Part I [Business](index=7&type=section&id=Item%201.%20Business) Alarm.com offers cloud-based smart property solutions through a SaaS and license model, leveraging a network of over 10,900 service providers Financial Performance (2019-2021, in millions) | Metric | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | **Total Revenue** | $749.0 | $618.0 | $502.4 | | **SaaS and License Revenue** | $460.4 | $393.3 | $337.4 | | **Net Income Attributable to Common Stockholders** | $52.3 | $77.9 | $53.5 | | **Adjusted EBITDA** | $142.5 | $125.3 | $108.3 | - The company's solutions are delivered through an established network of over **10,900 trusted service providers** who sell, install, and support the offerings[15](index=15&type=chunk)[60](index=60&type=chunk) - Key growth strategies include driving SaaS revenue, upgrading traditional security customers, investing in platform innovation, expanding internationally, growing in the commercial market, and pursuing selective strategic acquisitions[67](index=67&type=chunk)[68](index=68&type=chunk)[71](index=71&type=chunk) - As of December 31, 2021, the company had **597 issued patents** and numerous pending applications to protect its technology[66](index=66&type=chunk) - The company competes with other technology platform providers (e.g., Honeywell, Resideo), direct-to-subscriber solutions (e.g., SimpliSafe), and large technology companies (e.g., Google, Amazon, Apple)[92](index=92&type=chunk) - As of December 31, 2021, Alarm.com had **1,500 full-time employees**, with **837 in research and development**, **476 in sales and marketing**, and **187 in general and administrative roles**[106](index=106&type=chunk) [Risk Factors](index=24&type=section&id=Item%201A.%20Risk%20Factors) The company faces risks from supply chain disruptions, intense competition, reliance on service providers, security breaches, technological changes, and intellectual property litigation - The COVID-19 pandemic poses risks through global supply chain disruptions, including limited inventory availability, increased lead times, and shipping delays for hardware components[116](index=116&type=chunk)[117](index=117&type=chunk) - The company faces intense competition from large technology companies (Google, Amazon, Apple), broadband and security service providers, and other managed service providers actively targeting the connected property market[146](index=146&type=chunk)[148](index=148&type=chunk) - A substantial portion of revenue comes from a limited number of service provider partners; **ADT LLC represented between 15% and 20% of total revenue** in each of 2019, 2020, and 2021, posing a significant revenue risk if lost[166](index=166&type=chunk) - The business is dependent on suppliers, with a global shortage of semiconductors noted as a key risk, potentially affecting operations if key suppliers fail to deliver on time or at contracted prices[190](index=190&type=chunk) - The company is involved in ongoing patent infringement litigation with parties including Vivint, EcoFactor, and Causam, which could result in costly litigation, expensive licenses, or injunctions[253](index=253&type=chunk)[255](index=255&type=chunk)[256](index=256&type=chunk) - Technological obsolescence is a risk, particularly with the planned shutdown of **3G and CDMA wireless networks by the end of 2022**, requiring subscribers to upgrade their equipment[188](index=188&type=chunk) [Unresolved Staff Comments](index=53&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The company reports no unresolved staff comments from the Securities and Exchange Commission - None[287](index=287&type=chunk) [Properties](index=54&type=section&id=Item%202.%20Properties) Alarm.com's principal executive office is a leased space in Tysons, Virginia, supplemented by other leased offices and an owned commercial building - The company's principal office is a leased space of **189,881 square feet** in Tysons, Virginia, with the lease set to expire in **2026**[288](index=288&type=chunk) [Legal Proceedings](index=54&type=section&id=Item%203.%20Legal%20Proceedings) The company is engaged in several significant patent infringement lawsuits, including ongoing cases with Vivint, EcoFactor, and Causam, and is indemnifying ADT LLC in a separate Vivint suit - Vivint, Inc. filed a lawsuit in **June 2015** alleging patent infringement, with three patents still in dispute[289](index=289&type=chunk) - EcoFactor, Inc. filed a lawsuit in **January 2022** alleging infringement of five U.S. patents[291](index=291&type=chunk) - Causam Enterprises, Inc. filed a lawsuit in U.S. District Court and a complaint with the U.S. International Trade Commission (ITC) in **July 2021**, alleging infringement of four patents related to smart thermostats[293](index=293&type=chunk)[294](index=294&type=chunk) - The company is incurring costs to indemnify its service provider ADT, LLC in an ongoing patent infringement suit filed by Vivint in **February 2021**[297](index=297&type=chunk)[298](index=298&type=chunk) [Mine Safety Disclosures](index=55&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - Not applicable[301](index=301&type=chunk) Part II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=56&type=section&id=Item%205.%20Market%20for%20Registrant's%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) Alarm.com's common stock trades on Nasdaq under 'ALRM'; the company does not anticipate paying future cash dividends and authorized a **$100.0 million** stock repurchase program with no recent activity - The company's common stock trades on The Nasdaq Global Select Market under the symbol **"ALRM"**[303](index=303&type=chunk) - The company does not anticipate paying cash dividends in the foreseeable future, intending to retain earnings for business operations[305](index=305&type=chunk) - On **December 3, 2020**, the board authorized a stock repurchase program for up to **$100.0 million** of common stock, ending **December 3, 2023**, with no shares repurchased under this program in the fourth quarter of 2021[311](index=311&type=chunk) [Reserved](index=58&type=section&id=Item%206.%20%5BReserved%5D) This item is reserved [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=58&type=section&id=Item%207.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) In 2021, total revenue grew **21%** to **$749.0 million**, driven by SaaS and hardware growth, while net income decreased, and cash and equivalents significantly increased to **$710.6 million** Revenue Comparison (2020 vs. 2021, in thousands) | Revenue Type | 2021 | 2020 | % Change | | :--- | :--- | :--- | :--- | | SaaS and license revenue | $460,372K | $393,257K | 17% | | Hardware and other revenue | $288,597K | $224,746K | 28% | | **Total revenue** | **$748,969K** | **$618,003K** | **21%** | Key Financial Metrics (2019-2021, in thousands) | Metric | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | **SaaS and license revenue** | $460,372K | $393,257K | $337,375K | | **Adjusted EBITDA** | $142,472K | $125,257K | $108,307K | | **SaaS and license revenue renewal rate** | 94% | 94% | 94% | - Cost of hardware and other revenue as a percentage of hardware and other revenue increased to **83% in 2021** from **77% in 2020**, primarily due to increased costs for freight shipments and inventory components[366](index=366&type=chunk)[371](index=371&type=chunk) - In **January 2021**, the company issued **$500.0 million** of **0% convertible senior notes due 2026**, receiving net proceeds of **$484.3 million**, with a portion used to repay and terminate its **$110.0 million** 2017 credit facility[415](index=415&type=chunk)[423](index=423&type=chunk) - Cash and cash equivalents increased to **$710.6 million** as of **December 31, 2021**, from **$253.5 million** as of **December 31, 2020**, largely due to the proceeds from the convertible notes issuance[413](index=413&type=chunk)[414](index=414&type=chunk) [Quantitative and Qualitative Disclosures about Market Risk](index=80&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) The company's primary market risk is immaterial foreign currency exposure, as most transactions are in U.S. dollars, though the fair value of its 2026 convertible senior notes fluctuates with common stock price - The company's market risk exposure is primarily from foreign exchange rates, but this is not considered material as most business is conducted in U.S. dollars[452](index=452&type=chunk)[454](index=454&type=chunk) - The fair value of the **2026 Convertible Senior Notes** fluctuates with the market price of the company's common stock[453](index=453&type=chunk) [Financial Statements and Supplementary Data](index=81&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section presents the company's audited consolidated financial statements for 2019-2021, including the unqualified opinion from PricewaterhouseCoopers LLP, covering operations, balance sheets, cash flows, and equity Consolidated Statements of Operations Highlights (in thousands) | Line Item | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | **Total revenue** | $748,969 | $618,003 | $502,363 | | **Operating income** | $61,572 | $56,298 | $50,413 | | **Net income** | $51,175 | $76,660 | $53,330 | | **Diluted Net income per share** | $1.01 | $1.53 | $1.06 | Consolidated Balance Sheets Highlights (in thousands) | Line Item | Dec 31, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | **Cash and cash equivalents** | $710,621 | $253,459 | | **Total assets** | $1,232,015 | $731,687 | | **Convertible senior notes, net** | $425,345 | $0 | | **Total liabilities** | $605,960 | $253,244 | | **Total stockholders' equity** | $613,167 | $467,752 | - The independent auditor, PricewaterhouseCoopers LLP, issued an **unqualified opinion** on the consolidated financial statements and the effectiveness of internal control over financial reporting[458](index=458&type=chunk) - The auditor identified two Critical Audit Matters: Revenue recognition and the accounting for the Convertible Senior Notes transaction[464](index=464&type=chunk) [Changes in and Disagreements With Accountants on Accounting and Financial Disclosure](index=132&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20With%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None[753](index=753&type=chunk) [Controls and Procedures](index=132&type=section&id=Item%209A.%20Controls%20and%20Procedures) As of December 31, 2021, management, including the CEO and CFO, concluded that the company's disclosure controls and internal control over financial reporting were effective, with no material changes in the fourth quarter - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of **December 31, 2021**[755](index=755&type=chunk) - Management concluded that the company's internal control over financial reporting was effective as of **December 31, 2021**, based on the COSO framework[756](index=756&type=chunk) [Other Information](index=133&type=section&id=Item%209B.%20Other%20Information) On **February 22, 2022**, the Board amended bylaws to change director election voting to a majority standard and establish federal district courts as the exclusive forum for Securities Act of 1933 claims - On **February 22, 2022**, the company's bylaws were amended to change the director election standard from a plurality to a majority of votes cast in uncontested elections[761](index=761&type=chunk) - The bylaws were also amended to add an exclusive forum provision, designating U.S. federal district courts as the exclusive forum for resolving claims under the Securities Act of 1933[761](index=761&type=chunk) [Disclosure Regarding Foreign Jurisdictions that Prevent Inspections](index=133&type=section&id=Item%209C.%20Disclosure%20Regarding%20Foreign%20Jurisdictions%20that%20Prevent%20Inspections) This item is not applicable to the company - Not applicable[762](index=762&type=chunk) Part III [Directors, Executive Officers and Corporate Governance](index=134&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) Information regarding directors, executive officers, and corporate governance is incorporated by reference from the company's 2022 Proxy Statement - Information is incorporated by reference from the registrant's **2022 Proxy Statement**[765](index=765&type=chunk) [Executive Compensation](index=134&type=section&id=Item%2011.%20Executive%20Compensation) Information covering executive and director compensation is incorporated by reference from the company's 2022 Proxy Statement - Information is incorporated by reference from the registrant's **2022 Proxy Statement**[766](index=766&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=134&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Information on security ownership by beneficial owners and management, and equity compensation plans, is incorporated by reference from the company's 2022 Proxy Statement - Information is incorporated by reference from the registrant's **2022 Proxy Statement**[767](index=767&type=chunk) [Certain Relationships and Related Transactions, and Director Independence](index=134&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) Information concerning related party transactions and director independence is incorporated by reference from the company's 2022 Proxy Statement - Information is incorporated by reference from the registrant's **2022 Proxy Statement**[768](index=768&type=chunk) [Principal Accountant Fees and Services](index=134&type=section&id=Item%2014.%20Principal%20Accountant%20Fees%20and%20Services) Information detailing fees paid to the principal accountant and pre-approval policies is incorporated by reference from the company's 2022 Proxy Statement - Information is incorporated by reference from the registrant's **2022 Proxy Statement**[769](index=769&type=chunk) Part IV [Exhibits, Financial Statement Schedules](index=135&type=section&id=Item%2015.%20Exhibits%2C%20Financial%20Statement%20Schedules) This section lists all financial statements, schedules, and exhibits filed with or incorporated by reference into the Annual Report - This section contains a list of all financial statements, schedules, and exhibits filed with or incorporated by reference into the Form 10-K[771](index=771&type=chunk)[772](index=772&type=chunk) [Form 10-K Summary](index=137&type=section&id=Item%2016.%20Form%2010-K%20Summary) This item is not applicable - Not applicable[778](index=778&type=chunk)

Alarm.com Holdings, Inc. (NASDAQ:ALRM) Q3 2021 Earnings Conference Call November 4, 2021 4:30 PM ET Company Participants David Trone - Vice President of Investor Relations Stephen Trundle - President and Chief Executive Officer Steve Valenzuela - Chief Financial Officer Conference Call Participants Brian Ruttenbur - Imperial Capital David Robinson - William Blair & Company Darren Aftahi - ROTH Capital Partners, LLC Operator Good day and welcome to Alarm.com Q3 2021 Earnings Conference Call. At this time, al ...

PART I. FINANCIAL INFORMATION This section presents the company's unaudited financial statements and related disclosures [Item 1. Financial Statements (Unaudited)](index=4&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) This section presents Alarm.com Holdings, Inc.'s unaudited condensed consolidated financial statements, including statements of operations, balance sheets, cash flows, and equity, along with detailed notes explaining significant accounting policies, revenue recognition, asset and liability changes, acquisitions, debt, and other financial details for the periods ended September 30, 2021 and December 31, 2020 [Condensed Consolidated Statements of Operations](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) Details the company's revenues, expenses, and net income for the specified periods Financial Performance (Three Months Ended September 30) | Metric | 2021 (in thousands) | 2020 (in thousands) | Change (%) | | :----- | :------------------ | :------------------ | :--------- | | Total Revenue | $192,324 | $158,851 | 21.1% | | Operating Income | $19,084 | $18,056 | 5.7% | | Net Income | $13,294 | $35,825 | -62.9% | | Net Income Attributable to Common Stockholders | $13,538 | $36,084 | -62.5% | | Basic EPS | $0.27 | $0.74 | -63.5% | | Diluted EPS | $0.26 | $0.71 | -63.4% | Financial Performance (Nine Months Ended September 30) | Metric | 2021 (in thousands) | 2020 (in thousands) | Change (%) | | :----- | :------------------ | :------------------ | :--------- | | Total Revenue | $553,679 | $452,427 | 22.4% | | Operating Income | $50,812 | $42,917 | 18.4% | | Net Income | $42,334 | $61,021 | -30.6% | | Net Income Attributable to Common Stockholders | $43,113 | $61,886 | -30.4% | | Basic EPS | $0.87 | $1.27 | -31.5% | | Diluted EPS | $0.83 | $1.22 | -31.9% | [Condensed Consolidated Balance Sheets](index=5&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Provides a snapshot of the company's assets, liabilities, and equity at specific points in time Balance Sheet Highlights (in thousands) | Metric | Sep 30, 2021 | Dec 31, 2020 | Change | Change (%) | | :----- | :----------- | :----------- | :----- | :--------- | | Cash and cash equivalents | $700,307 | $253,459 | $446,848 | 176.3% | | Total current assets | $870,767 | $397,414 | $473,353 | 119.1% | | Total assets | $1,181,754 | $731,687 | $450,067 | 61.5% | | Convertible senior notes, net | $421,112 | — | $421,112 | N/A | | Long-term debt | — | $110,000 | -$110,000 | -100.0% | | Total liabilities | $572,691 | $253,244 | $319,447 | 126.1% | | Total stockholders' equity | $597,174 | $467,752 | $129,422 | 27.7% | [Condensed Consolidated Statements of Cash Flows](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Summarizes the cash inflows and outflows from operating, investing, and financing activities Cash Flow Summary (Nine Months Ended September 30, in thousands) | Activity | 2021 | 2020 | Change | Change (%) | | :------- | :--- | :--- | :----- | :--------- | | Net cash from operating activities | $83,194 | $66,670 | $16,524 | 24.8% | | Net cash (used in) / from investing activities | $(13,897) | $12,236 | $(26,133) | -213.6% | | Net cash from financing activities | $377,551 | $48,641 | $328,910 | 676.2% | | Net increase in cash and cash equivalents | $446,848 | $127,547 | $319,301 | 250.3% | | Cash and cash equivalents at end of period | $700,307 | $247,176 | $453,131 | 183.3% | [Condensed Consolidated Statements of Equity](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Equity) Outlines changes in the company's equity accounts over the reporting period Equity Changes (Nine Months Ended September 30, 2021 vs. Dec 31, 2020, in thousands) | Metric | Sep 30, 2021 | Dec 31, 2020 | Change | | :----- | :----------- | :----------- | :----- | | Common Stock Amount | $501 | $496 | $5 | | Additional Paid-In Capital | $492,135 | $405,831 | $86,304 | | Retained Earnings | $109,687 | $66,574 | $43,113 | | Total Stockholders' Equity | $597,174 | $467,752 | $129,422 | - **Equity component of convertible senior notes, net**: **$56,515 (in thousands)** for the nine months ended September 30, 2021[16](index=16&type=chunk) - **Stock-based compensation expense**: **$27,362 (in thousands)** for the nine months ended September 30, 2021[16](index=16&type=chunk) - **Net income attributable to common stockholders**: **$43,113 (in thousands)** for the nine months ended September 30, 2021[16](index=16&type=chunk) [Notes to the Condensed Consolidated Financial Statements](index=12&type=section&id=Notes%20to%20the%20Condensed%20Consolidated%20Financial%20Statements) Provides detailed explanations and additional information supporting the condensed consolidated financial statements [Note 1. Organization](index=12&type=section&id=Note%201.%20Organization) Describes Alarm.com's business, operations, and service delivery model - Alarm.com is a leading platform for intelligently connected properties, providing cloud-based solutions for interactive security, video monitoring, intelligent automation, and energy management[22](index=22&type=chunk) - Solutions are delivered through a network of over **10,000 trusted service provider partners**[22](index=22&type=chunk) - Revenue sources include SaaS services, license fees, software, hardware, and activation fees[22](index=22&type=chunk) [Note 2. Basis of Presentation and Summary of Significant Accounting Policies](index=12&type=section&id=Note%202.%20Basis%20of%20Presentation%20and%20Summary%20of%20Significant%20Accounting%20Policies) Explains the accounting principles and presentation methods used in the financial statements - Financial statements are unaudited and prepared under GAAP for interim periods, including all normal recurring adjustments[24](index=24&type=chunk) - COVID-19 pandemic continues to disrupt supply chains, sales channels, and global economic activity, making future results uncertain[25](index=25&type=chunk) - Adopted ASU 2019-12 (Income Taxes) on January 1, 2021, with no material impact[31](index=31&type=chunk) - ASU 2020-06 (Convertible Instruments) is expected to have a material impact upon adoption on January 1, 2022, leading to a reclassification from equity to debt and a reduction in interest expense[33](index=33&type=chunk) [Note 3. Revenue from Contracts with Customers](index=14&type=section&id=Note%203.%20Revenue%20from%20Contracts%20with%20Customers) Details the company's policies for recognizing revenue from various customer contracts - Revenue sources include cloud-based SaaS services, non-hosted software platform licenses, and hardware products[35](index=35&type=chunk) - Hardware returns are reserved against revenue based on historical data (approximately **1%** for the twelve months ended September 30, 2021 and 2020)[36](index=36&type=chunk) - Activation fees are deferred and recognized ratably over an estimated ten-year subscriber account term[38](index=38&type=chunk) Contract Assets (in thousands) | Metric | Sep 30, 2021 (3 Months) | Sep 30, 2020 (3 Months) | Sep 30, 2021 (9 Months) | Sep 30, 2020 (9 Months) | | :----- | :---------------------- | :---------------------- | :---------------------- | :---------------------- | | Beginning balance | $4,771 | $4,718 | $4,306 | $4,578 | | Capitalized costs | $540 | $607 | $2,697 | $2,429 | | Amortization | $(899) | $(1,046) | $(2,591) | $(2,728) | | End balance | $4,412 | $4,279 | $4,412 | $4,279 | Contract Liabilities (in thousands) | Metric | Sep 30, 2021 (3 Months) | Sep 30, 2020 (3 Months) | Sep 30, 2021 (9 Months) | Sep 30, 2020 (9 Months) | | :----- | :---------------------- | :---------------------- | :---------------------- | :---------------------- | | Beginning balance | $15,019 | $11,537 | $12,529 | $10,498 | | Revenue deferred | $3,682 | $3,425 | $11,131 | $9,118 | | Revenue recognized | $(2,624) | $(2,090) | $(7,583) | $(6,744) | | End balance | $16,077 | $12,872 | $16,077 | $12,872 | [Note 4. Accounts Receivable, Net](index=16&type=section&id=Note%204.%20Accounts%20Receivable,%20Net) Presents the composition of accounts receivable and related allowances for credit losses and product returns Accounts Receivable, Net (in thousands) | Metric | Sep 30, 2021 | Dec 31, 2020 | Change | Change (%) | | :----- | :----------- | :----------- | :----- | :--------- | | Accounts receivable | $94,807 | $89,502 | $5,305 | 5.9% | | Allowance for credit losses | $(3,158) | $(4,696) | $1,538 | -32.7% | | Allowance for product returns | $(1,025) | $(1,480) | $455 | -30.7% | | Accounts receivable, net | $90,624 | $83,326 | $7,298 | 8.8% | - Reduction to provision for credit losses on accounts receivable: **$0.4 million** (3 months ended Sep 30, 2021) and **$0.2 million** (9 months ended Sep 30, 2021)[48](index=48&type=chunk) - Reserve for product returns: **$0.5 million** (3 months ended Sep 30, 2021) and **$1.6 million** (9 months ended Sep 30, 2021)[49](index=49&type=chunk) Changes in Allowance for Credit Losses for Accounts Receivable (in thousands) | Metric | Sep 30, 2021 (3 Months) | Sep 30, 2020 (3 Months) | Sep 30, 2021 (9 Months) | Sep 30, 2020 (9 Months) | | :----- | :---------------------- | :---------------------- | :---------------------- | :---------------------- | | Beginning balance | $(3,443) | $(3,550) | $(4,442) | $(2,500) | | Recovery of / (provision for) expected credit losses | $415 | $1,146 | $268 | $195 | | Write-offs | $25 | $170 | $1,171 | $283 | | End balance | $(3,003) | $(2,234) | $(3,003) | $(2,234) | [Note 5. Inventory](index=17&type=section&id=Note%205.%20Inventory) Details the breakdown of the company's inventory into raw materials and finished goods Inventory Components (in thousands) | Metric | Sep 30, 2021 | Dec 31, 2020 | Change | Change (%) | | :----- | :----------- | :----------- | :----- | :--------- | | Raw materials | $11,127 | $9,475 | $1,652 | 17.4% | | Finished goods | $45,399 | $34,806 | $10,593 | 30.4% | | Total inventory | $56,526 | $44,281 | $12,245 | 27.7% | [Note 6. Acquisitions](index=17&type=section&id=Note%206.%20Acquisitions) Summarizes recent business acquisitions and their financial impact on the company - Asset acquisitions in March 2020 for in-process research and development (IPR&D) totaled **$4.4 million**, expensed as research and development[56](index=56&type=chunk)[57](index=57&type=chunk) - Acquired **100% of Shooter Detection Systems (SDS)** on December 14, 2020, for **$26.6 million cash**, expanding commercial solutions with indoor gunshot detection[58](index=58&type=chunk)[60](index=60&type=chunk) SDS Acquisition: Purchase Consideration and Net Assets Acquired (in thousands) | Metric | Amount | | :----- | :----- | | Total consideration | $26,577 | | Goodwill | $7,239 | | Customer relationships | $2,362 | | Developed technology | $13,522 | | Trade name | $512 | - Goodwill of **$7.2 million** reflects the value of acquired workforce and expected synergies from expanding commercial solutions[61](index=61&type=chunk) [Note 7. Goodwill and Intangible Assets, Net](index=20&type=section&id=Note%207.%20Goodwill%20and%20Intangible%20Assets,%20Net) Provides information on the company's goodwill and other intangible assets, including amortization Goodwill (in thousands) | Metric | Jan 1, 2021 | Sep 30, 2021 | Change | | :----- | :---------- | :----------- | :----- | | Balance | $112,838 | $112,901 | $63 | - No goodwill impairments were recorded during the three and nine months ended September 30, 2021 and 2020[67](index=67&type=chunk) Net Carrying Amount of Intangible Assets (in thousands) | Metric | Jan 1, 2021 | Sep 30, 2021 | Change | | :----- | :---------- | :----------- | :----- | | Customer Relationships | $72,670 | $62,801 | $(9,869) | | Developed Technology | $28,223 | $25,716 | $(2,507) | | Trade Name | $2,366 | $1,959 | $(407) | | Total Intangible Assets | $103,259 | $90,476 | $(12,783) | - Amortization of intangible assets totaled **$4.3 million** for the three months and **$12.8 million** for the nine months ended September 30, 2021[68](index=68&type=chunk) [Note 8. Other Assets](index=21&type=section&id=Note%208.%20Other%20Assets) Details various non-current assets, including patents, loans, and strategic investments - Net carrying value of purchased patents and patent licenses was **$2.4 million** as of September 30, 2021, down from **$2.9 million** at December 31, 2020[72](index=72&type=chunk) - Subordinated credit agreement balance with a distribution partner was **$4.5 million** as of September 30, 2021[77](index=77&type=chunk) - Outstanding principal from a service provider partner loan was **$1.2 million** as of September 30, 2021[78](index=78&type=chunk) - Investment in a hardware supplier remained at **$5.6 million** as of September 30, 2021[79](index=79&type=chunk) - Investment in a technology partner increased to **$5.7 million** as of September 30, 2021, from **$0.7 million** at December 31, 2020, following a **$5.0 million** purchase of Series B-2 Preferred Stock[81](index=81&type=chunk) Changes in Allowance for Credit Losses for Notes Receivable (in thousands) | Metric | Sep 30, 2021 (3 Months) | Sep 30, 2020 (3 Months) | Sep 30, 2021 (9 Months) | Sep 30, 2020 (9 Months) | | :----- | :---------------------- | :---------------------- | :---------------------- | :---------------------- | | Beginning balance | $(74) | $(46) | $(73) | $0 | | (Provision for) / recovery of expected credit losses | $(3) | $(20) | $(4) | $368 | | Write-offs | $0 | $1 | $0 | $1 | | End balance | $(77) | $(65) | $(77) | $(65) | [Note 9. Fair Value Measurements](index=25&type=section&id=Note%209.%20Fair%20Value%20Measurements) Discusses the valuation methods and balances of assets measured at fair value Assets Measured at Fair Value (in thousands) | Metric | Sep 30, 2021 | Dec 31, 2020 | | :----- | :----------- | :----------- | | Money market accounts | $671,598 | $221,407 | | Total | $671,598 | $221,407 | - The contingent consideration liability related to the OpenEye acquisition decreased to zero by December 31, 2020, as the 2020 revenue targets were not met[95](index=95&type=chunk) - No transfers in or out of Level 3 fair value hierarchy occurred during the three and nine months ended September 30, 2021 and 2020[96](index=96&type=chunk) [Note 10. Leases](index=26&type=section&id=Note%2010.%20Leases) Presents information on the company's operating lease liabilities and related terms Lease Metrics | Metric | Sep 30, 2021 | Dec 31, 2020 | | :----- | :----------- | :----------- | | Weighted-average remaining lease term | 4.3 years | 4.9 years | | Weighted-average discount rate | 3.6% | 3.6% | Maturities of Lease Liabilities (in thousands) | Year Ended Dec 31, | Operating Leases | | :----------------- | :--------------- | | Remainder of 2021 | $3,064 | | 2022 | $11,229 | | 2023 | $10,512 | | 2024 | $8,906 | | 2025 | $7,535 | | 2026 and thereafter | $4,769 | | Total lease payments | $46,015 | | Present value of lease liabilities | $42,564 | [Note 11. Liabilities](index=27&type=section&id=Note%2011.%20Liabilities) Details the company's current and other non-current liabilities Current Liabilities (in thousands) | Metric | Sep 30, 2021 | Dec 31, 2020 | Change | Change (%) | | :----- | :----------- | :----------- | :----- | :--------- | | Accounts payable | $40,519 | $38,163 | $2,356 | 6.2% | | Accrued expenses | $17,819 | $11,449 | $6,370 | 55.6% | | Other current liabilities | $4,628 | $4,315 | $313 | 7.3% | | Total | $62,966 | $53,927 | $9,039 | 16.8% | Other Liabilities (in thousands) | Metric | Sep 30, 2021 | Dec 31, 2020 | Change | Change (%) | | :----- | :----------- | :----------- | :----- | :--------- | | Holdback liability from acquisitions | $1,500 | $1,500 | $0 | 0.0% | | Other liabilities | $7,030 | $5,311 | $1,719 | 32.4% | | Total | $8,530 | $6,811 | $1,719 | 25.2% | [Note 12. Debt, Commitments and Contingencies](index=27&type=section&id=Note%2012.%20Debt,%20Commitments%20and%20Contingencies) Describes the company's debt instruments, particularly convertible senior notes, and potential contingent liabilities - Issued **$500.0 million** aggregate principal amount of **0% convertible senior notes** due January 15, 2026, on January 20, 2021, with net proceeds of **$484.3 million**[102](index=102&type=chunk) - Used proceeds from convertible notes to repay and terminate the **$110.0 million** outstanding principal balance under the 2017 credit facility[108](index=108&type=chunk)[117](index=117&type=chunk) 2026 Convertible Senior Notes: Net Carrying Amount (in thousands) | Component | Sep 30, 2021 | | :-------- | :----------- | | Principal | $500,000 | | Unamortized debt discount | $(67,172) | | Unamortized debt issuance costs | $(11,716) | | Net carrying amount (liability) | $421,112 | | Net carrying amount (equity) | $74,775 | - The liability component of the 2026 Notes is amortized to interest expense at an effective interest rate of **4.0%**[109](index=109&type=chunk) - Interest expense from amortization of debt discount and issuance costs was **$4.2 million** for the three months and **$11.6 million** for the nine months ended September 30, 2021[116](index=116&type=chunk) - The fair value of the 2026 Notes was **$450.0 million** as of September 30, 2021[111](index=111&type=chunk) - The contingent consideration liability from the OpenEye acquisition was reduced to zero by December 31, 2020, due to unmet revenue targets[122](index=122&type=chunk) [Note 13. Stockholders' Equity](index=32&type=section&id=Note%2013.%20Stockholders'%20Equity) Summarizes the components of stockholders' equity and details the stock repurchase program - A stock repurchase program authorized in December 2020 allows for purchases up to **$100.0 million** of common stock, expiring December 3, 2023[141](index=141&type=chunk) - No shares were repurchased under this program during the three and nine months ended September 30, 2021[141](index=141&type=chunk) [Note 14. Stock-Based Compensation](index=32&type=section&id=Note%2014.%20Stock-Based%20Compensation) Provides a breakdown of stock-based compensation expense by functional area and award type Stock-Based Compensation Expense (in thousands) | Metric | Sep 30, 2021 (3 Months) | Sep 30, 2020 (3 Months) | Sep 30, 2021 (9 Months) | Sep 30, 2020 (9 Months) | | :----- | :---------------------- | :---------------------- | :---------------------- | :---------------------- | | Sales and marketing | $1,189 | $734 | $3,232 | $2,263 | | General and administrative | $1,974 | $2,154 | $7,217 | $6,033 | | Research and development | $6,255 | $4,560 | $16,913 | $12,605 | | Total | $9,418 | $7,448 | $27,362 | $20,901 | Components of Non-Cash Stock-Based Compensation Expense (in thousands) | Metric | Sep 30, 2021 (3 Months) | Sep 30, 2020 (3 Months) | Sep 30, 2021 (9 Months) | Sep 30, 2020 (9 Months) | | :----- | :---------------------- | :---------------------- | :---------------------- | :---------------------- | | Stock options and assumed options | $1,042 | $879 | $2,818 | $2,695 | | Restricted stock units | $8,331 | $6,531 | $24,404 | $18,089 | | Employee stock purchase plan | $45 | $38 | $140 | $117 | | Total | $9,418 | $7,448 | $27,362 | $20,901 | - Granted **728,415 restricted stock units** (including **120,314 performance-based awards**) during the nine months ended September 30, 2021[145](index=145&type=chunk) [Note 15. Earnings Per Share](index=33&type=section&id=Note%2015.%20Earnings%20Per%20Share) Presents the calculation of basic and diluted earnings per share Net Income Per Share (in thousands, except per share amounts) | Metric | Sep 30, 2021 (3 Months) | Sep 30, 2020 (3 Months) | Sep 30, 2021 (9 Months) | Sep 30, 2020 (9 Months) | | :----- | :---------------------- | :---------------------- | :---------------------- | :---------------------- | | Net income attributable to common stockholders | $13,538 | $36,084 | $43,113 | $61,886 | | Basic EPS | $0.27 | $0.74 | $0.87 | $1.27 | | Diluted EPS | $0.26 | $0.71 | $0.83 | $1.22 | - The 2026 Convertible Senior Notes had no dilutive effect on EPS for the three and nine months ended September 30, 2021, as the average market price of common stock (**$78.19**) was below the conversion price (**$147.19**)[111](index=111&type=chunk)[148](index=148&type=chunk) [Note 16. Significant Service Providers](index=34&type=section&id=Note%2016.%20Significant%20Service%20Providers) Highlights the company's reliance on its key service provider partners for revenue generation - The top 10 service provider partners accounted for **48%** of consolidated revenue for the three months and **49%** for the nine months ended September 30, 2021[149](index=149&type=chunk) - One service provider partner within the Alarm.com segment individually represented greater than **15%** but not more than **20%** of revenue for both the three and nine months ended September 30, 2021 and 2020[149](index=149&type=chunk) [Note 17. Income Taxes](index=34&type=section&id=Note%2017.%20Income%20Taxes) Details the company's income tax provision, effective tax rates, and unrecognized tax benefits Income Tax Provision / (Benefit) and Effective Tax Rate | Metric | Sep 30, 2021 (3 Months) | Sep 30, 2020 (3 Months) | Sep 30, 2021 (9 Months) | Sep 30, 2020 (9 Months) | | :----- | :---------------------- | :---------------------- | :---------------------- | :---------------------- | | Provision for / (benefit from) income taxes | $1,787 | $6,546 | $(2,864) | $5,471 | | Effective income tax rate | 11.8% | 15.4% | (7.3)% | 8.2% | - Effective tax rates were below statutory rates primarily due to research and development tax credits, tax windfall benefits from employee stock-based payment transactions, and foreign derived intangible income deductions[151](index=151&type=chunk) - Increased unrecognized tax benefits by **$2.1 million** primarily for research and development tax credits claimed during the nine months ended September 30, 2021[153](index=153&type=chunk) [Note 18. Segment Information](index=35&type=section&id=Note%2018.%20Segment%20Information) Provides financial performance data disaggregated by the company's operating segments - The company operates in two reportable segments: Alarm.com (cloud-based and Software platforms) and Other (residential and commercial automation solutions and energy management products in adjacent markets)[157](index=157&type=chunk)[158](index=158&type=chunk) - The Alarm.com segment contributed **94%** of total revenue for the three months and **95%** for the nine months ended September 30, 2021[158](index=158&type=chunk) Segment Revenue (Three Months Ended September 30, 2021, in thousands) | Metric | Alarm.com | Other | Intersegment | Total | | :----- | :-------- | :---- | :----------- | :---- | | SaaS and license revenue | $109,170 | $8,889 | $0 | $118,059 | | Hardware and other revenue | $73,310 | $2,445 | $(1,490) | $74,265 | | Total revenue | $182,480 | $11,334 | $(1,490) | $192,324 | | Operating income / (loss) | $19,968 | $(1,021) | $137 | $19,084 | Segment Revenue (Nine Months Ended September 30, 2021, in thousands) | Metric | Alarm.com | Other | Intersegment | Total | | :----- | :-------- | :---- | :----------- | :---- | | SaaS and license revenue | $315,329 | $23,299 | $0 | $338,628 | | Hardware and other revenue | $212,194 | $7,368 | $(4,511) | $215,051 | | Total revenue | $527,523 | $30,667 | $(4,511) | $553,679 | | Operating income / (loss) | $57,130 | $(6,717) | $399 | $50,812 | - SaaS and license revenue for the Alarm.com segment included software license revenue of **$7.9 million** for the three months and **$24.9 million** for the nine months ended September 30, 2021, a decrease due to the continuing transition of customers from non-hosted software to the cloud-based hosted platform[162](index=162&type=chunk)[233](index=233&type=chunk) [Note 19. Related Party Transactions](index=37&type=section&id=Note%2019.%20Related%20Party%20Transactions) Details transactions and relationships with entities considered related parties - The company holds a **48.2%** ownership interest in an installation partner, accounted for using the equity method[165](index=165&type=chunk) - Cost of hardware and other revenue in connection with this installation partner was **$0.1 million** for the three months and **$0.2 million** for the nine months ended September 30, 2021[165](index=165&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=38&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on Alarm.com's financial condition and operating results, highlighting revenue growth driven by SaaS and hardware sales, but also noting a decrease in net income due to increased expenses and the absence of a prior-year investment gain. It discusses the ongoing impact of the COVID-19 pandemic, key business metrics, and critical accounting policies, emphasizing the company's strong liquidity position following the issuance of convertible senior notes [Overview](index=38&type=section&id=Overview) Provides a high-level description of Alarm.com's business model, solutions, and revenue generation - Alarm.com is the leading platform for intelligently connected properties, providing cloud-based solutions for residential and commercial use, including interactive security, video monitoring, intelligent automation, energy management, and wellness solutions[168](index=168&type=chunk) - Solutions are delivered through an established network of over **10,000 trusted service provider partners**[169](index=169&type=chunk) - Revenue is primarily generated from monthly SaaS and license fees and hardware sales (e.g., video cameras, recorders, gunshot detection sensors, smart thermostats)[169](index=169&type=chunk) [Highlights of Third Quarter Results](index=38&type=section&id=Highlights%20of%20Third%20Quarter%20Results) Summarizes key financial performance metrics for the third quarter and year-to-date Revenue Growth (YoY Change) | Metric | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2021 | | :----- | :-------------------------- | :-------------------------- | | Total revenue | +21% ($192.3M) | +22% ($553.7M) | | SaaS and license revenue | +18% ($118.1M) | +18% ($338.6M) | | Hardware and other revenue | 39% of total revenue | 39% of total revenue | Profitability (YoY Change) | Metric | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2021 | | :----- | :-------------------------- | :-------------------------- | | Net income | -62.9% ($13.3M) | -30.6% ($42.3M) | | Net income attributable to common stockholders | -62.5% ($13.5M) | -30.4% ($43.1M) | | Adjusted EBITDA | +9.0% ($37.6M) | +19.7% ($111.2M) | [Recent Developments](index=39&type=section&id=Recent%20Developments) Discusses recent events and their potential impact on the company's operations and financial performance - The COVID-19 pandemic continues to disrupt the company's supply chain (manufacturing, production, global transportation) and sales channels (service provider meetings)[178](index=178&type=chunk) - Prolonged uncertainty from COVID-19 could lead to lower SaaS and license revenue growth and reduced hardware revenue[179](index=179&type=chunk) - SaaS and license revenue renewal rate was **96%** for the trailing 12 months ended September 30, 2021, up from **94%** in the prior year[179](index=179&type=chunk) [Other Business Metrics](index=40&type=section&id=Other%20Business%20Metrics) Presents key operational and financial metrics used by management to assess performance Key Business Metrics (in thousands) | Metric | Sep 30, 2021 (3 Months) | Sep 30, 2020 (3 Months) | Sep 30, 2021 (9 Months) | Sep 30, 2020 (9 Months) | | :----- | :---------------------- | :---------------------- | :---------------------- | :---------------------- | | SaaS and license revenue | $118,059 | $100,126 | $338,628 | $287,780 | | Adjusted EBITDA | $37,578 | $34,496 | $111,190 | $92,895 | - SaaS and license revenue renewal rate was **96%** for the trailing 12 months ended September 30, 2021, indicating strong retention and growth in SaaS and license revenue[179](index=179&type=chunk)[184](index=184&type=chunk)[185](index=185&type=chunk) - Adjusted EBITDA is a non-GAAP measure used by management to evaluate core operating performance by excluding non-cash and non-ordinary course items[182](index=182&type=chunk)[183](index=183&type=chunk) [Components of Operating Results](index=41&type=section&id=Components%20of%20Operating%20Results) Explains the primary drivers and composition of the company's revenue and operating expenses - Revenue is primarily derived from cloud-based SaaS services, non-hosted software platform licenses (expected to decline), and hardware sales (e.g., video cameras, sensors, gunshot detection systems)[187](index=187&type=chunk)[189](index=189&type=chunk)[190](index=190&type=chunk)[191](index=191&type=chunk) - Cost of SaaS and license revenue includes wireless network provider fees and network operations center costs, while cost of hardware and other revenue includes raw materials, production, and procurement costs[194](index=194&type=chunk) - Operating expenses (sales & marketing, general & administrative, R&D, amortization & depreciation) are significantly driven by personnel-related costs, with tariffs on Chinese imports modestly impacting hardware revenue margins[196](index=196&type=chunk)[197](index=197&type=chunk) [Results of Operations](index=44&type=section&id=Results%20of%20Operations) Provides a detailed analysis of the company's financial performance, including revenue, costs, and expenses Revenue Performance (YoY Change) | Metric | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2021 | | :----- | :-------------------------- | :-------------------------- | | Total Revenue | +21% ($33.5M increase) | +22% ($101.3M increase) | | SaaS and license revenue | +18% ($17.9M increase) | +18% ($50.9M increase) | | Hardware and other revenue | +26% ($15.6M increase) | +31% ($50.4M increase) | Cost of Revenue Performance (YoY Change) | Metric | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2021 | | :----- | :-------------------------- | :-------------------------- | | Total cost of revenue | +31% ($19.2M increase) | +33% ($55.3M increase) | | Cost of hardware and other revenue | +34% ($16.1M increase) | +35% ($45.2M increase) | | Cost of SaaS and license revenue | +21% ($3.1M increase) | +25% ($10.1M increase) | Operating Expenses (YoY Change) | Metric | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2021 | | :----- | :-------------------------- | :-------------------------- | | Sales and marketing | +23% ($4.1M increase) | +18% ($9.7M increase) | | General and administrative | +7% ($1.3M increase) | +17% ($9.2M increase) | | Research and development | +20% ($7.2M increase) | +15% ($16.8M increase) | | Amortization and depreciation | +9% ($0.6M increase) | +12% ($2.3M increase) | Other Financial Items (YoY Change) | Metric | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2021 | | :----- | :-------------------------- | :-------------------------- | | Interest expense | +655% ($3.6M increase) | +466% ($9.6M increase) | | Other income / (expense), net | -100% ($24.7M decrease) | -100% ($25.0M change) | | Provision for / (benefit from) income taxes | -73% ($4.8M decrease) | -152% ($8.3M change) | [Segment Information](index=49&type=section&id=Segment%20Information%20(MD%26A)) Discusses the financial performance and operational aspects of the company's reportable segments - The Alarm.com segment remains the primary revenue driver, contributing **94%** (3 months) and **95%** (9 months) of total revenue for September 30, 2021[230](index=230&type=chunk) - Alarm.com segment employees increased by **7.6%** (from 1,257 to 1,353) and Other segment employees increased by **24.0%** (from 104 to 129) year-over-year as of September 30, 2021[231](index=231&type=chunk) - Software license revenue within the Alarm.com segment decreased due to the ongoing transition of customers from non-hosted software to cloud-based platforms[233](index=233&type=chunk) [Critical Accounting Policies and Significant Judgments and Estimates](index=50&type=section&id=Critical%20Accounting%20Policies%20and%20Significant%20Judgments%20and%20Estimates) Outlines the accounting policies requiring significant management judgment and estimation - The preparation of financial statements requires significant estimates and assumptions, particularly for revenue recognition, stock-based compensation, business combinations, and income taxes[26](index=26&type=chunk)[235](index=235&type=chunk) - Accounting for convertible senior notes involves separating liability and equity components based on fair value estimates, which could materially impact financial statements if underlying assumptions change[236](index=236&type=chunk)[237](index=237&type=chunk) [Liquidity and Capital Resources](index=50&type=section&id=Liquidity%20and%20Capital%20Resources) Discusses the company's cash position, working capital, and ability to meet its financial obligations Cash and Working Capital (in thousands) | Metric | Sep 30, 2021 | Dec 31, 2020 | Change | Change (%) | | :----- | :----------- | :----------- | :----- | :--------- | | Cash and cash equivalents | $700,307 | $253,459 | $446,848 | 176.3% | | Working capital | $769,080 | $307,170 | $461,910 | 150.4% | - Issued **$500.0 million** (net **$484.3 million**) in **0% convertible senior notes** in January 2021, significantly boosting liquidity[241](index=241&type=chunk) - Used proceeds from convertible notes to repay and terminate the **$110.0 million** 2017 credit facility[241](index=241&type=chunk) - The company believes existing cash and future operating cash flows will be sufficient to meet anticipated operating cash needs for at least the next 12 months[242](index=242&type=chunk) - Cash flows from operating activities increased by **$16.5 million** to **$83.2 million** for the nine months ended September 30, 2021[249](index=249&type=chunk) - Cash flows from financing activities increased by **$329.0 million** to **$377.6 million** for the nine months ended September 30, 2021, primarily due to the convertible senior notes issuance[255](index=255&type=chunk) [Non-GAAP Measures](index=55&type=section&id=Non-GAAP%20Measures) Defines and reconciles non-GAAP financial measures used by management to evaluate performance - Adjusted EBITDA is a non-GAAP measure used by management to evaluate core operating performance and trends, excluding items such as interest, taxes, amortization, depreciation, stock-based compensation, and certain legal costs[268](index=268&type=chunk)[269](index=269&type=chunk) Adjusted EBITDA (in thousands) | Metric | Sep 30, 2021 (3 Months) | Sep 30, 2020 (3 Months) | Sep 30, 2021 (9 Months) | Sep 30, 2020 (9 Months) | | :----- | :---------------------- | :---------------------- | :---------------------- | :---------------------- | | Net income | $13,294 | $35,825 | $42,334 | $61,021 | | Total adjustments | $24,284 | $(1,329) | $68,856 | $31,874 | | Adjusted EBITDA | $37,578 | $34,496 | $111,190 | $92,895 | - Adjusted EBITDA has limitations as an analytical tool, as it does not reflect cash capital expenditure requirements, changes in working capital, or the dilutive impact of equity-based compensation[270](index=270&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=55&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risk exposure is foreign currency exchange rates, which is not considered material due to most transactions being in U.S. dollars. The fair value of the 2026 Convertible Senior Notes is subject to fluctuations based on the common stock market price, and the COVID-19 pandemic continues to contribute to significant volatility in financial markets - The company's primary market risk exposure is foreign currency exchange rates, but it is not considered material as substantially all revenue and operating expenses are denominated in U.S. dollars[274](index=274&type=chunk) - The fair value of the 2026 Convertible Senior Notes fluctuates with the market price of the company's common stock[273](index=273&type=chunk) - The COVID-19 pandemic continues to create significant volatility in the financial markets[272](index=272&type=chunk) [Item 4. Controls and Procedures](index=56&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective at a reasonable assurance level as of September 30, 2021. There were no material changes in internal control over financial reporting during the quarter, and the integration of Shooter Detection Systems (SDS) is ongoing without expected material impact. Remote work arrangements due to COVID-19 have also not materially impacted internal controls - Disclosure controls and procedures were effective at the reasonable assurance level as of September 30, 2021[275](index=275&type=chunk) - No material changes in internal control over financial reporting occurred during the fiscal quarter ended September 30, 2021[276](index=276&type=chunk) - The integration of Shooter Detection Systems (SDS) into internal control over financial reporting is ongoing and not expected to materially affect it[276](index=276&type=chunk) - Remote work arrangements due to the COVID-19 pandemic have not materially impacted internal control over financial reporting[277](index=277&type=chunk) PART II. OTHER INFORMATION Contains additional non-financial and legal disclosures required for the reporting period [Item 1. Legal Proceedings](index=57&type=section&id=Item%201.%20Legal%20Proceedings) Alarm.com is involved in several ongoing patent infringement lawsuits with Vivint, EcoFactor, and Causam, primarily concerning smart home and thermostat technologies. While the company asserts valid defenses, adverse outcomes could lead to significant damages, royalties, or injunctions, potentially harming its business. An ITC investigation against Alarm.com by EcoFactor was affirmed in Alarm.com's favor but is under appeal, and a new ITC investigation by Causam is ongoing - Ongoing patent infringement lawsuit with Vivint, Inc. (filed June 2015) alleging infringement of six patents; discovery closed October 29, 2021, no trial date set[279](index=279&type=chunk) - Multiple lawsuits with EcoFactor, Inc. (filed October 2019, November 2019, May 2020) alleging infringement of smart thermostat patents; an ITC investigation affirmed in Alarm.com's favor, but EcoFactor appealed[281](index=281&type=chunk)[282](index=282&type=chunk)[284](index=284&type=chunk) - Lawsuit and ITC complaint filed by Causam Enterprises, Inc. (July 2021) alleging infringement of smart thermostat patents; ITC investigation instituted August 2021 with an evidentiary hearing scheduled for June 2022[286](index=286&type=chunk)[287](index=287&type=chunk) - Adverse outcomes in these legal proceedings could result in damages, reasonable royalties, or injunctions, which could materially affect the company's business[280](index=280&type=chunk)[285](index=285&type=chunk)[288](index=288&type=chunk) - The company provides indemnification to certain service provider partners, such as ADT LLC, in ongoing patent infringement suits[289](index=289&type=chunk)[290](index=290&type=chunk) [Item 1A. Risk Factors](index=59&type=section&id=Item%201A.%20Risk%20Factors) Alarm.com faces significant risks including ongoing supply chain and sales channel disruptions from the COVID-19 pandemic, intense competition in the connected property market, and reliance on its service provider network. Other key risks involve managing rapid growth, potential liabilities from product failures or legal disputes, technological obsolescence, dependence on suppliers, and evolving regulatory landscapes concerning data privacy and international trade policies. Financial risks include securing future financing, potential goodwill impairment, and increased tax liabilities - The COVID-19 pandemic continues to negatively impact global supply chains (limited inventory, increased lead times, shipping delays) and sales channels, potentially leading to lower revenue growth[297](index=297&type=chunk)[298](index=298&type=chunk)[299](index=299&type=chunk) - The markets for home automation, security monitoring, video monitoring, and energy management are highly competitive, with many large technology companies and service providers actively targeting these areas, potentially leading to price reductions and loss of market share[324](index=324&type=chunk)[327](index=327&type=chunk)[328](index=328&type=chunk)[329](index=329&type=chunk)[330](index=330&type=chunk) - The company relies heavily on its service provider network for subscriber acquisition and retention; the inability of these partners to attract or retain subscribers, or the loss of major partners, could adversely affect operating results[340](index=340&type=chunk)[341](index=341&type=chunk)[346](index=346&type=chunk)[347](index=347&type=chunk)[348](index=348&type=chunk)[349](index=349&type=chunk)[350](index=350&type=chunk)[360](index=360&type=chunk) - Risks include the inability to adapt to rapid technological change, maintain compatibility with diverse devices, or develop new solutions, as well as the obsolescence of existing technology (e.g., 3G/CDMA network shutdown)[367](index=367&type=chunk)[368](index=368&type=chunk)[369](index=369&type=chunk) - Operating in a regulated industry, the company is subject to various consumer protection, licensing, data privacy (e.g., CCPA, GDPR), and trade laws; non-compliance or changes in these laws could increase costs, limit offerings, or result in fines and litigation[323](index=323&type=chunk)[381](index=381&type=chunk)[382](index=382&type=chunk)[383](index=383&type=chunk)[384](index=384&type=chunk)[385](index=385&type=chunk)[386](index=386&type=chunk)[387](index=387&type=chunk)[388](index=388&type=chunk)[389](index=389&type=chunk)[390](index=390&type=chunk)[391](index=391&type=chunk)[392](index=392&type=chunk)[393](index=393&type=chunk)[410](index=410&type=chunk)[411](index=411&type=chunk)[412](index=412&type=chunk)[413](index=413&type=chunk)[414](index=414&type=chunk)[416](index=416&type=chunk)[417](index=417&type=chunk)[422](index=422&type=chunk)[423](index=423&type=chunk)[424](index=424&type=chunk)[425](index=425&type=chunk) - Ongoing legal proceedings, particularly patent infringement lawsuits, could lead to costly litigation, significant damages, or injunctions, materially harming the business[322](index=322&type=chunk)[431](index=431&type=chunk)[432](index=432&type=chunk)[433](index=433&type=chunk)[434](index=434&type=chunk)[435](index=435&type=chunk)[436](index=436&type=chunk)[437](index=437&type=chunk)[438](index=438&type=chunk)[439](index=439&type=chunk) - Financial risks include the potential inability to secure additional financing on favorable terms, the significant portion of goodwill and intangible assets being subject to impairment, and potential increases in tax liabilities due to legislative changes or audits[404](index=404&type=chunk)[405](index=405&type=chunk)[406](index=406&type=chunk)[407](index=407&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=81&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) During the three months ended September 30, 2021, Alarm.com Holdings, Inc. did not engage in any unregistered sales of equity securities or issuer repurchases of its common stock. The company maintains an authorized stock repurchase program with $100.0 million remaining - No unregistered sales of equity securities occurred during the three months ended September 30, 2021[465](index=465&type=chunk) - No issuer repurchases of common stock were made under the stock repurchase program during the three months ended September 30, 2021[467](index=467&type=chunk) - The company has an approximate dollar value of **$100.0 million** remaining that may yet be purchased under its stock repurchase program[468](index=468&type=chunk) [Item 3. Defaults Upon Senior Securities](index=88&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) The company reported no defaults upon senior securities for the period - No defaults upon senior securities were reported[468](index=468&type=chunk) [Item 4. Mine Safety Disclosures](index=88&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to Alarm.com Holdings, Inc.'s operations - This item is not applicable[469](index=469&type=chunk) [Item 5. Other Information](index=88&type=section&id=Item%205.%20Other%20Information) No other information was reported for this period - No other information was reported[469](index=469&type=chunk) [Item 6. Exhibits](index=89&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including corporate governance documents, a key master services agreement amendment, and various certifications required by SEC regulations, along with XBRL-related documents - Includes Amended and Restated Certificate of Incorporation and Bylaws[471](index=471&type=chunk) - A Third Amendment to Reformed Master Services Agreement by and between Alarm.com Incorporated and ADT LLC, effective July 1, 2021, is filed[471](index=471&type=chunk) - Certifications of the Chief Executive Officer and Chief Financial Officer pursuant to Sarbanes-Oxley Act Sections 302 and 906 are included[471](index=471&type=chunk) - Inline XBRL Instance Document and Taxonomy Extension Documents are provided[471](index=471&type=chunk)

Financial Data and Key Metrics Changes - SaaS and license revenue for Q2 2021 was $113.2 million, an increase of 18.3% year-over-year [8][20] - Total revenue for Q2 2021 was $188.9 million, growing 33.3% year-over-year [23] - Non-GAAP adjusted EBITDA increased 30.1% year-over-year to $38 million [25] - GAAP net income for Q2 2021 was $14.7 million, compared to $17 million in Q2 2020 [25] - Total gross margin for Q2 2021 was 59%, down from 65.4% in the previous year [23] Business Line Data and Key Metrics Changes - SaaS and license revenue for the Alarm.com segment grew 18% year-over-year, while the other segment grew 22% [20] - Hardware revenue was $75.7 million, up 64.7% over Q2 2020, driven by increased adoption of video cameras [21] - Sales of thermostats increased over 300% year-over-year, representing about 6% of hardware sales [22] Market Data and Key Metrics Changes - The residential markets in the U.S. and Canada performed well, with strong demand for Smart Home Security [8] - The small and medium-sized business and enterprise commercial markets showed improvement, with sales pipeline opportunities nearly returning to pre-pandemic levels [9] - International business continued to be impacted by the pandemic, but efforts were made to secure new partnerships and expand offerings [9] Company Strategy and Development Direction - The company plans to increase investment in key growth areas such as international, commercial, and video [18] - Focus on enhancing the Alarm.com platform to support service provider partners and expand into new markets [9][10] - Introduction of new capabilities like Ambient Insights for Alarm Response to improve monitoring services [16][17] Management's Comments on Operating Environment and Future Outlook - Management noted that there has been no significant impact from the Delta variant on sales and installations thus far [35][36] - Caution was expressed regarding the potential impact of the pandemic on future operations, especially in Europe [38] - The company anticipates challenges from the global chip shortage but has managed to navigate these issues effectively in the first half of the year [28][30] Other Important Information - The company ended Q2 2021 with $662.7 million in cash and cash equivalents [25] - Non-GAAP net income for 2021 is projected to be between $93 million to $93.7 million, or $1.77 to $1.79 per diluted share [31] Q&A Session Summary Question: Impact of Delta variant on business - Management has not seen significant impacts on service providers' ability to sell and install systems, but there is caution regarding potential future impacts [35][36] Question: Guidance on SaaS subscription momentum - Europe remains below pre-pandemic levels, while North America has shown good growth in residential and commercial sectors [38] Question: Commercial market contribution - Commercial market currently makes up around 10% of total business, growing from 7-8% in previous years [41] Question: ARPU differences between commercial and residential - Commercial has a higher ARPU of about $10 per month compared to residential's upper $5 range [45][46] Question: Anticipated drop in hardware revenue - Anticipated drop in hardware revenue is due to service providers building inventory in Q2 and a conservative stance on forecasts [50][51] Question: Ambient Insights differentiation - Ambient Insights uses AI to assess alarm signals and prioritize dispatches, aiming to reduce false alarms and improve user experience [53][54] Question: Hardware availability for commercial demand - Current estimates suggest 85-90% of desired hardware is available, with some component shortages but no significant impact on service providers [57] Question: Video install attach rates - The attach rate for video systems is around 46%, with a 70% rate for video analytics on installations [59] Question: Performance of subsidiary businesses - Other segment revenue was $8.3 million, with strong performance in EnergyHub but vacation rentals still impacted by the pandemic [65][66]

Alarm.com Holdings, Inc. (NASDAQ:ALRM) Q1 2021 Earnings Conference Call May 4, 2021 2:30 PM ET Company Participants David Trone - Vice President, Investor Relations Stephen Trundle - President and Chief Executive Officer Steve Valenzuela - Chief Financial Officer Conference Call Participants Sterling Auty - JPMorgan Adam Tindle - Raymond James Matt Pfau - William Blair Brian Ruttenbur - Imperial Capital Jack Vander Aarde - Maxim Group Operator Good day and thank you for standing by. Welcome to the Alarm.com ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2021 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number: 001-37461 ALARM.COM HOLDINGS, INC. (Exact name of registrant as specified in its charter) Delaware 26-4247032 (State or other juris ...