Alarm.com(US:ALRM)2023-08-08 16:00PART I. FINANCIAL INFORMATION Financial Statements (Unaudited) Presents Alarm.com Holdings, Inc.'s unaudited condensed consolidated financial statements as of June 30, 2023, including operations, balance sheets, cash flows, and equity, with accounting policy notes Condensed Consolidated Statements of Operations Consolidated Statements of Operations Highlights (in thousands, except per share data) | Metric | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Total Revenue | $223,875 | $212,845 | $433,591 | $418,282 | | SaaS and license revenue | $140,432 | $129,475 | $275,826 | $252,700 | | Hardware and other revenue | $83,443 | $83,370 | $157,765 | $165,582 | | Operating Income | $16,159 | $11,336 | $24,978 | $20,249 | | Net Income | $15,611 | $10,828 | $29,818 | $19,731 | | Net Income Attributable to Common Stockholders | $15,799 | $10,842 | $30,215 | $19,921 | | Diluted EPS | $0.30 | $0.21 | $0.58 | $0.38 | Condensed Consolidated Balance Sheets Balance Sheet Highlights (in thousands) | Account | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total Assets | $1,382,720 | $1,329,375 | | Cash and cash equivalents | $627,041 | $622,165 | | Accounts receivable, net | $123,285 | $124,283 | | Goodwill | $153,997 | $148,183 | | Total Liabilities | $710,621 | $706,528 | | Convertible senior notes, net | $491,940 | $490,370 | | Total Stockholders' Equity | $644,231 | $598,859 | Condensed Consolidated Statements of Cash Flows Cash Flow Summary for the Six Months Ended June 30 (in thousands) | Cash Flow Category | 2023 | 2022 | | :--- | :--- | :--- | | Net cash from operating activities | $33,267 | $12,258 | | Net cash used in investing activities | ($19,591) | ($29,130) | | Net cash used in financing activities | ($8,089) | ($49,836) | | Net increase / (decrease) in cash | $5,463 | ($66,708) | Notes to the Condensed Consolidated Financial Statements Detailed notes explain accounting policies and financial results, covering revenue, acquisitions, goodwill, debt, legal proceedings, stock repurchases, and segment performance - On April 21, 2023, the company acquired certain assets of Vintra, Inc. for $5.5 million in cash, primarily for developed technology to enhance video analytics solutions4546 - On January 18, 2023, the company acquired 100% of EBS Spółka z ograniczoną odpowiedzialnością (EBS) for $9.8 million in cash plus a potential $2.5 million earn-out to expand international operations and supply chain4748 - The company is in a dispute with Vivint, which stopped paying license fees in Q4 2022, resulting in an approximate $6.0 million quarterly reduction in SaaS and license revenue, earnings, and cash flow106 - The Alarm.com segment contributed 94% of consolidated revenue for the six months ended June 30, 2023. The Other segment focuses on adjacent markets like energy management135 Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q2 2023 financial performance, including a 5% total revenue increase driven by SaaS growth, analyzing revenue, costs, profitability, liquidity, cash flows, and non-GAAP measures, alongside key business developments Q2 2023 Financial Highlights vs. Q2 2022 | Metric | Q2 2023 | Q2 2022 | % Change | | :--- | :--- | :--- | :--- | | Total Revenue | $223.9M | $212.8M | 5% | | SaaS and license revenue | $140.4M | $129.5M | 8% | | Net Income | $15.6M | $10.8M | 44% | | Non-GAAP adjusted EBITDA | $36.4M | $37.1M | -2% | - The dispute with Vivint, which stopped paying license fees in Q4 2022, is expected to continue lowering SaaS and license revenue by approximately $6.0 million quarterly170224 - The company anticipates its 2023 hardware revenue margins to be similar to those in Q3 and Q4 2022, benefiting from price increases implemented in early 2022 to offset higher freight and component costs179 - The company paid an additional $38.1 million in federal and $7.5 million in state cash taxes in early 2023 for the 2022 tax year due to changes in IRC Section 174, which now requires capitalization and amortization of R&D expenses. A similar impact of $45.0 to $50.0 million is estimated for 2023225 Quantitative and Qualitative Disclosures About Market Risk The company's primary market risks are inflation and foreign currency exchange rates, with inflation's impact offset by price increases and foreign currency risk deemed immaterial due to USD-denominated transactions - The company's main market risks are identified as inflation and foreign currency exchange rates246 - Inflationary pressures on inventory and freight costs have been partially offset by price increases implemented in 2022, and management believes inflation has not had a material effect on the business248 - Foreign currency exchange risk is considered not material as the vast majority of revenue and expenses are in U.S. dollars249 Controls and Procedures Management concluded the company's disclosure controls and procedures were effective as of June 30, 2023, with no material changes to internal control over financial reporting during the quarter - As of June 30, 2023, the CEO and CFO concluded that the company's disclosure controls and procedures were effective at the reasonable assurance level252 - No changes were made during the quarter ended June 30, 2023, that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting253 PART II. OTHER INFORMATION Legal Proceedings This section details ongoing legal matters, including multiple patent infringement lawsuits with Vivint, Inc., impacting revenue, and other patent suits involving EcoFactor, Causam, and indemnification of service providers - The company is in arbitration with Vivint, which stopped paying license fees under a 2013 agreement. This has lowered SaaS and license revenue by approximately $6.0 million per quarter since Q4 2022258 - Alarm.com and Vivint are involved in multiple patent infringement lawsuits against each other in U.S. District Courts, with a trial in one case scheduled for September 9, 2024256259 - The company is also defending against patent infringement lawsuits from EcoFactor, Inc. and Causam Enterprises, Inc., and is incurring costs to indemnify service providers ADT and Monitronics in separate patent suits261263267269 Risk Factors The company outlines numerous material business risks, including fluctuating quarterly results, potential solution failures, intense competition, reliance on service providers, cybersecurity threats, acquisition challenges, technological obsolescence, and complex legal and intellectual property disputes - Key business risks include fluctuating quarterly results, potential failure of life safety solutions, intense competition, reliance on service provider networks, and cybersecurity threats273 - A substantial portion of revenue comes from a limited number of service provider partners. For the year ended Dec 31, 2022, the 10 largest partners accounted for 49% of revenue, with ADT representing over 15%316 - The company faces significant legal risks, including costly patent infringement litigation with competitors like Vivint, EcoFactor, and Causam, which could result in damages, injunctions, or expensive licenses297381382384 - Dependence on suppliers, particularly for hardware components, poses a risk. Three key suppliers accounted for 49% of hardware revenue in the first six months of 2023331 Unregistered Sales of Equity Securities and Use of Proceeds No unregistered equity sales occurred in Q2 2023; the company repurchased 134,255 shares for approximately $6.7 million under a new $100 million stock repurchase program authorized in February 2023 - No unregistered sales of equity securities occurred in Q2 2023406 Issuer Purchases of Equity Securities (Q2 2023) | Period | Total Shares Purchased | Average Price Paid per Share | Approximate Dollar Value Remaining in Program | | :--- | :--- | :--- | :--- | | April 2023 | 0 | $— | $100,000,000 | | May 2023 | 112,654 | $50.26 | $94,337,853 | | June 2023 | 21,601 | $49.29 | $93,273,123 | | Total | 134,255 | $50.11 | $93,273,123 | - On February 15, 2023, the board authorized a new stock repurchase program for up to $100.0 million of common stock, effective through February 23, 2025408 Defaults Upon Senior Securities The company reported no defaults upon senior securities during the period - None409 Mine Safety Disclosures This item is not applicable to the company - Not applicable410 Other Information No directors or officers adopted, modified, or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during Q2 2023 - No directors or officers adopted, modified, or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during the three months ended June 30, 2023411 Exhibits This section lists exhibits filed with Form 10-Q, including CEO and CFO certifications and XBRL data files