Alarm.com(US:ALRM)2023-02-23 16:00Part I Business Alarm.com provides IoT solutions for connected properties, serving 9.1 million properties through 11,000+ partners, with SaaS and license fees as primary revenue - As of December 31, 2022, Alarm.com's platform serves 9.1 million properties and is supported by a network of over 11,000 service provider partners1415 Financial Performance (2020-2022) | Metric | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Total Revenue | $842.6M | $749.0M | $618.0M | | SaaS and License Revenue | $520.4M | $460.4M | $393.3M | | Net Income | $56.3M | $52.3M | $77.9M | | Adjusted EBITDA | $146.8M | $142.5M | $125.3M | - The company's growth strategy focuses on expanding solutions for service providers, upgrading legacy security customers, continued platform investment, international expansion, and growing in the commercial market segment717273 - A significant portion of revenue comes from a key service provider, ADT LLC, which represented over 15% but not more than 20% of total revenue in each of the last three fiscal years91171 Risk Factors Key risks include fluctuating results, intense competition, reliance on service providers, cybersecurity threats, and a material patent dispute with Vivint - Quarterly operating results are subject to fluctuation due to macroeconomic conditions, product mix, and competition, which could cause results to fall below investor expectations122123 - The company faces intense competition from technology companies, broadband providers, and other managed service providers targeting the home and business automation markets150152154 - A substantial portion of revenue is derived from a limited number of service provider partners, and the loss of or a significant reduction in orders from a major partner, such as ADT, would decrease revenue and profitability169171 - A dispute with Vivint, Inc., which has stopped paying license fees under a Patent Cross License Agreement, is having a material adverse effect on business, financial condition, and results of operations125168 - The business is exposed to risks from cybersecurity threats and potential security breaches, which could harm its reputation, and result in liability, regulatory action, and significant fines159160161 Unresolved Staff Comments The company reports no unresolved staff comments from the SEC - There are no unresolved staff comments289 Properties The company's principal office is in Tysons, Virginia, with other leased and owned properties supporting its operations - The principal executive office is in Tysons, Virginia, under a lease for 189,881 square feet that expires in 2026290 Legal Proceedings The company is involved in significant legal proceedings, including a material patent license fee dispute with Vivint and other patent infringement lawsuits - Vivint, Inc. has stopped paying license fees under a Patent Cross License Agreement, which is expected to decrease SaaS and license revenue by approximately $6.0 million per quarter starting in Q4 2022, prompting Alarm.com to file for arbitration to seek continued payments293684 - The company is defending against multiple patent infringement lawsuits, including cases brought by Vivint, EcoFactor, Inc., and Causam Enterprises, Inc291295297 - Alarm.com is incurring costs to indemnify its service provider partner, ADT LLC, in ongoing patent infringement suits filed by Vivint299300 Mine Safety Disclosures This item is not applicable to the company - Not applicable303 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, with no anticipated cash dividends, and the company authorized a new $100.0 million stock repurchase program in February 2023 - The company does not intend to pay cash dividends in the foreseeable future, planning to retain earnings for business development and corporate purposes307 Issuer Purchases of Equity Securities (Q4 2022) | Period | Total Shares Purchased | Average Price Paid per Share | Total Shares Purchased as Part of Program | Approx. Dollar Value Remaining in Program | | :--- | :--- | :--- | :--- | :--- | | Oct 2022 | — | — | — | $48,134,158 | | Nov 2022 | 251,158 | $48.88 | 251,158 | $35,858,629 | | Dec 2022 | 294,185 | $49.97 | 294,185 | $21,156,853 | | Total | 545,343 | $49.47 | 545,343 | | - In February 2023, the board authorized a new stock repurchase program for up to $100.0 million of common stock over a two-year period, effective February 23, 2025313 Management's Discussion and Analysis of Financial Condition and Results of Operations In 2022, total revenue grew 12% to $842.6 million, with net income at $55.6 million, though operating cash flow decreased due to tax changes and a $6.0 million quarterly revenue impact from a Vivint dispute Key Financial Highlights (2021 vs. 2022) | Metric | 2022 | 2021 | % Change | | :--- | :--- | :--- | :--- | | Total Revenue | $842.6M | $749.0M | 12% | | SaaS and License Revenue | $520.4M | $460.4M | 13% | | Hardware and Other Revenue | $322.2M | $288.6M | 12% | | Net Income | $55.6M | $51.2M | 9% | | Adjusted EBITDA | $146.8M | $142.5M | 3% | - The SaaS and license revenue renewal rate remained stable at 94% for 2022, 2021, and 2020331 - A dispute with Vivint over license fee payments is expected to reduce SaaS and license revenue by approximately $6.0 million per quarter starting in Q4 2022327348 - Cash flows from operating activities decreased from $103.2 million in 2021 to $56.9 million in 2022, largely due to a $44.9 million change in deferred income taxes driven by new capitalization requirements for R&D expenses under IRC Section 174443444 - The company adopted ASU 2020-06 on January 1, 2022, which simplified the accounting for its convertible senior notes and eliminated the non-cash interest expense related to the amortization of the debt discount, increasing net income343344383 Quantitative and Qualitative Disclosures about Market Risk The company's market risks primarily involve inflation, mitigated by price increases, and immaterial foreign currency exposure due to USD-denominated transactions - The company has experienced inflationary pressures on inventory and freight costs but has implemented price increases on some products to offset these higher costs459 - Foreign currency exchange risk is not considered material as the vast majority of revenue and operating expenses are denominated in U.S. dollars460 Financial Statements and Supplementary Data This section presents consolidated financial statements for 2020-2022, an unqualified audit opinion, and detailed notes on accounting policies and financial position - The Report of Independent Registered Public Accounting Firm, PricewaterhouseCoopers LLP, issued an unqualified opinion on the consolidated financial statements and the effectiveness of internal control over financial reporting as of December 31, 2022464465 Consolidated Balance Sheet Data (in thousands) | Account | Dec 31, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Total Assets | $1,329,375 | $1,232,015 | | Cash and cash equivalents | $622,165 | $710,621 | | Goodwill | $148,183 | $112,901 | | Total Liabilities | $706,528 | $605,960 | | Convertible senior notes, net | $490,370 | $425,345 | | Total Stockholders' Equity | $598,859 | $613,167 | 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 - None754 Controls and Procedures Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2022, excluding Noonlight, Inc - Management concluded that the company's disclosure controls and procedures were effective at a reasonable assurance level as of December 31, 2022755 - Management concluded that internal control over financial reporting was effective as of December 31, 2022, with the assessment excluding the internal controls of Noonlight, Inc., acquired on September 23, 2022756757 Other Information The company reports no other information for this item - None761 Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This item is not applicable to the company - Not applicable761 Part III Directors, Executive Officers and Corporate Governance Information required for this item is incorporated by reference from the company's 2023 Proxy Statement - The information required by this item is incorporated by reference from the registrant's 2023 Proxy Statement764 Executive Compensation Information required for this item is incorporated by reference from the company's 2023 Proxy Statement - The information required by this item is incorporated by reference from the registrant's 2023 Proxy Statement765 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information required for this item is incorporated by reference from the company's 2023 Proxy Statement - The information required by this item is incorporated by reference from the registrant's 2023 Proxy Statement766 Certain Relationships and Related Transactions and Director Independence Information required for this item is incorporated by reference from the company's 2023 Proxy Statement - The information required by this item is incorporated by reference from the registrant's 2023 Proxy Statement767 Principal Accountant Fees and Services Information required for this item is incorporated by reference from the company's 2023 Proxy Statement - The information required by this item is incorporated by reference from the registrant's 2023 Proxy Statement768 Part IV Exhibits, Financial Statement Schedules This section details all exhibits filed with the Annual Report, including financial statements, schedules, and various material contracts and certifications - This section lists all exhibits filed with the Form 10-K, including material contracts, debt agreements, and executive certifications770771 Form 10-K Summary This item is not applicable to the company - Not applicable774