Alarm.com(ALRM) - 2021 Q4 - Annual Report

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