What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2024-08-08 compared with 2024-05-10 · 230 added, 107 removed, 359 unchanged (48% of the section changed)

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

Highlights of First Quarter Results

Highlights of Second Quarter Results

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

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on a per customer basis.

SaaS and license revenue represented 67% of our revenue during the three months ended March 31, 2024, as compared to 65% in the same period in the prior year.

SaaS and license revenue represented 67% of our revenue during each of the three and six months ended June 30, 2024, as compared to 63% and 64% in the same periods in the prior year.

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

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

Software license revenue represented 2% of our revenue during the three months ended March 31, 2024, as compared to 3% in the same period in the prior year.

Software license revenue represented 2% of our revenue during each of the three and six months ended June 30, 2024, as compared to 3% in the same periods in the prior year.

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

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

Hardware and other revenue represented 33% of our revenue during the three months ended March 31, 2024, as compared to 35% in the same period in the prior year.

Hardware and other revenue represented 33% of our revenue during each of the three and six months ended June 30, 2024, as compared to 37% and 36% in the same periods in the prior year.

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

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

• SaaS and license revenue increased 11% to $150.3 million during the three months ended March 31, 2024 from $135.4 million during the three months ended March 31, 2023.

Included in SaaS and license revenue was software license revenue, which decreased to $5.2 million during the three months ended March 31, 2024 from $6.2 million during the three months ended March 31, 2023.

• Total revenue increased 6% to $223.3 million during the three months ended March 31, 2024 from $209.7 million during the three months ended March 31, 2023.

• Net income increased to $23.4 million during the three months ended March 31, 2024, as compared to $14.2 million during the three months ended March 31, 2023.

Net income attributable to common stockholders increased to $23.6 million during the three months ended March 31, 2024, as compared to $14.4 million during the three months ended March 31, 2023.

• Non-GAAP adjusted EBITDA, a non-GAAP measurement of operating performance, increased to $37.0 million during the three months ended March 31, 2024 from $30.6 million during the three months ended March 31, 2023.

Please see Non-GAAP Measures below in this section of this Quarterly Report for a discussion of the limitations of non-GAAP adjusted EBITDA (a non-GAAP measure) and a reconciliation of non-GAAP adjusted EBITDA from net income, the most directly comparable measurement in accordance with accounting principles generally accepted in the United States, or GAAP, for the three months ended March 31, 2024 and 2023.

• SaaS and license revenue increased 11% to $155.9 million during the three months ended June 30, 2024 from $140.4 million during the three months ended June 30, 2023.

SaaS and license revenue increased 11% to $306.3 million in the six months ended June 30, 2024 from $275.8 million in the six months ended June 30, 2023.

Included in SaaS and license revenue was software license revenue, which decreased to $5.2 million during the three months ended June 30, 2024 from $5.9 million during the three months ended June 30, 2023.

Software license revenue decreased to $10.4 million in the six months ended June 30, 2024 from $12.1 million in the six months ended June 30, 2023.

• Total revenue increased 4% to $233.8 million during the three months ended June 30, 2024 from $223.9 million during the three months ended June 30, 2023.

Total revenue increased 5% to $457.1 million in the six months ended June 30, 2024 from $433.6 million in the six months ended June 30, 2023.

• Net income increased to $32.5 million during the three months ended June 30, 2024, as compared to $15.6 million during the three months ended June 30, 2023.

Net income increased to $55.9 million in the six months ended June 30, 2024, as compared to $29.8 million in the six months ended June 30, 2023.

Net income attributable to common stockholders increased to $33.5 million during the three months ended June 30, 2024, as compared to $15.8 million during the three months ended June 30, 2023.

Net income attributable to common stockholders increased to $57.1 million in the six months ended June 30, 2024, as compared to $30.2 million in the six months ended June 30, 2023.

• Non-GAAP adjusted EBITDA, a non-GAAP measurement of operating performance, increased to $42.8 million during the three months ended June 30, 2024 from $36.4 million during the three months ended June 30, 2023.

Non-GAAP adjusted EBITDA increased to $79.9 million in the six months ended June 30, 2024 from $66.9 million in the six months ended June 30, 2023.

Recent Developments

On May 31, 2024, we issued $500.0 million aggregate principal amount of 2.25% convertible senior notes due June 1, 2029 in a private placement to qualified institutional buyers, or the 2029 Notes.

The terms of the 2029 Notes are governed by an Indenture, or the 2029 Indenture, by and between Alarm.com Holdings, Inc.

Bank Trust Company, National Association, as trustee.

The 2029 Notes are senior unsecured obligations that bear interest at a rate of 2.25% per annum, payable semiannually in arrears on June 1 and December 1 of each year, beginning on December 1, 2024, and the principal amount of the 2029 Notes will not accrete.

We received proceeds from the issuance of the 2029 Notes of $485.2 million, net of $14.8 million of transaction fees and other debt issuance costs.

We used $63.1 million of the net proceeds from the 2029 Notes to pay the cost of the capped call transactions and used $75.0 million to repurchase 1,117,068 shares of our common stock concurrently with the pricing of the 2029 Notes, which was separately authorized by our board of directors.

We expect to use the remaining net proceeds from the issuance of the 2029 Notes for general corporate purposes, which may include acquisitions or strategic investments in complementary businesses or technologies, other repurchases of our common stock, repurchases of our 2026 Notes and for working capital, operating expenses and capital expenditures.

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

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

The results of operations for the three months ended March 31, 2024 are not necessarily indicative of the results that can be expected for our entire fiscal year ending December 31, 2024, which is increasingly true in periods of extreme uncertainty, such as the uncertainty caused by the Macroeconomic Conditions.

The results of operations for the three and six months ended June 30, 2024 are not necessarily indicative of the results that can be expected for our entire fiscal year ending December 31, 2024, which is increasingly true in periods of extreme uncertainty, such as the uncertainty caused by the Macroeconomic Conditions.

Prolonged uncertainty with respect to the Macroeconomic Conditions could cause further economic slowdown or cause other unpredictable events, each of which could adversely affect our business, results of operations or financial condition.

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Three Months Ended

June 30, Six Months Ended

2024 2023 2024 2023

SaaS and license revenue $ 155,927 $ 140,432 $ 306,271 $ 275,826

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Non-GAAP Adjusted EBITDA

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

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

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

The non-cash items include amortization and depreciation expense, amortization of debt issuance costs for the January 20, 2021 issuance of $500.0 million aggregate principal amount of 0% convertible senior notes due January 15, 2026, or the 2026 Notes, included in interest expense and stock-based compensation expense related to restricted stock units and other forms of equity compensation, including, but not limited to, the sale of common stock.

The non-cash items include amortization and depreciation expense;

amortization of debt issuance costs for the January 20, 2021 issuance of $500.0 million aggregate principal amount of 0% convertible senior notes due January 15, 2026, or the 2026 Notes, included in interest expense;

amortization of debt issuance costs for the 2029 Notes included in interest expense;

and stock-based compensation expense related to restricted stock units and other forms of equity compensation, including, but not limited to, the sale of common stock.

We do not adjust for ordinary course legal expenses resulting from maintaining and enforcing our intellectual property portfolio and license agreements.

We record interest expense primarily related to our 2026 Notes.

We record interest expense primarily related to our 2026 Notes and 2029 Notes.

We exclude interest expense in calculating non-GAAP adjusted EBITDA because we believe the exclusion of interest expense will provide for more meaningful information about our financial performance.

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

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

We exclude interest income and certain activity within other expense, net including gains, losses or impairments on investments without readily determinable fair values and other assets, gains on settlement fees and losses on the early extinguishment of debt, when applicable, from non-GAAP adjusted EBITDA because we do not consider it part of our ongoing results of operations.

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

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

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

Please see Non-GAAP Measures in this section for a discussion of the limitations of non-GAAP adjusted EBITDA and a reconciliation of non-GAAP adjusted EBITDA from net income, the most directly comparable GAAP measurement, for the three months ended March 31, 2024 and 2023.

SaaS and License Revenue Renewal Rate

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Our cost of SaaS and license revenue also includes our cost of software license revenue, which primarily includes the payroll and payroll-related costs of the department dedicated to providing service exclusively to those service providers that host the Software platform.

As of March 31, 2024 and 2023, we had 75 and 99 employees who manufacture hardware for our suite of IoT solutions, respectively .

As of June 30, 2024 and 2023, we had 79 and 104 employees who manufacture hardware for our suite of IoT solutions, 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, smart thermostats and gunshot detection sensors, which we purchase from an original equipment manufacturer, and other devices.

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

We grew from 1,858 employees as of March 31, 2023 to 2,002 employees as of March 31, 2024 , and grew from 1,989 employees as of December 31, 2023.

We grew from 1,909 employees as of June 30, 2023 to 2,033 employees as of June 30, 2024 , and grew from 2,002 employees as of March 31, 2024.

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

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

The number of employees in sales and marketing functions increased from 519 as of March 31, 2023 to 564 as of March 31, 2024 and decreased from 565 as of December 31, 2023.

The number of employees in sales and marketing functions increased from 553 as of June 30, 2023 to 576 as of June 30, 2024 and increased from 564 as of March 31, 2024.

We expect to continue to invest in our sales and marketing activities to expand our business both domestically and internationally and we expect to increase our marketing expense in 2024 as compared to 2023.

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Additional expenses included in this category are legal costs, including those that are incurred to defend and license our intellectual property, as well as non-personnel costs, such as travel related expenses, rent, subcontracting and professional fees, audit fees, tax services, and insurance expenses.

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

The number of employees in general and administrative functions increased from 198 as of March 31, 2023 to 224 as of March 31, 2024 and decreased from 229 as of December 31, 2023.

Also included in general

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

The number of employees in general and administrative functions increased from 199 as of June 30, 2023 to 223 as of June 30, 2024 and decreased from 224 as of March 31, 2024.

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

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

The number of employees in research and development functions increased from 1,042 as of March 31, 2023 to 1,139 as of March 31, 2024 and increased from 1,118 as of December 31, 2023.

The number of employees in research and development functions increased from 1,053 as of June 30, 2023 to 1,155 as of June 30, 2024 and increased from 1,139 as of March 31, 2024.

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

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Interest Expense

We record interest expense associated with our 2026 Notes and acquired debt.

Interest expense in 2024 is expected to remain relatively consistent with the interest expense in 2023.

We record interest expense associated with our 2026 Notes, 2029 Notes and acquired debt.

Interest expense in 2024 is expected to increase as compared to 2023 due to the issuance of the 2029 Notes.

Interest Income

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

Provision for / (Benefit from) Income Taxes

Provision for Income Taxes

We are subject to U.S.

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

For the three months ended March 31, 2024, our effective tax rate was below the 21.0% statutory rate primarily due to research and development tax credits claimed, the foreign derived intangible income deduction, the release of an unrecognized tax benefit liability due to the closure of the 2018 and 2019 Internal Revenue Service federal income tax return examination and tax windfall benefits from employee stock-based compensation, partially offset by the impact of state taxes, federal estimated tax payment interest expense and other nondeductible expenses.

For the three months ended June 30, 2024, our effective tax rate was below the 21.0% statutory rate primarily due to a favorable true-up adjustment of our 2023 income tax provision estimate associated with research and development tax credits, 2024 research and development tax credits claimed, the foreign derived intangible income deduction and tax windfall benefits from employee stock-based compensation.

For the six months ended June 30, 2024, our effective tax rate was below the 21.0% statutory rate primarily due to a favorable true-up adjustment of our 2023 income tax provision estimate associated with research and development tax credits, 2024 research and development tax credits claimed, the foreign derived intangible income deduction, the release of an unrecognized tax benefit liability due to the closure of the 2018 and 2019 Internal Revenue Service federal income tax examination and tax windfall benefits from employee stock-based compensation, partially offset by the impact of state taxes, federal estimated tax payment interest expense and other nondeductible expenses.

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

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Three Months Ended

June 30, Six Months Ended

2024 2023 2024 2023

SaaS and license revenue $ 155,927 67 % $ 140,432 63 % $ 306,271 67 % $ 275,826 64 %

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Income before income taxes 33,404 14 22,118 10 59,555 13 35,103 8

Provision for / (benefit from) income taxes 2,747 2 (1,222) (1)

Provision for income taxes 884 — 6,507 3 3,631 1 5,285 1

Net income $ 32,520 14 % $ 15,611 7 % $ 55,924 12 % $ 29,818 7 %

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Three Months Ended

June 30, Six Months Ended

Stock-based compensation expense data:

2024 2023 2024 2023

Cost of hardware and other revenue

$ 1 $ — $ 2 $ —

Sales and marketing 724 892 1,479 1,924

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Three Months Ended

June 30, Six Months Ended

2024 2023 2024 2023

Components of cost of revenue as a percentage of revenue:

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Total cost of revenue as a percentage of total revenue 35 % 39 % 35 % 37 %

Comparison of the Three Months Ended March 31, 2024 to March 31, 2023

The following tables in this section set forth our selected condensed consolidated statements of operations (in thousands), data for the percentage change and data as a percentage of revenue for the three months ended March 31, 2024 and March 31, 2023.

Comparison of the Three and Six Months Ended June 30, 2024 to June 30, 2023

Three Months Ended

Change Six Months Ended

2024 2023 2024 2023

SaaS and license revenue $ 155,927 $ 140,432 11 % $ 306,271 $ 275,826 11 %

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Total revenue $ 233,807 $ 223,875 4 % $ 457,090 $ 433,591 5 %

The $13.6 million increase in total revenue for the three months ended March 31, 2024 as compared to the same period in the prior year was primarily the result of a $15.0 million, or 11%, increase in our SaaS and license revenue, partially offset by a $1.4 million, or 2%, decrease in our hardware and other revenue.

Our software license revenue included within SaaS and license revenue decreased $1.0 million to $5.2 million during the three months ended March 31, 2024 as compared to $6.2 million during the same period in the prior year primarily due to the result of the continuing transition of customers from non-hosted software to our cloud based hosted platform.

The SaaS and license revenue for the Alarm.com segment increased $12.2 million for the three months ended March 31, 2024 as compared to the same period in the prior year primarily due to growth in our subscriber base, including the revenue impact from subscribers we added in 2023.

The SaaS and license revenue for our Other segment increased $2.7 million for the three months ended March 31, 2024 as compared to the same period in the prior year primarily due to an increase in sales of our energy management and demand response solutions as well as our property management solution.

The decrease in hardware and other revenue for the three months ended March 31, 2024 as compared to the same period in the prior year was primarily from the $1.0 million decrease in hardware and other revenue, net of intersegment eliminations, in the Alarm.com segment arising from a decrease in the volume of thermostats sold.

Hardware and other revenue, net of intersegment eliminations, in our Other segment decreased $0.3 million for the three months ended March 31, 2024 as compared to the same period in the prior year primarily due to decreased sales related to our property management and Heating, Ventilation and Air Conditioning solutions.

The $9.9 million increase in total revenue for the three months ended June 30, 2024 as compared to the same period in the prior year was primarily the result of a $15.5 million, or 11%, increase in our SaaS and license revenue, partially offset by a $5.6 million, or 7%, decrease in our hardware and other revenue.

Our software license revenue included within SaaS and license revenue decreased $0.7 million to $5.2 million during the three months ended June 30, 2024 as compared to $5.9 million during the same period in the prior year primarily due to the result of the continuing transition of customers from non-hosted software to our cloud based hosted platform.

The SaaS and license revenue for the Alarm.com segment increased $13.1 million for the three months ended June 30, 2024 as compared to the same period in the prior year primarily due to growth in our subscriber base, including the revenue impact from subscribers we added in 2023.

The SaaS and license revenue for our Other segment increased $2.4 million for the three months ended June 30, 2024 as compared to the same period in the prior year primarily due to an increase in sales of our energy management and demand response solutions as well as our property management solution.

The decrease in hardware and other revenue for the three months ended June 30, 2024 as compared to the same period in the prior year was primarily from the $5.1 million decrease in hardware and other revenue, net of intersegment eliminations, in the Alarm.com segment arising from a decrease in the volume of cameras sold.

Hardware and other revenue, net of intersegment eliminations, in our Other segment decreased $0.5 million for the three months ended June 30, 2024 as compared to the same period in the prior year primarily due to decreased sales related to our property management solution.

The $23.5 million increase in total revenue for the six months ended June 30, 2024 as compared to the same period in the prior year was primarily the result of a $30.4 million, or 11%, increase in our SaaS and license revenue, partially offset by a $6.9 million, or 4%, decrease in our hardware and other revenue.

Our software license revenue included within SaaS and license revenue decreased $1.7 million to $10.4 million during the six months ended June 30, 2024, as compared to $12.1 million during the same period in the prior year primarily due to the result of the continuing transition of customers from non-hosted software to our cloud based hosted platform.

The SaaS and license revenue for the Alarm.com segment increased $25.3 million for the six months ended June 30, 2024 as compared to the same period in the prior year primarily due to growth in our subscriber base, including the revenue impact from subscribers we added in 2023.

The SaaS and license revenue for our Other segment increased $5.1 million for the six months ended June 30, 2024 as compared to the same period in the prior year primarily due to an increase in sales of our energy management and demand response solutions as well as our property management solution.

The decrease in hardware and other revenue for the six months ended June 30, 2024 as compared to the same period in the prior year was primarily from the $6.2 million decrease in hardware and other revenue, net of intersegment eliminations, in the Alarm.com segment arising from a decrease in the volume of cameras and thermostats sold.

Hardware and other revenue, net of intersegment eliminations, in our Other segment decreased $0.7 million for the six months ended June 30, 2024 as compared to the same period in the prior year, primarily due to decreased sales related to our property management and Heating, Ventilation and Air Conditioning solutions.

Cost of Revenue

Three Months Ended

Change Six Months Ended

2024 2023 2024 2023

Cost of revenue (1)

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

The $0.3 million increase in cost of revenue for the three months ended March 31, 2024 as compared to the same period in the prior year was the result of a $0.8 million, or 4%, increase in cost of SaaS and license revenue, partially offset by a $0.5 million, or 1%, decrease in cost of hardware and other revenue.

Our cost of software license revenue included within cost of SaaS and license revenue was $0.2 million for the three months ended March 31, 2024 as compared to $0.1 million during the same period in the prior year.

The cost of SaaS and license revenue for the Alarm.com segment increased $0.1 million during the three months ended March 31, 2024 as compared to the same period in the prior year primarily due to the growth in our subscriber base, which drove a corresponding increase in amounts paid to wireless network providers.

The cost of hardware and other revenue for the Alarm.com segment decreased $0.2 million during the three months ended March 31, 2024 as compared to the same period in the prior year primarily due to a decrease in the number of hardware units shipped and a decrease in costs for freight shipments.

The cost of SaaS and license revenue for the Other segment increased $0.7 million during the three months ended March 31, 2024 as compared to the same period in the prior year primarily due to an increase in sales of our energy management and demand response solutions, which drove a corresponding increase in amounts paid to distributed energy resource providers.

The cost of hardware and other revenue for the Other segment decreased $0.3 million during the three months ended March 31, 2024 as compared to the same period in the prior year primarily due to a decrease in the number of hardware units shipped and a decrease in costs for freight shipments.

Cost of hardware and other revenue as a percentage of hardware and other revenue was 77% for the three months ended March 31, 2024 and 76% for the same period in the prior year.

The increase in cost of hardware and other revenue as a percentage of hardware and other revenue for the three months ended March 31, 2024 as compared to the same period in the prior year is primarily a reflection of the mix of product sales during the periods.

Cost of SaaS and license revenue as a percentage of SaaS and license revenue was 14% for each of the three months ended March 31, 2024 and 2023.

Cost of software license revenue as a percentage of software license revenue was 3% for the three months ended March 31, 2024 and 2% for the same period in the prior year.

The $5.1 million decrease in cost of revenue for the three months ended June 30, 2024 as compared to the same period in the prior year was the result of a $5.6 million, or 9%, decrease in cost of hardware and other revenue, partially offset by a $0.5 million, or 2%, increase in cost of SaaS and license revenue.

Our cost of software license revenue included within cost of SaaS and license revenue was $0.1 million for each of the three months ended June 30, 2024 and 2023.

The cost of hardware and other revenue for the Alarm.com segment decreased $5.3 million during the three months ended June 30, 2024 as compared to the same period in the prior year primarily due to a decrease in the number of hardware units shipped and a decrease in costs for freight shipments.

The cost of hardware and other revenue for the Other segment decreased $0.3 million during the three months ended June 30, 2024 as compared to the same period in the prior year primarily due to a decrease in the number of hardware units shipped and a decrease in costs for freight shipments.

The cost of SaaS and license revenue for the Alarm.com segment during the three months ended June 30, 2024 remained relatively consistent with the same period in the prior year.

The cost of SaaS and license revenue for the Other segment increased $0.5 million during the three months ended June 30, 2024 as compared to the same period in the prior year primarily due to an increase in sales of our energy management and demand response solutions, which drove a corresponding increase in amounts paid to distributed energy resource providers.

Cost of hardware and other revenue as a percentage of hardware and other revenue was 76% for the three months ended June 30, 2024 and 78% for the same period in the prior year.

The decrease in cost of hardware and other revenue as a percentage of hardware and other revenue for the three months ended June 30, 2024 as compared to the same period in the prior year is primarily a reflection of the mix of product sales during the periods.

Cost of SaaS and license revenue as a percentage of SaaS and license revenue was 14% for three months ended June 30, 2024 and 15% for the same period in the prior year.

Cost of software license revenue as a percentage of software license revenue was 3% for the three months ended June 30, 2024 and 2% for the same period in the prior year.

The $4.7 million decrease in cost of revenue for the six months ended June 30, 2024 as compared to the same period in the prior year was the result of a $6.1 million, or 5%, decrease in cost of hardware and other revenue, partially offset by a $1.4 million, or 3%, increase in cost of SaaS and license revenue.

Our cost of software license revenue included within cost of SaaS and license revenue was $0.3 million for each of the six months ended June 30, 2024 and 2023.

The cost of hardware and other revenue for the Alarm.com segment decreased $5.6 million during the six months ended June 30, 2024 as compared to the same period in the prior year primarily due to a decrease in the number of hardware units shipped and a decrease in costs for freight shipments.

The cost of hardware and other revenue for the Other segment decreased $0.5 million during the three months ended June 30, 2024 as compared to the same period in the prior year primarily due to a decrease in the number of hardware units shipped and a decrease in costs for freight shipments.

The cost of SaaS and license revenue for the Alarm.com segment during the six months ended June 30, 2024 remained relatively consistent with the same period in the prior year.

The cost of SaaS and license revenue for the Other segment increased $1.3 million during the six months ended June 30, 2024 as compared to the same period in the prior year primarily due to an increase in sales of our energy management and demand response solutions, which drove a corresponding increase in amounts paid to distributed energy resource providers.

Cost of hardware and other revenue as a percentage of hardware and other revenue was 76% for the six months ended June 30, 2024 and 77% for the same period in the prior year.

The decrease in cost of hardware and other revenue as a percentage of hardware and other revenue for the six months ended June 30, 2024 as compared to the same period in the prior year is primarily a reflection of the mix of product sales during the periods.

Cost of SaaS and license revenue as a percentage of SaaS and license revenue was 14% for the six months ended June 30, 2024 and 15% for the same period in the prior year.

Cost of software license revenue as a percentage of software license revenue was 3% for the six months ended June 30, 2024 and 2% for the same period in the prior year.

Sales and Marketing Expense

Three Months Ended

Change Six Months Ended

2024 2023 2024 2023

Sales and marketing $ 27,837 $ 23,772 17 % $ 53,291 $ 50,417 6 %

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

The $1.2 million decrease in sales and marketing expense for the three months ended March 31, 2024 as compared to the same period in the prior year was primarily due to a $1.4 million decrease in marketing expense and a $0.8 million decrease in personnel and related costs for our Alarm.com segment.

The $4.1 million increase in sales and marketing expense for the three months ended June 30, 2024 as compared to the same period in the prior year was primarily due to a $1.9 million increase in marketing expense and a $1.8 million increase in personnel and related costs for our Alarm.com segment, attributable in part to increases in the headcount for our sales team to support our growth.

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

These decreases in sales and marketing expense for our Alarm.com segment were partially offset by a $0.1 million increase in our expenses for external consultants for the three months ended March 31, 2024 as compared to the same period in the prior year.

Sales and marketing expense from our Other segment increased $0.8 million for the three months ended March 31, 2024 as compared to the same period in the prior year, primarily due to an increase in personnel and related costs, attributable in part to increases in the headcount for our sales team.

The overall number of employees in our sales and marketing teams increased from 519 as of March 31, 2023 to 564 as of March 31, 2024.

These increases in sales and marketing expense for our Alarm.com segment were partially offset by a $0.5 million decrease in our expenses for external consultants for the three months ended June 30, 2024 as compared to the same period in the prior year.

Sales and marketing expense from our Other segment increased $1.2 million for the three months ended June 30, 2024 as compared to the same period in the prior year, primarily due to an increase in personnel and related costs, attributable in part to increases in the headcount for our sales team.

The $2.9 million increase in sales and marketing expense for the six months ended June 30, 2024 as compared to the same period in the prior year was primarily due to a $2.0 million increase in sales and marketing expense from our Other segment, primarily due to an increase in personnel and related costs for our Other segment, attributable in part to increases in the headcount for our sales team to support our growth.

Sales and marketing expense from our Alarm.com segment increased $0.9 million for the six months ended June 30, 2024, as compared to the same period in the prior year, primarily due to an increase in personnel and related costs, attributable in part to increases in the headcount for our sales team.

The number of employees in sales and marketing functions increased from 553 as of June 30, 2023 to 576 as of June 30, 2024.

General and Administrative Expense

Three Months Ended

Change Six Months Ended

2024 2023 2024 2023

General and administrative $ 26,104 $ 28,799 (9) % $ 55,400 $ 57,298 (3) %

% of total revenue 11 % 13 % 12 % 13 %

The $0.8 million increase in general and administrative expense for the three months ended March 31, 2024 as compared to the same period in the prior year was primarily due to a $4.0 million increase in the provision for credit losses related to a loan we provided to an affiliated entity of one of our distribution partners, partially offset by a $3.0 million decrease in legal costs for our Alarm.com segment related to intellectual property litigation.

General and administrative expenses from our Other segment decreased by $0.3 million for the three months ended March 31, 2024 as compared to the same period in the prior year, primarily due to a $0.5 million decrease in the provision for credit losses, partially offset by a $0.2 million increase in personnel and related costs.

The overall number of employees in general and administrative functions increased from 198 as of March 31, 2023 to 224 as of March 31, 2024.

The $2.7 million decrease in general and administrative expense for the three months ended June 30, 2024 as compared to the same period in the prior year was primarily due to a $4.6 million decrease in legal costs for our Alarm.com segment related to intellectual property litigation, partially offset by a $0.5 million increase in consulting and recruiting costs for our Alarm.com segment.

General and administrative expenses from our Other segment increased by $0.4 million for the three months ended June 30, 2024 as compared to the same period in the prior year, primarily due to an increase in personnel and related costs.

The $1.9 million decrease in general and administrative expense for the six months ended June 30, 2024 as compared to the same period in the prior year was primarily due to a $7.6 million decrease in legal costs for our Alarm.com segment related to intellectual property litigation.

This decrease in general and administrative expense was partially offset by $4.0 million increase in the provision for credit losses related to a loan we previously provided to an affiliated entity of one of our distribution partners and a $0.4 million increase in recruiting costs for the six months ended June 30, 2024 as compared to the same period in the prior year.

General and administrative expenses from our Other segment increased primarily due to a $0.4 million increase in personnel and related costs for the six months ended June 30, 2024 as compared to the same period in the prior year.

The overall number of employees in general and administrative functions increased from 199 as of June 30, 2023 to 223 as of June 30, 2024.

Research and Development Expense

Three Months Ended

Change Six Months Ended

2024 2023 2024 2023

Research and development $ 65,730 $ 60,918 8 % $ 131,686 $ 122,826 7 %

% of total revenue 28 % 27 % 29 % 28 %

The $4.0 million increase in research and development expense for the three months ended March 31, 2024 as compared to the same period in the prior year was primarily due to a $2.5 million increase in personnel and related costs for our Alarm.com segment, attributable in part to an increase in headcount of employees in research and development functions as well as a $0.8 million increase in our expenses for external consultants.

Research and development expense from our Other segment increased by $1.0 million for the three months ended March 31, 2024 as compared to the same period in the prior year, primarily due to an increase in personnel and related costs.

The overall number of employees in research and development functions increased from 1,042 as of March 31, 2023 to 1,139 as of March 31, 2024.

The $4.8 million increase in research and development expense for the three months ended June 30, 2024 as compared to the same period in the prior year was primarily due to a $3.6 million increase in personnel and related costs for our Alarm.com segment, attributable in part to an increase in headcount of employees in research and development functions as well as a $0.6 million increase in our expenses for external consultants.

Research and development expense from our Other segment increased by $1.2 million for the three months ended June 30, 2024 as compared to the same period in the prior year, primarily due to an increase in personnel and related costs.

The $8.9 million increase in research and development expense for the six months ended June 30, 2024 as compared to the same period in the prior year was primarily due to a $6.1 million increase in personnel and related costs for our Alarm.com segment, attributable in part to an increase in headcount of employees in research and development functions as well as a $1.4 million increase in our expenses for external consultants.

Research and development expense from our Other segment increased by $2.2 million for the six months ended June 30, 2024 as compared to the same period in the prior year, primarily due to an increase in personnel and related costs.

The overall number of employees in research and development functions increased from 1,053 as of June 30, 2023 to 1,155 as of June 30, 2024.

Amortization and Depreciation

Three Months Ended

Change Six Months Ended

2024 2023 2024 2023

Amortization and depreciation $ 7,080 $ 7,860 (10) % $ 14,417 $ 15,533 (7) %

% of total revenue 3 % 4 % 3 % 4 %

Amortization and depreciation decreased $0.3 million for each of the three months ended March 31, 2024 as compared to the same period in the prior year, primarily due to changes in amortization expense related to the intangible assets we previously acquired.

Amortization and depreciation decreased $0.8 million and $1.1 million for the three and six months ended June 30, 2024, respectively, as compared to the same periods in the prior year, primarily due to changes in amortization expense related to the intangible assets we previously acquired.

Interest Expense

Three Months Ended

Change Six Months Ended

2024 2023 2024 2023

Interest expense $ (1,968) $ (827) 138 % $ (2,764) $ (1,695) 63 %

% of total revenue (1) % — % (1) % — %

Interest expense remained relatively consistent for the three months ended March 31, 2024, as compared to the same period in the prior year.

Interest expense increased $1.1 million for each of the three and six months ended June 30, 2024, as compared to the same periods in the prior year, primarily due to the interest expense and amortization of the debt issuance costs related to the 2029 Notes.

Interest Income

Three Months Ended

Change Six Months Ended

2024 2023 2024 2023

Interest income $ 10,856 $ 7,417 46 % $ 19,396 $ 12,599 54 %

% of total revenue 5 % 3 % 4 % 2 %

Interest income increased $3.4 million for the three months ended March 31, 2024, as compared to the same period in the prior year, primarily due to an increase in interest income earned on cash and cash equivalents from higher interest rates and higher amounts of cash and cash equivalents.

The increase in interest income was partially offset by a $0.5 million reduction to interest income for the reversal of payable in kind interest associated with a subordinated credit agreement with an affiliated entity of one of our distribution partners during the three months ended March 31, 2024, which did not occur during the three months ended March 31, 2023.

Interest income increased $3.4 million and $6.8 million for the three and six months ended June 30, 2024, respectively, as compared to the same periods in the prior year, primarily due to an increase in interest income earned on cash and cash equivalents from higher amounts of cash and cash equivalents and higher interest rates.

The increase in interest income was partially offset by a $0.5 million reduction to interest income for the reversal of payable in kind interest associated with a subordinated credit agreement with an affiliated entity of one of our distribution partners during the six months ended June 30, 2024, which did not occur during the six months ended June 30, 2023.

Other Expense, Net

Three Months Ended

Change Six Months Ended

2024 2023 2024 2023

Other expense, net $ (1,258) $ (631) 99 % $ (1,576) $ (779) 102 %

% of total revenue (1) % — % — % — %

Other expense, net increased $0.2 million for the three months ended March 31, 2024, as compared to the same period in the prior year, primarily due to an increase in non-operating and miscellaneous expenses.

Provision for / (Benefit from) Income Taxes

Other expense, net increased $0.6 million and $0.8 million for the three and six months ended June 30, 2024, respectively, as compared to the same periods in the prior year, primarily due to an increase in non-operating and miscellaneous expenses.

Provision for Income Taxes

Three Months Ended

Provision for / (benefit from) income taxes $ 2,747 $ (1,222) (325) %

Change Six Months Ended

2024 2023 2024 2023

Provision for income taxes $ 884 $ 6,507 (86) % $ 3,631 $ 5,285 (31) %

% of total revenue — % 3 % 1 % 1 %

The provision for income taxes increased $4.0 million for the three months ended March 31, 2024, as compared to the same period in the prior year.

Our effective tax rate was 10.5% for the three months ended March 31, 2024, as compared to (9.4)% for the same period in the prior year.

The increase in the provision for income taxes for the three months ended March 31, 2024 as

compared to the same period in the prior year was primarily due to an increase in income before income taxes and a decrease in the estimated research and development tax credits.

The provision for income taxes decreased by $5.6 million and $1.7 million for the three and six months ended June 30, 2024, respectively, as compared to the same periods in the prior year.

Our effective tax rate was 2.6% and 6.1% for the three

and six months ended June 30, 2024, respectively, as compared to 29.4% and 15.1% for the same periods in the prior year.

The decrease in the provision for income taxes for the three and six months ended June 30, 2024 as compared to the same periods in the prior year was primarily due to a favorable true-up adjustment of our 2023 income tax provision estimate associated with research and development tax credits during the three months ended June 30, 2024 as well as the unfavorable true-up adjustment of our 2022 income tax provision estimate associated with research and development tax credits during the three months ended June 30, 2023.

The decrease in the provision for income taxes for the six months ended June 30, 2024 as compared to the same period in the prior year was also due to the release of an unrecognized tax benefit liability due to the closure of the 2018 and 2019 Internal Revenue Service federal income tax examination during the six months ended June 30, 2024, which did not occur during the six months ended June 30, 2023.

Segment Information

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Alarm.com and Other.

Our Alarm.com segment represents our cloud-based and Software platforms for the intelligently connected property and related solutions that c ontributed 94% of our revenue, net of intersegment eliminations, for the three months ended March 31, 2024, as compared to 95% for the same period in the prior year.

Our Alarm.com segment represents our cloud-based and Software platforms for the intelligently connected property and related solutions that c ontributed 93% of our revenue, net of intersegment eliminations, for each of the three and six months ended June 30, 2024, as compared to 94% for the same periods in the prior year.

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

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

Our Alarm.com segment increased from 1,672 employees as of March 31, 2023 to 1,780 employees as of March 31, 2024 and increased from 1,776 employees as of December 31, 2023.

Our Other segment increased from 186 employees as of March 31, 2023 to 222 employees as of March 31, 2024 and increased from 213 employees as of December 31, 2023 .

Our Alarm.com segment increased from 1,712 employees as of June 30, 2023 to 1,801 employees as of June 30, 2024 and increased from 1,780 employees as of March 31, 2024.

Our Other segment increased from 197 employees as of June 30, 2023 to 232 employees as of June 30, 2024 and increased from 222 employees as of March 31, 2024 .

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

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Total $ 155,927 $ 77,880 $ 126,751 $ 140,432 $ 83,443 $ 121,349

Our SaaS and license revenue for the Alarm.com segment included software license revenue of $5.2 million for the three months ended March 31, 2024, as compared to $6.2 million for the same period in the prior year.

There was no software license revenue recorded for the Other segment during the three months ended March 31, 2024 and 2023.

Six Months Ended

SaaS and license revenue Hardware and other revenue

Operating expenses SaaS and license revenue Hardware and other revenue

Operating expenses

Alarm.com $ 278,713 $ 149,827 $ 226,423 $ 253,406 $ 156,128 $ 222,208

Other 27,558 2,862 28,371 22,420 3,579 24,106

Intersegment Alarm.com — (1,545) — — (1,658) (240)

Intersegment Other — (325) — — (284) —

Total $ 306,271 $ 150,819 $ 254,794 $ 275,826 $ 157,765 $ 246,074

Our SaaS and license revenue for the Alarm.com segment included software license revenue of $5.2 million and $10.4 million for the three and six months ended June 30, 2024, respectively, as compared to $5.9 million and $12.1 million for the same periods in the prior year.

There was no software license revenue recorded for the Other segment during the three and six months ended June 30, 2024 and 2023.

Critical Accounting Estimates

Our management’s discussion and analysis of our financial condition and results of operations is based on our condensed consolidated financial statements, which have been prepared in accordance with GAAP.

The preparation of these condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenue, costs and expenses during the reported period.

The preparation of these condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and

liabilities, disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenue, costs and expenses during the reported period.

In accordance with GAAP, we base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances.

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

March 31, 2024 December 31, 2023

June 30, 2024 December 31, 2023

Cash and cash equivalents $ 1,104,539 $ 696,983

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We define working capital as current assets minus current liabilities.

Our cash and cash equivalents as of March 31, 2024 are available for working capital purposes.

Our cash and cash equivalents as of June 30, 2024 are available for working capital purposes.

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

As of March 31, 2024, our cash and cash equivalents were primarily held in money market accounts.

As of June 30, 2024, our cash and cash equivalents were primarily held in money market accounts.

Liquidity and Capital Resources

As of March 31, 2024, we had $747.9 million in cash and cash equivalents.

As of June 30, 2024, we had $1.1 billion in cash and cash equivalents.

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

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

Over the final nine months of fiscal year 2024, we expect our capital expenditure requirements to be between $4.0 million and $6.0 million, primarily related to the continued build out of our leased and owned office space as well as purchases of computer software and equipment.

Maturities of lease liabilities for our various office, data center and equipment leases as of March 31, 2024 are as follows:

Over the final six months of fiscal year 2024, we expect our capital expenditure requirements to be between $3.0 million and $5.0 million, primarily related to the continued build out of our leased and owned office space as well as purchases of computer software and equipment.

Maturities of lease liabilities for our various office, data center and equipment leases as of June 30, 2024 are as follows:

$7.1 million for the remainder of 2024, $12.6 million in 2025, $7.8 million in 2026, $2.5 million in 2027, $1.8 million in 2028 and $1.9 million in 2029 and thereafter.

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As the impact of the Macroeconomic Conditions on the economy and our operations evolves, we will continue to assess our liquidity needs.

To the extent our cash and cash equivalents

and cash flows from operating activities are insufficient to fund our future activities, we may need to borrow additional funds or raise funds from public or private equity or debt financings.

To the extent our cash and cash equivalents and cash flows from operating activities are insufficient to fund our future activities, we may need to borrow additional funds or raise funds from public or private equity or debt financings.

If we raise additional funds through the incurrence of indebtedness, such indebtedness would likely have rights that are senior to holders of our equity securities and could contain covenants that restrict our operations.

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Material Cash Requirements

As of March 31, 2024, there were no material changes in our cash requirements from those disclosed in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report.

As of June 30, 2024, there were no material changes in our cash requirements from those disclosed in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report, other than the $500.0 million issuance of the 2029 Notes on May 31, 2024.

See “Convertible Senior Notes – 2029 Notes” below for further details on our 2029 Notes.

Convertible Senior Notes - 2029 Notes

On May 31, 2024, we issued $500.0 million aggregate principal amount of 2.25% convertible senior notes due June 1, 2029 in a private placement to qualified institutional buyers, or the 2029 Notes.

The terms of the 2029 Notes are governed by an Indenture, or the 2029 Indenture, by and between Alarm.com Holdings, Inc.

Bank Trust Company, National Association, as trustee.

We received proceeds from the issuance of the 2029 Notes of $485.2 million, net of $14.8 million of transaction fees and other debt issuance costs.

We may redeem for cash, all or any portion of the 2029 Notes (subject to the partial redemption limitation described below), at our option, on or after June 7, 2027, at a redemption price equal to 100% of the principal amount of the 2029 Notes to be redeemed, plus accrued and unpaid interest, if any, to, but excluding, the redemption date, if the last reported sale price of our common stock has been at least 130% of the conversion price for the 2029 Notes then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending on, and including, the trading day immediately preceding the date on which we provide notice of redemption.

If we redeem less than all the 2029 Notes, at least $75.0 million aggregate principal amount of the 2029 Notes must be outstanding and not subject to redemption as of the relevant redemption notice date.

No sinking fund is provided for the 2029 Notes.

The 2029 Notes will be convertible at the option of the holders at any time prior to the close of business on the business day immediately preceding January 1, 2029, only under the following circumstances:

(1) during any calendar quarter commencing after the calendar quarter ending on September 30, 2024 (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 2029 Notes on each applicable trading day;

(2) during the five business day period immediately after any ten consecutive trading day period in which, for each trading day of that period, the trading price per $1,000 principal amount of 2029 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 2029 Notes on each such trading day;

(3) if we call any or all of the 2029 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 2029 Notes called (or deemed called) for redemption;

or (4) upon the occurrence of specified corporate events as set forth in the 2029 Indenture.

On or after January 1, 2029, until the close of business on the second scheduled trading day immediately preceding the maturity date of the 2029 Notes, holders of the 2029 Notes may convert all or any portion of their 2029 Notes at any time, 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.

It is our current intent to settle the principal amount of the 2029 Notes with cash.

The initial conversion rate for the 2029 Notes is 11.4571 shares of our common stock per $1,000 principal amount of 2029 Notes, which is equivalent to an initial conversion price of $87.28 per share of our common stock, subject to adjustment under certain circumstances in accordance with the terms of the 2029 Indenture.

In addition, following certain corporate events that occur prior to the maturity date of the 2029 Notes or if we deliver a notice of redemption in respect of some or all of the 2029 Notes, we will, under certain circumstances, increase the conversion rate of the 2029 Notes for a holder who elects to convert its 2029 Notes (or any portion thereof) in connection with such a corporate event or convert its 2029 Notes called (or deemed called) for redemption during the related redemption period (as defined in the 2029 Indenture), as the case may be.

If we undergo a fundamental change (as defined in the 2029 Indenture), subject to certain exceptions and except as described in the 2029 Indenture, holders may require us to repurchase for cash all or any portion of their 2029 Notes at a fundamental change repurchase price equal to 100% of the principal amount of the 2029 Notes to be repurchased, plus accrued and unpaid interest, if any, to, but excluding, the fundamental change repurchase date.

The 2029 Indenture includes customary covenants and sets forth certain events of default after which the 2029 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 2029 Notes become automatically due and payable.

We used $63.1 million of the net proceeds from the 2029 Notes to pay the cost of the capped call transactions described below and used $75.0 million to repurchase 1,117,068 shares of our common stock concurrently with the pricing of the 2029 Notes, which was separately authorized by our board of directors.

Capped Call – 2029 Notes

In connection with the offering of the 2029 Notes, we entered into privately negotiated capped call transactions with one of the initial purchasers and certain other financial institutions, at a cost of $63.1 million.

The capped call transactions cover, subject to customary adjustments substantially similar to those applicable to the 2029 Notes, the number of shares of our common stock initially underlying the 2029 Notes.

The cap price of the capped call transactions is initially $134.28 per share of our common stock, which represents a premium of 100% over the closing price of our common stock on the Nasdaq Global Select Market on May 28, 2024, and is subject to certain adjustments under the terms of the capped call transactions.

The exercise price is $87.28 per share of common stock, subject to customary anti-dilution adjustments that mirror corresponding adjustments for the 2029 Notes.

Sources of Liquidity

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

We did not declare or pay dividends during the three months ended March 31, 2024 or 2023.

On May 31, 2024, we issued $500.0 million aggregate principal amount of 2.25% convertible senior notes due June 1, 2029 in a private placement to qualified institutional buyers and received proceeds of $485.2 million, net of $14.8 million of transaction fees and other debt issuance costs.

The 2029 Notes are discussed in more detail above under "Convertible Senior Notes - 2029 Notes."

We did not declare or pay dividends during the three and six months ended June 30, 2024 or 2023.

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

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Stock Repurchase Programs

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

During the three months ended March 31, 2024 and 2023, no shares of our common stock were repurchased under this program.

On February 15, 2023, our board of directors authorized a stock repurchase program, effective February 23, 2023, under which we were 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.

On May 24, 2024, our board of directors authorized the repurchase of our common stock in connection with the issuance of the 2029 Notes, the cancellation of the balance under the stock repurchase program ending February 23, 2025 and also authorized a stock repurchase program, effective May 31, 2024, 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 May 31, 2026.

The full repurchase balance for this program of $100.0 million was available as of June 30, 2024.

During the three and six months ended June 30, 2024, 1,117,068 shares were repurchased for $75.0 million under our stock repurchase program authorized in connection with the issuance of the 2029 Notes.

During the three and six months ended June 30, 2023, 134,255 shares of our common stock were repurchased for $6.7 million under our stock repurchase program that was subsequently cancelled effective May 31, 2024.

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

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

Shares Withheld

As permitted under the terms of the 2015 Equity Incentive Plan, in 2021 the Compensation Committee authorized the withholding of shares of common stock in connection with the vesting of restricted stock unit awards issued to employees to satisfy applicable tax withholding requirements.

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

We paid $3.4 million of tax withholdings related to vesting of restricted stock units during the three and six months ended June 30, 2024.

No tax withholdings related to the vesting of restricted stock units were paid during the three and six months ended June 30, 2023.

We also utilized the sell-to-cover method in which shares of our restricted stock unit awards were sold into the market on behalf of the employee upon vesting to cover tax withholding liabilities.

We may utilize either the withholding method or sell-to-cover method in the future.

Historical Cash Flows

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

Three Months Ended

Cash flows from / (used in) operating activities $ 49,853 $ (3,521)

Six Months Ended

Cash flows from operating activities $ 72,816 $ 33,267

Cash flows used in investing activities (9,159) (19,591)

Cash flows from financing activities 6,356 842

Cash flows from / (used in) financing activities 346,768 (8,089)

Operating Activities

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

For the three months ended March 31, 2024, cash flows from operating activities were $49.9 million, compared to cash flows used in operating activities of $3.5 million for the same period in the prior year.

This $53.4 million increase in cash flows from operating activities was due to a $28.6 million increase in cash from operating assets and liabilities, a $15.6 million increase in non-cash and other reconciling items and a $9.2 million increase in net income.

The $28.6 million increase in cash from operating assets and liabilities was primarily due to differences in the timing of disbursements and the collection of receipts as well as a $10.0 million change in inventory resulting from a decrease in purchased inventory during the three months ended March 31, 2024 as compared to the same period in the prior year.

The $15.6 million increase in non-cash and other reconciling items was primarily due to a $13.5 million change in deferred income taxes, which was primarily driven by the capitalization and amortization of research and development expenditures under Section 174, as well as an increase in the provision for credit losses on notes receivable related to a loan we provided to an affiliated entity of one of our distribution partners.

These increases in non-cash and other reconciling items were partially offset by a $1.4 million

decrease in stock-based compensation during the three months ended March 31, 2024 as compared to the same period in the prior year.

For the six months ended June 30, 2024, cash flows from operating activities were $72.8 million, compared to $33.3 million for the same period in the prior year.

This $39.5 million increase in cash flows from operating activities was due to a $26.1 million increase in net income, a $11.1 million increase in non-cash and other reconciling items and a $2.3 million increase in cash from operating assets and liabilities.

The $11.1 million increase in non-cash and other reconciling items was primarily due to a $11.9 million change in deferred income taxes, which was primarily driven by the capitalization and amortization of research and development expenditures under Section 174, as well as a $4.0 million increase in the provision for credit losses on notes receivable related to a loan we provided to an affiliated entity of one of our distribution partners.

These increases in non-cash and other reconciling items were partially offset by a $2.1 million decrease in stock-based compensation during the six months ended June 30, 2024 as compared to the same period in the prior year as well as a $1.2 million inventory write-down during the six months ended June 30, 2023 that did not occur during the six months ended June 30, 2024.

The $2.3 million increase in cash from operating assets and liabilities was primarily due to a $17.0 million change in inventory resulting from a decrease in purchased inventory during the six months ended June 30, 2024 as compared to the same period in the prior year, partially offset by differences in the timing of disbursements and the collection of receipts.

Investing Activities

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

For the three months ended March 31, 2024, cash flows used in investing activities were $4.0 million, compared to $12.9 million for the same period in the prior year.

The $8.9 million decrease in cash flows used in investing activities was primarily due to $9.7 million paid to purchase 100% of the issued and outstanding shares of capital stock of EBS, net of cash acquired, during the three months ended March 31, 2023, which did not occur during the three months ended March 31, 2024.

The decrease in cash flows used in investing activities was partially offset by a $0.7 million increase in purchases of equipment as well as a $0.2 million increase in the issuance of notes receivable during the three months ended March 31, 2024 as compared to the same period in the prior year.

For the six months ended June 30, 2024, cash flows used in investing activities were $9.2 million, compared to $19.6 million for the same period in the prior year.

The $10.4 million decrease in cash flows used in investing activities was primarily due to $9.7 million paid to purchase 100% of the issued and outstanding shares of capital stock of EBS, net of cash acquired, and the $5.9 million paid to purchase certain assets from Vintra, including direct transaction costs, during the six months ended June 30, 2023, which did not occur during the six months ended June 30, 2024.

The decrease in cash flows used in investing activities was partially offset by a $2.8 million increase in purchases of investments in unconsolidated entities, a $1.7 million increase in purchases of equipment as well as a $0.5 million increase in payments related to capitalized software development costs during the six months ended June 30, 2024 as compared to the same period in the prior year.

Financing Activities

Cash generated by financing activities includes proceeds from the 2026 Notes and proceeds from the issuance of common stock from employee stock option exercises and from our employee stock purchase plan.

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

For the three months ended March 31, 2024, cash flows from financing activities were $6.4 million, compared to $0.8 million for the same period in the prior year.

The $5.6 million increase in cash flows from financing activities was primarily due to a $5.0 million increase in the issuance of common stock during the three months ended March 31, 2024, as compared to the same period in the prior year.

The increase in cash flows from financing activities was also due to the $0.5 million in debt payments related to the debt assumed in the acquisition of EBS during the three months ended March 31, 2023, which did not occur during the three months ended March 31, 2024.

Cash generated by financing activities includes proceeds from the 2026 Notes, 2029 Notes and proceeds from the issuance of common stock from employee stock option exercises and from our employee stock purchase plan.

Cash used in financing activities includes repurchases of common stock, repayments of debt, payments of debt issuance costs and purchases of capped calls related to the 2029 Notes.

For the six months ended June 30, 2024, cash flows from financing activities were $346.8 million, compared to cash flows used in financing activities of $8.1 million for the same period in the prior year.

The $354.9 million increase in cash flows from financing activities was primarily due to $486.1 million in proceeds from the issuance of the 2029 Notes, net of issuances costs paid during the six months ended June 30, 2024, as compared to the same period in the prior year.

These increases in cash flows from financing activities were partially offset by a $68.3 million increase in purchases of shares of our common stock and $63.1 million purchases of capped calls related to the 2029 Notes during the six months ended June 30, 2024, which did not occur during the six months ended June 30, 2023.

Non-GAAP Measures

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

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

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

The non-cash items include amortization and depreciation expense, amortization of debt issuance costs for the 2026 Notes included in interest expense, stock-based compensation expense related to restricted stock units and other forms of equity compensation, including, but not limited to, the sale of common stock.

The non-cash items include amortization and depreciation expense, amortization of debt issuance costs for the 2026 Notes and 2029 Notes included in interest expense, stock-based compensation expense related to restricted stock units and other forms of equity compensation, including, but not limited to, the sale of common stock.

We do not adjust for ordinary course legal expenses resulting from maintaining and enforcing our intellectual property portfolio and license agreements.

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(d) non-GAAP adjusted EBITDA does not reflect tax payments that may represent a reduction in cash available to us;

and (e) other companies, including companies in our industry, may calculate non-GAAP adjusted EBITDA or similarly titled measures differently, which reduces its usefulness as a comparative measure.

and (e) other

companies, including companies in our industry, may calculate non-GAAP adjusted EBITDA or similarly titled measures differently, which reduces its usefulness as a comparative measure.

Because of these and other limitations, you should consider non-GAAP adjusted EBITDA alongside our other GAAP-based financial performance measures, net income and our other GAAP financial results.

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Three Months Ended

June 30, Six Months Ended

2024 2023 2024 2023

Non-GAAP adjusted EBITDA:

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Interest expense, interest income and certain activity within other expense, net (8,888) (6,590) (16,632) (10,904)

Provision for / (benefit from) income taxes 2,747 (1,222)

Provision for income taxes 884 6,507 3,631 5,285

Amortization and depreciation expense 7,080 7,860 14,417 15,533

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis