of March 31, 2023 and December 31, 2022, the fair value of our 2026 Notes was $ 421.6 million and $ 411.5 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 $ 50.28 on the last trading day of the quarter, the if-converted value of the 2026 Notes did not exceed the principal amount of $ 500.0 million as of March 31, 2023.

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

September 30,

2023 December 31,

Principal $ 500,000 $ 500,000

Unamortized debt discount — ( 63,520 )

Unamortized debt issuance costs ( 8,846 ) ( 9,630 )

2 unchanged sentences

Three Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

Amortization of debt discount $ — $ 3,622 $ — $ 10,026

Amortization of debt issuance costs $ 784 $ 780

Total interest expense $ 784 $ 780

2017 Facility

On October 6, 2017, we entered into a $ 125.0 million senior secured revolving credit facility, or the 2017 Facility, with Silicon Valley Bank, or SVB, as administrative agent, PNC Bank, National Association, as documentation agent, and a syndicate of lenders.

Upon entry into the 2017 Facility, we borrowed $ 72.0 million, which was used to repay the previously outstanding balance under our previous credit facility.

The 2017 Facility was set to mature in October 2022 and included an option to further increase the borrowing capacity to $ 175.0 million with the consent of the lenders.

Costs incurred in connection with the 2017 Facility were capitalized and were being amortized as interest expense over the term of the 2017 Facility.

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

On March 25, 2020, we borrowed $ 50.0 million under the 2017 Facility as a precautionary measure in order to provide financial flexibility in light of current uncertainty in the financial markets resulting from the COVID-19 pandemic.

On 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 condensed consolidated statements of operations during the nine months ended September 30, 2021 for previously capitalized debt issuance costs related to the 2017 Facility that were unamortized at the time of the termination of the 2017 Facility.

The 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.

During 2021, until the termination of the 2017 Facility on January 20, 2021, we elected for the outstanding principal balance to accrue interest at LIBOR plus 1.50 %, LIBOR plus 1.75 %, LIBOR plus 2.00 %, and LIBOR plus 2.50 % when our consolidated leverage ratio is less than 1.00 :1.00, greater than or equal to 1.00 :1.00 but less than 2.00 :1.00, greater than or equal to 2.00 :1.00 but less than 3.00 :1.00 and greater than or equal to 3.00 :1.00, respectively.

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

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

Acquired Debt - EBS

On January 18, 2023, one of our wholly-owned subsidiaries acquired 100 % of the issued and outstanding shares of capital stock of EBS.

As part of this acquisition we acquired $ 2.9 million of outstanding debt, which decreased to $ 2.5 million as of March 31, 2023.

As of March 31, 2023, $ 1.6 million of the acquired debt was included in accounts payable, accrued expenses and other current liabilities and $ 0.9 million was included in convertible senior notes, net and other long-term debt within our condensed consolidated balance sheets.

Commitments and Contingencies

3 unchanged sentences

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

ALARM.COM HOLDINGS, INC.

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

September 30, 2022 and 2021

Legal Proceedings

7 unchanged sentences

These decisions were affirmed on appeal.

Discovery closed on October 29, 2021.

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

Discovery has closed with respect to seven claims in three of the asserted patents.

Vivint has moved for partial summary judgment and Alarm.com has moved for summary judgment as to those seven claims;

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.

Claim construction and expert discovery as to nine other patent claims from two patents that were previously stayed has not yet been completed.

No trial date has been set.

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.

Since all remaining patent claims in the litigation have expired, Vivint shall not be entitled to injunctive relief as a remedy in this matter.

While we believe we have valid defenses to Vivint’s claims, any of these outcomes could result in a material adverse effect on our business.

Additionally, as to unexpired patents asserted by Vivint in the Eastern District of Texas case, we 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.

While we believe we have

ALARM.COM HOLDINGS, INC.

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

March 31, 2023 and 2022

valid defenses to Vivint’s claims, any of these outcomes could result in a material adverse effect on our business.

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 notified us it will stop 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.

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

Vivint had been paying 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, beginning with the fourth quarter of 2022, Alarm.com believes that quarterly SaaS and license revenue and total revenue will be impacted by approximately $ 6.0 million.

Alarm.com also believes that quarterly earnings and cash flow will be impacted by the aforementioned $ 6.0 million, plus additional legal fees.

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 continue to be lowered by approximately $ 6.0 million on a quarterly basis.

We also believe that quarterly earnings and cash flow will continue to be impacted by the aforementioned $ 6.0 million, 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.

Since then, we have voluntarily dismissed without prejudice the infringement claims with respect to one of the patents, leaving 14 asserted 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 filed a partial motion to dismiss the complaint on February 27, 2023 which we have opposed.

On March 8, 2023, Vivint filed counterclaims in the action alleging that Alarm.com’s products and services directly and indirectly infringe 14 patents owned by Vivint.

Most of Vivint’s counterclaims also name our service provider ADT LLC as a defendant.

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

We answered the complaint on April 28, 2023.

Among other things, we asserted defenses based on non-infringement and invalidity of Vivint’s patents.

While we believe we have valid defenses to Vivint’s counterclaims, the outcome of these legal claims cannot be predicted with certainty and any of these outcomes could result in an adverse effect on our business.

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

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

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

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

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

Four of the asserted patents are in ex parte reexamination proceedings at the PTO, and all claims of the fifth 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.

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.

15 unchanged sentences

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

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

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

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

Causam filed an appeal of the ITC decision on April 14, 2023.

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

While we believe we have valid defenses to Causam’s claims, the outcome of these legal claims cannot be predicted with certainty, and any of these outcomes could result in an adverse effect on

ALARM.COM HOLDINGS, INC.

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

September 30, 2022 and 2021

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

While we believe we have valid defenses to Causam’s claims, the outcome of these legal claims cannot be predicted with certainty, and any of these outcomes could result in an adverse effect on our business.

March 31, 2023 and 2022

our business.

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

6 unchanged sentences

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.

The PTAB granted inter partes review of two of the asserted patents at ADT's request.

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.

In decisions issued in February and March 2023, the PTAB found all challenged claims of the two patents under review unpatentable.

Vivint filed an appeal of the first PTAB decision on April 13, 2023.

Vivint has until May 30, 2023 to appeal the second PTAB decision.

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.

2 unchanged sentences

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

We are also incurring costs associated with the indemnification of our service provider Monitronics International, Inc.

d/b/a Brinks in ongoing patent infringement suits.

On November 4, 2022, January 13, 2023 and April 18, 2023, IOT Innovations LLC, or IOT, sued Monitronics in U.S.

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

Together, IOT has asserted infringement of 26 patents and is seeking permanent injunctions, enhanced damages and attorneys' fees.

Monitronics filed a Motion to Dismiss the first-filed case for lack of venue on January 24, 2023 and the second-filed case on March 24, 2023.

Should IOT 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.

4 unchanged sentences

Stockholders' Equity

Stock Repurchase Program

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

During the three and nine months ended September 30, 2022, we repurchased 5,595 and 840,249 shares of our common stock under this program for $ 0.4 million and $ 51.9 million, respectively, which includes applicable commissions and fees.

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

Stock Repurchase Programs

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

No shares of our common stock were repurchased under this program during the three months ended March 31, 2023.

During the three months ended March 31, 2022, we repurchased 354,123 shares of our common stock under this program for $ 23.3 million, which includes applicable commissions and fees.

On February 15, 2023, our board of directors authorized the cancellation of the balance under the stock repurchase program ending December 3, 2023 and also authorized a stock repurchase program, effective February 23, 2023, 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.

No shares were repurchased under this program during the three months ended March 31, 2023.

ALARM.COM HOLDINGS, INC.

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

September 30, 2022 and 2021

March 31, 2023 and 2022

Stock-Based Compensation

1 unchanged sentence

Three Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

Sales and marketing $ 1,032 $ 1,058

4 unchanged sentences

Three Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

Stock options and assumed options $ 1,015 $ 1,042 $ 2,742 $ 2,818

Stock options $ 912 $ 778

Restricted stock units 11,722 11,284

1 unchanged sentence

Total stock-based compensation expense $ 12,686 $ 12,110

Tax windfall benefit from stock-based awards $ 916 $ 1,100 $ 1,949 $ 6,780

We granted 87,000 and 182,000 stock options pursuant to our 2015 Plan during each of the three and nine months ended September 30, 2022 as compared to an aggregate of 7,500 and 141,200 stock options for the same periods in the prior year.

There were 62,324 and 101,586 stock options exercised during the three and nine months ended September 30, 2022, respectively, as compared to 74,932 and 211,190 stock options for the same periods in the prior year.

There was an aggregate of 229,400 and 819,824 restricted stock units without performance conditions granted to certain of our employees and directors, during the three and nine months ended September 30, 2022, respectively, as compared to an aggregate of 173,005 and 608,101 restricted stock units without performance conditions for the same periods in the prior year.

There was an aggregate of 96,289 and 168,223 restricted stock units with performance conditions granted to certain of our employees during the three and nine months ended September 30, 2022, respectively, as compared to zero and 120,314 restricted stock units with performance conditions for the same periods in the prior year.

There were 75,452 and 312,947 restricted stock units without performance conditions that vested during the three and nine months ended September 30, 2022, respectively, as compared to 49,263 and 292,186 restricted stock units without performance conditions vested during the same periods in the prior year.

There were zero restricted stock units with performance conditions that vested during the three and nine months ended September 30, 2022 as compared to zero and 20,000 restricted stock units with performance conditions for the same periods in the prior year.

Tax (shortfall) / windfall benefit from stock-based awards $ ( 22 ) $ 529

We granted 21,400 and no stock options pursuant to our 2015 Equity Incentive Plan during the three months ended March 31, 2023 and 2022, respectively.

There were 70,951 stock options exercised during the three months ended March 31, 2023, as compared to 14,020 stock options for the same period in the prior year.

There was an aggregate of 82,875 restricted stock units without performance conditions granted to certain of our employees during the three months ended March 31, 2023, as compared to an aggregate of 156,543 restricted stock units without performance conditions for the same period in the prior year.

There were no restricted stock units with performance conditions granted to certain of our employees during the three months ended March 31, 2023, as compared to 71,934 restricted stock units with performance conditions for the same period in the prior year.

There were 167,085 restricted stock units without performance conditions that vested during the three months ended March 31, 2023, as compared to 57,497 restricted stock units without performance conditions vested during the same period in the prior year.

There were 9,000 restricted stock units with performance conditions that vested during the three months ended March 31, 2023, as compared to no restricted stock units with performance conditions vested for the same period in the prior year.

ALARM.COM HOLDINGS, INC.

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

September 30, 2022 and 2021

March 31, 2023 and 2022

Earnings Per Share

2 unchanged sentences

Three Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

Net income $ 14,207 $ 8,903

11 unchanged sentences

Three Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

Stock options 431,052 172,500

Restricted stock units 355,047 320,352

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

See Notes 2 and 6 for details on the put options and call options contained in the OpenEye and Noonlight stockholder agreements.

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

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

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

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

As a result, we included 3,396,950 shares related to the 2026 Notes within the weighted average shares outstanding when calculating the diluted net income per share for the three and nine months ended September 30, 2022.

Additionally, we included $ 0.6 million and $ 1.8 million of debt issuance cost amortization, net of tax, within the numerator of the diluted net income per share for the three and nine months ended September 30, 2022, respectively .

Our redeemable noncontrolling interests are related to our 85 % equity ownership interests in PC Open Incorporated, doing business as OpenEye, and Noonlight.

See Note 6 for details on the put option and call option contained in the Noonlight stockholder agreement.

We use 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 each of the three months ended March 31, 2023 and 2022.

Additionally, we included $ 0.6 million of debt issuance cost amortization, net of tax, within the numerator of the diluted net income per share for each of the three months ended March 31, 2023 and 2022 .

Significant Service Providers and Distributors

During each of the three months ended March 31, 2023 and 2022, our 10 largest revenue service provider partners or distributors accounted for 50 % of our consolidated revenue.

One of our service provider partners within the Alarm.com segment individually represented greater than 15 % but not more than 20 % of our revenue for the three months ended March 31, 2023 and 2022.

One service provider partner in the Alarm.com segment represented more than 10% of accounts receivable as of March 31, 2023.

Two service provider partners or distributors in the Alarm.com segment each represented greater than 10% of accounts receivable as of December 31, 2022.

ALARM.COM HOLDINGS, INC.

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

September 30, 2022 and 2021

Significant Service Providers

During the three and nine months ended September 30, 2022 our 10 largest revenue service provider partners accounted for 52 % and 49 % of our consolidated revenue, respectively, as compared to 48 % and 49 % for the same periods in the prior year.

One of our service provider partners within the Alarm.com segment individually represented greater than 15 % but not more than 20 % of our revenue for each of the three and nine months ended September 30, 2022 and 2021.

Two service provider partners in the Alarm.com segment each represented more than 10% of accounts receivable as of September 30, 2022.

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

March 31, 2023 and 2022

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

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

For the three and nine months ended September 30, 2022, we recorded a provision for income taxes of $ 0.2 million and $ 0.5 million, respectively, resulting in an effective income tax rate of 1.3 % and 1.2 % for those periods.

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

Our effective tax rates were below the 21.0% statutory rate primarily due to research and development tax credits claimed, tax windfall benefits from employee stock-based payment transactions and foreign derived intangible income deductions, partially offset by the impact of state taxes, foreign withholding taxes and other nondeductible expenses.

For the three months ended March 31, 2023, we recorded a benefit from income taxes of $ 1.2 million, resulting in an effective income tax rate of ( 9.4 )%.

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

For the three months ended March 31, 2023, our effective tax rate was below the 21.0% statutory rate primarily due to research and development tax credits claimed and the foreign derived intangible income deduction, partially offset by the impact of state income taxes and other nondeductible expenses.

For the three months ended March 31, 2022, our effective tax rate was below the 21.0% statutory rate primarily due to research and development tax credits claimed, tax windfall benefits from employee stock-based payment transactions and the foreign derived intangible income deduction, partially offset by the impact of state taxes, foreign withholding taxes and other nondeductible expenses.

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

Due to the uncertainty of realization of certain deferred tax assets acquired in 2017 related to our Canadian net operating losses and research and development tax credits, we established a valuation allowance of $ 0.3 million during the second quarter of 2019, which remained at $ 0.3 million as of December 31, 2021 and decreased to $ 0.2 million as of September 30, 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 $ 2.0 million as of September 30, 2022.

Our valuation allowance for state research and development tax credit carryforwards was $ 2.6 million as of December 31, 2022 and increased to $ 2.7 million as of March 31, 2023.

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

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

We recorded an increase to the unrecognized tax benefits liability of $ 2.1 million primarily for research and development tax credits claimed during the nine months ended September 30, 2022.

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

We recorded an increase to the unrecognized tax benefits liability of $ 0.7 million primarily for research and development tax credits claimed during the three months ended March 31, 2023.

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

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.

On October 13, 2021, the Internal Revenue Service commenced an examination of our federal income tax return for 2018, which is ongoing.

On August 12, 2022, the Internal Revenue Service expanded the examination to include our federal income tax return for 2019, which is ongoing.

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.

As of September 30, 2022 and December 31, 2021, we accrued $ 0.2 million of total interest expense related to unrecognized tax benefits.

As of March 31, 2023 and December 31, 2022, our condensed consolidated balance sheets included a $ 0.3 million accrual for total interest expense related to unrecognized tax benefits.

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

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.

ALARM.COM HOLDINGS, INC.

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

September 30, 2022 and 2021

Both provisions became effective on January 1, 2023 and the provisions did not have a material impact on our financial condition or results of operations as of March 31, 2023.

Segment Information

5 unchanged sentences

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

Our Alarm.com segment represents our cloud-based and Software platforms for the intelligently connected property and related solutions that contributed 94 % of our revenue, net of intersegment eliminations, for each of the three and nine months ended September 30, 2022, as compared to 94 % and 95 % for the same periods in the prior year.

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

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

Our Alarm.com segment represents our cloud-based and Software platforms for the intelligently connected property and related solutions that contributed 95 % of our revenue, net of intersegment eliminations, for each of the three months ended March 31, 2023 and 2022.

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

ALARM.COM HOLDINGS, INC.

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

September 30, 2022 and 2021

March 31, 2023 and 2022

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

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

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

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

Three Months Ended September 30, 2022

Alarm.com Other Intersegment Alarm.com Intersegment Other Total

SaaS and license revenue $ 122,555 $ 10,571 $ — $ — $ 133,126

Hardware and other revenue

82,300 1,876 ( 1,059 ) ( 105 ) 83,012

Total revenue

204,855 12,447 ( 1,059 ) ( 105 ) 216,138

Operating income / (loss)

20,874 ( 4,738 ) 105 75 16,316

Three Months Ended September 30, 2021

Alarm.com Other Intersegment Alarm.com Intersegment Other Total

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

Hardware and other revenue

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

Total revenue

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

Operating income / (loss)

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

Nine Months Ended September 30, 2022

Three Months Ended March 31, 2023

Alarm.com Other Intersegment Alarm.com Intersegment Other Total

6 unchanged sentences

13,931 ( 5,192 ) 5 75 8,819

Nine Months Ended September 30, 2021

Three Months Ended March 31, 2022

Alarm.com Other Intersegment Alarm.com Intersegment Other Total

7 unchanged sentences

Alarm.com Other Intersegment Alarm.com Intersegment Other Total

Assets as of September 30, 2022 $ 1,350,821 $ 40,088 $ ( 81,251 ) $ 115 $ 1,309,773

Assets as of March 31, 2023 $ 1,404,483 $ 41,994 $ ( 88,949 ) $ 2 $ 1,357,530

Assets as of December 31, 2022 1,366,343 53,927 ( 90,929 ) 34 1,329,375

Our SaaS and license revenue for the Alarm.com segment included software license revenue of $ 6.5 million and $ 20.5 million for the three and nine months ended September 30, 2022, respectively, as compared to $ 7.9 million and $ 24.9 million for the same periods in the prior year.

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

Depreciation and amortization expense was $ 7.3 million and $ 22.2 million for the Alarm.com segment for the three and nine months ended September 30, 2022, respectively, as compared to $ 7.3 million and $ 22.0 million for the same periods in the prior year.

Depreciation and amortization expense was $ 0.3 million and $ 0.9 million for the Other segment for the three and nine months ended September 30, 2022, respectively, as compared to $ 0.1 million and $ 0.3 million for the same periods in the prior year.

Additions to property and equipment were $ 1.9 million and $ 27.6 million for the Alarm.com segment for the three and nine

ALARM.COM HOLDINGS, INC.

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

September 30, 2022 and 2021

months ended September 30, 2022, respectively, as compared to $ 1.2 million and $ 7.4 million for the same periods in the prior year.

Additions to property and equipment were less than $ 0.1 million and $ 0.2 million for the Other segment for the three and nine months ended September 30, 2022, respectively, as compared to $ 0.2 million and $ 0.3 million for the same periods in the prior year.

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

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

Our SaaS and license revenue for the Alarm.com segment included software license revenue of $ 6.2 million for the three months ended March 31, 2023, as compared to $ 7.1 million for the same period in the prior year.

There was no software license revenue recorded for the Other segment during the three months ended March 31, 2023 and 2022.

Amortization and depreciation expense was $ 7.4 million for the Alarm.com segment for the three months ended March 31, 2023, as compared to $ 7.5 million for the same period in the prior year.

Amortization and depreciation expense was $ 0.3 million for the Other segment for each of the three months ended March 31, 2023 and 2022.

Additions to property and equipment were $ 3.0 million for the Alarm.com segment for the three months ended March 31, 2023, as compared to $ 1.6 million for the same period in the prior year.

Additions to property and equipment were less than $ 0.1 million for the Other segment for the three months ended March 31, 2023, as compared to $ 0.1 million for the same period in the prior year.

We derived substantially all revenue from North America for the three months ended March 31, 2023 and 2022.

Substantially all of our long-lived assets were in North America as of March 31, 2023 and December 31, 2022.

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

What changed 10-Q

Item 1. Financial Statements