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 September 30, 2019 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® ALARM.COM HOLDINGS, INC. (Exact name of registrant as specified in its charter) Delaware 26-4247032 (State ...

Alarm.com Holdings (NASDAQ:ALRM) Q2 2019 Earnings Conference Call August 8, 2019 4:30 PM ET Company Participants David Trone - VP, IR Stephen Trundle - President, CEO & Director Steve Valenzuela - CFO Conference Call Participants Jacqueline Cheong - Bank of America Merrill Lynch Adam Tindle - Raymond James & Associates Kevin McVeigh - Crédit Suisse Reed Motulsky - Imperial Capital Parthiv Varadarajan - Jefferies Michael Latimore - Northland Capital Markets Darren Aftahi - Roth Capital Partners Jack Aarde - ...

[PART I. FINANCIAL INFORMATION](index=3&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) [Item 1. Financial Statements (Unaudited)](index=3&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) The unaudited condensed consolidated financial statements for the three and six months ended June 30, 2019, show continued revenue growth and increased net income, with total assets rising due to the adoption of the new lease accounting standard [Condensed Consolidated Statements of Operations](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) Total revenue grew 16% to $121.7 million for the three months ended June 30, 2019, with net income increasing to $13.8 million, driven by growth in both SaaS and hardware sales Condensed Consolidated Statements of Operations (in thousands) | Financial Metric | Three Months Ended June 30, 2019 | Three Months Ended June 30, 2018 | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | | :--- | :--- | :--- | :--- | :--- | | **Total Revenue** | **$121,660** | **$104,488** | **$233,995** | **$197,244** | | SaaS and license revenue | $82,334 | $70,968 | $162,389 | $138,956 | | Hardware and other revenue | $39,326 | $33,520 | $71,606 | $58,288 | | **Operating Income** | **$14,045** | **$8,510** | **$23,266** | **$20,503** | | **Net Income** | **$13,796** | **$10,733** | **$22,806** | **$21,248** | | **Diluted EPS** | **$0.27** | **$0.22** | **$0.45** | **$0.43** | [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Total assets increased to $505.4 million as of June 30, 2019, primarily due to the recognition of $27.7 million in operating lease right-of-use assets following the adoption of Topic 842 Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2019 | December 31, 2018 | | :--- | :--- | :--- | | Cash and cash equivalents | $150,851 | $146,061 | | Total current assets | $268,491 | $228,063 | | **Total Assets** | **$505,421** | **$440,985** | | Total current liabilities | $83,216 | $75,270 | | Long-term debt | $65,000 | $67,000 | | **Total Liabilities** | **$192,993** | **$163,396** | | **Total Stockholders' Equity** | **$312,428** | **$277,589** | [Condensed Consolidated Statements of Cash Flows](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Net cash provided by operating activities increased to $22.9 million for the six months ended June 30, 2019, while cash used in investing activities significantly rose to $18.4 million Six Months Ended June 30, Cash Flow Summary (in thousands) | Cash Flow Category | 2019 | 2018 | | :--- | :--- | :--- | | Net cash from operating activities | $22,867 | $15,204 | | Net cash used in investing activities | ($18,369) | ($6,131) | | Net cash from financing activities | $292 | $557 | | **Net increase in cash** | **$4,790** | **$9,630** | | **Cash at end of period** | **$150,851** | **$105,959** | [Notes to the Condensed Consolidated Financial Statements](index=7&type=section&id=Notes%20to%20the%20Condensed%20Consolidated%20Financial%20Statements) The notes detail the adoption of Topic 842, revenue recognition from SaaS and hardware sales through service providers, the $28.0 million TCPA class action lawsuit settlement, and the Alarm.com segment's continued revenue dominance - The company adopted the new lease accounting standard, Topic 842, on January 1, 2019, using the modified retrospective approach, resulting in the recognition of **$28.4 million** in operating lease right-of-use assets and corresponding lease liabilities[22](index=22&type=chunk)[23](index=23&type=chunk)[24](index=24&type=chunk) - Revenue is derived from SaaS, software licenses, and hardware sales through a network of over **8,000 service provider partners** who resell solutions to residential and commercial property owners[10](index=10&type=chunk)[27](index=27&type=chunk) - The company settled a putative class action lawsuit related to the Telephone Consumer Protection Act (TCPA) for total cash consideration of **$28.0 million**, with an initial payment of **$5.0 million** made on January 2, 2019[81](index=81&type=chunk)[82](index=82&type=chunk)[84](index=84&type=chunk) - The Alarm.com segment accounted for **93% of total revenue** for the six months ended June 30, 2019, consistent with the prior year period[109](index=109&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A)](index=27&type=section&id=Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations%20(MD%26A)) Management discusses the second quarter 2019 financial results, highlighting a 16% revenue increase driven by subscriber growth and video camera sales, a strong 94% SaaS renewal rate, increased R&D expenses, and a healthy liquidity position Q2 2019 Financial Highlights (in thousands) | Metric | Q2 2019 | Q2 2018 | % Change | | :--- | :--- | :--- | :--- | | Total Revenue | $121,660 | $104,488 | 16% | | SaaS and license revenue | $82,334 | $70,968 | 16% | | Hardware and other revenue | $39,326 | $33,520 | 17% | | Net Income | $13,796 | $10,733 | 29% | | Adjusted EBITDA | $27,715 | $23,409 | 18% | - The SaaS and license revenue renewal rate was **94%** for the twelve months ended June 30, 2019, consistent with the prior year, indicating strong customer retention[128](index=128&type=chunk)[137](index=137&type=chunk) - The company is monitoring the impact of U.S. trade policy and tariffs on China, as approximately **one-third of its finished hardware products** are imported from China, with modest impact to date but potential future margin reductions[152](index=152&type=chunk) - The company ended the quarter with **$150.9 million in cash and cash equivalents** and believes existing resources are sufficient to meet operating needs for at least the next 12 months[191](index=191&type=chunk)[192](index=192&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=43&type=section&id=Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risk is interest rate fluctuations on its credit facility, with a 100 basis point change impacting annual interest expense by approximately $0.7 million, while foreign currency and inflation risks are immaterial - The primary market risk is interest rate risk associated with the 2017 Facility, where a **100 basis point change** would alter annual interest expense by about **$0.7 million**[222](index=222&type=chunk) - Foreign currency exchange risk is considered immaterial as business is conducted almost entirely in U.S. dollars[223](index=223&type=chunk) - Inflation is not believed to have had a material effect on the business[224](index=224&type=chunk) [Controls and Procedures](index=43&type=section&id=Controls%20and%20Procedures) Management concluded that the company's disclosure controls and procedures were effective as of June 30, 2019, with no material changes to internal control over financial reporting during the quarter - As of June 30, 2019, the CEO and CFO concluded that the company's disclosure controls and procedures were **effective** at a reasonable assurance level[227](index=227&type=chunk) - No material changes were made to the internal control over financial reporting during the fiscal quarter ended June 30, 2019[228](index=228&type=chunk) [PART II. OTHER INFORMATION](index=44&type=section&id=PART%20II.%20OTHER%20INFORMATION) [Item 1. Legal Proceedings](index=44&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in several legal proceedings, including ongoing patent infringement litigation with Vivint, Inc., a patent suit against Protect America, Inc., and a $28.0 million TCPA class action lawsuit settlement, while also indemnifying ADT in two patent infringement suits - The company is engaged in a patent infringement lawsuit filed by Vivint, Inc. in 2015, involving inter partes reviews by the U.S. Patent Trial and Appeal Board (PTAB), with some claims found unpatentable and others still under review or appeal[232](index=232&type=chunk)[233](index=233&type=chunk) - A putative class action lawsuit alleging violations of the Telephone Consumer Protection Act (TCPA) was settled for **$28.0 million**, with the court granting preliminary approval and a final approval hearing scheduled for August 13, 2019[235](index=235&type=chunk)[236](index=236&type=chunk)[237](index=237&type=chunk) - The company is indemnifying service provider ADT LLC in two ongoing patent infringement suits: one filed by Applied Capital, Inc. and another by Varatec, LLC[239](index=239&type=chunk)[240](index=240&type=chunk) [Item 1A. Risk Factors](index=46&type=page&id=Item%201A.%20Risk%20Factors) The company identifies numerous risks, including fluctuating quarterly results, intense competition, reliance on service provider partners, potential liability from solution failures, cybersecurity threats, intellectual property protection, supplier dependence, regulatory changes, and U.S. trade policies - The company faces intense competition from technology platforms (Honeywell, Resideo), managed service providers (Comcast, AT&T), and point product providers (Google's Nest, Amazon's Ring), many of whom have greater resources[267](index=267&type=chunk)[270](index=270&type=chunk) - A substantial portion of revenue comes from a limited number of service provider partners; for the year ended Dec 31, 2018, the **10 largest partners accounted for 57% of revenue**, with ADT LLC representing over **15%**[293](index=293&type=chunk) - The business is exposed to cybersecurity risks, where a security breach could lead to system disruptions, unauthorized data access, and significant fines under regulations like GDPR and the upcoming California Consumer Privacy Act (CCPA)[284](index=284&type=chunk)[286](index=286&type=chunk)[340](index=340&type=chunk) - Changes in U.S. trade policy, particularly tariffs on goods from China, pose a risk, as approximately **one-third of the company's finished hardware products** are imported from China and could be subject to increased tariffs, potentially eroding margins[382](index=382&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=70&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company reported no unregistered sales of equity securities during the quarter and made no repurchases under its $75.0 million stock repurchase program - There were no unregistered sales of equity securities in the quarter[429](index=429&type=chunk) - The company has a stock repurchase program authorizing up to **$75.0 million** in purchases, but no shares were repurchased under this program during the quarter ended June 30, 2019[431](index=431&type=chunk) [Item 5. Other Information](index=71&type=section&id=Item%205.%20Other%20Information) Board member Michelle K. Lee notified the board of her resignation, effective September 3, 2019, due to accepting a new executive position with a policy against serving on for-profit boards - Board member Michelle K. Lee resigned effective September 3, 2019, due to a conflict with a new full-time executive position[433](index=433&type=chunk)

Financial Data and Key Metrics Changes - SaaS and license revenue in Q1 2019 was $80.1 million, up 17.7% from $68 million in Q1 2018 [8][20] - Adjusted EBITDA for Q1 2019 was $24.3 million, compared to $23 million in the same quarter last year [8][24] - Total revenue for Q1 2019 was $112.3 million, representing a 21% increase from Q1 2018 [22] - GAAP net income for Q1 2019 was $9 million, down from $10.5 million in Q1 2018 [24] - Non-GAAP adjusted net income increased to $17.2 million in Q1 2019, compared to $16.7 million in Q1 2018 [24] Business Line Data and Key Metrics Changes - Hardware and other revenue in Q1 2019 was $32.3 million, up 30% from Q1 2018, primarily due to increased sales of video cameras [21] - SaaS and license revenue renewal rate was 94% in Q1 2019, at the high end of the historical range [21] - Hardware gross margin decreased to 17.5% in Q1 2019 from 29.1% in Q1 2018, mainly due to product mix [22] Market Data and Key Metrics Changes - The small and medium-sized business market is identified as a growth opportunity, with nearly 40% of new accounts including add-on connected devices [16] - International account creation increased over 50% year-over-year, indicating good growth in international markets [54] Company Strategy and Development Direction - The company is focused on expanding its solutions with new capabilities for service providers and their customers, including enhancements to commercial services and residential solutions [8][9] - The introduction of new software-based capabilities in the commercial offering aims to enhance operational efficiency for service providers [9][10] - The company is cautious regarding hardware sales and gross margins due to potential impacts from increased tariffs on imported goods from China [19][26] Management's Comments on Operating Environment and Future Outlook - Management expressed satisfaction with Q1 results and the progress made in expanding the platform [20] - The company anticipates SaaS and license revenue for Q2 2019 to be between $80.6 million and $80.9 million, indicating a cautious outlook [25] - The company raised its full-year revenue guidance for 2019 to between $447.3 million and $454.2 million, reflecting confidence in growth despite uncertainties [26] Other Important Information - The company ended Q1 2019 with $122.4 million in cash and cash equivalents [24] - R&D expenses increased to $26.5 million in Q1 2019, reflecting ongoing investments in product development [22] Q&A Session Summary Question: Impact of Control4-SnapAV acquisition on competitive landscape - Management views the acquisition as a non-event, noting that competition from Control4 and SnapAV is not significant [30][31] Question: Guidance for Q2 and seasonal revenue expectations - Management explained that the seasonal revenue from SoCalGas would not repeat in Q2, affecting the expected growth rate [33][34] Question: Metrics for tracking progress in the commercial space - Management tracks the percentage of commercial customers and the number of doors activated on the network as key metrics [37] Question: Update on STANLEY relationship and market presence - Management highlighted the importance of the STANLEY relationship, noting it validates their investments and efforts in the commercial space [38] Question: Update on MONI/Brinks Security relationship - Management confirmed no changes in the relationship with MONI, noting improvements in customer quality [49] Question: International revenue contribution and SoCalGas program quantification - Management reported good growth in international accounts and noted that the Other segment accounted for about 8% of total revenue [54][57] Question: Update on video analytics service adoption - Management indicated steady adoption of video analytics services, with positive user experience driving growth [60] Question: Number of homebuilder partners - Management confirmed partnerships with D.R. Horton and Toll Brothers, while noting many smaller local builders are also engaged [63][65] Question: Hardware gross margin outlook - Management suggested modeling hardware margins in the 18% to 20% range going forward, influenced by product mix [66]

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2019 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 | --- | --- | |----------------------------------------------------------------------------|----------------------------- ...

Financial Data and Key Metrics Changes - SaaS and license revenue for Q4 2018 was $77.8 million, up 19% year-over-year, with full-year 2018 revenue at $291.1 million, a 23% increase from 2017 [8][25] - Total revenue for Q4 2018 was $111.4 million, a 25% increase from Q4 2017, with full-year total revenue growing 24% to $420.5 million [26] - Adjusted EBITDA for Q4 2018 was $20.9 million, with full-year adjusted EBITDA at $93.1 million, up 30% from 2017 [29] - GAAP net income for Q4 2018 was $7.9 million compared to $320,000 in Q4 2017, while non-GAAP adjusted net income increased to $14.5 million from $13 million year-over-year [29] Business Line Data and Key Metrics Changes - Hardware and other revenue in Q4 2018 was $33.6 million, up 42% from Q4 2017, primarily driven by increased sales of video cameras [26] - SaaS and license gross margin for Q4 2018 was 85.1%, slightly down from 85.5% in Q4 2017, while hardware gross margin decreased to 18.8% from 21.9% [26] Market Data and Key Metrics Changes - The company reported more than 8,000 service providers using its technology across over 6.1 million properties globally, with over 90 million connected devices enabled [9] - International subscriber accounts reached 100,000 in early 2018, with ongoing expansion in Europe, Turkey, Australia, New Zealand, and Latin America [17][19] Company Strategy and Development Direction - The company aims to drive growth through innovation in core channels, enhance video services, develop international markets, and build vertical businesses [10] - Product innovation is central to the company's strategy, with new offerings like Alarm.com for Business targeting small and medium-sized businesses [11][12] - The expansion of the artificial intelligence platform for video services is a key focus, with video analytics launched to enhance service offerings [16] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's performance and growth opportunities, despite a more cautious outlook for 2019 compared to previous years [46] - The company noted that its core business remains strong, with mid-teens growth expected [46] Other Important Information - The company ended Q4 2018 with $146.1 million in cash and cash equivalents, with cash flow from operations at approximately $25.7 million [30] - The company plans to continue investing in R&D, with expenses in Q4 2018 at $24.4 million, up from $18.9 million in Q4 2017 [27] Q&A Session Summary Question: Differences between ADT Pulse and ADT Command - Management highlighted that ADT Command is a significant upgrade with a new SaaS architecture and feature sets, while continuing to enhance ADT Pulse [33] Question: Subscription revenue guidance for 2019 - Management explained that guidance is based on current knowledge and does not factor in potential growth initiatives [34] Question: Payback rules for marketing investments - Management noted that investments in other segments have longer payback periods, focusing on long-term goals rather than immediate returns [38] Question: Impact of commercial initiatives - Management indicated that both existing and new service providers are being engaged to expand commercial services [51] Question: Adoption rates for new builds - Management estimated a take rate of 40% to 50% for security services in new builds when there is a relationship with the homebuilder [81]

Part I [Business](index=5&type=section&id=Item%201.%20Business) Alarm.com provides cloud-based solutions for connected properties, generating $420.5 million in 2018 revenue primarily through its network of service providers Financial Performance (2016-2018) | Financial Metric | 2018 | 2017 | 2016 | | :--- | :--- | :--- | :--- | | **Total Revenue** | $420.5M | $338.9M | $261.1M | | **SaaS and License Revenue** | $291.1M | $236.3M | $173.5M | | **Net Income** | $21.5M | $29.3M | $10.2M | | **Adjusted EBITDA** | $93.1M | $71.6M | $49.0M | - The company's solutions are delivered through a network of over **8,000 service providers** who sell, install, and support the offerings[10](index=10&type=chunk) - In 2018, the platform processed over **200 billion data points** from more than 90 million connected devices, highlighting its scale[9](index=9&type=chunk) - Key service provider partners include **ADT LLC**, which represented over 15% of revenue in 2018, and **Monitronics (Brinks Home Security)**, which represented over 10% of revenue in 2017[93](index=93&type=chunk) [Overview](index=5&type=section&id=Item%201.%20Business-Overview) The company offers a comprehensive suite of cloud-based solutions for smart properties, generating revenue through SaaS, license, and hardware sales - Alarm.com provides a comprehensive suite of cloud-based solutions for smart residential and commercial properties, including interactive security, video monitoring, intelligent automation, energy management, and wellness[9](index=9&type=chunk) - The business model is primarily based on generating Software-as-a-Service (SaaS) and license revenue from over **8,000 service provider partners** who pay monthly fees[10](index=10&type=chunk) [Our Solutions and Integrated Platforms](index=5&type=section&id=Item%201.%20Business-Our%20Solutions%20and%20Integrated%20Platforms) The company provides integrated solutions for subscribers and service providers, including security, video analytics, and business management tools - Subscriber solutions include interactive security, video monitoring with analytics, and intelligent automation for energy management, controllable via mobile apps and voice platforms[14](index=14&type=chunk)[15](index=15&type=chunk)[22](index=22&type=chunk) - The "Alarm.com for Business" offering provides a unified solution for small and medium businesses, combining intrusion detection, video surveillance, access control, and energy management[34](index=34&type=chunk) - Service provider solutions include an enterprise-grade portal for account management and support tools like the MobileTech application to streamline installation and troubleshooting[42](index=42&type=chunk)[44](index=44&type=chunk) [Growth Strategy](index=10&type=section&id=Item%201.%20Business-Growth%20Strategy) The company's growth strategy focuses on expanding its service provider network, growing its international presence, and pursuing strategic acquisitions - Key growth strategies include driving SaaS revenue by adding new service providers and upgrading traditional security customers[70](index=70&type=chunk)[71](index=71&type=chunk)[72](index=72&type=chunk) - The company plans to expand its international presence, which is currently localized in approximately **40 countries** outside North America[74](index=74&type=chunk) - Expansion into the small and medium business (SMB) market and pursuing selective strategic acquisitions are also core components of the growth strategy[75](index=75&type=chunk)[77](index=77&type=chunk) [Competition](index=14&type=section&id=Item%201.%20Business-Competition) The company operates in a highly competitive and fragmented market, facing rivals from technology platform providers and large direct-to-consumer firms - The connected property market is highly competitive, with key competitors including technology platform providers like **Honeywell, Resideo, and Telular**[101](index=101&type=chunk) - The company also competes with direct-to-consumer solutions from firms like SimpliSafe and large technology companies such as **Google (Nest), Amazon (Ring), and Apple (HomeKit)**[101](index=101&type=chunk) - Principal competitive factors include simplicity, breadth of features, device compatibility, pricing, and brand reputation[102](index=102&type=chunk) [Intellectual Property](index=15&type=section&id=Item%201.%20Business-Intellectual%20Property) The company protects its technology through a combination of patents, trademarks, copyrights, and trade secret laws - As of December 31, 2018, the company owned **193 issued patents** and had **178 pending US utility patent applications**[106](index=106&type=chunk)[70](index=70&type=chunk) - The company relies on a combination of patent, trademark, copyright, and trade secret laws, alongside confidentiality agreements, to protect its proprietary technology[105](index=105&type=chunk) [Risk Factors](index=17&type=section&id=Item%201A.%20Risk%20Factors) The company faces risks from partner concentration, legal proceedings, intense competition, and potential security breaches - The company's top 10 service provider partners accounted for **57% of revenue in 2018**, with ADT LLC representing over 15%, highlighting a concentration risk[165](index=165&type=chunk) - A putative class action lawsuit alleging violations of the Telephone Consumer Protection Act (TCPA) was settled for **$28.0 million**, subject to final court approval[131](index=131&type=chunk)[132](index=132&type=chunk) - Competition is a significant risk, with competitors including large technology companies (**Google, Amazon, Apple**), broadband providers, and other security platform providers[137](index=137&type=chunk)[138](index=138&type=chunk) - Failure to maintain the security of information and technology networks could lead to significant liabilities and reputational damage under laws like **GDPR and CCPA**[149](index=149&type=chunk)[152](index=152&type=chunk)[209](index=209&type=chunk) [Unresolved Staff Comments](index=41&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The company reports no unresolved SEC staff comments - None[303](index=303&type=chunk) [Properties](index=41&type=section&id=Item%202.%20Properties) The company's principal offices are leased in Tysons, Virginia, with additional locations across North America and Europe - The main corporate headquarters is a **160,406 square foot** leased facility in Tysons, Virginia[304](index=304&type=chunk) - Additional offices are located in Minnesota, Massachusetts, Colorado, Florida, Kansas, Utah, California, New York, Oregon, North Carolina, Amsterdam (Netherlands), and Ottawa (Canada)[305](index=305&type=chunk)[306](index=306&type=chunk) [Legal Proceedings](index=41&type=section&id=Item%203.%20Legal%20Proceedings) The company is involved in patent infringement litigation and has settled a class action lawsuit for $28.0 million - A putative class action lawsuit alleging TCPA violations was settled for **$28.0 million**, with preliminary court approval received on December 19, 2018[313](index=313&type=chunk)[316](index=316&type=chunk) - The company is in ongoing patent infringement litigation with **Vivint, Inc.**, which filed a lawsuit in June 2015[311](index=311&type=chunk) - Alarm.com has filed patent infringement complaints against **ipDatatel and Protect America, Inc.**, seeking injunctive relief and damages[308](index=308&type=chunk)[310](index=310&type=chunk) [Mine Safety Disclosures](index=43&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This section is not applicable to the company's operations - Not applicable[321](index=321&type=chunk) Part II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=44&type=section&id=Item%205.%20Market%20for%20Registrant's%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The company's stock trades on Nasdaq under "ALRM," with a $75.0 million share repurchase program and no plans for dividends - The company's common stock trades on The Nasdaq Global Select Market under the symbol **"ALRM"**[323](index=323&type=chunk) - A stock repurchase program was authorized on November 29, 2018, allowing the company to purchase up to **$75.0 million** of its outstanding common stock through November 29, 2020[330](index=330&type=chunk) - The company does not intend to pay cash dividends in the foreseeable future and is limited by its credit facility[325](index=325&type=chunk) [Selected Financial Data](index=46&type=section&id=Item%206.%20Selected%20Financial%20Data) The company shows strong five-year revenue growth, with total revenue reaching $420.5 million and Adjusted EBITDA at $93.1 million in 2018 Selected Financial Data (2014-2018, in thousands) | Metric | 2018 | 2017 | 2016 | 2015 | 2014 | | :--- | :--- | :--- | :--- | :--- | :--- | | **Total Revenue** | $420,494 | $338,937 | $261,106 | $208,888 | $167,312 | | **SaaS and license revenue** | $291,072 | $236,283 | $173,540 | $140,936 | $111,515 | | **Net Income** | $21,524 | $29,251 | $10,154 | $11,768 | $13,502 | | **Adjusted EBITDA** | $93,081 | $71,628 | $49,034 | $34,370 | $28,321 | | **Total Assets** | $440,985 | $371,641 | $261,245 | $226,095 | $120,932 | - The SaaS and license revenue renewal rate has remained stable, reported at **93% for 2018 and 2017**, and 94% for 2016[334](index=334&type=chunk)[336](index=336&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=49&type=section&id=Item%207.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Revenue grew 24% in 2018, though net income declined due to a legal settlement, while liquidity remains strong Year-Over-Year Revenue Growth | Revenue Type | 2018 vs. 2017 Growth | 2017 vs. 2016 Growth | | :--- | :--- | :--- | | **Total Revenue** | 24% | 30% | | **SaaS and license revenue** | 23% | 36% | | **Hardware and other revenue** | 26% | 17% | - The increase in General and Administrative expense in 2018 was primarily driven by a **$39.9 million increase in legal expenses**, which includes a $28.0 million expense for the TCPA legal settlement[404](index=404&type=chunk) - Cash flow from operations increased to **$60.7 million in 2018** from $57.2 million in 2017, while cash used in investing decreased significantly as 2017 included $154.3 million for acquisitions[476](index=476&type=chunk)[484](index=484&type=chunk) - As of December 31, 2018, the company had **$146.1 million in cash** and cash equivalents and $67.0 million outstanding under its $125.0 million credit facility[466](index=466&type=chunk)[473](index=473&type=chunk) [Results of Operations](index=54&type=section&id=Item%207.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations-Results%20of%20Operations) Revenue growth was driven by an expanding subscriber base, while operating income fell due to a significant legal settlement expense Comparison of Operating Results (2018 vs. 2017) | Line Item | 2018 ($M) | 2017 ($M) | % Change | | :--- | :--- | :--- | :--- | | **Total Revenue** | 420.5 | 338.9 | 24% | | **Cost of Revenue** | 145.7 | 116.2 | 25% | | **Sales and Marketing** | 55.9 | 43.5 | 29% | | **General and Administrative** | 95.8 | 55.4 | 73% | | **Research and Development** | 89.2 | 72.8 | 23% | | **Operating Income** | 12.2 | 33.4 | (63%) | | **Net Income** | 21.5 | 29.3 | (26%) | - The **24% increase in total revenue** for 2018 was driven by growth in the subscriber base for the Alarm.com segment and increased sales of video cameras[393](index=393&type=chunk) - The **73% increase in General and Administrative expense** in 2018 was primarily due to a **$28.0 million expense** for a legal settlement related to the TCPA[404](index=404&type=chunk) - The **64% increase in Research and Development expense** in 2017 compared to 2016 was primarily due to increased headcount from acquisitions[409](index=409&type=chunk) [Liquidity and Capital Resources](index=66&type=section&id=Item%207.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations-Liquidity%20and%20Capital%20Resources) The company maintains a strong liquidity position with significant cash reserves and access to a revolving credit facility - As of December 31, 2018, the company had **$146.1 million in cash and cash equivalents** and working capital of $152.8 million[466](index=466&type=chunk)[467](index=467&type=chunk) Historical Cash Flows (in thousands) | Cash Flow Activity | 2018 | 2017 | 2016 | | :--- | :--- | :--- | :--- | | **Operating Activities** | $60,710 | $57,187 | $22,600 | | **Investing Activities** | ($13,377) | ($168,795) | ($11,426) | | **Financing Activities** | $2,399 | $67,303 | $1,102 | - The primary source of liquidity is a **$125.0 million senior secured revolving credit facility**, of which $67.0 million was outstanding as of December 31, 2018[472](index=472&type=chunk)[473](index=473&type=chunk) - Total contractual obligations as of December 31, 2018, amount to **$131.2 million**, primarily comprising debt and operating lease commitments[491](index=491&type=chunk) [Critical Accounting Policies and Significant Judgments and Estimates](index=62&type=section&id=Item%207.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations-Critical%20Accounting%20Policies%20and%20Significant%20Judgments%20and%20Estimates) Key accounting policies involve revenue recognition, business combinations, goodwill impairment testing, and stock-based compensation estimates - **Revenue Recognition**: The company adopted Topic 606 on January 1, 2018, recognizing SaaS revenue monthly and hardware revenue upon transfer of control[430](index=430&type=chunk)[549](index=549&type=chunk) - **Business Combinations**: Purchase prices of acquisitions are allocated to assets and liabilities based on estimated fair values, requiring significant management estimates[449](index=449&type=chunk) - **Goodwill and Intangible Assets**: Goodwill is tested for impairment annually on October 1, with the 2018 assessment indicating no impairment was likely[454](index=454&type=chunk)[455](index=455&type=chunk) - **Stock-Based Compensation**: Expense is calculated using the Black-Scholes model, which requires subjective assumptions for expected term, volatility, and risk-free interest rate[447](index=447&type=chunk) [Quantitative and Qualitative Disclosures about Market Risk](index=71&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) The company's primary market risk is interest rate exposure from its variable-rate debt, with minimal foreign currency or inflation risk - The primary market risk is interest rate risk from the variable-rate credit facility; a **1% change in interest rates** would affect annual interest expense by about **$0.7 million**[506](index=506&type=chunk) - Foreign currency exchange risk is considered immaterial as substantially all revenue and expenses are denominated in U.S. dollars[507](index=507&type=chunk) - Inflation is not believed to have had a material effect on the business[508](index=508&type=chunk) [Financial Statements and Supplementary Data](index=72&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section presents the audited consolidated financial statements and the independent auditor's report for the past three fiscal years - The independent auditor, PricewaterhouseCoopers LLP, issued an **unqualified opinion** on the consolidated financial statements and internal controls as of December 31, 2018[512](index=512&type=chunk)[513](index=513&type=chunk) Consolidated Statements of Operations Highlights (in thousands) | Line Item | 2018 | 2017 | 2016 | | :--- | :--- | :--- | :--- | | **Total Revenue** | $420,494 | $338,937 | $261,106 | | **Operating Income** | $12,202 | $33,374 | $14,058 | | **Net Income** | $21,524 | $29,251 | $10,154 | | **Diluted EPS** | $0.43 | $0.59 | $0.21 | Consolidated Balance Sheets Highlights (in thousands) | Line Item | Dec 31, 2018 | Dec 31, 2017 | | :--- | :--- | :--- | | **Cash and cash equivalents** | $146,061 | $96,329 | | **Total Assets** | $440,985 | $371,641 | | **Long-term debt** | $67,000 | $71,000 | | **Total Stockholders' Equity** | $277,589 | $232,827 | [Changes in and Disagreements With Accountants on Accounting and Financial Disclosure](index=116&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20With%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) The company reports no disagreements with its accountants on accounting and financial disclosure - None[739](index=739&type=chunk) [Controls and Procedures](index=116&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded that the company's disclosure controls and internal control over financial reporting were effective as of year-end 2018 - Management concluded that disclosure controls and procedures were **effective** as of December 31, 2018[741](index=741&type=chunk) - Management concluded that internal control over financial reporting was **effective** as of December 31, 2018, based on the COSO framework[742](index=742&type=chunk) - There were **no material changes** in internal control over financial reporting during the fourth quarter of 2018[743](index=743&type=chunk) [Other Information](index=116&type=section&id=Item%209B.%20Other%20Information) The company reports no other information for this item - None[745](index=745&type=chunk) Part III [Directors, Executive Officers, Corporate Governance, Executive Compensation, and Other Matters](index=117&type=section&id=Items%2010%2C%2011%2C%2012%2C%2013%2C%20and%2014) Required information on governance and compensation is incorporated by reference from the company's 2019 Proxy Statement - Information for Part III (Items 10-14) is **incorporated by reference** from the registrant's 2019 Proxy Statement[747](index=747&type=chunk) Part IV [Exhibits, Financial Statement Schedules](index=118&type=section&id=Item%2015.%20Exhibits%2C%20Financial%20Statement%20Schedules) This section lists all financial statements, schedules, and exhibits filed as part of the annual report - This section lists all financial statements, schedules, and exhibits filed with the Form 10-K[753](index=753&type=chunk) [Form 10-K Summary](index=120&type=section&id=Item%2016.%20Form%2010-K%20Summary) This item is not applicable - Not applicable[755](index=755&type=chunk)