What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2024-02-22 compared with 2023-02-24 · 413 added, 507 removed, 1267 unchanged (42% of the section changed)

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Consolidated Statements of Operations

C onsolidated Statements of Comprehensive Income

Consolidated Balance Sheets

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We have audited the accompanying consolidated balance sheets of Alarm.com Holdings, Inc.

and its subsidiaries (the “Company”) as of December 31, 2022 and 2021, and the related consolidated statements of operations, of equity and of cash flows for each of the three years in the period ended December 31, 2022, including the related notes and financial statement schedule listed in the accompanying index (collectively referred to as the “consolidated financial statements”).

and its subsidiaries (the “Company”) as of December 31, 2023 and 2022, and the related consolidated statements of operations, of comprehensive income, of equity and of cash flows for each of the three years in the period ended December 31, 2023, including the related notes and financial statement schedule listed in the accompanying index (collectively referred to as the “consolidated financial statements”).

We also have audited the Company's internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

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We believe that our audits provide a reasonable basis for our opinions.

As described in Management’s Report on Internal Control over Financial Reporting, management has excluded Noonlight, Inc.

from its assessment of internal control over financial reporting as of December 31, 2022, because it was acquired by the Company in a purchase business combination during 2022.

We have also excluded Noonlight, Inc.

from our audit of internal control over financial reporting.

Noonlight, Inc.

is an 85% owned subsidiary whose total assets and total revenues excluded from management’s assessment and our audit of internal control over financial reporting represent less than 1% of the related consolidated financial statement amounts as of and for the year ended December 31, 2022.

As described in Management’s Report on Internal Control over Financial Reporting, management has excluded EBS Spółka z ograniczoną odpowiedzialnością ("EBS") from its assessment of internal control over financial reporting as of December 31, 2023, because it was acquired by the Company in a purchase business combination during 2023.

We have also excluded EBS from our audit of internal control over financial reporting.

EBS is a wholly-owned subsidiary whose total assets and total revenues excluded from management’s assessment and our audit of internal control over financial reporting represent less than 1% and 1%, respectively, of the related consolidated financial statement amounts as of and for the year ended December 31, 2023.

Definition and Limitations of Internal Control over Financial Reporting

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/s/ PricewaterhouseCoopers LLP

Washington, DC

Washington, District Of Columbia

February 22, 2024

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Interest income 29,801 8,759 587

Other (expense) / income, net ( 59 ) ( 134 ) 25,588

Other income / (expense), net 4,624 ( 59 ) ( 134 )

Income before income taxes 97,825 56,593 46,069

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ALARM.COM HOLDINGS, INC.

Consolidated Statements of Comprehensive Income

(in thousands)

Year Ended December 31,

2023 2022 2021

Net income $ 80,340 $ 55,631 $ 51,175

Other comprehensive income

Foreign currency translation adjustment 1,398 — —

Total other comprehensive income 1,398 — —

Comprehensive income 81,738 55,631 51,175

Comprehensive loss attributable to redeemable noncontrolling interests 703 707 1,084

Comprehensive income attributable to common stockholders $ 82,441 $ 56,338 $ 52,259

See accompanying notes to the consolidated financial statements.

ALARM.COM HOLDINGS, INC.

Consolidated Balance Sheets

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Cash and cash equivalents $ 696,983 $ 622,165

Accounts receivable, net of allowance for credit losses of $ 2,835 and $ 2,168 , respectively, and net of allowance for product returns of $ 1,551 and $ 1,181 , as of December 31, 2022 and 2021, respectively

Accounts receivable, net of allowance for credit losses of $ 3,864 and $ 2,835 , and net of allowance for product returns of $ 2,279 and $ 1,551 , as of December 31, 2023 and 2022, respectively

130,626 124,283

Inventory 96,140 115,584

Other current assets, net of allowance for credit losses of $ 0 and $ 2 , as of December 31, 2022 and 2021, respectively

Other current assets, net

33,031 29,056

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( 111,291 ) ( 83,993 )

Accumulated other comprehensive income 1,398 —

Retained earnings 266,186 185,143

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Provision for / (recovery of) credit losses on accounts receivable

1,508 1,156 ( 775 )

Reserve for product returns 4,399 4,746 2,494

Recovery of credit losses on notes receivable ( 78 ) ( 9 ) ( 359 )

Provision for excess and obsolete inventory — 448 1,451

Provision for / (recovery of) credit losses on notes receivable

3 ( 78 ) ( 9 )

Inventory write-down 1,420 — 448

Amortization on patents and tooling 1,213 1,359 1,240

Amortization and depreciation 31,424 30,870 29,715

Amortization of debt discount and debt issuance costs 3,126 15,823 108

Amortization of debt issuance costs and debt discount

3,145 3,126 15,823

Amortization of operating leases 11,484 10,499 9,692

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Stock-based compensation 47,283 52,654 38,694

Acquired in-process research and development — — 3,297

Gain on sale of investment — — ( 24,737 )

(Gain on) / impairment of investment or intangible assets — ( 140 ) 86

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Additions to property and equipment ( 7,517 ) ( 28,640 ) ( 11,062 )

Purchases of in-process research and development — — ( 3,297 )

Issuances of notes receivable ( 450 ) ( 3,000 ) —

Capitalized software development costs ( 743 ) — —

Receipt of payments on notes receivable 55 61 59

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Proceeds from sale of investment — 140 —

Purchases of patents, patent licenses and developed technology — ( 4,362 ) ( 1,050 )

Purchases of developed technology and other assets ( 5,915 ) — ( 4,362 )

Cash flows used in investing activities ( 25,966 ) ( 68,319 ) ( 20,365 )

Cash flows (used in) / from financing activities:

Proceeds from credit facility — — 50,000

Repayments of credit facility — — ( 110,000 )

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Payments of debt issuance costs — — ( 15,698 )

Payments of deferred consideration for business acquisitions ( 1,500 ) ( 1,160 ) ( 1,538 )

Purchases of treasury stock ( 78,844 ) — ( 5,149 )

Payments of deferred consideration for acquisitions ( 1,672 ) ( 1,500 ) ( 1,160 )

Purchases of treasury stock, including transaction costs ( 27,298 ) ( 78,844 ) —

Purchases of redeemable noncontrolling interest ( 832 ) — —

Payments of acquired debt ( 3,040 ) — —

Payments of tax withholdings related to vesting of restricted stock units ( 2,621 ) — ( 4,476 )

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Cash flows (used in) / from financing activities ( 31,865 ) ( 76,324 ) 374,370

Net (decrease) / increase in cash, cash equivalents and restricted cash ( 87,742 ) 457,162 133,830

Effect of exchange rate changes on cash, cash equivalents and restricted cash 66 — —

Net increase / (decrease) in cash, cash equivalents and restricted cash 78,200 ( 87,742 ) 457,162

Cash, cash equivalents and restricted cash at beginning of the period 622,879 710,621 253,459

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Cash not yet paid for business and asset acquisitions - holdback 2,780 4,833 850

Contingent liability from business acquisition 2,061 — —

See accompanying notes to the consolidated financial statements.

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(in thousands)

Redeemable Noncontrolling Interests Preferred Stock Common Stock Additional

Capital Treasury Stock Retained Earnings / (Accumulated Deficit) Total

Redeemable Noncontrolling Interests Common Stock Additional

Capital Treasury Stock Accumulated Other Comprehensive Income Retained Earnings Total

Stockholders’

Shares Amount Shares Amount Shares Amount

Balance as of December 31, 2019 $ 11,210 — $ — 48,701 $ 487 $ 365,627 — $ — $ ( 10,463 ) $ 355,651

Adoption of accounting standard on credit losses — — — — — — — — ( 816 ) ( 816 )

Common stock issued in connection with equity-based plans — — — 930 9 11,702 — — — 11,711

Purchases of treasury stock — — — — — — 147 ( 5,149 ) — ( 5,149 )

Stock-based compensation expense — — — — — 29,176 — — — 29,176

Accretion adjustments of redeemable noncontrolling interest to redemption value 674 — — — — ( 674 ) — — — ( 674 )

Net income / (loss) attributable to common stockholders ( 1,193 ) — — — — — — — 77,853 77,853

Shares Amount Shares Amount

Balance as of December 31, 2020 $ 10,691 49,631 $ 496 $ 405,831 147 $ ( 5,149 ) $ — $ 66,574 $ 467,752

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

Common stock issued in connection with equity-based plans — 904 9 3,589 — — — — 3,598

Purchase of treasury stock — — — — 488 ( 27,298 ) — — ( 27,298 )

Tax withholdings related to vesting of restricted stock units — — — ( 2,621 ) — — — — ( 2,621 )

Stock-based compensation expense — — — 47,422 — — — — 47,422

Purchases of redeemable noncontrolling interest ( 1,238 ) — — 406 — — — — 406

Accretion adjustments of redeemable noncontrolling interest to redemption value 14,261 — — ( 14,261 ) — — — — ( 14,261 )

Net income / (loss) attributable to common stockholders ( 703 ) — — — — — — 81,043 81,043

Other comprehensive income — — — — — — 1,398 — 1,398

Balance as of December 31, 2023 $ 36,308 51,889 $ 519 $ 531,734 2,021 $ ( 111,291 ) $ 1,398 $ 266,186 $ 688,546

See accompanying notes to the consolidated financial statements.

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(referred to herein as Alarm.com, the Company, or we) is the leading platform for the intelligently connected property.

Our cloud-based platform offers an expansive suite of Internet of Things, or IoT, solutions that address opportunities in the residential, multi-family, small business and enterprise commercial markets.

Our cloud-based platform offers an expansive suite of Internet of Things, or IoT, solutions addressing opportunities in the residential, multi-family, small business and enterprise commercial markets.

Alarm.com’s solutions include security, video and video analytics, energy management, access control, electric utility grid management, indoor gunshot detection, water management, health and wellness and data-rich emergency response.

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.

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

The number of our service provider partners exceeded 11,000 as of December 31, 2022.

We derive revenue from the sale of our cloud-based Software-as-a-Service, or SaaS, services, license fees, software, hardware, activation fees and other revenue.

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We make a separate election to use the measurement alternative for each eligible investment, and reassess whether an investment qualifies for the alternative at each reporting period.

Adjustments resulting from impairment, fair value or observable price changes are recorded in other (expense) / income, net in our consolidated statements of operations.

Adjustments resulting from impairment, fair value or observable price changes are recorded in other income / (expense), net in our consolidated statements of operations.

Use of Estimates

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However, our estimates, judgments and assumptions are continually evaluated based on available information and experience and may change as new events occur and additional information is obtained.

The global economy, credit markets and financial markets have and may continue to experience significant volatility as a result of significant worldwide events, including public health crises, such as the COVID-19 pandemic, and geopolitical upheaval, such as Russia’s incursion into Ukraine (collectively, the Macroeconomic Conditions).

These Macroeconomic Conditions have and may continue to create supply chain disruptions, inventory disruptions, and fluctuations in economic growth, including fluctuations in employment rates, inflation, energy prices and consumer sentiment.

In particular, the COVID-19 pandemic also disrupted and may intermittently continue to disrupt our sales channels due to restrictions imposed from time to time on our service providers’ ability to meet with residential and commercial property owners who use our solutions.

It remains difficult to assess or predict the ultimate duration and economic impact of the Macroeconomic Conditions including, the path of the COVID-19 pandemic, the evolution of COVID-19 variants or the emergence of other public health crises.

The 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, and geopolitical upheaval, such as Russia’s incursion into Ukraine and the war between Israel and Hamas, disruptions to global supply chains, rising interest rates, risk of recession and inflation (collectively, the Macroeconomic Conditions).

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

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

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

Reclassifications

Certain previously reported amounts in the income taxes footnote for the year ended December 31, 2022 have been reclassified to conform to our current presentation, including the reclassification for income tax underpayment interest, net of tax benefit, within the reconciliation between the federal statutory rate and the effective income tax rate.

ALARM.COM HOLDINGS, INC.

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December 31, 2023, 2022 and 2021

Reclassifications

Certain previously reported amounts in the income taxes footnote for the year ended December 31, 2020 have been reclassified to conform to our current presentation, including the removal of the change in tax rate line of the reconciliation between the federal statutory rate and the effective income tax rate.

Cash and Cash Equivalents

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

As of December 31, 2022 and 2021, we have invested $ 510.3 million and $ 679.3 million in cash equivalents in the form of money market funds with one financial institution, respectively.

As of December 31, 2023 and 2022, we have invested $ 679.7 million and $ 510.3 million in cash equivalents in the form of money market funds with a number of financial institutions, respectively.

We consider these money market funds to be Level 1 financial instruments (see Note 10).

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Accounts receivable are principally derived from sales to customers located in the United States and Canada.

Substantially all of our sales in Canada are transacted in U.S.

The majority of our sales in Canada are transacted in U.S.

Revenue in countries outside of North America accounted for 4 %, 4 % and 3 % of our total revenue for the years ended December 31, 2023, 2022 and 2021, respectively.

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As of December 31, 2023, we had a total of $ 4.1 million of restricted cash, of which less than $ 0.1 million was included in other current assets and $ 4.1 million was included in other assets within our consolidated balance sheets.

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

As of December 31, 2022, we had a total of $ 0.7 million of restricted cash, of which less than $ 0.1 million was included in other current assets and $ 0.7 million was included in other assets within our consolidated balance sheets.

Notes Receivable

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Factors considered in determining impairment include payment status, collateral value and the probability of collecting payments when due.

See Note 9 for further details on loans provided to one of our distribution partners, technology partners, suppliers and service provider partners.

See Note 9 for further details on loans provided to one of our distribution partners, technology partners and service provider partners.

Credit Losses

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There were no purchases or sales of financial assets during the years ended December 31, 2023 and 2022.

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

ALARM.COM HOLDINGS, INC.

Notes to the Consolidated Financial Statements — (Continued)

December 31, 2022, 2021 and 2020

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

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

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For the year ended December 31, 2021, we recorded a reduction to credit loss expense of $ 1.0 million in general and administrative expense in our consolidated statements of operations.

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

The contractual term excludes expected extensions, renewals and

ALARM.COM HOLDINGS, INC.

Notes to the Consolidated Financial Statements — (Continued)

December 31, 2023, 2022 and 2021

modifications because extension and renewal options are unconditionally cancelable by us.

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

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

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

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

We did not write-off any accrued interest receivable during the years ended December 31, 2023, 2022 and 2021.

Our inventory, which is comprised of raw materials and finished goods, includes materials used to produce our wireless communications network enabled radios, video cameras, video recorders, gunshot detection sensors, home automation system parts and peripherals, is stated at the lower of cost or net realizable value, and is charged to cost of sales primarily on a first in, first out, or FIFO, basis when the inventory is shipped from our manufacturer and received by our service provider partners.

Our inventory, which is comprised of raw materials, work-in-process and finished goods, includes materials used to produce our wireless communications network enabled radios, video cameras, video recorders, smart thermostats, gunshot detection sensors, home automation system parts and peripherals, is stated at the lower of cost or net realizable value, and is charged to cost of sales primarily on a first in, first out, or FIFO, basis when the inventory is shipped from our manufacturer and received by our service provider partners.

We periodically evaluate our inventory quantities for obsolescence based on criteria such as customer demand and changing technology and record an obsolescence write-off when necessary.

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

Lease expense is recognized on a straight-line basis over the term of the lease and is recorded in general and administrative expense.

Lease expense is recognized on a straight-line basis over the term of the lease.

Office and equipment lease expense is recorded in general and administrative expense and data center lease expense recorded in cost of SaaS and license revenue as well as research and development expense.

Some of our leases include tenant improvement allowances, which are recorded when we are reasonably certain to utilize the allowance and are amortized on a straight-line basis over the shorter of the lease terms or the asset lives.

Leases with an initial lease term of twelve months or less are considered short-term leases.

Short-term leases are

Short-term leases are not recorded on our consolidated balance sheets.

Expenses associated with short-term leases are recognized on a straight-line basis over the term of the lease and are recorded in general and administrative expense.

Short-term lease costs were immaterial for the years ended December 31, 2023 and 2022.

ALARM.COM HOLDINGS, INC.

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December 31, 2023, 2022 and 2021

not recorded on our consolidated balance sheets.

Expenses associated with short-term leases are recognized on a straight-line basis over the term of the lease and are recorded in general and administrative expense.

Short-term lease costs were immaterial for the years ended December 31, 2022 and 2021.

Convertible Senior Notes

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The equity component was not remeasured as long as it continued to meet the conditions for equity classification.

See the Recent Accounting Pronouncements section below within Note 2 for details on the adoption of ASU 2020-06 and the impact the adoption had on our consolidated financial statements.

We adopted ASU 2020-06 effective January 1, 2022, using a modified retrospective adoption method, which required us to record the initial effect of this guidance as a cumulative-effect adjustment to retained earnings on January 1, 2022.

Upon adoption of ASU 2020-06, we recombined the liability and equity components of the 2026 Notes assuming that the instrument was accounted for as only a liability from inception to the date of adoption.

We also recombined the liability and equity components of the debt issuance costs.

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.

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.

Comprehensive Income

Comprehensive income consists of net income and other comprehensive income.

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

Our other comprehensive income consists of foreign currency translation adjustments.

Foreign Currency

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

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

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

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

Redeemable Noncontrolling Interests

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The OpenEye and Noonlight stockholder agreements contain a put option that gives the minority stockholders the right to sell their shares to us based on the fair value of the shares and also contain a call option that gives us the right to purchase the remaining shares from the minority stockholders based on the fair value of the shares.

The put and call options related to OpenEye can each be exercised beginning in the first quarter of 2023.

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

The put and call options related to Noonlight can each be exercised beginning in the first quarter of 2026.

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

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

The aggregate redemption values of the of the noncontrolling interest was $ 24.0 million and $ 12.9 million as of December 31, 2022 and 2021.

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

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

We recognize the difference between the consideration paid for the acquired redeemable noncontrolling interest and the fair value of the acquired redeemable noncontrolling interest as an adjustment to additional paid-in capital.

The aggregate redemption values of the of the noncontrolling interest was $ 36.3 million and $ 24.0 million as of December 31, 2023 and 2022, respectively.

ALARM.COM HOLDINGS, INC.

Notes to the Consolidated Financial Statements — (Continued)

December 31, 2023, 2022 and 2021

Internal-Use Software

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Agile development results in a short duration between completion of the detailed program design and beta release.

Accordingly, as of December 31,

ALARM.COM HOLDINGS, INC.

Notes to the Consolidated Financial Statements — (Continued)

December 31, 2022, 2021 and 2020

2022 and 2021, we did not have any capitalized external software due to the shorter development cycle associated with agile development.

As of December 31, 2023, our capitalized software development costs included in the consolidated balance sheets were $ 0.9 million.

There were no capitalized software development costs included in the consolidated balance sheets as of December 31, 2022.

Revenue Recognition

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

Our hardware includes cellular radio modules that enable access to our cloud-based platforms, as well as video cameras, video recorders, image sensors, gunshot detection sensors and other peripherals.

Our hardware includes cellular radio modules that enable access to our cloud-based platforms, as well as video cameras, video recorders, smart thermostats, image sensors, gunshot detection sensors and other peripherals.

Our service provider partners may purchase our hardware in anticipation of installing the hardware in a residential or commercial property when they create a new subscriber account, or for use in existing subscriber properties.

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We consider the terms of the contract and our customary business practices, which typically do not include financing components or non-cash consideration.

We have variable consideration in the form of retrospective volume discounts, rebate incentives and restocking fees.

We have variable consideration primarily in the form of rebate incentives.

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.

Depending on the type of variable consideration and its predictability, we may apply an "expected value" approach or a "most likely amount" approach.

ALARM.COM HOLDINGS, INC.

Notes to the Consolidated Financial Statements — (Continued)

December 31, 2023, 2022 and 2021

on the type of variable consideration and its predictability, we may apply an "expected value" approach or a "most likely amount" approach.

We estimate the variable consideration at the onset of a contract and include the variable consideration within the transaction price if it is probable that a significant reversal of the variable consideration would not occur in the future.

When determining whether the amount of variable consideration included in the transaction price should be constrained, we look at the history of hardware purchased and subscribers added by our service provider partners to estimate the likelihood of those service provider partners obtaining the retrospective volume discounts and rebates.

At times, our contracts include consideration payable to a customer in the form of fixed discounts or rebates.

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Any discount within the contract is allocated proportionately to all of the separate performance obligations in the contract unless the terms of discount relate specifically to the entity’s efforts to satisfy some but not all of the performance obligations.

ALARM.COM HOLDINGS, INC.

Notes to the Consolidated Financial Statements — (Continued)

December 31, 2022, 2021 and 2020

For our standard service provider agreements, we have used a portfolio approach for purposes of revenue recognition, as each agreement has similar characteristics and we do not expect the effects of applying this approach would have a material impact on our financial statements as compared to assessing each agreement individually.

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Under the usage-based royalty exception, we recognize revenue on a monthly basis over the period during which the services are expected to be performed.

Under the terms of our contractual arrangements with our service provider partners, we are entitled to payment of a monthly fee that is billed per subscriber for the month of service.

Under the terms of our contractual arrangements with our service provider partners, we are entitled to payment of a

ALARM.COM HOLDINGS, INC.

Notes to the Consolidated Financial Statements — (Continued)

December 31, 2023, 2022 and 2021

monthly fee that is billed per subscriber for the month of service.

Our software license revenue during the years ended December 31, 2023, 2022 and 2021 was $ 23.2 million, $ 26.8 million and $ 32.3 million, respectively.

Hardware and Other Revenue

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 other peripherals.

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 other 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.

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Our distributors sell directly to our service provider partners under terms between the two parties.

ALARM.COM HOLDINGS, INC.

Notes to the Consolidated Financial Statements — (Continued)

December 31, 2022, 2021 and 2020

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

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

For 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.

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.

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We determined that these warranties are not separate performance obligations as they cannot be purchased separately and do not provide a service in addition to an assurance the hardware will function as expected.

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

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

Our 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.

Our hardware and other revenue also 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.

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

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We record activation fees initially as deferred revenue and we recognize these fees ratably over the expected term of the subscribers’ account which we estimate is 10 years based on our annual attrition rate.

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

The balance of deferred revenue for activation fees was $ 4.8 million and $ 5.3 million as of December 31, 2023 and 2022, respectively, which combines current and long-term balances.

ALARM.COM HOLDINGS, INC.

Notes to the Consolidated Financial Statements — (Continued)

December 31, 2023, 2022 and 2021

Cost of Revenue

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Our cost of software license revenue during the years ended December 31, 2023, 2022 and 2021 was $ 0.6 million, $ 0.5 million and $ 1.1 million, respectively.

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.

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.

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.

6 unchanged sentences

We record a contract asset when we satisfy a performance obligation by transferring a promised good or service.

Contract assets can be conditional or unconditional depending on whether another performance

ALARM.COM HOLDINGS, INC.

Notes to the Consolidated Financial Statements — (Continued)

December 31, 2022, 2021 and 2020

obligation must be satisfied before payment can be received.

Contract assets can be conditional or unconditional depending on whether another performance obligation must be satisfied before payment can be received.

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

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Our research and development of new products and services is a multidisciplinary effort across our product management, program management, software engineering, device engineering, quality engineering, configuration management and network operations teams.

Also included are non-personnel costs, such as consulting and professional fees paid to third-party development resources as well as acquisition costs of in-process research and development with no alternative future use.

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

We invest substantial resources in research and development to enhance our platforms and applications, support our technology infrastructure, develop new capabilities and conduct quality assurance testing.

ALARM.COM HOLDINGS, INC.

Notes to the Consolidated Financial Statements — (Continued)

December 31, 2023, 2022 and 2021

Fair Value Measurements

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Assets and Liabilities Measured at Fair Value on a Recurring Basis - In 2023 and 2022, we recorded assets for our money market accounts.

In 2021 and prior to the termination of the long-term incentive plan with one of our subsidiaries in May 2022, we recorded liabilities for the long-term incentive plan at fair value on a recurring basis with any changes recorded as a cumulative adjustment.

During parts of 2020, we recorded liabilities for a contingent consideration liability related to acquisitions at fair value on a recurring basis.

In 2023, we recorded liabilities for a contingent consideration liability related to acquisitions at fair value on a recurring basis.

Prior to the termination of the long-term incentive plan with one of our subsidiaries in May 2022, we recorded liabilities for the long-term incentive plan at fair value on a recurring basis.

Assets Measured at Fair Value on a Nonrecurring Basis - We measure certain assets, including property and equipment, goodwill and intangible and long-lived assets at fair value on a nonrecurring basis.

These assets are recognized at fair value

ALARM.COM HOLDINGS, INC.

Notes to the Consolidated Financial Statements — (Continued)

December 31, 2022, 2021 and 2020

when they are deemed to be other-than-temporarily impaired.

These assets are recognized at fair value when they are deemed to be other-than-temporarily impaired.

Additionally, equity investments without readily determinable fair values are recognized at fair value on a nonrecurring basis when observable price changes from orderly transactions for identical or similar investments become available.

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Our cash and cash equivalent accounts may exceed federally insured limits at times.

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.

We have not experienced any losses on cash and cash equivalents to date.

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The majority of our accounts receivable balance is due from our service provider partners in North America.

We assess the concentrations of credit risk with respect to accounts receivables based on one industry and one geographic region and believe that our reserve for uncollectible accounts is appropriate based on our history and this concentration.

We assess the concentrations of credit risk with respect to accounts receivables based on one industry and one geographic region and believe our reserve for uncollectible accounts is appropriate based on our history and this concentration.

Stock-Based Compensation

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

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

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

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Our equity awards generally vest over five years and are settled in shares of our common stock.

During 2022, 2021 and 2020, we recognized compensation expense of $ 52.7 million, $ 38.7 million and $ 29.2 million, respectively, and associated tax windfall benefit from stock-based awards of $ 2.0 million, $ 10.1 million and $ 8.2 million, respectively.

During 2023, 2022 and 2021, we recognized compensation expense of $ 47.3 million, $ 52.7 million and $ 38.7 million, respectively.

During 2022 and 2021 we recognized an associated tax windfall benefit from stock-based awards of $ 2.0 million and $ 10.1 million, respectively.

During 2023, we recognized a tax shortfall from stock-based awards of $ 0.5 million.

We account for stock-based compensation arrangements with non-employees based upon the award’s grant date fair value.

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

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

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.

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.

ALARM.COM HOLDINGS, INC.

Notes to the Consolidated Financial Statements — (Continued)

December 31, 2023, 2022 and 2021

Our Employee Stock Purchase Plan, or 2015 ESPP, allows eligible employees to purchase shares of our common stock at 90 % of the fair market value of the closing price on the purchase date.

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Significant estimates and assumptions in valuing acquired developed technology intangible assets include estimates about future expected cash flows, obsolescence factors and discount rates.

ALARM.COM HOLDINGS, INC.

Notes to the Consolidated Financial Statements — (Continued)

December 31, 2022, 2021 and 2020

Significant estimates and assumptions in valuing acquired trade name intangible assets include estimates about future expected cash flows, royalty rates and discount rates.

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Some acquisitions may include contingent consideration, which is an obligation to make future payments to the seller contingent upon the achievement of future operational or financial targets.

We estimated the fair value of the contingent consideration liability by using a Monte Carlo simulation model for determining each of the projected measures by using an expected distribution of potential outcomes.

Significant estimates and assumptions in valuing contingent consideration include estimates about future financial results, revenue volatility and the discount rate.

The fair value of the contingent consideration is estimated on a quarterly basis and changes in the fair value of the contingent consideration resulting from information that existed subsequent to the acquisition date are recorded in the consolidated statements of operations.

On October 21, 2019, we acquired 85 %of the issued and outstanding capital stock of OpenEye.

Certain stockholders of OpenEye had the right to receive an earn-out payment of up to an additional $ 11.0 million based upon satisfaction of certain calendar 2020 revenue targets.

The 2020 revenue targets were not met and the fair value of the contingent consideration liability related to the potential earn-out payment was zero as of December 31, 2022 and 2021.

Goodwill, Intangible Assets and Long-lived Assets

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The amount of goodwill impairment is calculated as the amount by which a reporting unit's carrying value exceeds its fair value, not to exceed the carrying amount of goodwill.

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.

Based on the results of our quantitative assessment, we determined that it was not more likely than not that the fair value of our reporting unit was less than its carrying amount, including goodwill.

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.

Based on the results of our qualitative assessment, we determined that it was not more likely than not that the fair value of our reporting unit was less than its carrying amount, including goodwill.

Therefore, we concluded that there was no goodwill impairment as of October 1, 2023.

Our assessment was performed as of October 1, 2023, and we have determined there has been no triggering events that resulted in goodwill impairment from our assessment date through December 31, 2023.

ALARM.COM HOLDINGS, INC.

Notes to the Consolidated Financial Statements — (Continued)

December 31, 2023, 2022 and 2021

Intangible Assets and Long-lived Assets

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Advertising costs are included within sales and marketing expenses on our consolidated statements of operations.

ALARM.COM HOLDINGS, INC.

Notes to the Consolidated Financial Statements — (Continued)

December 31, 2022, 2021 and 2020

Accounting for Income Taxes

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In making such a determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies and results of recent operations.

Due to the uncertainty of realization of certain deferred tax assets related to our Canadian net operating losses and research and development tax credits, we established a valuation allowance of $ 0.3 million during the second quarter of 2019, which remained at $ 0.3 million as of December 31, 2021 and, due to evidence indicating it was more likely than not that the Canadian tax attributes would be realized prior to expiration, the Canadian valuation allowance was reduced to zero as of December 31, 2022.

During 2020, we established a valuation allowance of $ 1.3 million for state research and development tax credit carryforwards, which increased to $ 1.9 million as of December 31, 2021 and increased to $ 2.6 million as of December 31, 2022.

We are subject to income taxes in the United States and foreign jurisdictions based upon our business operations in those jurisdictions.

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We account for treasury stock under the cost method and present treasury stock, including any applicable commissions and fees, as a component of stockholders’ equity in the consolidated balance sheets and statements of equity.

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

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

Treasury stock held by us may be retired or reissued in the future.

Comprehensive Income

Our comprehensive income for each of the years ended December 31, 2022, 2021 and 2020 was equal to our net income disclosed in the consolidated statements of operations.

Earnings per Share

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For purposes of the diluted net income per share calculation, restricted stock units, options to purchase common stock and unvested shares issued upon the early exercise of options that are subject to repurchase are considered to be potential common stock.

We use the treasury stock method when calculating the dilutive impact of the stock options and restricted stock units on net income per share.

ALARM.COM HOLDINGS, INC.

Notes to the Consolidated Financial Statements — (Continued)

December 31, 2023, 2022 and 2021

On January 20, 2021, we issued the 2026 Notes.

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Additionally, we included debt issuance cost amortization, net of tax, within the numerator of the diluted net income per share.

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

Our redeemable noncontrolling interests are related to our 86 % equity ownership interest in OpenEye and our 85 % equity ownership interest in Noonlight.

When calculating net income attributable to the common stockholders, net loss attributable to our redeemable noncontrolling interests should be excluded from net income.

ALARM.COM HOLDINGS, INC.

Notes to the Consolidated Financial Statements — (Continued)

December 31, 2022, 2021 and 2020

outstanding common and preferred stock and (ii) net loss attributable to redeemable noncontrolling interests as of the end of each period.

As a result, net income attributable to the common stockholders is equal to the net income less (i) dividends paid on unvested shares with any remaining earnings allocated in accordance with the bylaws between the outstanding common and preferred stock and (ii) net loss attributable to redeemable noncontrolling interests as of the end of each period.

Recent Accounting Pronouncements

On August 5, 2020, the Financial Accounting Standards Board, or 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.

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

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

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

Upon adoption of ASU 2020-06, we recombined the liability and equity components of the convertible senior notes assuming that the instrument was accounted for as only a liability from inception to the date of adoption.

We also recombined the liability and equity components of the debt issuance costs.

The issuance costs are presented as a deduction from the outstanding principal balance of the convertible senior notes and are amortized to interest expense using the effective interest method over the contractual term of the convertible senior notes.

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

Balance Sheet Caption As of January 1, 2022

Deferred tax assets $ 15,356

Additional paid-in capital ( 56,515 )

Convertible senior notes, net 61,899

Retained earnings 9,972

Our net income attributable to common stockholders increased $ 2.0 million and $ 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.

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.

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.

See Note 16 for details on the components of basic and diluted earnings per share.

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

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

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

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

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

We adopted this guidance during the three months ended March 31, 2022 and there was no impact to the disclosures within the "Allowance for Credit Losses - Notes Receivable" section of Note 9 as there were no write-offs of notes receivable during the year ended December 31, 2022.

ALARM.COM HOLDINGS, INC.

Notes to the Consolidated Financial Statements — (Continued)

December 31, 2022, 2021 and 2020

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

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

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

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

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

We adopted this guidance during the three months ended September 30, 2022 and the adoption did not have a material impact on our consolidated financial statements during the year ended December 31, 2022.

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

During the year ended December 31, 2023, we did not adopt any new accounting pronouncements.

Not Yet Adopted

On November 27, 2023, the Financial Accounting Standards Board, or FASB, issued ASU 2023-07, "Segment Reporting (Topic 280),” which revises the disclosure requirements about a public entity’s reportable segments and a reportable segment’s expenses.

This amendment requires a public entity to (i) disclose significant segment expense that are regularly provided to the chief operating decision maker and included within each reported measure of segment profit or loss, (ii) disclose an amount for other segment items by reportable segment and a description of its composition and (iii) provide annual disclosures about a reportable segment’s profit or loss and assets currently required by Topic 280 in interim periods.

The amendment is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024.

Early adoption is permitted.

This amendment is required to be applied retrospectively to all prior periods presented.

We are currently assessing the impact this pronouncement will have on our consolidated financial statement disclosures.

On December 14, 2023, the FASB issued ASU 2023-09, "Income Taxes (Topic 740)," which requires additional annual disclosures regarding specific categories in the income tax rate reconciliation as well additional information for reconciling items that meet a quantitative threshold.

This amendment also requires annual disclosures regarding the amount of income taxes paid, including income taxes paid disaggregated by (i) federal, state and foreign taxes as well as (ii) individual jurisdictions in which income taxes paid is equal to or greater than five percent of total income taxes paid.

Additionally, this amendment requires annual disclosures for income from continuing operations before income tax expense (or benefit) disaggregated between domestic and foreign as well as income tax expense (or benefit) disaggregated between federal, state and foreign.

The amendment is effective for annual periods beginning after December 15, 2024, and early adoption is permitted.

This amendment should be applied on a prospective basis, but retrospective application is permitted.

We are currently assessing the impact this pronouncement will have on our consolidated financial statement disclosures.

Revenue from Contracts with Customers

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We did no t record an impairment loss on our contract assets during the years ended December 31, 2023, 2022 and 2021.

ALARM.COM HOLDINGS, INC.

Notes to the Consolidated Financial Statements — (Continued)

December 31, 2023, 2022 and 2021

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

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Commission costs and upfront payments to a customer capitalized in period 7,837 14,270 3,779

Reimbursement of previously capitalized upfront payments to customers

( 6,774 ) — —

Amortization of contract assets ( 5,939 ) ( 4,815 ) ( 3,565 )

End of period balance $ 9,099 $ 13,975 $ 4,520

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

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

Contract Liabilities

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The revenue recognized from amounts included in contract liabilities primarily relates to prepayment contracts with customers as well as payments of activation fees.

ALARM.COM HOLDINGS, INC.

Notes to the Consolidated Financial Statements — (Continued)

December 31, 2022, 2021 and 2020

Accounts Receivable, Net

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

ALARM.COM HOLDINGS, INC.

Notes to the Consolidated Financial Statements — (Continued)

December 31, 2023, 2022 and 2021

Allowance for Credit Losses - Accounts Receivable

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Raw materials $ 30,452 $ 38,098

Work-in-process 275 —

Finished goods 65,413 77,486

Total inventory $ 96,140 $ 115,584

Inventory values include a write-down of $ 1.4 million during the year ended December 31, 2023, which is reflected in cost of hardware and other revenue within our consolidated statements of operations.

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

Property and Equipment, Net

Furniture, fixtures and office equipment, computer software and hardware, leasehold improvements and real property and improvements are recorded at cost and presented net of depreciation.

Furniture, fixtures and office equipment, computer software and hardware, internal-use software, construction in progress, leasehold improvements and real property and improvements are recorded at cost and presented net of depreciation on the consolidated balance sheets.

We record land at historical cost.

During the application development phase, we record capitalized development costs in our construction in progress account and then reclassify the asset to internal-use software when the project is ready for its intended use, which is usually when the code goes into production.

Furniture, fixtures and office equipment and computer software and hardware are depreciated on a straight-line basis over lives ranging from three to five years .

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Real property is amortized on a straight-line basis over lives ranging from 15 to 39 years and the improvements related to real property are amortized on a straight-line basis over the shorter of the life of the underlying real property or the asset lives.

ALARM.COM HOLDINGS, INC.

Notes to the Consolidated Financial Statements — (Continued)

December 31, 2022, 2021 and 2020

The components of property and equipment, net are as follows (in thousands):

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Depreciation expense related to property and equipment for the years ended December 31, 2023, 2022 and 2021 was $ 11.2 million, $ 11.6 million and $ 10.4 million, respectively.

Amortization expense related to internal-use software of $ 0.6 million, $ 2.0 million and $ 2.4 million was included in those expenses for the years ended December 31, 2022, 2021 and 2020, respectively.

Amortization expense related to internal-use software of zero , $ 0.6 million

ALARM.COM HOLDINGS, INC.

Notes to the Consolidated Financial Statements — (Continued)

December 31, 2023, 2022 and 2021

and $ 2.0 million was included in those expenses for the years ended December 31, 2023, 2022 and 2021, respectively.

We had no disposals and write-offs of property and equipment that impacted the consolidated statements of operations during the years ended December 31, 2023, 2022 and 2021.

Asset Acquisitions

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

Substantially all of the acquired assets consisted of developed technology.

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

In consideration for the purchase of the acquired assets, we paid $ 5.5 million in cash on April 21, 2023, after deducting $ 0.3 million related to the settlement of an outstanding loan issued to Vintra during March 2023 and $ 1.0 million related to an agreed holdback provision.

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

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

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

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

On December 16, 2021, EnergyHub, Inc., one of our wholly-owned subsidiaries, acquired certain assets of an unrelated third party.

Substantially all of the acquired assets consisted of developed technology.

We believe the acquisition of the developed technology will continue to advance our load-shaping energy management solution allowing additional devices to participate in utility programs that reduce or shift power consumption during peak demand periods.

In consideration for the purchase of the developed technology, we paid $ 4.2 million in cash in December 2021, with the remaining $ 0.9 million paid in June 2023.

Additionally, we incurred $ 0.2 million in direct transaction costs related to legal fees during 2021 that were capitalized as a component of the consideration transferred.

The combined $ 5.3 million consideration related to developed technology was recorded as an intangible asset at the time of the asset acquisition and is being amortized on a straight-line basis over an estimated useful life of seven years .

Acquisition of a Business – EBS

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

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

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

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

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

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

The overall impacts to our consolidated financial statements were not considered material for the year ended December 31, 2023.

Acquisition of a Business – Noonlight

On September 23, 2022, Alarm.com Incorporated, one of our wholly-owned subsidiaries, acquired 85 % of the issued and outstanding shares of capital stock of Noonlight.

On September 23, 2022, Alarm.com Incorporated acquired 85 % of the issued and outstanding shares of capital stock of Noonlight.

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

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In consideration for the purchase of 85 % of the issued and outstanding shares of capital stock of Noonlight, we paid $ 31.9 million in cash on September 23, 2022, after deducting $ 1.5 million related to an outstanding loan issued to Noonlight during May of 2022 and $ 4.9 million related to agreed holdback provisions.

See Note 9 for further details on the loan to Noonlight, including the settlement of the outstanding principal and interest.

Pursuant to the terms of the stock purchase agreement, following the preliminary determination of the working capital of Noonlight as of the closing date, the purchase price decreased by less than $ 0.1 million.

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.

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

The remaining amount of the holdback of $ 4.6 million is expected to be paid to the stockholders of Noonlight by the end of the first q uarter of 2024, subject to offset for any indemnification obligations.

As a result of the acquisition of Noonlight, we recorded approximately $ 0.8 million in acquisition-related costs for the year ended December 31, 2022.

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

We recorded a measurement period adjustment related to changes in working capital, which resulted in an increase to the purchase consideration by $ 0.2 million, a decrease to accounts payable of $ 0.1 million, a decrease accrued expenses by less than $ 0.1 million and an increase to other current assets of less than $ 0.1 million.

Additionally, we recorded a measurement period adjustment related to the assessment of the net operating losses acquired, which resulted in us recording a deferred tax asset of $ 2.6 million, which is presented net of the deferred tax liability of $ 2.3 million previously recorded in the acquisition, and a decrease to goodwill of $ 2.6 million.

The purchase price allocation was not finalized as of December 31, 2022 and is pending the final determination of the working capital adjustment as well as potential future tax adjustments.

ALARM.COM HOLDINGS, INC.

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December 31, 2023, 2022 and 2021

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

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

September 23, 2022

4 unchanged sentences

Total consideration $ 38,252

Estimated Tangible and Intangible Net Assets:

Tangible and Intangible Net Assets:

Accounts receivable 291

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The acquired activities and assets in the purchase of Noonlight constituted a business and with the exception of contract liabilities accounted for under Topic 606, in accordance with ASC 805, " Business Combinations ," the assets and liabilities were recorded at their respective fair values as of September 23, 2022.

We developed our estimate of the fair value of intangible net assets using a multi-period excess earnings method for developed technology and the relief from royalty method for the trade name.

We developed the fair value of intangible net assets using a multi-period excess earnings method for developed technology and the relief from royalty method for the trade name.

Developed Technology

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Redeemable Noncontrolling Interests

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

We have a redeemable noncontrolling interest related to our 85 % equity ownership interest in Noonlight.

The Noonlight stockholder agreement contains a put option that gives the minority Noonlight stockholders the right to sell their remaining 15 % equity ownership interest to us based on the fair value of the shares and also contains a call option that gives us the right to purchase the remaining Noonlight shares from the minority Noonlight stockholders based on the fair value of the shares.

The put and call options can each be exercised beginning in the first quarter of 2026.

The redeemable noncontrolling interest was recorded at fair value on September 23, 2022, by applying the income approach using unobservable inputs for projected cash flows, including projected financial results and a discount rate, which are considered Level 3 inputs.

This redeemable noncontrolling interest was recorded at fair value on September 23, 2022, by applying the income approach using unobservable inputs for projected cash flows, including projected financial results and a discount rate, which are considered Level 3 inputs.

This redeemable noncontrolling interest is considered temporary equity and we report it between liabilities and stockholders’ equity in the consolidated balance sheets.

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The operations of the Noonlight business combination discussed above were included in the consolidated financial statements as of the acquisition date.

The pro forma information as well as the revenue and net losses of the business combination were not material to the consolidated financial statements for the year ended December 31, 2022.

Acquisition of a Business - Shooter Detection Systems

On December 14, 2020, Alarm.com Incorporated acquired 100 % of the issued and outstanding ownership interest units of Shooter Detection Systems, LLC, or SDS.

SDS provides an indoor gunshot detection solution through the Guardian Indoor Active Shooter Detection System, which uses a combination of acoustic and infrared sensors and proprietary algorithms to detect gunshots and communicate shooting incident details to building occupants and security teams.

The acquisition of SDS expands our commercial solutions and helps our partners outfit commercial and enterprise customers with the indoor gunshot detection solution.

In consideration for the purchase of 100 % of the issued and outstanding ownership interest units of SDS, we paid $ 26.6 million in cash on December 14, 2020.

Pursuant to the terms of the unit purchase agreem ent, following the preliminary determination of the working capital of SDS as of the closing date, the purchase price decreased by $ 0.1 million.

The purchase price allocation was finalized during the second quarter of 2021, including the working capital adjustment, resulting in a measurement period adjustment to increase the purchase consideration by $ 0.1 million and to increase goodwill by $ 0.1 million.

ALARM.COM HOLDINGS, INC.

Notes to the Consolidated Financial Statements — (Continued)

December 31, 2022, 2021 and 2020

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

December 14, 2020

Calculation of Purchase Consideration:

Cash paid, net of working capital adjustment $ 26,577

Total consideration $ 26,577

Tangible and Intangible Net Assets:

Accounts receivable 1,179

Inventory 917

Other current assets 240

Property and equipment 77

Operating lease right-of-use assets 384

Other assets 348

Customer relationships 2,362

Developed technology 13,522

Trade name 512

Accounts payable ( 19 )

Accrued expenses ( 111 )

Operating lease current liabilities ( 51 )

Operating lease liabilities ( 333 )

Goodwill 7,239

Total tangible and intangible net assets $ 26,577

Goodwill of $ 7.2 million reflects the value of acquired workforce and synergies we expect to achieve from expanding our commercial solutions through SDS's indoor gunshot detection solution.

The goodwill recognized is expected to be deductible for income tax purposes in future periods.

We allocate goodwill to reporting units based on expected benefit from synergies and have allocated the goodwill to the Alarm.com segment.

Fair Value of Net Assets Acquired and Intangibles

In accordance with ASC 805, SDS constituted a business and the assets and liabilities were recorded at their respective fair values as of December 14, 2020.

We developed our estimate of the fair value of intangible net assets using the with-and-without method for customer relationships, the multi-period excess earnings method for the developed technology and the relief-from-royalty method for the trade name.

Customer Relationships

We recorded the customer relationships intangible separately from goodwill based on determination of the length, strength and contractual nature of the relationship that SDS shared with its customers.

We valued the single group of customer relationships using the with-and-without method, an income approach.

The significant assumptions used in the with-and-without method include estimates about future expected cash flows from customer contracts and the discount rate.

We are amortizing the customer relationships, valued at $ 2.4 million, on an attribution basis derived from the discounted cash flows of the model over an estimated useful life of six years .

Developed Technology

Developed technology primarily consists of intellectual property of proprietary software that is marketed for sale.

We valued the developed technology by applying the multi-period excess earnings method, an income approach.

The significant assumptions used in the multi-period excess earnings method include estimates about future expected cash flows from the developed technology, the obsolescence factor and the discount rate.

We are amortizing the SDS developed technology, valued at $ 13.5 million, on an attribution method based on the discounted cash flows of the model over an estimated useful life of seven years .

ALARM.COM HOLDINGS, INC.

Notes to the Consolidated Financial Statements — (Continued)

December 31, 2022, 2021 and 2020

We valued the trade names acquired using a relief from royalty method.

The significant assumptions used in relief from royalty method include future expected cash flows from the trade name, the royalty rate and the discount rate.

We are amortizing the trade names, valued at $ 0.5 million, on an attribution basis derived from the discounted cash flows of the model over an estimated useful life of five years .

Unaudited Pro Forma Information - SDS

The following unaudited pro forma data is presented as if SDS were included in our historical consolidated statements of operations beginning January 1, 2019.

These pro forma results do not necessarily represent what would have occurred if all the business combination had taken place on January 1, 2019, nor do they represent the results that may occur in the future.

This pro forma financial information includes our historical financial statements and those of our SDS business combination with the following adjustments:

(i) we adjusted the pro forma amounts for income taxes, (ii) we adjusted for amortization expense assuming the fair value adjustments to intangible assets had been applied beginning January 1, 2019, and (iii) we adjusted for transaction fees incurred and reclassified them to January 1, 2019.

The pro forma adjustments were based on available information and upon assumptions that we believe are reasonable to reflect the impact of these acquisitions on our historical financial information on a supplemental pro forma basis, as follows (in thousands, except per share data):

Year Ended December 31,

Revenue $ 626,080 $ 508,662

Net income attributable to common stockholders 75,258 52,999

Net income attributable to common stockholders per share - basic $ 1.54 $ 1.08

Net income attributable to common stockholders per share - diluted $ 1.48 $ 1.04

Business Combinations in Operations - SDS

The operations of the SDS business combination discussed above were included in the consolidated financial statements as of the acquisition date.

The following table presents the revenue and losses of the business combination in the year of acquisition as reported within the consolidated financial statements (in thousands):

Year Ended December 31, 2020

Revenue $ 334

Net loss ( 413 )

Asset Acquisitions

On December 16, 2021, EnergyHub, Inc., one of our wholly-owned subsidiaries, acquired certain assets of an unrelated third party.

Substantially all of the acquired assets consisted of developed technology.

In consideration for the purchase of the developed technology, we paid $ 4.2 million in cash in December 2021, with the remaining $ 0.9 million expected to be paid 18 months following the acquisition date, subject to offset for any indemnification obligations.

Additionally, we incurred $ 0.2 million in direct transaction costs related to legal fees during 2021 that were capitalized as a component of the consideration transferred.

On March 31, 2020, Alarm.com Incorporated acquired certain assets of an unrelated third party.

Substantially all of the acquired assets consisted of in-process research and development, or IPR&D.

We believe the acquisition of the IPR&D will continue to further our commitment to make significant investments in innovative research and development in the intelligently connected property market to broaden our suite of solutions.

ALARM.COM HOLDINGS, INC.

Notes to the Consolidated Financial Statements — (Continued)

December 31, 2022, 2021 and 2020

In consideration for the purchase of the IPR&D, we paid $ 2.1 million in cash on March 31, 2020, $ 0.1 million in December 2019 and the remaining $ 0.7 million in April 2021.

The $ 2.9 million consideration related to IPR&D was expensed at the time of the asset acquisition and was included in research and development expense in our consolidated statements of operations during 2020, as the IPR&D had no alternative future use.

On March 12, 2020, Alarm.com Incorporated acquired certain assets of an unrelated third party.

Substantially all of the acquired assets consisted of IPR&D.

We believe the acquisition of the IPR&D will continue to strengthen our smart intercom capability, including building access security and convenience within the multiple dwelling unit market for residents, guests and deliveries.

In consideration for the purchase of the IPR&D, we paid $ 1.2 million in cash on March 12, 2020 and the remaining $ 0.3 million in September 2021.

The $ 1.5 million consideration related to IPR&D was expensed at the time of the asset acquisition and was included in research and development expense in our consolidated statements of operations during 2020, as the IPR&D had no alternative future use.

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

Goodwill and Intangible Assets, Net

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Balance as of January 1, 2022 $ 112,901 $ — $ 112,901

Goodwill acquired — — —

Goodwill acquired - initial measurement

37,907 — 37,907

Measurement period adjustment ( 2,625 ) — ( 2,625 )

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Measurement period adjustment ( 1,509 ) — ( 1,509 )

Foreign currency translation adjustment 624 — 624

Balance as of December 31, 2023 $ 154,498 $ — $ 154,498

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

The 2023 measurement period adjustments related to the Noonlight and EBS working capital and tax adjustments during the year ended December 31, 2023.

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

Additionally, we recorded a measurement period adjustment related to the assessment of the net operating losses acquired, which resulted in us recording a decrease to goodwill of $ 2.6 million.

Additionally, during 2022, we recorded a measurement period adjustment related to the assessment of the net operating losses acquired, which resulted in us recording a decrease to goodwill of $ 2.6 million.

There were no impairments of goodwill recorded during the years ended December 31, 2023, 2022 or 2021.

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Relationships Developed

Technology Trade Name Total

Technology Trade Name Capitalized Software Development Costs Total

Balance as of January 1, 2022 $ 59,426 $ 30,157 $ 1,823 $ — $ 91,406

Intangible assets acquired — 9,335 150 — 9,485

Impairment of intangible assets ( 86 ) — — ( 86 )

Amortization ( 11,904 ) ( 5,939 ) ( 590 ) — ( 18,433 )

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Intangible assets acquired 2,395 11,583 537 — 14,515

Capitalized software development costs — — — 882 882

Amortization ( 10,623 ) ( 7,962 ) ( 703 ) ( 3 ) ( 19,291 )

Balance as of December 31, 2023 $ 39,294 $ 37,174 $ 1,217 $ 879 $ 78,564

We recorded $ 18.4 million, $ 17.1 million and $ 16.6 million of amortization related to our intangible assets for the years ended December 31, 2022, 2021 and 2020, respectively.

There were no impairments of long-lived intangible assets during the years ended December 31, 2022 and 2020.

We determined there was an impairment of $ 0.1 million for the remaining value of an intangible asset in the Alarm.com segment that was acquired in 2014 related to customer relationships that no longer existed after December 31, 2021, which was included in other (expense) / income, net in our consolidated statements of operations for the year ended December 31, 2021.

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

ALARM.COM HOLDINGS, INC.

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December 31, 2023, 2022 and 2021

We recorded $ 19.3 million, $ 18.4 million and $ 17.1 million of amortization related to our intangible assets for the years ended December 31, 2023, 2022 and 2021, respectively.

There were no impairments of long-lived intangible assets during the years ended December 31, 2023 and 2022.

We determined there was an impairment of $ 0.1 million for the remaining value of an intangible asset in the Alarm.com segment that was acquired in 2014 related to customer relationships that no longer existed after December 31, 2021, which was included in other income / (expense), net in our consolidated statements of operations for the year ended December 31, 2021.

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

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Trade name 4,474 ( 3,257 ) 1,217 2.6

Capitalized software development costs 882 ( 3 ) 879 3.3

Total intangible assets $ 203,697 $ ( 125,133 ) $ 78,564 5.4

December 31, 2022

Amount Impairment of Intangible Assets Accumulated

Amount Accumulated

Amortization Net

4 unchanged sentences

Trade name 3,937 ( 2,554 ) 1,383 2.4

Other 234 — ( 234 ) — 0.0

Total intangible assets $ 188,300 $ ( 105,842 ) $ 82,458 6.5

4 unchanged sentences

Total future amortization expense $ 78,564

Purchases of Patents and Patent Licenses

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

In April 2020, we purchased 30 patents for $ 0.9 million and in October 2020, we purchased one patent for $ 0.2 million.

The carrying value, net of amortization, of our purchased patents and patent licenses was $ 1.6 million and $ 2.2 million as of December 31, 2022 and 2021, respectively.

As of December 31, 2022 and 2021, $ 0.5 million and $ 0.6 million of patent costs were included in other current assets and $ 1.1 million and $ 1.6 million of patent costs were included in other assets, respectively.

We have $ 7.0 million of historical cost in purchased patents and patent licenses as of December 31, 2022.

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

Patent amortization cost of $ 0.3 million, $ 0.4 million and $ 0.4 million was included in cost of SaaS and license revenue in our consolidated statements of operations for each of the years ended December 31, 2022, 2021 and 2020.

Patent amortization cost of $ 0.3 million, $ 0.3 million and $ 0.2 million was included in amortization and depreciation in our consolidated statements of operations for the year ended December 31, 2022, 2021 and 2020, respectively.

ALARM.COM HOLDINGS, INC.

Notes to the Consolidated Financial Statements — (Continued)

December 31, 2022, 2021 and 2020

Loan to a Distribution Partner

In June 2020, we amended an existing term loan with our distribution partner and also amended an existing subordinated credit agreement with the affiliated entity of the distribution partner.

At the time of the amended term loan and subordinated credit agreement in June 2020, the outstanding balance of the term loan was $ 3.0 million and the outstanding balance of the subordinated credit agreement was $ 3.0 million.

Under the amended terms, the distribution partner paid us $ 2.0 million in principal for the term loan on June 9, 2020 and the remaining $ 1.0 million was transferred to the amended subordinated credit agreement with the affiliated entity of the distribution partner.

As of December 31, 2022 and 2021, there was no remaining amount outstanding related to the amended term loan.

In December 2022, we amended the subordinated credit agreement with the affiliated entity of the distribution partner.

The amended subordinated credit agreement matures on June 18, 2027 and interest on the outstanding principal balance accrues at a rate of 12.0 % per annum and is payable in kind.

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

The amended subordinated credit agreement with the affiliated entity of the distribution partner matures on June 18, 2027 and interest on the outstanding principal balance accrues at a rate of 12.0 % per annum and is payable in kind.

Under the amended terms, the distribution partner paid us $ 1.0 million in paid-in-kind interest in December 2022.

As of December 31, 2023 and 2022, $ 4.5 million and $ 4.0 million of the notes receivable balance related to the subordinated credit agreement was included in other assets in our consolidated balance sheets, respectively.

ALARM.COM HOLDINGS, INC.

Notes to the Consolidated Financial Statements — (Continued)

December 31, 2023, 2022 and 2021

For the years ended December 31, 2023, 2022 and 2021, we recognized $ 3.0 million, $ 2.7 million and $ 3.0 million of revenue from the distribution partner associated with these loans, respectively.

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As of December 31, 2023 and 2022, $ 1.0 million and $ 1.1 million of principal was outstanding from the service provider partner under the loan agreement, respectively.

For the years ended December 31, 2022, 2021 and 2020, we recognized $ 0.2 million, $ 0.2 million and $ 0.1 million of revenue from the service provider partner associated with this loan, respectively.

Loan to Noonlight

In May 2022, we entered into an agreement with Noonlight, under which we agreed to loan Noonlight $ 1.5 million, collateralized by the assets of Noonlight.

Interest on the outstanding principal accrued at a rate per annum equal to 7.0 %.

The outstanding interest and principal balances were previously included in other current assets in our consolidated balance sheet and were used to reduce the payment we made on September 23, 2022 to acquire 85 % of the issued and outstanding shares of capital stock of Noonlight.

As of December 31, 2022, no principal or interest was outstanding from Noonlight under the loan agreement.

Prior to the acquisition of Noonlight on September 23, 2022, for the years ended December 31, 2022, 2021 and 2020, we did no t record any revenue from Noonlight.

For each of the years ended December 31, 2023, 2022 and 2021, we recognized $ 0.2 million of revenue from the service provider partner associated with this loan.

Loan to a Technology Partner

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

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

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

For the years ended December 31, 2023, 2022 and 2021, we did not record any revenue from the technology partner associated with this convertible promissory note.

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We concluded that the $ 5.6 million equity investment, which is included in the Alarm.com segment, does not meet the criteria for consolidation and will be accounted for using the measurement alternative.

Under the alternative, we measure investments without readily determinable fair values at cost, less impairment, adjusted for observable price changes

ALARM.COM HOLDINGS, INC.

Notes to the Consolidated Financial Statements — (Continued)

December 31, 2022, 2021 and 2020

from orderly transactions for identical or similar investments.

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

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

Investments in Technology Partners

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

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

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

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

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

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

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

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

Our investment in the technology partner was $ 5.7 million as of December 31, 2022 and 2021, respectively.

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

In December 2022, we paid $ 5.1 million in cash to another technology partner to purchase 4,231,717 shares of its Series A Preferred Stock.

The $ 5.1 million equity investment, which is included in the Alarm.com segment, does not meet the criteria for consolidation and is accounted for using the measurement alternative.

As of December 31, 2022, our investment in the technology partner supplier was $ 5.1 million.

Investment in a Platform Partner

On July 31, 2020, a platform partner, in which we held 3,548,820 shares of common stock of the platform partner, was acquired by an unrelated third party.

As a result of the sale, we received proceeds of $ 25.7 million in exchange for our shares of the platform partner's common stock and we recorded a gain of $ 24.7 million within other (expense) / income, net, in ou r consolidate d statements of operations during the year ended December 31, 2020.

As of December 31, 2022 and 2021 , our investment in the platform partner was zero .

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

ALARM.COM HOLDINGS, INC.

Notes to the Consolidated Financial Statements — (Continued)

December 31, 2023, 2022 and 2021

Allowance for Credit Losses - Notes Receivable

1 unchanged sentence

Year Ended December 31, 2023 Year Ended December 31, 2022

Receivables Hardware

Receivables Loan

1 unchanged sentence

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

Recovery of / (provision for) expected credit losses 77 1 ( 6 ) 15

(Provision for) / recovery of expected credit losses ( 3 ) 77 1

Write-offs — — —

11 unchanged sentences

Total $ 150 $ 1,500 $ — $ 1,039 $ — $ 4,524 $ 7,213

ALARM.COM HOLDINGS, INC.

Notes to the Consolidated Financial Statements — (Continued)

December 31, 2022, 2021 and 2020

December 31, 2022

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

Hardware Financing Receivables:

Current $ — $ — $ 4 $ — $ — $ — $ 4

30-59 days past due — — 6 — — — 6

60-89 days past due — — 11 — — — 11

90-119 days past due — — — — — — —

120+ days past due — — — — — — —

Total $ — $ — $ 21 $ — $ — $ — $ 21

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

During the years ended December 31, 2023, 2022 and 2021, there was no interest income recognized related to notes receivables that were in nonaccrual status.

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

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

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

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As of December 31, 2023 and 2022, $ 14.6 million and $ 14.5 million of prepaid expenses were included in other current assets, respectively, primarily related to software licenses, long lead-time parts related to our inventory and insurance.

ALARM.COM HOLDINGS, INC.

Notes to the Consolidated Financial Statements — (Continued)

December 31, 2023, 2022 and 2021

Fair Value Measurements

6 unchanged sentences

510,326 — — 510,326

Subsidiary long-term incentive plan as of December 31, 2022

$ — $ — $ — $ —

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

Contingent consideration liability from acquisition as of December 31, 2023

$ — $ — $ 2,061 $ 2,061

ALARM.COM HOLDINGS, INC.

Notes to the Consolidated Financial Statements — (Continued)

December 31, 2022, 2021 and 2020

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

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

Year Ended December 31,

2023 2022 2021

Contingent Consideration Liability from Acquisition

Subsidiary Long-Term Incentive Plan

Beginning of period balance $ — $ 3,351 $ 1,000

Acquired liabilities 1,993 — —

Changes in fair value included in earnings 68 ( 247 ) 2,351

Reclassification to additional paid in capital upon modification

— ( 3,104 ) —

End of period balance $ 2,061 $ — $ 3,351

As of December 31, 2023, $ 675.6 million of our money market accounts was included in cash and cash equivalents and $ 4.1 million was included in other assets in our consolidated balance sheets.

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

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

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

See Note 13 for the carrying amount and estimated fair value of the 2026 Notes as of December 31, 2023 and 2022.

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

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.

This incentive plan was established in November 2017 and the amount of compensation awarded to employees depended on the fair market value of the subsidiary, which was determined in part by the subsidiary’s projected financial results.

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Additionally, we recorded $ 1.2 million in incremental compensation costs as additional stock-based compensation expense to the applicable operating expense category based on the respective employee’s function (sales and marketing, general and administrative or research and development) during the three months ended June 30, 2022.

The incremental compensation costs represented the excess of the fair value of the performance-based restricted stock units over the fair value of the subsidiary long-term incentive plan as of the modification date of the subsidiary long-term incentive plan.

The contingent consideration liability 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.

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.

During parts of 2019 and 2020, 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.

The contingent consideration liability was valued with significant unobservable inputs, including the revenue volatility and the discount rate.

Selecting another revenue volatility or discount rate within an acceptable range would not have resulted in a significant change to the fair value of the contingent consideration liability.

As of October 21, 2019, the fair value of the liability was $ 2.8 million.

At each reporting date until December 31, 2020, we remeasured the liability, using the same valuation approach.

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

As of December 31, 2020, the 2020 revenue targets were not met and the fair value of the contingent consideration related to the potential earn-out payment decreased to zero as compared to the initial liability recorded at the acquisition date, primarily due to OpenEye's 2020 actual revenue being less than the projected revenue.

All contingencies related to the contingent consideration liability were resolved as of December 31, 2020 and no further estimates were necessary as of December 31, 2022 .

There were no transfers into Level 3 or reclassifications between levels of the fair value hierarchy during the years ended December 31, 2022, 2021 and 2020.

The incremental compensation costs represented the excess of the fair value of the

ALARM.COM HOLDINGS, INC.

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December 31, 2023, 2022 and 2021

We lease office space, data centers and office equipment under non-cancelable operating leases with various expiration dates through 2031.

performance-based restricted stock units over the fair value of the subsidiary long-term incentive plan as of the modification date of the subsidiary long-term incentive plan.

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

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

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

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

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

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

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

In 2023, the contingent consideration liability did not materially change from the acquisition date fair value of $ 2.0 million as there were minor changes in the expected probability of achievement for the performance targets.

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

The valuation also included a weighted average discount rate of 5.5 %, which also represented the low and high range of the discount rates.

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

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

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

There were no transfers into Level 3 or reclassifications between levels of the fair value hierarchy during the years ended December 31, 2023, 2022 and 2021.

As of December 31, 2023, we leased office space, data centers and office equipment under non-cancelable operating leases with various expiration dates through 2030.

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

We have subsequently entered into amendments to this lease to provide us with additional office space.

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

The lease term ends in 2026, includes a five-year renewal option and includes a cumulative tenant improvement allowance of $ 12.1 million as of December 31, 2023.

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

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Weighted-average discount rate — operating leases 4.9 % 3.9 %

ALARM.COM HOLDINGS, INC.

Notes to the Consolidated Financial Statements — (Continued)

December 31, 2023, 2022 and 2021

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

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_______________

(1) Operating lease payments exclude $ 5.9 million of legally binding minimum lease payments for leases executed but not yet commenced and includes $ 0.4 million for options to extend lease terms that were reasonably certain of being exercised.

(1) Operating lease payments exclude $ 5.1 million of legally binding minimum lease payments for leases executed but not yet commenced and do no t include any options to extend lease terms that were reasonably certain of being exercised.

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

ALARM.COM HOLDINGS, INC.

Notes to the Consolidated Financial Statements — (Continued)

December 31, 2022, 2021 and 2020

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

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Income taxes payable 42,501 43,576

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

Other current liabilities 14,037 5,421

2 unchanged sentences

2023 December 31,

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

Subsidiary long-term incentive plan — 3,351

Holdback liability from business combination $ — $ 4,560

Contingent consideration liability from acquisition 2,061 —

Other liabilities 10,636 8,490

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We received proceeds from the issuance of the 2026 Notes of $ 484.3 million, net of $ 15.7 million of transaction fees and other debt issuance costs.

ALARM.COM HOLDINGS, INC.

Notes to the Consolidated Financial Statements — (Continued)

December 31, 2023, 2022 and 2021

We may not redeem the 2026 Notes prior to January 20, 2024.

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(1) during any calendar quarter commencing after the calendar quarter ending on June 30, 2021 (and only during such calendar quarter), if the last reported sale price of our common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130 % of the conversion price for the 2026 Notes on each applicable trading day;

(2) during the 5 business day period immediately after any 10 consecutive trading day period in which, for each trading day of that period, the trading price per $1,000 principal amount of 2026 Notes for such trading day was less than 98 % of the product of the last reported sale price of our common stock and the conversion rate for the 2026 Notes on each such trading day;

(2) during the five business day period immediately after any 10 consecutive trading day period in which, for each trading day of that period, the trading price per $1,000 principal amount of 2026 Notes for such trading day was less than 98 % of the product of the last reported sale price of our common stock and the conversion rate for the 2026 Notes on each such trading day;

(3) if we call any or all of the 2026 Notes for redemption, at any time prior to the close of business on the scheduled trading day immediately preceding the redemption date, but only with respect to the 2026 Notes called (or deemed called) for redemption;

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

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

ALARM.COM HOLDINGS, INC.

Notes to the Consolidated Financial Statements — (Continued)

December 31, 2022, 2021 and 2020

regardless of the foregoing conditions.

Upon conversion, we may satisfy our conversion obligation by paying or delivering, as the case may be, cash, shares of our common stock or a combination of cash and shares of our common stock, at our election.

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

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

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

As discussed in Note 2, we adopted ASU 2020-06, " Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40):

Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity " effective January 1, 2022, using a modified retrospective adoption method.

As discussed in Note 2, we adopted ASU 2020-06 effective January 1, 2022, using a modified retrospective adoption method.

Prior to the adoption of the standard, the 2026 Notes were separated into liability and equity components.

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Prior to the adoption of ASU 2020-06, the difference between the book and tax treatment of the debt discount and debt issuance costs of the 2026 Notes resulted in a difference between the carrying amount and tax basis of the 2026 Notes.

This taxable temporary difference resulted in the recognition of a $ 18.3 million net deferred tax liability which was recorded as an adjustment to additional paid-in capital during the three months ended March 31, 2021.

ALARM.COM HOLDINGS, INC.

Notes to the Consolidated Financial Statements — (Continued)

December 31, 2023, 2022 and 2021

taxable temporary difference resulted in the recognition of a $ 18.3 million net deferred tax liability which was recorded as an adjustment to additional paid-in capital during the three months ended March 31, 2021.

Upon adoption of ASU 2020-06 on January 1, 2022, we recombined the liability and equity components of the 2026 Notes assuming that the instrument was accounted for as only a liability from inception to the date of adoption.

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Based on the closing price of our common stock of $ 64.62 on the last trading day of the quarter, the if-converted value of the 2026 Notes did not exceed the principal amount of $ 500.0 million as of December 31, 2023.

ALARM.COM HOLDINGS, INC.

Notes to the Consolidated Financial Statements — (Continued)

December 31, 2022, 2021 and 2020

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

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Principal $ 500,000 $ 500,000

Unamortized debt discount — ( 63,520 )

Unamortized debt issuance costs ( 6,485 ) ( 9,630 )

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Total interest expense $ 3,145 $ 3,126 $ 15,817

2017 Facility

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

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

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

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

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

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

On January 20, 2021, we repaid the entire outstanding principal balance of $ 110.0 million of the 2017 Facility with proceeds from the 2026 Notes.

The 2017 Facility was terminated on January 20, 2021 and we recognized an extinguishment loss of $ 0.2 million in other (expense) / income, net in our consolidated statements of operations during the year ended December 31, 2021 for previously capitalized debt issuance costs related to the 2017 Facility that were unamortized at the time of the termination of the 2017 Facility.

There were no amounts outstanding under the 2017 Facility as of December 31, 2022 and 2021 as a result of the termination of the 2017 Facility on January 20, 2021.

The outstanding principal balance on the 2017 Facility accrued interest at a rate equal to, at our option, either (1) LIBOR, plus an applicable margin based on our consolidated leverage ratio, or (2) the highest of (a) the Wall Street Journal prime rate, (b) the Federal Funds rate plus 0.50 %, or (c) LIBOR plus 1.00 % plus an applicable margin based on our consolidated leverage ratio.

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

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

Acquired Debt - EBS

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

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

Commitments and Contingencies

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

ALARM.COM HOLDINGS, INC.

Notes to the Consolidated Financial Statements — (Continued)

December 31, 2022, 2021 and 2020

Legal Proceedings

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District Court, District of Utah, alleging that our technology directly and indirectly infringes six patents that Vivint purchased.

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

We answered the complaint on July 23, 2015.

Among other things, we asserted defenses based on non-infringement and invalidity of the patents in question.

In 2017 and 2019, the U.S.

Patent Trial and Appeal Board, or PTAB, issued final written decisions in inter partes reviews finding all or some of the claims in five of the asserted patents unpatentable.

These decisions were affirmed on appeal.

Discovery closed on October 29, 2021.

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

both motions are pending decision.

Vivint has also moved to assert previously abandoned claims from two of the patents in a new proceeding.

We have opposed the motion.

No trial date has been set.

Should Vivint prevail in proving Alarm.com infringes one or more of its patent claims, we could be required to pay damages of Vivint’s lost profits and/or a reasonable royalty for sales of our solution.

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

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

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

Further related to Vivint, on October 27, 2022, we filed a demand for arbitration of a dispute arising under the Patent Cross License Agreement between Alarm.com and Vivint executed in November 2013.

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

Vivint has paid the required license fees to Alarm.com since the agreement was executed in November 2013.

Alarm.com disputes Vivint's refusal of payment and is seeking continued payments of license fees in the arbitration, as well as interest and declaratory relief.

There can be no assurance that Alarm.com will be successful in the arbitration proceedings.

As a result of Vivint’s refusal to pay license fees under the agreement, 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.

We also believe that quarterly earnings and cash flow will be impacted by the aforementioned $ 6.0 million estimate, plus additional legal fees.

On October 27, 2022, we filed a demand for arbitration of a dispute arising under the Patent Cross License Agreement between Alarm.com and Vivint executed in November 2013.

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

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.

Quarterly earnings and cash flow through December 31, 2023 were also impacted by the aforementioned $ 6.0 million, plus additional legal fees.

ALARM.COM HOLDINGS, INC.

Notes to the Consolidated Financial Statements — (Continued)

December 31, 2023, 2022 and 2021

We also filed a lawsuit against Vivint on January 4, 2023 in U.S.

District Court, Eastern District of Texas, alleging that Vivint infringes 15 of our patents.

The case is docketed as No.

2:23-CV-0004-JRG-RSP (E.D.

We are seeking compensatory and enhanced damages, a permanent injunction and other relief.

Vivint’s response to the complaint is due February 27, 2023.

District Court, Eastern District of Texas, alleging that Vivint infringed 15 of our patents.

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

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

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.

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

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patents owned by EcoFactor.

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

We moved to dismiss the case for failure to state a claim on March 28, 2022.

EcoFactor is seeking a permanent injunction, enhanced damages and attorneys' fees.

EcoFactor had previously asserted two of the same patents against us in an October 2019 complaint with the U.S.

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

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

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

We moved to dismiss the Oregon case for failure to state a claim on March 28, 2022.

Three of the asserted patents are in ex parte reexamination proceedings at the PTO, and ex parte reexamination of a fourth patent concluded on August 23, 2023 after the claims were amended.

On April 18, 2022, all claims of a fifth patent were found unpatentable by the U.S.

Patent Trial and Appeal Board, or PTAB, in an inter partes review, and the parties expect that all claims of that patent will be canceled because EcoFactor's appeal of that PTAB decision was dismissed.

On April 18, 2022, the district court stayed the case at the request of the parties pending the disposition of PTAB and other proceedings involving the asserted patents, and the parties filed a joint status report on January 2, 2024.

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

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

Causam has until April 17, 2023 to file an appeal of the decision in federal court.

ALARM.COM HOLDINGS, INC.

Notes to the Consolidated Financial Statements — (Continued)

December 31, 2022, 2021 and 2020

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

Causam did not appeal the ITC decision with respect to Alarm.com and EnergyHub.

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

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

For example, we are incurring costs associated with the indemnification of our service provider ADT, LLC in ongoing patent infringement suits.

For example, we incurred costs associated with the indemnification of our service provider ADT, LLC.

On February 25, 2021, Vivint filed a lawsuit against ADT LLC a/k/a ADT LLC of Delaware d/b/a ADT Security Services in U.S.

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

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

Two of the asserted patents are under inter partes review at the PTAB.

On June 17, 2022, the court entered an order staying the case in view of the pending proceedings before the PTAB, with the exception of certain discovery of source code.

Should Vivint prevail on the claims that one or more elements of ADT’s products infringe, we could be required to indemnify ADT for damages in the form of a reasonable royalty or ADT could be enjoined from making, using and selling our solution if a license or other right to continue selling our technology is not made available or we are unable to design around such patents, and required to pay ongoing royalties and comply with unfavorable terms if such a license is made available to us.

The outcome of these legal claims cannot be predicted with certainty.

We believe there are valid defenses to the claims made by Vivint.

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

Further, on November 4, 2022 and January 13, 2023, IOT Innovations LLC sued our service provider Monitronics International, Inc.

d/b/a Brinks in U.S.

Pursuant to the December 21, 2023 settlement agreement between Alarm.com and Vivint, the allegations regarding ADT Pulse and Control will be dismissed, ending Alarm.com’s indemnification obligations in this matter.

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

d/b/a Brinks in patent infringement suits.

On November 4, 2022, January 13, 2023 and April 18, 2023, IOT Innovations LLC, or IOT, sued

ALARM.COM HOLDINGS, INC.

Notes to the Consolidated Financial Statements — (Continued)

December 31, 2023, 2022 and 2021

Monitronics in U.S.

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

Monitronics filed a Motion to Dismiss the first-filed case on January 24, 2023.

The cases are in the preliminary stages and the extent of Alarm.com’s indemnify obligations to Monitronics has not yet been determined, however should IOT Innovations prevail on the claims that one or more elements of Monitronics’ products or services infringe, we could be required to indemnify Monitronics for damages in the form of a reasonable royalty or Monitronics could be enjoined from making, using and selling our solution if a license or other right to continue selling our technology is not made available or we are unable to design around such patents, and required to pay ongoing royalties and comply with unfavorable terms if such a license is made available to us.

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

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

We also incur costs associated with the indemnification of our service provider, Central Security Group – Nationwide, Inc.

(d/b/a Alert 360), or CSG, in an ongoing patent litigation.

In 2018, Ubiquitous Connectivity, LP, or Ubiquitous, brought suit against CSG in U.S.

District Court, Northern District of Oklahoma, alleging infringement of two US patents.

The case was stayed by agreement of the parties for several years while the patents in suit were challenged before the PTAB.

In January 2021, the PTAB deemed 42 out of 46 claims of the two asserted patents unpatentable.

Ubiquitous appealed a portion of the PTAB’s findings to the United States Court of Appeals for the Federal Circuit.

The Federal Circuit affirmed the PTAB’s ruling on August 8, 2023.

As a result, only four patent claims remain at issue and the Northern District of Oklahoma case is no longer stayed.

A claim construction hearing is scheduled for December 12, 2024.

A hearing on dispositive motions, including for summary judgment, is scheduled for April 15, 2026.

A trial is scheduled for June 22, 2026.

Should Ubiquitous prevail on its infringement claims, we could be required to indemnify CSG for damages in the form of a reasonable royalty or of Ubiquitous’s lost profits.

CSG could be enjoined from making, using, and selling our solution if a license or other right to continue selling our technology is not made available or if we are unable to design around such patents, and we could be required to pay ongoing royalties and comply with unfavorable terms if such a license is made available to us.

The outcome of these legal claims cannot be predicted with certainty.

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Each outstanding share of common stock is entitled to one vote per share.

Stock Repurchase Programs

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

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.

ALARM.COM HOLDINGS, INC.

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December 31, 2023, 2022 and 2021

Stock Repurchase Programs

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.

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

During the 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.

On February 15, 2023, our board of directors authorized, to be effective February 23, 2023, the cancellation of the balance under the stock repurchase program ending December 3, 2023 and also authorized a stock repurchase program, under which we are authorized to purchase up to an aggregate of $ 100.0 million of our outstanding common stock during the two-year period ending February 23, 2025.

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.

We did not repurchase any shares of our common stock under these programs in 2021.

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

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

Shares Withheld

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These withheld shares are not issued or considered common stock repurchases under our stock repurchase program.

We paid $ 4.5 million of tax withholdings related to vesting of restricted stock units during the year ended December 31, 2021.

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.

No tax withholdings related to the vesting of restricted stock units were paid during the year ended December 31, 2022.

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.

We also utilize 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.

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2023 2022 2021

Cost of hardware and other revenue

Sales and marketing 3,522 4,342 4,432

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2023 2022 2021

Stock options and assumed options $ 3,654 $ 3,707 $ 3,406

Stock options $ 4,166 $ 3,654 $ 3,707

Restricted stock units 42,924 48,798 34,799

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Total stock-based compensation expense $ 47,283 $ 52,654 $ 38,694

Tax windfall benefit from stock-based awards $ 2,022 $ 10,063 $ 8,202

Tax (shortfall) / windfall benefit from stock-based awards $ ( 508 ) $ 2,022 $ 10,063

2015 Equity Incentive Plan

We issue stock options pursuant to our 2015 Plan.

The 2015 Plan allows for the grant of stock options to employees and for the grant of nonqualified stock options, stock appreciation rights, restricted stock awards, restricted stock unit awards, or RSUs, performance-based stock awards, and other forms of equity compensation to our employees, directors and non-employee directors and consultants.

ALARM.COM HOLDINGS, INC.

Notes to the Consolidated Financial Statements — (Continued)

December 31, 2022, 2021 and 2020

In June 2015, our board of directors adopted and our stockholders approved our 2015 Plan pursuant to which we initially reserved a total of 4,700,000 shares of common stock for issuance under the 2015 Plan, which included shares of our common stock previously reserved for issuance under our Amended and Restated 2009 Stock Incentive Plan, or the 2009 Plan.

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As of December 31, 2023, 9,526,427 shares remained available for future grant under the 2015 Plan.

In December 2023, our board of directors determined that the January 1, 2024 increase in the number of shares reserved for

ALARM.COM HOLDINGS, INC.

Notes to the Consolidated Financial Statements — (Continued)

December 31, 2023, 2022 and 2021

issuance under the 2015 Plan would be 5.0 % of the total number of shares of common stock outstanding on December 31, 2023, or 2,493,408 shares.

In November 2022, our board of directors determined that the January 1, 2023 increase in the number of shares reserved for issuance under the 2015 Plan would be 5.0 % of the total number of shares of common stock outstanding on December 31, 2022, or 2,472,635 shares.

In December 2021, our board of directors determined that the January 1, 2022 increase in the number of shares reserved for issuance under the 2015 Plan would be 5.0 % of the total number of shares of common stock outstanding on December 31, 2021, or 2,512,972 shares.

There was no increase to the number of shares of common stock reserved for issuance under the 2015 Plan in the year ended December 31, 2020.

Stock Options

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Treasury securities consistent with the expected term of our stock options.

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.

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.

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.

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Cash received from exercises of stock options was $ 2.0 million, $ 2.5 million and $ 4.2 million during the years ended December 31, 2023, 2022 and 2021, respectively.

ALARM.COM HOLDINGS, INC.

Notes to the Consolidated Financial Statements — (Continued)

December 31, 2023, 2022 and 2021

Restricted Stock Units

There was an aggregate of 558,747 , 1,123,076 and 837,576 RSUs without performance conditions granted to certain of our employees and directors during the years ended December 31, 2023, 2022 and 2021, respectively.

There were no RSUs with performance conditions granted during the year ended December 31, 2023.

There was an aggregate of 168,223 and 120,314 RSUs with performance conditions granted to certain of our employees during the years ended December 31, 2022 and 2021, respectively.

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Vested and expected to vest as of December 31, 2023 1,959,681 $ 63.75 $ 126,635 206,047 $ 74.12 $ 13,315

ALARM.COM HOLDINGS, INC.

Notes to the Consolidated Financial Statements — (Continued)

December 31, 2022, 2021 and 2020

The weighted average grant date fair value for our RSUs without performance conditions granted during the years ended December 31, 2023, 2022 and 2021 was $ 55.40 , $ 63.76 and $ 86.35 , respectively.

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The total fair value of RSUs without performance conditions vested during the years ended December 31, 2023, 2022 and 2021 was $ 45.3 million, $ 24.3 million and $ 20.9 million, respectively.

The total fair value of RSUs with performance conditions vested during the years ended December 31, 2022, 2021 and 2020 was zero , $ 1.1 million and zero , respectively.

The total fair value of RSUs with performance conditions vested during the years ended December 31, 2023, 2022 and 2021 was $ 3.2 million, zero and $ 1.1 million, respectively.

Employee Stock Purchase Plan

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The 2015 ESPP is considered compensatory for purposes of share-based compensation expense due to the 10 % discount on the fair market value of the common stock.

An aggregate of 24,994 , 19,628 and 29,933 shares were purchased by employees for the years ended December 31, 2022, 2021 and 2020, respectively, for which we recognized $ 0.2 million of compensation expense during each of those years.

An aggregate of 33,639 , 24,994 and 19,628 shares were purchased by employees for the years ended December 31, 2023, 2022 and 2021, respectively, for which we recognized $ 0.2 million of compensation

ALARM.COM HOLDINGS, INC.

Notes to the Consolidated Financial Statements — (Continued)

December 31, 2023, 2022 and 2021

expense during each of those years.

Compensation expense is recognized for the amount of the discount, net of actual forfeitures and voluntary withdrawals, over the six-month purchase period.

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Diluted (B/D) $ 1.53 $ 1.07 $ 1.01

ALARM.COM HOLDINGS, INC.

Notes to the Consolidated Financial Statements — (Continued)

December 31, 2022, 2021 and 2020

The following securities have been excluded from the calculation of diluted weighted average common shares outstanding as the inclusion of these securities would have an anti-dilutive effect:

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Restricted stock units 255,325 242,842 11,630

Our redeemable noncontrolling interests relate to our 85 % equity ownership interest in OpenEye and Noonlight.

See Note 2 and Note 7 for details on the put options and call options contained in the OpenEye and Noonlight stockholder agreements.

Our redeemable noncontrolling interests relate to our 86 % equity ownership interest in OpenEye, and our 85 % equity ownership interest in Noonlight.

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

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

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

As a result, we included 3,396,950 shares related to the 2026 Notes within the weighted average shares outstanding when calculating the diluted net income per share for the year ended December 31, 2022.

Additionally, we included $ 2.4 million of debt issuance cost amortization, net of tax, within the numerator of the diluted net income per share for the year ended December 31, 2022.

As a result, we included 3,396,950 shares related to the 2026 Notes within the weighted average shares outstanding when calculating the diluted net income per share for the years ended December 31, 2023 and 2022.

Additionally, we included $ 2.4 million of debt issuance cost amortization, net of tax, within the numerator of the diluted net income per share for each of the years ended December 31, 2023 and 2022.

We use the treasury stock method when calculating the dilutive impact of the stock options and restricted stock units on net income per share.

ALARM.COM HOLDINGS, INC.

Notes to the Consolidated Financial Statements — (Continued)

December 31, 2023, 2022 and 2021

Significant Service Providers and Distributors

During the years ended December 31, 2022, 2021 and 2020, our 10 largest revenue service provider partners or distributors accounted for 49 %, 47 % and 48 % of our consolidated revenue.

During the years ended December 31, 2023, 2022 and 2021, our 10 largest revenue service provider partners or distributors accounted for 50 %, 49 % and 47 % of our consolidated revenue, respectively.

One of our service provider partners within the Alarm.com segment individually represented greater than 15 % but not more than 20 % of our revenue for the years ended December 31, 2023, 2022 and 2021.

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

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

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

Two of our service provider partners in the Alarm.com segment represented more than 10% of accounts receivable as of December 31, 2022.

The components of our income before income taxes are as follows (in thousands):

Year Ended December 31,

2023 2022 2021

Domestic $ 97,453 $ 56,531 $ 46,019

Foreign 372 62 50

Total $ 97,825 $ 56,593 $ 46,069

The components of our income tax expense are as follows (in thousands):

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State income tax expense, net of federal benefits 3.0 1.0 ( 1.0 )

Foreign tax rate differential

Nondeductible meals and entertainment 0.2 0.9 0.5

2 unchanged sentences

Research and development tax credits ( 7.2 ) ( 16.5 ) ( 17.7 )

Tax windfall benefits ( 3.0 ) ( 18.8 ) ( 8.8 )

Tax shortfall / (windfall benefits)

0.4 ( 3.0 ) ( 18.8 )

Foreign withholding tax 1.3 1.2 1.9

Nondeductible compensation 1.0 1.8 1.9

Income tax underpayment interest, net of tax benefit

Other 0.7 1.2 1.7

12 unchanged sentences

Acquisition costs 2,107 2,363

Subsidiary unit compensation — 804

Inventory reserve 529 654

Debt issuance costs — 402

Net operating losses 2,600 3,492

10 unchanged sentences

Sales commissions ( 1,477 ) ( 1,138 )

Internally developed software — ( 147 )

Equity investments ( 161 ) ( 79 )

Convertible debt discount — ( 15,758 )

Other deferred tax liabilities

Total deferred tax liabilities, non-current ( 15,927 ) ( 18,533 )

10 unchanged sentences

Our effective income tax rates were 17.9 %, 1.7 % and ( 11.1 )% for the years ended December 31, 2023, 2022 and 2021, respectively.

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.

For the year ended December 31, 2023, the effective tax rate was below the 21.0% statutory rate primarily due to research and development tax credits claimed and the foreign derived intangible income deduction, partially offset by the impact of state taxes, foreign withholding taxes, federal estimated tax payment interest expense, other nondeductible expenses and a stock-based compensation tax shortfall.

For the years ended December 31, 2022 and 2021, the 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.

ALARM.COM HOLDINGS, INC.

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

Due to the uncertainty of realization of certain deferred tax assets acquired in 2017 related to our Canadian net operating losses and research and development tax credits, we established a valuation allowance of $ 0.3 million during the second quarter of 2019, which remained at $ 0.3 million as of December 31, 2021 and, due to evidence indicating it was more likely than not that the Canadian tax attributes would be realized prior to expiration, the Canadian valuation allowance was reduced to zero as of December 31, 2022.

Our valuation allowance for state research and development tax credit carryforwards and net deferred tax assets of our EBS subsidiary were $ 3.8 million, $ 2.6 million and $ 1.9 million as of December 31, 2023, 2022 and 2021, respectively.

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

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

We recorded an increase to the unrecognized tax benefits liability of $ 2.1 million, $ 1.4 million and $ 1.1 million primarily for research and development tax credits claimed during the years ended December 31, 2022, 2021 and 2020, respectively.

We believe that it is reasonably possible within the next 12 months that a decrease of up to $ 0.7 million in unrecognized tax benefits may be recognized as a result of a lapse of the statute of limitations.

We recorded a net increase to the unrecognized tax benefits liability of $ 1.5 million, $ 2.1 million and $ 1.4 million primarily for research and development tax credits claimed during the years ended December 31, 2023, 2022 and 2021, respectively.

We believe it is reasonably possible within the next 12 months that a decrease of up to $ 2.5 million in unrecognized tax benefits may be recognized as a result of a lapse of the statute of limitations.

Our unrecognized tax benefits as of December 31, 2023 and 2022 includes unrecognized tax benefits of $ 8.9 million and $ 7.4 million, respectively, that if recognized, would reduce our income tax expense and effective tax rate.

As of December 31, 2022 and 2021, we accrued $ 0.3 million and $ 0.2 million of total interest expense related to unrecognized tax benefits, respectively.

As of December 31, 2023 and 2022, our consolidated balance sheets included a $ 0.8 million and $ 0.3 million accrual for total interest expense related to unrecognized tax benefits, respectively.

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

As of December 31, 2023, we had gross U.S.

federal net operating loss carryforwards of $ 15.1 million, which will begin to expire in 2031 and we had Canadian Federal net operating loss carryforwards of $ 0.6 million, which are scheduled to begin to expire in 2034.

federal net operating loss carryforwards of $ 10.0 million, which will begin to expire in 2031, Canadian federal net operating loss carryforwards of $ 0.4 million, which are scheduled to begin to expire in 2034 and Polish federal net operating loss carryforwards of $ 0.7 million, which are scheduled to begin to expire in 2025.

As of December 31, 2023, we had state net operating loss carryforwards of $ 5.5 million, which will begin to expire in 2031.

As of December 31, 2022, we had no federal research and development tax credit carryforwards.

As of December 31, 2023, we had less than $ 0.1 million of federal research and development tax credit carryforwards that will begin to expire in 2041.

As of December 31, 2023, we had state research and development tax credit carryforwards of $ 4.0 million, which will begin to expire in 2030.

3 unchanged sentences

Tax authorities may not agree with the treatment of items reported in our tax returns, and therefore the outcome of tax reviews and examinations can be unpredictable.

On October 13, 2021, the Internal Revenue Service commenced an examination of our federal income tax return for 2018 and on August 12, 2022, the Internal Revenue Service expanded the examination to include our federal income tax return for 2019, both of which are ongoing.

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

On January 25, 2024, the Internal Revenue Service notified us that the income tax examination of our 2018 and 2019 federal income tax returns has been closed.

As a result, we expect to pay approximately $ 1.5 million in additional federal taxes and recognize an income tax benefit of approximately $ 0.9 million during the three months ending March 31, 2024.

As of December 31, 2023, we did not have material undistributed foreign earnings.

We have not recorded a deferred tax liability on the undistributed earnings from our foreign subsidiaries, as such earnings are considered to be indefinitely reinvested.

In August 2022, the Inflation Reduction Act of 2022 was enacted in the United States which, among other provisions, includes a minimum 15.0% tax on companies that have a three-year average annual adjusted financial statement income of more than $1.0 billion and a 1.0% excise tax on the value of net corporate stock repurchases.

Both provisions are effective for tax years beginning after December 31, 2022.

We do not currently believe the 15.0% corporate minimum tax or the 1.0% tax on net corporate stock repurchases will have a material impact on our financial condition or results of operations.

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

Segment Information

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

Our Alarm.com segment represents our cloud-based and Software platforms for the intelligently connected property and related solutions that contributed 94 %, 95 % and 94 % of our revenue, net of intersegment eliminations, for the years ended December 31, 2022, 2021 and 2020, respectively.

Our Other segment is focused on researching, developing and offering

Our Alarm.com segment represents our cloud-based and Software platforms for the intelligently connected property and related solutions that contributed 93 %, 94 % and 95 % of our revenue, net of intersegment eliminations, for the years ended

ALARM.COM HOLDINGS, INC.

1 unchanged sentence

December 31, 2023, 2022 and 2021

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

December 31, 2023, 2022 and 2021, respectively.

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

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

23 unchanged sentences

There was no software license revenue recorded for the Other segment during the years ended December 31, 2023, 2022 and 2021.

Depreciation and amortization expense was $ 29.6 million, $ 29.3 million and $ 27.2 million for the Alarm.com segment for the years ended December 31, 2022, 2021 and 2020, respectively.

Depreciation and amortization expense was $ 1.2 million, $ 0.4 million and $ 0.3 million for the Other segment for the years ended December 31, 2022, 2021 and 2020, respectively.

Amortization and depreciation expense was $ 30.3 million, $ 29.6 million and $ 29.3 million for the Alarm.com segment for the years ended December 31, 2023, 2022 and 2021, respectively.

Amortization and depreciation expense was $ 1.1 million, $ 1.2 million and $ 0.4 million for the Other segment for the years ended December 31, 2023, 2022 and 2021, respectively.

Additions to property and equipment were $ 8.9 million, $ 28.4 million and $ 9.7 million for the Alarm.com segment for the years ended December 31, 2023, 2022 and 2021, respectively.

10 unchanged sentences

Additionally, increases in freight shipment and inventory component costs have resulted in an increase to our cost of hardware revenue during 2021 and portions of 2022.

Information about current period and prior period acquisitions that may affect the comparability of the selected financial information presented below is included in Note 7.

Information about the 2026 Notes issued in January 2021 and the related interest expense, which may affect the comparability of the quarterly financial data presented below, is included in Note 13.

Information about the adoption of ASU 2020-06 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, which may affect the comparability of the quarterly financial data presented below, is included in Note 2.

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

Additionally, increases in freight shipment and inventory component costs resulted in an increase to our cost of hardware revenue during portions of 2022.

Information about current and prior period acquisitions that may affect the comparability of the selected financial information presented below is included in Note 7, and information about current and prior period legal matters that may affect the comparability of the selected financial information presented below is included in Note 13.

The selected consolidated statements of operation data in amounts are presented below (in thousands, except per share data):

27 unchanged sentences

Allowance for credit losses on accounts receivable $ 4,696 $ — $ ( 775 ) $ ( 1,753 ) $ 2,168

$ ( 418 ) $ 4,696

Allowance for product returns 1,480 2,494 — ( 2,793 ) 1,181

1 unchanged sentence

Deferred tax valuation allowance 1,568 — 641 — 2,209

_______________

(1) Includes the 2020 impact of the adoption of Topic 326 of $ 0.4 million for the allowance for credit losses on accounts receivable and $ 0.4 million for the allowance for credit losses on note receivable.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

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

What changed 10-K

Item 8. Financial Statements and Supplementary Data