Financial Data and Key Metrics Changes - SaaS and license revenue for Q2 2020 was $95.7 million, an increase of 16.2% year-over-year [9][20] - Adjusted EBITDA for Q2 2020 was $29.2 million, up from $27.7 million in Q2 2019 [23] - GAAP net income for Q2 2020 was $17 million, compared to $13.8 million in Q2 2019 [23] - Total revenue for Q2 2020 was $141.6 million, a growth of 16.4% from Q2 2019 [20] - Cash flow from operations was approximately $35.1 million, up from $24.1 million in Q2 2019 [24] Business Line Data and Key Metrics Changes - Connect software license revenue was approximately $9.8 million for Q2 2020, down from $11 million in the same quarter last year [20] - Hardware and other revenue in Q2 2020 was $45.9 million, up 16.8% over Q2 2019, driven by strong sales of video cameras [20] - SaaS and license gross margin for Q2 2020 was 86.4%, an increase of 180 basis points from Q2 2019 [20] Market Data and Key Metrics Changes - The U.S. residential security market has improved significantly from the slowdown experienced in March and April due to COVID-19 [17] - The commercial business and international markets continue to face ongoing impacts from COVID-19 [17] - There is an emerging suburbanization trend where more households are migrating away from dense urban areas, which may favor sales of new security systems [18] Company Strategy and Development Direction - The company aims to continue expanding its offerings and investing in R&D to cover a full spectrum of IoT application services [30] - The acquisition of OpenEye is part of the strategy to enhance commercial opportunities in the enterprise and national accounts market [10] - The company plans to maintain a focus on serving its service provider partners and technology innovation [16] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in navigating the uncertain environment caused by COVID-19 and highlighted the resilience of consumers in the U.S. residential market [19][61] - The company remains cautious about projecting future conditions due to the ongoing pandemic [19] - Management noted that the pandemic has historically led consumers to prioritize security and asset protection [18] Other Important Information - The company ended Q2 2020 with $205.8 million in cash and cash equivalents, a strong increase of $34.1 million quarter-over-quarter [24] - The company has over 9,000 service provider partners globally, which supports a broad range of services and capabilities [16] Q&A Session Summary Question: General strategic update on using business stability as a competitive advantage - Management acknowledged the stability provided by recurring revenues and indicated a focus on reinvesting in R&D and expanding offerings [29] Question: Drivers of SaaS revenue growth and updates on early August performance - Management noted strong performance in the U.S. residential market and indicated that growth was driven by new account installations and strong performance in subsidiary businesses [32] Question: Strategic implications of the convergence between internet and home security - Management discussed the importance of reliable internet connectivity for security services and the ongoing migration towards leveraging consumer internet for video services [37] Question: Update on OpenEye SaaS offering and sales resources - Management confirmed enhancements to the sales team for OpenEye and the introduction of a lightweight SaaS offering tailored for smaller locations [47] Question: European strategy and collaboration with Johnson Controls - Management highlighted the focus on residential services in Europe and the ambition to leverage investments made in North America for international markets [53] Question: Status update on PointCentral and its impact from COVID-19 - Management indicated that PointCentral has been impacted by COVID-19 but is seeing a recovery as vacation rental companies are performing well [71]

[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 quarter and six months ended June 30, 2020, reflect significant revenue and net income growth, increased liquidity, and the adoption of new accounting standards, with the Alarm.com segment as the primary revenue driver [Condensed Consolidated Statements of Operations](index=3&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) For Q2 2020, total revenue increased 16% to $141.6 million, driven by growth in both SaaS and hardware, leading to increased operating income and net income attributable to common stockholders of $17.0 million or $0.34 per diluted share Condensed Consolidated Statements of Operations (Q2 & H1 2020 vs. 2019) | Financial Metric | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :--- | :--- | :--- | :--- | :--- | | **Total Revenue** | $141,637 | $121,660 | $293,576 | $233,995 | | SaaS and license revenue | $95,704 | $82,334 | $187,654 | $162,389 | | Hardware and other revenue | $45,933 | $39,326 | $105,922 | $71,606 | | **Operating Income** | $14,994 | $14,045 | $24,861 | $23,266 | | **Net Income** | $16,625 | $13,796 | $25,196 | $22,806 | | **Net Income Attributable to Common Stockholders** | $16,995 | $13,796 | $25,802 | $22,806 | | **Diluted EPS** | $0.34 | $0.27 | $0.51 | $0.45 | [Condensed Consolidated Balance Sheets](index=5&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) As of June 30, 2020, the balance sheet reflects total assets of $662.6 million, primarily driven by a significant increase in cash and cash equivalents to $205.8 million, alongside increased total liabilities and stockholders' equity Key Balance Sheet Items (in thousands) | Account | June 30, 2020 | December 31, 2019 | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | $205,827 | $119,629 | | Total current assets | $348,089 | $243,674 | | Goodwill | $105,662 | $104,963 | | Total assets | $662,645 | $557,799 | | **Liabilities & Equity** | | | | Total current liabilities | $92,769 | $75,795 | | Long-term debt | $112,000 | $63,000 | | Total liabilities | $258,676 | $190,938 | | Total stockholders' equity | $393,253 | $355,651 | [Condensed Consolidated Statements of Cash Flows](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) For the six months ended June 30, 2020, net cash from operating activities significantly increased to $48.0 million, complemented by cash from financing activities primarily due to a $50.0 million credit facility draw, resulting in an $86.2 million net increase in cash and cash equivalents Cash Flow Summary (in thousands) | Cash Flow Activity | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :--- | :--- | :--- | | Net cash from operating activities | $48,048 | $22,867 | | Net cash used in investing activities | ($9,306) | ($18,369) | | Net cash from financing activities | $47,456 | $292 | | **Net increase in cash** | **$86,198** | **$4,790** | [Notes to the Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20the%20Condensed%20Consolidated%20Financial%20Statements) The notes detail significant accounting policies, including Topic 326 adoption, key acquisitions, precautionary credit facility draw due to COVID-19, Alarm.com's primary revenue contribution, and ongoing legal proceedings including patent litigation - The company adopted Topic 326 (Credit Losses) on January 1, 2020, resulting in a cumulative-effect adjustment that increased the accumulated deficit by **$816 thousand**[28](index=28&type=chunk) - In March 2020, the company acquired in-process research and development (IPR&D) in two separate asset acquisitions totaling **$4.4 million**, which was expensed at the time of acquisition[62](index=62&type=chunk)[64](index=64&type=chunk) - The company is involved in significant legal proceedings, including patent infringement lawsuits filed by Vivint, Inc. and EcoFactor, Inc. The company believes it has valid defenses but cannot estimate the probability or amount of a potential loss at this time[111](index=111&type=chunk)[114](index=114&type=chunk)[115](index=115&type=chunk) - The Alarm.com segment accounted for **94%** of consolidated revenue for the first six months of 2020. One service provider partner within this segment represented between **15% and 20%** of total revenue[133](index=133&type=chunk)[141](index=141&type=chunk) - On March 25, 2020, the company borrowed **$50.0 million** under its 2017 credit facility as a precautionary measure due to uncertainty from the COVID-19 pandemic, bringing the total outstanding balance to **$112.0 million** as of June 30, 2020[105](index=105&type=chunk)[107](index=107&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=36&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management attributes Q2 revenue growth to strong performance across segments, acknowledges ongoing COVID-19 impacts on supply chain and sales, highlights strengthened liquidity with increased cash and a precautionary credit facility draw, and notes increased operating expenses due to growth investments, resulting in Adjusted EBITDA of $29.2 million [Overview and Recent Developments](index=36&type=section&id=Overview%20and%20Recent%20Developments) Alarm.com delivers cloud-based smart property solutions through over 9,000 service providers, experiencing continued growth in Q2 2020 despite COVID-19 disruptions impacting supply chains and sales channels, with a secondary public offering completed by selling stockholders in May - The company's solutions are delivered through a network of over **9,000** service provider partners[156](index=156&type=chunk) - The COVID-19 pandemic is disrupting the company's supply chain and sales channels, with management anticipating lower hardware revenue and potentially slower SaaS and license revenue growth in future periods[169](index=169&type=chunk)[188](index=188&type=chunk) - In May 2020, a secondary public offering of **5,616,451** shares was completed by selling stockholders affiliated with Technology Crossover Ventures, with no proceeds to the company[171](index=171&type=chunk) [Results of Operations](index=43&type=section&id=Results%20of%20Operations) For Q2 2020, total revenue increased 16% to $141.6 million, driven by subscriber growth and video camera sales, while operating expenses rose due to increased headcount and acquisition costs, resulting in net income of $16.6 million Revenue Growth (Q2 & H1 2020 vs. 2019) | Revenue Type | Q2 2020 | Q2 2019 | % Change | H1 2020 | H1 2019 | % Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | SaaS and license revenue | $95,704 | $82,334 | 16% | $187,654 | $162,389 | 16% | | Hardware and other revenue | $45,933 | $39,326 | 17% | $105,922 | $71,606 | 48% | | **Total Revenue** | **$141,637** | **$121,660** | **16%** | **$293,576** | **$233,995** | **25%** | - The increase in hardware revenue was partly due to the acquisition of OpenEye in October 2019 and an increase in the volume of video cameras sold[208](index=208&type=chunk)[209](index=209&type=chunk) - R&D expense increased by **$8.2 million (29%)** in Q2 2020 compared to Q2 2019, primarily due to a **$7.0 million** increase in personnel and related costs from higher headcount[218](index=218&type=chunk) - General and Administrative expense increased by **$3.5 million (25%)** in Q2 2020, partly because Q2 2019 included a **$3.3 million** reversal of a reserve that did not recur in 2020[216](index=216&type=chunk) [Liquidity and Capital Resources](index=50&type=section&id=Liquidity%20and%20Capital%20Resources) As of June 30, 2020, the company's liquidity was strong with **$205.8 million** in cash and **$255.3 million** in working capital, bolstered by **$48.0 million** in operating cash flow and a **$50.0 million** precautionary credit facility draw, with management confident in meeting future operating needs Working Capital Summary (in thousands) | Metric | June 30, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Cash and cash equivalents | $205,827 | $119,629 | | Working capital | $255,320 | $167,879 | - In March 2020, the company borrowed **$50.0 million** under its 2017 Facility as a precautionary measure due to COVID-19, leaving **$13.0 million** available for borrowing as of June 30, 2020[236](index=236&type=chunk)[237](index=237&type=chunk) - Cash flow from operating activities increased to **$48.0 million** in H1 2020 from **$22.9 million** in H1 2019, driven by higher net income and favorable changes in operating assets and liabilities[239](index=239&type=chunk)[241](index=241&type=chunk) [Non-GAAP Measures](index=53&type=section&id=Non-GAAP%20Measures) The company utilizes Adjusted EBITDA, a non-GAAP measure, to assess core operating performance, with Q2 2020 Adjusted EBITDA reaching **$29.2 million** and **$58.4 million** for the first six months of 2020 Reconciliation of Net Income to Adjusted EBITDA (in thousands) | Line Item | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :--- | :--- | :--- | :--- | :--- | | Net income | $16,625 | $13,796 | $25,196 | $22,806 | | Total adjustments | $12,585 | $13,919 | $33,203 | $29,161 | | **Adjusted EBITDA** | **$29,210** | **$27,715** | **$58,399** | **$51,967** | [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=54&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risk is interest rate fluctuations on its variable-rate credit facility, with a 100 basis point change impacting annual interest expense by approximately **$1.1 million**, while foreign currency and inflation risks are deemed immaterial despite COVID-19 market volatility - The primary market risk is interest rate risk related to the 2017 Facility, where a **100 basis point (1%)** change in interest rates would affect annual interest expense by approximately **$1.1 million** as of June 30, 2020[262](index=262&type=chunk) - Foreign currency exchange risk is considered immaterial as substantially all revenue and expenses are in U.S. dollars[263](index=263&type=chunk) [Item 4. Controls and Procedures](index=54&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective as of June 30, 2020, with no material changes to internal control over financial reporting during the quarter, despite integrating OpenEye and adapting to remote work due to COVID-19 - Management concluded that disclosure controls and procedures were effective as of June 30, 2020[267](index=267&type=chunk) - There were no material changes to internal control over financial reporting in Q2 2020, with the company integrating OpenEye and adapting to remote work due to COVID-19 without material impact on controls[268](index=268&type=chunk)[269](index=269&type=chunk) [PART II. OTHER INFORMATION](index=55&type=section&id=PART%20II.%20OTHER%20INFORMATION) [Item 1. Legal Proceedings](index=55&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in significant legal proceedings, including ongoing patent infringement lawsuits by Vivint, Inc. and EcoFactor, Inc., and two putative class action lawsuits alleging TCPA violations, for which the company asserts valid defenses but cannot estimate potential losses - Vivint, Inc. filed a lawsuit alleging infringement of **six** patents, with the case partially stayed pending reviews and appeals at the U.S. Patent Trial and Appeal Board (PTAB)[271](index=271&type=chunk) - EcoFactor, Inc. has filed a complaint with the ITC and two separate lawsuits in federal court alleging Alarm.com's smart thermostats infringe on its patents[274](index=274&type=chunk)[275](index=275&type=chunk)[276](index=276&type=chunk) - The company is a defendant in **two** putative class action lawsuits alleging violations of the Telephone Consumer Protection Act (TCPA)[278](index=278&type=chunk)[279](index=279&type=chunk) - The company is incurring costs to indemnify its service provider partner ADT, LLC in ongoing patent infringement suits brought by third parties like Applied Capital and Portus[280](index=280&type=chunk)[281](index=281&type=chunk)[283](index=283&type=chunk) [Item 1A. Risk Factors](index=57&type=section&id=Item%201A.%20Risk%20Factors) The company identifies numerous business risks, including the COVID-19 pandemic's impact on supply chains and demand, intense competition, reliance on key service provider partners, potential system failures or security breaches, intellectual property litigation, evolving data privacy regulations, and challenges in managing growth and acquisitions - The COVID-19 pandemic poses a significant risk, potentially disrupting hardware supply chains, restricting service providers' ability to meet with customers, and reducing overall demand[288](index=288&type=chunk)[289](index=289&type=chunk) - The company faces intense competition from technology platforms like Alula and Honeywell, as well as direct-to-consumer solutions from companies like Google (Nest), Amazon (Ring), and Apple (HomeKit)[327](index=327&type=chunk) - A substantial portion of revenue comes from a limited number of service provider partners; in 2019, the **10** largest partners accounted for **52%** of revenue, with ADT LLC representing over **15%**[349](index=349&type=chunk) - Failure to maintain the security of information technology networks and protect against cyber-attacks could lead to system disruptions, data loss, regulatory fines (under CCPA, GDPR), and reputational damage[334](index=334&type=chunk)[338](index=338&type=chunk)[339](index=339&type=chunk) - The company relies on wireless carriers for network access, and the planned shutdown of **3G** and **CDMA** networks by **2022** will require subscribers to upgrade their technology and may lead to customer attrition[370](index=370&type=chunk)[373](index=373&type=chunk) - Evolving data privacy regulations, such as California's CCPA and Europe's GDPR, and the invalidation of the EU-U.S. Privacy Shield framework, create significant compliance costs and risks of fines and litigation[393](index=393&type=chunk)[394](index=394&type=chunk)[395](index=395&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=83&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company reported no unregistered sales of equity securities or share repurchases during the quarter ended June 30, 2020, with approximately **$69.9 million** remaining authorized for repurchase under the program expiring November 29, 2020 - No shares of common stock were repurchased during the quarter ended June 30, 2020[469](index=469&type=chunk) - As of June 30, 2020, approximately **$69.9 million** remained authorized for repurchase under the company's stock repurchase program, which expires on November 29, 2020[469](index=469&type=chunk) [Item 3. Defaults Upon Senior Securities](index=84&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) No defaults upon senior securities were reported - No defaults upon senior securities were reported[470](index=470&type=chunk) [Item 4. Mine Safety Disclosures](index=84&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company's operations - Not applicable[470](index=470&type=chunk) [Item 5. Other Information](index=84&type=section&id=Item%205.%20Other%20Information) No other material information was reported - No other information was reported[470](index=470&type=chunk) [Item 6. Exhibits](index=85&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including certifications by the Principal Executive Officer and Principal Financial Officer as required by the Sarbanes-Oxley Act of 2002, and Inline XBRL documents - The report includes required certifications from the CEO and CFO under Sections 302 and 906 of the Sarbanes-Oxley Act[472](index=472&type=chunk)

Financial Data and Key Metrics Changes - SaaS and license revenue for Q1 2020 was $91.9 million, an increase of 14.9% year-over-year [9][19] - Adjusted EBITDA for Q1 2020 was $29.2 million, reflecting a growth of 20.4% from Q1 2019 [19] - Total revenue for Q1 2020 reached $151.9 million, a 35.3% increase compared to Q1 2019 [21] - GAAP net income for Q1 2020 was $8.8 million, slightly down from $9 million in Q1 2019 [19][24] - Non-GAAP adjusted net income increased to $20.9 million in Q1 2020 from $17.2 million in Q1 2019 [19] Business Line Data and Key Metrics Changes - Hardware and other revenue in Q1 2020 was $60 million, up 86% over Q1 2019, driven by strong sales of video cameras [19][21] - SaaS and license gross margin improved to 86.6% in Q1 2020 from 84.6% in Q1 2019 [21] - Hardware gross margin increased to 23.9% in Q1 2020 compared to 17.5% in the same quarter last year [21] Market Data and Key Metrics Changes - Installation rates are currently running at about 70% of normal due to COVID-19 impacts, with expectations to recover to 95% by Q4 2020 [15][16] - Revenue retention rate remained stable at 93% in Q1 2020, consistent with historical performance [19][32] Company Strategy and Development Direction - The company is focusing on enhancing its platform and offerings, including the introduction of new technology and capabilities for subscribers [10][11] - Alarm.com is adapting to market conditions by emphasizing distant selling models and providing service providers with necessary PPE for installations [14][17] - The company is also investing in training programs for service providers to maintain proficiency during the pandemic [17][18] Management's Comments on Operating Environment and Future Outlook - Management noted that the COVID-19 pandemic is pushing out the timeline for fulfilling underlying demand, but revenue retention remains strong [16] - The company expects to see gradual recovery in installation rates as the year progresses, with a positive outlook for the second half of 2020 [15][26] - Management expressed confidence in the company's ability to weather the current environment due to its strong balance sheet and cash flow [27] Other Important Information - The company ended Q1 2020 with $171.7 million in cash and cash equivalents, and drew $15 million on its revolver for additional flexibility [24] - The company activated a $75 million share buyback plan, repurchasing $5.1 million worth of shares in Q1 2020 [24] Q&A Session Summary Question: Guidance for SaaS and license revenue for fiscal 2020 - Management expressed confidence in maintaining guidance due to strong performance in the first two months of the year and stable revenue retention rates [29][30] Question: Impact on cash generation during challenging periods - Management indicated a strong cash flow generation model, projecting around $40 million to $50 million of free cash flow for the year despite potential challenges [34][35] Question: Relative growth rates across different business segments - Commercial business is growing at about 40%, while international markets are performing slightly better [41][42] Question: Changes in service delivery methods post-pandemic - Management noted a shift towards DIY fulfillment methods during the pandemic, with service providers shipping self-installation kits to customers [43][44] Question: Progress on SaaS offerings from OpenEye - The transition to a SaaS model for OpenEye is on track, with positive anecdotal feedback from sales [57][59]

Company Overview - Alarm.com is a cloud-based (SaaS) operating system for intelligently managing residential and commercial properties using IoT technology[8] - The company has over 6.8 million subscribers[9] - Alarm.com has over 9,000 service provider partners[9] - The platform processes over 200 billion data points annually[13] - The platform supports over 100 million connected devices[13] Market Opportunity - Security is the primary motivator for smart home purchases, with 41% driven by personal and family security[29] - The North American commercial video surveillance market represents a $4.4 billion total addressable market (TAM)[32] - Video Surveillance as a Service (VSaaS) market share is forecasted to increase from 9% in 2018 to 15% by 2022[32] - Alarm.com serves 6.8 million homes in the US and Canada with professionally monitored security out of 24 million total[30] Financial Performance (1Q20) - SaaS & License Revenue reached $92.0 million, a 15% year-over-year increase[83] - Total Revenue reached $151.9 million, a 35% year-over-year increase[84] - Adjusted EBITDA was $29.2 million, a 20% year-over-year increase[83] - The company has an ending cash balance of $171.7 million[84]

[PART I. FINANCIAL INFORMATION](index=3&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) This section provides the unaudited condensed consolidated financial statements for the quarter ended March 31, 2020, including statements of operations, balance sheets, cash flows, and equity, along with detailed notes on accounting policies and significant events [Item 1. Financial Statements (Unaudited)](index=3&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) This section presents the unaudited condensed consolidated financial statements for the quarter ended March 31, 2020, including the Statements of Operations, Balance Sheets, Cash Flows, and Equity, along with detailed notes explaining the basis of accounting and significant events, such as acquisitions and the adoption of new accounting standards [Condensed Consolidated Statements of Operations](index=3&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) Condensed Consolidated Statements of Operations (Q1 2020 vs Q1 2019) | Financial Metric | Three Months Ended March 31, 2020 (in millions) | Three Months Ended March 31, 2019 (in millions) | | :--- | :--- | :--- | | **SaaS and license revenue** | $91.95 | $80.06 | | **Hardware and other revenue** | $59.99 | $32.28 | | **Total revenue** | **$151.94** | **$112.34** | | **Operating income** | $9.87 | $9.22 | | **Net income** | $8.57 | $9.01 | | **Net income attributable to common stockholders** | $8.81 | $9.01 | | **Diluted Net income per share** | $0.18 | $0.18 | [Condensed Consolidated Balance Sheets](index=5&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Condensed Consolidated Balance Sheet Highlights | Balance Sheet Item | March 31, 2020 (in millions) | December 31, 2019 (in millions) | | :--- | :--- | :--- | | **Cash and cash equivalents** | $171.73 | $119.63 | | **Total current assets** | $309.30 | $243.67 | | **Goodwill** | $104.96 | $104.96 | | **Total assets** | $624.08 | $557.80 | | **Long-term debt** | $113.00 | $63.00 | | **Total liabilities** | $246.89 | $190.94 | | **Total stockholders' equity** | $366.22 | $355.65 | [Condensed Consolidated Statements of Cash Flows](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Condensed Consolidated Statements of Cash Flows (Q1 2020 vs Q1 2019) | Cash Flow Activity | Three Months Ended March 31, 2020 (in millions) | Three Months Ended March 31, 2019 (in millions) | | :--- | :--- | :--- | | **Net cash from operating activities** | $12.90 | $(1.19) | | **Net cash used in investing activities** | $(7.01) | $(23.02) | | **Net cash from financing activities** | $46.22 | $0.59 | | **Net increase/(decrease) in cash** | $52.10 | $(23.62) | - The company drew down **$50.0 million** from its credit facility and purchased **$5.1 million** of treasury stock during the first quarter of 2020[9](index=9&type=chunk) [Notes to the Condensed Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20the%20Condensed%20Consolidated%20Financial%20Statements) The notes provide detailed explanations of accounting policies and financial statement items, including the adoption of Topic 326 for credit losses, revenue recognition, the OpenEye acquisition, goodwill, debt facilities, legal proceedings, stock repurchase activity, and segment reporting - The company adopted ASU 2016-13 (Topic 326) on credit losses as of January 1, 2020, resulting in a cumulative-effect adjustment of **$0.8 million** to accumulated deficit[24](index=24&type=chunk)[25](index=25&type=chunk) - In March 2020, the company acquired in-process research and development (IPR&D) in two separate transactions for a total consideration of **$4.4 million**, which was expensed at the time of acquisition[55](index=55&type=chunk)[56](index=56&type=chunk)[58](index=58&type=chunk) - The company's top 10 service provider partners accounted for **49%** of consolidated revenue in Q1 2020, with one service provider partner representing between **15% and 20%** of revenue[120](index=120&type=chunk) - The Alarm.com segment represents **95%** of total revenue for Q1 2020, with the Other segment representing the remaining **5%**[128](index=128&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=32&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the financial results for Q1 2020, highlighting a 35% increase in total revenue driven by strong hardware sales and continued growth in SaaS and license revenue, while noting the COVID-19 pandemic's significant uncertainty and potential negative impact on future hardware sales and SaaS revenue growth [Overview and Recent Developments](index=32&type=section&id=Overview%20and%20Recent%20Developments) - The company is the leading platform for the intelligently connected property, offering solutions through a network of over **9,000** service provider partners[138](index=138&type=chunk)[139](index=139&type=chunk) - The COVID-19 pandemic is disrupting the supply chain and sales channels, with the company anticipating lower hardware revenue in future periods of 2020 compared to Q1 and a potential slowdown in SaaS and license revenue growth[151](index=151&type=chunk)[268](index=268&type=chunk) - The company's SaaS and license revenue renewal rate was **93%** for the twelve months ended March 31, 2020, compared to **94%** for the prior year period[160](index=160&type=chunk)[162](index=162&type=chunk) [Results of Operations](index=39&type=section&id=Results%20of%20Operations) Revenue Comparison (Q1 2020 vs Q1 2019) | Revenue Type | Q1 2020 (in millions) | Q1 2019 (in millions) | % Change | | :--- | :--- | :--- | :--- | | SaaS and license revenue | $91.95 | $80.06 | 15% | | Hardware and other revenue | $59.99 | $32.28 | 86% | | **Total revenue** | **$151.94** | **$112.34** | **35%** | - The increase in hardware and other revenue was primarily due to a higher volume of video cameras sold and revenue from the October 2019 acquisition of OpenEye[197](index=197&type=chunk) - Research and Development expense increased by **$13.2 million (50%)** YoY, driven by a **$7.6 million** increase in personnel costs and **$4.4 million** in acquired in-process R&D[203](index=203&type=chunk) - General and Administrative expense increased by **$1.7 million (9%)** YoY, primarily due to higher personnel costs and a **$1.1 million** increase in the provision for credit losses, partially offset by a **$1.9 million** decrease in legal expenses[201](index=201&type=chunk) [Liquidity and Capital Resources](index=44&type=section&id=Liquidity%20and%20Capital%20Resources) - As of March 31, 2020, the company had **$171.7 million** in cash and cash equivalents and working capital of **$231.6 million**[212](index=212&type=chunk)[213](index=213&type=chunk) - In Q1 2020, the company borrowed **$50.0 million** under its 2017 Facility as a precautionary measure due to COVID-19 uncertainty, increasing the outstanding balance to **$113.0 million**[217](index=217&type=chunk)[231](index=231&type=chunk) - The company believes existing cash, cash from operations, and its credit facility will be sufficient to meet operating cash needs for at least the next **12 months**[214](index=214&type=chunk) [Non-GAAP Financial Measures](index=47&type=section&id=Non-GAAP%20Financial%20Measures) Reconciliation of Net Income to Adjusted EBITDA | Metric (in millions) | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | | :--- | :--- | :--- | | **Net income** | $8.57 | $9.01 | | Adjustments | $20.62 | $15.24 | | **Adjusted EBITDA** | **$29.19** | **$24.25** | - Adjustments to net income to arrive at Adjusted EBITDA include interest, taxes, D&A, stock-based compensation (**$6.4 million**), acquisition-related expenses (**$4.1 million**), and litigation expenses (**$2.5 million**)[240](index=240&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=48&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risk exposure is to interest rate fluctuations on its variable-rate debt under the 2017 Facility, where a 100 basis point change would impact annual interest expense by approximately $1.1 million, while foreign currency and inflation risks are not considered material - The primary market risk is interest rate risk related to the 2017 credit facility, where a **100 basis point** change would affect annual interest expense by about **$1.1 million** as of March 31, 2020[243](index=243&type=chunk) - Foreign currency exchange risk and inflation risk are not considered material as substantially all revenue and expenses are denominated in U.S. dollars[244](index=244&type=chunk)[245](index=245&type=chunk) [Controls and Procedures](index=48&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 March 31, 2020, with no material changes to internal control over financial reporting during the quarter, despite the integration of OpenEye and the transition to remote work due to COVID-19 - Management concluded that disclosure controls and procedures were effective as of March 31, 2020[248](index=248&type=chunk) - There were no material changes to internal control over financial reporting in Q1 2020, and the integration of OpenEye and remote work arrangements due to COVID-19 did not have a material impact[249](index=249&type=chunk)[250](index=250&type=chunk) [PART II. OTHER INFORMATION](index=49&type=section&id=PART%20II.%20OTHER%20INFORMATION) This section covers other material information, including ongoing legal proceedings, detailed risk factors, and disclosures regarding unregistered sales of equity securities and the use of proceeds [Legal Proceedings](index=49&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in several significant legal proceedings, including ongoing patent infringement lawsuits filed by Vivint, Inc. and EcoFactor, Inc., and is also indemnifying its service provider partner ADT in two separate patent infringement suits - The company is in ongoing patent litigation with Vivint, Inc., which alleges infringement of **six** patents, with the case partially stayed pending appeals and reexaminations[252](index=252&type=chunk)[254](index=254&type=chunk) - EcoFactor, Inc. has filed complaints with the ITC and in U.S. District Courts alleging infringement of multiple patents related to the company's smart thermostats[256](index=256&type=chunk)[257](index=257&type=chunk) - The company is incurring costs to indemnify its service provider ADT, LLC in **two** ongoing patent infringement suits: Applied Capital, Inc. v. The ADT Corporation et al. and Varatec, LLC v. ADT, LLC[259](index=259&type=chunk) [Risk Factors](index=51&type=section&id=Item%201A.%20Risk%20Factors) This section details numerous risks that could adversely affect the company's business, including the negative impact of the COVID-19 pandemic, intense competition, reliance on service provider partners, potential failure of security solutions, vulnerability to cyber-attacks, intellectual property litigation, regulatory changes, dependence on key suppliers, and challenges related to international expansion and acquisitions [Risks Related to Business and Industry](index=51&type=section&id=Risks%20Related%20to%20Business%20and%20Industry) - The COVID-19 pandemic may negatively affect business through supply chain disruptions, reduced demand, and restrictions on service providers, with the company anticipating lower hardware revenue and potentially slower SaaS growth for the remainder of 2020[267](index=267&type=chunk)[268](index=268&type=chunk) - The company faces intense competition from large technology companies (Google, Amazon, Apple), broadband providers, and other managed service providers, which have greater resources and brand recognition[304](index=304&type=chunk)[309](index=309&type=chunk)[310](index=310&type=chunk) - A substantial portion of revenue comes from a limited number of service provider partners, with the top **10** partners accounting for **52%** of revenue in 2019, and ADT LLC representing over **15%**[329](index=329&type=chunk) - The business is subject to significant risks from system failures, security breaches, and cyber-attacks, which could lead to liability, reputational damage, and financial loss[286](index=286&type=chunk)[314](index=314&type=chunk)[319](index=319&type=chunk) [Risks Related to Intellectual Property](index=72&type=section&id=Risks%20Related%20to%20Our%20Intellectual%20Property) - The company is subject to costly and time-consuming litigation from third parties asserting intellectual property infringement, such as the ongoing cases with Vivint and EcoFactor[428](index=428&type=chunk)[429](index=429&type=chunk)[430](index=430&type=chunk) - Failure to adequately protect proprietary technology through patents, copyrights, and trade secrets could harm the company's competitive position[425](index=425&type=chunk) - The use of open-source software in the company's platforms may expose it to risks, including requirements to disclose proprietary source code or face infringement claims[436](index=436&type=chunk)[437](index=437&type=chunk) [Risks Related to Ownership of Our Common Stock](index=74&type=section&id=Risks%20Related%20to%20Ownership%20of%20Our%20Common%20Stock) - The market price of the company's common stock has been and is expected to remain volatile[439](index=439&type=chunk) - A significant percentage of outstanding stock is owned by directors, executive officers, and their affiliates, allowing them substantial influence over corporate decisions[453](index=453&type=chunk) - Anti-takeover provisions in the company's charter and Delaware law could make an acquisition more difficult and limit the market price of the common stock[454](index=454&type=chunk)[455](index=455&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=77&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section reports on the company's stock repurchase activity, noting that during the quarter ended March 31, 2020, the company repurchased 147,153 shares of its common stock for approximately $5.1 million under its publicly announced repurchase program Issuer Purchases of Equity Securities (Q1 2020) | Period | Total Number of Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | Jan 2020 | — | $— | | Feb 2020 | — | $— | | Mar 2020 | 147,153 | $34.99 | | **Total** | **147,153** | **$34.99** | - As of March 31, 2020, approximately **$69.9 million** remained available for future repurchases under the authorized stock repurchase program[462](index=462&type=chunk) [Other Items (Items 3, 4, 5, 6)](index=77&type=section&id=Other%20Items%20(Items%203,%204,%205,%206)) This section confirms there were no defaults upon senior securities, no mine safety disclosures required, and no other material information to report under Item 5, and lists the exhibits filed with the Form 10-Q - There were no defaults upon senior securities (Item 3), no mine safety disclosures (Item 4), and no other information to report (Item 5)[461](index=461&type=chunk)

Financial Data and Key Metrics Changes - SaaS and license revenue for Q4 2019 was $90.1 million, up 15.7% year-over-year [9][20] - Total revenue for Q4 2019 was $140.5 million, a 26.1% increase from Q4 2018 [21] - For the full year 2019, total revenue grew 19.5% to $502.4 million [21] - Non-GAAP adjusted EBITDA for Q4 2019 was $30 million, a 43.7% increase from Q4 2018 [24] - GAAP net income for Q4 2019 was $13 million compared to $7.9 million for Q4 2018 [24] Business Line Data and Key Metrics Changes - SaaS and license revenue for the Alarm.com segment grew 14.6% in Q4 2019 [20] - Other segment revenue grew 34% year-over-year, driven by subsidiaries like EnergyHub and PointCentral [20] - Hardware revenue in Q4 2019 was $50.4 million, up 50.2% over Q4 2018 [21] Market Data and Key Metrics Changes - The company managed over 6.8 million properties globally, with more than 9,000 service providers [9] - The revenue renewal rate was 94% in Q4 2019, at the high end of the historical range [21] Company Strategy and Development Direction - The company aims to extend its position as an innovative platform provider for IoT-driven monitoring applications [10] - Focus areas include single-family and multifamily residential markets, small business market, and enterprise commercial market [11] - The acquisition of OpenEye is expected to enhance commercial offerings and expand market opportunities [12][19] - The company plans to integrate technology assets with OpenEye's enterprise video platform to create new capabilities [13] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in growth areas and plans to increase organic investment to capitalize on opportunities [10] - The potential impact of the coronavirus on global supply chains is acknowledged, but management remains hopeful for full-year results [26] - The company expects SaaS and license revenue for 2020 to be between $382 million to $382.5 million [26] Other Important Information - The company ended Q4 2019 with $119.6 million in cash and cash equivalents [25] - The company will hold an Investor and Analyst Day on May 19 at its headquarters [27] Q&A Session Summary Question: How is the commercial segment performing and when will it ramp up? - Management indicated that the commercial segment is performing well and has grown at an accelerated pace, with expectations for continued acceleration as more service providers are trained [30] Question: What training is required for service providers in the commercial space? - Training involves various aspects from installation to pricing, and many service providers are currently focused on the residential market [32] Question: How is the international segment performing? - Management noted a ramp in international business, with over 200,000 non-North American subscribers and an acceleration in installed rates [36] Question: What are the key drivers for the 2020 guidance? - The guidance reflects confidence in growth from various segments, including international and commercial, with expectations for acceleration in the back half of the year [40] Question: What is the status of credit availability for large dealers? - There is still some softness in the lending community for large dealers, but management expects improvements as market conditions evolve [61] Question: How is the company managing supply chain challenges related to the coronavirus? - Management is monitoring the situation and believes that most suppliers are gradually coming back online, though challenges may still arise [66] Question: Were there any one-time revenues in Q4 2019? - There was some seasonality in Q4 related to energy contracts, which may not be replicable in the future [68] Question: What is the expected attach rate for video services? - The attach rate for video services in new accounts was over 35%, with expectations for continued growth [70]

[PART I. Company Information](index=3&type=section&id=PART%20I.) This section details Alarm.com's business operations, solutions, competitive landscape, growth strategies, and critical risk factors [Item 1. Business Overview](index=5&type=section&id=Item%201.%20Business%20Overview) Alarm.com provides cloud-based solutions for smart residential and commercial properties through a network of service providers, driving revenue from SaaS, licenses, and hardware sales - Alarm.com is a leading platform for intelligently connected properties, processing over **200 billion data points** from **100 million connected devices** in the last year[9](index=9&type=chunk) - Solutions are delivered through a network of over **9,000 trusted service providers**, who handle sales, installation, and support[10](index=10&type=chunk) Key Financial Highlights (2017-2019) | Metric | 2019 ($M) | 2018 ($M) | 2017 ($M) | | :-------------------------- | :-------- | :-------- | :-------- | | Total Revenue | 502.4 | 420.5 | 338.9 | | SaaS and License Revenue | 337.4 | 291.1 | 236.3 | | Net Income | 53.5 | 21.5 | 29.2 | | Adjusted EBITDA (Non-GAAP) | 108.3 | 93.1 | 71.6 | - The company's growth strategy includes driving SaaS and license revenue, upgrading traditional security customers, investing in platforms, expanding internationally (currently in ~40 countries), expanding into the SMB market, and pursuing selective strategic acquisitions[78](index=78&type=chunk)[79](index=79&type=chunk)[80](index=80&type=chunk)[81](index=81&type=chunk)[82](index=82&type=chunk)[85](index=85&type=chunk) Overview Our Solutions and Integrated Platforms Subscriber Solutions Interactive Security Video Monitoring Intelligent Automation and Energy Management Commercial Solutions Service Provider Solutions Benefits of Our Solutions Benefits to Subscribers Benefits to Service Provider Partners Competitive Advantages Growth Strategy Market Opportunity Our Technology Cloud Services Platform Cybersecurity Hardware and Manufacturing Research and Development Service Provider Network Subscribers Sales and Marketing Service Provider Support Our Competition Our Intellectual Property Employees Corporate Information Available Information [Item 1A. Risk Factors](index=18&type=section&id=Item%201A.%20Risk%20Factors) The company faces operational, competitive, regulatory, and litigation risks, alongside challenges from rapid growth, supply chain dependencies, and potential impacts from acquisitions or accounting changes - Quarterly operating results are subject to fluctuations due to factors like product mix, demand seasonality, competition, and supply chain disruptions (e.g., coronavirus impact)[126](index=126&type=chunk)[137](index=137&type=chunk) - The company's growth rate may not be sustained, and effective management of future expansion, including integrating acquisitions and expanding internationally, is crucial[129](index=129&type=chunk)[130](index=130&type=chunk)[132](index=132&type=chunk) - Significant legal proceedings, including patent infringement lawsuits (Vivint, EcoFactor) and class action lawsuits (TCPA), pose risks of monetary damages, operational limitations, and reputational harm[140](index=140&type=chunk)[278](index=278&type=chunk)[279](index=279&type=chunk)[281](index=281&type=chunk)[317](index=317&type=chunk)[320](index=320&type=chunk)[322](index=322&type=chunk)[325](index=325&type=chunk)[326](index=326&type=chunk)[330](index=330&type=chunk) - Dependence on a network of service provider partners for subscriber acquisition and support means their inability to attract or retain subscribers could adversely affect operating results[166](index=166&type=chunk)[167](index=167&type=chunk)[169](index=169&type=chunk) - A substantial portion of revenue (**52-60% from top 10 partners**) comes from a limited number of service provider partners, with ADT LLC representing **15-20% of revenue** in 2017-2019[174](index=174&type=chunk) - The company relies on wireless carriers for network access and is vulnerable to technological obsolescence (e.g., 3G/CDMA network shutdowns by 2022), requiring significant capital expenditures for upgrades[196](index=196&type=chunk)[199](index=199&type=chunk) - International expansion faces risks including localization challenges, strong local competitors, compliance with foreign regulations, currency fluctuations, and increased costs from tariffs and trade barriers[257](index=257&type=chunk)[258](index=258&type=chunk)[264](index=264&type=chunk)[265](index=265&type=chunk) Risks Related to Our Business and Industry Risks Related to Our Intellectual Property Risks Related to Ownership of Our Common Stock [Item 1B. Unresolved Staff Comments](index=42&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) This section confirms the absence of any unresolved comments from the SEC staff - No unresolved staff comments[315](index=315&type=chunk) [Item 2. Properties](index=42&type=section&id=Item%202.%20Properties) The company's primary office is in Tysons, Virginia, with additional leased and owned properties supporting various operational functions - Principal office in Tysons, Virginia, occupies **166,952 square feet** under a lease expiring in 2026[315](index=315&type=chunk) - Additional leased offices in Bloomington, Minnesota, and Redwood City, California, and other locations[316](index=316&type=chunk) - Owns a commercial building in Liberty Lake, Washington, used for sales, training, R&D, warehousing, and administration[316](index=316&type=chunk) [Item 3. Legal Proceedings](index=42&type=section&id=Item%203.%20Legal%20Proceedings) The company is engaged in significant patent infringement lawsuits with Vivint and EcoFactor, a settled TCPA class action, and indemnifies ADT LLC in other patent disputes - Vivint, Inc. filed a lawsuit on June 2, 2015, alleging infringement of six patents; litigation is ongoing with appeals and reexaminations[317](index=317&type=chunk)[319](index=319&type=chunk) - EcoFactor, Inc. filed a complaint with the ITC on October 22, 2019, and subsequent lawsuits in U.S. District Courts, alleging infringement of smart thermostat patents, seeking injunctions and damages[322](index=322&type=chunk)[323](index=323&type=chunk)[324](index=324&type=chunk)[325](index=325&type=chunk) - A class action lawsuit under the TCPA was settled for **$28.0 million** in 2018, with payments made in 2019, and required business practice changes to enhance TCPA compliance[326](index=326&type=chunk)[328](index=328&type=chunk)[329](index=329&type=chunk)[330](index=330&type=chunk) - Alarm.com is indemnifying ADT LLC in two ongoing patent infringement suits (Applied Capital, Inc. v. The ADT Corporation et al. and Varatec, LLC v. ADT, LLC)[331](index=331&type=chunk)[332](index=332&type=chunk)[333](index=333&type=chunk)[334](index=334&type=chunk) [Item 4. Mine Safety Disclosures](index=44&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This section confirms that mine safety disclosures are not applicable to the company's operations - Not applicable[336](index=336&type=chunk) [PART II. Financial Information](index=47&type=section&id=PART%20II.) This section presents Alarm.com's financial performance, market data, and management's detailed analysis of operational results and financial condition [Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=47&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The company's common stock trades on Nasdaq, with details on outstanding shares, dividend policy, and a $75.0 million stock repurchase program - Common stock (ALRM) commenced trading on The Nasdaq Global Select Market on June 26, 2015[338](index=338&type=chunk) - As of February 18, 2020, there were **48,747,310 outstanding shares** of common stock[3](index=3&type=chunk) - The company does not intend to pay cash dividends in the foreseeable future, prioritizing retention of earnings for business development[340](index=340&type=chunk)[494](index=494&type=chunk) - A stock repurchase program authorized on November 29, 2018, allows for repurchases of up to **$75.0 million** of common stock by November 29, 2020. No shares were repurchased under this program in Q4 2019[347](index=347&type=chunk)[755](index=755&type=chunk) Stock Performance (June 2015 - Dec 2019) | Index | June 26, 2015 | Dec 31, 2015 | Dec 31, 2016 | Dec 31, 2017 | Dec 31, 2018 | Dec 31, 2019 | | :--------------------------- | :------------ | :----------- | :----------- | :----------- | :----------- | :----------- | | Alarm.com Holdings, Inc. | 100 | 99 | 165 | 224 | 307 | 255 | | Nasdaq Composite | 100 | 99 | 106 | 136 | 131 | 177 | | S&P 500 | 100 | 97 | 107 | 127 | 119 | 154 | [Item 6. Selected Financial Data](index=50&type=section&id=Item%206.%20Selected%20Financial%20Data) This section provides a five-year summary of consolidated financial and operational data, including revenue, net income, Adjusted EBITDA, and balance sheet metrics Consolidated Statements of Operations Data (2015-2019, in thousands) | Metric | 2019 ($ thousands) | 2018 ($ thousands) | 2017 ($ thousands) | 2016 ($ thousands) | 2015 ($ thousands) | | :-------------------------------------- | :-------- | :-------- | :-------- | :-------- | :-------- | | SaaS and license revenue | $337,375 | $291,072 | $236,283 | $173,540 | $140,936 | | Hardware and other revenue | $164,988 | $129,422 | $102,654 | $87,566 | $67,952 | | **Total revenue** | **$502,363**| **$420,494**| **$338,937**| **$261,106**| **$208,888**| | Cost of SaaS and license revenue | $50,066 | $44,933 | $35,610 | $30,229 | $25,722 | | Cost of hardware and other revenue | $133,533 | $100,782 | $80,578 | $69,151 | $51,652 | | **Total cost of revenue** | **$183,599**| **$145,715**| **$116,188**| **$99,380** | **$77,374** | | Sales and marketing | $61,815 | $55,902 | $43,490 | $38,980 | $32,240 | | General and administrative | $69,959 | $95,750 | $55,396 | $57,926 | $35,473 | | Research and development | $114,443 | $89,204 | $72,755 | $44,272 | $40,002 | | Amortization and depreciation | $22,134 | $21,721 | $17,734 | $6,490 | $5,808 | | **Total operating expenses** | **$268,351**| **$262,577**| **$189,375**| **$147,668**| **$113,523**| | **Operating income** | **$50,413** | **$12,202** | **$33,374** | **$14,058** | **$17,991** | | Interest expense | $(2,974) | $(2,918) | $(2,199) | $(190) | $(178) | | Interest income | $4,922 | $2,272 | $1,031 | $451 | $283 | | Other income / (expense), net | $6,535 | $143 | $35 | $62 | $(631) | | Income before income taxes | $58,896 | $11,699 | $32,241 | $14,381 | $17,465 | | Provision for / (benefit from) income taxes | $5,566 | $(9,825) | $2,990 | $4,227 | $5,697 | | **Net income** | **$53,330** | **$21,524** | **$29,251** | **$10,154** | **$11,768** | | Net income attributable to common stockholders | $53,531 | $21,521 | $29,238 | $10,142 | $(7,219) | | Basic EPS | $1.11 | $0.45 | $0.63 | $0.22 | $(0.30) | | Diluted EPS | $1.06 | $0.43 | $0.59 | $0.21 | $(0.30) | Other Financial and Operating Data (2015-2019) | Metric | 2019 ($ thousands) | 2018 ($ thousands) | 2017 ($ thousands) | 2016 ($ thousands) | 2015 ($ thousands) | | :-------------------------------- | :---- | :---- | :---- | :---- | :---- | | SaaS and license revenue renewal rate | 94% | 93% | 93% | 94% | 93% | | Adjusted EBITDA | $108,307| $93,081 | $71,628 | $49,034 | $34,370 | Balance Sheet and Other Data (2015-2019, in thousands) | Metric | 2019 ($ thousands) | 2018 ($ thousands) | 2017 ($ thousands) | 2016 ($ thousands) | 2015 ($ thousands) | | :-------------------------- | :-------- | :-------- | :-------- | :-------- | :-------- | | Cash and cash equivalents | $119,629 | $146,061 | $96,329 | $140,634 | $128,358 | | Working capital | $167,879 | $152,793 | $119,433 | $150,485 | $131,971 | | Total assets | $557,799 | $440,985 | $371,641 | $261,245 | $226,095 | | Total long-term obligations | $115,143 | $88,126 | $94,311 | $30,297 | $26,885 | | Total stockholders' equity | $355,651 | $277,589 | $232,827 | $191,249 | $170,131 | [Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=54&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section analyzes the company's financial condition, operational results, revenue streams, recent acquisitions, critical accounting policies, liquidity, and capital resources - SaaS and license revenue is the largest source of revenue, representing **67% of total revenue** in 2019, and is generated from monthly fees paid by service provider partners[368](index=368&type=chunk) - Total revenue increased **19% to $502.4 million** in 2019 from **$420.5 million** in 2018, driven by a **16% increase in SaaS and license revenue** and a **27% increase in hardware and other revenue**[373](index=373&type=chunk)[419](index=419&type=chunk) - Net income attributable to common stockholders was **$53.5 million** in 2019, up from **$21.5 million** in 2018[373](index=373&type=chunk) - Adjusted EBITDA increased to **$108.3 million** in 2019 from **$93.1 million** in 2018[373](index=373&type=chunk) - The acquisition of **85% of OpenEye** in October 2019 for **$61.2 million (cash)** aims to enhance cloud-managed video surveillance solutions for the enterprise commercial market[376](index=376&type=chunk)[377](index=377&type=chunk) - Cash flows from operating activities decreased by **$13.6 million** in 2019 to **$47.1 million**, primarily due to the **$28.0 million TCPA settlement payment** made in 2019[499](index=499&type=chunk)[500](index=500&type=chunk) - Cash flows used in investing activities increased by **$60.0 million** to **$73.4 million** in 2019, mainly due to the OpenEye acquisition and payments for promissory notes[506](index=506&type=chunk) Overview Executive Overview and Highlights of 2019 and 2018 Results Geographic Areas Recent Developments Other Business Metrics Leases (Topic 842) Components of Operating Results Revenue Cost of Revenue Operating Expenses Interest Expense Interest Income Other Income, Net Provision for / (benefit from) income taxes Results of Operations Comparison of Years Ended December 31, 2019 to December 31, 2018 Comparison of Years Ended December 31, 2018 to December 31, 2017 Quarterly Results of Operations (Unaudited) Segment Information Critical Accounting Policies and Significant Judgments and Estimates Revenue Fair Value Measurements Stock-Based Compensation Business Combinations Goodwill, Intangible Assets and Long-lived Assets Accounting for Income Taxes Impairment of Notes Receivable Recent Accounting Pronouncements Liquidity and Capital Resources Working Capital Liquidity and Capital Resources Sources of Liquidity Dividends Historical Cash Flows Contractual Obligations Off-Balance Sheet Arrangements Debt Obligations Non-GAAP Measures [Item 7A. Quantitative and Qualitative Disclosures about Market Risk](index=77&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) The company's primary market risk is interest rate fluctuations on its credit facility, while foreign currency and inflation risks are currently immaterial - Primary market risk exposure is from fluctuations in interest rates, specifically related to the 2017 Facility[527](index=527&type=chunk) - A **100 basis point change** in the interest rate on the 2017 Facility would increase or decrease annual interest expense by approximately **$0.6 million (2019)** and **$0.7 million (2018)**[527](index=527&type=chunk) - Foreign currency exchange risk and inflation risk are not considered material due to most revenue and operating expenses being denominated in U.S. dollars[528](index=528&type=chunk)[529](index=529&type=chunk) [Item 8. Financial Statements and Supplementary Data](index=78&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section includes audited consolidated financial statements, the independent auditor's report, and detailed notes on accounting policies, acquisitions, debt, and other financial disclosures - PricewaterhouseCoopers LLP provided an unqualified opinion on the consolidated financial statements and the effectiveness of internal control over financial reporting as of December 31, 2019[533](index=533&type=chunk) - The company adopted Topic 842 (Leases) in 2019 and changed revenue recognition standards in 2018, as discussed in Note 2[534](index=534&type=chunk) - Management's assessment of internal control over financial reporting excluded OpenEye, acquired in 2019, which represented **1% of total assets and revenue**[538](index=538&type=chunk) Report of Independent Registered Public Accounting Firm Consolidated Statements of Operations Consolidated Balance Sheets Consolidated Statements of Cash Flows Consolidated Statements of Equity Notes to the Consolidated Financial Statements Note 1. Organization Note 2. Summary of Significant Accounting Policies Note 3. Revenue from Contracts with Customers Note 4. Accounts Receivable, Net Note 5. Inventory, Net Note 6. Property and Equipment, Net Note 7. Acquisitions Note 8. Goodwill and Intangible Assets, Net Note 9. Other Assets Note 10. Fair Value Measurements Note 11. Leases Note 12. Liabilities Note 13. Debt, Commitments and Contingencies Note 14. Stockholders' Equity Note 15. Stock-Based Compensation Note 16. Earnings Per Share Note 17. Significant Service Providers Note 18. Income Taxes Note 19. Segment Information Note 20. Related Party Transactions Note 21. Quarterly Financial Data (unaudited) [Schedule II. Valuation and Qualifying Accounts and Reserves](index=122&type=section&id=Schedule%20II.%20Valuation%20and%20Qualifying%20Accounts) This schedule details the company's valuation and qualifying accounts and reserves, including allowances for doubtful accounts, product returns, and deferred tax valuation Valuation and Qualifying Accounts and Reserves (in thousands) | Description | Balance at Beginning of Year (2019, $ thousands) | Additions Charged Against Revenue (2019, $ thousands) | Additions Charged to Other Accounts (2019, $ thousands) | Deductions (2019, $ thousands) | Balance at End of Year (2019, $ thousands) | | :--------------------------------- | :---------------------------------- | :--------------------------------------- | :----------------------------------------- | :---------------- | :---------------------------- | | Allowance for doubtful accounts | $1,425 | $— | $1,170 | $(11) | $2,584 | | Allowance for product returns | $1,915 | $(123) | $105 | $(822) | $1,075 | | Allowance for notes receivable | $3,319 | $— | $(3,272) | $(31) | $16 | | Deferred tax valuation allowance | $— | $— | $322 | $— | $322 | | **Year Ended December 31, 2018** | | | | | | | Allowance for doubtful accounts | $1,449 | $— | $149 | $(173) | $1,425 | | Allowance for product returns | $2,471 | $273 | $— | $(829) | $1,915 | | Allowance for notes receivable | $— | $— | $3,319 | $— | $3,319 | | **Year Ended December 31, 2017** | | | | | | | Allowance for doubtful accounts | $1,282 | $— | $453 | $(286) | $1,449 | | Allowance for product returns | $2,314 | $2,055 | $— | $(1,898) | $2,471 | [Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure](index=123&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20With%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) This section confirms no changes in or disagreements with accountants regarding accounting and financial disclosure matters - No changes in or disagreements with accountants on accounting and financial disclosure[813](index=813&type=chunk) [Item 9A. Controls and Procedures](index=123&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded that disclosure controls and internal control over financial reporting were effective, excluding the recently acquired OpenEye - Disclosure controls and procedures were effective at the reasonable assurance level as of December 31, 2019[815](index=815&type=chunk) - Internal control over financial reporting was effective as of December 31, 2019, based on the COSO framework[816](index=816&type=chunk) - The assessment of internal control over financial reporting excluded the recently acquired OpenEye (**85% owned subsidiary**), which represented **1% of total assets and revenue**[818](index=818&type=chunk) - No material changes in internal control over financial reporting occurred during the fiscal quarter ended December 31, 2019[819](index=819&type=chunk) [Item 9B. Other Information](index=124&type=section&id=Item%209B.%20Other%20Information) Simone Wu was appointed as a Class II director to the Board, effective February 21, 2020, serving on the Audit Committee - Simone Wu was appointed as a Class II director to the Board of Directors, effective February 21, 2020[823](index=823&type=chunk) - Ms. Wu is the Senior Vice President, General Counsel, Corporate Secretary and External Affairs for Choice Hotels International, Inc. and will serve on the Audit Committee[824](index=824&type=chunk) - She will be compensated in accordance with standard non-employee director arrangements[825](index=825&type=chunk) [PART III. Directors, Executive Officers, and Corporate Governance](index=125&type=section&id=PART%20III.) This section outlines information on the company's directors, executive officers, corporate governance, compensation, and security ownership [Item 10. Directors, Executive Officers and Corporate Governance](index=125&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) Information on directors, executive officers, and corporate governance, including the Code of Business Conduct and Ethics, is incorporated by reference from the 2020 Proxy Statement - Information on directors, executive officers, and corporate governance is incorporated by reference from the 2020 Proxy Statement[829](index=829&type=chunk) - A written Code of Business Conduct and Ethics, applicable to all employees, executive officers, and directors, is available on the company's investor relations website[829](index=829&type=chunk) [Item 11. Executive Compensation](index=125&type=section&id=Item%2011.%20Executive%20Compensation) Executive and director compensation details are incorporated by reference from the company's 2020 Proxy Statement - Executive and director compensation information is incorporated by reference from the 2020 Proxy Statement[830](index=830&type=chunk) [Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=125&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Security ownership information for beneficial owners, management, and equity compensation plans is incorporated by reference from the 2020 Proxy Statement - Security ownership information for beneficial owners and management, along with equity compensation plan details, is incorporated by reference from the 2020 Proxy Statement[830](index=830&type=chunk) [Item 13. Certain Relationships and Related Transactions and Director Independence](index=125&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%20and%20Director%20Independence) Information on related party transactions and director independence is incorporated by reference from the company's 2020 Proxy Statement - Information on related party transactions and director independence is incorporated by reference from the 2020 Proxy Statement[831](index=831&type=chunk) [Item 14. Principal Accounting Fees and Services](index=125&type=section&id=Item%2014.%20Principal%20Accounting%20Fees%20and%20Services) Details on principal accounting fees and services, including pre-approval policies, are incorporated by reference from the 2020 Proxy Statement - Information on principal accounting fees and services, including pre-approval policies, is incorporated by reference from the 2020 Proxy Statement[831](index=831&type=chunk) [PART IV. Exhibits and Schedules](index=126&type=section&id=PART%20IV.) This section lists all exhibits and financial statement schedules filed as part of the Annual Report, encompassing various agreements and certifications [Item 15. Exhibits, Financial Statement Schedules](index=126&type=section&id=Item%2015.%20Exhibits%2C%20Financial%20Statement%20Schedules) This section lists consolidated financial statements, independent auditor reports, and a comprehensive array of exhibits filed or incorporated by reference - Includes consolidated financial statements and reports of Independent Registered Public Accounting Firm[834](index=834&type=chunk) - A comprehensive list of exhibits, including asset purchase agreements, corporate governance documents, credit agreements, and certifications, are incorporated by reference or filed with the Annual Report[834](index=834&type=chunk)[835](index=835&type=chunk) [Item 16. Form 10-K Summary](index=128&type=section&id=Item%2016.%20Form%2010-K%20Summary) This section states that a Form 10-K Summary is not applicable for this filing - Not applicable[837](index=837&type=chunk)