What changed in this filing

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Item 1. Financial Statements

2023-11-09 compared with 2023-08-09 · 209 added, 174 removed, 813 unchanged (32% of the section changed)

4 unchanged sentences

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

35 unchanged sentences

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

Net income $ 19,351 $ 18,110 $ 49,169 $ 37,841

Other comprehensive income

Other comprehensive (loss) / income

Foreign currency translation adjustment ( 752 ) — 76 —

Total other comprehensive income 658 — 828 —

Total other comprehensive (loss) / income ( 752 ) — 76 —

Comprehensive income 18,599 18,110 49,245 37,841

5 unchanged sentences

(in thousands, except share and per share data)

September 30,

2023 December 31,

1 unchanged sentence

Cash and cash equivalents $ 679,969 $ 622,165

Accounts receivable, net of allowance for credit losses of $ 3,159 and $ 2,835 , and net of allowance for product returns of $ 2,146 and $ 1,551 as of June 30, 2023 and December 31, 2022, respectively

Accounts receivable, net of allowance for credit losses of $ 3,856 and $ 2,835 , and net of allowance for product returns of $ 2,175 and $ 1,551 as of September 30, 2023 and December 31, 2022, respectively

110,267 124,283

Inventory 114,248 115,584

Other current assets, net of allowance for credit losses of $ 0 as of June 30, 2023 and December 31, 2022

Other current assets, net of allowance for credit losses of $ 0 as of September 30, 2023 and December 31, 2022

26,685 29,056

5 unchanged sentences

Operating lease right-of-use assets 26,840 28,933

Other assets, net of allowance for credit losses of $ 2 as of June 30, 2023 and December 31, 2022

Other assets, net of allowance for credit losses of $ 2 as of September 30, 2023 and December 31, 2022

34,481 37,356

16 unchanged sentences

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

no shares issued and outstanding as of June 30, 2023 and December 31, 2022

no shares issued and outstanding as of September 30, 2023 and December 31, 2022

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

51,687,998 and 50,985,454 shares issued;

and 49,858,244 and 49,452,709 shares outstanding as of June 30, 2023 and December 31, 2022, respectively

and 49,915,713 and 49,452,709 shares outstanding as of September 30, 2023 and December 31, 2022, respectively

Additional paid-in capital 529,070 497,199

Treasury stock, at cost;

1,667,000 and 1,532,745 shares as of June 30, 2023 and December 31, 2022, respectively

1,772,285 and 1,532,745 shares as of September 30, 2023 and December 31, 2022, respectively

( 96,847 ) ( 83,993 )

7 unchanged sentences

(in thousands)

Six Months Ended

Nine Months Ended

September 30,

Cash flows from operating activities:

51 unchanged sentences

(in thousands)

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

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

Common Stock Treasury Stock

15 unchanged sentences

Balance as of June 30, 2023 $ 27,868 51,525 $ 515 $ 518,249 1,667 $ ( 90,719 ) $ 828 $ 215,358 $ 644,231

Common stock issued in connection with equity-based plans — 163 2 1,614 — — — — 1,616

Purchase of treasury stock — — — — 105 ( 6,128 ) — — ( 6,128 )

Stock-based compensation expense — — — 11,854 — — — — 11,854

Accretion adjustments of redeemable noncontrolling interests to redemption values 2,647 — — ( 2,647 ) — — — — ( 2,647 )

Net income / (loss) attributable to common stockholders ( 173 ) — — — — — — 19,524 19,524

Other comprehensive loss — — — — — — ( 752 ) — ( 752 )

Balance as of September 30, 2023 $ 30,342 51,688 $ 517 $ 529,070 1,772 $ ( 96,847 ) $ 76 $ 234,882 $ 667,698

ALARM.COM HOLDINGS, INC.

18 unchanged sentences

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

See accompanying notes to the condensed consolidated financial statements.

1 unchanged sentence

Notes to the Condensed Consolidated Financial Statements (Unaudited)

June 30, 2023 and 2022

September 30, 2023 and 2022

Alarm.com Holdings, Inc.

14 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, disruptions to global supply chains, rising interest rates, risk of recession and inflation (collectively, the Macroeconomic Conditions).

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 and the war between Israel and Hamas, disruptions to global supply chains, rising interest rates, risk of recession and inflation (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.

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

The results of operations for the three and nine months ended September 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 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.

6 unchanged sentences

Significant Accounting Policies

Other than those disclosed herein, there have been no other material changes to our significant accounting policies during the three and six months ended June 30, 2023 from those disclosed in our Annual Report.

Other than those disclosed herein, there have been no other material changes to our significant accounting policies during the three and nine months ended September 30, 2023 from those disclosed in our Annual Report.

ALARM.COM HOLDINGS, INC.

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

June 30, 2023 and 2022

September 30, 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.

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

Our other comprehensive (loss) / income consists of foreign currency translation adjustments.

Foreign Currency

7 unchanged sentences

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 next put and call options related to OpenEye can each be exercised beginning in the first quarter of 2024.

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 is recorded in the consolidated statements of operations and the accretion of the redemption values is recorded as an adjustment to additional paid-in capital.

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

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

We account for purchases of redeemable noncontrolling interest as a component of stockholders' equity when control is maintained.

4 unchanged sentences

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

1 unchanged sentence

Commission costs and upfront payments to a customer capitalized in period 1,808 5,253 5,028 9,980

Reimbursement of previously capitalized upfront payments to customers

( 6,774 ) — ( 6,774 ) —

Amortization of contract assets ( 1,117 ) ( 1,369 ) ( 4,731 ) ( 3,201 )

End of period balance $ 7,498 $ 11,299 $ 7,498 $ 11,299

On July 27, 2023, we received $ 6.9 million in cash related to the reimbursement of previously capitalized upfront payments to a customer.

On the date of payment, the $ 6.8 million unamortized portion of the contract asset balance was reduced to zero and the remaining amount of $ 0.1 million recorded as an increase to SaaS and license revenue.

ALARM.COM HOLDINGS, INC.

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

September 30, 2023 and 2022

Contract Liabilities

1 unchanged sentence

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

3 unchanged sentences

End of period balance $ 22,839 $ 18,435 $ 22,839 $ 18,435

ALARM.COM HOLDINGS, INC.

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

June 30, 2023 and 2022

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 $ 110,267 $ 124,283

For the three and six months ended June 30, 2023, we recorded a provision for credit losses of $ 0.1 million and $ 0.6 million, respectively, as compared to $ 0.4 million and $ 0.5 million for the same periods in the prior year.

For the three and six months ended June 30, 2023, we recorded a reserve for product returns of $ 1.3 million and $ 2.5 million in our hardware and other revenue, respectively, as compared to $ 0.9 million and $ 1.7 million for the same periods in the prior year.

For the three and nine months ended September 30, 2023, we recorded a provision for credit losses of $ 0.8 million and $ 1.4 million, respectively, as compared to $ 1.1 million and $ 1.6 million for the same periods in the prior year.

For the three and nine months ended September 30, 2023, we recorded a reserve for product returns of $ 0.5 million and $ 3.0 million in our hardware and other revenue, respectively, as compared to $ 2.0 million and $ 3.7 million for the same periods in the prior year.

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

10 unchanged sentences

(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 six months ended June 30, 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 and six months ended June 30, 2023, as compared to historical periods.

There were no changes to our portfolio segments for our accounts receivable during the three and nine months ended September 30, 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 and nine months ended September 30, 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 six months ended June 30, 2023, we recorded credit loss expense for accounts receivable and notes receivable of less than $ 0.1 million and $ 0.5 million, respectively, in general and administrative expense in our condensed consolidated statements of operations.

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

For the three and nine months ended September 30, 2023, we recorded credit loss expense for accounts receivable and notes receivable of $ 0.6 million and $ 1.1 million, respectively, in general and administrative expense in our condensed consolidated statements of operations.

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

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

Write-offs of the amortized cost basis are recorded to the allowance for credit losses.

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

Write-offs of the amortized cost basis are recorded to the

ALARM.COM HOLDINGS, INC.

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

June 30, 2023 and 2022

September 30, 2023 and 2022

allowance for credit losses.

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

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

Three Months Ended

June 30, 2023 Three Months Ended

June 30, 2022 Six Months Ended

June 30, 2023 Six Months Ended

June 30, 2022

September 30, 2023 Three Months Ended

September 30, 2022 Nine Months Ended

September 30, 2023 Nine Months Ended

September 30, 2022

Subsidiaries All Other

6 unchanged sentences

Beginning of period balance $ ( 2,968 ) $ ( 191 ) $ ( 2,450 ) $ ( 58 ) $ ( 2,755 ) $ ( 80 ) $ ( 2,035 ) $ ( 133 )

Recovery of / (provision for) expected credit losses 19 ( 96 ) ( 464 ) ( 29 ) ( 487 ) ( 130 ) ( 619 ) 72

(Provision for) / recovery of expected credit losses ( 820 ) 15 ( 1,057 ) ( 2 ) ( 1,307 ) ( 115 ) ( 1,676 ) 70

Write-offs 89 19 30 1 363 38 234 4

1 unchanged sentence

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

September 30,

2023 December 31,

3 unchanged sentences

Total inventory $ 114,248 $ 115,584

Inventory values include a write-down of $ 1.2 million during the three months ended June 30, 2023, which is reflected in cost of hardware and other revenue within our condensed consolidated statements of operations.

Inventory values include a write-down of $ 1.2 million during the nine months ended September 30, 2023, which is reflected in cost of hardware and other revenue within our condensed consolidated statements of operations.

The inventory write-down is the result of a lower of cost or net realizable value adjustment for finished goods.

1 unchanged sentence

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

June 30, 2023 and 2022

September 30, 2023 and 2022

Asset Acquisition

13 unchanged sentences

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 tax adjustments.

The overall impacts to our condensed consolidated financial statements were not considered material for the three and six months ended June 30, 2023.

The purchase price allocation was finalized during the third quarter of 2023.

The overall impacts to our condensed consolidated financial statements were not considered material for the three and nine months ended September 30, 2023.

Acquisition of a Business - Noonlight

7 unchanged sentences

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

June 30, 2023 and 2022

September 30, 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):

34 unchanged sentences

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

June 30, 2023 and 2022

September 30, 2023 and 2022

Redeemable Noncontrolling Interest

4 unchanged sentences

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 $ 6.5 million as of June 30, 2023.

The redemption value of the Noonlight noncontrolling interest was $ 6.8 million as of September 23, 2022 and $ 6.5 million as of September 30, 2023.

Business Combinations in Operations - Noonlight

9 unchanged sentences

Foreign currency translation adjustment ( 27 ) — ( 27 )

Balance as of June 30, 2023 $ 153,997 $ — $ 153,997

Balance as of September 30, 2023 $ 153,847 $ — $ 153,847

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 adjustments relate to the Noonlight and EBS working capital and tax adjustments during the three and six months ended June 30, 2023.

The measurement period adjustments relate to the Noonlight and EBS working capital and tax adjustments during the three and nine months ended September 30, 2023.

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

6 unchanged sentences

Amortization ( 8,141 ) ( 6,168 ) ( 563 ) — ( 14,872 )

Balance as of June 30, 2023 $ 44,652 $ 41,459 $ 1,581 $ 149 $ 87,841

We recorded $ 4.7 million and $ 9.3 million of amortization related to our intangible assets for the three and six months ended June 30, 2023, respectively, as compared to $ 4.5 million and $ 9.1 million for the same periods in the prior year.

There were no impairments of long-lived intangible assets during the three and six months ended June 30, 2023 and 2022.

During the six months ended June 30, 2022, we wrote-off $ 0.7 million in fully amortized intangible assets in the Alarm.com segment that were acquired in 2014 related to customer relationships, developed technology, trade name and other intangible assets that no longer existed as of January 1, 2022.

Balance as of September 30, 2023 $ 41,776 $ 38,968 $ 1,357 $ 397 $ 82,498

We recorded $ 5.6 million and $ 14.9 million of amortization related to our intangible assets for the three and nine months ended September 30, 2023, respectively, as compared to $ 4.6 million and $ 13.7 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, 2023 and 2022.

During the nine months ended September 30, 2022, we wrote-off $ 0.7 million in fully amortized intangible assets in the Alarm.com segment that were acquired in 2014 related to customer relationships, developed technology, trade name and other intangible assets that no longer existed as of January 1, 2022.

ALARM.COM HOLDINGS, INC.

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

June 30, 2023 and 2022

September 30, 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):

June 30, 2023

September 30, 2023

Amount Accumulated

19 unchanged sentences

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 June 30, 2023 and December 31, 2022, $ 4.3 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 and six months ended June 30, 2023, we recognized $ 0.8 million and $ 1.6 million of revenue from the distribution partner associated with this loan, respectively, as compared to $ 0.9 million and $ 1.5 million for the same periods in the prior year.

As of September 30, 2023 and December 31, 2022, $ 4.4 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 and nine months ended September 30, 2023, we recognized $ 0.9 million and $ 2.5 million of revenue from the distribution partner associated with this loan, respectively, as compared to $ 0.8 million and $ 2.3 million for the same periods in the prior year.

ALARM.COM HOLDINGS, INC.

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

June 30, 2023 and 2022

September 30, 2023 and 2022

Loan to a Service Provider Partner

2 unchanged sentences

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

As of June 30, 2023 and December 31, 2022, $ 1.1 million of principal was outstanding from the service provider partner under the loan agreement.

For three and six months ended June 30, 2023 and 2022, we recognized less than $ 0.1 million and $ 0.1 million, respectively, of revenue from the service provider partner associated with this loan.

As of September 30, 2023 and December 31, 2022, $ 1.1 million of principal was outstanding from the service provider partner under the loan agreement.

For three and nine months ended September 30, 2023 and 2022, we recognized less than $ 0.1 million and $ 0.1 million, respectively, of revenue from the service provider partner associated with this loan.

Loan to a Technology Partner

2 unchanged sentences

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

As of June 30, 2023 and December 31, 2022, $ 1.5 million of principal was outstanding from the technology partner under the convertible promissory note.

For the three and six months ended June 30, 2023 and 2022, we did not record any revenue from the technology partner associated with this convertible promissory note.

As of September 30, 2023 and December 31, 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, 2023 and 2022, we did not record any revenue from the technology partner associated with this convertible promissory note.

Investment in a Hardware Supplier

3 unchanged sentences

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

As of June 30, 2023 and December 31, 2022, our investment in the hardware supplier was $ 5.6 million.

As of September 30, 2023 and December 31, 2022, our investment in the hardware supplier was $ 5.6 million.

Investments in Technology Partners

2 unchanged sentences

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 June 30, 2023 and December 31, 2022, our investment in the technology partner was $ 5.7 million.

As of September 30, 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 June 30, 2023 and December 31, 2022, our investment in the technology partner was $ 5.1 million.

As of September 30, 2023 and December 31, 2022, our investment in the technology partner was $ 5.1 million.

Allowance for Credit Losses - Notes Receivable

1 unchanged sentence

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

There were no changes to our portfolio segments for our notes receivable during the three and six months ended June 30, 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 June 30, 2023 and December 31, 2022.

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

7 unchanged sentences

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

June 30, 2023 and 2022

September 30, 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 June 30, 2023 and December 31, 2022 was less than $ 0.1 million, and is reflected in other current assets and other assets within our condensed consolidated balance sheets and excluded from the amortized cost basis of the notes receivable .

We did not write-off any accrued interest receivable during the three and six months ended June 30, 2023 and 2022.

There were no purchases or sales of financial assets during the three and six months ended June 30, 2023 and 2022.

There were no significant changes in the amount of note receivable write-offs during the three and six months ended June 30, 2023, as compared to historical periods.

The accrued interest receivable as of September 30, 2023 and December 31, 2022 was less than $ 0.1 million, and is reflected in other current assets and other 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, 2023 and 2022.

There were no purchases or sales of financial assets during the three and nine months ended September 30, 2023 and 2022.

There were no significant changes in the amount of note receivable write-offs during the three and nine months ended September 30, 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

June 30, 2023 Three Months Ended

June 30, 2022 Six Months Ended

June 30, 2023 Six Months Ended

June 30, 2022

September 30, 2023 Three Months Ended

September 30, 2022 Nine Months Ended

September 30, 2023 Nine Months Ended

September 30, 2022

Receivables Hardware

11 unchanged sentences

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

June 30, 2023

September 30, 2023

Loan Receivables:

15 unchanged sentences

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

There were no notes receivable placed on nonaccrual status as of June 30, 2023 and December 31, 2022.

During the three and six months ended June 30, 2023 and 2022, there was no interest income recognized related to notes receivable that were in nonaccrual status.

As of June 30, 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 June 30, 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.

There were no notes receivable placed on nonaccrual status as of September 30, 2023 and December 31, 2022.

During the three and nine months ended September 30, 2023 and 2022, there was no interest income recognized related to notes receivable that were in nonaccrual status.

As of September 30, 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 September 30, 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.

ALARM.COM HOLDINGS, INC.

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

June 30, 2023 and 2022

September 30, 2023 and 2022

Prepaid Expenses

As of June 30, 2023 and December 31, 2022, $ 14.7 million and $ 14.5 million of prepaid expenses were included in other current assets, respectively, primarily related to software licenses and long lead-time parts related to our inventory.

As of September 30, 2023 and December 31, 2022, $ 17.4 million and $ 14.5 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.

Fair Value Measurements

2 unchanged sentences

Level 1 Level 2 Level 3 Total

Money market accounts as of June 30, 2023

Money market accounts as of September 30, 2023

$ 658,036 $ — $ — $ 658,036

1 unchanged sentence

510,326 — — 510,326

Contingent consideration liability from acquisition as of June 30, 2023

Contingent consideration liability from acquisition as of September 30, 2023

$ — $ — $ 2,016 $ 2,016

2 unchanged sentences

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

5 unchanged sentences

End of period balance $ 2,016 $ — $ 2,016 $ —

As of June 30, 2023, $ 611.7 million of our money market accounts was included in cash and cash equivalents and $ 1.3 million was included in other assets in our condensed consolidated balance sheets.

As of September 30, 2023, $ 656.1 million of our money market accounts was included in cash and cash equivalents and $ 1.9 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 June 30, 2023 and December 31, 2022.

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

8 unchanged sentences

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

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

We accounted for the termination of the subsidiary long-

ALARM.COM HOLDINGS, INC.

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

June 30, 2023 and 2022

long-term incentive plan.

September 30, 2023 and 2022

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

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

8 unchanged sentences

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 and six months ended June 30, 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 June 30, 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 %.

During the three and nine months ended September 30, 2023, the contingent consideration liability did not materially change from the acquisition date fair value of $ 2.0 million as there were minor changes in the expected probability of achievement for the performance targets.

The unobservable inputs used in the valuation as of September 30, 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 6.9 %, weighted by the probability of achievement of the performance targets at various dates, including a range of 6.8 % to 6.9 %.

2 unchanged sentences

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 into Level 3 or reclassifications between levels of the fair value hierarchy during the three and six months ended June 30, 2023 and 2022.

There were no transfers into Level 3 or reclassifications between levels of the fair value hierarchy during the three and nine months ended September 30, 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 six months ended June 30, 2023 and 2022.

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

No other-than-temporary impairments occurred during the three and nine months ended September 30, 2023 and 2022.

As of September 30, 2023, we leased office space, data centers and office equipment under non-cancelable operating leases with various expiration dates through 2030.

In August 2014, we signed a lease for office space in Tysons, Virginia, where we relocated our headquarters to in February 2016.

3 unchanged sentences

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

2 unchanged sentences

Operating lease right-of-use assets obtained in exchange for new operating lease liabilities 1,214 1,415 5,329 7,127

September 30,

2023 December 31,

3 unchanged sentences

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

June 30, 2023 and 2022

September 30, 2023 and 2022

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

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

We did no t have any finance leases or subleases as of June 30, 2023 or December 31, 2022.

We did no t have any finance leases or subleases as of September 30, 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 six months ended June 30, 2023 and 2022.

Short-term lease costs were immaterial for the three and nine months ended September 30, 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 36,114 43,576

Holdback liability from business combinations 4,577 —

Holdback liability from business combinations and asset acquisitions 7,340 —

Other current liabilities 7,950 5,421

1 unchanged sentence

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

September 30,

2023 December 31,

Holdback liability from business combinations and asset acquisition $ 2,780 $ 4,560

Holdback liability from business combination $ — $ 4,560

Contingent consideration liability from acquisition 2,016 —

5 unchanged sentences

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

June 30, 2023 and 2022

September 30, 2023 and 2022

Convertible Senior Notes

25 unchanged sentences

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

June 30, 2023 and 2022

September 30, 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 June 30, 2023 and December 31, 2022, the fair value of our 2026 Notes was $ 426.9 million and $ 411.5 million, respectively.

As of September 30, 2023 and December 31, 2022, the fair value of our 2026 Notes was $ 434.3 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 $ 51.68 on the last trading day of the quarter, the if-converted value of the 2026 Notes did not exceed the principal amount of $ 500.0 million as of June 30, 2023.

Based on the closing price of our common stock of $ 61.14 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, 2023.

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

September 30,

2023 December 31,

4 unchanged sentences

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

3 unchanged sentences

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 $ 2.7 million as of June 30, 2023.

As of June 30, 2023, all of the acquired debt was included in accounts payable, accrued expenses and other current liabilities within our condensed consolidated balance sheets.

As part of this acquisition we acquired $ 2.9 million of outstanding debt, which decreased to zero as of September 30, 2023.

Commitments and Contingencies

15 unchanged sentences

both motions are pending decision.

Discovery as to the six asserted claims from the fourth asserted patent has been stayed to permit Alarm.com to move for summary judgment as to these six claims as well.

Alarm.com has also moved for summary judgment as to the six asserted claims from the fourth asserted patent.

Discovery has been stayed with respect to the fourth patent while the summary judgment motion remains pending.

No trial date has been set.

5 unchanged sentences

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

June 30, 2023 and 2022

September 30, 2023 and 2022

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.

55 unchanged sentences

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

June 30, 2023 and 2022

September 30, 2023 and 2022

In addition to the matters described above, we may be required to provide indemnification to certain of our service provider partners for certain claims regarding our solutions.

4 unchanged sentences

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

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

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

6 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.

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

d/b/a Brinks in 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.

The court issued a scheduling order in the first-filed case on July 18, 2023 and trial is scheduled for October 7, 2024.

Trial dates are not yet set in the second- and third-filed cases.

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.

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

On October 3, 2023, IOT filed a stipulation of dismissal of all three cases, ending the cases and the Company's involvement therein.

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

6 unchanged sentences

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 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.

ALARM.COM HOLDINGS, INC.

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

June 30, 2023 and 2022

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

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.

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.

During the three and nine months ended September 30, 2023, 105,285 and 239,540 shares of our common stock were repurchased under this program for $ 6.2 million and $ 12.9 million, respectively, 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.

ALARM.COM HOLDINGS, INC.

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

September 30, 2023 and 2022

Stock-Based Compensation

1 unchanged sentence

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

Cost of hardware and other revenue

$ 3 $ — $ 3 $ —

Sales and marketing 854 983 2,778 3,481

4 unchanged sentences

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

4 unchanged sentences

Tax (shortfall) / windfall benefit from stock-based awards $ ( 111 ) $ 916 $ ( 802 ) $ 1,949

We granted 172,000 and 193,400 stock options pursuant to our 2015 Equity Incentive Plan during the three and six months ended June 30, 2023, respectively, as compared to 95,000 stock options for the same periods in the prior year.

There were 12,184 and 83,135 stock options exercised during the three and six months ended June 30, 2023, respectively, as compared to 25,242 and 39,262 stock options for the same periods in the prior year.

There was an aggregate of 103,522 and 186,397 restricted stock units without performance conditions granted to certain of our employees and directors during the three and six months ended June 30, 2023, respectively, as compared to an aggregate of 433,881 and 590,424 restricted stock units without performance conditions for the same periods in the prior year.

There were no restricted stock units with performance conditions granted to certain of our employees during the three and six months ended June 30, 2023, as compared to zero and 71,934 restricted stock units with performance conditions for the same periods in the prior year.

There were 226,865 and 393,950 restricted stock units without performance conditions that vested during the three and six months ended June 30, 2023, respectively, as compared to 179,998 and 237,495 restricted stock units without performance conditions vested during the same periods in the prior year.

There were 30,406 and 39,406 restricted stock units with performance conditions that vested during the three and six months ended June 30, 2023, respectively, as compared to no restricted stock units with performance conditions vested for the same periods in the prior year.

We granted 4,500 and 197,900 stock options pursuant to our 2015 Equity Incentive Plan during the three and nine months ended September 30, 2023, respectively, as compared to 87,000 and 182,000 stock options for the same periods in the prior year.

There were 38,044 and 121,179 stock options exercised during the three and nine months ended September 30, 2023, respectively, as compared to 62,324 and 101,586 stock options for the same periods in the prior year.

There was an aggregate of 117,025 and 303,422 restricted stock units without performance conditions granted to certain of our employees and directors during the three and nine months ended September 30, 2023, respectively, as compared to an aggregate of 229,400 and 819,824 restricted stock units without performance conditions for the same periods in the prior year.

There were no restricted stock units with performance conditions granted to certain of our employees during the three and nine months ended September 30, 2023, as compared to 96,289 and 168,223 restricted stock units with performance conditions for the same periods in the prior year.

There were 112,310 and 506,260 restricted stock units without performance conditions that vested during the three and nine months ended September 30, 2023, respectively, as compared to 75,452 and 312,947 restricted stock units without performance conditions vested during the same periods in the prior year.

There were zero and 39,406 restricted stock units with performance conditions that vested during the three and nine months ended September 30, 2023, respectively, as compared to zero restricted stock units with performance conditions vested for the same periods in the prior year.

ALARM.COM HOLDINGS, INC.

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

June 30, 2023 and 2022

September 30, 2023 and 2022

Earnings Per Share

2 unchanged sentences

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

12 unchanged sentences

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

4 unchanged sentences

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 and six months ended June 30, 2023 and 2022.

Additionally, we included $ 0.6 million and $ 1.2 million of debt issuance cost amortization, net of tax, within the numerator of the diluted net income per share for the three and six months ended June 30, 2023 and 2022, respectively.

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, 2023 and 2022, respectively.

Significant Service Providers and Distributors

During the three and six months ended June 30, 2023, our 10 largest revenue service provider partners or distributors accounted for 50.0 % of our consolidated revenue, as compared to 48 % and 49 %, respectively, 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 six months ended June 30, 2023 and 2022.

One service provider partner in the Alarm.com segment represented more than 10% of accounts receivable as of June 30, 2023.

During the three and nine months ended September 30, 2023, our 10 largest revenue service provider partners or distributors accounted for 49 % and 50 % of our consolidated revenue, respectively, as compared to 52 % 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, 2023 and 2022.

No service provider partner or distributor in the Alarm.com segment represented more than 10% of accounts receivable as of September 30, 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.

1 unchanged sentence

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

June 30, 2023 and 2022

September 30, 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 six months ended June 30, 2023, we recorded a provision for income taxes of $ 6.5 million and $ 5.3 million, respectively, resulting in an effective income tax rate of 29.4 % and 15.1 % for those periods.

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

For the three months ended June 30, 2023, our effective tax rate was above the 21.0% statutory rate primary due to an unfavorable true-up adjustment of our 2022 income tax provision estimate associated with research and development tax credits, an increase in foreign withholding taxes and a stock-based compensation tax shortfall.

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.

For the three and six months ended June 30, 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 compensation and the foreign derived intangible income deduction, partially offset by the impact of state taxes, foreign withholding taxes and other nondeductible expenses.

For the three and nine months ended September 30, 2023, we recorded a provision for income taxes of $ 4.0 million and $ 9.3 million, respectively, resulting in an effective income tax rate of 17.0 % and 15.8 % for those periods.

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 months ended September 30, 2023, our effective tax rate was below the 21.0% statutory rate primary due to research and development tax credits claimed, the foreign derived intangible income deduction and a favorable true-up adjustment of our 2022 income tax provision estimate, partially offset by the impact of state taxes, foreign withholding taxes and a stock-based compensation tax shortfall.

For the nine months ended September 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, other nondeductible expenses and a stock-based compensation tax shortfall.

For the three and nine months ended September 30, 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 compensation 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.

Our valuation allowance for state research and development tax credit carryforwards was $ 2.6 million as of December 31, 2022 and increased to $ 2.8 million as of June 30, 2023.

Our valuation allowance for state research and development tax credit carryforwards was $ 2.6 million as of December 31, 2022 and increased to $ 2.9 million as of September 30, 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 a net increase to the unrecognized tax benefits liability of $ 0.8 million primarily for research and development tax credits claimed during the six months ended June 30, 2023.

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

We recorded a net increase to the unrecognized tax benefits liability of $ 1.1 million primarily for research and development tax credits claimed during the nine months ended September 30, 2023.

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.

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

2 unchanged sentences

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

As of June 30, 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.

As of September 30, 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 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 June 30, 2023.

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 September 30, 2023.

Segment Information

2 unchanged sentences

• Other segment

ALARM.COM HOLDINGS, INC.

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

September 30, 2023 and 2022

Our chief operating decision maker is our chief executive officer.

1 unchanged sentence

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

ALARM.COM HOLDINGS, INC.

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

June 30, 2023 and 2022

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 six months ended June 30, 2023, as compared to 94 % and 95 %, respectively, for the same periods in the prior year.

Our Alarm.com segment represents our cloud-based and Software platforms for the intelligently connected property and related solutions that contributed 93 % and 94 % of our revenue, net of intersegment eliminations, for the three and nine months ended September 30, 2023, respectively, as compared to 94 % 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.

2 unchanged sentences

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

Three Months Ended June 30, 2023

Three Months Ended September 30, 2023

Alarm.com Other Intersegment Alarm.com Intersegment Other Total

6 unchanged sentences

18,929 ( 3,270 ) 406 106 16,171

Three Months Ended June 30, 2022

Three Months Ended September 30, 2022

Alarm.com Other Intersegment Alarm.com Intersegment Other Total

6 unchanged sentences

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

Six Months Ended June 30, 2023

Nine Months Ended September 30, 2023

Alarm.com Other Intersegment Alarm.com Intersegment Other Total

6 unchanged sentences

52,761 ( 12,340 ) 453 275 41,149

Six Months Ended June 30, 2022

Nine Months Ended September 30, 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 June 30, 2023 $ 1,430,105 $ 39,640 $ ( 87,046 ) $ 21 $ 1,382,720

Assets as of September 30, 2023 $ 1,457,416 $ 46,326 $ ( 92,247 ) $ 2 $ 1,411,497

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 $ 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.

ALARM.COM HOLDINGS, INC.

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

June 30, 2023 and 2022

Amortization and depreciation expense was $ 7.6 million and $ 15.0 million for the Alarm.com segment for the three and six months ended June 30, 2023, respectively, as compared to $ 7.5 million and $ 14.9 million for the same periods in the prior year.

Amortization and depreciation expense was $ 0.3 million and $ 0.6 million for the Other segment for the three and six months ended June 30, 2023, respectively, as compared to $ 0.3 million and $ 0.6 million for the same periods in the prior year.

Additions to property and equipment were $ 2.8 million and $ 5.8 million for the Alarm.com segment for the three and six months ended June 30, 2023, respectively, as compared to $ 24.1 million and $ 25.7 million for the same periods in the prior year.

Additions to property and equipment were $ 0.1 million for the Other segment for each of the three and six months ended June 30, 2023, as compared to less than $ 0.1 million and $ 0.1 million, respectively, for the same periods in the prior year.

We derived substantially all revenue from North America for the three and six months ended June 30, 2023 and 2022.

Substantially all of our long-lived assets were in North America as of June 30, 2023 and December 31, 2022.

September 30, 2023 and 2022

Our SaaS and license revenue for the Alarm.com segment included software license revenue of $ 5.7 million and $ 17.8 million for the three and nine months ended September 30, 2023, respectively, as compared to $ 6.5 million and $ 20.5 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, 2023 and 2022.

Amortization and depreciation expense was $ 7.7 million and $ 22.7 million for the Alarm.com segment for the three and nine months ended September 30, 2023, respectively, as compared to $ 7.3 million and $ 22.2 million for the same periods in the prior year.

Amortization and depreciation expense was $ 0.2 million and $ 0.8 million for the Other segment for the three and nine months ended September 30, 2023, respectively, as compared to $ 0.3 million and $ 0.9 million for the same periods in the prior year.

Additions to property and equipment were $ 2.1 million and $ 7.9 million for the Alarm.com segment for the three and nine months ended September 30, 2023, respectively, as compared to $ 1.9 million and $ 27.6 million for the same periods in the prior year.

Additions to property and equipment were $ 0.1 million and $ 0.2 million for the Other segment for the three and nine months ended September 30, 2023, respectively, as compared to less than $ 0.1 million and $ 0.2 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, 2023 and 2022.

Substantially all of our long-lived assets were in North America as of September 30, 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