What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2023-08-09 compared with 2023-05-10 · 183 added, 106 removed, 368 unchanged (44% of the section changed)

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The Alarm.com platform enables our service provider partners to deploy our interactive security, video monitoring, intelligent automation, access control, energy management and wellness solutions as stand-alone offerings or as combined solutions to address the needs of a broad range of customers.

Highlights of First Quarter Results

Highlights of Second Quarter Results

We primarily generate SaaS and license revenue, our largest source of revenue, through our service provider partners who resell our services and pay us monthly fees.

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on a per customer basis.

SaaS and license revenue represented 65% of our revenue during the three months ended March 31, 2023, as compared to 60% in the same period in the prior year.

SaaS and license revenue represented 63% and 64% of our revenue during the three and six months ended June 30, 2023, respectively, as compared to 61% and 60% in the same periods in the prior year.

We also generate SaaS and license revenue from monthly fees charged to service providers on a per subscriber basis for access to our non-hosted software platform, or Software platform.

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

Software license revenue represented 3% of our revenue during each of the three months ended March 31, 2023 and 2022.

Software license revenue represented 3% of our revenue during each of the three and six months ended June 30, 2023 and 2022.

We also generate revenue from the sale of many types of hardware, including video cameras, video recorders, cellular radio modules, thermostats, image sensors, gunshot detection sensors and other peripherals, that enable our solutions.

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Additionally, our hardware and other revenue includes our revenue from the sale of licenses that provide our customers the right to use our gunshot detection solution in exchange for license fees.

Hardware and other revenue represented 35% of our revenue during the three months ended March 31, 2023, as compared to 40% in the same period in the prior year.

Hardware and other revenue represented 37% and 36% of our revenue during the three and six months ended June 30, 2023, respectively, as compared to 39% and 40% in the same periods in the prior year.

We typically expect hardware and other revenue to fluctuate as a percentage of total revenue.

Highlights of our financial performance for the periods covered in this Quarterly Report include:

• SaaS and license revenue increased 10% to $135.4 million during the three months ended March 31, 2023 from $123.2 million during the three months ended March 31, 2022.

Software license revenue decreased to $6.2 million during the three months ended March 31, 2023 from $7.1 million during the three months ended March 31, 2022.

• Total revenue increased 2% to $209.7 million during the three months ended March 31, 2023 from $205.4 million during the three months ended March 31, 2022.

• Net income increased to $14.2 million during the three months ended March 31, 2023, as compared to $8.9 million during the three months ended March 31, 2022.

Net income attributable to common stockholders increased to $14.4 million during the three months ended March 31, 2023, as compared to $9.1 million during the three months ended March 31, 2022.

• Non-GAAP adjusted EBITDA, a non-GAAP measurement of operating performance, increased to $30.6 million during the three months ended March 31, 2023 from $29.9 million during the three months ended March 31, 2022.

Please see Non-GAAP Measures below in this section of this Quarterly Report for a discussion of the limitations of non-GAAP adjusted EBITDA (a non-GAAP measure) and a reconciliation of non-GAAP adjusted EBITDA from net income, the most directly comparable measurement in accordance with accounting principles generally accepted in the United States, or GAAP, for the three months ended March 31, 2023 and 2022.

• SaaS and license revenue increased 8% to $140.4 million during the three months ended June 30, 2023 from $129.5 million during the three months ended June 30, 2022.

SaaS and license revenue increased 9% to $275.8 million in the six months ended June 30, 2023 from $252.7 million in the six months ended June 30, 2022.

Included in SaaS and license revenue was software license revenue, which decreased to $5.9 million during the three months ended June 30, 2023 from $6.9 million during the three months ended June 30, 2022.

Software license revenue decreased to $12.1 million in the six months ended June 30, 2023 from $14.0 million in the six months ended June 30, 2022.

• Total revenue increased 5% to $223.9 million during the three months ended June 30, 2023 from $212.8 million during the three months ended June 30, 2022.

Total revenue increased 4% to $433.6 million in the six months ended June 30, 2023 from $418.3 million in the six months ended June 30, 2022.

• Net income increased to $15.6 million during the three months ended June 30, 2023, as compared to $10.8 million during the three months ended June 30, 2022.

Net income increased to $29.8 million in the six months ended June 30, 2023, as compared to $19.7 million in the six months ended June 30, 2022.

Net income attributable to common stockholders increased to $15.8 million during the three months ended June 30, 2023, as compared to $10.8 million during the three months ended June 30, 2022.

Net income attributable to common stockholders increased to $30.2 million in the six months ended June 30, 2023, as compared to $19.9 million in the six months ended June 30, 2022.

• Non-GAAP adjusted EBITDA, a non-GAAP measurement of operating performance, decreased to $36.4 million during the three months ended June 30, 2023 from $37.1 million during the three months ended June 30, 2022.

Non-GAAP adjusted EBITDA decreased to $66.9 million in the six months ended June 30, 2023 from $67.1 million in the six months ended June 30, 2022.

Recent Developments

On January 18, 2023, we 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 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.

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

On April 21, 2023, Alarm.com Incorporated, one of our wholly-owned subsidiaries, acquired certain assets of Vintra, Inc., or Vintra.

Substantially all of the acquired assets consisted of developed technology.

We believe the acquisition of the developed technology will expand Alarm.com's learning program and accelerate deployment of advanced video analytics solutions for the Alarm.com and OpenEye platforms.

In consideration for the purchase of the acquired assets, we paid $5.5 million in cash in April 2023, after deducting $0.3 million related to the settlement of an outstanding loan issued to Vintra during March of 2023 and $1.0 million related to an agreed holdback provision.

The holdback is expected to be paid by the third quarter of 2024, subject to offset for any indemnification obligations.

Additionally, we incurred $0.4 million in direct transaction costs related to legal fees during 2023 that were capitalized as a component of the consideration transferred.

The $7.1 million purchase price consideration allocated to developed technology was recorded as an intangible asset at the time of the asset acquisition and is being amortized on a straight-line basis over an estimated useful life of five years.

The remaining $0.1 million purchase price consideration was allocated to property and equipment.

The global economy, credit markets and financial markets have and may continue to experience significant volatility as a result of 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.

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.

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.

The results of operations for the three and six months ended June 30, 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 uncertainty with respect to the Macroeconomic Conditions could cause further economic slowdown or cause other unpredictable events, each of which could adversely affect our business, results of operations or financial condition.

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Three Months Ended

June 30, Six Months Ended

2023 2022 2023 2022

SaaS and license revenue $ 140,432 $ 129,475 $ 275,826 $ 252,700

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Non-GAAP Adjusted EBITDA

Non-GAAP adjusted EBITDA is a non-GAAP measure that represents our net income before interest expense, interest income, certain activity within other (expense) / income, net, benefit from income taxes, amortization and depreciation expense, stock-based compensation expense, acquisition-related expense and legal costs and settlement fees incurred in connection with non-ordinary course litigation and other disputes, particularly costs involved in ongoing intellectual property litigation.

Non-GAAP adjusted EBITDA is a non-GAAP measure that represents our net income before interest expense, interest income, certain activity within other (expense) / income, net, provision for income taxes, amortization and depreciation expense, stock-based compensation expense, acquisition-related expense and legal costs and settlement fees incurred in connection with non-ordinary course litigation and other disputes, particularly costs involved in ongoing intellectual property litigation.

We do not consider these items to be indicative of our core operating performance.

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We exclude interest income and certain activity within other (expense) / income, net including gains, losses or impairments on investments and other assets as well as losses on the early extinguishment of debt, when applicable, from non-GAAP adjusted EBITDA because we do not consider it part of our ongoing results of operations.

We exclude the impact related to our benefit from income taxes from non-GAAP adjusted EBITDA because we do not consider this tax adjustment to be part of our ongoing results of operations.

We exclude the impact related to our provision for income taxes from non-GAAP adjusted EBITDA because we do not consider this tax adjustment to be part of our ongoing results of operations.

GAAP requires that operating expenses include the amortization of acquired intangible assets, which principally include acquired customer relationships, developed technology and trade names.

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Non-GAAP adjusted EBITDA is not a measure calculated in accordance with GAAP and should not be considered in isolation from, or as a substitute for, financial information prepared in accordance with GAAP.

Please see Non-GAAP Measures in this section for a discussion of the limitations of non-GAAP adjusted EBITDA and a reconciliation of non-GAAP adjusted EBITDA from net income, the most directly comparable GAAP measurement, for the three months ended March 31, 2023 and 2022.

SaaS and License Revenue Renewal Rate

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SaaS and License Revenue .

We generate the majority of our SaaS and license revenue primarily from monthly fees charged to our service provider partners on a per subscriber basis for access to our cloud-based intelligently connected property platform and related solutions.

platform and related solutions.

Our fees per subscriber vary based upon the service plan and features utilized.

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

The fee paid by our service provider partners each month for the delivery of our solutions is

based on the combination of packages and add-ons enabled for each subscriber.

The fee paid by our service provider partners each month for the delivery of our solutions is based on the combination of packages and add-ons enabled for each subscriber.

We utilize tiered pricing plans where our service provider partners may receive prospective pricing discounts driven by volume.

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We record the cost of SaaS and license revenue as expenses are incurred, which corresponds to the delivery period of our services to our subscribers.

We record the cost of hardware and other revenue primarily when the hardware and other services are delivered to the service provider partner, which occurs when control of the hardware and other services transfers to the service provider partner.

We record the cost of hardware and other revenue primarily when the hardware and other services

are delivered to the service provider partner, which occurs when control of the hardware and other services transfers to the service provider partner.

Our cost of revenue excludes amortization and depreciation shown in operating expenses.

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Tariffs have subjected certain Alarm.com products manufactured overseas to additional import duties of up to 25%.

amount of the import tariff and the number of products subject to tariffs have changed numerous times based on action by the U.S.

The amount of the import tariff and the number of products subject to tariffs have changed numerous times based on action by the U.S.

Approximately one-fifth to one-half of the hardware products that we sell to our service provider partners are imported from China and could be subject to increased tariffs.

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Our costs of hardware revenue increased during the second half of 2021 primarily due to an increase in costs for freight shipments, including expedited shipping costs, as well as an increase in inventory component costs.

We currently expect our hardware revenue margins in 2023 to approximate the hardware revenue margins experienced during the third and fourth quarters of 2022 as opposed to the hardware revenue margins experienced during the fourth quarter of 2021 and first quarter of 2022 as a result of price increases we have implemented on some of our products during the first six months of 2022 to cover some of our increases in costs.

We currently expect our hardware revenue margins in 2023 to approximate the hardware revenue margins experienced during the third and fourth quarters of 2022 as opposed to the hardware revenue margins experienced during the fourth quarter of 2021 and first quarter of 2022 as a result of price increases we implemented on certain products during the first six months of 2022 to partially offset our increases in costs.

Operating Expenses

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We include stock-based compensation expense in connection with the grant of restricted stock units and other forms of equity compensation, including equity compensation with performance conditions, in the applicable operating expense category based on the respective equity award recipient’s function (sales and marketing, general and administrative or research and development).

We grew from 1,565 employees as of March 31, 2022 to 1,858 employees as of March 31, 2023, including 99 employees who manufacture hardware for our suite of IoT solutions, and grew from 1,733 employees as of December 31, 2022.

We grew from 1,606 employees as of June 30, 2022 to 1,909 employees as of June 30, 2023, including 104 employees who manufacture hardware for our suite of IoT solutions, and grew from 1,858 employees as of March 31, 2023.

We expect to continue to hire new employees to support the projected future growth of our business.

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Our sales and marketing teams engage in sales, account management, service provider partner support, advertising, promotion of our products and services and marketing.

The number of employees in sales and marketing functions increased from 478 as of March 31, 2022 to 519 as of March 31, 2023 and increased from 511 as of December 31, 2022.

The number of employees in sales and marketing functions increased from 484 as of June 30, 2022 to 553 as of June 30, 2023 and increased from 519 as of March 31, 2023.

We expect to continue to invest in our sales and marketing activities to expand our business both domestically and internationally.

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Also included in general and administrative expenses are credit losses and acquisition-related expenses, which consist primarily of legal, accounting and professional service fees directly related to acquisitions and valuation gains or losses on acquisition-related contingent liabilities.

The number of employees in general and administrative functions increased from 195 as of March 31, 2022 to 198 as of March 31, 2023 and decreased from 218 as of December 31, 2022.

The number of employees in general and administrative functions decreased from 203 as of June 30, 2022 to 199 as of June 30, 2023 and increased from 198 as of March 31, 2023.

Excluding intellectual property litigation and acquisition-related expense, we expect general and administrative costs to increase prospectively as our business grows.

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Also included are non-personnel costs such as consulting and professional fees paid to third-party development resources.

The number of employees in research and development functions increased from 892 as of March 31, 2022 to 1,042 as of March 31, 2023 and increased from 1,004 as of December 31, 2022.

The number of employees in research and development functions increased from 919 as of June 30, 2022 to 1,053 as of June 30, 2023 and increased from 1,042 as of March 31, 2023.

Our research and development efforts are focused on innovating new features and enhancing the functionality of our platforms and the solutions we offer to our service provider partners and subscribers.

enhancement of our Partner Services Platform, a comprehensive suite of enterprise-grade business management solutions for our service provider partners.

We will also continue to invest in efforts to extend our platforms to adjacent markets and internationally to maintain our leadership position in the development of intelligently connected property technology, and continued enhancement of our Partner Services Platform, a comprehensive suite of enterprise-grade business management solutions for our service provider partners.

Amortization and Depreciation .

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Other (expense) / income, net primarily consists of non-operating and miscellaneous expense and income.

Benefit from Income Taxes

Provision for Income Taxes

We are subject to U.S.

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As a result, we recognize tax liabilities based on estimates of whether additional taxes will be due.

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, foreign withholding taxes and state taxes.

We recognize tax shortfalls and excess tax windfall benefits on a discrete basis during the quarter in which they occur, and we anticipate our effective tax rate will vary from quarter to quarter depending on our stock price as well as the vesting and exercises of various forms of equity compensation under our equity incentive plans each period, including restricted stock units and stock options.

For the six months ended June 30, 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 an unfavorable true-up adjustment of our 2022 income tax provision estimate associated with research and development tax credits, the impact of state taxes, foreign withholding taxes and a stock-based compensation tax shortfall.

We recognize stock-based compensation tax shortfalls and excess tax windfall benefits on a discrete basis during the quarter in which they occur, and we anticipate our effective tax rate will vary from quarter to quarter depending on our stock price as well as the vesting and exercises of various forms of equity compensation under our equity incentive plans each period, including restricted stock units and stock options.

Results of Operations

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Three Months Ended

June 30, Six Months Ended

2023 2022 2023 2022

SaaS and license revenue $ 140,432 63 % $ 129,475 61 % $ 275,826 64 % $ 252,700 60 %

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Income before income taxes 22,118 10 11,672 5 35,103 8 19,957 5

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

Provision for income taxes 6,507 3 844 — 5,285 1 226 —

Net income $ 15,611 7 % $ 10,828 5 % $ 29,818 7 % $ 19,731 5 %

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Three Months Ended

June 30, Six Months Ended

2023 2022 2023 2022

Stock-based compensation expense data:

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Three Months Ended

June 30, Six Months Ended

2023 2022 2023 2022

Components of cost of revenue as a percentage of revenue:

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Total cost of revenue as a percentage of total revenue 39 % 41 % 37 % 42 %

Comparison of the Three Months Ended March 31, 2023 to March 31, 2022

Comparison of the Three and Six Months Ended June 30, 2023 to June 30, 2022

The following tables in this section set forth our selected condensed consolidated statements of operations, data for the percentage change and data as a percentage of revenue for the periods presented (in thousands, except percentages):

Three Months Ended

Change Six Months Ended

2023 2022 2023 2022

SaaS and license revenue $ 140,432 $ 129,475 8 % $ 275,826 $ 252,700 9 %

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Total revenue $ 223,875 $ 212,845 5 % $ 433,591 $ 418,282 4 %

The $4.3 million increase in total revenue for the three months ended March 31, 2023 as compared to the same period in the prior year was primarily the result of a $12.2 million, or 10%, increase in our SaaS and license revenue and a $7.9 million, or 10%, decrease in our hardware and other revenue.

Our software license revenue included within SaaS and license revenue decreased $0.9 million to $6.2 million during the three months ended March 31, 2023 as compared to $7.1 million during the same period in the prior year primarily due to the result of the continuing transition of customers from non-hosted software to our cloud based hosted platform.

The SaaS and license revenue for the Alarm.com segment increased $10.3 million for the three months ended March 31, 2023 as compared to the same period in the prior year primarily due to growth in our subscriber base, including the revenue impact from subscribers we added in 2022.

The increase in SaaS and license revenue for the Alarm.com segment was partially offset by $5.4 million in license revenue from Vivint during the three months ended March 31, 2022 that did not occur during the three months ended March 31, 2023.

The SaaS and license revenue for our Other segment increased $1.9 million for the three months ended March 31, 2023 as compared to the same period in the prior year primarily due to an increase in sales of our energy management and demand response solutions.

The decrease in hardware and other revenue for the three months ended March 31, 2023 as compared to the same period in the prior year was primarily from the $7.6 million decrease in hardware and other revenue, net of intersegment eliminations, for the Alarm.com segment due to a decrease in the volume of video cameras and cellular radio modules sold due to the shut down of 3G and CDMA wireless networks in 2022 by certain cellular carriers.

Hardware and other revenue, net of intersegment eliminations, in our Other segment decreased $0.3 million for the three months ended March 31, 2023 as compared to the same period in the prior year primarily due to decreased sales related to our property management and Heating, Ventilation and Air Conditioning solutions.

The $11.0 million increase in total revenue for the three months ended June 30, 2023 as compared to the same period in the prior year was primarily the result of a $11.0 million, or 8%, increase in our SaaS and license revenue and a $0.1 million, or 0%, increase in our hardware and other revenue.

Our software license revenue included within SaaS and license revenue decreased $1.0 million to $5.9 million during the three months ended June 30, 2023 as compared to $6.9 million during the same period in the prior year primarily due to the result of the continuing transition of customers from non-hosted software to our cloud based hosted platform.

The SaaS and license revenue for the Alarm.com segment increased $8.6 million for the three months ended June 30, 2023 as compared to the same period in the prior year primarily due to growth in our subscriber base, including the revenue impact from subscribers we added in 2022.

The increase in SaaS and license revenue for the Alarm.com segment was partially offset by $5.5 million in license revenue from Vivint during the three months ended June 30, 2022 that did not occur during the three months ended June 30, 2023.

The SaaS and license revenue for our Other segment increased $2.3 million for the three months ended June 30, 2023 as compared to the same period in the prior year primarily due to an increase in sales of our energy management and demand response solutions.

The increase in hardware and other revenue for the three months ended June 30, 2023 as compared to the same period in the prior year was primarily from the $0.9 million increase in hardware and other revenue, net of intersegment eliminations, for the Alarm.com segment due to price increases we implemented on certain products to partially offset our increases in costs.

Hardware and other revenue, net of intersegment eliminations, in our Other segment decreased $0.9 million for the three months ended June 30, 2023 as compared to the same period in the prior year primarily due to decreased sales related to our property management and Heating, Ventilation and Air Conditioning solutions.

The $15.3 million increase in total revenue for the six months ended June 30, 2023 as compared to the same period in the prior year was primarily the result of a $23.1 million, or 9%, increase in our SaaS and license revenue and a $7.8 million, or 5%, decrease in our hardware and other revenue.

Our software license revenue included within SaaS and license revenue decreased $1.9 million to $12.1 million during the six months ended June 30, 2023, as compared to $14.0 million during the same period in the prior year primarily due to the result of the continuing transition of customers from non-hosted software to our cloud based hosted platform.

The SaaS and license revenue for the Alarm.com segment increased $18.9 million for the six months ended June 30, 2023 as compared to the same period in the prior year primarily due to growth in our subscriber base, including the revenue impact from subscribers we added in 2022.

The increase in SaaS and license revenue for the Alarm.com segment was partially offset by $10.9 million in license revenue from Vivint during the six months ended June 30, 2022 that did not occur during the six months ended June 30, 2023.

The SaaS and license revenue for our Other segment increased $4.2 million for the six months ended June 30, 2023 as compared to the same period in the prior year primarily due to an increase in sales of our energy management and demand response solutions.

The decrease in hardware and other revenue for the six months ended June 30, 2023 as compared to the same period in the prior year was primarily from the $6.7 million decrease in hardware and other revenue, net of intersegment eliminations, for the Alarm.com segment due to a decrease in the volume of video cameras and cellular radio modules sold due to the shut down of 3G and CDMA wireless networks in 2022 by certain cellular carriers.

Hardware and other revenue, net of intersegment eliminations, in our Other segment decreased $1.2 million for the six months ended June 30, 2023 as compared to the same period in the prior year primarily due to decreased sales related to our property management and Heating, Ventilation and Air Conditioning solutions.

Cost of Revenue

Three Months Ended

Change Six Months Ended

2023 2022 2023 2022

Cost of revenue (1)

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(1) Excludes amortization and depreciation shown in operating expenses.

The $13.9 million decrease in cost of revenue for the three months ended March 31, 2023 as compared to the same period in the prior year was the result of a $16.6 million, or 23%, decrease in cost of hardware and other revenue and a $2.7 million, or 16%, increase in cost of SaaS and license revenue.

Our cost of software license revenue included within cost of SaaS and license revenue was $0.1 million for the three months ended March 31, 2023 as compared to $0.2 million during the same period in the prior year.

The cost of hardware and other revenue for the Alarm.com segment decreased $16.4 million during the three months ended March 31, 2023 as compared to the same period in the prior year primarily due to a decrease in the number of hardware units shipped, a decrease in inventory component costs and a decrease in costs for freight shipments.

The cost of SaaS and license revenue for the Alarm.com segment increased $1.8 million during the three months ended March 31, 2023 as compared to the same period in the prior year primarily due to the growth in our subscriber base, which drove a corresponding increase in amounts paid to wireless network providers.

The cost of SaaS and license revenue for the Other segment increased $0.9 million during the three months ended March 31, 2023 as compared to the same period in the prior year primarily due to an increase in sales of our energy management and demand response solutions, which drove a corresponding increase in amounts paid to distributed energy resource providers.

Cost of hardware and other revenue as a percentage of hardware and other revenue was 76% for the three months ended March 31, 2023 and 89% for the same period in the prior year.

The decrease in cost of hardware and other revenue as a percentage of hardware and other revenue for the three months ended March 31, 2023 as compared to the same period in the prior year is primarily due to a decrease in inventory component and freight shipment costs, price increases we have implemented on some of our products as well as a reflection of the mix of product sales during the periods.

Cost of SaaS and license revenue as a percentage of SaaS and license revenue was 14% for each of the three months ended March 31, 2023 and 2022.

Cost of software license revenue as a percentage of software license revenue was 2% for the three months ended March 31, 2023 and 3% for the same period in the prior year.

The $1.0 million decrease in cost of revenue for the three months ended June 30, 2023 as compared to the same period in the prior year was the result of a $3.9 million, or 6%, decrease in cost of hardware and other revenue and a $2.9 million, or 15%, increase in cost of SaaS and license revenue.

Our cost of software license revenue included within cost of SaaS and license revenue was $0.1 million for each of the three months ended June 30, 2023 and 2022.

The cost of hardware and other revenue for the Alarm.com segment decreased $3.0 million during the three months ended June 30, 2023 as compared to the same period in the prior year primarily due to a decrease in the number of hardware units shipped, a decrease in inventory component costs and a decrease in costs for freight shipments.

The cost of SaaS and license revenue for the Alarm.com segment increased $2.5 million during the three months ended June 30, 2023 as compared to the same period in the prior year primarily due to the growth in our subscriber base, which drove a corresponding increase in amounts paid to wireless network providers.

The cost of hardware and other revenue for the Other segment decreased $0.9 million during the three months ended June 30, 2023 as compared to the same period in the prior year primarily due to a decrease in the number of hardware units shipped, a decrease in inventory component costs and a decrease in costs for freight shipments.

The cost of SaaS and license revenue for the Other segment increased $0.4 million during the three months ended June 30, 2023 as compared to the same period in the prior year primarily due to an increase in sales of our energy management and demand response solutions, which drove a corresponding increase in amounts paid to distributed energy resource providers.

Cost of hardware and other revenue as a percentage of hardware and other revenue was 78% for the three months ended June 30, 2023 and 82% for the same period in the prior year.

The decrease in cost of hardware and other revenue as a percentage of hardware and other revenue for the three months ended June 30, 2023 as compared to the same period in the prior year is primarily due to a decrease in inventory component and freight shipment costs, price increases we implemented on certain products as well as a reflection of the mix of product sales during the periods.

Cost of SaaS and license revenue as a percentage of SaaS and license revenue was 15% for the three months ended June 30, 2023 and 14% for the same period in the prior year.

Cost of software license revenue as a percentage of software license revenue was 2% for each of the three months ended June 30, 2023 and 2022.

The $14.9 million decrease in cost of revenue for the six months ended June 30, 2023 as compared to the same period in the prior year was the result of a $20.5 million, or 14%, decrease in cost of hardware and other revenue and a $5.6 million, or 16%, increase in cost of SaaS and license revenue.

Our cost of software license revenue included within cost of SaaS and license revenue was $0.3 million for each of the six months ended June 30, 2023 and 2022.

The cost of hardware and other revenue for the Alarm.com segment decreased $19.4 million during the six months ended June 30, 2023 as compared to the same period in the prior year primarily due to a decrease in the number of hardware units shipped, a decrease in inventory component costs and a decrease in costs for freight shipments.

The cost of SaaS and license revenue for the Alarm.com segment increased $4.3 million during the six months ended June 30, 2023 as compared to the same period in the prior year primarily due to the growth in our subscriber base, which drove a corresponding increase in amounts paid to wireless network providers.

The cost of hardware and other revenue for the Other segment decreased $1.1 million during the six months ended June 30, 2023 as compared to the same period in the prior year primarily due to a decrease in the number of hardware units shipped, a decrease in inventory component costs and a decrease in costs for freight shipments.

The cost of SaaS and license revenue for the Other segment increased $1.3 million during the six months ended June 30, 2023 as compared to the same period in the prior year primarily due to an increase in sales of our energy management and demand response solutions, which drove a corresponding increase in amounts paid to distributed energy resource providers.

Cost of hardware and other revenue as a percentage of hardware and other revenue was 77% for the six months ended June 30, 2023 and 86% for the same period in the prior year.

The decrease in cost of hardware and other revenue as a percentage of hardware and other revenue for the six months ended June 30, 2023 as compared to the same period in the prior year is primarily due to a decrease in inventory component and freight shipment costs, price increases we have implemented on some of our products as well as a reflection of the mix of product sales during the periods.

Cost of SaaS and license revenue as a percentage of SaaS and license revenue was 15% for the six months ended June 30, 2023 and 14% for the same period in the prior year.

Cost of software license revenue as a percentage of software license revenue was 2% for each of the six months ended June 30, 2023 and 2022.

Sales and Marketing Expense

Three Months Ended

Change Six Months Ended

2023 2022 2023 2022

Sales and marketing $ 23,772 $ 22,933 4 % $ 50,417 $ 46,125 9 %

% of total revenue 10 % 11 % 12 % 11 %

The $3.5 million increase in sales and marketing expense for the three months ended March 31, 2023 as compared to the same period in the prior year was primarily due to a $3.1 million increase in personnel and related costs for our Alarm.com segment, attributable in part to increases in the headcount for our sales team to support our growth, partially offset by a $0.6 million decrease in marketing expense, including advertising costs.

The $0.8 million increase in sales and marketing expense for the three months ended June 30, 2023 as compared to the same period in the prior year was primarily due to a $1.4 million increase in personnel and related costs for our Alarm.com segment, attributable in part to increases in the headcount for our sales team and our service provider partner support team to support our growth, partially offset by a $1.3 million decrease in marketing expense, including advertising costs.

Personnel and related costs includes salary, benefits, stock-based compensation and travel expenses.

Sales and marketing expense from our Other segment increased $0.9 million for the three months ended March 31, 2023 as compared to the same period in the prior year, primarily due to increases in personnel and related costs, attributable in part to increases in the headcount for our sales team.

The overall number of employees in our sales and marketing teams increased from 478 as of March 31, 2022 to 519 as of March 31, 2023.

Sales and marketing expense for our Alarm.com segment also increased by $0.5 million for the three months ended June 30, 2023 as compared to the same period in the prior year due to an increase in our expenses for recruiting and external consultants.

Sales and marketing expense from our Other segment decreased $0.1 million for the three months ended June 30, 2023 as compared to the same period in the prior year, primarily due to a decrease in marketing expense.

The $4.3 million increase in sales and marketing expense for the six months ended June 30, 2023 as compared to the same period in the prior year was primarily due to a $4.5 million increase in personnel and related costs for our Alarm.com segment, attributable in part to increases in the headcount for our sales team and our service provider partner support team to support our growth, partially offset by a $1.9 million decrease in marketing expense, including advertising cost.

Sales and marketing expense from our Other segment increased $0.7 million for the six months ended June 30, 2023, as compared to the same period in the prior year, primarily due to increases in personnel and related costs, attributable in part to increases in the headcount for our sales team.

The overall number of employees in our sales and marketing teams increased from 484 as of June 30, 2022 to 553 as of June 30, 2023.

General and Administrative Expense

Three Months Ended

Change Six Months Ended

2023 2022 2023 2022

General and administrative $ 28,799 $ 29,309 (2) % $ 57,298 $ 53,303 7 %

% of total revenue 13 % 14 % 13 % 13 %

The $4.5 million increase in general and administrative expense for the three months ended March 31, 2023 as compared to the same period in the prior year was primarily due to a $1.6 million increase in personnel and related costs for our Alarm.com segment, attributable in part to an increase in employee headcount to support our operational growth.

Additionally, there was a $1.6 million increase in our expenses for external consultants and a $1.1 million increase in the provision for credit losses.

General and administrative expenses from our Other segment decreased by $0.4 million for the three months ended March 31, 2023 as compared to the same period in the prior year, primarily due to a $0.6 million decrease in the provision for credit losses, partially offset by a $0.1 million increase in personnel and related costs.

The overall number of employees in general and administrative functions increased from 195 as of March 31, 2022 to 198 as of March 31, 2023.

The $0.5 million decrease in general and administrative expense for the three months ended June 30, 2023 as compared to the same period in the prior year was primarily due to a $1.7 million decrease in legal costs for our Alarm.com segment related to intellectual property litigation, partially offset by a $1.5 million increase in personnel and related costs for our Alarm.com segment.

General and administrative expenses from our Other segment decreased by $0.5 million for the three months ended June 30, 2023 as compared to the same period in the prior year, primarily due to a decrease in personnel and related costs.

The $4.0 million increase in general and administrative expense for the six months ended June 30, 2023 as compared to the same period in the prior year was primarily due to a $3.1 million increase in personnel and related costs for our Alarm.com segment and a $1.9 million increase in our expenses for external consultants.

Additionally, the provision for credit losses increased $0.7 million, rent expense increased $0.4 million and insurance-related costs increased $0.3 million for our Alarm.com segment for the six months ended June 30, 2023 as compared to the same period in the prior year.

These increases in general and administrative expense were partially offset by a $2.2 million decrease in legal costs for our Alarm.com segment primarily related to intellectual property litigation.

General and administrative expenses from our Other segment decreased by $0.9 million for the six months ended June 30, 2023 as compared to the same period in the prior year, primarily due to a $0.6 million decrease in the provision for credit losses and a $0.4 million decrease in personnel and related costs.

The overall number of employees in general and administrative functions decreased from 203 as of June 30, 2022 to 199 as of June 30, 2023.

Research and Development Expense

Three Months Ended

Change Six Months Ended

2023 2022 2023 2022

Research and development $ 60,918 $ 54,156 12 % $ 122,826 $ 105,646 16 %

% of total revenue 27 % 25 % 28 % 25 %

The $10.4 million increase in research and development expense for the three months ended March 31, 2023 as compared to the same period in the prior year was primarily due to a $7.9 million increase in personnel and related costs for our Alarm.com segment, attributable in part to an increase in headcount of employees in research and development functions as well as a $0.7 million increase in our expenses for external consultants.

Research and development expense from our Other segment increased by $1.6 million for the three months ended March 31, 2023 as compared to the same period in the prior year, primarily due to an increase in personnel and related costs.

The overall number of employees in research and development functions increased from 892 as of March 31, 2022 to 1,042 as of March 31, 2023.

The $6.8 million increase in research and development expense for the three months ended June 30, 2023 as compared to the same period in the prior year was primarily due to a $5.5 million increase in personnel and related costs for our Alarm.com

segment, attributable in part to an increase in headcount of employees in research and development functions as well as a $0.3 million increase in our expenses for external consultants.

Research and development expense from our Other segment increased by $0.7 million for the three months ended June 30, 2023 as compared to the same period in the prior year, primarily due to an increase in personnel and related costs.

The $17.2 million increase in research and development expense for the six months ended June 30, 2023 as compared to the same period in the prior year was primarily due to a $13.4 million increase in personnel and related costs for our Alarm.com segment, attributable in part to an increase in headcount of employees in research and development functions as well as a $1.0 million increase in our expenses for external consultants.

Research and development expense from our Other segment increased by $2.2 million for the six months ended June 30, 2023 as compared to the same period in the prior year due to an increase in personnel and related costs.

The overall number of employees in research and development functions increased from 919 as of June 30, 2022 to 1,053 as of June 30, 2023.

Amortization and Depreciation

Three Months Ended

Change Six Months Ended

2023 2022 2023 2022

Amortization and depreciation $ 7,860 $ 7,775 1 % $ 15,533 $ 15,536 — %

% of total revenue 4 % 4 % 4 % 4 %

Amortization and depreciation remained relatively consistent for the three months ended March 31, 2023 as compared to the same period in the prior year.

Amortization and depreciation remained relatively consistent for the three and six months ended June 30, 2023 as compared to the same periods in the prior year.

Interest Expense

Three Months Ended

Change Six Months Ended

2023 2022 2023 2022

Interest expense $ (827) $ (785) 5 % $ (1,695) $ (1,569) 8 %

% of total revenue — % — % — % — %

Interest expense remained relatively consistent for the three months ended March 31, 2023, as compared to the same period in the prior year.

Interest expense remained relatively consistent for the three and six months ended June 30, 2023, as compared to the same periods in the prior year.

Interest Income

Three Months Ended

Change Six Months Ended

2023 2022 2023 2022

Interest income $ 7,417 $ 1,016 630 % $ 12,599 $ 1,159 987 %

% of total revenue 3 % — % 2 % — %

Interest income increased $5.0 million for the three months ended March 31, 2023, as compared to the same period in the prior year, primarily due to an increase in interest income earned on cash and cash equivalents during the three months ended March 31, 2023.

Interest income increased $6.4 million and $11.4 million for the three and six months ended June 30, 2023, respectively, as compared to the same periods in the prior year, primarily due to an increase in interest income earned on cash and cash equivalents during the three and six months ended June 30, 2023.

Other (Expense) / Income, Net

Three Months Ended

Change Six Months Ended

2023 2022 2023 2022

Other (expense) / income, net $ (631) $ 105 (701) % $ (779) $ 118 (760) %

% of total revenue — % — % — % — %

Other (expense) / income, net remained relatively consistent for the three months ended March 31, 2023 as compared to the same period in the prior year.

Benefit from Income Taxes

Other (expense) / income, net increased $0.7 million and $0.9 million for the three and six months ended June 30, 2023, respectively, as compared to the same periods in the prior year, primarily due to an increase in non-operating and miscellaneous expenses.

Provision for Income Taxes

Three Months Ended

Benefit from income taxes $ (1,222) $ (618) 98 %

Change Six Months Ended

2023 2022 2023 2022

Provision for income taxes $ 6,507 $ 844 671 % $ 5,285 $ 226 2,238 %

% of total revenue 3 % — % 1 % — %

The benefit from income taxes increased $0.6 million for the three months ended March 31, 2023, as compared to the same period in the prior year.

Our effective tax rate was (9.4)% for the three months ended March 31, 2023, as compared to (7.5)% for the same period in the prior year.

The increase in the benefit from income taxes for the three months ended March 31, 2023 as compared to the same period in the prior year was primarily due to an increase in the foreign derived intangible income deduction.

The provision for income taxes increased $5.7 million and $5.1 million for the three and six months ended June 30, 2023, respectively, as compared to the same periods in the prior year.

Our effective tax rate was 29.4% and 15.1% for the three and six months ended June 30, 2023, respectively, as compared to 7.2% and 1.1% for the same periods in the prior year.

The increase in the provision for income taxes for the three and six months ended June 30, 2023 as compared to the same periods in the prior year was primarily due to an increase in income before income taxes, an unfavorable true-up adjustment of our 2022 income tax provision estimate associated with research and development tax credits, foreign withholding taxes and a stock-based compensation tax shortfall.

Segment Information

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Alarm.com and Other.

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

Our Alarm.com segment represents our cloud-based and Software platforms for the intelligently connected property and related solutions that c ontributed 94% of our revenue, net of intersegment eliminations, for each of the three and six months ended June 30, 2023, as compared to 94% and 95%, respectively, 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.

The consolidated subsidiaries that make up our Other segment are in the investment stage and have incurred significant operating expenses relative to their revenue.

Our Alarm.com segment increased from 1,418 employees as of March 31, 2022 to 1,672 employees as of March 31, 2023 and increased from 1,563 employees as of December 31, 2022.

Our Other segment increased from 147 employees as of March 31, 2022 to 186 employees as of March 31, 2023 and increased from 170 employees as of December 31, 2022 .

Our Alarm.com segment increased from 1,447 employees as of June 30, 2022 to 1,712 employees as of June 30, 2023 and increased from 1,672 employees as of March 31, 2023.

Our Other segment increased from 159 employees as of June 30, 2022 to 197 employees as of June 30, 2023 and increased from 186 employees as of March 31, 2023 .

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

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Total $ 140,432 $ 83,443 $ 121,349 $ 129,475 $ 83,370 $ 114,173

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.

Six Months Ended

SaaS and license revenue Hardware and other revenue

Operating expenses SaaS and license revenue Hardware and other revenue

Operating expenses

Alarm.com $ 253,406 $ 156,128 $ 222,208 $ 234,476 $ 163,379 $ 198,734

Other 22,420 3,579 24,106 18,224 4,958 22,116

Intersegment Alarm.com — (1,658) (240) — (2,243) (240)

Intersegment Other — (284) — — (512) —

Total $ 275,826 $ 157,765 $ 246,074 $ 252,700 $ 165,582 $ 220,610

Our SaaS and license revenue for the Alarm.com segment included software license revenue of $5.9 million and $12.1 million for the three and six months ended June 30, 2023, respectively, as compared to $6.9 million and $14.0 million for the

same periods in the prior year.

There was no software license revenue recorded for the Other segment during the three and six months ended June 30, 2023 and 2022.

Critical Accounting Estimates

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The following table summarizes our cash and cash equivalents, accounts receivable, net and working capital, for the periods indicated (in thousands):

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

Cash and cash equivalents $ 627,041 $ 622,165

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We define working capital as current assets minus current liabilities.

Our cash and cash equivalents as of March 31, 2023 are available for working capital purposes.

Our cash and cash equivalents as of June 30, 2023 are available for working capital purposes.

Our investment policy defines allowable investments and establishes guidelines relating to credit quality, diversification and maturities of our investments to preserve capital, maintain liquidity and limit the amount of credit risk exposure.

As of March 31, 2023, our cash and cash equivalents were held in demand deposit accounts that generated very low returns.

As of June 30, 2023, our cash and cash equivalents were primarily held in money market accounts that generated low returns.

Liquidity and Capital Resources

As of March 31, 2023, we had $606.4 million in cash and cash equivalents.

As of June 30, 2023, we had $627.0 million in cash and cash equivalents.

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

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While we calculated the 2022 Federal and state cash tax increase from Section 174 to be $38.1 million, we did not pay this additional cash tax liability as part of our 2022 estimated tax payments due to the possible deferral, modification or repeal of Section 174.

The additional 2022 Federal cash tax liability is included in current income taxes payable as of December 31, 2022, and was paid in February 2023.

The additional 2022 Federal cash tax liability was included in current income taxes payable as of December 31, 2022, and was paid in February 2023.

The increased 2022 state tax liability was paid in April 2023 in the amount of $7.5 million.

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We believe our existing cash and cash equivalents and our future cash flows from operating activities will be sufficient to meet our anticipated operating cash needs for at least the next 12 months.

Over the final nine months of fiscal year 2023, we expect our capital expenditure requirements to be between $5.0 million and $7.0 million, primarily related to purchases of computer software and equipment as well as the continued build out of our leased and owned office space.

Over the final six months of fiscal year 2023, we expect our capital expenditure requirements to be between $3.0 million and $5.0 million, primarily related to the continued build out of our leased and owned office space as well as purchases of computer software and equipment.

Maturities of lease liabilities for our various office, data center and equipment leases are as follows:

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Material Cash Requirements

As of March 31, 2023, there were no material changes in our cash requirements from those disclosed in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report.

As of June 30, 2023, there were no material changes in our cash requirements from those disclosed in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report.

Sources of Liquidity

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The 2026 Notes are discussed in more detail above in Note 12 to the condensed consolidated financial statements.

We did not declare or pay dividends during the three months ended March 31, 2023 or 2022.

We did not declare or pay dividends during the three and six months ended June 30, 2023 or 2022.

We cannot provide any assurance that we will declare or pay cash dividends on our common stock in the future.

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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.

No shares of our common stock were repurchased under this program during the three and six months ended June 30, 2023.

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

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.

During the three and six months ended June 30, 2023, 134,255 shares of our common stock were repurchased under this program for $6.7 million, which includes applicable commissions and fees.

As of January 1, 2023, we are subject to a 1.0% excise tax on the value of net corporate stock repurchases under the Inflation Reduction Act of 2022.

When applicable, the excise tax will be included as part of the cost basis of shares acquired and is presented within stockholders’ equity in the condensed consolidated balance sheets.

Historical Cash Flows

The following table sets forth our cash flows for the periods indicated (in thousands):

Three Months Ended

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

Six Months Ended

Cash flows from operating activities $ 33,267 $ 12,258

Cash flows used in investing activities (19,591) (29,130)

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

Cash flows used in financing activities (8,089) (49,836)

Operating Activities

Cash flows from operating activities have typically been generated from our net income and by changes in our operating assets and liabilities, particularly from accounts receivable and inventory, adjusted for non-cash expense items such as amortization and depreciation, deferred income taxes and stock-based compensation.

For the three months ended March 31, 2023, cash flows used in operating activities were $3.5 million, compared to $14.0 million for the same period in the prior year.

This $10.5 million decrease in cash flows used in operating activities was due to a $19.7 million increase in cash from operating assets and liabilities and a $5.3 million increase in net income, partially offset by a $14.5 million decrease in non-cash and other reconciling items.

The $19.7 million increase in cash from operating assets and liabilities was primarily due to a $11.5 million change in inventory resulting from a decrease in purchased inventory following prior year purchase activity to reduce risks and uncertainties in our supply chain as well as differences in the timing of disbursements and the collection of receipts during the three months ended March 31, 2023 as compared to the same period in the prior year.

For the six months ended June 30, 2023, cash flows from operating activities were $33.3 million, compared to $12.3 million for the same period in the prior year.

This $21.0 million increase in cash flows from operating activities was due to a $22.5 million increase in cash from operating assets and liabilities and a $10.1 million increase in net income, partially offset by a $11.6 million decrease in non-cash and other reconciling items.

The $22.5 million increase in cash from operating assets and liabilities was primarily due to a $32.5 million change in inventory resulting from a decrease in purchased inventory following prior year purchase activity to reduce risks and uncertainties in our supply chain as well as differences in the timing of disbursements and the collection of receipts during the six months ended June 30, 2023 as compared to the same period in the prior year.

The $11.6 million decrease in non-cash and other reconciling items was primarily due to a $14.1 million change in deferred income taxes, which was driven by the adoption of Accounting Standards Update 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.

The decrease in non-cash and other reconciling items was partially offset by a $0.6 million increase in stock-based compensation resulting from additional grants of restricted stock units during the three months ended March 31, 2023 as well as an increase in the changes to the provision for credit losses, the reserve for product returns and the recovery of credit losses on notes receivable of $0.9 million during the three months ended March 31, 2023 as compared to the same period in the prior year.

The decrease in non-cash and other reconciling items was partially offset by a $1.2 million inventory write-down during the six months ended June 30, 2023, which did not occur during the six months ended June 30, 2022, as well as an increase in the changes to the provision for credit losses, the reserve for product returns and the recovery of credit losses on notes receivable of $0.9 million during the six months ended June 30, 2023 as compared to the same period in the prior year.

Investing Activities

Our investing activities typically include acquisitions, capital expenditures, investments in unconsolidated entities, notes receivable issued to companies with offerings complementary to ours and proceeds from the repayment of those notes receivable.

Our capital expenditures have primarily been for general business use, including leasehold improvements as we

have expanded our office space to accommodate our growth in headcount, computer equipment used internally and expansion of our network operations centers.

For the three months ended March 31, 2023, our cash flows used in investing activities was $12.9 million, as compared to $2.2 million for the same period in the prior year.

The $10.7 million increase in cash flows used in investing activities was primarily due to the $9.7 million paid to purchase 100% of the issued and outstanding shares of capital stock of EBS, net of cash acquired, during the three months ended March 31, 2023, which did not occur during the three months ended March 31, 2022.

Our capital expenditures have primarily been for general business use, including leasehold improvements as we have expanded our office space to accommodate our growth in headcount, computer equipment used internally and expansion of our network operations centers.

For the six months ended June 30, 2023, cash flows used in investing activities were $19.6 million, compared to $29.1 million for the same period in the prior year.

The $9.5 million decrease in cash flows used in investing activities was primarily due to the $21.8 million purchase of developable land during the six months ended June 30, 2022, which did not occur during the six months ended June 30, 2023, as well as a $2.7 million decrease in the issuance of notes receivable during the six months ended June 30, 2023 as compared to the same period in the prior year.

The decrease in cash flows used in investing activities was partially offset by $9.7 million paid to purchase 100% of the issued and outstanding shares of capital stock of EBS Spółka z ograniczoną odpowiedzialnością, or EBS, net of cash acquired, and the $5.9 million paid to purchase certain assets from Vintra, including direct transaction costs, during the six months ended June 30, 2023, which did not occur during the six months ended June 30, 2022.

Financing Activities

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Cash used in financing activities typically includes repurchases of common stock and repayments of debt.

For the three months ended March 31, 2023, cash flows from financing activities was $0.8 million, compared to cash flows used in financing activities of $22.3 million for the same period in the prior year.

The $23.1 million increase in cash flows from financing activities was primarily due to the repurchase of 354,123 shares of our common stock for $23.3 million during the three months ended March 31, 2022 that did not occur during the three months ended March 31, 2023.

For the six months ended June 30, 2023, cash flows used in financing activities were $8.1 million, compared to $49.8 million for the same period in the prior year.

The $41.7 million decrease in cash flows used in financing activities was primarily due to the $44.8 million decrease in purchases of shares of our common stock during the six months ended June 30, 2023 as compared to the same period in the prior year, partially offset by $1.7 million paid for holdback provisions from prior business combinations and asset acquisitions during the six months ended June 30, 2023, which did not occur during the six months ended June 30, 2022.

Non-GAAP Measures

We define non-GAAP adjusted EBITDA as our net income before interest expense, interest income, certain activity within other (expense) / income, net, benefit from income taxes, amortization and depreciation expense, stock-based compensation expense, acquisition-related expense and legal costs and settlement fees incurred in connection with non-ordinary course litigation and other disputes, particularly costs involved in ongoing intellectual property litigation.

We define non-GAAP adjusted EBITDA as our net income before interest expense, interest income, certain activity within other (expense) / income, net, provision for income taxes, amortization and depreciation expense, stock-based compensation expense, acquisition-related expense and legal costs and settlement fees incurred in connection with non-ordinary course litigation and other disputes, particularly costs involved in ongoing intellectual property litigation.

We do not consider these items to be indicative of our core operating performance.

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Three Months Ended

June 30, Six Months Ended

2023 2022 2023 2022

Non-GAAP adjusted EBITDA:

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Interest expense, interest income and certain activity within other (expense) / income, net (6,590) (371) (10,904) 257

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

Provision for income taxes 6,507 844 5,285 226

Amortization and depreciation expense 7,860 7,775 15,533 15,536

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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 2. Management’s Discussion and Analysis