5 unchanged sentences
Alarm.com is the leading platform for the intelligently connected property.
−Removed: Our cloud-based platform offers an expansive suite of IoT solutions that address opportunities in the residential, multi-family, small business and enterprise commercial markets.
+Added: Our cloud-based platform offers an expansive suite of IoT solutions addressing opportunities in the residential, multi-family, small business and enterprise commercial markets.
Alarm.com’s solutions include security, video and video analytics, energy management, access control, electric utility grid management, indoor gunshot detection, water management, health and wellness and data-rich emergency response.
−Removed: As of December 31, 2022, 9.1 million homes and businesses around the world depend on our Alarm.com platform or our non-hosted software to intelligently and conveniently secure, automate and manage their properties.
−Removed: In the last year alone, our platforms processed more than 300 billion data points generated by over 100 million connected devices.
−Removed: We believe that this scale of subscribers, connected devices and data operations makes us the leader in the connected property market.
+Added: During 2023 , our platforms processed more than 325 billion data points generated by over 150 million connected devices.
+Added: We believe this scale of subscribers, connected devices and data operations makes us the leader in the connected property market.
Our solutions are delivered through an established network of trusted service providers, who are experts at selling, installing and supporting our solutions.
−Removed: The number of our service provider partners exceeded 11,000 as of December 31, 2022.
We primarily generate SaaS and license revenue through our service provider partners, who resell these services and pay us monthly fees.
3 unchanged sentences
Our hardware sales include connected devices that enable our services, such as video cameras, video recorders, gunshot detection sensors, gateway modules and smart thermostats.
−Removed: We believe that our network of service providers and the length of our service relationships with residential and commercial property owners, combined with our robust SaaS platforms and over 20 years of operating experience, contribute to a compelling business model.
+Added: We believe our network of service providers and the length of our service relationships with residential and commercial property owners, combined with our robust SaaS platforms and over 20 years of operating experience, contribute to a compelling business model.
Our solutions are designed to make both residential and commercial properties safer, smarter and more efficient.
−Removed: Our technology platforms support all participants in what we refer to as the connected property market.
−Removed: This market includes the residential and commercial property owners who subscribe to our services, the hardware partners who manufacture devices that integrate with our platforms and the service provider partners who install and maintain our solutions.
+Added: Our technology platforms support property owners who subscribe to our services, the hardware partners who manufacture devices that integrate with our platforms and the service provider partners who install and maintain our solutions.
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.
8 unchanged sentences
Software license revenue represented 3%, 3% and 4% of our revenue in 2023, 2022 and 2021, respectively.
−Removed: 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.
+Added: We also generate revenue from the sale of many types of hardware, including video cameras, video recorders, cellular radio modules, smart thermostats, image sensors, gunshot detection sensors and other peripherals, that enable our solutions.
Our hardware and other revenue also includes our revenue from the sale of perpetual licenses that provide our customers in the commercial market the right to use our video surveillance software for an indefinite period of time in exchange for a one-time license fee.
6 unchanged sentences
Software license revenue decreased to $23.2 million in 2023 from $26.8 million in 2022.
+Added: Software license revenue decreased to $26.8 million in 2022 from $32.3 million in 2021.
• Total revenue increased 5% to $881.7 million in 2023 from $842.6 million in 2022.
1 unchanged sentence
• Net income increased 44% to $80.3 million in 2023 from $55.6 million in 2022.
−Removed: Net income decreased 33% to $51.2 million in 2021 from $76.7 million in 2020.
+Added: Net income increased 9% to $55.6 million in 2022 from $51.2 million in 2021.
Net income attributable to common stockholders increased 44% to $81.0 million in 2023 from $56.3 million in 2022.
−Removed: Net income attributable to common stockholders decreased 33% to $52.3 million in 2021 from $77.9 million in 2020.
−Removed: • Adjusted EBITDA, a non-GAAP measurement of operating performance, increased to $146.8 million in 2022 from $142.5 million in 2021.
−Removed: Adjusted EBITDA increased to $142.5 million in 2021 from $125.3 million in 2020.
−Removed: Please see Non-GAAP Measures below in this section of this Annual Report for a discussion of the limitations of Adjusted EBITDA (a non-GAAP measure) and a reconciliation of Adjusted EBITDA from net income, the most directly comparable GAAP measure, for the years ended December 31, 2022, 2021 and 2020.
+Added: Net income attributable to common stockholders increased 8% to $56.3 million in 2022 from $52.3 million in 2021.
+Added: • Non-GAAP adjusted EBITDA, a non-GAAP measurement of operating performance, increased to $154.0 million in 2023 from $146.8 million in 2022.
+Added: Non-GAAP adjusted EBITDA increased to $146.8 million in 2022 from $142.5 million in 2021.
+Added: Please see Non-GAAP Measures below in this section of this Annual 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 GAAP measure, for the years ended December 31, 2023, 2022 and 2021.
Historical Trends within the Financial Results
1 unchanged sentence
Business – Governance – Corporate Information.
−Removed: Information about the 2026 Notes issued in January 2021 and the related interest expense, the adoption of ASU 2020-06, " Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40):
−Removed: Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity ," and the elimination of non-cash interest expense related to the amortization of the debt discount associated with the equity component for the 2026 Notes as well as increases in costs for freight shipments and inventory component costs, which may affect the comparability of historical financial information, is disclosed in the Comparison of Years Ended December 31, 2022 to December 31, 2021 section below within Item 7.
+Added: Information about the 2026 Notes issued in January 2021 and the related interest expense as well as changes in costs for freight shipments and inventory component costs, which may affect the comparability of historical financial information, is disclosed in the Comparison of Years Ended December 31, 2023 to December 31, 2022 section below within Item 7.
"Management’s Discussion and Analysis of Financial Condition and Results of Operations."
1 unchanged sentence
We believe there is significant opportunity to expand our international business, as 4% of our total revenue during the year ended December 31, 2023 originated from customers located outside of North America.
−Removed: Our products are currently localized and available in approximately 50 countries outside of North America.
+Added: Our products are currently localized and available in over 50 countries outside of North America.
+Added: On January 18, 2023, we acquired 100% of the issued and outstanding shares of capital stock of EBS, an international producer of universal smart communicator devices, headquartered in Warsaw, Poland.
+Added: We believe this acquisition will assist in the continued expansion of our international operations as well as benefit our supply chain operations.
Recent Developments
−Removed: 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, Inc., or Vivint, executed in November 2013.
−Removed: Vivint has stopped paying license fees to Alarm.com under the agreement.
−Removed: Vivint has paid the required license fees to Alarm.com since the agreement was executed in November 2013.
−Removed: Alarm.com disputes Vivint's refusal of payment and is seeking continued payments of license fees in the arbitration, as well as interest and declaratory relief.
−Removed: As a result of Vivint’s refusal to pay license fees under the agreement, which began during the fourth quarter of 2022, SaaS and license revenue and total revenue will decrease by approximately $6.0 million on a quarterly basis.
−Removed: We also believe that quarterly earnings and cash flow will be impacted by the aforementioned $6.0 million estimate, plus additional legal fees.
−Removed: In December 2022, we paid $5.1 million in cash to a technology partner to purchase 4,231,717 shares of its Series A Preferred Stock.
−Removed: 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.
−Removed: As of December 31, 2022, our investment in the technology partner supplier was $5.1 million.
−Removed: The global economy, credit markets and financial markets have and may continue to experience significant volatility as a result of significant worldwide events, including public health crises, such as the COVID-19 pandemic, and geopolitical upheaval, such as Russia’s incursion into Ukraine (collectively, the Macroeconomic Conditions).
+Added: 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.
−Removed: In particular, the COVID-19 pandemic also disrupted and may intermittently continue to disrupt our sales channels due to restrictions on our service providers’ ability to meet with residential and commercial property owners who use our solutions.
−Removed: It remains difficult to assess or predict the ultimate duration and economic impact of the Macroeconomic Conditions including, the path of the COVID-19 pandemic, the evolution of COVID-19 variants or the emergence of other public health crises.
−Removed: In response to the COVID-19 pandemic, we have taken precautionary measures intended to help protect our employees, service providers and subscribers, as well as the communities in which we participate, including enabling substantially all of our employees to partially work remotely.
−Removed: After evaluating the public health situation in the United States regarding COVID-19, including revised guidance from public health authorities, the rise in vaccinated individuals, and decline of hospitalizations due to COVID-19 in the year ended December 31, 2022, as compared to 2020 and 2021, we continue to follow our previously implemented hybrid return to office plan that includes voluntary remote workdays and mandatory in-office workdays.
−Removed: Prolonged uncertainty with respect to 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.
+Added: It remains difficult to assess or predict the ultimate duration and economic impact of the Macroeconomic Conditions.
+Added: 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.
Other Business Metrics
4 unchanged sentences
SaaS and license revenue $ 569,200 $ 520,377 $ 460,372
−Removed: Adjusted EBITDA 146,848 142,472 125,257
+Added: Non-GAAP adjusted EBITDA
+Added: 153,967 146,848 142,472
SaaS and license revenue renewal rate 94 % 94 % 94 %
1 unchanged sentence
SaaS and license revenue is a GAAP measure that we use to measure our current performance and estimate our future performance.
−Removed: We believe that SaaS and license revenue is an indicator of the productivity of our existing service provider partner s and their ability to activate and maintain subscribers using our intelligently connected property solutions, our ability to add new service provider partners reselling our solutions, the demand for our intelligently connected property solutions and the pace at which the market for these solutions is growing.
−Removed: Adjusted EBITDA
−Removed: 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 / (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.
+Added: We believe SaaS and license revenue is an indicator of the productivity of our existing service provider partner s and their ability to activate and maintain subscribers using our intelligently connected property solutions, our ability to add new service provider partners reselling our solutions, the demand for our intelligently connected property solutions and the pace at which the market for these solutions is growing.
+Added: Non-GAAP Adjusted EBITDA
+Added: Non-GAAP adjusted EBITDA is a non-GAAP measure that represents our net income before interest expense, interest income, certain activity within other income / (expense), net, provision for / (benefit from) income taxes, amortization and depreciation expense, stock-based compensation expense, acquisition-related expense, legal costs and settlement fees incurred and received 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.
1 unchanged sentence
We do not adjust for ordinary course legal expenses resulting from maintaining and enforcing our intellectual property portfolio and license agreements.
−Removed: We record interest expense primarily related to our debt facility and the 2026 Notes.
−Removed: We exclude interest expense in calculating Adjusted EBITDA because we believe that the exclusion of interest expense will provide for more meaningful information about our financial performance.
−Removed: 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 Adjusted EBITDA because we do not consider it part of our ongoing results of operations.
−Removed: We exclude the impact related to our provision for / (benefit from) income taxes from Adjusted EBITDA because we do not consider this tax adjustment to be part of our ongoing results of operations.
+Added: We record interest expense primarily related to our 2026 Notes.
+Added: We exclude interest expense in calculating non-GAAP adjusted EBITDA because we believe the exclusion of interest expense will provide for more meaningful information about our financial performance.
+Added: We exclude interest income and certain activity within other income / (expense), net including gains, losses or impairments on investments and other assets, gains on settlement fees and 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.
+Added: We exclude the impact related to our provision for / (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.
GAAP requires that operating expenses include the amortization of acquired intangible assets, which principally include acquired customer relationships, developed technology and trade names.
−Removed: We exclude amortization of intangibles from Adjusted EBITDA because we do not consider amortization expense when we evaluate our ongoing business operations, nor do we factor amortization expense into our evaluation of potential acquisitions, or our measurement of the performance of those acquisitions.
−Removed: We believe that the exclusion of amortization expense enables the comparison of our performance to other companies in our industry as other companies may be more or less acquisitive than us and therefore, amortization expense may vary significantly by company based on their acquisition history.
−Removed: Although we exclude amortization of acquired intangible assets from Adjusted EBITDA, management believes that it is important for investors to understand that such intangible assets were recorded as part of purchase accounting and contribute to revenue generation.
+Added: We exclude amortization of intangibles from non-GAAP adjusted EBITDA because we do not consider amortization expense when we evaluate our ongoing business operations, nor do we factor amortization expense into our evaluation of potential acquisitions, or our measurement of the performance of those acquisitions.
+Added: We believe the exclusion of amortization expense enables the comparison of our performance to other companies in our industry as other companies may be more or less acquisitive than we are, and therefore, amortization expense may vary significantly by company based on their acquisition history.
+Added: Although we exclude amortization of acquired intangible assets from non-GAAP adjusted EBITDA, management believes that it is important for investors to understand that such intangible assets were recorded as part of purchase accounting and contribute to revenue generation.
We record depreciation primarily for investments in property and equipment.
−Removed: We exclude depreciation in calculating Adjusted EBITDA because we do not consider depreciation when we evaluate our ongoing business operations.
+Added: We exclude depreciation in calculating non-GAAP adjusted EBITDA because we do not consider depreciation when we evaluate our ongoing business operations.
We exclude stock-based compensation expense, which relates to restricted stock units and other forms of equity incentives primarily awarded to employees of Alarm.com, because they are non-cash charges that we do not consider when assessing the operating performance of our business.
Additionally, the determination of stock-based compensation expense can be calculated using various methodologies and is dependent upon subjective assumptions and other factors that vary on a company-by-company basis.
−Removed: Therefore, we believe that excluding stock-based compensation expense from Adjusted EBITDA improves the comparability of our results to the results of other companies in our industry.
−Removed: We exclude secondary offering expense because we do not consider costs associated with the secondary offering to be indicative of our core operating performance and we believe that the exclusion of this expense allows us to better provide meaningful information about our operating performance, facilitates comparisons to our historical operating results and improves the comparability of our results to the results of other companies in our industry.
+Added: Therefore, we believe excluding stock-based compensation expense from non-GAAP adjusted EBITDA improves the comparability of our results to the results of other companies in our industry.
Included in operating expenses are incremental costs directly related to business and asset acquisitions as well as changes in the fair value of contingent consideration liabilities, when applicable.
−Removed: We exclude acquisition-related expense from Adjusted EBITDA because we believe that the exclusion of this expense allows us to better provide meaningful information about our operating performance, facilitates comparisons to our historical operating results, improves the comparability of our results to the results of other companies in our industry, and ultimately, we believe helps investors better understand the acquisition-related expense and the effects of the transaction on our results of operations.
−Removed: We exclude non-ordinary course litigation expense because we do not consider legal costs and settlement fees incurred in litigation and litigation-related matters of non-ordinary course lawsuits and other disputes, particularly costs incurred in ongoing intellectual property litigation, to be indicative of our core operating performance.
+Added: We exclude acquisition-related expense from non-GAAP adjusted EBITDA because we believe the exclusion of this expense allows us to better provide meaningful information about our operating performance, facilitates comparisons to our historical operating results, improves the comparability of our results to the results of other companies in our industry, and ultimately, we believe helps investors better understand the acquisition-related expense and the effects of the transaction on our results of operations.
+Added: We exclude non-ordinary course litigation expense because we do not consider legal costs and settlement fees incurred and received in litigation and litigation-related matters of non-ordinary course lawsuits and other disputes, particularly costs incurred in ongoing intellectual property litigation, to be indicative of our core operating performance.
We do not adjust for ordinary course legal expenses, including those expenses resulting from maintaining and enforcing our intellectual property portfolio and license agreements.
−Removed: Adjusted EBITDA is a key measure that our management uses to understand and evaluate our core operating performance and trends to generate future operating plans, to make strategic decisions regarding the allocation of capital, and to make investments in initiatives that are focused on cultivating new markets for our solutions.
−Removed: In particular, the exclusion of certain expenses in calculating Adjusted EBITDA facilitates comparisons of our operating performance on a period-to-period basis and, in the case of exclusion of acquisition-related adjustments and certain historical legal expenses, excludes items that we do not
−Removed: consider to be indicative of our core operating performance.
−Removed: 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.
−Removed: Please see Non-GAAP Measures in this section for a discussion of the limitations of Adjusted EBITDA and a reconciliation of Adjusted EBITDA from net income, the most directly comparable GAAP measurement, for the years ended December 31, 2022, 2021 and 2020.
+Added: Non-GAAP adjusted EBITDA is a key measure our management uses to understand and evaluate our core operating performance and trends to generate future operating plans, to make strategic decisions regarding the allocation of capital, and to make investments in initiatives that are focused on cultivating new markets for our solutions.
+Added: In particular, the exclusion of certain expenses in calculating non-GAAP adjusted EBITDA facilitates comparisons of our operating performance on a period-to-period basis and, in the case of exclusion of acquisition-related adjustments and certain historical legal expenses, excludes items that we do not consider to be indicative of our core operating performance.
+Added: 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.
+Added: 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 years ended December 31, 2023, 2022 and 2021.
SaaS and License Revenue Renewal Rate
5 unchanged sentences
Our SaaS and license revenue renewal rate includes subscribers whose contract with their service provider reached the end of its contractual term during the measurement period, as well as subscribers whose contract with their service provider has not reached the end of its contractual term during the measurement period, and is not intended to estimate the rate at which our subscribers renew their contracts with our service provider partners.
−Removed: We believe that our SaaS and license revenue renewal rate allows us to measure our ability to retain and grow our SaaS and license revenue and serves as an indicator of the lifetime value of our subscriber base.
−Removed: Adoption of Recent Accounting Pronouncements
−Removed: On August 5, 2020, the FASB issued ASU 2020-06, which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity.
−Removed: The new guidance eliminates two of the three models in Subtopic 470-20 that require separating embedded conversion features from convertible instruments.
−Removed: The guidance also addresses how convertible instruments are accounted for in the diluted earnings per share calculation.
−Removed: The amendment in this update is effective for fiscal years beginning after December 15, 2021.
−Removed: We adopted ASU 2020-06 effective January 1, 2022, using a modified retrospective adoption method, which required us to record the initial effect of this guidance as a cumulative-effect adjustment to retained earnings on January 1, 2022.
−Removed: Upon adoption of ASU 2020-06, we recombined the liability and equity components of the convertible senior notes assuming that the instrument was accounted for as only a liability from inception to the date of adoption.
−Removed: We also recombined the liability and equity components of the debt issuance costs.
−Removed: The issuance costs are presented as a deduction from the outstanding principal balance of the convertible senior notes and are amortized to interest expense using the effective interest method over the contractual term of the convertible senior notes.
−Removed: We also removed the temporary difference between the book and tax treatment of the debt discount and adjusted the temporary difference between the book and tax treatment of the debt issuance costs of the 2026 Notes.
−Removed: The adoption resulted in the recording of the following increases / (decreases) on our consolidated balance sheets (in thousands):
−Removed: Balance Sheet Caption As of January 1, 2022
−Removed: Deferred tax assets $ 15,356
−Removed: Additional paid-in capital (56,515)
−Removed: Convertible senior notes, net 61,899
−Removed: Retained earnings 9,972
−Removed: Our net income attributable to common stockholders increased $2.0 million and $8.1 million during the three and twelve months ended December 31, 2022, respectively, as a result of adopting ASU 2020-06 due to no longer recording non-cash interest expense related to the amortization of the debt discount associated with the previous equity component of the convertible senior notes.
−Removed: Upon adoption of this guidance on January 1, 2022, we began using the if-converted method when calculating the dilutive impact of the convertible senior notes on net income per share, which required us to increase our diluted weighted average common shares outstanding by 3,396,950 shares for the three and twelve months ended December 31, 2022.
−Removed: The impact of ASU 2020-06 on net income attributable to common stockholders and weighted average diluted shares resulted in an increase to basic net income attributable to common stockholders of $0.04 and $0.16 per share and an increase to diluted net income attributable to common stockholders of $0.03 and $0.13 per share during the three and twelve months ended December 31, 2022, respectively.
−Removed: See Note 16 to our consolidated financial statements for details on the components of basic and diluted earnings per share.
+Added: We believe our SaaS and license revenue renewal rate allows us to measure our ability to retain and grow our SaaS and license revenue and serves as an indicator of the lifetime value of our subscriber base.
Components of Operating Results
13 unchanged sentences
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.
−Removed: Vivint has stopped paying license fees to Alarm.com under the agreement.
−Removed: Vivint has paid the required license fees to Alarm.com since the agreement was executed in November 2013.
−Removed: Alarm.com disputes Vivint's refusal of payment and is seeking continued payments of license fees in the arbitration, as well as interest and declaratory relief.
−Removed: As a result of Vivint’s refusal to pay license fees under the agreement, which began during the fourth quarter of 2022, SaaS and license revenue and total revenue will decrease by approximately $6.0 million on a quarterly basis.
−Removed: We also believe that quarterly earnings and cash flow will be impacted by the aforementioned $6.0 million estimate, plus additional legal fees.
+Added: Vivint had stopped paying license fees to Alarm.com under the agreement.
+Added: Vivint had been paying the required license fees to Alarm.com since the agreement was executed in November 2013.
+Added: As a result of Vivint’s refusal to pay license fees under the agreement, which began during the fourth quarter of 2022, SaaS and license revenue and total revenue through December 31, 2023 were lower by approximately $6.0 million on a quarterly basis.
+Added: Quarterly earnings and cash flow through December 31, 2023 were also impacted by the aforementioned $6.0 million, plus additional legal fees.
+Added: On December 21, 2023, Alarm.com and Vivint agreed to settle all outstanding litigation between the parties and to enter into a long-term intellectual property license agreement under which Alarm.com will license to Vivint its intellectual property portfolio.
Software License Revenue.
4 unchanged sentences
Hardware and Other Revenue.
−Removed: We generate hardware and other revenue primarily from the sale of video cameras, video recorders and cellular radio modules that provide access to our cloud-based platforms and, to a lesser extent, the sale of other devices, including image sensors, gunshot detection sensors and peripherals.
+Added: We generate hardware and other revenue primarily from the sale of video cameras, video recorders, smart thermostats and cellular radio modules that provide access to our cloud-based platforms and, to a lesser extent, the sale of other devices, including image sensors, gunshot detection sensors and peripherals.
We primarily transfer hardware to our customers upon delivery to the customer, which corresponds with the time at which the customer obtains control of the hardware.
We record a reserve against revenue for hardware returns based on historical returns.
−Removed: Our hardware and other revenue also includes our revenue from the sale of perpetual licenses that provide our customers in the commercial market the right to use our OpenEye video surveillance software for an indefinite period of time in exchange for a one-time license fee, which is generally paid at contract inception.
−Removed: Additionally, our hardware and other revenue includes our revenue from Shooter Detection Systems related to the sale of licenses that provide our customers the right to use our indoor gunshot detection solution in exchange for license fees, which are generally paid at contract inception.
+Added: Our hardware and other revenue also includes our revenue from the sale of perpetual licenses that provide our customers in the commercial market the right to use our video surveillance software for an indefinite period of time in exchange for a one-time license fee.
+Added: Additionally, our hardware and other revenue includes our revenue from the sale of licenses that provide our customers the right to use our indoor gunshot detection solution in exchange for license fees.
Hardware and other revenue may also include activation fees charged to some of our service provider partners for activation of a new subscriber account on our platforms, as well as fees paid by service provider partners for our marketing services.
The decision whether to charge an activation fee is based in part on the expected number of subscribers to be added by our service provider partners and as a result, many of our largest service provider partners do not pay an activation fee.
−Removed: As a result of the COVID-19 pandemic, governments, public institutions and other organizations in many countries and localities where COVID-19 has been detected have taken certain emergency measures, and may from time to time take additional emergency measures, to combat its spread, including imposing lockdowns, shelter-in-place orders, quarantines, restrictions on travel and gatherings and the extended shutdown of non-essential businesses that cannot be conducted remotely.
−Removed: These emergency measures remain in place to varying degrees.
−Removed: We have seen and anticipate we may continue to see
−Removed: disruption to our hardware supply chain, including limited inventory availability, increased lead times, and shipping delays, due to the impact of COVID-19 on manufacturing, production and global transportation, as well as to our sales channels due to restrictions on our service providers’ ability to meet with residential and commercial property owners who use our solutions, reluctance of service providers and property owners to meet even where such restrictions have been lifted and general economic conditions.
−Removed: It remains difficult to assess or predict the ultimate duration and economic impact of the Macroeconomic Conditions including, the path of the COVID-19 pandemic, the evolution of COVID-19 variants, or the emergence of other public health crises.
−Removed: As the future impact on global supply chains from COVID-19 is difficult to predict, the extent to which COVID-19 may negatively affect our hardware revenue is uncertain.
−Removed: If the economy fails to fully recover or there are additional shutdowns of non-essential businesses due to a resurgence of COVID-19 and the emergence and severity of COVID-19 variants, our SaaS and license revenue growth rate may be lower in future periods, with a corresponding reduction in hardware revenue, if some consumers or small businesses defer or cancel previously anticipated purchases.
+Added: Our revenue, and in particular our hardware revenue, has in the past and may in the future be negatively affected by the Macroeconomic Conditions and their related impacts.
+Added: It remains difficult to assess or predict the ultimate duration and economic impact of the Macroeconomic Conditions.
Cost of Revenue
1 unchanged sentence
Our cost of SaaS and license revenue also includes our cost of software license revenue, which primarily includes the payroll and payroll-related costs of the department dedicated to providing service exclusively to those service providers that host the Software platform.
−Removed: Our cost of hardware and other revenue primarily includes cost of raw materials, tooling, freight shipments and amounts paid to our third-party manufacturer for production and fulfillment of our cellular radio modules and image sensors, and procurement costs for our video cameras, video recorders and gunshot detection sensors, which we purchase from an original equipment manufacturer, and other devices.
+Added: Our cost of hardware and other revenue primarily includes cost of raw materials, tooling, freight shipments and amounts paid to our third-party manufacturer for production and fulfillment of our cellular radio modules and image sensors, and procurement costs for our video cameras, video recorders, smart thermostats and gunshot detection sensors, which we purchase from an original equipment manufacturer, and other devices.
+Added: Cost of hardware and other revenue also includes material costs and labor cost related to our employees who manufacture hardware for our suite of IoT solutions.
Additionally, our cost of hardware and other revenue includes royalty costs in connection with technology licensed from third-party providers.
8 unchanged sentences
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.
−Removed: While the additional import duties have resulted in an increase to our cost of hardware revenue, these import duties had a modest impact on hardware revenue margins.
+Added: While the additional import duties resulted in an increase to our cost of hardware revenue, these import duties had a modest impact on hardware revenue margins.
If tariffs are increased or are expanded to apply to more of our products, such actions may increase our cost of hardware revenue and reduce our hardware revenue margins in the future.
1 unchanged sentence
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.
−Removed: 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.
+Added: We currently expect our hardware revenue margins in 2024 to approximate the hardware revenue margins experienced during 2023.
Operating Expenses
2 unchanged sentences
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).
−Removed: We grew from 1,500 employees as of January 1, 2022 to 1,733 employees as of December 31, 2022, and we expect to continue to hire new employees to support the projected future growth of our business.
+Added: We grew from 1,733 employees as of January 1, 2023 to 1,989 employees as of December 31, 2023, including 77 employees who manufacture hardware for our suite of IoT solutions.
+Added: W e expect to continue to hire new employees to support the projected future growth of our business.
Sales and Marketing Expense.
2 unchanged sentences
The number of employees in sales and marketing functions increased from 511 as of January 1, 2023 to 565 as of December 31, 2023.
−Removed: We expect to continue to invest in our sales and marketing activities to expand our business both domestically and internationally.
+Added: We expect to continue to invest in our sales and marketing activities to expand our business both domestically and internationally and we expect to increase our marketing expense in 2024 as compared to 2023.
We intend to increase the size of our sales force and our service provider partner support team to provide additional support to our existing service provider partner base to drive their productivity in selling our solutions as well as to enroll new service provider partners in North America and in international markets.
6 unchanged sentences
This includes cost increases related to human resources, accounting, finance, and legal personnel, additional external legal, audit fees and other expenses associated with regulations governing public companies.
−Removed: While somewhat unpredictable, we also expect to continue to incur costs related to litigation involving intellectual property as well as additional legal fees related to the dispute arising under the Patent Cross License Agreement between Alarm.com and Vivint.
+Added: While somewhat unpredictable, we also expect to continue to incur costs related to litigation involving intellectual property.
See the section of this Annual Report titled "Legal Proceedings" for additional information regarding litigation matters.
1 unchanged sentence
Research and development expense consists primarily of personnel and related expenses for our employees working on our product development and software and device engineering teams, including salaries, bonuses, stock-based compensation, benefits and other personnel costs.
−Removed: Also included are non-personnel costs such as consulting and professional fees paid to third-party development resources as well as acquisition costs of IPR&D with no alternative future use.
+Added: 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 1,004 as of January 1, 2023 to 1,118 as of December 31, 2023.
7 unchanged sentences
Interest Expense
−Removed: We record interest expense associated with our 2026 Notes and our 2017 Facility, which was terminated in January 2021.
−Removed: Interest expense in 2023 is expected to remain relatively consistent with the interest expense in 2022 and is expected to decrease as compared to 2021, due to the adoption of ASU 2020-06 as of January 1, 2022, which eliminated the non-cash interest expense related to the amortization of the debt discount associated with the equity component for 2026 Notes issued on January 20, 2021.
−Removed: There was no impact to our liquidity or cash flows as a result of the adopting this guidance.
+Added: We record interest expense associated with our 2026 Notes and acquired debt.
+Added: Interest expense in 2024 is expected to remain relatively consistent with the interest expense in 2023.
Interest Income
1 unchanged sentence
Interest income in 2024 will depend, in part, on our use of cash and fluctuations in interest rates.
−Removed: Other (Expense) / Income, Net
−Removed: Other (expense) / income, net primarily consists of non-operating and miscellaneous expense and income.
+Added: Other Income / (Expense), Net
+Added: Other income / (expense), net primarily consists of non-operating and miscellaneous expense and income.
Provision for / (Benefit from) Income Taxes
3 unchanged sentences
As a result, we recognize tax liabilities based on estimates of whether additional taxes will be due.
−Removed: Our effective tax rates were below the 21.0% statutory rate primarily due to research and development tax credits claimed, foreign derived intangible income deductions and tax windfall benefits from employee stock-based payment transactions, partially offset by the impact of nondeductible expenses, foreign withholding taxes and state taxes.
−Removed: We recognize excess tax windfall benefits on a discrete basis during the quarter in which they occur, and we anticipate that 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.
+Added: Our effective tax rates were 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 taxes, foreign withholding taxes, federal estimated tax payment interest expense, other nondeductible expenses and, for 2023, a stock-based compensation tax shortfall.
+Added: 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
22 unchanged sentences
Interest income 29,801 3 8,759 1 587 —
−Removed: Other (expense) / income, net (59) — (134) — 25,588 4
+Added: Other income / (expense), net 4,624 1 (59) — (134) —
Income before income taxes 97,825 11 56,593 7 46,069 6
7 unchanged sentences
Stock-based compensation expense data:
+Added: Cost of hardware and other revenue
Sales and marketing 3,522 4,342 4,432
16 unchanged sentences
Total revenue $ 881,682 $ 842,559 5 %
−Removed: The $93.6 million increase in total revenue in 2022 as compared to 2021 was the result of a $60.0 million, or 13%, increase in our SaaS and license revenue and a $33.6 million, or 12%, increase in our hardware and other revenue.
+Added: The $39.1 million increase in total revenue in 2023 as compared to 2022 was the result of a $48.8 million, or 9%, increase in our SaaS and license revenue and a $9.7 million, or 3%, decrease in our hardware and other revenue.
Our software license revenue included within SaaS and license revenue decreased $3.6 million to $23.2 million in 2023 as compared to $26.8 million during 2022, 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 $36.5 million in 2023 as compared to 2022 primarily due to growth in our subscriber base, including the revenue impact from subscribers we added in 2022.
−Removed: The SaaS and license revenue for our Other segment increased $8.7 million in 2022 as compared to 2021 primarily due to an increase in sales of our energy management and demand response solutions.
−Removed: The increase in hardware and other revenue in 2022 as compared to 2021 was primarily from the $32.2 million increase in hardware and other revenue, net of intersegment eliminations, for the Alarm.com segment due to an increase in the volume of video cameras and video recorders sold as well as price increases we have implemented on some of our products to cover some of our increases in costs.
−Removed: Hardware and other revenue, net of intersegment eliminations, in our Other segment increased 19%, or $1.4 million, in 2022 as compared to 2021 primarily due to an increase in sales related to our property management solution and our HVAC solution.
+Added: The increase in SaaS and license revenue for the Alarm.com segment includes the impact from Vivint license revenue of $16.6 million in 2022 that did not occur in 2023.
+Added: The SaaS and license revenue for our Other segment increased $12.3 million in 2023 as compared to 2022 primarily due to an increase in sales of our energy management and demand response solutions as well as our property management solution.
+Added: The decrease in hardware and other revenue in 2023 as compared to 2022 was primarily from the $7.3 million decrease in hardware and other revenue, net of intersegment eliminations, for the Alarm.com segment arising from a decrease in the volume of cellular radio modules sold due to the shut down of 3G and CDMA wireless networks in 2022 by certain cellular carriers, as well as a decrease in the volume of thermostats and video cameras sold.
+Added: Hardware and other revenue, net of intersegment eliminations, in our Other segment decreased $2.4 million, in 2023 as compared to 2022 primarily due to an decreased sales related to our property management and Heating, Ventilation and Air Conditioning solutions.
Cost of Revenue
8 unchanged sentences
(1) Excludes amortization and depreciation shown in operating expenses.
−Removed: The $36.7 million increase in cost of revenue in 2022 as compared to 2021 was the result of a $29.6 million, or 12%, increase in cost of hardware and other revenue and a $7.1 million, or 11%, increase in cost of SaaS and license revenue.
−Removed: Our cost of software license revenue included within cost of SaaS and license revenue decreased $0.6 million to $0.5 million during 2022 as compared to $1.1 million during 2021.
−Removed: The cost of hardware and other revenue for the Alarm.com segment increased $28.9 million in 2022 as compared to 2021 primarily due to an increase in the number of hardware units shipped and an increase in costs for freight shipments and inventory component costs.
−Removed: The cost of SaaS and license revenue for the Alarm.com segment increased $3.9 million in 2022 as compared to 2021 primarily due to the growth in our subscriber base, which drove a corresponding increase in amounts paid to wireless network providers.
+Added: The $17.4 million decrease in cost of revenue in 2023 as compared to 2022 was the result of a $29.4 million, or 11%, decrease in cost of hardware and other revenue and a $12.0 million, or 16%, increase in cost of SaaS and license revenue.
+Added: Our cost of software license revenue included within cost of SaaS and license revenue increased $0.1 million to $0.6 million during 2023 as compared to $0.5 million during 2022.
+Added: The cost of hardware and other revenue for the Alarm.com segment decreased $27.5 million in 2023 as compared to 2022 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.
+Added: The cost of SaaS and license revenue for the
+Added: Alarm.com segment increased $8.5 million in 2023 as compared to 2022 primarily due to the growth in our subscriber base, which drove a corresponding increase in amounts paid to wireless network providers.
+Added: The cost of hardware and other revenue for the Other segment decreased $1.9 million in 2023 as compared to 2022 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 $3.5 million in 2023 as compared to 2022 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.
−Removed: Cost of hardware and other revenue as a percentage of hardware and other revenue remained relatively consistent at 83% in 2022 and 2021.
−Removed: The increase in costs for freight shipments and inventory component costs during part of 2022 was partially offset by price increases we implemented on some of our products during 2022.
−Removed: Cost of SaaS and license revenue as a percentage of SaaS and license revenue was 14% and 15% 2022 and 2021, respectively.
−Removed: The decrease in cost of SaaS and license revenue as a percentage of SaaS and license revenue in 2022 as compared to 2021 is a reflection of the mix of sales of services during the periods.
+Added: Cost of hardware and other revenue as a percentage of hardware and other revenue was 77% in 2023 and 83% in 2022.
+Added: The decrease in cost of hardware and other revenue as a percentage of hardware and other revenue in 2023 as compared to 2022 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.
+Added: Cost of SaaS and license revenue as a percentage of SaaS and license revenue was 15% and 14% in 2023 and 2022, respectively.
+Added: The increase in cost of SaaS and license revenue as a percentage of SaaS and license revenue in 2023 as compared to 2022 is a reflection of the mix of sales of services during the periods.
Cost of software license revenue as a percentage of software license revenue was 3% and 2% in 2023 and 2022, respectively.
4 unchanged sentences
% of total revenue 11 % 11 %
−Removed: The $6.1 million increase in sales and marketing expense in 2022 as compared to 2021 was primarily due to a $4.2 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, as well as a $0.6 million increase in our expenses for external consultants.
+Added: The $7.5 million increase in sales and marketing expense in 2023 as compared to 2022 was primarily due to a $7.2 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 $3.1 million decrease in marketing expense, including advertising cost.
Personnel and related costs includes salary, benefits, stock-based compensation and travel expenses.
−Removed: These increases in sales and marketing expense were partially offset by a $2.4 million decrease in marketing expense for our Alarm.com segment, including advertising costs.
−Removed: Sales and marketing expense from our Other segment increased $3.3 million in 2022 as compared to 2021, primarily due to increases in personnel and related costs, attributable in part to increases in the headcount for our sales team and the termination of the subsidiary long-term incentive plan and concurrent grant of performance-based restricted stock units.
+Added: Sales and marketing expense for our Alarm.com segment also increased by $1.0 million in 2023 as compared to 2022 due to an increase in our expenses for external consultants.
+Added: Sales and marketing expense from our Other segment increased $1.7 million in 2023 as compared to 2022, 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 511 as of December 31, 2022 to 565 as of December 31, 2023.
4 unchanged sentences
% of total revenue 13 % 13 %
−Removed: The $19.3 million increase in general and administrative expense in 2022 as compared to 2021 was primarily due to a $7.7 million increase in personnel and related costs for our Alarm.com segment due in part to an increase in employee headcount to support our operational growth.
−Removed: Additionally, legal costs related to intellectual property litigation increased $1.5 million, the provision for credit losses increased $0.6 million, insurance-related costs increased $0.6 million, recruiting costs increased $0.5 million and rent expense increased $0.5 million for our Alarm.com segment in 2022 as compared to 2021.
−Removed: General and administrative expenses from our Other segment increased by $3.8 million during 2022 as compared to 2021, primarily due to a $2.4 million increase in personnel and related costs, attributable in part to increases in headcount and the termination of the subsidiary long-term incentive plan and concurrent grant of performance-based restricted stock units, as well as a $1.1 million increase in the provision for credit losses.
+Added: The $6.2 million increase in general and administrative expense in 2023 as compared to 2022 was primarily due to a $2.4 million increase in personnel and related costs for our Alarm.com segment and a $2.0 million increase in our expenses for external consultants.
+Added: Additionally, the provision for credit losses increased $1.6 million, rent expense increased $0.9 million and insurance-related costs increased $0.4 million for our Alarm.com segment in 2023 as compared to 2022.
+Added: General and administrative expenses from our Other segment decreased by $2.1 million during 2023 as compared to 2022, primarily due to a $1.3 million decrease in the provision for credit losses and a $0.7 million decrease in personnel and related costs.
The overall number of employees in general and administrative functions increased from 218 as of December 31, 2022 to 229 as of December 31, 2023.
5 unchanged sentences
The $26.5 million increase in research and development expense in 2023 as compared to 2022 was primarily due to a $20.2 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 $1.8 million increase in our expenses for external consultants.
−Removed: Research and development expense from our Other segment increased by $4.6 million in 2022 as compared to 2021 primarily due to an increase in our personnel and related costs, attributable in part to increases in headcount and the termination of the subsidiary long-term incentive plan and concurrent grant of performance-based restricted stock units.
+Added: Research and development expense from our Other segment increased by $4.5 million in 2023 as compared to 2022 primarily due to an increase in our personnel and related costs.
The overall number of employees in research and development functions increased from 1,004 as of December 31, 2022 to 1,118 as of December 31, 2023.
4 unchanged sentences
% of total revenue 4 % 3 %
−Removed: Amortization and depreciation increased $1.2 million in 2022 as compared to 2021, primarily due to the intangible assets that were acquired in connection with our acquisitions of Shooter Detection Systems, LLC on December 14, 2020 as well as the intangible assets that were acquired in connection with the purchase of certain assets of an unrelated third party by EnergyHub, Inc., one of our wholly-owned subsidiaries, on December 16, 2021.
+Added: Amortization and depreciation increased $0.6 million in 2023 as compared to 2022, primarily due to the intangible assets that were acquired in connection with the purchase of EBS on January 18, 2023.
Interest Expense
3 unchanged sentences
% of total revenue — % — %
−Removed: Interest expense decreased $12.8 million in 2022 as compared to 2021, primarily due to the adoption of ASU 2020-06, which eliminated the non-cash interest expense related to the amortization of the debt discount associated with the equity component for 2026 Notes issued on January 20, 2021.
+Added: Interest expense increased $0.3 million in 2023 as compared to 2022, primarily due to the interest expense incurred on the assumed debt from the acquisition of EBS on January 18, 2023.
Interest Income
3 unchanged sentences
% of total revenue 3 % 1 %
−Removed: Interest income increased $8.2 million in 2022 as compared to 2021, primarily due to an increase in interest income earned on cash and cash equivalents during the year ended December 31, 2022.
−Removed: Other (Expense) / Income, Net
+Added: Interest income increased $21.0 million in 2023 as compared to 2022, primarily due to an increase in interest income earned on cash and cash equivalents from higher interest rates during the year ended December 31, 2023.
+Added: Other Income / (Expense), Net
Year Ended December 31, % Change
2023 2022 2023 vs.
−Removed: Other (expense) / income, net $ (59) $ (134) (56) %
+Added: Other income / (expense), net $ 4,624 $ (59) (7,937) %
% of total revenue 1 % — %
−Removed: Other (expense) / income, net remained relatively consistent during 2022 as compared to 2021.
+Added: Other income / (expense), net increased $4.7 million in 2023 as compared to 2022, primarily due to a gain recorded from the settlement of a legal matter, partially offset by an increase in non-operating and miscellaneous expenses.
Provision for / (Benefit from) Income Taxes
5 unchanged sentences
Our effective tax rate was 17.9% in 2023 as compared to 1.7% in 2022.
−Removed: The increase in the provision for / (benefit from) income taxes was primarily due to decreased tax windfall benefits from employee stock-based payment transactions in 2022 as compared to 2021.
+Added: The increase in the provision for / (benefit from) income taxes was primarily
+Added: due to an increase in income before income taxes, foreign withholding taxes, a stock-based compensation tax shortfall and a decrease in research and development tax credits.
Comparison of Years Ended December 31, 2022 to December 31, 2021
25 unchanged sentences
In accordance with GAAP, we base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances.
−Removed: Because of the use of estimates inherent in the financial reporting process in light of the continuing uncertainty arising from the COVID-19 pandemic, actual results could differ from those estimates and any such differences may be material.
+Added: Because of the use of estimates inherent in the financial reporting process in light of the continuing uncertainty arising from the Macroeconomic Conditions actual results could differ from those estimates and any such differences may be material.
To the extent that there are differences between our estimates and actual results, our future financial statement presentation, financial condition, results of operations and cash flows will be affected.
4 unchanged sentences
We sell our platform and hardware solutions to service provider partners that resell our solutions and hardware to residential and commercial property owners, who are the service provider partners’ customers.
−Removed: We have variable consideration in the form of retrospective volume discounts, rebate incentives and restocking fees, which contain uncertainties and require us to make estimates of the amount of consideration to which we will be entitled.
+Added: We have variable consideration primarily in the form of rebate incentives, which contain uncertainties and require us to make estimates of the amount of consideration to which we will be entitled.
The significant inputs related to our estimates of variable consideration include the volume and amount of products and services sold historically and expected to be sold in the future, the availability and performance of our services and the historical and expected number of returns.
We record a reserve against revenue for hardware returns based on historical returns.
−Removed: For each of the years ended December 31, 2022, 2021 and 2020, our reserve against revenue for hardware returns was approximately 1% of hardware and other revenue.
+Added: For each of the years ended December 31, 2023, 2022 and 2021, our reserve against revenue for hardware returns was 1% of hardware and other revenue.
We evaluate our hardware reserve on a quarterly basis or if there is an indication of significant changes in return experience.
10 unchanged sentences
Fair value is defined as the price that would be received for an asset or the exit price that would be paid to transfer a liability in the principal or most advantageous market in an orderly transaction between market participants on the measurement date.
−Removed: 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.
+Added: We previously maintained a subsidiary long-term incentive plan and recorded a liability based on the potential cash payment contingent upon meeting certain financial milestones related to the agreement established with certain employees of one of our subsidiaries.
During 2021 and until the termination of the subsidiary long-term incentive plan in May of 2022, we estimated the fair value of the liability by using a Monte Carlo simulation model which involves several Level 3 unobservable inputs.
2 unchanged sentences
As a result, no further estimates related to the subsidiary long-term incentive plan were necessary as of December 31, 2023.
−Removed: See the Stock-Based Compensation section below for details on the judgement required in determining the probable outcome of performance conditions related to performance-based restricted stock units.
−Removed: A separate liability for the contingent consideration contained uncertainties and consisted of the potential earn-out payment related to our acquisition of 85% of the issued and outstanding capital stock of OpenEye on October 21, 2019.
−Removed: The earn-out payment was contingent on the satisfaction of certain calendar 2020 revenue targets and had a maximum potential payment of up to $11.0 million.
−Removed: We accounted for the contingent consideration using fair value and established a liability for the future earn-out payment based on an estimation of revenue attributable to perpetual licenses and subscription licenses over the 2020 calendar year.
−Removed: We estimated the fair value of the liability by using a Monte Carlo simulation model for determining each of the projected measures by using an expected distribution of potential outcomes.
−Removed: The contingent consideration liability was valued with Level 3 significant unobservable inputs, including the revenue volatility and the discount rate.
−Removed: All contingencies related to the contingent consideration liability were resolved as of December 31, 2020 and no further estimates were necessary during 2021 and 2022.
+Added: See the Stock-Based Compensation section below for details on the judgment required in determining the probable outcome of performance conditions related to performance-based restricted stock units.
+Added: Accounting estimates are also used for the contingent consideration liability related to the potential earn-out payment from our acquisition of 100% of the issued and outstanding capital stock of EBS on January 18, 2023.
+Added: The earn-out payment is contingent on the satisfaction of certain performance targets related to the integration of EBS's hardware into the Alarm.com platform by December 31, 2025 and has a maximum potential payment of up to $2.5 million.
+Added: We account for the contingent consideration using fair value and established a liability for the future earn-out payment based on an estimation of the probability of the future achievement of the performance targets.
+Added: The contingent consideration liability was valued with Level 3 unobservable inputs, including the probability of expected achievement of the performance targets.
+Added: At each reporting date until December 31, 2025, or the achievement of the performance targets, we will remeasure the liability, using the same valuation approach.
We did not make any material changes in the accounting methodology used to determine the fair value of the contingent consideration liability for the year ended December 31, 2023.
−Removed: We do not expect any material changes in the near term to the underlying assumptions used to determine the significant unobservable inputs used to calculate the fair value of the contingent consideration given that all contingencies have been resolved as of December 31, 2020.
+Added: We do not expect any material changes in the near term to the underlying assumptions used to determine the significant unobservable inputs used to calculate the fair value of the contingent consideration and, if changes in these assumptions occur, we do not expect those changes to have a material impact on our general and administrative operating expenses.
Business Combinations
4 unchanged sentences
Significant estimates and assumptions in valuing acquired trade name intangible assets include estimates about future expected cash flows, royalty rates and discount rates.
−Removed: We did not make any material changes to the underlying assumptions used as of the acquisition date to calculate the purchase price of the acquisition of Noonlight during 2022.
−Removed: We do not expect any material changes in the near term to the underlying assumptions used to calculate purchase price of the acquisition of Noonlight during 2022.
−Removed: However, if changes in these assumptions occur, and, should those changes be significant, they could have a material impact on our purchase price allocation for the acquisition of Noonlight.
+Added: We did not make any material changes to the underlying assumptions used as of the acquisition date to calculate the purchase price of the business combinations that occurred during 2023 and 2022.
+Added: We do not expect any material changes in the near term to the underlying assumptions used to calculate the purchase price of those business combinations.
+Added: However, if changes in these assumptions occur, and, should those changes be significant, they could have a material impact on our purchase price allocation for the business combinations.
Goodwill, Intangible Assets and Long-lived Assets
2 unchanged sentences
We perform either a qualitative analysis or a quantitative analysis every year depending on the changes to our goodwill balance as well as changes in our business and the economy.
−Removed: Qualitative factors we consider include, but are not limited to, macroeconomic conditions, industry and market conditions, company specific events, changes in circumstances and market capitalization.
−Removed: For our 2022 annual impairment review, we performed a quantitative assessment for our Alarm.com reporting unit, our only reporting unit with a goodwill balance.
−Removed: Significant estimates and assumptions in the quantitative assessment include estimates about future expected cash flows and discount rates.
−Removed: There were no triggering events that occurred between our annual impairment test performed as of October 1, 2022 and December 31, 2022.
−Removed: If triggering events arise in the future that require changes in the underlying assumptions used in our assessment of our goodwill, and, should those changes be significant, they could have a material impact on our goodwill and potentially our other (expense) / income, net, if those significant changes result in an impairment.
+Added: Significant estimates and assumptions when we perform a quantitative assessment include estimates about future expected cash flows and discount rates.
+Added: Qualitative factors we consider when we perform a qualitative analysis include, but are not limited to, macroeconomic conditions, industry and market conditions, company specific events, changes in circumstances and market capitalization.
+Added: For our 2023 annual impairment review, we performed a qualitative assessment for our Alarm.com reporting unit, our only reporting unit with a goodwill balance.
+Added: There were no triggering events that occurred between our qualitative annual impairment test performed as of October 1, 2023 and December 31, 2023.
+Added: If triggering events arise in the future that require changes in the underlying assumptions used in our assessment of our goodwill, and, should those changes be significant, they could have a material impact on our goodwill and potentially our other income / (expense), net, if those significant changes result in an impairment.
Intangible Assets and Long-lived Assets
5 unchanged sentences
For the year ended December 31, 2021, we determined there was an impairment of $0.1 million for an intangible asset acquired in 2014 related to customer relationships that no longer existed after December 31, 2021.
−Removed: There were no indicators of impairment of our intangible assets with definite lives or long-lived assets during the year ended December 31, 2022.
−Removed: If triggering events arise in the future, depending on the significance of the underlying assumptions in the impairment analysis, they could have a material impact on our intangible assets and long-lived assets and potentially our other (expense) / income, net, if those significant changes result in an impairment.
+Added: There were no indicators of impairment of our intangible assets with definite lives or long-lived assets during the years ended December 31, 2023 and 2022.
+Added: If triggering events arise in the future, depending on the significance of the underlying assumptions in the impairment analysis, they could have a material impact on our intangible assets and long-lived assets and potentially our other income / (expense), net, if those significant changes result in an impairment.
Accounting for Income Taxes
4 unchanged sentences
Significant judgment is required in evaluating uncertain tax positions.
−Removed: We record uncertain tax positions in accordance with ASC 740-10 on the basis of a two-step process whereby (1) we determine whether it is more likely than not that the tax positions will be sustained based on the technical merits of the position, and (2) with respect to those tax positions that meet the more-likely-than-not recognition threshold, we recognize the largest amount of tax benefit that is greater than 50% likely to be realized upon ultimate settlement with the related tax authority.
+Added: We record uncertain tax positions in accordance with ASC 740-10 on the basis of a two-step process whereby (1) we determine whether it is more likely than not that
+Added: the tax positions will be sustained based on the technical merits of the position, and (2) with respect to those tax positions that meet the more-likely-than-not recognition threshold, we recognize the largest amount of tax benefit that is greater than 50% likely to be realized upon ultimate settlement with the related tax authority.
We did not make any material changes to the underlying assumptions used to calculate deferred tax assets and liabilities as well as uncertain tax positions for the year ended December 31, 2023 and we do not expect any material changes in the near term to the underlying assumptions used to calculate deferred tax assets and liabilities as well as uncertain tax positions for the year ended December 31, 2023.
However, if changes in these assumptions occur, and, should those changes be significant, they could have a material impact on our deferred tax assets and liabilities as well as our provision for / (benefit from) income taxes.
−Removed: Convertible Senior Notes
−Removed: We adopted ASU 2020-06 on January 1, 2022, using the modified retrospective approach.
−Removed: Prior to the adoption of this standard, the 2026 Notes were separated into liability and equity components.
−Removed: In accounting for the issuance of our 2026 Notes, we separated the 2026 Notes into liability and equity components.
−Removed: The carrying amount of the liability component was calculated by measuring the fair value of a similar liability that did not have an associated convertible feature, using a discounted cash flow model with a risk adjusted yield.
−Removed: The carrying amount of the equity component representing the conversion option was determined by deducting the fair value of the liability component from the par value of the 2026 Notes as a whole.
−Removed: This difference between the aggregate principal amount and the liability component represented a debt discount that was amortized to interest expense using the effective interest method over the term of the 2026 Notes.
−Removed: Transaction costs attributable to the liability component were netted with the liability component and amortized to interest expense using the effective interest method over the term of the 2026 Notes.
−Removed: Transaction costs attributable to the equity component were netted with the equity component of the 2026 Notes in additional paid-in capital in the consolidated balance sheets.
−Removed: Upon adoption of ASU 2020-06, we recombined the liability and equity components of the 2026 Notes assuming that the instrument was accounted for as only a liability from inception to the date of adoption.
−Removed: We also recombined the liability and equity components of the debt issuance costs.
−Removed: The issuance costs are presented as a deduction from the outstanding principal balance of the 2026 Notes and are amortized to interest expense using the effective interest method over the contractual term of the 2026 Notes.
−Removed: We also removed the temporary difference between the book and tax treatment of the debt discount and adjusted the temporary difference between the book and tax treatment of the debt issuance costs of the 2026 Notes.
−Removed: We no longer consider estimates related to the 2026 Notes to contain critical accounting estimates due to the adoption of ASU 2020-06 as this guidance removed any significant judgements involved with the initial accounting assessment of the 2026 Notes.
Stock-Based Compensation
−Removed: We compensate our executive officers, board of directors, employees and consultants with stock-based compensation plans under our 2015 Equity Incentive Plan.
+Added: We compensate our executive officers, board of directors and employees with stock-based compensation plans under our 2015 Equity Incentive Plan.
We record stock-based compensation expense related to performance-based restricted stock units based on management’s determination of the probable outcome of the performance conditions, which requires considerable judgment.
We estimate the fair value of each option granted on the date of the grant using the Black-Scholes option-pricing model, which contains uncertainties and requires us to estimate the risk-free interest rate, expected term, expected stock price volatility and dividend yield.
−Removed: In prior years, we used the "simplified method" to calculate the expected term, which was presumed to be the mid-point between the vesting date and the end of the contractual term.
−Removed: Beginning upon the first grant of
−Removed: options in 2022, the expected term for options granted is estimated using our historical experience, including information related to options we have granted.
+Added: In 2021 and years prior to 2021, we used the "simplified method" to calculate the expected term, which was presumed to be the mid-point between the vesting date and the end of the contractual term.
+Added: Beginning upon the first grant of options in 2022, the expected term for options granted is estimated using our historical experience, including information related to options we have granted.
Recent Accounting Pronouncements
10 unchanged sentences
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.
−Removed: As of December 31, 2022, our cash and cash equivalents were held in demand deposit accounts that generated very low returns.
+Added: As of December 31, 2023, our cash and cash equivalents were primarily held in money market accounts.
Liquidity and Capital Resources
2 unchanged sentences
To date, we have principally financed our operations through cash generated by operating activities and through private and public equity and debt financings.
−Removed: In February 2022, we entered into a purchase and sale agreement to purchase developable land consisting of 2.4 acres in close proximity to our headquarters in Tysons, Virginia, which was non-binding pending our completion of due diligence.
−Removed: Upon executing the purchase and sale agreement, we paid a deposit of $0.3 million during the first quarter of 2022.
−Removed: Upon completion of due diligence in April 2022, we paid an additional deposit of $0.1 million in order to close the land purchase and paid the remaining $21.4 million during the second quarter of 2022 for the land purchase.
−Removed: In June 2022, we entered into a convertible promissory note with a technology partner, under which we agreed to loan the technology partner $1.5 million.
−Removed: Interest on the outstanding principal accrues at a rate per annum equal to 6.5%, starting one year from the effective date of the loan.
−Removed: 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.
−Removed: On September 23, 2022, Alarm.com Incorporated acquired 85% of the issued and outstanding shares of capital stock of Noonlight.
−Removed: In consideration for the purchase of 85% of the issued and outstanding shares of capital stock of Noonlight, we paid $31.9 million in cash on September 23, 2022, after deducting $1.5 million related to the settlement of an outstanding loan issued to Noonlight during May of 2022 and $4.9 million related to agreed holdback provisions.
−Removed: Pursuant to the terms of the stock purchase agreement, following the preliminary determination of the working capital of Noonlight as of the closing date, the purchase price decreased by $0.1 million.
−Removed: The working capital adjustment is expected to be finalized by the first quarter of 2023 and $0.3 million of the holdback is expected to be paid to the stockholders of Noonlight at that time.
−Removed: The remaining amount of the holdback of $4.6 million is expected to be paid to the stockholders of Noonlight by the end of the first quarter of 2024, subject to offset for any indemnification obligations.
+Added: We mitigate the risk of loss for our cash and cash equivalents by depositing funds with a number of reputable financial institutions and monitoring risk profiles and investment strategies of money market funds.
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.
−Removed: Vivint has stopped paying license fees to Alarm.com under the agreement.
−Removed: Vivint has paid the required license fees to Alarm.com since the agreement was executed in November 2013.
−Removed: Alarm.com disputes Vivint's refusal of payment and is seeking continued payments of license fees in the arbitration, as well as interest and declaratory relief.
−Removed: As a result of Vivint’s refusal to pay license fees under the agreement, which began during the fourth quarter of 2022, cash flows from operating activities will decrease by approximately $6.0 million on a quarterly basis, plus additional legal fees.
−Removed: In December 2022, we paid $5.1 million in cash to a technology partner to purchase 4,231,717 shares of its Series A Preferred Stock.
−Removed: As of December 31, 2022, our investment in the technology partner supplier was $5.1 million.
−Removed: Beginning in 2022, the Tax Cuts and Jobs Act of 2017 amended Internal Revenue Code Section 174, or Section 174, to eliminate the option to immediately deduct research and development expenditures in the year incurred, requiring these expenditures to be capitalized and amortized.
+Added: Vivint had stopped paying license fees to Alarm.com under the agreement.
+Added: Vivint had been paying the required license fees to Alarm.com since the agreement was executed in November 2013.
+Added: As a result of Vivint’s refusal to pay license fees under the agreement, which began during the fourth quarter of 2022, cash flows from operating activities through December 31, 2023 were lowered by approximately $6.0 million on a quarterly basis, plus additional legal fees.
+Added: On December 21, 2023, Alarm.com and Vivint agreed to settle all outstanding litigation between the parties and to enter into a long-term intellectual property license agreement under which Alarm.com will license to Vivint its intellectual property portfolio.
+Added: Beginning in 2022, the Tax Cuts and Jobs Act of 2017 amended Internal Revenue Code Section 174, or Section 174, to eliminate the option to immediately deduct research and development expenditures in the year incurred, requiring these expenditures to be capitalized and amortized over five years for domestic expenditures and over 15 years for foreign expenditures.
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.
−Removed: 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.
−Removed: The increased 2022 state tax liability will be paid in April 2023.
+Added: 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.
+Added: The increased 2022 state tax liability was paid in April 2023 in the amount of $7.5 million.
+Added: We calculated the 2023 federal and state cash tax increase from Section 174 to be $43.5 million, which we expect to pay in April 2024 if Section 174 is not deferred, modified or repealed.
The Section 174 impact on 2024 cash flows from operating activities will depend on, among other factors, our 2024 operating results and the level of 2024 research and development activity.
1 unchanged sentence
This estimate is based on the limited information that is currently available and is subject to change.
+Added: While the largest impact will be to cash flow from operating activities, the impact for domestic research and development expenditures would continue over the five-year amortization period, but would decrease over that period and is expected to be immaterial beginning in year six.
+Added: On January 31, 2024, the U.S.
+Added: House of Representatives passed H.R.
+Added: 7024, which, among other provisions, would retroactively change the effective date of the requirement to capitalize Section 174 domestic research and development expenditures from January 1, 2022 to January 1, 2026.
+Added: Foreign research and development expenditures would continue to be capitalized and amortized over 15 years as of January 1, 2022.
+Added: If the bill is passed by the Senate and signed into law by the President as currently drafted, the bill would allow us to receive a partial refund of the 2022 Section 174 federal income tax paid, the amount and timing of which cannot be estimated at this time.
+Added: Any state impact would depend on the relevant individual state laws.
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 next 12 months, we expect our capital expenditure requirements to be between $4.5 million and $6.5 million, primarily related to purchases of computer software and equipment as well as the continued build out of our leased and owned office space.
−Removed: Maturities of lease liabilities for our various office leases are as follows:
+Added: As of December 31, 2023, maturities of lease liabilities for our various leases are as follows:
$13.7 million in 2024, $11.6 million in 2025, $7.0 million in 2026, $1.6 million in 2027, $0.9 million in 2028 and $1.5 million in 2029 and thereafter.
−Removed: Our future working capital, capital expenditure and cash requirements will depend on many factors, including the impact of Macroeconomic Conditions and inflation, on the economy and our operations, the rate of our revenue growth, the amount and timing of our investments in human resources and capital equipment, future acquisitions and investments, and the timing and extent of our introduction of new solutions and platform and solution enhancements.
−Removed: As the impact of Macroeconomic Conditions and inflation, on the economy and our operations evolves, we will continue to assess our liquidity needs.
+Added: Our future working capital, capital expenditure and cash requirements will depend on many factors, including the impact of the Macroeconomic Conditions on the economy and our operations, the rate of our revenue growth, the amount and timing of our investments in human resources and capital equipment, future acquisitions and investments, and the timing and extent of our introduction of new solutions and platform and solution enhancements.
+Added: As the impact of the Macroeconomic Conditions on the economy and our operations evolves, we will continue to assess our liquidity needs.
To the extent our cash and cash equivalents and cash flows from operating activities are insufficient to fund our future activities, we may need to borrow additional funds or raise funds from public or private equity or debt financings.
46 unchanged sentences
The Indenture includes customary covenants and sets forth certain events of default after which the 2026 Notes may be declared immediately due and payable and sets forth certain types of bankruptcy or insolvency events of default involving us after which the 2026 Notes become automatically due and payable.
−Removed: We used some of the proceeds to repay the $110.0 million outstanding principal balance under our credit facility and also used some of the proceeds to pay accrued interest, fees and expenses related to our credit facility (see the section titled "2017 Facility" below.
+Added: We used some of the proceeds to repay the $110.0 million outstanding principal balance under our credit facility and also used some of the proceeds to pay accrued interest, fees and expenses related to our credit facility, which was terminated effective January 20, 2021.
We are using the remaining net proceeds from the issuance of the 2026 Notes for working capital and other general corporate purposes, which may include acquisitions or strategic investments in complementary businesses or technologies.
−Removed: 2017 Facility
−Removed: On October 6, 2017, we entered into a $125.0 million senior secured revolving credit facility, or the 2017 Facility, with SVB as administrative agent, PNC Bank, National Association, as documentation agent, and a syndicate of lenders.
−Removed: Upon entry into the 2017 Facility, we borrowed $72.0 million, which was used to repay the previously outstanding balance under our previous credit facility.
−Removed: The 2017 Facility was set to mature in October 2022 and included an option to further increase the borrowing capacity to $175.0 million with the consent of the lenders.
−Removed: Costs incurred in connection with the 2017 Facility were capitalized and were being amortized as interest expense over the term of the 2017 Facility.
−Removed: The 2017 Facility was secured by substantially all of our assets, including our intellectual property.
−Removed: On March 25, 2020, we borrowed $50.0 million under the 2017 Facility as a precautionary measure in order to provide financial flexibility in light of current uncertainty in the financial markets resulting from the COVID-19 pandemic.
−Removed: On January 20, 2021, we repaid the entire outstanding principal balance of $110.0 million of the 2017 Facility with proceeds from the 2026 Notes and the 2017 Facility was terminated.
−Removed: We recognized an extinguishment loss of $0.2 million in other (expense) / income, net in our consolidated statements of operations during the year December 31, 2022 for previously capitalized debt issuance costs related to the 2017 Facility that were unamortized at the time of the termination of the 2017 Facility.
−Removed: The outstanding principal balance on the 2017 Facility accrued interest at a rate equal to, at our option, either (1) LIBOR, plus an applicable margin based on our consolidated leverage ratio, or (2) the highest of (a) the Wall Street Journal prime rate, (b) the Federal Funds rate plus 0.50%, or (c) LIBOR plus 1.00% plus an applicable margin based on our consolidated leverage ratio.
−Removed: During 2021 until the termination of the 2017 Facility on January 20, 2021, we elected for the outstanding principal balance to accrue interest at LIBOR plus 1.50%, LIBOR plus 1.75%, LIBOR plus 2.00%, and LIBOR plus 2.50% when our consolidated leverage ratio is less than 1.00:1.00, greater than or equal to 1.00:1.00 but less than 2.00:1.00, greater than or equal to 2.00:1.00 but less than 3.00:1.00 and greater than or equal to 3.00:1.00, respectively.
−Removed: The 2017 Facility also carried an unused line commitment fee of 0.20%.
−Removed: The carrying value of the 2017 Facility was zero as of December 31, 2022 and 2021.
Sources of Liquidity
−Removed: The 2017 Facility was a revolving credit facility with SVB as administrative agent, and a syndicate of lenders to finance working capital and certain permitted acquisitions and investments.
−Removed: The 2017 Facility was available to us to refinance existing debt and for general corporate and working capital purposes including acquisitions, and prior to its termination on January 20, 2021, had a borrowing capacity of $125.0 million.
−Removed: We had the option to increase the borrowing capacity of the 2017 Facility to $175.0 million with the consent of the lenders.
−Removed: On January 20, 2021, we repaid the entire outstanding balance of $110.0 million of the 2017 Facility with proceeds from the 2026 Notes and the 2017 Facility was terminated.
−Removed: The 2017 Facility is discussed in more detail above under “2017 Facility.”
On January 20, 2021, we issued $500.0 million aggregate principal amount of 0% convertible senior notes due January 15, 2026 in a private placement to qualified institutional buyers and received proceeds of $484.3 million, net of $15.7 million of transaction fees and other debt issuance costs.
5 unchanged sentences
Stock Repurchase Programs
−Removed: On November 29, 2018, our board of directors authorized a stock repurchase program, under which we were authorized to purchase up to an aggregate of $75.0 million of our outstanding common stock during the two-year period that ended on November 29, 2020.
−Removed: On December 3, 2020, our board of directors authorized another stock repurchase program, under which we are authorized to purchase up to an aggregate of $100.0 million of our outstanding common stock during the three-year period ending December 3, 2023.
−Removed: During the years ended December 31, 2022, 2021 and 2020, we repurchased 1,385,592, zero, and 147,153 shares of our common stock under this program for $78.8 million, zero and $5.1 million, respectively, which includes applicable commissions and fees.
+Added: 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.
+Added: 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.
+Added: During the years ended December 31, 2023 and 2022, we repurchased 487,918 and 1,385,592 shares of our common stock under these programs for $27.3 million and $78.8 million, respectively, which includes applicable commissions and fees.
+Added: We did not repurchase any shares of our common stock under these programs in 2021.
+Added: 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.
+Added: 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 consolidated balance sheets.
Shares Withheld
1 unchanged sentence
These withheld shares are not issued or considered common stock repurchases under our stock repurchase program.
−Removed: We paid $4.5 million of tax withholdings related to vesting of restricted stock units during the year ended December 31, 2021.
−Removed: No tax withholdings related to the vesting of restricted stock units were paid during the years ended December 31, 2022 and 2020.
−Removed: Prior to using the withholding method to satisfy applicable tax withholding requirements for employees, we utilized the sell-to-cover method in which shares of our restricted stock unit awards were sold into the market on behalf of the employee upon vesting to cover tax withholding liabilities.
+Added: We paid $2.6 million and $4.5 million of tax withholdings related to vesting of restricted stock units during the years ended December 31, 2023 and 2021, respectively.
+Added: No tax withholdings related to the
+Added: vesting of restricted stock units were paid during the year ended December 31, 2022.
+Added: We also utilized the sell-to-cover method in which shares of our restricted stock unit awards were sold into the market on behalf of the employee upon vesting to cover tax withholding liabilities.
We may utilize either the withholding method or sell-to-cover method in the future.
9 unchanged sentences
For 2023, cash flows from operating activities were $136.0 million, compared to $56.9 million for 2022.
+Added: This $79.1 million increase in cash flows from operating activities was due to a $49.3 million increase in cash from operating assets and liabilities, a $24.7 million increase in net income and a $5.1 million increase in non-cash and other reconciling items.
+Added: The $49.3 million increase in cash from operating assets and liabilities was primarily due to a $61.3 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 in 2023 as compared to 2022.
+Added: The $5.1 million increase in non-cash and other reconciling items was primarily due to a $7.3 million change in deferred income taxes, which was primarily driven by the capitalization and amortization of research and development expenditures under Section 174, as well as a $1.4 million inventory write-down during 2023, which did not occur in 2022.
+Added: These increases in non-cash and other reconciling items were partially offset by a $5.4 million decrease in stock-based compensation in 2023 as compared to 2022.
+Added: For 2022, cash flows from operating activities were $56.9 million, compared to $103.2 million for 2021.
This $46.3 million decrease in cash flows from operating activities was due to a $38.3 million decrease in non-cash and other reconciling items and a $12.4 million decrease in cash from operating assets and liabilities, partially offset by a $4.4 million increase in net income.
The $38.3 million decrease in non-cash and other reconciling items was primarily due to a $44.9 million change in deferred income taxes, which was driven by an increase in estimated taxable income during 2022 pursuant to the capitalization requirements under Section 174 of the Internal Revenue Code, as compared to 2021.
−Removed: The decrease in non-cash and other reconciling items during 2022 as compared to 2021 was also due to a $12.7 million decrease in amortization of the debt discount and debt issuance costs related to the adoption of ASU 2020-06 for the 2026 Notes.
+Added: The decrease in non-cash and other reconciling items during 2022 as compared to 2021 was also due to a $12.7 million decrease in amortization of the debt discount and debt issuance costs related to the adoption of Accounting Standards Update, or ASU, 2020-06, " Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40):
+Added: Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity ," for the 2026 Notes.
These decreases in non-cash and other reconciling items were partially offset by a $14.0 million increase in stock-based compensation resulting from additional grants of restricted stock units during 2022 as well as an increase in the changes to the provision for credit losses and reserve for product returns of $4.1 million during 2022 as compared to 2021.
−Removed: The $12.4 million decrease in cash from operating assets and liabilities
−Removed: was primarily due to a $8.9 million change in inventory resulting from an increase in purchased inventory as we seek to reduce risks and uncertainties in our supply chain as well as a $6.5 million change in accounts payable, accrued expenses and other liabilities primarily due to differences in the timing of disbursements during 2022 as compared to 2021.
−Removed: For 2021, cash flows from operating activities were $103.2 million, compared to $102.1 million for 2020.
−Removed: This $1.1 million increase in cash flows from operating activities was due to a $43.8 million increase in non-cash and other reconciling items, partially offset by a $25.5 million decrease in net income and a $17.2 million decrease in cash from operating assets and liabilities.
−Removed: The $43.8 million increase in non-cash and other reconciling items was primarily due to a $24.7 million gain on the sale of an investment in one of our platform partners in 2020 that did not occur in 2021, which was adjusted from net income within operating activities and presented as cash flows from investing activities.
−Removed: Additionally, the increase in non-cash and other reconciling items was primarily due to $15.7 million increase in amortization of the debt discount and debt issuance costs related to the 2026 Notes in 2021 as well as a $9.5 million increase in stock-based compensation resulting from additional grants of stock options and restricted stock units in 2021.
−Removed: These increases in non-cash and other reconciling items were partially offset by a $6.9 million change in deferred income taxes, primarily due to increased tax windfall benefits from employee stock-based payment transactions in 2021 as compared to 2020.
−Removed: The $17.2 million decrease in cash from operating assets and liabilities was primarily due to a $20.8 million change in inventory resulting from additional purchased inventory in 2021 as compared to 2020, which is due in part to the impacts of the COVID-19 pandemic and the related uncertainty surrounding the potential disruption to our supply chain.
−Removed: To a lesser extent, the decrease in cash from operating assets and liabilities was due to increases in prepayments for long lead-time parts related to inventory and other assets, partially offset by differences in timing of collection of receipts and payments of disbursements in 2021 as compared to 2020.
+Added: The $12.4 million decrease in cash from operating assets and liabilities was primarily due to a $8.9 million change in inventory resulting from an increase in purchased inventory as we seek to reduce risks and uncertainties in our supply chain as well as a $6.5 million change in accounts payable, accrued expenses and other liabilities primarily due to differences in the timing of disbursements during 2022 as compared to 2021.
Investing Activities
1 unchanged sentence
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.
−Removed: For 2022, our cash flows used in investing activities was $68.3 million, compared to $20.4 million in 2021.
+Added: For 2023, cash flows used in investing activities was $26.0 million, compared to $68.3 million in 2022.
+Added: The $42.3 million decrease in cash used in investing activities was primarily due to the $31.9 million paid to purchase 85% of the issued
+Added: and outstanding shares of capital stock of Noonlight and the $21.8 million paid for developable land during 2022, which did not occur during 2023.
+Added: These decreases in cash used in investing activities were partially offset by $9.7 million paid to purchase 100% of the issued and outstanding shares of capital stock of EBS, net of cash acquired, and the $5.9 million paid to purchase certain assets from Vintra, including direct transaction costs, in 2023, which did not occur in 2022.
+Added: For 2022, cash flows used in investing activities was $68.3 million, compared to $20.4 million in 2021.
The $47.9 million increase in cash used in investing activities was primarily due to the $31.9 million paid to purchase 85% of the issued and outstanding shares of capital stock of Noonlight and the $21.8 million paid for developable land during 2022, which did not occur during 2021.
These increases in cash used in investing activities were partially offset by $4.4 million paid for developed technology in 2021, which did not occur during 2022.
−Removed: For 2021, our cash flows used in investing activities was $20.4 million, compared to $20.3 million in 2020.
−Removed: The $0.1 million increase in cash used in investing activities was primarily due to our payment of $26.3 million, net of cash acquired, for 100% of the issued and outstanding ownership interest units of SDS in 2020 as well as $3.3 million used to acquire in-process research and development in 2020 that did not occur 2021.
−Removed: The increase in cash used in investing activities in 2021 as compared to 2020 was partially offset by $25.7 million in proceeds received from the sale of an investment in one of our platform partners in 2020, which did not occur in 2021 as well as $5.0 million used to purchase 1,000,000 shares of Series B-2 Preferred Stock from one of our technology partners in 2021, which did not occur in 2020.
Financing Activities
−Removed: Cash generated by financing activities includes borrowings under the 2017 Facility, proceeds from the 2026 Notes and proceeds from the issuance of common stock from employee stock option exercises and from our employee stock purchase plan.
+Added: Cash generated by financing activities includes proceeds from the 2026 Notes and proceeds from the issuance of common stock from employee stock option exercises and from our employee stock purchase plan.
Cash used in financing activities typically includes repurchases of common stock and repayments of debt.
+Added: For 2023, cash flows used in financing activities was $31.9 million, compared to $76.3 million in 2022.
+Added: The $44.4 million decrease in cash flows used in financing activities was primarily due to the $51.5 million decrease in purchases of shares of our common stock in 2023 as compared to 2022, partially offset by $3.0 million in debt payments related to the debt assumed in the acquisition of EBS as well as $2.6 million of tax withholdings paid related to vesting of restricted stock units in 2023, which did not occur in 2022.
For 2022, cash flows used in financing activities was $76.3 million, compared to cash flows from financing activities of $374.4 million in 2021.
1 unchanged sentence
The decrease in cash flows from financing activities was also due to the repurchase of 1,385,592 shares of our common stock for $78.8 million during 2022 that did not occur during 2021.
−Removed: These decreases in cash flows from financing activities were partially offset by the repayment of $110.0 million to terminate the 2017 Facility in 2021 that did not occur in 2022.
−Removed: For 2021, cash flows from financing activities was $374.4 million compared to $52.0 million in 2020.
−Removed: The $322.4 million increase in cash flows from financing activities was primarily due to $484.3 million in proceeds from the issuance of the 2026 Notes, net of issuance costs paid.
−Removed: This increase in cash flows from financing activities was partially offset by the repayment of $110.0 million to terminate the 2017 Facility in 2021 that did not occur in 2020 as well as the borrowing of $50.0 million under the 2017 Facility in 2020 that did not occur in 2021.
+Added: These decreases in cash flows from financing activities were partially offset by the repayment of $110.0 million to terminate our credit facility in 2021 that did not occur in 2022.
Non-GAAP Measures
−Removed: We define Adjusted EBITDA as our net income before interest expense, interest income, certain activity within other (expense) / income, net, provision for / (benefit from) income taxes, amortization and depreciation expense, stock-based compensation expense, secondary offering 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.
+Added: We define non-GAAP adjusted EBITDA as our net income before interest expense, interest income, certain activity within other income / (expense), net, provision for / (benefit from) income taxes, amortization and depreciation expense, stock-based compensation expense, acquisition-related expense, legal costs and settlement fees incurred and received 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.
1 unchanged sentence
We do not adjust for ordinary course legal expenses resulting from maintaining and enforcing our intellectual property portfolio and license agreements.
−Removed: Adjusted EBITDA is not a measure calculated in accordance with GAAP.
−Removed: See the table below for a reconciliation of Adjusted EBITDA from net income, the most directly comparable financial measure calculated and presented in accordance with GAAP.
−Removed: We have included Adjusted EBITDA in this report because it is a key measure that our management uses to understand and evaluate our core operating performance and trends, to generate future operating plans, to make strategic decisions regarding the allocation of capital and to make investments in initiatives that are focused on cultivating new markets for our solutions.
−Removed: We also use Adjusted EBITDA, a non-GAAP financial measure, as a performance measure under our executive bonus plan.
−Removed: Further, we believe the exclusion of certain expenses in calculating Adjusted EBITDA facilitates comparisons of our operating performance on a period-to-period basis and, in the case of exclusion of acquisition-related expense and certain historical legal expenses, excludes items that we do not consider to be indicative of our core operating performance.
−Removed: Accordingly, we believe that Adjusted EBITDA provides useful information to investors and others in understanding and evaluating our operating results in the same manner as our management and board of directors.
−Removed: Our use of Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our financial results as reported under GAAP.
+Added: Non-GAAP adjusted EBITDA is not a measure calculated in accordance with GAAP.
+Added: See the table below for a reconciliation of non-GAAP adjusted EBITDA from net income, the most directly comparable financial measure calculated and presented in accordance with GAAP.
+Added: We have included non-GAAP adjusted EBITDA in this report because it is a key measure our management uses to understand and evaluate our core operating performance and trends, to generate future operating plans, to make strategic decisions regarding the allocation of capital and to make investments in initiatives that are focused on cultivating new markets for our solutions.
+Added: We also use non-GAAP adjusted EBITDA, a non-GAAP financial measure, as a performance measure under our executive bonus plan.
+Added: Further, we believe the exclusion of certain expenses in calculating non-GAAP adjusted EBITDA facilitates comparisons of our operating performance on a period-to-period basis and, in the case of exclusion of acquisition-related expense and certain historical legal expenses, excludes items that we do not consider to be indicative of our core operating performance.
+Added: Accordingly, we believe non-GAAP adjusted EBITDA provides useful information to investors and others in understanding and evaluating our operating results in the same manner as our management and board of directors.
+Added: Our use of non-GAAP adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our financial results as reported under GAAP.
Some of these limitations are:
−Removed: (a) although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future, and Adjusted EBITDA does not reflect cash capital expenditure requirements for such replacements or for new capital expenditure requirements;
−Removed: (b) Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs;
−Removed: (c) Adjusted EBITDA does not reflect the potentially dilutive impact of equity-based compensation;
−Removed: (d) Adjusted EBITDA does not reflect tax payments that may represent a reduction in cash available to us;
−Removed: and (e) other companies, including companies in our industry, may calculate Adjusted EBITDA or similarly titled measures differently, which reduces its usefulness as a comparative measure.
−Removed: Because of these and other limitations, you should consider Adjusted EBITDA alongside our other GAAP-based financial performance measures, net income and our other GAAP financial results.
−Removed: The following table presents a reconciliation of Adjusted EBITDA from net income, the most directly comparable GAAP measure, for each of the periods indicated (in thousands):
+Added: (a) although amortization and depreciation are non-cash charges, the assets being amortized and depreciated may have to be replaced in the future, and non-GAAP adjusted EBITDA does not reflect cash capital expenditure requirements for such replacements or for new capital expenditure requirements;
+Added: (b) non-GAAP adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs;
+Added: (c) non-GAAP adjusted EBITDA does not reflect the potentially dilutive impact of equity-based compensation;
+Added: (d) non-GAAP adjusted EBITDA does not reflect tax payments that may represent a reduction in cash available to us;
+Added: and (e) other companies, including companies in our industry, may calculate non-GAAP adjusted EBITDA or similarly titled measures differently, which reduces its usefulness as a comparative measure.
+Added: Because of these and other limitations, you should consider non-GAAP adjusted EBITDA alongside our other GAAP-based financial performance measures, net income and our other GAAP financial results.
+Added: The following table presents a reconciliation of non-GAAP adjusted EBITDA from net income, the most directly comparable GAAP measure, for each of the periods indicated (in thousands):
Year Ended December 31,
2023 2022 2021
−Removed: Adjusted EBITDA:
+Added: Non-GAAP adjusted EBITDA:
Net income $ 80,340 $ 55,631 $ 51,175
−Removed: Interest expense, interest income and certain activity within other (expense) / income, net (5,768) 15,503 (23,862)
+Added: Interest expense, interest income and certain activity within other income / (expense), net (32,229) (5,768) 15,503
Provision for / (benefit from) income taxes 17,485 962 (5,106)
1 unchanged sentence
Stock-based compensation expense 47,283 52,654 38,694
−Removed: Secondary offering expense — — 543
Acquisition-related expense 621 1,059 29
1 unchanged sentence
Total adjustments 73,627 91,217 91,297
−Removed: Adjusted EBITDA $ 146,848 $ 142,472 $ 125,257
+Added: Non-GAAP adjusted EBITDA $ 153,967 $ 146,848 $ 142,472
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.