What changed in this filing

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Item 1A. Risk Factors

2023-11-09 compared with 2023-08-09 · 27 added, 20 removed, 896 unchanged (5% of the section changed)

74 unchanged sentences

See the "Non-GAAP Measures" section of Item 2.

"Management’s Discussion and Analysis of Financial Condition and Results of Operations" 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 and six months ended June 30, 2023 and 2022.

Downturns in general economic and market conditions and reductions in spending may reduce demand for our platforms and solutions, which could harm our revenue, results of operations and cash flows.

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and certain other countries could impose further sanctions, trade restrictions, and other retaliatory actions should the conflict continue or worsen.

It is not possible to

predict the broader consequences of the conflict, including related geopolitical tensions, the movement of refugees, and the measures and retaliatory actions taken by the U.S.

It is not possible to predict the broader consequences of the conflict, including related geopolitical tensions, the movement of refugees, and the measures and retaliatory actions taken by the U.S.

and other countries in respect thereof as well as any counter measures or retaliatory actions by Russia or Belarus in response, including, for example, potential cyberattacks or the disruption of energy exports, is likely to cause regional instability, geopolitical shifts, and could materially adversely affect global trade, currency exchange rates, regional economies and the global economy.

The situation remains uncertain, and while it is difficult to predict the full impact of any of the foregoing, the conflict and actions taken in response to the conflict could increase our costs, disrupt our supply chain, reduce our sales and earnings, impair our ability to raise additional capital when needed on acceptable terms, if at all, or otherwise adversely affect our business, financial condition, and results of operations.

In addition, in October 2023, the war between Israel and Hamas began, which has resulted in significant military activities in the region and may further escalate regional instability.

The situations remain uncertain, and while it is difficult to predict the full impact of any of the foregoing, the conflicts and actions taken in response to the conflicts could increase our costs, disrupt our supply chain, reduce our sales and earnings, impair our ability to raise additional capital when needed on acceptable terms, if at all, or otherwise adversely affect our business, financial condition, and results of operations.

We may not sustain our growth rate and we may not be able to manage any future growth effectively.

We have experienced significant growth and also have substantially expanded our operations in a short period of time.

Our revenue increased from $502.4 million in 2019 to $842.6 million in 2022 and increased from $418.3 million for the six months ended June 30, 2022 to $433.6 million for the six months ended June 30, 2023.

Our revenue increased from $502.4 million in 2019 to $842.6 million in 2022 and increased from $634.4 million for the nine months ended September 30, 2022 to $655.4 million for the nine months ended September 30, 2023.

We do not expect to achieve similar growth rates in future periods.

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If we fail to manage the expansion of our operations and infrastructure effectively, we may be unable to execute our business plan, maintain high levels of service or address competitive challenges adequately.

We increased our number of full-time employees from 1,160 as of December 31, 2019 to 1,909 as of June 30, 2023, including 104 employees who manufacture hardware for our suite of IoT solutions .

We increased our number of full-time employees from 1,160 as of December 31, 2019 to 1,986 as of September 30, 2023, including 77 employees who manufacture hardware for our suite of IoT solutions .

Our growth has placed, and may continue to place, a significant strain on our managerial, administrative, operational, financial and other resources.

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Furthermore, the SEC proposed expansive rules requiring public companies to disclose information about the material impact of climate change on their business, as well as information about companies’ governance, risk management and strategy related to climate risk.

The SEC has also proposed rules to enhance and standardize disclosures regarding cybersecurity risk management, strategy, governance and cybersecurity incident reporting by public companies.

The SEC has also finalized rules to enhance and standardize disclosures regarding cybersecurity risk management, strategy, governance and cybersecurity incident reporting by public companies.

Changes in laws or regulations could require us to change the way we operate, which could increase costs or otherwise disrupt operations.

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Any of these disruptions to our inventory and supply chain could have a material adverse effect on our business, financial condition, cash flows and results of operations.

We have several large hardware suppliers from which we procure hardware on a purchase order basis, including three key suppliers that supplied products and components of our inventory which collectively represented 49% of our hardware revenue for the six months ended June 30, 2023 (26%, 13% and 10% of hardware revenue, respectively).

We have several large hardware suppliers from which we procure hardware on a purchase order basis, including three key suppliers that supplied products and components of our inventory which collectively represented 50% of our hardware revenue for the nine months ended September 30, 2023 (24%, 14% and 12% of hardware revenue, respectively).

The failure of any of these key suppliers or their subcomponent suppliers to deliver product on time or at the contracted price would materially and adversely affect our business, financial condition, cash flows and results of operations.

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In June 2021, the European Commission adopted a new version of the SCCs, which we began using on September 27, 2021.

Moreover, the UK data protection regulator developed new SCCs for transferring personal data from the UK that were finalized in March 2022, and we will be required to execute the new UK SCCs with our current and future customers in the UK.

Moreover, the UK data protection regulator developed new SCCs for transferring personal data from the UK that were finalized in March 2022, and we use the new UK SCCs with our current and future customers in the UK.

In July 2023, the EU-U.S.

Privacy Shield was replaced by the Data Privacy Framework, or DPF, Program and we have been automatically enrolled in this program given our existing EU-U.S.Privacy Shield enrollment.

Privacy Shield was replaced by the Data Privacy Framework, or DPF, and we have been automatically enrolled in this program given our existing EU-U.S.Privacy Shield enrollment.

We are also enrolled in the UK Extension to the EU-U.S.

Effective October 12, 2023, organizations participating in the UK Extension to the EU-U.S.

DPF may receive personal data from the UK and Gibraltar in reliance on the UK Extension to the EU-U.S.

Our work adopting, implementing and complying with the changing legal landscape governing international data transfers slows down our contracting process and increases our legal and compliance costs (including an increase in exposure to substantial fines under EEA data protection laws, increasing requests from our customers for compliance-related product changes, as well as injunctions against processing or transferring personal data from the EEA), which could adversely affect our cash flows and financial condition.

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As a result of the FDPIC decision, we will need to transition any data transfers covered under the Swiss-U.S.

Privacy Shield to be covered under SCCs, and the FDPIC will likely require us to adopt the new SCCs, as the FDPIC formally recognized the new SCCs adopted by the European Commission in August 2021.

Privacy Shield to be covered under SCCs or the Swiss-U.S.

DPF once Switzerland adopts an adequacy decision.

For data transfers from Switzerland, Alarm.com will continue to rely upon the SCCs adopted by the European Commission in August 2021 with any necessary modifications required by the regulatory authorities in Switzerland .

As a result of these ongoing changes, there will continue to be significant regulatory uncertainty surrounding the validity of data transfers from the EEA, UK and Switzerland to the United States.

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Moreover, if future laws, regulations, or court rulings, such as the CJEU’s decision invalidating the EU-U.S.

Privacy Shield, limit our ability to use and share this data or our ability to store, process and share data over the Internet, demand for our platforms and solutions could decrease, our costs could increase, and our business, financial condition, cash flows and results of operations could be harmed.

Privacy Shield, limit our ability to use and share this data or our ability to store, process and share data over the Internet,

demand for our platforms and solutions could decrease, our costs could increase, and our business, financial condition, cash flows and results of operations could be harmed.

Furthermore, Brazil’s comprehensive privacy law, the General Data Protection Law, or LGPD, took effect on September 18, 2020 and federal regulatory enforcement began on August 1, 2021.

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If we do not succeed in disputing it, we could face substantial liability.

See "We have indemnity obligations to certain of our service provider partners for certain expenses and liabilities resulting from intellectual property infringement claims regarding our platforms and solutions, which could force us to incur substantial costs" below for details on indemnity obligations resulting from intellectual property.

See "We have indemnity obligations to certain of our service provider partners for certain expenses and liabilities resulting from intellectual property

infringement claims regarding our platforms and solutions, which could force us to incur substantial costs" below for details on indemnity obligations resulting from intellectual property.

The incurrence or issuance of debt may impact our financial position and subject us to additional financial and operating restrictions.

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Goodwill and other identifiable intangible assets represent a significant portion of our total assets, and we may never realize the full value of our intangible assets.

As of June 30, 2023, we had $241.8 million of goodwill and identifiable intangible assets.

As of September 30, 2023, we had $236.3 million of goodwill and identifiable intangible assets.

Goodwill and other identifiable intangible assets are recorded at fair value on the date of acquisition.

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The amount of any quantified impairment must be expensed immediately as a charge to results of operations.

Depending on future circumstances, it is possible that we may never realize the full value of our intangible assets.

Depending on future circumstances, it is possible that we may never realize the full value of our intangible

Any future determination of impairment of goodwill or other identifiable intangible assets could have a material adverse effect on our financial position and results of operations.

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Foreign Corrupt Practices Act of 1977, as amended, the U.S.

Travel Act, and possibly other anti-bribery laws, including those that comply with the Organization for Economic Cooperation and Development, or OECD, Convention on Combating Bribery of Foreign Public Officials in International Business Transactions and other international conventions.

International Business Transactions and other international conventions.

Anti-corruption laws are interpreted broadly and prohibit our company from authorizing, offering, or providing directly or indirectly improper payments or benefits to recipients in the public or private-sector.

Certain laws also prohibit us from soliciting or accepting bribes or kickbacks.

Our company has direct

government interactions and in several cases uses third-party representatives, including dealers, for regulatory compliance, sales and other purposes in a variety of countries.

Our company has direct government interactions and in several cases uses third-party representatives, including dealers, for regulatory compliance, sales and other purposes in a variety of countries.

These factors increase our anti-corruption risk profile.

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We anticipate our efforts to operate and continue to expand our business internationally will entail additional costs and risks as we establish our international offerings and develop relationships with service provider partners to market, sell, install, and support our platforms, solutions and brand in other countries.

Revenue in countries outside of North America accounted for 4% and 2% of our total revenue for the six months ended June 30, 2023 and 2022.

Revenue in countries outside of North America accounted for 4% of our total revenue for each of the nine months ended September 30, 2023 and 2022.

We have limited experience in selling our platforms and solutions in international markets outside of North America or in conforming to the local cultures, standards, or policies necessary to successfully compete in those markets, and we may be required to invest significant resources in order to do so.

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• increased financial accounting and reporting burdens and complexities;

• political, social, and economic instability, such as the ongoing military conflict between Russia and Ukraine, terrorist attacks, and security concerns in general;

• political, social, and economic instability, such as the ongoing military conflict between Russia and Ukraine and the war between Israel and Hamas, terrorist attacks, and security concerns in general;

• reduced or varied protection for intellectual property rights in some countries.

217 unchanged sentences

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

What changed 10-Q

Item 1A. Risk Factors