Annual Report
2023
Innovation Spotlight
Video Analytics
Alarm.com’s AI-powered video analytics capabilities can identify and track objects such as people,
vehicles, animals, and package deliveries, and instantly alert subscribers about important activity in
and around their property.
Smart Alerts instantly inform subscribers about important activity in and around their property.
Front Door camera detected a person
and animal at 3:55 pm.
Garage camera detected a vehicle
at 12:04 pm.
Doorbell camera detected a package
at 6:20 pm.
Business Activity Analytics and real-time notifications can help commercial subscribers optimize
business operations, streamline customer flows, and reduce wait times.
occupancy
tracking
queue
monitoring
heat
mapping
people
counting
crowd
gathering
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
☒
☐
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2023
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 001-37461
ALARM.COM HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction
of incorporation or organization)
8281 Greensboro Drive
Suite 100
Tysons Virginia
(Address of principal executive offices)
26-4247032
(I.R.S. Employer
Identification No.)
22102
(Zip Code)
Tel: (877) 389-4033
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol
Name of each exchange on which registered
Common Stock, $0.01 par value per share
ALRM
The Nasdaq Stock Market LLC
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YesNo
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. YesNo
Securities registered pursuant to section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YesNo
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of
this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). YesNo
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth
company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer
Non-Accelerated Filer
�
Accelerated Filer
Smaller Reporting Company
Emerging Growth Company
�
�
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial
accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial
reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction
of an error to previously issued financial statements.
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the
registrant’s executive officers during the relevant recovery period pursuant to § 240.10D-1(b).
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YesNo
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant as of June 30, 2023 was $1.5 billion, based on a closing price of
$51.68 per share of the registrant's common stock as reported on The Nasdaq Global Select Market. For purposes of this computation, all officers, directors, and 10% beneficial
owners of the registrant are deemed to be affiliates. Such determination should not be deemed to be an admission that such officers, directors or 10% beneficial owners are, in fact,
affiliates of the registrant.
As of February 15, 2024, there were 49,945,156 outstanding shares of the registrant's common stock, $0.01 par value per share.
Portions of the registrant’s proxy statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A in connection with the registrant’s 2024 Annual
Meeting of Stockholders, which will be filed subsequent to the date hereof, are incorporated by reference into Part III of this Form 10-K. Such proxy statement will be filed with the
Securities and Exchange Commission not later than 120 days following the end of the registrant’s fiscal year ended December 31, 2023.
DOCUMENTS INCORPORATED BY REFERENCE
ALARM.COM HOLDINGS, INC.
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2023
TABLE OF CONTENTS
PART I.
Business
Item 1.
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 1C. Cybersecurity
Item 2.
Item 3.
Item 4. Mine Safety Disclosures
Properties
Legal Proceedings
PART II.
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
[Reserved]
Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 5.
Item 6.
Item 7.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Financial Statements and Supplementary Data
Item 8.
Report of Independent Registered Public Accounting Firm
Consolidated Statements of Operations
Consolidated Statements of Comprehensive Income
Consolidated Balance Sheets
Consolidated Statements of Cash Flows
Consolidated Statements of Equity
Notes to the Consolidated Financial Statements
Schedule II. Valuation and Qualifying Accounts
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
Item 9.
Item 9A. Controls and Procedures
Item 9B. Other Information
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
PART III.
Item 10. Directors, Executive Officers and Corporate Governance
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14. Principal Accountant Fees and Services
PART IV.
Item 15. Exhibit and Financial Statement Schedules
Item 16.
Form 10-K Summary
Signatures
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K, or this Annual Report, contains "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of
1934, as amended, or the Exchange Act, that reflect our current expectations regarding future events, our strategy, future
operations, future financial position, future revenues, projected costs, prospects, plans and objectives of management. The
forward-looking statements are contained principally in Part I, Item 1. "Business," Part I, Item 1A. "Risk Factors," and Part II, Item
7. "Management’s Discussion and Analysis of Financial Condition and Results of Operations," but are also contained elsewhere
in this Annual Report. Forward-looking statements include any statement that does not directly relate to a current or historical
fact. In some cases, you can identify forward-looking statements by the words "anticipate," "believe," "continue," "could,"
"estimate," "expect," "intend," "may," "might," "objective," "ongoing," "plan," "predict," "project," "potential," "should," "will,"
"would," or the negative or plural of these words or other comparable terminology intended to identify statements about the
future. The events described in these forward-looking statements are subject to a number of risks, uncertainties, assumptions
and other factors that could cause actual results and the timing of certain events to differ materially from future results expressed
or implied by the forward-looking statements. Although we believe that we have a reasonable basis for each forward-looking
statement contained in this Annual Report, we caution you that these statements are based on a combination of facts and factors
currently known to us and our expectations of the future, about which we cannot be certain. Forward-looking statements include
statements about:
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the anticipated impact of the global economic uncertainty and financial market conditions caused by significant
worldwide events, including public health crises, and geopolitical upheaval, such as Russia’s incursion into Ukraine and
the war between Israel and Hamas, disruptions to global supply chains, rising interest rates, risk of recession and
inflation (collectively, the Macroeconomic Conditions) on our business, results of operations and financial condition,
including on our hardware sales and our Software-as-a-Service, or SaaS, and license revenue growth rate; our
business strategy, plans and objectives for future operations; continued enhancements of our platform and offerings;
and our future financial and business performance;
our ability to continue to increase revenue, maintain existing subscribers and sell new services to new and existing
subscribers;
our ability to add new service provider partners, maintain existing service provider partner relationships and increase
the productivity of our service provider partners;
the potential impact of trade policies and related tariffs on our cost of hardware revenue and hardware revenue margins;
the effects of increased competition as well as innovations by new and existing competitors in our market;
our ability to adapt to technological change and effectively enhance, innovate and scale our solution;
our ability to effectively manage or sustain our growth;
our expected uses for the proceeds from the offering of our convertible senior notes;
potential acquisitions and integration of complementary business and technologies;
our ability to maintain, or strengthen awareness of, our brand;
perceived or actual security, integrity, reliability, quality or compatibility problems with our solutions, including related to
security breaches in our systems, our subscribers’ systems, unscheduled downtime, or outages;
our future revenue, hiring plans, expenses, capital expenditures, capital requirements and stock performance;
our ability to attract and retain qualified employees and key personnel and further expand our overall headcount;
our ability to develop relationships with service provider partners in order to expand internationally;
our ability to stay abreast of new or modified laws and regulations that currently apply or become applicable to our
business both in the United States and internationally;
our ability to maintain, protect and enhance our intellectual property;
costs associated with defending intellectual property infringement and other claims; and
other risks detailed below in Item 1A. "Risk Factors."
You should refer to the “Summary of Risks Affecting Our Business” below and Item 1A. "Risk Factors" section of this Annual
Report for a discussion of important factors that may cause our actual results to differ materially from those expressed or implied
by our forward-looking statements. As a result of these factors, we cannot assure you that the forward-looking statements in this
Annual Report will prove to be accurate. Furthermore, if our forward-looking statements prove to be inaccurate, the inaccuracy
may be material. In light of the significant uncertainties in these forward-looking statements, you should not regard these
statements as a representation or warranty by us or any other person that we will achieve our objectives and plans in any
specified time frame or at all. We undertake no obligation to publicly update any forward-looking statements, whether as a result
of new information, future events or otherwise, except as required by law. You should, therefore, not rely on these forward-
looking statements as representing our views as of any date subsequent to the date of this Annual Report.
Except as otherwise indicated herein or as the context otherwise requires, references in this Annual Report to "Alarm.com,"
the "company," "we," "us," "our" and similar references refer to Alarm.com Holdings, Inc. and, where appropriate, our
consolidated subsidiaries.
2
Summary of Risks Affecting Our Business
The following summary highlights some of the principal risks you should consider with respect to our business and
prospects. This summary is not complete and the risks included in the summary below are not the only risks we face. You should
review and consider carefully the risks and uncertainties described in the “Risk Factors” section of this Annual Report on Form
10-K, which includes a more complete discussion of the risks summarized below as well as a discussion of other risks related to
our business and an investment in our common stock, as well as our other public filings with the Securities and Exchange
Commission, or SEC.
Any of the following risks could have a material adverse effect on our business, financial condition, results of operations and
prospects and cause the trading price of our common stock to decline:
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Our quarterly results of operations have fluctuated and are likely to continue to fluctuate and may be negatively affected
by the Macroeconomic Conditions.
Our actual operating results may differ significantly from any guidance provided. If our actual results of operations fall
below the expectations of investors or securities analysts, the price of our common stock could decline substantially.
• We may not sustain our growth rate and we may not be able to manage any future growth effectively.
• We sell security and life safety solutions and if these solutions fail for any reason, we could be subject to liability and our
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business, reputation and results of operations could suffer.
Failure to maintain the security of our information and technology networks, including information relating to our service
provider partners, subscribers and employees, could expose us to liability and adversely affect us.
The markets in which we participate are highly competitive and many companies, including large technology
companies, broadband and security service providers and other managed service providers, are actively targeting the
home and business automation, security monitoring, video monitoring and energy management markets.
• We rely on our service provider network to acquire additional subscribers, and the inability of our service providers to
attract additional subscribers or retain their current subscribers could adversely affect our operating results.
• We receive a substantial portion of our revenue from a limited number of service provider partners, and the loss of, or a
significant reduction in, orders from one or more of our major service provider partners would result in decreased
revenue and profitability.
• We have relatively limited visibility regarding the consumers that ultimately purchase our solutions, and we often rely on
information from third-party service providers to help us manage our business. We operate in an evolving connected
home market. If the connected property market does not grow as we expect or if a significant number of our target
consumers choose to adopt point products that control discrete functions rather than our connected property solutions,
we may not be able to achieve sustained growth or our business may decline.
• We benefit from integration of our solutions with third-party platform providers. If developers of third-party platform
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providers choose not to partner with us, or are acquired by our competitors, our integrated solutions platform, business
and results of operations may be harmed.
Our strategy includes pursuing acquisitions, and our potential inability to successfully consummate acquisitions or
integrate newly-acquired technologies, assets or businesses may harm our financial results.
If we are unable to adapt to technological change, including maintaining compatibility with a wide range of devices, as
well as changes in access to wireless networks through which we provide our wireless alarm, notification and intelligent
automation services, our ability to remain competitive could be impaired and we may need to incur significant capital
expenditures to update our technology.
• We operate in a regulated industry and our business, operations and service provider partners are subject to various
foreign, U.S. federal, state and local laws and regulations, including relating to consumer protection, licensing, Internet
and data privacy, tax, tariff, import/export restrictions or other trade barriers. Failure to comply with applicable laws and
regulations could harm our business and we may incur significant expenditures related to compliance efforts.
• We are involved from time to time in legal proceedings where a negative outcome could result in a material adverse
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effect on our business, financial condition, cash flows and results of operations.
Assertions by third parties that we are infringing their intellectual property subject us to costly and time-consuming
litigation or expensive licenses that could harm our business and results of operations.
• We depend on our suppliers. The loss of any key supplier or the inability of a key supplier to deliver their products to us
on time or at the contracted price would materially and adversely affect our business, financial condition, cash flows and
results of operations.
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ITEM 1. BUSINESS
Overview
PART I.
Alarm.com is the leading platform for the intelligently connected property. Our cloud-based platform offers an expansive
suite of Internet of Things, or IoT, solutions addressing opportunities in the residential, multi-family, small business and enterprise
commercial markets. Alarm.com’s solutions include security, video and video analytics, energy management, access control,
electric utility grid management, indoor gunshot detection, water management, health and wellness and data-rich emergency
response. During 2023, our platforms processed more than 325 billion data points generated by over 150 million connected
devices. We believe this scale of subscribers, connected devices and data operations makes us the leader in the connected
property market.
Our solutions are delivered through an established network of trusted service providers, who are experts at selling, installing
and supporting our solutions. We primarily generate SaaS and license revenue through our service provider partners, who resell
these services and pay us monthly fees. These service provider contracts typically have an initial term of one year, with
subsequent renewal terms of one year. Our service provider partners have indicated that they typically have three to five-year
service contracts with residential and commercial property owners who use our solutions. We also generate hardware and other
revenue, primarily from our service provider partners and distributors. Our hardware sales include connected devices that enable
our services, such as video cameras, video recorders, gunshot detection sensors, gateway modules and smart thermostats. We
believe our network of service providers and the length of our service relationships with residential and commercial property
owners, combined with our robust SaaS platforms and over 20 years of operating experience, contribute to a compelling
business model.
We have experienced significant growth since our company's inception in 2000. We generated total revenue of $881.7
million, $842.6 million and $749.0 million in 2023, 2022 and 2021, respectively. Our SaaS and license revenue was $569.2
million, $520.4 million and $460.4 million in 2023, 2022 and 2021, respectively, representing a compound annual growth rate of
11.2%. We also generated net income attributable to common stockholders of $81.0 million, $56.3 million and $52.3 million in
2023, 2022 and 2021, respectively, as well as non-GAAP adjusted EBITDA of $154.0 million, $146.8 million and $142.5 million in
2023, 2022 and 2021, respectively. See the "Non-GAAP Measures" section of Item 7. "Management’s Discussion and Analysis of
Financial Condition and Results of Operations" for a discussion of the limitations of non-GAAP adjusted EBITDA and a
reconciliation of non-GAAP adjusted EBITDA from net income, the most directly comparable financial measures calculated and
presented in accordance with accounting principles generally accepted in the United States, or GAAP, for the years ended
December 31, 2023, 2022 and 2021.
Our Solutions and Integrated Platforms
Our solutions are designed to make both residential and commercial properties safer, smarter and more efficient. Our
technology platforms support property owners who subscribe to our services, the hardware partners who manufacture devices
that integrate with our platforms and the service provider partners who install and maintain our solutions.
The Alarm.com platform enables our service provider partners to deploy our interactive security, video monitoring, intelligent
automation, access control, energy management and wellness solutions as stand-alone offerings or as combined solutions to
address the needs of a broad range of customers.
Subscriber Solutions
Interactive Security
Interactive security is the entry point for most of our smart home and business subscribers. Our dedicated, two-way cellular
connection between the property and our platforms is designed to be tamper resistant and to meet the high reliability standards
for life safety services. Our platform integrates with monitoring stations used by our service providers to monitor the system 24
hours a day, seven days a week, and coordinate emergency response as needed. Subscribers can seamlessly connect to our
services to control and monitor their security systems, as well as to IoT devices including door locks, garage doors, thermostats
and video cameras, through our family of mobile apps, websites and engagement platforms like voice control through Siri
Shortcuts, Amazon Echo and Google Home, wearable devices like the Apple Watch and TV applications such as Apple TV and
Amazon Fire TV.
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The capabilities associated with this solution include:
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Real-Time Alerts and Always-On Monitoring. Whether the security system is armed or disarmed, we continuously
monitor sensors in the property and can keep subscribers aware of system events in all kinds of situations. Notifications
for any type of system event are delivered through push notifications, short message service, or SMS, or email, based
on the subscriber's preference. Our proprietary algorithms help safeguard connected properties by continuously
monitoring devices and sensors and learning the unique activity patterns in a property. When unexpected activity is
detected, the subscriber is automatically notified.
Alarm Transmission. We transmit alarm signals from monitored properties through our cloud platforms to approximately
1,000 third-party central monitoring stations staffed 24 hours a day, seven days a week with live operators ready to
initiate emergency response.
Smart Signal. With a single button push in the Alarm.com mobile app, subscribers can quickly verify an alarm to help
expedite emergency response or easily cancel a false alarm. By communicating critical information directly to the
monitoring station, Smart Signal can help enhance the overall value of the professional monitoring services associated
with Alarm.com systems and reduce false alarm dispatches. In addition, home or business owners who need
emergency assistance at their property can send a one-touch panic signal directly from their mobile app to their
monitoring station.
Smart Arming. Smart arming provides intelligent, automatic system arming and disarming that dynamically adjusts
based on activity in the home. Subscribers select periods when they want their system to monitor activity in their
property and then either automatically arm or disarm the system. Intelligently automating the security system enhances
customer security and drives further user engagement with our smart home systems.
◦ Wellness. Our technology intelligently monitors quality of life through a suite of connected sensors and devices, and
delivers proactive insights into activities of daily living. With alerts about changes in behavior that can indicate emerging
quality of life issues, family members and homecare and senior living providers can address issues before they escalate
and deliver more efficient care.
Video Monitoring and Video Analytics
Our video monitoring solution can provide a direct live-view into a property, identify and capture footage of critical events and
provide visual peace of mind. We offer indoor and outdoor video cameras for residential and commercial properties at varying
price points so our service providers can engage a range of consumers with our services. We also provide a doorbell video
camera solution that supports two-way audio with guests at the door, as well as video management software and cameras for
enterprise commercial applications through our OpenEye business.
The capabilities associated with our video monitoring solution include:
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Video Analytics. Our video analytics engine provides object classification and object tracking technology that can
distinguish between people, vehicles and animals, determine an object's direction of movement and measure the
duration of activity. Subscribers can selectively control and manage notifications and assign virtual zones and multi-
directional "tripwires" so they can monitor their home or business for highly specific activity. Perimeter Guard can
proactively identify and engage would-be intruders before they can threaten physical property.
Escalated Events. Our Escalated Events enables monitoring stations to receive and respond to events generated by our
suite of video analytics capabilities. For example, our video monitoring solution can detect a person in a customer's
backyard or in the parking lot of a business after hours and alert a central monitoring station. A monitoring agent can
then access video clips and live feeds to evaluate the situation quickly and dispatch first responders as needed.
Escalated Events adds a new layer of proactive security protection for property owners and creates new opportunities
and applications for the professional monitoring services provided by our partners.
Video Doorbell. Alarm.com offers a full line of video doorbell options with a diversity of price points. From a single
screen on the Alarm.com mobile app, subscribers can see and speak with visitors and control their door locks. The
Alarm.com 750 video doorbell is a battery-free video doorbell that has a wide operating temperature range and includes
Alarm.com’s video analytics software package and delivers advance performance specifications, including an expansive
field of view and two-megapixel resolution. The Alarm.com 770 video doorbell operates proprietary video analytics
software that can quickly and accurately detect visitors while reducing unwanted alerts, such as those caused by
passing vehicle traffic or swaying branches. A touch-free capability immediately activates the doorbell chime when a
visitor is detected, eliminating the need to physically press a doorbell button. Alarm.com’s battery-powered 780 video
doorbell gives service providers a more flexible installation option for challenging installations, particularly in
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international markets where regional wiring standards do not always support wired video doorbells. An on-board neural
network rapidly identifies people while optimizing energy usage for extended battery life.
Intelligent Integration. Alarm.com’s video surveillance solution works intelligently with other devices and sensors in the
property. Subscribers can create intelligent rules to capture video clips of important events to enhance security and
privacy.
Live Streaming. Subscribers can securely access live video feeds through the web and mobile apps at any time.
Secure Cloud Storage. Video clips are uploaded to our cloud-based storage system for secure storage and remote
viewing.
Video Alerts. Smart clips can be automatically sent via SMS, push notifications or email as soon as they are recorded.
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Intelligent Automation and Energy Management
Our solution provides enhanced monitoring and control for a large ecosystem of connected devices, including thermostats,
lights, locks, power meters, shades and other devices. Increasing awareness of energy usage and providing intelligent control
over connected devices enables subscribers to create personalized automation rules and schedules. We believe our solutions
can reduce energy waste as well as increase comfort and convenience for our subscribers. The capabilities associated with this
solution include:
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Scenes. A customizable scenes button in the Alarm.com app can adjust multiple devices in the property with a single
command. For example, a homeowner leaving the house can arm the security system, lock the front door, close the
garage door and adjust the thermostat with a single command.
Video Analytics Triggers. A robust set of automation rules allows our subscribers to customize automations to respond
when certain activity is detected by their video monitoring solution. For example, subscribers can create a rule that if a
person is detected in their backyard at night, certain lights should turn on.
Smart Thermostat Schedules. Advanced algorithms can learn the unique activity patterns in a property by analyzing
sensor and device data. Our solution can then recommend thermostat schedules that have the potential to increase
energy efficiency when the property is not likely to be occupied.
Responsive Savings. Smart thermostats connected to our platforms can automatically respond to sensors and other
devices in the property to conserve energy. For example, when the security system is armed away, an arming state
used when the property is not occupied, the thermostat can automatically adjust to save energy. Additionally, if a
window is open for a period of time, the smart thermostat can adjust to an efficiency setting and alert the property
owners.
Precision Comfort. Remote temperature sensors enable a subscriber to manage comfort in a specific area within their
property. For example, a homeowner can set a desired temperature for a child's nursery to improve the child’s comfort.
Subscribers can easily customize detailed schedules and rules to have the right temperature in the right location at the
right time.
Energy Usage Monitoring. Real-time and historical energy usage and solar energy production data for the entire
property and individual devices can give subscribers greater insight into the property’s energy profile and encourage
more efficient use of energy-consuming devices.
HVAC Monitoring Service. Our Heating, Ventilation and Air Conditioning, or HVAC, monitoring service works with select
high-efficiency heating and cooling systems and allows HVAC contractors to remotely monitor and manage
sophisticated residential and light commercial heating and cooling systems.
Places Feature. The Places feature uses a phone’s geo-location to determine when to notify a subscriber of specific
system conditions, or to automatically adjust system settings. Subscribers who enable the Places feature can be
notified if they leave home and forgot to lock a door, close the garage door, arm their security system or close a window.
Additionally, smart thermostats and lights can be automatically adjusted based on the subscriber's location. Subscribers
can create multiple geo-fences and customize the opt-in feature to meet their specific needs.
◦ Whole Home Water Safety Solution. Our comprehensive whole home water safety solution helps subscribers conserve
water and proactively protect their property from a full range of water-related damage. Integrated with Alarm.com’s
Smart Water Valve + Meter and Water Dragon devices, our solution can monitor water usage, detect both low- and
high-volume leaks, alert the subscriber about conditions that can lead to frozen and burst pipes, intelligently manage
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humidity levels and notify homeowners if a sump pump fails. The Smart Water Valve + Meter can also automatically
shut off the property's water supply when it detects a leak. Water Dragon is an easy-to-install option that clamps onto
the main water line and uses ultrasonic technology to detect unexpected water activity.
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Solar Monitoring Solution. Our integrated solar monitoring solution allows subscribers to track solar panel energy
production as well as energy consumption in their property by day, week, month and year. With the Alarm.com mobile
app, our subscribers can monitor the property’s solar data alongside security and other energy-saving devices so they
can easily leverage intelligent automation capabilities that can help lower power bills and reduce their environmental
footprint. As part of a comprehensive smart energy management solution, solar monitoring gives subscribers the
information and insights to reduce overall energy consumption and manage a broad ecosystem of automation devices
to compensate when solar production is low, such as automatically raising the thermostat setpoint or turning off lights.
Demand Response and Virtual Power Plant Programs
Our EnergyHub subsidiary provides software that utilities can use to reduce or shift power consumption out of peak demand
periods or when intermittent renewable energy sources operate below capacity. By accessing and intelligently managing
connected thermostats and other connected devices and appliances at scale, utilities can significantly reduce costs, transition to
renewable energy sources and support the electrification of transportation. The EnergyHub SaaS platform provides a
comprehensive solution that enables utility customers to voluntarily participate in these programs, aggregates a diverse set of
smart thermostats, connected water heaters, residential batteries, electric vehicles and charging equipment, and delivers virtual
power plants that utilities can leverage as an enterprise-grade grid resource.
Commercial Solutions
In addition to our residential solutions, we offer a full range of commercial security services that uniquely address the
requirements of small, medium and enterprise scale businesses.
Alarm.com for Business, our security solution for small and medium businesses that range from single-site to multi-location
businesses, combines intelligent intrusion detection, video surveillance, access control and energy management into a single
solution through Alarm.com's app and online interfaces. Our solution streamlines business operations, enhances property
security and awareness, saves energy and provides insights into employee and customer activity. Additionally, business insights
reporting provides actionable intelligence, including open and close trends by location, peak periods of activity and customer
traffic and energy savings opportunities. Key benefits of the commercial offering include:
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Commercial Grade Video Solutions. Connected commercial cameras deeply integrate with the security and access
control systems, enabling them to capture video clips of important activity such as personnel entering and exiting a
property or secure area or disarming the security system. Video clips are uploaded to our cloud-based platform for
secure storage and remote viewing through the web or our mobile app. Subscribers can receive real-time alerts and
video clips if the alarm goes off, a door is unlocked, or unexpected activity occurs outside of normal business hours. Our
commercial video solution operates with a diverse array of third-party commercial video cameras. Supporting third-party
cameras facilitates adoption of our commercial video solution by reducing the barriers to entry for small and medium-
sized businesses that want to benefit from our intelligently integrated solutions without the cost of replacing existing
installed cameras.
Commercial Video Analytics. Business Activity Analytics can help improve and optimize business operations.
Commercial subscribers can intelligently monitor customer and employee activity, including occupancy tracking, people
counting, queue monitoring, crowd gathering and heat mapping. Real-time notifications and activity reporting can help
streamline customer flows, reduce wait times, measure the effectiveness of marketing campaigns and enforce
occupancy limits. Perimeter Guard enhances our Business Activity Analytics solution with a layer of proactive
deterrence against would-be intruders. Perimeter Guard can identify a person and automatically respond with audible
alerts and flashing LED lights that inform the person that they are being monitored. We believe our 2023 acquisition of
certain assets of Vintra, Inc., or Vintra, will help to expand our learning program and accelerate deployment of advanced
video analytics commercial solutions for the Alarm.com and OpenEye platforms.
Smarter Access Control. Our Smarter Access Control solution streamlines access management and helps solve many
of the challenges faced by small business owners with an array of always-on operational tools that can improve
property control, security and awareness. From a single web view, subscribers can add and delete users, manage
access points and user permissions and define schedules across multiple locations and security partitions. Leveraging
advanced algorithms, our Smarter Access Control solution intelligently learns the activity patterns of users and access
points for single or multiple property installations, detects unexpected events and alerts the subscriber of the irregular
activity.
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Cell Connector. Our Cell Connector for Access Control eliminates the need to have a wired network connection,
enabling the ability to install our Access Control solution using cellular 4G LTE in customer locations where network
connectivity or reliability is hindered.
Enterprise Dashboard and Multi-site Management. Commercial subscribers can easily view and manage multiple
business locations from a unified enterprise dashboard optimized for the web or mobile app. They can quickly access
and customize video feeds to monitor multiple properties, view information from access control and security systems,
and monitor property temperature, smart thermostat set points and the temperature of refrigeration units. Sophisticated
rules, user permissions and schedules streamline access management across multiple locations and security partitions.
Energy Savings. Our smarter thermostats help subscribers reduce energy costs automatically, even if someone forgets
to adjust the temperature when they are closing up at the end of the day, generating a return on investment.
Proactive Protection for Valuables and Inventory. Unexpected activity alerts provide business owners and managers
with the early identification of activity such as unexpected entry after hours, or doors propped open that could cause
energy waste or safety concerns, and help business owners quickly respond to problematic situations. Notifications
keep business owners in the know about individuals entering or exiting the back office, the supply room, or any other
specific rooms or doors. Alarm.com provides a time stamped log of which users armed or disarmed the system or
entered the property using their keycard.
Temperature Monitoring. Our new temperature monitoring solution provides monitoring 24 hours a day, seven days a
week, real-time alerts and historical temperature reporting to support the temperature control needs of restaurants,
grocery stores, pharmacies and other single-system and multi-location commercial customers. Business owners receive
alerts for out-of-range temperatures so they can quickly prevent unsafe conditions, reduce spoilage and repair
malfunctioning equipment.
Daily Safeguards. Smarter business security intelligently keeps business locations secure while minimizing false
alarms. Subscribers can specify a time for the security system to automatically adjust to an armed state each day. The
system will arm itself only after a certain period of inactivity in the property.
Professionally Supported and Low Cost of Ownership. Unlike traditional commercial security services, Alarm.com’s
connected solutions are cloud-based and do not require additional IT resources. Smarter business security powered by
Alarm.com is supported by our authorized service provider partners from start to finish, with installation, configuration
and technical support included.
Our OpenEye subsidiary offers enterprise commercial video management solutions that complement the Alarm.com for
Business platform. OpenEye expands our market opportunity to address the unique requirements of large, enterprise commercial
and national account customers such as universities, banks, national retail chains and property management companies.
OpenEye software offers Video Surveillance as a Service, or VSaaS, as well as cameras, recorders and other peripherals
designed for video applications, and supports enterprise-level requirements such as advanced forensic video search, point of
sale system integration and customer site mapping, as well as large-scale camera deployments. Key benefits of the OpenEye
solution include:
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Intelligent Cloud Architecture. OpenEye’s hybrid architecture intelligently combines local recording with managed cloud
services. It provides long-term storage of high-resolution video, low bandwidth consumption and a full suite of
centralized management capabilities that include remote viewing, administration and health reporting for deployments
that can include thousands of video cameras.
Video Analytics Platform. OpenEye’s video analytics platform is optimized to support the requirements of its large-scale
enterprise commercial customers. It can identify people and reduce false motion events caused by background
movement and other image noise to provide highly accurate activity detection. Subscribers can create more actionable
activity alerts to respond to incidents and quickly find associated video recordings. OpenEye's software also works with
a wide variety of devices to enable unique solutions. For example, environmental sensors can trigger OpenEye alerts
and video recording based on events of interest, including new Vaping Alerts for school settings. Additionally,
OpenEye's Sales Connect solution combines point-of-sale system data with video so subscribers can create custom
alerts and conduct forensic searches on detailed transaction data to deliver a more robust solution for significant
verticals such as retail, grocery and quick-serve restaurants.
Enterprise-Level Capabilities. Capabilities such as advanced forensic video search, point of sale system integration and
customer site mapping address the specific needs of enterprise-level subscribers and allow loss prevention officers,
business analysts and other IT resources to employ video as a key operational and management tool.
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Large-Scale Video Deployments. Centrally managed recorder firmware, system diagnostics and configuration
capabilities allow enterprise commercial customers to actively manage large-scale camera deployments. OpenEye’s
user interface is optimized for guard or command stations and other settings where video from multiple cameras is
viewed and searched simultaneously on secure workstations or video walls.
CloudConnect. CloudConnect is a two-way integration between the OpenEye Cloud Video Platform and the Alarm.com
for Business platform that directly associates event data from intrusion sensors and access control readers with
OpenEye’s VSaaS offering. Based on criteria such as system arming status or badge scans by specific users,
subscribers can customize event-based rules to record video clips, tag videos and generate alerts, or they can directly
navigate to video recordings associated with a particular event. The integration further unifies intrusion, access control
and video solutions to offer a more intelligent and convenient way to manage and secure commercial properties.
Shooter Detection Systems, or SDS, expands the platform capabilities we provide to the commercial security market. Our
multi-sensor solution provides highly accurate indoor gunshot detection to help alert employees, the public and emergency
services about active shooter threats. The solution uses a dual-mode detection technology that combines acoustic sensors with
specialized infrared flash detectors, in tandem with proprietary gunshot detection software algorithms to maximize detection
without driving false positives. Through an integration with Alarm.com's Noonlight subsidiary, SDS provides an advanced
emergency response solution that enhances situational awareness for first responders during active shooter incidents. The
solution enables the 911 operators, responding officers, onsite security and building managers to communicate and share
information in real-time and view critical contextual data, including the building, room and floor location of gunshot events.
Beginning in 2023, SDS indoor gunshot detection became available as a SaaS solution integrated with Alarm.com for
commercial properties. The integrated solution is designed to enable Alarm.com’s service provider partners to bring the SDS
solution to market as a SaaS offering with a more accessible price point.
Service Provider Solutions
We also offer a comprehensive suite of enterprise-grade business management solutions for our service provider partners.
We are committed to helping our service provider partners grow their businesses, efficiently manage their customer bases and
maximize the value of their Alarm.com accounts. We believe these services strengthen our partnerships with service providers
as they build their businesses on our platforms. Capabilities associated with these solutions include:
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Service Provider Portal. Our permission-based online portal provides account management, sales, marketing, training
and support tools. Through this portal, our service provider partners can activate and manage their Alarm.com customer
accounts, order equipment, access invoices and billing, remotely program customer systems, obtain sales and
marketing services and engage in training.
Service Dashboard. The Partner Services Platform provides a unified interface that displays key operational and
customer experience indicators, including technician performance, system reliability and customer engagement metrics.
Service managers can identify opportunities for implementing efficiencies that they can then operationalize through the
suite of Alarm.com’s service provider solutions.
Installation and Support. The ease of installation and cost of supporting connected property solutions are critical
considerations for our service provider partners. We support the end-to-end process for deploying and managing our
solutions with tools that make installation and support more efficient.
• MobileTech Application and Remote Toolkit. Our installation and troubleshooting mobile app, designed for
service provider technicians, facilitates the successful installation, programming and support of equipment
while either on-site at subscribers’ properties or while working remotely. Service provider technicians and
customer service personnel can access a collection of remote system management tools and panel settings
through the Remote Toolkit using the MobileTech application and our service provider portal, including service
appointment reminders, device notes, quick links and MobileTech Podcasts. These features help to increase
accuracy of installations, decrease time spent on-site and reduce support calls and return visits, which saves
subscribers and service providers money while increasing subscriber satisfaction.
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Gopher Info. The Gopher Info feature is an artificial intelligence-powered chat bot assistant for
technicians and service providers that leverages large language models to improve service provider
efficiency and operations, including training, sales, installation and support. In response to a question,
Gopher Info contextualizes, processes and summarizes information from Alarm.com's extensive
database of support content, including installation guides, product summaries, specification sheets,
troubleshooting best practices and training materials. This resource is accessible through the
Alarm.com Partner Portal and the MobileTech application.
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On-Site Wrap Up. The On-Site Wrap Up feature within the MobileTech application helps technicians
keep track of and record the tasks they are required to complete during a service call to a customer
property. Service providers can establish standard actions for technicians and monitor
implementation. On-Site Wrap Up helps Alarm.com’s service provider partners ensure that their field
technicians deliver consistent, high-quality service that reduces support costs and customer attrition.
On My Way. The On My Way feature within the MobileTech application modernizes the management
of service appointments and customer expectations. It uses technicians’ mobile devices to provide
useful navigation to service and installation appointments, sends more accurate arrival time email
notifications to customers and helps service providers gauge the efficiency of their workforce.
Device Sync. Our integrations with monitoring stations allow operators to proactively address trouble
conditions associated with a subscriber's video cameras and connected devices. Participating
monitoring stations can receive alerts when a device malfunctions or its batteries are low, and
operators can then communicate to subscribers to remotely address the issue or schedule a service
appointment with a technician, if needed.
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Video Health Reports: Video Health Reports give Alarm.com’s service provider partners and their commercial
video customers a monthly snapshot of the condition of video cameras and stream video recorders. System
summaries and device-by-device information provide awareness of potential issues to ensure continuous,
uninterrupted video coverage, reduce maintenance and support calls, and eliminate the need for manual
checks by the customer.
Smart Gateway. The Smart Gateway allows service provider partners to create a private and secure Wi-Fi
network infrastructure specifically for a subscriber's property that is dedicated to Alarm.com video cameras. It
is designed to streamline camera installation and reduce common support issues caused by a subscriber's
unmanaged Wi-Fi network. With Smart Gateway, Alarm.com's service provider partners can also more
efficiently deploy video cameras and services with better connectivity and leverage wireless spectrum
maximized for performance.
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AI-powered Enhancements to Professional Monitoring and False Alarm Reduction. We apply our advanced, AI
architecture to provide our third-party monitoring station partners with powerful insights. We designed these capabilities
to streamline their operations, empower them to provide critical information to public safety dispatchers and first
responders, enhance the value of the monitoring services they provide to subscribers and reduce false alarm
dispatches.
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Ambient Insights for Alarm Response. Ambient Insights for Alarm Response provides third-party monitoring
stations with a real-time determination as to the likelihood that the property owner will cancel an alarm.
Monitoring operators can access contextual information and intelligent insights about alarm-related events so
they can quickly assess the situation and make more informed decisions about the appropriate level of
response. The capabilities leverage activity data associated with the alarm event, such as incorrect panel code
entries, unlocked doors and video of any person detected at the property. The alarm assessments are
designed to help operators prioritize multiple alarm events. Monitoring stations can rapidly dispatch emergency
services to the highest priority alarms, while also reducing the likelihood of false alarm dispatches.
Visual Verification. Our Visual Verification solution empowers monitoring station operators to make more
informed decisions and expedite emergency response while supporting service providers. With our Visual
Verification interface, operators have contextual indicators, live video feeds and Video Analytics tools to help
identify if there is a person or a perceived threat at a given location. By leveraging multiple data sources to
understand the activity surrounding an alarm event, the solution creates a Person On-Site Likelihood Indicator
so that the operator may relay this critical information to first responders dispatched to the location.
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Business Management. Our services deeply integrate with our service provider partners’ offerings and provide
increased business insight into their customer base and key business health metrics.
• Web Services. Our web services allow our service provider partners to integrate their existing customer
management software and tools with our platforms. This creates a unified interface for our service provider
partners to seamlessly perform functions like creating a new customer account or upgrading a service plan.
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Business Intelligence. Our powerful business intelligence tools provide service providers with crucial insights
into the performance of their Alarm.com subscriber account base. Business Intelligence provides key
operational metrics related to account plan adoption, attrition and service quality to help service provider
partners grow their business and improve customer retention.
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Sales, Marketing & Training. Our comprehensive customer lifecycle sales and marketing services are available to help
our service provider partners effectively market and sell our solutions.
• Marketing Portal. We provide a broad suite of marketing and sales tools and resources for our service
provider partners, including our MobileSales app, co-brandable landing pages, mobile optimized websites with
integrated lead capture, social media, videos, images, collateral, direct mail and event materials.
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Alarm.com Academy. We offer comprehensive in-person training programs to our service provider partners.
Additionally, we offer online courses through a learning management system, enabling our service provider
partners to access training on the full suite of Alarm.com solutions anytime.
System Upgrades. Our Customer Connections solution is designed to maximize the value of existing
accounts by offering targeted in-app and e-mail-based upgrade offers to existing subscribers. These
campaigns are designed to increase engagement, drive upsell opportunities and enable referrals for our
service provider partners.
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Home Builder Program. Our home builder program includes hardware and service plans designed to facilitate
partnerships between home builders and our service provider partners. Home builders can rapidly deploy a full-range of
our smart home solutions in new communities and model homes, while minimizing risks and costs by depending on our
nationwide network of service provider partners for hardware installation and ongoing support.
Benefits of Our Solutions
The intersection of significant technology trends, like the broad adoption of mobile devices, the emergence of the IoT, the
power of big data and the extensibility of the cloud, makes the connected property possible. Security systems, thermostats, door
locks, video cameras, lights, garage doors and other devices that were once inert can now be intelligent and connected. Our
intelligently connected property solutions provide a wealth of benefits to our subscribers and our service provider partners.
Benefits to Subscribers:
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Single Connected Platform. Our cloud-based platforms provide subscribers with a single point of integrated control
across a diverse ecosystem of IoT devices. Solutions are easily personalized to suit the individual subscriber’s needs.
Reliable Network Communications. Our platforms utilize a highly secure, highly reliable, dedicated cellular connection
which mitigates common vulnerabilities of security systems that are connected via a wired network, such as cut lines or
broadband connectivity issues.
Intelligent and Actionable. Our platforms aggregate real-time, multi-point data about property activity and system
status. We have developed a highly scalable data analytics engine to deliver unique features and capabilities based on
insights derived from this growing set of data. For example, learning detailed activity patterns in a property enables our
platforms to proactively alert the subscriber about unexpected events. Our platforms continue to learn and adapt to
become more personalized over time.
Broad Device Compatibility. Our platforms support a wide variety of connected devices and communications
protocols, allowing seamless integration and automation of many devices, as well as the addition of new devices in the
future.
Accessible and Affordable. Our platforms offer an affordable alternative to expensive automation systems, legacy
residential and commercial control products and disparate point product solutions.
Trusted Provider. We have established a reputation and brand as a trusted and reliable technology provider. We
respect the privacy of our subscribers and do not sell their data. Our reputation is strengthened through our network of
service provider partners, who have significant expertise in the delivery of our SaaS platforms and suite of solutions.
Benefits to Service Provider Partners:
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New Revenue Generation Opportunities. Our solutions help broaden our service provider partners' offerings beyond
traditional security to also include comprehensive smart residential and commercial solutions like intelligent automation,
video monitoring and energy management. They can access new market opportunities and drive incremental recurring
monthly revenue by expanding their offerings with our solutions. We offer training, tools and other resources to help our
service provider partners fully leverage the breadth and depth of our platforms.
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Expanded Set of Value-Added Services. We provide value-added services to our service provider partners, including
training, marketing, installation and support tools and business intelligence analytics. This support helps our service
provider partners more efficiently acquire, install and support their customers on our platforms.
Improved Service Provider Economics. Our cloud-based platforms can help reduce our service provider partners’
service delivery and support costs. Remote Toolkit enables our service provider partners to remotely configure, support
and upgrade their customers' hardware or software, eliminating the cost of an in-person service call for many routine
support issues. In addition, we believe our service provider partners can generate more revenue from each subscriber
by providing services beyond traditional security.
Broad Device Interoperability. We have an open platform which allows service provider partners to respond to market
innovation and consumer demands for connected devices. Device hardware is deeply integrated into our platforms to
provide a more cohesive experience than stand-alone products deliver. For example, we released the Alarm.com 750
video doorbell, which is a battery-free video doorbell that delivers advance performance specifications, including an
expansive field of view and two-megapixel resolution. Our platforms also support various broadly adopted
communications protocols commonly used in many automation devices, including Z-Wave, Wi-Fi and cellular. Our open
platforms and interoperability give our service provider partners a wide selection of devices to suit their customers'
needs now and in the future.
Dedicated Service Provider Support. We operate support centers focused on providing timely support to our service
providers and their technicians. We are focused on ensuring our service providers receive fast and reliable service to
address the broad needs of subscribers across a wide range of devices and solutions.
Competitive Advantages
We believe the benefits we can deliver to our subscribers and our service provider partners create a significant competitive
advantage in the connected property market.
◦ Market Leader. Alarm.com is a pioneer in the intelligently connected property market. In 2023, our platforms processed
more than 325 billion data points generated by over 150 million connected devices. We believe the combination of the
size of our subscriber base, service provider network and the volume of data generated by the integrated devices on
our platforms creates a competitive advantage for us.
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Security Grade, Cloud-Based Architecture. We built our platforms with a cloud-based, multi-tenant architecture that
allows for real-time updates and upgrades. Our platforms were purpose-built from the ground up with life safety
standards at the core.
Highly Scalable Data Analytics Engine. We processed more than 325 billion data points in 2023. As consumer
preferences shift towards more proactive, intelligence-based features, we believe our investments in proprietary
analytics, machine learning and artificial intelligence give us a competitive advantage.
Trusted Brand. We believe our leading position in our space is an indicator that we have developed a trusted brand
with service providers and consumers for innovative and reliable technology and service. Our iOS and Android mobile
apps have each been downloaded millions of times and both apps consistently have impressive user ratings.
Commitment to Innovation. We continue to make significant investments in innovative research and development.
Our investment resulted in hundreds of issued patents as of December 31, 2023 and numerous patent applications
pending which we believe can help ensure our technology remains competitively differentiated and legally protected.
Growth Strategy
We intend to maintain our leadership position and expand into new market opportunities by continuing to develop and
deploy innovative technologies and by expanding our ecosystem of partners. Our key growth strategies include:
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Drive SaaS and license revenue growth by expanding the solutions our service providers deploy. We will
continue to focus on helping our service provider partners succeed in driving the adoption of our full suite of residential
and commercial services. We provide sales and marketing resources to help our service provider partners become
more effective in selling our expanding range of solutions and we will continue to make significant investments to
support our service provider network.
Upgrade traditional security customers to our solutions. We believe there is a significant opportunity for our service
provider partners to expand adoption of our connected solutions within their customer base. We intend to leverage our
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status as a trusted provider to drive consumer interest in our offerings and enable our service provider partners to
upgrade their legacy security customers to our connected property solutions.
Continue to invest in our platforms. As a pioneer in connected home and business solutions, we have made
significant investments in building our platforms for over 20 years. We intend to continue to invest heavily to add
additional innovative offerings and broaden our suite of solutions and opportunities in residential, commercial and global
markets. As the market for IoT grows and more devices become connected, we are building technology and
partnerships to connect these devices to our platforms.
Expand international presence. We are investing in international expansion because we believe there is a significant
global market opportunity for our products and services. Today, our products are currently localized and available in
over 50 countries outside of North America, including Argentina, Australia, Chile, Colombia, Spain, Sweden,
Switzerland, Turkey, the United Kingdom and Uruguay. We intend to continue to grow our number of international
subscribers by strengthening our presence in existing markets and expanding to additional markets. In 2023, we
acquired 100% of the issued and outstanding shares of capital stock of EBS Spółka z ograniczoną odpowiedzialnością,
or EBS, an international producer of universal smart communicator devices, headquartered in Warsaw, Poland. When
fully integrated with the Alarm.com platform, EBS communicators are expected to enable Alarm.com’s services to work
with a wide range of legacy security control panels commonly deployed in international markets.
Expand into the commercial market segment. We continue to see significant opportunity to expand our products and
services into the commercial market, including small and medium businesses, national accounts and enterprises. We
intend to leverage many of our existing solutions, including our Alarm.com for Business solution, to provide such
businesses with visibility into their key operational activities, keep businesses secure, provide facility access to
employees and vendors remotely and manage their energy costs.
Channel expansion. Today, many consumers purchase connected devices through a security service provider.
Continued growth in the connected property market has invited new participants into the space that can complement
our current partner ecosystem. We intend to continue to develop partnerships with heating, ventilation and air
conditioning installers, property management companies, utility companies, insurance providers and other services
companies to expand avenues into residential and commercial properties.
Pursue selective strategic acquisitions. We may selectively pursue future acquisitions of businesses, technologies,
or products that complement our platforms or align with our overall growth strategy. Such acquisitions could expand our
team and/or technology portfolio to help us add new features to our platforms, accelerate the pace of our innovation or
help us access attractive markets.
Market Opportunity
Our addressable market consists of both residential and commercial properties. Our residential subscribers are typically
owners of single-family homes and our commercial subscribers include retail businesses, restaurants, schools and universities,
commercial facilities, national chains and professional offices.
We believe there is an opportunity to significantly increase the adoption of our solutions as more residential and commercial
property owners adopt intelligently connected property solutions and as the major technology trends of mobile access, the IoT,
cloud technology and artificial intelligence continue to create opportunities to connect people with their properties in new ways.
Our Technology
Cloud Services Platform
Our internal engineering teams have designed and developed our core technology. As an industry leader, we believe we
have robust cloud service platforms for the intelligently connected property. Our cloud services platforms manage communication
with the system at the property, intelligently direct alerts and notifications, learn patterns and identify anomalies and manage
video processing and storage. Additionally, our platforms enable device integrations through application program interfaces, or
APIs, and offer our service provider partners extensive workflow efficiency services.
Since our inception, we have utilized a multi-tenant SaaS platform architecture to enable rapid innovation in a scalable
environment. Our platforms are architected to scale and our technology team has developed proprietary cloud-based
applications to support our service provider partners and subscribers. Security and life safety are mission critical components of
our service offering; thus, we are committed to high reliability standards. We operate our Alarm.com cloud services platform
through two redundant network operations centers located in Phoenix, Arizona and Ashburn, Virginia. Each center is designed to
run the entire Alarm.com platform independent of the other. Alarm.com also relies on third-party technology providers to process
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certain information, such as video. In addition, certain of our acquired companies maintain their own technology platform distinct
from Alarm.com’s platform.
Hardware and Manufacturing
We are involved in designing and manufacturing various types of hardware that enable our solutions, including:
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Cellular Communication Modules and Gateways. We offer cellular communications modules that are tightly integrated
with security system control panels, sensors and other devices. We also offer fully integrated cellular gateways. We
regularly pioneer technical advances in this space, including the expansion of our deployment of security services
hardware with 4G LTE and LTE CAT-M cellular network connections. All of our modules and gateways, designed by our
device engineering team and manufactured in the United States by a contract manufacturing partner, provide a
dedicated and fully managed two-way cellular connection between the monitored property and our cloud platforms. The
modules run our proprietary firmware and enable:
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Real-time analysis of system events reported by security sensors and other devices.
Local automation rule execution.
The management of message transmissions to our cloud platforms for further processing.
Flex IO. A versatile, completely wireless device that extends awareness across a property and to assets in any location.
It can easily install on a backyard gate, detached garage, remote storage unit, or it can be tethered to other assets like a
boat, tractor or lawn mower, and triggers activity notifications to subscribers as well as video recordings when activity is
detected, or an asset is moved.
Shooter Detection Systems. The Guardian system from Shooter Detection Systems includes proprietary, dual-mode
gunshot sensors that are installed inside the subscriber's property to help protect people against active shooter threats.
Each gunshot sensor uses a dual-mode detection technology that combines acoustic sensors with specialized infrared
flash detectors. Proprietary gunshot detection software algorithms maximize detection and minimize false positives.
Gunshot sensors communicate to the Guardian Gateway Software, which provides notification pathways to first
responders and building occupants, and enables cloud-based capabilities such as the Guardian situational awareness
application that tracks and maps gunshot events. Beginning in 2023, Shooter Detection Systems indoor gunshot
detection became available as a SaaS solution integrated with Alarm.com for commercial properties. The integrated
solution allows subscribers to monitor and track the location of gunshots, quickly view videos of the time and place that
gunshots occurred and share critical situational awareness information with first responders with no onsite software
installation required.
Video Cameras and Doorbells. We offer a full range of high-definition video cameras and video doorbells enabled for
Internet Protocol-based video monitoring services. Our indoor, outdoor, and video doorbell cameras include options for
night vision capabilities as well as wireless or Power over Ethernet communication features. We also offer a network
video recording device, the SVR, for on-premise, continuous video recording seamlessly connected to our cloud
platforms for remote playback through our user interfaces. All of these video products and SVRs are specified to our
platforms through proprietary software.
Alarm.com Smart Thermostats. Our Smart Thermostats combine elegant design, sophisticated cloud services and
advanced energy management features. They were designed by our Building36 and device engineering teams to work
in concert with other devices in the connected property. Our Smart Thermostats communicate with the Alarm.com
communications module via Z-wave and support both battery power and common wire power installation.
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Remote temperature sensors can pair with our Smart Thermostats to enable temperature set points for any
room in the property, not just the room where the thermostats are installed. Our Smart Thermostats support
multiple remote temperature sensors for precise temperature control for a residential or commercial property.
• We designed our Smart Thermostats to be easy to install and support remotely. The MobileTech app assists in
proper wiring and installation and Remote Toolkit enables remote access to the thermostat settings for easy
troubleshooting and support.
Smart Water Valve + Meter and Water Dragon. Our Smart Water Valve + Meter and Water Dragon devices enable
Alarm.com’s Whole Home Water Management solution. Both devices can identify low and high-volume water leaks and
constantly monitor overall water use and current usage rates in homes and businesses. Deep integration with the
Alarm.com platform leverages intelligence and insights to help reduce the risk of losses from water emergencies, while
also improving water conservation efforts. The Smart Water Valve + Meter can automatically shut off the property’s
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water supply when a leak is detected. Water Dragon is an easy-to-install option that clamps onto the main water line
and uses ultrasonic technology to detect unexpected water activity.
Research and Development
We invest substantial resources in research and development to enhance our platforms and applications, support our
technology infrastructure, develop new capabilities and conduct quality assurance testing. We expect to invest significantly in
continued research and development efforts to expand the capabilities of our technology. Our research and development of new
products and services is a multidisciplinary effort across our product management, program management, software engineering,
device engineering, quality engineering, configuration management and network operations teams.
Service Provider Network
Our trusted service provider partner network is key in driving the adoption of connected home and commercial solutions. Our
solutions are sold, installed, and serviced by a network of independent licensed, professional service provider partners. Our
channel network of active service provider partners includes smaller local providers, larger regional providers and national
service providers. We have also seen growth in other areas of our channel network, including new providers in the intelligent
automation, HVAC, property management and insurance markets.
We believe this highly trusted, established network is a core strength that enables an efficient and scalable customer
acquisition model, allowing us to focus on technology innovation. We also believe that the combination of our solutions and our
service provider partners’ expertise is the most effective way to drive mass market adoption of the intelligently connected
property.
The traditional security and home automation market is highly fragmented. According to the Barnes Buchanan 2024 Security
Alarm Industry Overview and Update report, the top 5 dealers represented approximately 35% of all industry recurring monthly
revenue in 2022. The distribution of revenue among our service provider partners is reflective of the industry overall. ADT LLC
represented greater than 15% but not more than 20% of our revenue in each of 2021, 2022 and 2023.
Subscribers
We define subscribers as residential or commercial properties to which we are delivering at least one of our solutions. A
single property for which we are providing one of our service level packages as well as one or more of our a la carte add-ons is
counted as one subscriber. Our subscribers do not include the customers of our service provider partners to whom we license
our intellectual property, as they do not utilize one of our SaaS platforms. Our subscriber acquisition cost payback period has
historically been one year or less.
Sales and Marketing
The goal of our sales team is to help our service provider partners succeed in selling, installing and supporting our full suite
of solutions. Our sales team is also responsible for recruiting new service provider partners to Alarm.com. We also have a global
business development team dedicated to establishing new service provider and distribution relationships in international markets.
Our marketing team is focused on empowering our service provider partners to effectively promote and sell our solutions.
We design, develop and provide end-to-end marketing services including tools and content for lifecycle marketing to help our
service providers build awareness, create interest, activate subscribers, develop and maintain the ongoing customer relationship,
increase customer engagement, and generate upsell and referral opportunities. While we offer tools and services to assist our
service providers when they are marketing to potential subscribers, we do not control or influence the marketing activities
performed by our service providers, as they are free to select the marketing tools they believe will be the most effective. Our
contracts with our service providers require that they comply with all applicable rules and laws when engaging in marketing
activities. We also offer comprehensive training opportunities through our Alarm.com Academy, including in-person training
courses and an online learning management system.
We believe our sales and marketing approach enables us to expand our breadth of service providers, provide highly
customized services and scale quickly.
Service Provider Support
We support the full suite of software and hardware products on the Alarm.com platform through a highly trained and
experienced team of professionals based in the United States. We primarily support our service provider partners. Our service
provider partners, in turn, support their customers, who are our subscribers. To that end, subscribers occasionally reach us
directly with support needs and we either assist the subscriber directly or, when appropriate, route the subscriber to the
appropriate service provider partner for additional assistance.
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We offer high-quality support to our service providers via phone, chat, web ticketing and email. With every interaction, our
team is committed to exceptional customer satisfaction and industry-leading response times. We use a tiered structure to
efficiently escalate and resolve issues of varying complexity and to scale our support organization as we grow. Our staff is
multilingual and we continue to grow our language capabilities to support our international expansion.
Our Competition
The market in which we participate for connected property solutions is fragmented, highly competitive and constantly
evolving. We expect competition to continue from existing competitors as well as potential new market entrants in the interactive
security, video monitoring, intelligent automation and energy management markets. Our current competitors include providers of
other technology platforms for the connected property with interactive security, including Alula (formed following the merger of
ipDatatel, LLC and Resolution Products, LLC), Avigilon Corporation, Brivo Inc., Digital Monitoring Products Inc., Eagle Eye
Networks Inc., Honeywell International Inc., Resideo Technologies Inc., SecureNet Technologies, LLC, Telular Corporation
(acquired by AMETEK, Inc.), United Technologies Corporation, and Verkada Inc., which sell solutions to service providers, cable
operators, technology retailers and other residential and commercial automation providers. We also compete with interactive,
monitored security solutions sold directly to subscribers and may also be sold through our partners, including companies like
Abode Systems, Inc., Arlo Technologies, Inc., Cove Smart, LLC, Scout Security, Inc. and SimpliSafe, Inc. In addition, our service
provider partners compete with security solutions sold directly to subscribers, as well as managed service providers, such as
cable television, telephone and broadband companies like Comcast Cable Communications, LLC and Rogers Communications,
Inc., and providers of point products, including Google Inc.'s Nest Labs, Inc. Amazon.com offers Amazon Home Services security
packages with bundled equipment and professional installation, and Amazon Key, a security camera and smart lock integration
feature. Ring Inc., owned by Amazon.com, offers a connected video doorbell, video cameras and an integrated security system,
Ring Alarm. Samsung's SmartThings offers a security system and a home automation and awareness hub. Arlo Technologies,
Inc. and Wyze Labs, Inc. offers connected video cameras, a connected video doorbell, and smart security devices. Apple Inc.
offers a feature that allows some manufacturers’ connected devices and accessories, including video cameras and doorbells, to
be controlled through its HomeKit service available in Apple’s iOS operating system. Additionally, Canary and other companies
offer all in one video monitoring and awareness devices. In addition, we may compete with other large and small technology
companies that offer control capabilities among their products, applications and services, and have ongoing development efforts
to address the broader connected home market.
Many of our competitors have longer operating histories, greater name recognition, larger customer bases and significantly
greater financial, technical, sales, marketing, distribution and other resources than we have. We expect to encounter new
competitors as we enter new markets as well as increased competition, both domestically and internationally, from other
established and emerging home automation, security monitoring, video monitoring and automation, wellness, and energy
management companies as well as large technology companies. In addition, there may be new technologies that are introduced
that reduce demand for our solutions or make them obsolete. Our current and potential competitors may also establish
cooperative relationships among themselves or with third parties and rapidly acquire significant market share. Increased
competition could also result in price reductions and loss of market share, any of which could result in lower revenue and
negatively affect our ability to grow our business. We believe the principal competitive factors in the connected property market
include the following:
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simplicity and ease of use;
ability to offer persistent awareness, control, and intelligent automation;
breadth of features and functionality provided;
flexibility of the solutions and ability to personalize for the individual consumer;
compatibility with a wide selection of third-party devices;
pricing, affordability, and accessibility;
sales reach and local installation and support capabilities; and
brand awareness and reputation.
We believe we compete favorably with respect to each of these factors. Additionally, we believe our cloud-based software
platforms, intelligently connected property solutions, and proven scalability help further differentiate us from competitors.
Nevertheless, our competitors may have substantially greater financial, technical and other resources, greater brand recognition,
larger sales and marketing budgets and broader distribution channels than we do.
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Our Intellectual Property
Our success and ability to compete effectively depend in part on our ability to protect our proprietary technology and to
establish and adequately protect our intellectual property rights. To accomplish these objectives, we rely on a combination of
patent, trademark, copyright and trade secret laws in the United States and other jurisdictions, as well as license agreements,
confidentiality agreements and other contractual protections.
As of December 31, 2023, we owned 761 issued United States utility patents, one issued United States design patent and
152 issued international patents. We continue to broaden our intellectual property portfolio and file patent applications and as of
December 31, 2023, we had 210 pending utility patent applications and six pending provisional patent applications filed in the
United States. We also had 152 pending international patent applications and 17 international patent applications pending under
the Patent Cooperation Treaty. The claims for which we have sought patent protection apply to a wide array of our products and
services, including those of our subsidiaries and acquired businesses. Our portfolio of patents and patent applications applies
broadly to the features and functionality of the various technology platforms we maintain as well as potential new products,
services and offerings. We also have, and may be required to seek in the future, licenses under patents or intellectual property
rights owned by third parties, including open-source software and other commercially available software.
We also rely on several registered and unregistered trademarks to protect our brand. We have 39 registered trademarks in
the United States, including Alarm.com and the Alarm.com logo and design, 11 registered trademarks in Canada, nine in the
United Kingdom and seven in the European Union.
We seek to protect our intellectual property rights by requiring our employees and independent contractors involved in
development to enter into agreements acknowledging that all inventions, trade secrets, works of authorship, developments,
concepts, processes, improvements and other works generated by them on our behalf are our intellectual property, and
assigning to us any rights, including intellectual property rights, that they may claim in those works.
We expect that products in our industry may be subject to third-party infringement lawsuits as the number of competitors
grows and the functionality of products in different industry segments overlaps. We have brought infringement claims against
third parties in the past and may do so in the future to defend our intellectual property position. In addition, from time to time, we
may face claims by third parties that we infringe upon or misappropriate their intellectual property rights, and we may be found to
be infringing upon or to have misappropriated such rights. In the future, we, or our service providers or subscribers, may be the
subject of legal proceedings alleging our solutions or underlying technology infringe or violate the intellectual property rights of
others.
Environmental, Social and Corporate Governance Matters
Environmental
To operate long-term, we need to ensure our local communities and the natural environment are thriving. To help meet these
goals we intend to continue promoting, providing and investing in the further development of solutions that can help reduce
energy waste and facilitate water conservation. These include demand response programs, smart thermostats, energy
management solutions, solar monitoring solutions, Smart Water Valve + Meter device and advanced functionality within the
Alarm.com app.
Our demand response programs manage over 1.2 million connected devices for more than 60 energy utilities in North
America. These programs support energy utilities as they pursue aggressive clean energy goals.
Our lineup of smart thermostats and intelligent energy management solutions can automatically adjust to reduce energy
waste in residential and commercial properties. These solutions can change a thermostat’s temperature set-point based on
subscriber location, property occupancy and activity patterns, and if a door or window is left open for too long. To facilitate wide-
spread adoption of energy management technology, we developed many of these capabilities to also work with smart
thermostats manufactured by third-party companies.
The Alarm.com mobile app includes customizable scenes buttons that can assist in increasing the potential for energy
efficiency by adjusting multiple devices in the property with a single command. For example, a homeowner can turn on the fan,
raise or lower shades, turn on or off lights and adjust the thermostat with a single command. Commercial users can create
automated schedules to secure a property and automatically adjust the thermostat at a specified time.
Our Smart Water Valve + Meter and Water Dragon devices are part of a comprehensive water management solution. Two
on-board flow sensors monitor water usage to facilitate water conservation behavior. The device can also detect burst pipes,
major leaks, and wasteful slow persistent drips, and can respond by informing the property owners of opportunities to reduce
water waste, or as needed, by automatically shutting off the water supply to quickly protect properties from damage.
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Our commitment extends to the buildings in which our employees work. Many of our offices use LED lighting with sensors
that turn off the lights when motion is not detected and several of our offices are Leadership in Energy and Environmental
Design, or LEED, certified or Energy Star® certified, which indicates that the buildings help conserve energy and limit the amount
of greenhouse gas emissions. Additionally, several of our offices have building recycling programs, including programs specific to
batteries and electronics.
Our Sustainability Team is focused on integrating sustainability throughout our organization. Through the efforts of the
Sustainability Team and others throughout our organization, we have improved the packaging for some of our hardware by
switching to recyclable materials and eliminating polyethylene bags from our user guides. We have also replaced many of our
paper manuals with online guides. The Sustainability Team has also helped establish a composting program and a community
garden for employees at our headquarters in Tysons, Virginia, and has promoted community events to help increase awareness
about sustainability and the environment, including tree planting and park cleanup events.
Social
We are committed to providing an equal opportunity for all employees regardless of race, gender, sexual orientation, religion
or other differences. We want every employee to feel valued, respected and heard. We believe recruiting from the widest
available talent pool, and then facilitating collaboration among people of all experiences and backgrounds enhances our ability to
innovate. To help achieve this objective, our suite of employee community groups offers identity- and interest-based outlets
where employees can come together over shared interests, seek support and professional mentorship, and develop the
relationships that help them thrive on their teams and in the broader workplace. In 2022, we launched Belonging, an employee-
led community group that fosters inclusivity and offers community events and learning opportunities centered around promoting
diversity, equity, inclusion and belonging in the workplace. Belonging also partners with corporate communications to highlight
and recognize important cultural and diverse observances. We continued our Women in Tech group, aimed at empowering
women to grow their technical and professional skillsets and expertise. Last year, Women in Tech launched its Allyship arm,
which strives to promote greater allyship towards women and other underrepresented people in tech through education. We also
developed an Apprenticeship Program to help break down traditional barriers to entry into the technology industry that provides
hands on training that can be applied in the real world.
We continue to prioritize the health and safety of our employees. We partner with a company that helps support mental
health in the workplace through trainings and information sessions. We also provide additional healthcare benefits to employees,
making it safer and more convenient to get the care they need remotely. In addition to primary care, these additional remote
healthcare benefits include physical therapy, access to mental health services and health coaching treatment for acute and
chronic pain. We also provide free access to an app that promotes wellness through meditation and provides employees with
hundreds of guided exercises for meditation, sleep, focus and movement. We also partnered with a company that provides
various family care benefits, including access to a self-service, searchable database of providers for family care needs, including
care for children, adult dependents, pets and tutoring.
Governance
Our corporate behavior and leadership practices are based on integrity and ethical decision-making. Employees are
informed about our governance expectations through our Code of Business Conduct, compliance training programs and ongoing
communications. The Nominating and Corporate Governance Committee of our Board of Directors oversees our corporate
governance objectives, strategies, goals, compliance and risk mitigation.
Our Human Capital Resources
As of December 31, 2023, we had 1,989 full-time employees, including 565 in sales and marketing, 1,118 in research and
development, 229 in a general and administrative capacity and 77 who manufacture hardware for our suite of IoT solutions. As of
December 31, 2023, we had 1,776 employees in our Alarm.com segment and 213 employees in our Other segment. We also
engage consultants and temporary employees from time to time. None of our employees are covered by collective bargaining
agreements and we consider our relations with our employees to be good.
We believe attracting, motivating and retaining talent at all levels is critical to continuing our success. By improving
employee retention and engagement, we believe we are also improving our ability to support our service provider partners and
protect the long-term interests of our stockholders. We invest in our employees through high-quality benefits and various health
and wellness initiatives and offer competitive compensation packages, ensuring fairness in internal compensation practices.
To further engage and incentivize our workforce, we offer a wide range of programs and avenues for support, motivation,
and professional recognition. We utilize both instructor-led training and online learning to provide custom training courses to
ensure our sales and services teams stay up-to-date on our products and service offerings. For our talent pipeline development,
we work closely with individual departments to provide training and hands-on support for managers and leaders, to assess talent,
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identify development opportunities and discuss succession planning. In addition, we regularly conduct employee surveys to
gauge employee engagement and identify areas of focus.
Government Regulations
Our business, operations and service provider partners are subject to various U.S. federal, state and local consumer
protection laws, licensing regulation and other laws and regulations, and to similar laws and regulations in the other countries in
which we operate. Compliance with these laws, rules, and regulations has not had a material effect upon our capital
expenditures, results of operations or competitive position. Nevertheless, compliance with existing or future governmental
regulations, including, but not limited to, those pertaining to global trade, business acquisitions, consumer protection, and taxes,
could have a material impact on our business in subsequent periods. Refer to “Item 1A. Risk Factors” for a discussion of these
potential impacts.
Corporate Information
Our principal executive offices are located at 8281 Greensboro Drive, Suite 100, Tysons, Virginia 22102. Our telephone
number is (877) 389-4033. We completed our initial public offering in July 2015 and our common stock is listed on The Nasdaq
Global Select Market under the symbol "ALRM."
Historically, we have completed acquisitions of complementary companies or their technologies. Some of our prior
acquisitions of companies include:
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On October 21, 2019, we acquired 85% of the issued and outstanding capital stock of PC Open Incorporated, a
Washington corporation, doing business as OpenEye. OpenEye provides cloud-managed video surveillance solutions
for the enterprise commercial market.
On December 14, 2020, we acquired 100% of the issued and outstanding ownership interest units of Shooter Detection
Systems, LLC, or SDS. SDS is a provider of an indoor gunshot detection solution that helps alert employees and the
public against active shooter threats.
On September 23, 2022, we acquired 85% of the issued and outstanding shares of capital stock of Noonlight, Inc., or
Noonlight. Noonlight provides a connected safety and event management software and services platform that enables
new applications and provides enhanced emergency response capabilities. We believe the acquisition of Noonlight will
enhance our comprehensive suite of interactive cloud-based services and allow us to expand markets for emergency
response services as well as accelerate innovation in those services.
On January 18, 2023, we acquired 100% of the issued and outstanding shares of capital stock of EBS, an international
producer of universal smart communicator devices, headquartered in Warsaw, Poland. We believe this acquisition will
assist in the continued expansion of our international operations as well as benefit our supply chain operations.
Some of our prior asset acquisitions include:
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On January 1, 2017, we acquired certain assets of ObjectVideo, Inc., or ObjectVideo, that constituted a business now
called ObjectVideo Labs, LLC, or ObjectVideo Labs, including products, technology portfolio and engineering team.
ObjectVideo was a pioneer in the fields of video analytics and computer vision with technology that extracts meaning
and intelligence from video streams in real-time to enable object tracking, pattern recognition and activity identification.
On March 8, 2017, we acquired certain assets related to the Connect business unit of Icontrol Networks, Inc., or
Icontrol, and all of the outstanding equity interests of the two subsidiaries through which Icontrol conducted its Piper
business. Connect provides a custom, on-premise interactive security and home automation platform for ADT Pulse®
and several other service providers. Piper provides an all-in-one video and home automation hub.
In September 2019, we acquired certain assets from an unrelated third party. In March of 2020, we acquired certain
additional assets from two separate unrelated parties. Substantially all of the assets acquired in September 2019 and
March 2020 consisted of in-process research and development, or IPR&D. We believe the acquisitions of the IPR&D
will further our commitment to make significant investments in innovative research and development in the intelligently
connected property market to broaden our suite of solutions as well as strengthen our smart intercom capability.
In December of 2021, we acquired certain assets from an unrelated party. Substantially all of the assets acquired
consisted of developed technology. We believe the acquisition of the developed technology will continue to advance our
load-shaping energy management solution allowing additional devices to participate in utility programs that reduce or
shift power consumption during peak demand periods.
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On April 21, 2023, we acquired certain assets of Vintra, Inc., or Vintra. Substantially all of the acquired assets consisted
of developed technology. We believe the acquisition of the developed technology will expand Alarm.com's learning
program and accelerate deployment of advanced video analytics solutions for the Alarm.com and OpenEye platforms.
Available Information
Our website is located at www.alarm.com and our investor relations website is located at http://investors.alarm.com. Our
Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, current reports on Form 8-K and amendments to those reports
filed or furnished pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended, or the Exchange
Act, are available free of charge on our investor relations website as soon as reasonably practicable after we electronically file
such material with, or furnish it to, the SEC. The SEC maintains an internet site that contains reports, proxy and information
statements and other information. The address of the SEC’s website is www.sec.gov.
Webcasts of our earnings calls and certain events we participate in or host with members of the investment community are
on our investor relations website. Additionally, we provide notifications of news or announcements regarding our business and
financial performance, SEC filings, investor events, and our press and earnings releases, as part of our investor relations
website. Investors and others can receive real-time notifications of new information posted on our investor relations website by
signing up for email alerts and RSS feeds. Further corporate governance information, including our corporate governance
guidelines and board committee charters, is also available on our investor relations website under the heading "Corporate
Governance." The contents of our websites are not intended to be incorporated by reference into this Annual Report on Form 10-
K or in any other report or document we file with the SEC, and any references to our websites are intended to be inactive textual
references only.
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ITEM 1A. RISK FACTORS
Risks Related to Our Business and Industry
Our actual operating results may differ significantly from any guidance provided.
Our guidance, including forward-looking statements, is prepared by management and is qualified by, and subject to, a
number of assumptions and estimates that, while presented with numerical specificity, are inherently subject to significant
business, economic and competitive uncertainties and contingencies. Many of these uncertainties and contingencies are beyond
our control and are based upon specific assumptions with respect to future business decisions, some of which will change. We
generally state possible outcomes as high and low ranges which are intended to provide a sensitivity analysis as variables are
changed but are not intended to represent that actual results could not fall outside of the suggested ranges.
Guidance is necessarily speculative in nature, and it can be expected that some or all of the assumptions of the guidance
furnished by us will not materialize or will vary significantly from actual results. In particular, guidance relating to the anticipated
results of operations of an acquired business is inherently more speculative in nature than other guidance as management will,
necessarily, be less familiar with the business, procedures and operations of the acquired business. Similarly, guidance offered in
periods of extreme uncertainty, such as the uncertainty caused by the Macroeconomic Conditions, is inherently more speculative
in nature than guidance offered in periods of relative stability. Accordingly, any guidance with respect to our projected financial
performance is necessarily only an estimate of what management believes is realizable as of the date the guidance is given.
Actual results will vary from the guidance and the variations may be material. Investors should also recognize that the reliability
of any forecasted financial data will diminish the farther in the future that the data is forecasted.
Actual operating results may be different from our guidance, and such differences may be adverse and material. In light of
the foregoing, investors are urged to put the guidance in context and not to place undue reliance on it. In addition, the market
price of our common stock may reflect various market assumptions as to the accuracy of our guidance. If our actual results of
operations fall below the expectations of investors or securities analysts, the price of our common stock could decline
substantially.
Our quarterly results of operations have fluctuated and are likely to continue to fluctuate. As a result, we may fail to
meet or exceed the expectations of investors or securities analysts, which could cause our stock price to decline.
Our quarterly operating results, including the levels of our revenue, gross margin, cash flow and deferred revenue, may
fluctuate as a result of a variety of factors, including adverse Macroeconomic Conditions, the product mix that we sell, the relative
sales related to our platforms and solutions and other factors which are outside of our control. If our quarterly revenue or results
of operations fall below the expectations of investors or securities analysts, the price of our common stock could decline
substantially. Fluctuations in our results of operations may be due to a number of factors, including:
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the portion of our revenue attributable to SaaS and license versus hardware and other sales;
our ability to manage the businesses we have acquired, and to integrate and manage any future acquisitions of
businesses;
fluctuations in demand, including due to seasonality or broader economic factors, for our platforms and solutions;
changes in pricing by us in response to competitive pricing actions;
our ability to increase, retain and incentivize the service provider partners that market, sell, install and support our
platforms and solutions;
the ability of our hardware vendors to continue to manufacture high-quality products and to supply sufficient
components and products to meet our demands;
the timing and success of introductions of new solutions, products or upgrades by us or our competitors and the
entrance of new competitors;
changes in our business and pricing policies or those of our competitors;
the ability to accurately forecast revenue as we generally rely upon our service provider partner network to generate
new revenue;
our ability to control costs, including our operating expenses and the costs of the hardware we purchase;
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changes in U.S. trade policies, including new or potential tariffs or penalties on imported products;
competition, including entry into the industry by new competitors and new offerings by existing competitors;
issues related to introductions of new or improved products such as supply chain disruptions or shortages of prior
generation products or short-term decreased demand for next generation products;
perceived or actual problems with the security, privacy, integrity, reliability, quality or compatibility of our solutions,
including those related to security breaches in our systems, our subscribers’ systems, unscheduled downtime, or
outages;
the amount and timing of expenditures, including those related to expanding our operations, including through
acquisitions, increasing research and development, introducing new solutions or paying litigation expenses;
the ability to effectively manage growth within existing and new markets domestically and abroad;
changes in the payment terms for our platforms and solutions;
collectibility of receivables due from service provider partners and other third parties;
the strength of regional, national and global economies; and
the impact of natural disasters such as earthquakes, hurricanes, fires, power outages, floods, epidemics, pandemics
and public health crises, and other catastrophic events or man-made problems such as terrorism, civil unrest and actual
or threatened armed conflict, or global or regional economic, political and social conditions.
Further, as disclosed under “Item 3 – Legal Proceedings,” Vivint, Inc., or Vivint, had stopped paying license fees to
Alarm.com under its Patent Cross License Agreement with us, which had a material adverse effect upon our business, financial
condition and results of operations and caused our results of operations to fluctuate through December 31, 2023. On December
21, 2023, Alarm.com and Vivint agreed to settle all outstanding litigation between the parties and to enter into a long-term
intellectual property license agreement under which Alarm.com will license to Vivint its intellectual property portfolio. Fluctuations
in our quarterly operating results may be particularly pronounced in the current economic environment. Due to the foregoing
factors and the other risks discussed in this Annual Report, you should not rely on quarter-to-quarter comparisons of our results
of operations as an indication of our future performance. For the same reason, you should not consider our recent revenue
growth and changes in non-GAAP adjusted EBITDA or results of one quarter as indicative of our future performance. See the
"Non-GAAP Measures" section of Item 7. "Management’s Discussion and Analysis of Financial Condition and Results of
Operations" for a discussion of the limitations of non-GAAP adjusted EBITDA and a reconciliation of non-GAAP adjusted EBITDA
from net income, the most directly comparable GAAP measurement, for the years ended December 31, 2023, 2022 and 2021.
Downturns in general economic and market conditions and reductions in spending may reduce demand for our
platforms and solutions, which could harm our revenue, results of operations and cash flows.
Our revenue, results of operations and cash flows depend on the overall demand for our platforms and solutions. Negative
Macroeconomic Conditions in the general economy both in the United States and abroad, including conditions resulting from
inflation, changes in gross domestic product growth, financial and credit market fluctuations, energy costs, international trade
relations and other geopolitical tensions, the availability and cost of credit, rising interest rates and the global housing and
mortgage markets could cause a decrease in consumer discretionary spending and business investment and diminish growth
expectations in the U.S. economy and abroad.
During weak economic times, the available pool of service providers may decline as the prospects for home building and
home renovation projects diminish, which may have a corresponding impact on our growth prospects. In addition, there is an
increased risk during these periods that an increased percentage of our service provider partners will file for bankruptcy
protection, which may harm our reputation, revenue, profitability and results of operations. In addition, we may determine that the
cost of pursuing any claim may outweigh the recovery potential of such claim. Likewise, consumer bankruptcies can
detrimentally affect the business stability of our service provider partners.
The current Macroeconomic Conditions have caused significant uncertainty and volatility in global markets, which has and
may continue to cause consumer discretionary spending to decline for an unknown period of time. A prolonged economic
slowdown and a material reduction in new home construction and renovation projects may result in diminished sales of our
platforms and solutions. Further worsening, broadening or protracted extension of the economic downturn could have a negative
impact on our business, revenue, results of operations and cash flows.
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We sell security and life safety solutions and if our solutions fail for any reason, we could be subject to liability and our
business could suffer.
We sell security and life safety solutions, which are designed to secure the safety of our subscribers and their residences or
commercial properties. If these solutions fail for any reason, including due to defects in our software, a carrier outage, a failure of
our network operations centers, a failure on the part of one of our service provider partners or user error, some of which have
happened from time to time, we could be subject to liability for such failures and our business could suffer.
Our platforms and solutions may contain undetected defects in the software, infrastructure, third-party components or
processes. We continue to follow our previously implemented hybrid return to office plan that includes mandatory in-office
workdays and voluntary remote workdays, which may make us more vulnerable to cyber-attacks and may create operational or
other challenges, any of which could harm our systems or our business. Although we have taken precautionary measures to
prepare for these threats and challenges, there is no guarantee our precautions will fully protect our systems. We continue to
monitor the situation and may adjust our current policies as more information and guidance become available. If our platforms or
solutions suffer from defects, we could experience harm to our branded reputation, claims by our subscribers or service provider
partners or lost revenue during the period required to address the cause of the defects. We have found and may find defects in
new, acquired or upgraded solutions, resulting in loss of, or delay in, market acceptance of our platforms and solutions, which
could harm our business, financial condition, cash flows or results of operations.
Since solutions that enable our platforms are installed by our service provider partners, if they do not install or maintain such
solutions correctly, our platforms and solutions may not function properly. If the improper installation or maintenance of our
platforms and solutions leads to service or equipment failures after introduction of, or an upgrade to, our platforms or a solution,
we could experience harm to our branded reputation, claims by our subscribers or service provider partners or lost revenue
during the period required to address the cause of the problem. Further, we rely on our service provider partners to provide the
primary source of support and ongoing service to our subscribers and, if our service provider partners fail to provide an adequate
level of support and services to our subscribers, it could have a material adverse effect on our reputation, business, financial
condition, cash flows or results of operations.
Any defect in, or disruption to, our platforms and solutions could cause consumers not to purchase additional solutions from
us, prevent potential consumers from purchasing our platforms and solutions or harm our reputation. Although our contracts with
our service provider partners limit our liability to our service provider partners for these defects, disruptions or errors, we
nonetheless could be subject to litigation for actual or alleged losses to our service provider partners or our subscribers, which
may require us to spend significant time and money in litigation or arbitration, or to pay significant settlements or damages.
Defending a lawsuit, regardless of its merit, could be costly, divert management's attention and affect our ability to obtain or
maintain liability insurance on acceptable terms and could harm our business. Although we currently maintain some warranty
reserves, we cannot assure you that these warranty reserves will be sufficient to cover future liabilities.
Our business is subject to the risks of earthquakes, hurricanes, fires, power outages, floods, pandemics and public
health crises, natural disasters and other catastrophic events, and to interruption by man-made problems such as
terrorism, civil unrest and actual or threatened armed conflict, or global or regional economic, political and social
conditions.
A significant natural disaster, such as an earthquake, hurricane, fire, flood, pandemic, or a public health crisis, or a
significant power outage could harm our business, financial condition, cash flows and results of operations. The impact of climate
change may increase these risks due to changes in weather patterns, such as increases in storm intensity and frequency, sea-
level rise, melting of permafrost and temperature extremes in areas where we conduct our business. Natural disasters could
affect our hardware vendors, our wireless carriers or our network operations centers. Further, if a natural disaster occurs in a
region from which we derive a significant portion of our revenue, such as metropolitan areas in North America, consumers in that
region may delay or forego purchases of our platforms and solutions from service providers in the region, which may harm our
results of operations for a particular period. In addition, terrorist acts or acts of war could cause disruptions in our business or the
business of our hardware vendors, service providers, subscribers or the economy as a whole. More generally, these and other
geopolitical, social and economic conditions could result in increased volatility in worldwide financial markets and economies that
could harm our sales. Given our concentration of sales during the second and third quarters, any disruption in the business of
our hardware vendors, service provider partners or subscribers that impacts sales during the second or third quarter of each year
could have a greater impact on our annual results. All of the aforementioned risks may be augmented if the disaster recovery
plans for us, our service provider partners and our suppliers prove to be inadequate. To the extent that any of the above results
in delays or cancellations of orders, or delays in the manufacture, deployment or shipment of our platforms and solutions, our
business, financial condition, cash flows and results of operations would be harmed.
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Geopolitical conditions, including trade disputes and direct or indirect acts of war or terrorism, could have an adverse
effect on our operations and financial results.
Since we operate on a global basis, our operations could be disrupted by geopolitical conditions, trade disputes,
international boycotts and sanctions, political and social instability, acts of war, terrorist activity or other similar events. From time
to time, we could have a large investment in a particular asset type, a large revenue stream associated with a particular
customer or industry, or a large number of customers located in a particular geographic region. A discrete event impacting a
specific asset type, customer, industry, or region in which we have a concentrated exposure could negatively impact our results
of operations.
For example, in February 2022 Russia initiated military action against Ukraine. In response, the U.S. and certain other
countries imposed sanctions and export controls against Russia, Belarus and certain individuals and entities connected to
Russian or Belarusian political, business, and financial organizations, and the U.S. and certain other countries could impose
further sanctions, trade restrictions, and other retaliatory actions should the conflict continue or worsen. It is not possible to
predict the broader consequences of the conflict, including related geopolitical tensions, the movement of refugees, and the
measures and retaliatory actions taken by the U.S. and other countries in respect thereof as well as any counter measures or
retaliatory actions by Russia or Belarus in response, including, for example, potential cyberattacks or the disruption of energy
exports, is likely to cause regional instability, geopolitical shifts, and could materially adversely affect global trade, currency
exchange rates, regional economies and the global economy. In addition, in October 2023, the war between Israel and Hamas
began, which has resulted in significant military activities in the region and may further escalate regional instability. The situations
remain uncertain, and while it is difficult to predict the full impact of any of the foregoing, the conflicts and actions taken in
response to the conflicts could increase our costs, disrupt our supply chain, reduce our sales and earnings, impair our ability to
raise additional capital when needed on acceptable terms, if at all, or otherwise adversely affect our business, financial condition,
and results of operations.
We may not sustain our growth rate and we may not be able to manage any future growth effectively.
We have experienced significant growth and also have substantially expanded our operations in a short period of time. Our
revenue increased from $618.0 million in 2020 to $881.7 million in 2023. We do not expect to achieve similar growth rates in
future periods. You should not rely on our operating results for any prior quarterly or annual periods as an indication of our future
operating performance. If we are unable to maintain expected revenue growth in both absolute dollars and as a percentage of
prior period revenue, our financial results could suffer and our stock price could decline.
Our future operating results depend, to a large extent, on our ability to successfully manage any future expansion and
growth. To successfully manage our growth and obligations as a public company, we believe we must effectively, among other
things:
• maintain our relationships with existing service provider partners and add new service provider partners;
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increase our subscriber base and help our service provider partners maintain and improve their revenue retention rates,
while also expanding their cross-sell effectiveness;
• manage our relationships with our hardware vendors and other key suppliers;
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add, train and integrate sales and marketing personnel;
expand our international operations; and
continue to implement and improve our administrative, financial and operational systems, procedures and controls.
We intend to continue to invest in research and development, sales and marketing, and general and administrative functions
and other areas to grow our business. We are likely to recognize the costs associated with these increased investments earlier
than some of the anticipated benefits and the return on these investments may be lower, or may develop more slowly, than we
expect, which could adversely affect our operating results.
If we are unable to manage our growth effectively, we may not be able to take advantage of market opportunities or develop
new solutions or enhancements to our existing solutions and we may fail to satisfy subscriber and service provider partner
requirements, maintain the quality of our solutions, execute on our business plan or respond to competitive pressures, which
could result in our financial results suffering and a decline in our stock price.
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We have expanded our business rapidly in recent periods. If we fail to manage the expansion of our operations and
infrastructure effectively, we may be unable to execute our business plan, maintain high levels of service or address
competitive challenges adequately.
We increased our number of full-time employees from 1,404 as of December 31, 2020 to 1,989 as of December 31, 2023.
Our growth has placed, and may continue to place, a significant strain on our managerial, administrative, operational, financial
and other resources. We intend to further expand our overall business, service provider partner network, subscriber base,
headcount and operations, including by acquiring other businesses. Creating and maintaining a global organization and
managing a geographically dispersed workforce requires substantial management effort and significant additional investment in
our infrastructure. We will be required to continue to improve our operational, financial and management controls and our
reporting procedures to ensure timely and accurate reporting of our operational and financial results and we may not be able to
do so effectively. As such, we may be unable to manage our expenses effectively in the future, which may negatively impact our
gross profit or operating expenses in any particular quarter. If we fail to manage our anticipated growth and change in a manner
that preserves the key aspects of our corporate culture, the quality of our solutions may suffer, which could negatively affect our
brand and reputation and harm our ability to retain and attract service provider partners and consumers.
From time to time, we are involved in legal proceedings where a negative outcome, including an adverse litigation
judgment or settlement, could expose us to monetary damages or limit our ability to operate our business, resulting in
a material adverse effect on our business, financial condition, cash flows and results of operations.
We are involved and have been involved in the past in legal proceedings from time to time, including claims directly against
us or claims against certain of our service provider partners that we have agreed to indemnify. For example, on January 10,
2022, EcoFactor, Inc., or EcoFactor, filed a lawsuit against us alleging Alarm.com’s products and services directly and indirectly
infringe five U.S. patents owned by EcoFactor. On July 22, 2021, Causam Enterprises, Inc., or Causam, filed a lawsuit against us
alleging that Alarm.com’s smart thermostats infringe four U.S. patents owned by Causam. See the section of this Annual Report
titled "Legal Proceedings" for additional information regarding each of these matters and the other legal proceedings we are
involved in. We may not be able to accurately assess the risks related to any of these suits, and we may be unable to accurately
assess our level of exposure as the results of any litigation, investigations and other legal proceedings are inherently
unpredictable. Any claims against us, whether meritorious or not, could be time consuming, result in costly litigation, damage our
reputation, require significant amounts of management time and divert significant resource. Companies in our industry have been
subject to claims related to patent infringement, regulatory matters, and product liability, as well as contract and employment-
related claims. As a result of patent infringement and other intellectual property proceedings, we have, and may be required to
seek in the future, licenses under patents or intellectual property rights owned by third parties, including open-source software
and other commercially available software, which can be costly, or cross-license agreements relating to our and third-party
intellectual property. The outcome of legal claims and proceedings against us cannot be predicted with certainty, and a negative
outcome could result in a material adverse effect on our business, financial condition, cash flows and results of operations.
Our business operates in a regulated industry.
Our business, operations and service provider partners are subject to various U.S. federal, state and local consumer
protection laws, licensing regulation and other laws and regulations, and to similar laws and regulations in the other countries in
which we operate. Our advertising and sales practices and that of our U.S. service provider partner network are subject to
regulation by the U.S. Federal Trade Commission, or the FTC, in addition to state consumer protection laws. The FTC and the
Federal Communications Commission have issued regulations that place restrictions on, among other things, unsolicited
automated telephone calls to residential and wireless telephone subscribers by means of automatic telephone dialing systems
and the use of prerecorded or artificial voice messages. If our service provider partners were to take actions in violation of these
regulations, such as telemarketing to individuals on the "Do Not Call" registry or using automatic telephone dialing systems and
prerecorded or artificial voice messages, we could be subject to fines, penalties, private actions or enforcement actions by
government regulators. Although we have taken steps to insulate ourselves from any such wrongful conduct by our service
provider partners, and to contractually require our service provider partners to comply with these laws and regulations, we have
in the past incurred costs to settle alleged violations of the Telephone Consumer Protection Act, or TCPA, and no assurance can
be given that we will not be exposed to future liability as result of our service provider partners’ conduct. Further, to the extent
that any changes in law or regulation further restrict the lead generation activity of our service provider partners, these
restrictions could result in a material reduction in subscriber acquisition opportunities, reducing the growth prospects of our
business and adversely affecting our financial condition and future cash flows. In addition, most states in which we operate have
licensing laws directed specifically toward the monitored security services industry. Our business relies heavily upon cellular
telephone service to communicate signals. Cellular telephone companies are currently regulated by both federal and state
governments. State-level privacy and data security laws in California and various other U.S. states regulate our, and our service
provider partners’, use, collection, and disclosure of subscribers’ personal information. A number of proposed privacy bills in
other U.S. states could place restrictions on how we and our service provider partners use personal information and market to
consumers in those states. Other laws and regulations, including consumer protection laws, laws and regulations governing
advertising and sales practices, as well as privacy and data security laws and regulations apply in the other countries in which
we operate. See “Evolving government and industry regulation and changes in applicable laws relating to the Internet and data
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privacy may increase our expenditures related to compliance efforts or otherwise limit the solutions we can offer, which may
harm our business and adversely affect our financial condition” below. Furthermore, the SEC proposed expansive rules requiring
public companies to disclose information about the material impact of climate change on their business, as well as information
about companies’ governance, risk management and strategy related to climate risk. Changes in laws or regulations could
require us to change the way we operate, which could increase costs or otherwise disrupt operations. In addition, failure to
comply with any such applicable laws or regulations could result in substantial fines or revocation of our operating permits and
licenses, including in geographic areas where our services have substantial penetration, which could adversely affect our
business, financial condition, cash flows and results of operations. Further, if these laws and regulations were to change or if we
fail to comply with such laws and regulations as they exist today or in the future, our business, financial condition, cash flows and
results of operations could be materially and adversely affected.
The markets in which we participate are highly competitive and many companies, including large technology
companies, broadband and security service providers and other managed service providers, are actively targeting the
home and business automation, security monitoring, video monitoring and energy management markets. If we are
unable to compete effectively with these companies, our sales and profitability could be adversely affected.
We compete in several markets, including security, video, automation, energy management and wellness solutions. The
markets in which we participate are highly competitive and competition may intensify in the future.
Our ability to compete depends on a number of factors, including:
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our platforms and solutions’ functionality, performance, ease of use and installation, reliability, availability and cost
effectiveness relative to that of our competitors’ products;
our success in utilizing new and proprietary technologies to offer solutions and features previously not available in the
marketplace;
our success in identifying new markets, applications and technologies;
our ability to attract and retain service provider partners;
our name recognition and reputation;
our ability to recruit software engineers and sales and marketing personnel; and
our ability to protect our intellectual property.
Consumers may prefer to purchase from their existing suppliers rather than a new supplier regardless of product
performance or features. In the event a consumer decides to evaluate a new home automation, security monitoring, video
monitoring, energy management, or wellness solution, the consumer may be more inclined to select one of our competitors
whose product offerings are broader than those that we offer. In addition, consumers may prefer to purchase products that they
can install themselves. If there are continuing restrictions on our service providers’ ability to meet with residential and commercial
property owners in person, our ability to compete will depend on our ability to make our products available for remote installation
or to make certain of our products easily installable by consumers rather than solely by our service providers.
Our current competitors include providers of other technology platforms for the connected property with interactive security,
including Alula (formed following the merger of ipDatatel, LLC and Resolution Products, LLC), Avigilon Corporation, Brivo Inc.,
Digital Monitoring Products Inc., Eagle Eye Networks Inc., Honeywell International Inc., Resideo Technologies Inc., SecureNet
Technologies, LLC, Telular Corporation (acquired by AMETEK, Inc.), United Technologies Corporation, and Verkada Inc., which
sell solutions to service providers, cable operators, technology retailers and other residential and commercial automation
providers. We also compete with interactive, monitored security solutions sold directly to subscribers and may also be sold
through our partners, including companies like Abode Systems, Inc., Arlo Technologies, Inc., Cove Smart, LLC, Scout Security,
Inc. and SimpliSafe, Inc. In addition, our service provider partners compete with security solutions sold directly to subscribers, as
well as managed service providers, such as cable television, telephone and broadband companies like Comcast Cable
Communications, LLC and Rogers Communications, Inc., and providers of point products, including Google Inc.'s Nest Labs, Inc.
Amazon.com offers Amazon Home Services security packages with bundled equipment and professional installation, and
Amazon Key, a security camera and smart lock integration feature. Ring Inc., owned by Amazon.com, offers a connected video
doorbell, video cameras and an integrated security system, Ring Alarm. Samsung's SmartThings offers a security system and a
home automation and awareness hub. Arlo Technologies, Inc. and Wyze Labs, Inc. offers connected video cameras, a connected
video doorbell, and smart security devices. Apple Inc. offers a feature that allows some manufacturers’ connected devices and
accessories, including video cameras and doorbells, to be controlled through its HomeKit service available in Apple’s iOS
operating system. Additionally, Canary and other companies offer all in one video monitoring and awareness devices. In addition,
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we may compete with other large and small technology companies that offer control capabilities among their products,
applications and services, and have ongoing development efforts to address the broader connected home market.
Many of our competitors have longer operating histories, greater name recognition, larger customer bases and significantly
greater financial, technical, sales, marketing, distribution and other resources than we have. We expect to encounter new
competitors as we enter new markets as well as increased competition, both domestically and internationally, from other
established and emerging home automation, security monitoring, video monitoring and automation, wellness, and energy
management companies as well as large technology companies. In addition, there may be new technologies that are introduced
that reduce demand for our solutions or make them obsolete. Our current and potential competitors may also establish
cooperative relationships among themselves or with third parties and rapidly acquire significant market share. Increased
competition could also result in price reductions and loss of market share, any of which could result in lower revenue and
negatively affect our ability to grow our business.
Aggressive business tactics by our competitors may reduce our revenue.
Increased competition in the markets in which we compete may result in aggressive business tactics by our competitors,
including:
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selling at a discount;
offering products similar to our platforms and solutions on a bundled basis at no charge;
announcing competing products combined with extensive marketing efforts;
providing financing incentives to consumers; and
asserting intellectual property rights irrespective of the validity of the claims.
Our service provider partners may switch and offer the products and services of competing companies, which would
adversely affect our sales and profitability. Competition from other companies may also adversely affect our negotiations with
service provider partners and suppliers, including, in some cases, requiring us to lower our prices. Opportunities to take market
share using innovative products, services and sales approaches may also attract new entrants to the field. We may not be able
to compete successfully with the offerings and sales tactics of other companies, which could result in the loss of service provider
partners offering our platforms and solutions and, as a result, our revenue and profitability could be adversely affected.
If we fail to compete successfully against our current and future competitors, or if our current or future competitors employ
aggressive business tactics, including those described above, demand for our platforms and solutions could decline, we could
experience cancellations of our services to consumers, or we could be required to reduce our prices or increase our expenses.
The proper and efficient functioning of our network operations centers and data back-up systems is central to our
solutions.
Our solutions operate with a hosted architecture and we update our solutions regularly while our solutions are operating. If
our solutions and/or upgrades fail to operate properly, our solutions could stop functioning for a period of time, which could put
our users at risk. Our ability to keep our business operating is highly dependent on the proper and efficient operation of our
network operations centers and data back-up systems, as well as the systems of the third-party technology providers we use to
process certain information, such as video. Although our network operations centers have back-up computer and power systems,
if there is a catastrophic event, natural disaster, terrorist attack, security breach or other extraordinary event, we may be unable
to provide our subscribers with uninterrupted monitoring service or may be unable to adequately protect confidential information
and data from unauthorized access or loss. Furthermore, because data back-up systems are susceptible to malfunctions and
interruptions (including those due to equipment damage, power outages, human error, computer viruses, computer hacking, data
corruption and a range of other hardware, software and network problems), we cannot guarantee that we will not experience
data back-up failures in the future. A significant or large-scale security breach, malfunction or interruption of our network
operations centers or data back-up systems could adversely affect our ability to keep our operations running efficiently or could
result in unauthorized access to or loss of data. If such an event results in unauthorized access to or loss of service provider
partner, subscriber, employee or other personally identifiable data subject to data privacy and security laws and regulations, then
it could result in substantial fines by U.S. federal and state authorities, foreign data privacy authorities in the European Union, or
the EU, Canada, and other countries, and/or private claims by companies or individuals. If a malfunction or security breach
results in a wider or sustained disruption, it could have a material adverse effect on our reputation, business, financial condition,
cash flows or results of operations.
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Failure to maintain the security of our information and technology networks, including information relating to our
service provider partners, subscribers and employees, could adversely affect us.
We are dependent on information technology networks and systems, including the Internet, to process, transmit and store
electronic information and, in the normal course of our business, we collect and retain certain information pertaining to our
service provider partners, subscribers and employees, including credit card information for many of our service provider partners
and certain of our subscribers. If security breaches in connection with the delivery of our solutions allow unauthorized third
parties to access any of this data or obtain control of our subscribers’ systems, our reputation, business, financial condition, cash
flows and results of operations could be harmed.
The legal, regulatory and contractual environment surrounding information security, privacy and credit card fraud is
constantly evolving and companies that collect and retain such information are under increasing attack by cyber-criminals around
the world. Further, as the regulatory focus on privacy issues continues to increase and worldwide laws and regulations
concerning the protection of data and personal information expand and become more complex, these potential risks to our
business will intensify. A significant actual or potential theft, loss, fraudulent use or misuse of service provider partner, subscriber,
employee or other personally identifiable data, whether by third parties or as a result of employee malfeasance or otherwise,
non-compliance with our contractual or other legal obligations regarding such data or a violation of our privacy and security
policies with respect to such data could result in loss of confidential information, damage to our reputation, early termination of
our service provider partner contracts, litigation, regulatory investigations or actions and other liabilities or actions against us,
including significant fines by U.S. federal and state authorities, foreign data privacy authorities in the EU, Canada, and other
countries and private claims by companies and individuals for violation of data privacy and security regulations. To the extent that
any such exposure leads to credit card fraud or identity theft, we may experience a general decline in consumer confidence in
our business, which may lead to an increase in attrition rates or may make it more difficult to attract new subscribers. If any one
of these risks materializes our business, financial condition, cash flows or results of operations could be materially and adversely
affected.
If our security measures are breached, including any breaches caused by cyber-attacks, our reputation may be
damaged, we may be exposed to significant liabilities under U.S. and foreign laws, and our business and results of
operations may be adversely affected.
Cyber-attacks from computer hackers and cyber criminals and other malicious Internet-based activity continue to increase
generally, and perpetrators of cyber-attacks may be able to develop and deploy viruses, worms, ransomware, malware, DNS
attacks, wireless network attacks, attacks on our cloud networks, phishing attempts, social engineering attempts, distributed
denial of service attacks and other advanced persistent threats or malicious software programs that attack our products and
services, our networks and network endpoints or otherwise exploit any security vulnerabilities of our products, services and
networks. Techniques used to obtain unauthorized access or to sabotage systems change frequently and generally are not
recognized until launched against a target. As a result, we may be unable to anticipate these techniques or to implement
adequate preventative measures. We cannot be certain that advances in cyber-capabilities or other developments will not
compromise or breach the technology protecting the networks that access our platforms and solutions, and we can make no
assurance that we will be able to detect, prevent, timely and adequately address or mitigate the negative effects of cyber-attacks
or other security breaches. We continue to follow our previously implemented hybrid return to office plan that includes mandatory
in-office workdays and voluntary remote workdays, which may make us more vulnerable to cyber-attacks or other security
breaches.
Security breaches of, or sustained attacks against, our networks and infrastructure could create system disruptions and
shutdowns that could result in disruptions to our operations or unauthorized access to or loss of our data. If such an event results
in unauthorized access to or loss of any data subject to data privacy and security laws and regulations, then we could be subject
to substantial fines by U.S. federal and state authorities, foreign data privacy authorities in the EU, Canada, and other countries,
and private claims by companies or individuals. A system disruption, shutdown, or loss of data may result in adverse publicity
and therefore adversely affect the market's perception of the security and reliability of our services. A cyber-attack may cause
additional costs, such as investigative and remediation costs, and the costs of providing individuals and/or data owners with
notice of the breach, legal fees and the costs of any additional fraud detection activities required by law, a court or a third-party.
Additionally, some of our customer contracts require us to indemnify customers from damages they may incur as a result of a
breach of our networks and systems. There can be no assurance that the limitation of liability provisions in our contracts for a
security breach would be enforceable or would otherwise protect us from any such liabilities or damages with respect to any
particular claim. While we maintain general liability insurance coverage and coverage for technology errors or omissions, we
cannot assure you that such coverage will be available in sufficient amounts to cover one or more large claims related to a
breach, will continue to be available on acceptable terms or at all. If any one of these risks materializes, our business, financial
condition, cash flows or results of operations could be materially and adversely affected.
In addition to the core operating environment of Alarm.com, we also have acquired businesses and subsidiaries that in some
cases operate data infrastructure that is distinct from the Alarm.com operating environment, and therefore have distinct data
security vulnerabilities. The overall management of cybersecurity risk involves coordination between Alarm.com and our acquired
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businesses and subsidiaries, and data security risks in these entities may be heightened where the technology platform is less
mature than the Alarm.com core platform.
We rely on our service provider partner network to acquire additional subscribers, and the inability of our service
provider partners to attract additional subscribers or retain their current subscribers could adversely affect our
operating results.
Substantially all of our revenue is generated through the sales of our platforms and solutions by our service provider
partners, who incorporate our solutions in certain of the products and packages they sell to their customers, and our service
provider partners are responsible for subscriber acquisition, as well as providing customer service and technical support for our
platforms and solutions to the subscribers. We provide our service provider partners with specific training and programs to assist
them in selling and providing support for our platforms and solutions, but we cannot assure you that these steps will be effective.
In addition, we rely on our service provider partners to sell our platforms and solutions into new markets in the intelligent and
connected property space. If our service provider partners are unsuccessful in marketing, selling and supporting our platforms
and solutions, our operating results could be adversely affected.
In order for us to maintain our current revenue sources and grow our revenues, we must effectively manage and grow
relationships with our service provider partners. Recruiting and retaining qualified service provider partners and training them in
our technology and solutions requires significant time and resources and has been made more challenging by the
Macroeconomic Conditions. If we fail to maintain our relationships with existing service provider partners or develop relationships
with new service provider partners, our revenue and operating results would be adversely affected. In addition, to execute on our
strategy to expand our sales internationally, we must develop, manage and grow relationships with service provider partners that
sell into these markets.
Any of our service provider partners may choose to offer a product from one of our competitors instead of our platforms and
solutions, elect to develop their own competing solutions or simply discontinue their operations with us. For example, we entered
into a Patent Cross License Agreement in November 2013 with Vivint, pursuant to which we granted a license to use the
intellectual property associated with our connected home solutions. Under the terms of this and subsequent arrangements, Vivint
has transitioned from selling our solutions directly to its customers to selling its own home automation product to its new
customers. We now generate revenue from a monthly fee charged to Vivint on a per customer basis from sales of this service
provider partner’s product; however, these monthly fees are less on a per customer basis than fees we receive from our SaaS
solutions. Therefore, we receive less revenue on a per customer basis from Vivint compared to our SaaS subscriber base, which
may result in a lower revenue growth rate. Similarly, we entered into a patent license agreement with ADT pursuant to which we
granted a license to use certain Alarm.com intellectual property following the termination or expiration of the initial term of our
master service agreement with ADT. Under the terms of the license, ADT will pay us a monthly royalty for each subscriber to its
branded residential interactive security, automation and video service offerings that is covered by any of our licensed patents and
not supported on our platforms. We must also work to expand our network of service provider partners to ensure that we have
sufficient geographic coverage and technical expertise to address new markets and technologies. While it is difficult to estimate
the total number of available service provider partners in our markets, there are a finite number of service provider partners that
are able to perform the types of technical installations required for our platforms and solutions. In the event that we saturate the
available service provider pool, or if market or other forces cause the available pool of service providers to decline, it may be
increasingly difficult to grow our business. If we are unable to expand our network of service provider partners, our business
could be harmed.
As consumers’ product and service options grow, it is important that we enhance our service provider partner footprint by
broadening the expertise of our service provider partners, working with larger and more sophisticated service provider partners
and expanding the mainstream solutions our service provider partners offer. If we do not succeed in this effort, our current and
potential future service provider partners may be unable or unwilling to broaden their offerings to include our connected property
solutions, resulting in harm to our business.
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We receive a substantial portion of our revenue from a limited number of service provider partners, and the loss of, or a
significant reduction in, orders from one or more of our major service provider partners would result in decreased
revenue and profitability.
Our success is highly dependent upon establishing and maintaining successful relationships with a variety of service
provider partners. We market and sell our platforms and solutions through a channel assisted sales model and we derive
substantially all of our revenue from these service provider partners. We generally enter into agreements with our service
provider partners outlining the terms of our relationship, including service provider pricing commitments, installation,
maintenance and support requirements, and our sales registration process for registering potential sales to subscribers. These
service provider contracts typically have an initial term of one year, with subsequent renewal terms of one year, and are
terminable at the end of the initial term or renewal terms without cause upon written notice to the other party. In some cases,
these contracts provide the service provider partner with the right to terminate prior to the expiration of the term without cause
upon 30 days written notice, or, in the case of certain termination events, the right to terminate the contract immediately. While
we have developed a network of service provider partners to sell, install and support our platforms and solutions, we receive a
substantial portion of our revenue from a limited number of channel partners and significant customers. During the years ended
December 31, 2023, 2022 and 2021, our 10 largest revenue service provider partners or distributors accounted for 50%, 49%
and 47% of our revenue, respectively. ADT LLC, or ADT, represented greater than 15% but not more than 20% of our revenue in
2023, 2022 and 2021. ADT also represented more than 10% of accounts receivable as of December 31, 2023.
We amended our master service agreement with ADT, or MSA, to extend the initial term through January 1, 2023, which
also includes subsequent renewal terms of one year unless either party provides written notice of non-renewal. The amendment
to the MSA also provides for the integration of certain third-party products into the ADT Command and Control software platform
which we operate. In connection with the amendment to the MSA, we agreed to provide ADT a license to use certain Alarm.com
intellectual property following the termination or expiration of the initial term of the MSA for which ADT will pay us a monthly
royalty for each subscriber to its ADT branded residential interactive security, automation and video service offerings that is
covered by any of our licensed patents and not enabled by one of our software platforms. We cannot assure you that we will be
able to meet the conditions set forth in the amended agreement. We continue to generate revenue from each subscriber that is
already installed on one of our platforms for the life of that subscriber account but the number of such subscribers would likely
decline over time. While we would generate revenue from ADT subscribers not on our platform using service offerings covered
by any of our licensed patents from the per subscriber royalty fee charged to ADT under the patent license, these monthly fees
will be less on a per subscriber basis than fees we receive from our SaaS solutions. In addition, even if ADT continues to use
other services that we offer, we cannot assure you that the revenue from ADT or new accounts added by ADT will reach or
exceed historical levels in any future period. We may not be able to offset any unanticipated decline in revenue from ADT with
revenues from new customers or other existing customers. Any negative developments in ADT’s business, or any significant
decrease in revenue from or loss of ADT as a customer could materially and adversely harm our business, financial condition,
cash flows and results of operations.
We anticipate that we will continue to be dependent upon a limited number of service provider partners for a significant
portion of our revenue for the foreseeable future and, in some cases, a portion of our revenue attributable to individual service
provider partners may increase in the future. The loss of one or more key service provider partners, a reduction in sales through
any major service provider partners or the inability or unwillingness of any of our major service provider partners to pay for our
platforms and solutions would reduce our revenue and could impair our profitability.
Substantially all of the revenues associated with the non-hosted software platform are from a single customer and the
loss of this customer could harm our operating results.
In March 2017, we acquired certain assets related to the Connect business unit of Icontrol Networks, Inc., or Icontrol, and all
of the outstanding equity interests of the two subsidiaries through which Icontrol conducted its Piper business, which we refer to
in this report as the Acquisition. Historically, ADT has accounted for, and continues to account for, substantially all of the revenue
of the Connect business unit. In connection with the Acquisition we amended our MSA with ADT to cover services provided with
respect to the non-hosted software platform, or Software platform. We cannot assure you that ADT will use the Software platform
for its new customers or keep existing customers on the Software platform. In addition, even if ADT continues to use the
Software platform, we cannot assure you that the revenue from ADT or new accounts added by ADT will reach or exceed
historical levels of revenue for the Connect business unit in any future period. Any negative developments in ADT’s business, or
any significant decrease in revenue from or loss of ADT as a customer could materially and adversely harm our business,
financial condition, cash flows and results of operations.
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We have relatively limited visibility regarding the consumers that ultimately purchase our solutions, and we often rely
on information from third-party service providers to help us manage our business. If these service providers fail to
provide timely or accurate information, our ability to quickly react to market changes and effectively manage our
business may be harmed.
We sell our solutions through service provider partners. These service provider partners work with consumers to design,
install, update and maintain their connected home and commercial installations and manage the relationship with our
subscribers. While we are able to track orders from service provider partners and have access to certain information about the
configurations of their Alarm.com systems that we receive through our platforms, we also rely on service provider partners to
provide us with information about consumer behavior, product and system feedback, consumer demographics and buying
patterns. We use this channel sell-through data, along with other metrics, to forecast our revenue, assess consumer demand for
our solution, develop new solutions, adjust pricing and make other strategic business decisions. Channel sell-through data is
subject to limitations due to collection methods and the third-party nature of the data and thus may not be complete or accurate.
If we do not receive consumer information on a timely or accurate basis, or if we do not properly interpret this information, our
ability to quickly react to market changes and effectively manage our business may be harmed.
Consumers may choose to adopt point products that provide control of discrete functions rather than adopting our
connected property solutions. If we are unable to increase market awareness of the benefits of our unified solutions,
our revenue may not continue to grow, or it may decline.
Many vendors have emerged, and may continue to emerge, to provide point products with advanced functionality for use in
connected properties, such as a video doorbell or thermostat that can be controlled by an application on a smartphone. We
expect more and more consumer electronic and consumer appliance products to be network-aware and connected — each very
likely to have its own smart device (phone or tablet) application. Consumers may be attracted to the relatively low costs of these
point products and the ability to expand their connected property control solution over time with minimal upfront costs, despite
some of the disadvantages of this approach, which may reduce demand for our connected property solutions. If so, our service
provider partners may switch and offer the point products and services of competing companies, which would adversely affect
our sales and profitability. If a significant number of consumers in our target market choose to adopt point products rather than
our connected property solutions, then our business, financial condition, cash flows and results of operations will be harmed, and
we may not be able to achieve sustained growth or our business may decline.
Mergers or other strategic transactions involving our competitors could weaken our competitive position, which could
adversely affect our ability to compete effectively and harm our results of operations.
Our industry is highly fragmented, and we believe it is likely that some of our existing competitors will consolidate or be
acquired. In addition, some of our competitors may enter into new alliances with each other or may establish or strengthen
cooperative relationships with systems integrators, third-party consulting firms or other parties. Any such consolidation,
acquisition, alliance or cooperative relationship could adversely affect our ability to compete effectively and lead to pricing
pressure and our loss of market share and could result in a competitor with greater financial, technical, marketing, service and
other resources, all of which could harm our business, financial condition, cash flows and results of operations.
We are dependent on our connected property solutions, and the lack of continued market acceptance of our connected
property solutions would result in lower revenue.
Our connected property solutions account for substantially all of our revenue and will continue to do so for the foreseeable
future. As a result, our revenue could be reduced by:
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any decline in demand for our connected property solutions;
the failure of our connected property solutions to achieve continued market acceptance;
the introduction of products and technologies that serve as a replacement or substitute for, or represent an improvement
over, our connected property solutions;
technological innovations or new communications standards our connected property solutions do not address; and
our inability to release enhanced versions of our connected property solutions on a timely basis.
We are vulnerable to fluctuations in demand for Internet-connected devices in general and interactive security systems in
particular. If the market for connected home and commercial solutions grows more slowly than anticipated or if demand for
connected home and commercial solutions does not grow as quickly as anticipated, whether as a result of competition, product
obsolescence, technological change, unfavorable economic conditions, uncertain geopolitical environments, budgetary
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constraints of our consumers or other factors, we may not be able to continue to increase our revenue and earnings and our
stock price would decline.
A significant decline in our SaaS and license revenue renewal rate would have an adverse effect on our business,
financial condition, cash flows and results of operations.
We generally bill our service provider partners based on the number of subscribers they have on our platforms and the
features being utilized by subscribers on a monthly basis in advance. Subscribers could elect to terminate our services in any
given month. If our efforts and our service provider partners’ efforts to satisfy our existing subscribers are not successful, we may
not be able to retain them or sell additional functionality to them and, as a result, our revenue and ability to grow could be
adversely affected. We track our SaaS and license revenue renewal rate on an annualized basis, as reflected in the section
of this Annual Report titled "Management’s Discussion and Analysis of Financial Condition and Results of Operations — Other
Business Metrics — SaaS and License Revenue Renewal Rate." However, our service provider partners, who resell our services
to our subscribers, have indicated that they typically have three to five-year service contracts with residential and commercial
property owners who use our solutions. Our SaaS and license revenue renewal rate is calculated across our entire subscriber
base, including subscribers whose contract with their service provider reached the end of its contractual term during the
measurement period, as well as subscribers whose contract with their service provider has not reached the end of its contractual
term during the measurement period, and is not intended to estimate the rate at which our subscribers renew their contracts with
our service provider partners. As a result, we may not be able to accurately predict future trends in renewals and the resulting
churn. Subscribers may choose not to renew their contracts for many reasons, including the belief our service is not required for
their needs or is otherwise not cost-effective, a desire to reduce discretionary spending, or a belief our competitors’ services
provide better value. Additionally, our subscribers may not renew for reasons entirely out of our control, such as moving a
residence or the dissolution of their business, which is particularly common for small to mid-sized businesses. A significant
increase in our churn would have an adverse effect on our business, financial condition, cash flows or results of operations.
If we are unable to develop new solutions, sell our platforms and solutions into new markets or further penetrate our
existing markets, our revenue may not grow as expected.
Our ability to increase sales will depend, in large part, on our ability to enhance and improve our platforms and solutions,
introduce new solutions in a timely manner, sell into new markets and further penetrate our existing markets. The success of any
enhancement or new solution or service depends on several factors, including the timely completion, introduction and market
acceptance of enhanced or new solutions, the ability to maintain and develop relationships with service providers, the ability to
attract, retain and effectively train sales and marketing personnel and the effectiveness of our marketing programs. Any new
product or service we develop or acquire may not be introduced in a timely or cost-effective manner, and may not achieve the
broad market acceptance necessary to generate significant revenue. Any new markets into which we attempt to sell our
platforms and solutions, including new vertical markets and new countries or regions, may not be receptive. Our ability to further
penetrate our existing markets depends on the quality, availability and reliability of our platforms and solutions and our ability to
design our platforms and solutions to meet consumer demand.
We benefit from integration of our solutions with third-party platform providers. If these developers choose not to
partner with us, or are acquired by our competitors, our business and results of operations may be harmed.
Our solutions are incorporated into the hardware of our third-party platform providers. For example, our hardware platform
partners produce control devices that deliver our platform services to subscribers. It may be necessary in the future to
renegotiate agreements relating to various aspects of these solutions or other third-party solutions. The inability to easily
integrate with, or any defects in or disruption in the supply or availability of, any third-party solutions could result in increased
costs, or in delays in new product releases or updates to our existing solutions until such issues have been resolved, which could
have a material adverse effect on our business, financial condition, cash flows, results of operations and future prospects and
could damage our reputation. In addition, if these third-party solution providers choose not to partner with us, choose to integrate
their solutions with our competitors’ platforms, or are unable or unwilling to update their solutions, our business, financial
condition, cash flows and results of operations could be harmed. Further, if third-party solution providers that we partner with or
that we would benefit from partnering with are acquired by our competitors, they may choose not to offer their solutions on our
platforms, which could adversely affect our business, financial condition, cash flows and results of operations.
We rely on wireless carriers to provide access to wireless networks through which we provide our wireless alarm,
notification and intelligent automation services, and any interruption of such access and any significant costs related
to such interruption could materially and adversely impact our business, financial condition, cash flows, results of
operation and reputation.
We rely on wireless carriers to provide access to wireless networks for machine-to-machine data transmissions, which are
an integral part of our services. Our wireless carriers may suspend wireless service to expand, maintain or improve their
networks, or may discontinue or sunset older wireless networks as new technology evolves. For example, certain cellular carriers
shut down their 3G and CDMA wireless networks in 2022 which required our subscribers to upgrade to alternative and potentially
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more expensive technologies. See “The technology we employ may become obsolete and we may need to incur significant
capital expenditures to update our technology” below. Further, wireless carriers from time to time suffer service outages which
range from local to national in scale during which security control panels may be unable to transmit life safety signals to
emergency responders. Any such wireless carrier service disruptions could materially and adversely impact our ability to provide
services to our service provider partners and subscribers and result in significant costs, which could materially and adversely
impact our business, results of operations and reputation. In addition, product changes by wireless carriers, price increases or
changes to existing contract terms or termination of our agreements could also have a material and adverse impact on our
business, financial condition, cash flows and results of operations.
If we are unable to adapt to technological change, including maintaining compatibility with a wide range of devices, our
ability to remain competitive could be impaired.
The market for connected home and commercial solutions is characterized by rapid technological change, frequent
introductions of new products and evolving industry standards. Our ability to attract new subscribers and increase revenue from
existing subscribers will depend in significant part on our ability to anticipate changes in industry standards, to continue to
enhance our existing solutions or introduce new solutions on a timely basis to keep pace with technological developments, and
to maintain compatibility with a wide range of connected devices in residential and commercial properties. We may change
aspects of our platforms and may utilize open source technology in the future, which may cause difficulties including
compatibility, stability and time to market. The success of any enhanced or new product or solution will depend on several
factors, including the timely completion and market acceptance of the enhanced or new product or solution. Similarly, if any of
our competitors implement new technologies before we are able to implement them, those competitors may be able to provide
more effective products than ours, possibly at lower prices. Any delay or failure in the introduction of new or enhanced solutions
could harm our business, financial condition, cash flows and results of operations.
The technology we employ may become obsolete and we may need to incur significant capital expenditures to update
our technology.
Our industry is characterized by rapid technological innovation. Our platforms and solutions interact with the hardware and
software technology of systems and devices located at our subscribers’ properties and we depend upon cellular, broadband and
other telecommunications providers to provide communication paths to our subscribers in a timely and efficient manner. We may
be required to implement new technologies or adapt existing technologies in response to changing market conditions, consumer
preferences or industry standards, which could require significant capital expenditures. The discontinuation of cellular
communication technology, cellular networks or other services by telecommunications service providers can affect our services
and require our subscribers to upgrade to alternative and potentially more expensive, technologies. For example, certain cellular
carriers shut down their 3G and CDMA wireless networks in 2022. We worked with our service providers to convert or upgrade
the equipment of end user accounts reliant upon 3G or CDMA networks, and we incurred costs and may continue to incur costs
related to the 3G and CDMA network shutdown. If our service providers are not able to convert or upgrade the equipment of their
customers who are currently using 3G or CDMA network technology, then those accounts may be terminated with us or we may
not be able to bill for such accounts when such networks are no longer available which could adversely affect our business,
financial condition, cash flows and results of operations.
It is also possible that one or more of our competitors could develop a significant technical advantage that allows them to
provide additional or superior quality products or services, or to lower their price for similar products or services, which could put
us at a competitive disadvantage. Our inability to adapt to changing technologies, market conditions or consumer preferences in
a timely manner could materially and adversely affect our business, financial condition, cash flows or results of operations.
We depend on our suppliers. The loss of any key supplier or the inability of a key supplier to deliver their products to
us on time or at the contracted price would materially and adversely affect our business, financial condition, cash flows
and results of operations.
Our hardware products depend on the availability and quality of components that we procure from third-party suppliers,
some of which are supplied by single or limited source suppliers. Reliance on suppliers generally involves several risks, including
increased costs, the possibility of defective parts, and loss of a supplier due to their ability to effectively manage their own supply
chain, ability to obtain a contract on commercially reasonable terms, bankruptcy, or other events, which can adversely affect the
reliability and reputation of our platforms and solutions and our profitability. In addition, from time to time we provide advance
payments or loans to our vendors to, for example, secure procurement of long lead time parts or to provide bridge financing to
ensure continuity of operations. We are also dependent on industry supply conditions and subject to supply chain risks, including
a shortage of components and reduced control over delivery schedules and increases in component costs, which can also
adversely affect the reliability and reputation of our platforms and solutions and our profitability. These supply chain risks would
be heightened in the event health precautions such as travel restrictions and shelter-in-place orders are implemented. In
addition, limitations on factory capacity, including labor shortages, and delays in shipping times due to the Macroeconomic
Conditions have in the past and may in the future adversely affect production of and the timing of delivery of components. While
the global shortage of semiconductors used in our video, cellular communicator, and other products has eased, shortages of
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essential components of our products or significantly increased lead times for obtaining such components may lead to delays in
our production, and we may be unable to fulfill orders for our hardware products on a timely basis or at all. Even if we are able to
procure components from alternative sources, we may be required to pay more for them, which could adversely affect our
profitability. We are working with our suppliers to secure components and materials to account for the continued longer lead
times and limited availability, but we cannot assure you our efforts will be successful or that demand for our hardware products
will continue at the same level. In addition, global transportation disruptions have led to slower shipping times generally, while
fluctuations in passenger air travel have also led to reduced capacity and increased costs for air freight shipments, which may
continue to adversely affect the timing and cost of delivery of components, materials and products. Any of these disruptions to
our inventory and supply chain could have a material adverse effect on our business, financial condition, cash flows and results
of operations. We have several large hardware suppliers from which we procure hardware on a purchase order basis, including
three key suppliers that supplied products and components of our inventory which collectively represented 45% of our hardware
revenue for the year ended December 31, 2023 (21%, 13% and 11% of hardware revenue, respectively). The failure of any of
these key suppliers or their subcomponent suppliers to deliver product on time or at the contracted price would materially and
adversely affect our business, financial condition, cash flows and results of operations. We are working with any impacted
suppliers and their subcomponent provider to determine the amount and timing of any shortfall and to mitigate risks in this part of
our supply chain, but we may not be successful. In addition, we rely on third-party technology providers for certain critical
functions, such as processing and storing video. If our suppliers or technology providers are unable to continue to provide agreed
upon supply or services, we could experience interruptions in delivery of our platforms and solutions to our service provider
partners, which could have a material adverse effect on our business, financial condition, cash flows and results of operations. If
we were required to find alternative sources of supply, qualification of alternative suppliers and the establishment of reliable
supplies could result in delays, loss of sales and/or less profitable sales, any of which could have a material adverse effect on
our business, financial condition, cash flows and results of operations.
Growth of our business will depend on market awareness and a strong brand, and any failure to develop, maintain,
protect and enhance our brand would hurt our ability to retain or attract subscribers.
We believe that building and maintaining market awareness, brand recognition and goodwill in a cost-effective manner is
important to our overall success in achieving widespread acceptance of our existing and future solutions and is an important
element in attracting new service provider partners and subscribers. An important part of our business strategy is to increase
service provider and consumer awareness of our brand and to provide marketing leadership, services and support to our service
provider partner network. This will depend largely on our ability to continue to provide high-quality solutions, and we may not be
able to do so effectively. While we may choose to engage in a broader marketing campaign to further promote our brand, this
effort may not be successful. Our efforts in developing our brand may be hindered by the marketing efforts of our competitors
and our reliance on our service provider partners and strategic partners to promote our brand. If we are unable to cost-effectively
maintain and increase awareness of our brand, our business, financial condition, cash flows and results of operations could be
harmed.
We operate in the emerging and evolving connected property market, which may develop more slowly or differently
than we expect. If the connected property market does not grow as we expect, or if we cannot expand our platforms and
solutions to meet the demands of this market, our revenue may decline, fail to grow or fail to grow at an accelerated
rate, and we may incur operating losses.
The market for solutions that bring objects and systems not typically connected to the Internet, such as home automation,
security monitoring, video monitoring, energy management and wellness solutions, into an Internet-like structure is still
developing, and it is uncertain how rapidly or how consistently this market will continue to develop and the degree to which our
platforms and solutions will be accepted into the markets in which we operate. Some consumers may be reluctant or unwilling to
use our platforms and solutions for a number of reasons, including satisfaction with traditional solutions, concerns about
additional costs, concerns about data privacy and lack of awareness of the benefits of our platforms and solutions. Our ability to
expand the sales of our platforms and solutions into new markets depends on several factors, including the awareness of our
platforms and solutions, the timely completion, introduction and market acceptance of our platforms and solutions, the ability to
attract, retain and effectively train sales and marketing personnel, the ability to develop relationships with service providers, the
effectiveness of our marketing programs, the costs of our platforms and solutions and the success of our competitors. If we are
unsuccessful in developing and marketing our platforms and solutions into new markets, or if consumers do not perceive or value
the benefits of our platforms and solutions, the market for our platforms and solutions might not continue to develop or might
develop more slowly than we expect, either of which would harm our revenue and growth prospects.
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Risks of liability from our operations are significant.
The nature of the solutions we provide, including our interactive security solutions, and new technologies and companies we
may acquire, potentially exposes us to greater risks of liability for data privacy and security, employee acts or omissions, or
technology or system failure than may be inherent in other businesses. Substantially all of our service provider partner
agreements contain provisions limiting our liability to service provider partners and our subscribers in an attempt to reduce this
risk. However, in the event of litigation with respect to these matters, we cannot assure you that these limitations will be enforced,
and the costs of such litigation could have a material adverse effect on us. Moreover, in the event of any regulatory investigations
or actions against us related to these matters, we could be subject to additional risks and liabilities, including significant fines by
U.S. federal and state authorities, foreign data privacy authorities in the EU, Canada, and other countries, in addition to the costs
of such investigations, all of which could have a material adverse effect on us. In addition, there can be no assurance that we are
adequately insured for these risks. Certain of our insurance policies and the laws of some states may limit or prohibit insurance
coverage for punitive or certain other types of damages or liability arising from gross negligence.
Our strategy includes pursuing acquisitions, and our potential inability to successfully integrate newly-acquired
technologies, assets or businesses may harm our financial results. Future acquisitions of technologies, assets or
businesses which are paid for partially or entirely through the issuance of stock or stock rights could dilute the
ownership of our existing stockholders.
We believe part of our growth will continue to be driven by acquisitions of other companies or their technologies, assets and
businesses. For example, on April 21, 2023, we acquired certain assets of Vintra, on January 18, 2023, we acquired 100% of the
issued and outstanding shares of capital stock of EBS, on September 23, 2022, we acquired 85% of the issued and outstanding
shares of capital stock of Noonlight, Inc., on October 21, 2019, we acquired 85% of the issued and outstanding shares of capital
stock of PC Open Incorporated, doing business as OpenEye, and on December 14, 2020, we acquired Shooter Detection
Systems, LLC. Additionally, on December 16, 2021, our EnergyHub subsidiary acquired certain assets of an unrelated third party.
Substantially all of the acquired assets consisted of developed technology. These acquisitions and any other acquisitions we may
complete in the future will give rise to certain risks, including:
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incurring higher than anticipated capital expenditures and operating expenses;
failing to assimilate and integrate the operations and personnel or failing to retain the key personnel of the acquired
company or business;
failing to retain customers and service providers and other third-party business partners seeking to terminate or
renegotiate their relationships with us;
failing to integrate the acquired technologies, or incurring significant expense to integrate acquired technologies into our
platforms and solutions;
disrupting our ongoing business;
encountering complexities associated with managing a larger, more complex and growing business;
diverting our management’s attention and other company resources;
failing to maintain uniform standards, controls and policies;
incurring significant accounting charges;
impairing relationships with employees, service provider partners or subscribers;
finding that the acquired technology, asset or business does not further our business strategy, that we overpaid for the
technology, asset or business or that we may be required to write off acquired assets or investments partially or entirely;
failing to realize the expected synergies of the transaction;
being exposed to unforeseen liabilities and contingencies that were not identified prior to acquiring the company; and
being unable to generate sufficient revenue and profits from acquisitions to offset the associated acquisition costs.
Fully integrating an acquired technology, asset or business into our operations may take a significant amount of time. We
may not be successful in overcoming these risks or any other problems encountered with acquisitions. To the extent we do not
successfully avoid or overcome the risks or problems related to any such acquisitions, or fail to manage the acquired business or
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execute our integration and growth strategy in an efficient and effective manner, our business, financial condition, cash flows and
results of operations could be harmed. Acquisitions also could impact our financial position and capital requirements, or could
cause fluctuations in our quarterly and annual results of operations. Acquisitions could include significant goodwill and intangible
assets, which may result in future impairment charges that would reduce our stated earnings. We may incur significant costs in
our efforts to engage in strategic transactions and these expenditures may not result in successful acquisitions.
We expect that the consideration we might pay for any future acquisitions of technologies, assets or businesses could
include stock, rights to purchase stock, cash or some combination of the foregoing. If we issue stock or rights to purchase stock
in connection with future acquisitions, net income per share and then-existing holders of our common stock may experience
dilution.
We may pursue business opportunities that diverge from our current business model, which may cause our business
to suffer.
We may pursue business opportunities that diverge from our current business model, including but not limited to expanding
our platforms and solutions and investing in new and unproven technologies. We can offer no assurance that any such new
business opportunities will prove to be successful. Among other negative effects, our pursuit of such business opportunities could
reduce operating margins and require more working capital, subject us to additional federal state, and local laws and regulations,
materially and adversely affect our business, financial condition, cash flows or results of operations.
Evolving government and industry regulation and changes in applicable laws relating to the Internet and data privacy
may increase our expenditures related to compliance efforts or otherwise limit the solutions we can offer, which may
harm our business and adversely affect our financial condition.
As Internet commerce continues to evolve, federal, state or foreign agencies have adopted and could in the future adopt
regulations covering issues such as user privacy and content. We are particularly sensitive to these risks because the Internet is
a critical component of our SaaS business model. In addition, taxation of products or services provided over the Internet or other
charges imposed by government agencies or by private organizations for accessing the Internet may be imposed. Any regulation
imposing greater fees for Internet use or restricting information exchange over the Internet could result in a decline in the use of
the Internet and the viability of Internet-based services, which could harm our business.
Our platforms and solutions enable us to collect, manage and store a wide range of data related to our subscribers’
interactive security, intelligent automation, video monitoring, energy management and wellness systems. A valuable component
of our platforms and solutions is our ability to analyze this data to present the user with actionable business intelligence. We
obtain our data from a variety of sources, including our service provider partners, our subscribers and third-party providers. We
cannot assure that the data we require for our proprietary data sets will be available from these sources in the future or that the
cost of such data will not increase. The United States federal government and various state governments have adopted or
proposed limitations on the collection, distribution, storage and use of personal information. Several foreign jurisdictions in which
we do business, including the European Union, the United Kingdom, Canada and Argentina, among others, have adopted
legislation (including directives or regulations) that is more rigorous governing data collection and storage than in the United
States.
On June 28, 2018, the State of California enacted the California Consumer Privacy Act of 2018, or CCPA, which took effect
on January 1, 2020. The CCPA governs the collection, sale and use of California residents’ personal information, and
significantly impacts businesses’ handling of personal information and privacy policies and procedures. The CCPA, as well as
data privacy laws that have been adopted or proposed in over a dozen other states such as Virginia, Colorado, Connecticut,
Texas and Utah, may limit our ability to use, process and store certain data, which may decrease adoption of our platforms and
solutions, affect our relationships with service provider partners and our suppliers, increase our costs for compliance, and harm
our business, financial condition, cash flows and results of operations. Specifically, the CCPA may subject us to regulatory fines
by the State of California, individual claims, class actions, and increased commercial liabilities. In addition, the California Privacy
Rights Act of 2020, or CPRA, was approved by California voters and became effective as of January 1, 2023. The CPRA, among
other things, amended the CCPA by creating additional privacy rights for California consumers and additional obligations on
businesses, which could subject us to additional compliance costs as well as potential fines, individual claims, class actions and
commercial liabilities. The CPRA also extended the CCPA’s scope to include employees’ and business contacts’ personal
information, which may increase our compliance costs, legal costs and other costs of doing business.
European data protection laws, including the General Data Protection Regulation, or GDPR, generally restrict the transfer of
personal data from Europe, including the European Economic Area, or EEA, UK and Switzerland, to the United States and most
other countries unless the parties to the transfer have implemented specific safeguards to protect the transferred personal data.
On July 16, 2020, the Court of Justice of the European Union, or CJEU, invalidated the EU-U.S. Privacy Shield framework, a
program for transferring personal data from the EEA to the United States. The ruling also raised questions about whether one of
the primary alternatives to the EU-U.S. Privacy Shield, namely the European Commission’s Standard Contractual Clauses, or
SCCs, can lawfully be used for transfers from the EEA to the United States or most other countries. While the CJEU did not
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invalidate the use of SCCs as a valid mechanism for transferring personal data from the EEA to the United States, the CJEU
required entities relying on SCCs to, among other things, verify on a case-by-case basis that the SCCs provide adequate
protection of personal data under European Union, or EU, law by providing, where necessary, additional safeguards to those
offered by the existing SCCs. For data transfers to the United States, these additional safeguards must be added to the SCCs in
order for entities to use SCCs as a valid data transfer mechanism. Furthermore, the CJEU and the European Data Protection
Board advised European data protection authorities that they would need to closely examine the laws and practices of countries
outside of the EEA where EEA personal data is transferred, with a particular focus on the United States, so data transfers to the
United States from the EEA are subject to increasing regulatory scrutiny following the CJEU decision.
We have historically relied on both the EU-U.S. Privacy Shield and SCCs for transferring personal data from the EEA, and
as a result of the CJEU ruling, we have transitioned our data transfers covered under the EU-U.S. Privacy Shield to be covered
under SCCs. In June 2021, the European Commission adopted a new version of the SCCs, which we began using on
September 27, 2021. Moreover, the UK data protection regulator developed new SCCs for transferring personal data from the
UK that were finalized in March 2022, and we use the new UK SCCs with our current and future customers in the UK. In July
2023, the EU-U.S. Privacy Shield was replaced by the Data Privacy Framework, or DPF, and we have been automatically
enrolled in this program given our existing EU-U.S. Privacy Shield enrollment. We are also enrolled in the UK Extension to the
EU-U.S. DPF. Effective October 12, 2023, organizations participating in the UK Extension to the EU-U.S. DPF may receive
personal data from the UK and Gibraltar in reliance on the UK Extension to the EU-U.S. DPF.
Our work adopting, implementing and complying with the changing legal landscape governing international data transfers
slows down our contracting process and increases our legal and compliance costs (including an increase in exposure to
substantial fines under EEA data protection laws, increasing requests from our customers for compliance-related product
changes, as well as injunctions against processing or transferring personal data from the EEA), which could adversely affect our
cash flows and financial condition. SCCs with additional safeguards and obligations put in place by EEA data protection
authorities or customers may impose new restrictions on our business and could affect our operations in the EEA.
In September 2020, the Swiss Federal Data Protection and Information Commissioner, or FDPIC, determined that the
Swiss-U.S. Privacy Shield Framework does not provide an adequate level of data protection for data transfers from Switzerland
to the U.S. While the FDPIC does not have the authority to invalidate the Swiss-U.S. Privacy Shield, the FDPIC’s announcement
casts serious doubt on the viability of the Swiss-U.S. Privacy Shield as a valid mechanism for Swiss-U.S. data transfers. As a
result of the FDPIC decision, we will need to transition any data transfers covered under the Swiss-U.S. Privacy Shield to be
covered under SCCs or the Swiss-U.S. DPF once Switzerland adopts an adequacy decision. For data transfers from
Switzerland, Alarm.com will continue to rely upon the SCCs adopted by the European Commission in August 2021 with any
necessary modifications required by the regulatory authorities in Switzerland.
As a result of these ongoing changes, there will continue to be significant regulatory uncertainty surrounding the validity of
data transfers from the EEA, UK and Switzerland to the United States. The inability to import personal data from the EEA, UK or
Switzerland may require us to increase our data processing capabilities in those jurisdictions at significant expense. Various
other non-EU jurisdictions may also choose to impose data localization laws limiting the transfer of personal data out of their
respective jurisdictions, or our EEA, UK or Swiss service provider partners may require similar contractual restrictions regarding
data localization. Such laws or contractual restrictions may increase our costs for compliance, and harm our business, financial
condition, cash flows and results of operations.
The EU's General Data Protection Regulation, or GDPR, went into effect on May 25, 2018. Prior to May 25, 2018, we
updated our existing privacy and data security measures to comply with GDPR. As guidance on compliance with GDPR from the
EU data protection authorities evolves over time, our privacy or data security measures may be deemed or perceived to be in
noncompliance with current or future laws and regulations, which may subject us to litigation, regulatory investigations or other
liabilities and could limit the products and services we can offer in certain jurisdictions. Further, in the event of a breach of
personal information that we hold, we may be subject to governmental fines, individual claims, remediation expenses and/or
harm to our reputation. Moreover, if future laws, regulations, or court rulings, such as the CJEU’s decision invalidating the EU-
U.S. Privacy Shield, limit our ability to use and share this data or our ability to store, process and share data over the Internet,
demand for our platforms and solutions could decrease, our costs could increase, and our business, financial condition, cash
flows and results of operations could be harmed.
Furthermore, Brazil’s comprehensive privacy law, the General Data Protection Law, or LGPD, took effect on September 18,
2020 and federal regulatory enforcement began on August 1, 2021. However, private and state-level enforcement of the law
began in September 2020. The LGPD creates a new legal framework for the use, processing and storage of Brazilians’ personal
data, and it adds significant privacy and security obligations for companies processing personal data in Brazil. The LGPD may
limit our and our service providers’ ability to use, process and store certain data, which may decrease adoption of our platforms
and solutions, affect our relationships with our service provider partners and suppliers, increase our costs for compliance, and
harm our business, financial condition, cash flows and results of operations. In addition, the LGPD may subject us to regulatory
fines by the Brazilian Data Protection Authority and increased commercial liabilities.
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Since April 2018 we have offered a solution for certain service provider partners who may be subject to the Health Insurance
Portability and Accountability Act of 1996, and its implementing regulations, or HIPAA, which regulates the use and disclosure of
Protected Health Information, or PHI. As a result, we are subject to HIPAA when PHI is accessed, created, maintained or
transmitted through our solution by these service provider partners. We have implemented additional privacy and security
policies and procedures, as well as administrative, physical and technical safeguards to enable our solution to be HIPAA-
compliant. Additionally, HIPAA compliance has required us to put in place certain agreements with contracting partners and to
appoint a Privacy Officer and Security Officer. If our privacy and security policies or other safeguards for PHI are deemed to be in
noncompliance by the United States Department of Health and Human Services, or HHS, we may be subject to litigation,
regulatory investigations or other liabilities. In the event of a breach of PHI that we hold, we may be subject to governmental
fines, individual claims under state privacy laws governing personal health information, remediation expenses and/or harm to our
reputation. The use of health-related data is coming under increasing regulatory scrutiny in other ways. Several U.S. states, such
as Washington, Nevada, and Connecticut, have passed health privacy laws, which may increase the risk of regulatory actions or
consumer class actions being brought against Alarm.com. These laws may also increase our costs of doing business as well as
legal costs, and slow down our contracting process. Moreover, the FTC has brought a series of regulatory enforcement actions
relating to companies’ use of health-related data, which may increase our regulatory risk. Furthermore, if future changes to
HIPAA or state privacy laws governing PHI expand the definition of PHI or put more restrictions on our ability to use, process and
store PHI, then HIPAA compliance for our solutions as currently constituted may be costly both financially and in terms of
administrative resources. Ongoing compliance efforts may take substantial time and require the assistance of external resources,
such as attorneys, information technology, and/or other consultants and advisors.
Laws and regulations relating to the use of certain video data for training and analytics purposes continue to change.
Specifically, the use of facial images and other biometric data in the training of video models has been subject to increased
scrutiny and in some cases regulatory review. The FTC as well as certain states and individuals have brought legal actions
against companies regarding the collection and use of facial and biometric information for product development and other
purposes. We account for these laws and regulations in our product development cycle, which may impact the scope and timing
of the products we make available.
Use of artificial intelligence in our operations and product offerings could result in reputational or competitive harm,
legal or regulatory liability and adverse impacts on our results of operations.
We have incorporated, and expect to continue to incorporate in the future, artificial intelligence, or AI, solutions into our
operations and product offerings, and the use of AI involves various risks and challenges that could adversely affect our
business, financial condition or results of operations. We currently use AI to help improve our business management solutions for
service provider partners and advance our data analytics engine. For example, we leverage large language models for the
Gopher Info feature of our service provider solutions, an AI-powered chat bot assistant for technicians and service providers
designed to improve service provider efficiency and operations. The development and deployment of AI systems involve inherent
technical complexities and uncertainties, and our AI systems may encounter unexpected technical difficulties, limitations or
errors, including inaccuracies in data processing or flawed algorithms, which could compromise the reliability and effectiveness
of our products and services based on AI. In addition, our competitors or other third parties may incorporate AI into their products
more quickly or more successfully than us, which could impair our ability to compete effectively.
The use of AI applications, including large language models, has resulted in, and may in the future result in, cybersecurity
incidents that implicate the personal data of end users of such applications. Any such cybersecurity incidents related to our use
of AI applications could adversely affect our reputation and results of operations. AI also presents emerging ethical issues, and if
our use of AI becomes controversial, we may experience brand or reputational harm, competitive harm, regulatory scrutiny or
legal liability.
The introduction of AI technologies into our products and services may result in new or enhanced governmental or
regulatory scrutiny, litigation, confidentiality or security risks or other complications that could adversely affect our business,
reputation or financial results. The regulatory landscape governing AI technologies is evolving rapidly, and changes in laws,
regulations or enforcement practices may impose new compliance requirements, restrict certain AI applications or increase our
regulatory obligations, which could negatively impact our business and results of operations.
We rely on the performance of our senior management and highly skilled personnel, and if we are unable to attract,
retain and motivate well-qualified employees, our business and results of operations could be harmed.
We believe our success has depended, and continues to depend, on the efforts and talents of senior management and key
personnel, including Stephen Trundle, our Chief Executive Officer, and our senior information technology managers. Our future
success depends on our continuing ability to attract, develop, motivate and retain highly qualified and skilled employees.
Qualified individuals are in high demand, and we may incur significant costs to attract them. In addition, the loss of any of our
senior management or key personnel could interrupt our ability to execute our business plan, as such individuals may be difficult
to replace. If we do not succeed in attracting well-qualified employees or retaining and motivating existing employees, our
business and results of operations could be harmed.
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We provide minimum service level commitments to certain of our service provider partners, and our failure to meet
them could cause us to issue credits for future services or pay penalties, which could harm our results of operations.
Certain of our service provider partner agreements currently, and may in the future, provide minimum service level
commitments regarding items such as uptime, functionality or performance. If we are unable to meet the stated service level
commitments for these service provider partners or suffer extended periods of service unavailability, we are or may be
contractually obligated to provide these service provider partners with credits for future services, provide services at no cost or
pay other penalties, which could adversely impact our revenue. We have incurred such penalties in the past, which have reduced
our revenue. We do not currently have any reserves on our balance sheet for these commitments.
We have indemnity obligations to certain of our service provider partners for certain expenses and liabilities, which
could force us to incur substantial costs.
We have indemnity obligations to certain of our service provider partners for certain claims regarding our platforms and
solutions, including security breach, product recall, epidemic failure, and product liability claims. As a result, in the case of any
such claims against these service provider partners, we could be required to indemnify them for losses resulting from such
claims or to refund amounts they have paid to us. We expect that some of our service provider partners may seek
indemnification from us in the event that such claims are brought against them. In addition, we may elect to indemnify service
provider partners where we have no contractual obligation to do so and we will evaluate each such request on a case-by-case
basis. If a service provider partner elects to invest resources in enforcing a claim for indemnification against us, we could incur
significant costs disputing it. If we do not succeed in disputing it, we could face substantial liability. See "We have indemnity
obligations to certain of our service provider partners for certain expenses and liabilities resulting from intellectual property
infringement claims regarding our platforms and solutions, which could force us to incur substantial costs" below for details on
indemnity obligations resulting from intellectual property.
The incurrence or issuance of debt may impact our financial position and subject us to additional financial and
operating restrictions.
On January 20, 2021, we issued $500.0 million aggregate principal amount of 0% convertible senior notes due January 15,
2026 in a private placement to qualified institutional buyers, or the 2026 Notes. We received proceeds from the issuance of the
2026 Notes of $484.3 million, net of $15.7 million of transaction fees and other debt issuance costs. We used some of the
proceeds to repay the $110.0 million outstanding principal balance under our credit facility and also used some of the proceeds
to pay accrued interest, fees and expenses related to our credit facility, which was terminated effective January 20, 2021. We
currently intend to invest a portion of the proceeds in a portfolio of securities and other investments and although we plan to
follow an established investment policy and seek to minimize the credit risk associated with investments by limiting exposure to
any one issuer depending on credit quality, we cannot give assurances that the assets in our investment portfolio will not lose
value, become impaired or suffer from illiquidity.
Our overall leverage and certain obligations contained in the related documentation could adversely affect our financial
health and business and future operations by, among other things:
• making it more difficult to satisfy our obligations, including under the terms of the 2026 Notes;
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limiting our ability to refinance our debt on terms acceptable to us or at all;
limiting our flexibility to plan for and adjust to changing business and market conditions and increasing our vulnerability
to general adverse economic and industry conditions;
limiting our ability to use our available cash flow to fund future acquisitions, working capital, business activities, and
other general corporate requirements; and
limiting our ability to obtain additional financing for working capital, to fund growth or for general corporate purposes,
even when necessary to maintain adequate liquidity.
Any of the foregoing could have a material adverse effect on our business, financial condition, cash flows or results of
operations.
We may not be able to secure additional financing on favorable terms, or at all, to meet our future capital needs.
In the future, we may require additional capital to respond to business opportunities, challenges, acquisitions or unforeseen
circumstances and may determine to engage in equity or debt financings or enter into credit facilities for other reasons. For
example, on January 20, 2021, we issued the 2026 Notes. We received proceeds from the issuance of the 2026 Notes of $484.3
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million, net of $15.7 million of transaction fees and other debt issuance costs. We may require additional capital to respond to the
significant uncertainty arising from the Macroeconomic Conditions and we may not be able to timely secure additional debt or
equity financing on favorable terms or at all. If we are unable to obtain adequate financing or financing on terms satisfactory to
us, when we require it, our ability to continue to grow or support our business and to respond to business challenges could be
limited. Any debt financing obtained by us in the future could involve restrictive covenants relating to our capital raising activities
and other financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue
business opportunities, including potential acquisitions. If we raise additional funds through further issuances of equity,
convertible debt securities or other securities convertible into equity, our existing stockholders could suffer significant dilution in
their percentage ownership of our company, and any new equity securities we issue could have rights, preferences and
privileges senior to those of holders of our common stock. If we are unable to obtain adequate financing or financing on terms
satisfactory to us, when we require it, our ability to continue to grow or support our business and to respond to business
challenges could be limited. See “Risks Related to our Outstanding Convertible Senior Notes” below for further details on risks
related to the 2026 Notes.
Goodwill and other identifiable intangible assets represent a significant portion of our total assets, and we may never
realize the full value of our intangible assets.
As of December 31, 2023, we had $233.1 million of goodwill and identifiable intangible assets. Goodwill and other
identifiable intangible assets are recorded at fair value on the date of acquisition. We review such assets for impairment at least
annually. Impairment may result from, among other things, deterioration in performance, adverse market conditions, including
adverse market conditions arising from the Macroeconomic Conditions, adverse changes in applicable laws or regulations,
including changes that restrict the activities of or affect the solutions we offer, challenges to the validity of certain registered
intellectual property, reduced sales of certain products or services incorporating registered intellectual property, increased
attrition and a variety of other factors. The amount of any quantified impairment must be expensed immediately as a charge to
results of operations. Depending on future circumstances, it is possible that we may never realize the full value of our intangible
assets. Any future determination of impairment of goodwill or other identifiable intangible assets could have a material adverse
effect on our financial position and results of operations.
Comprehensive tax reform bills could adversely affect our business and financial condition.
Legislative changes in the U.S. and other countries could increase our tax liability and adversely affect our after-tax
profitability. For example, in August 2022, the Inflation Reduction Act of 2022 was enacted in the United States which, among
other provisions, includes a minimum 15.0% tax on companies that have a three-year average annual adjusted financial
statement income of more than $1.0 billion and a 1.0% excise tax on the value of net corporate stock repurchases. Both
provisions became effective on January 1, 2023. Current economic and political considerations make additional tax rules in the
United States and other applicable jurisdictions subject to significant change, and changes in applicable tax laws and regulations,
or their interpretation and application, including the possibility of retroactive effect, could affect our income tax expense and
profitability.
In addition, there is a continued interest within the European Union, Canada and other jurisdictions to apply new taxes on
companies participating in the digital economy. Such tax rule changes could materially and adversely affect our cash flows,
deferred tax assets and financial results.
We may be subject to additional tax liabilities, which would harm our results of operations.
We are subject to income, sales, use, value added and other taxes in the United States and other countries in which we
conduct business, which laws and rates vary greatly by jurisdiction. Certain jurisdictions in which we do not collect sales, use,
value added or other taxes on our sales may assert that such taxes are applicable, which could result in tax assessments,
penalties and interest, and we may be required to collect and remit such taxes in the future. Additionally, longstanding
international tax norms that determine each country’s jurisdiction to tax cross-border international trade are subject to potential
evolution. An outgrowth of the original Base Erosion and Profit Shifting project is a project undertaken by the more than 130
member countries of the expanded Organization for Economic Cooperation and Development, or OECD, Inclusive Framework
focused on "Addressing the Challenges of the Digitalization of the Economy." Furthermore, the OECD, announced a consensus
around further changes in traditional international tax principles to address, among other things, perceived challenges presented
by global digital commerce, or Pillar One, and the perceived need for a minimum global effective tax rate of 15%, or Pillar Two.
On December 20, 2021, the OECD released Pillar Two Model Rules defining the global minimum tax rate of 15% on companies
with revenues of at least 750.0 million Euros, which would go into effect in 2024, subject to certain transition rules. While it is
uncertain whether the U.S. will enact legislation to adopt the minimum tax directive, certain countries in which we operate have
adopted such legislation, and other countries are in the process of introducing legislation to implement the minimum tax directive.
Under a transitional safe harbor released on July 17, 2023, the undertaxed profits rule top-up tax will be zero for each year of the
transition period if that jurisdiction has a corporate tax rate of at least 20%. This undertaxed profits safe harbor transition rule will
apply to us through our year ending December 31, 2025.
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While we do not currently expect the Pillar Two minimum tax directive to have a material impact on our effective tax rate or
operations, our analysis is ongoing as the OECD (and many countries) continue to release additional guidance and implement
legislation. To the extent additional changes take place in the countries in which we operate, it is possible that these legislative
changes and efforts may increase uncertainty and have an adverse impact on our effective tax rates or operations. We will
continue to monitor and evaluate new legislation and guidance, which could change our current assessment.
Significant judgment is required in determining our worldwide provision for income taxes. These determinations are highly
complex and require detailed analysis of the available information and applicable statutes and regulatory materials. In the
ordinary course of our business, there are many transactions and calculations where the ultimate tax determination is uncertain.
Although we believe our tax estimates are reasonable, the final determination of tax audits and any related litigation could be
different from our historical tax practices, provisions and accruals. If we receive an adverse ruling as a result of an audit, or we
unilaterally determine that we have misinterpreted provisions of the tax regulations to which we are subject, our tax provision,
results of operations or cash flows could be harmed. In addition, liabilities associated with taxes are often subject to an extended
or indefinite statute of limitations period. Therefore, we may be subject to additional tax liability (including penalties and interest)
for a particular year for extended periods of time.
If the U.S. insurance industry were to change its practice of providing incentives to homeowners for the use of alarm
monitoring services, we could experience a reduction in new subscriber growth or an increase in our subscriber
attrition rate.
It has been common practice in the U.S. insurance industry to provide a reduction in rates for policies written on residences
that have monitored alarm systems. There can be no assurance that insurance companies will continue to offer these rate
reductions. If these incentives were reduced or eliminated, new homeowners who otherwise may not feel the need for alarm
monitoring services would be removed from our potential subscriber pool, which could hinder the growth of our business, and
existing subscribers may choose to disconnect or not renew their service contracts, which could increase our attrition rates. In
either case, our results of operations and growth prospects could be adversely affected.
Failure to comply with laws and regulations could harm our business.
We conduct our business in the United States and in various other countries. We are subject to regulation by various federal,
state, local and foreign governmental agencies, including, but not limited to, agencies and regulatory bodies or authorities
responsible for monitoring and enforcing product safety and consumer protection laws, data privacy and security laws and
regulations, employment and labor laws, workplace safety laws and regulations, environmental laws and regulations, antitrust
laws, federal securities laws and tax laws and regulations.
We are subject to the U.S. domestic bribery statute contained in 18 U.S.C. § 201, the U.S. Foreign Corrupt Practices Act of
1977, as amended, the U.S. Travel Act, and possibly other anti-bribery laws, including those that comply with the Organization
for Economic Cooperation and Development, or OECD, Convention on Combating Bribery of Foreign Public Officials in
International Business Transactions and other international conventions. Anti-corruption laws are interpreted broadly and prohibit
our company from authorizing, offering, or providing directly or indirectly improper payments or benefits to recipients in the public
or private-sector. Certain laws also prohibit us from soliciting or accepting bribes or kickbacks. Our company has direct
government interactions and in several cases uses third-party representatives, including dealers, for regulatory compliance,
sales and other purposes in a variety of countries. These factors increase our anti-corruption risk profile. We can be held liable
for the corrupt activities of our employees, representatives, contractors, partners and agents, even if we did not explicitly
authorize such activity. Although we have implemented policies and procedures designed to ensure compliance with anti-
corruption laws, there can be no assurance that all of our employees, representatives, contractors, partners, and agents will
comply with these laws and policies.
Our global operations require us to import from and export to several countries, which geographically stretches our
compliance obligations. We are also subject to anti-money laundering laws such as the USA PATRIOT Act and may be subject to
similar laws in other jurisdictions. Our platforms and solutions are subject to export control and import laws and regulations,
including the U.S. Export Administration Regulations, U.S. Customs regulations, and various economic and trade sanctions
regulations administered by the U.S. Treasury Department’s Office of Foreign Assets Controls. Exports of our platforms and
solutions must be made in compliance with these laws and regulations. We may also be subject to import/export laws and
regulations in other jurisdictions in which we conduct business. If we fail to comply with these laws and regulations, we and
certain of our employees could be subject to substantial civil or criminal penalties, including the possible loss of export or import
privileges; fines, which may be imposed on us and responsible employees or managers; and, in extreme cases, the incarceration
of responsible employees or managers. In addition, if our service provider partners fail to obtain appropriate import, export or re-
export licenses or authorizations, we may also be adversely affected through reputational harm and penalties. Obtaining the
necessary authorizations, including any required license, for a particular sale may be time-consuming, is not guaranteed and
may result in the delay or loss of sales opportunities. In addition, changes in our platforms or solutions or changes in applicable
export or import laws and regulations may create delays in the introduction and sale of our platforms and solutions in
international markets, prevent our service provider partners with international operations from deploying our platforms and
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solutions or, in some cases, prevent the export or import of our platforms and solutions to certain countries, governments or
persons altogether. Any change in export or import laws and regulations, shift in the enforcement or scope of existing laws and
regulations, or change in the countries, governments, persons or technologies targeted by such laws and regulations, could also
result in decreased use of our platforms and solutions, or in our decreased ability to export or sell our platforms and solutions to
existing or potential service provider partners with international operations. Any decreased use of our platforms and solutions or
limitation on our ability to export or sell our platforms and solutions would likely adversely affect our business, financial condition,
cash flows and results of operations.
In addition, our software contains encryption technologies, certain types of which are subject to U.S. and foreign export
control regulations and, in some foreign countries, restrictions on importation and/or use. Any failure on our part to comply with
encryption or other applicable export control requirements could result in financial penalties or other sanctions under the U.S.
export regulations, including restrictions on future export activities, which could harm our business and operating results.
Regulatory restrictions could impair our access to technologies needed to improve our platforms and solutions and may also limit
or reduce the demand for our platforms and solutions outside of the United States.
Furthermore, U.S. export control laws and economic sanctions programs prohibit the shipment of certain products and
services to countries, governments and persons that are subject to U.S. economic embargoes and trade sanctions. Even though
we take precautions to prevent our platforms and solutions from being shipped or provided to U.S. sanctions targets, our
platforms and solutions could be shipped to those targets or provided by third-parties despite such precautions. Any such
shipment could have negative consequences, including government investigations, penalties and reputational harm.
Furthermore, any new embargo or sanctions program, or any change in the countries, governments, persons or activities
targeted by such programs, could result in decreased use of our platforms and solutions, or in our decreased ability to export or
sell our platforms and solutions to existing or potential service provider partners, which would likely adversely affect our
business, financial condition, cash flows and results of operations.
Changes in laws that apply to us could result in increased regulatory requirements and compliance costs which could harm
our business, financial condition, cash flows and results of operations. For example, the SEC has proposed expansive rules
requiring public companies to disclose information about the material impact of climate on their businesses, as well as
information about companies’ governance, risk management and strategy related to climate risk. In certain jurisdictions,
regulatory requirements may be more stringent than in the United States. Noncompliance with applicable regulations or
requirements could subject us to whistleblower complaints, investigations, sanctions, settlements, mandatory product recalls,
enforcement actions, disgorgement of profits, fines, damages, civil and criminal penalties or injunctions, suspension or
debarment from contracting with certain governments or other customers, the loss of export privileges, multi-jurisdictional liability,
reputational harm, and other collateral consequences. If any governmental or other sanctions are imposed, or if we do not prevail
in any possible civil or criminal litigation, our business, financial condition, cash flows and results of operations could be
materially harmed. In addition, responding to any action will likely result in a materially significant diversion of management’s
attention and resources and an increase in defense costs and other professional fees. Enforcement actions and sanctions could
further harm our business, financial condition, cash flows and results of operations.
We face many risks associated with our international business operations and our plans to expand internationally,
which could harm our business, financial condition, cash flows and results of operations.
We anticipate our efforts to operate and continue to expand our business internationally will entail additional costs and risks
as we establish our international offerings and develop relationships with service provider partners to market, sell, install, and
support our platforms, solutions and brand in other countries. Revenue in countries outside of North America accounted for 4%,
4% and 3% of our total revenue for the years ended December 31, 2023, 2022 and 2021. We have limited experience in selling
our platforms and solutions in international markets outside of North America or in conforming to the local cultures, standards, or
policies necessary to successfully compete in those markets, and we may be required to invest significant resources in order to
do so. We may not succeed in these efforts or achieve our consumer acquisition, service provider expansion or other goals. In
some international markets, consumer preferences and buying behaviors may be different, and we may use business or pricing
models that are different from our traditional model to provide our platforms and solutions to consumers in those markets or we
may be unsuccessful in implementing the appropriate business model. Our revenue from new foreign markets may not exceed
the costs of establishing, marketing, and maintaining our international offerings. In addition, current global instability could have
many adverse consequences on our international expansion. These could include sovereign default, liquidity and capital
pressures on financial institutions in other parts of the world including the eurozone, reducing the availability of credit and
increasing the risk of financial sector failures and the risk of one or more eurozone member states leaving the euro, resulting in
the possibility of capital and exchange controls and uncertainty about the impact of contracts and currency exchange rates.
In addition, conducting expanded international operations subjects us to additional risks that we do not generally face in our
North American markets. These risks include:
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localization of our solutions, including the addition of foreign languages and adaptation to new local practices, as well as
certification, registration and other regulatory requirements;
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lack of experience in other geographic markets;
strong local competitors;
the cost and burden of complying with, lack of familiarity with, and unexpected changes in, foreign legal and regulatory
requirements, including the development of policies and procedures for different countries when requirements under
privacy regulations in such countries may conflict or be inconsistent with one another;
difficulties in managing and staffing international operations;
increased costs due to new or potential tariffs, penalties, trade restrictions and other trade barriers, which may increase
our cost of hardware revenue and reduce our hardware revenue margins in the future;
fluctuations in currency exchange rates or restrictions on foreign currency;
potentially adverse tax consequences, including the complexities of transfer pricing, value added or other tax systems,
double taxation and restrictions and/or taxes on the repatriation of earnings;
dependence on third parties, including commercial partners with whom we do not have extensive experience;
increased financial accounting and reporting burdens and complexities;
political, social, and economic instability, such as the ongoing military conflict between Russia and Ukraine and the war
between Israel and Hamas, terrorist attacks, and security concerns in general; and
reduced or varied protection for intellectual property rights in some countries.
Operating in international markets also requires significant management attention and financial resources. The investment
and additional resources required to establish operations and manage growth in other countries may not produce desired levels
of revenue or profitability.
Our software contains encryption technologies, certain types of which are subject to U.S. and foreign export control
regulations and, in some foreign countries, restrictions on importation and/or use. Any failure on our part to comply with
encryption or other applicable export control requirements could result in financial penalties or other sanctions under the
U.S. export regulations, including restrictions on future export activities, which could harm our business and operating results.
Regulatory restrictions could impair our access to technologies needed to improve our platforms and solutions and may also limit
or reduce the demand for our platforms and solutions outside of the United States.
Enhanced United States tax, tariff, import/export restrictions, or other trade barriers may have an adverse impact on
global economic conditions, financial markets and our business.
There is currently significant uncertainty about the future relationship between the United States and various other countries,
including China, the European Union, Canada, and Mexico, with respect to trade policies, treaties, tariffs and customs duties,
and taxes. Since 2019, the U.S. government has implemented significant changes to U.S. trade policy with respect to China.
Tariffs have subjected certain Alarm.com products manufactured overseas to additional import duties of up to 25%. The amount
of the import tariff and the number of products subject to tariffs have changed numerous times based on action by the U.S.
government. We are addressing the risks related to these imposed and announced tariffs, which have affected, or have the
potential to affect, at least some of our imports from China.
Between one-fifth to one-half of the hardware products that we sell to our customers are imported from China and could be
subject to increased tariffs. Other Alarm.com hardware products that are not manufactured in China may contain subcomponents
made in China that could also be subject to increased tariffs. While the additional import duties have resulted in an increase to
our cost of hardware revenue, these import duties had a modest impact on hardware revenue margins. If tariffs, trade
restrictions, or trade barriers are expanded or interpreted by a court or governmental agency to apply to more of our products,
then our exposure to future taxes and duties on such imported products and components could be significant and could have a
material effect on our financial results. If our products are deemed to be subject to additional duties and taxes as determined by
a court or governmental agency, we may suffer additional hardware revenue margin erosion or be required to raise our prices on
certain imported products. There can be no assurance that we will not experience a disruption in our business or harm to our
financial condition related to these or other changes in trade practices, and any changes to our operations or our sourcing
strategy in order to mitigate any such tariff costs could be complicated, time-consuming, and costly. Furthermore, our business
may be adversely affected by retaliatory trade measures taken by China and other countries, which could materially harm our
business, financial condition and results of operations. Trade barriers, or the perception that any of them could be imposed, may
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have a negative effect on global economic conditions and the stability of global financial markets, and may significantly reduce
global trade and, in particular, trade between these nations and the United States. Any of these factors could have a material
adverse effect on our business, financial condition and results of operations.
On June 17, 2021, the U.S. Federal Communications Commission, or the FCC, adopted a proposed rule that would
effectively ban in the United States all communications equipment provided by entities identified on a “Covered List” that it
maintains pursuant to the Secure and Trusted Communications Networks Act of 2019. The Covered List currently consists of
video surveillance and telecommunications equipment produced by five Chinese electronics companies, including one of our
suppliers. Although the proposed rule does not include language regarding retroactive application of the proposed ban, the FCC
has asked for comment on whether and under what circumstances it should revoke existing authorizations of communications
equipment from companies on the Covered List. On November 11, 2021, President Biden signed into law the Secure Equipment
Act of 2021 which requires the FCC to adopt rules clarifying that it will no longer review or approve any authorization application
for equipment that poses an unacceptable risk to national security. On November 25, 2022, the FCC implemented this directive
and adopted rules that prohibit future authorizations of equipment identified on the Covered List. Although the rules apply to
future authorizations of equipment, the FCC also adopted a Further Notice of Proposed Rulemaking seeking comment on future
action related to existing authorizations. If the FCC adopts rules that apply retroactively to products already sold, this would likely
adversely affect our business, financial condition, cash flows and results of operations.
Our financial results may be adversely affected by changes in accounting principles applicable to us.
Our accounting policies are critical to the manner in which we present our results of operations and financial condition. Many
of these policies are highly complex and involve many assumptions, estimates and judgments. A change in accounting standards
or practices, in particular with respect to revenue recognition, could harm our operating results and may even affect our reporting
of transactions completed before the change is effective. GAAP rules are subject to interpretation by the Financial Accounting
Standards Board, or FASB, the SEC and other various bodies formed to promulgate and interpret appropriate accounting
principles. See Note 2 to our consolidated financial statements for new accounting pronouncements. Implementation of new
accounting standards could have a significant effect on our financial results, and any difficulties in implementing these
pronouncements could cause us to fail to meet our financial reporting obligations, which could result in regulatory discipline and
harm investors’ confidence in us.
Our accounting is becoming more complex, and relies upon estimates or judgments relating to our critical accounting
policies. If our accounting is erroneous or based on assumptions that change or prove to be incorrect, our operating
results could fall below the expectations of securities analysts and investors, resulting in a decline in our stock price.
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions
that affect the amounts reported in the consolidated financial statements and accompanying notes, and also to comply with many
complex requirements and standards. Because of the use of estimates inherent in the financial reporting process, actual results
could differ from those estimates and any such differences may be material. We devote substantial resources to compliance with
accounting requirements and we base our estimates on our best judgment, historical experience, information derived from third
parties, and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form
the basis for making judgments about the carrying values of assets, liabilities, equity, revenue and expenses that are not readily
apparent from other sources. However, various factors are causing our accounting to become complex. Ongoing evolution of our
business, and the Macroeconomic Conditions and resulting uncertainty have, and any future acquisitions may, compound these
complexities. Our operating results may be adversely affected if we make accounting errors or our judgments prove to be wrong,
assumptions change or actual circumstances differ from those in our assumptions, which could cause our operating results to fall
below the expectations of securities analysts and investors or guidance we may have provided, resulting in a decline in our stock
price and potential legal claims. Significant judgments, assumptions and estimates used in preparing our consolidated financial
statements include those related to revenue recognition, stock-based compensation, business combinations, and income taxes.
44
Risks Related to Our Intellectual Property
If we fail to protect our intellectual property and proprietary rights adequately, our business could be harmed.
We believe our proprietary technology is essential to establishing and maintaining our leadership position. We seek to
protect our intellectual property through trade secrets, copyrights, confidentiality, non-compete and nondisclosure agreements,
patents, trademarks, domain names and other measures, some of which afford only limited protection. We also rely on patent,
trademark, trade secret and copyright laws to protect our intellectual property. Despite our efforts to protect our proprietary rights,
unauthorized parties may attempt to copy aspects of our technology or to obtain and use information that we regard as
proprietary. Our means of protecting our proprietary rights may not be adequate or our competitors may independently develop
similar or superior technology, or design around our intellectual property. In addition, the laws of some foreign countries do not
protect our proprietary rights to as great an extent as the laws of the United States. Intellectual property protections may also be
unavailable, limited or difficult to enforce in some countries, which could make it easier for competitors to capture market share.
Our failure or inability to adequately protect our intellectual property and proprietary rights could harm our business, financial
condition, cash flows and results of operations.
To prevent substantial unauthorized use of our intellectual property rights, it may be necessary to prosecute actions for
infringement and/or misappropriation of our proprietary rights against third parties. See the section of this Annual Report titled
"Legal Proceedings" for additional information on related intellectual property litigation matters. Any such action could result in
significant costs and diversion of our resources and management's attention, and we cannot assure you that we will be
successful in such action. Furthermore, many of our current and potential competitors have the ability to dedicate substantially
greater resources to enforce their intellectual property rights than we do. Accordingly, despite our efforts, we may not be able to
prevent third parties from infringing upon or misappropriating our intellectual property.
Assertions by third parties that we are infringing their intellectual property subject us to costly and time-consuming
litigation or expensive licenses that could harm our business and results of operations.
The industries in which we compete are characterized by the existence of a large number of patents, copyrights, trademarks
and trade secrets, and by frequent litigation based on allegations of infringement or other violations of intellectual property rights.
We have been involved with patent litigation suits in the past and we may be involved with and subject to similar litigation in the
future to defend our intellectual property position. For example, on January 10, 2022, EcoFactor filed a lawsuit against us in U.S.
District Court, District of Oregon, alleging Alarm.com’s products and services directly and indirectly infringe five U.S. patents
owned by EcoFactor. EcoFactor is seeking permanent injunctions, enhanced damages and attorneys' fees. See the section of
this Annual Report titled "Legal Proceedings" for additional information on this matter. Should EcoFactor prevail in either of its
district court lawsuits we could be required to pay damages in the amount of EcoFactor’s lost profits and/or a reasonable royalty
for sales of our solution, we could be enjoined from making, using and selling our solution if a license or other right to continue
selling such elements is not made available to us or we are unable to design around such patents, and we could be required to
pay ongoing royalties and comply with unfavorable terms if such a license is made available to us. While we believe we have
valid defenses to EcoFactor’s claims, any of these outcomes could result in a material adverse effect on our business.
On July 22, 2021, Causam filed a lawsuit against us in U.S. District Court, Western District of Texas, alleging that
Alarm.com’s smart thermostats infringe four U.S. patents owned by Causam. Causam is seeking preliminary and permanent
injunctions, enhanced damages and attorneys’ fees. On July 28, 2021, Causam filed a complaint with the ITC alleging
infringement of the same four patents. Causam is seeking a permanent limited exclusion order and permanent cease and desist
order. See the section of this Annual Report titled "Legal Proceedings" for additional information on each of these matters.
Should Causam prevail in its district court lawsuit we could be required to pay damages and/or a reasonable royalty for sales of
our solution, we could be enjoined from making, using and selling our solution if a license or other right to continue selling such
elements is not made available to us, and we could be required to pay ongoing royalties and comply with unfavorable terms if
such a license is made available to us. While we believe we have valid defenses to Causam’s claims, the outcome of these legal
claims cannot be predicted with certainty, and any of these outcomes could result in an adverse effect on our business.
Even if we were to prevail in any of these matters, ongoing litigation could continue to be costly and time-consuming, divert
the attention of our management and key personnel from our business operations and dissuade potential customers from
purchasing our solution, which would also materially harm our business. During the course of each of these litigation matters, we
anticipate announcements of the results of hearings and motions, and other interim developments related to the litigation matters
at hand. If securities analysts or investors regard these announcements as negative, the market price of our common stock may
decline.
We might not prevail in any intellectual property infringement litigation given the complex technical issues and inherent
uncertainties in such litigation and our service provider partner contracts may require us to indemnify them against certain
liabilities they may incur as a result of our infringement or alleged infringement of any third-party intellectual property. Defending
such claims, regardless of their merit, could be time-consuming and distracting to management, result in costly litigation or
settlement, cause development delays or require us to enter into royalty or licensing agreements. In addition, we currently have a
45
limited portfolio of issued patents compared to our larger competitors, and therefore may not be able to effectively utilize our
intellectual property portfolio to assert defenses or counterclaims in response to patent infringement claims or litigation brought
against us by third parties. Further, litigation may involve patent holding companies or other adverse patent owners who have no
relevant products or revenues and against which our potential patents provide no deterrence, and many other potential litigants
have the capability to dedicate substantially greater resources to enforce their intellectual property rights and to defend claims
that may be brought against them. Given our platforms and solutions integrate with many aspects of a property, the risk our
platforms and solutions may be subject to these allegations is exacerbated. As we seek to extend our platforms and solutions,
we could be constrained by the intellectual property rights of others. If our platforms and solutions exceed the scope of in-bound
licenses or violate any third-party proprietary rights, we could be required to withdraw those solutions from the market, re-
develop those solutions or seek to obtain licenses from third parties, which might not be available on reasonable terms or at all.
Any efforts to re-develop our platforms and solutions, obtain licenses from third parties on favorable terms or license a substitute
technology might not be successful and, in any case, might substantially increase our costs and harm our business, financial
condition, cash flows and results of operations. If we were compelled to withdraw any of our platforms and solutions from the
market, our business, financial condition, cash flows and results of operations could be harmed.
We have indemnity obligations to certain of our service provider partners for certain expenses and liabilities resulting
from intellectual property infringement claims regarding our platforms and solutions, which could force us to incur
substantial costs.
We have indemnity obligations to certain of our service provider partners for intellectual property infringement claims
regarding our platforms and solutions. As a result, in the case of infringement claims against these service provider partners, we
could be required to indemnify them for losses resulting from such claims or to refund amounts they have paid to us. We expect
that some of our service provider partners may seek indemnification from us in connection with infringement claims brought
against them. In addition, we may elect to indemnify service provider partners where we have no contractual obligation to
indemnify them and we will evaluate each such request on a case-by-case basis. If a service provider partner elects to invest
resources in enforcing a claim for indemnification against us, we could incur significant costs disputing it. If we do not succeed in
disputing it, we could face substantial liability. See the section of this Annual Report titled "Legal Proceedings" for additional
information regarding this matter and the other legal proceedings we are involved in.
The use of open source software in our platforms and solutions may expose us to additional risks and harm our
intellectual property.
Some of our platforms and solutions use or incorporate software that is subject to one or more open source licenses and we
may incorporate open source software in the future. Open source software is typically freely accessible, usable and modifiable.
Certain open source software licenses require a user who intends to distribute the open source software as a component of the
user's software to disclose publicly part or all of the source code to the user's software. In addition, certain open source software
licenses require the user of such software to make any derivative works of the open source code available to others on
potentially unfavorable terms to us or at no cost.
The terms of many open source licenses to which we are subject have not been interpreted by U.S. or foreign courts, and
accordingly there is a risk that those licenses could be construed in a manner that imposes unanticipated conditions or
restrictions on our ability to commercialize our platforms and solutions. In that event, we could be required to seek licenses from
third parties in order to continue offering our platforms and solutions, to re-develop our platforms and solutions, to discontinue
sales of our platforms and solutions or to release our proprietary software code under the terms of an open source license, any
of which could harm our business. Further, given the nature of open source software, it may be more likely that third parties
might assert copyright and other intellectual property infringement claims against us based on our use of these open source
software programs. Litigation could be costly for us to defend, have a negative effect on our business, financial condition, cash
flows and results of operations or require us to devote additional research and development resources to change our solutions.
Although we are not aware of any use of open source software in our platforms and solutions that would require us to
disclose all or a portion of the source code underlying our core solutions, it is possible that such use may have inadvertently
occurred in deploying our platforms and solutions. Additionally, if a third-party software provider has incorporated certain types of
open source software into software we license from such third party for our platforms and solutions without our knowledge, we
could, under certain circumstances, be required to disclose the source code to our platforms and solutions. This could harm our
intellectual property position as well as our business, financial condition, cash flows and results of operations.
46
Risks Related to Ownership of Our Common Stock
The market price of our common stock has been and will likely continue to be volatile.
The market price of our common stock may be highly volatile and may fluctuate substantially as a result of a variety of
factors, some of which are related in complex ways. The market price of our common stock may decline regardless of our
operating performance, resulting in the potential for substantial losses for our stockholders, and may fluctuate significantly in
response to numerous factors, many of which are beyond our control, including the factors listed below and other factors
described in this "Risk Factors" section:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
actual or anticipated fluctuations in our financial condition and operating results;
the financial projections we may provide to the public, any changes in these projections or our failure to meet these
projections;
failure of securities analysts to initiate or maintain coverage of our company, changes in financial estimates by any
securities analysts who follow our company, or our failure to meet these estimates or the expectations of investors;
ratings changes by any securities analysts who follow our company;
variance in our financial performance from expectations of securities analysts;
announcements by us or our competitors of significant business developments, technical innovations, acquisitions or
new solutions;
changes in the prices of our platforms and solutions;
changes in our projected operating and financial results;
changes in laws or regulations applicable to our platforms and solutions or marketing techniques, or our industry in
general;
our involvement in any litigation, including any lawsuits threatened or filed against us;
repurchases of our common stock under the stock repurchase program authorized by our board of directors or our sale
of our common stock or other securities in the future;
changes in senior management or key personnel;
trading volume of our common stock;
changes in the anticipated future size and growth rate of our market; and
general economic, regulatory and market conditions in the United States and abroad as well as the uncertainty resulting
from the current Macroeconomic Conditions.
The stock markets have experienced extreme price and volume fluctuations that have affected and continue to affect the
market prices of equity securities of many companies. These fluctuations have often been unrelated or disproportionate to the
operating performance of those companies. Broad market and industry fluctuations, as well as general economic, political,
regulatory and market conditions, may negatively impact the market price of our common stock. In the past, companies that have
experienced volatility in the market price of their securities have been subject to securities class action litigation. We may be the
target of this type of litigation in the future, which could result in substantial costs and divert our management’s attention.
Sales of a substantial number of shares of our common stock in the public market could cause our market price to
decline.
Sales of a substantial number of shares of our common stock in the public market, or the perception that these sales might
occur, could depress the market price of our common stock and could impair our ability to raise capital through the sale of
additional equity securities. We are unable to predict the effect that sales, particularly sales by our directors, executive officers,
and significant stockholders, may have on the prevailing market price of our common stock. Additionally, the shares of common
stock subject to outstanding options under our equity incentive plans and the shares reserved for future issuance under our
equity incentive plans, as well as shares issuable upon vesting of restricted stock awards, will become eligible for sale in the
public market in the future, subject to certain legal and contractual limitations. Moreover, some holders of shares of our common
47
stock have rights, subject to certain conditions, to require us to file registration statements covering their shares or to include
their shares in registration statements that we may file for ourselves or our stockholders. We have also registered shares of
common stock that we may issue under our employee equity incentive plans. Accordingly, these shares may be able to be sold
freely in the public market upon issuance as permitted by any applicable vesting requirements. See “Conversion of the 2026
Notes may dilute the ownership interest of our stockholders or may otherwise depress the price of our common stock” below for
further details on the risks related to the dilutive impact of the 2026 Notes.
We are obligated to develop and maintain a system of effective internal control over financial reporting. These internal
controls may be determined to be not effective, which may adversely affect investor confidence in our company and, as
a result, the value of our common stock.
We have been and are required, pursuant to Section 404 of the Sarbanes-Oxley Act, to furnish a report by management on,
among other things, the effectiveness of our internal control over financial reporting on an annual basis. This assessment
includes disclosure of any material weaknesses identified by our management in our internal control over financial reporting.
During the evaluation and testing process, if we identify one or more material weaknesses in our internal control over financial
reporting, we will be unable to assert our internal controls are effective and would be required to disclose any material
weaknesses identified in Management’s Report on Internal Control over Financial Reporting. While we have established certain
procedures and control over our financial reporting processes, we cannot assure you that these efforts will prevent restatements
of our financial statements in the future.
Our independent registered public accounting firm is also required, pursuant to Section 404 of the Sarbanes-Oxley Act, to
report on the effectiveness of our internal control over financial reporting. For future reporting periods, our independent registered
public accounting firm may issue a report that is adverse in the event it is not satisfied with the level at which our controls are
documented, designed or operating. We may not be able to remediate any future material weaknesses, or to complete our
evaluation, testing and any required remediation in a timely fashion.
If we are unable to conclude our internal control over financial reporting is effective, or if our independent registered public
accounting firm is unable to express an opinion our internal control over financial reporting is effective, investors could lose
confidence in the accuracy and completeness of our financial reports, which could cause the price of our common stock to
decline, and we could be subject to sanctions or investigations by regulatory authorities, including the SEC and Nasdaq. Failure
to remediate any material weakness in our internal control over financial reporting, or to maintain other effective control systems
required of public companies, could also restrict our future access to the capital markets.
If securities or industry analysts publish negative reports about our business, or cease coverage of our company, our
share price and trading volume could decline.
The trading market for our common stock depends, in part, on the research and reports that securities or industry analysts
publish about us or our business. We do not have any control over these analysts. If our financial performance fails to meet
analyst estimates or one or more of the analysts who cover us downgrade our shares or change their opinion of our shares, our
share price would likely decline. If one or more of these analysts cease coverage of our company or fail to regularly publish
reports on us, we could lose visibility in the financial markets, which could cause our share price or trading volume to decline.
We do not intend to pay dividends for the foreseeable future and, as a result, your ability to achieve a return on your
investment will depend on appreciation in the price of our common stock.
We do not intend to pay any cash dividends in the foreseeable future. We anticipate that we will retain all of our future
earnings for use in the development of our business and for general corporate purposes. Any determination to pay dividends in
the future will be at the discretion of our board of directors and may be subject to any restrictions on paying dividends in any
future indebtedness. Accordingly, investors must rely on sales of their common stock after price appreciation, which may never
occur, as the only way to realize any future gains on their investments.
Anti-takeover provisions in our charter documents and under Delaware law could make an acquisition of us more
difficult, limit attempts by our stockholders to replace or remove our current management and limit the market price of
our common stock.
Provisions in our amended and restated certificate of incorporation and bylaws may have the effect of delaying or preventing
a change in control or changes in our management. Our amended and restated certificate of incorporation and amended and
restated bylaws include provisions that:
•
authorize our board of directors to issue preferred stock, without further stockholder action and with voting liquidation,
dividend and other rights superior to our common stock;
48
•
•
•
require that any action to be taken by our stockholders be effected at a duly called annual or special meeting and not by
written consent, and limit the ability of our stockholders to call special meetings;
establish an advance notice procedure for stockholder proposals to be brought before an annual meeting, including
proposed nominations of persons for director nominees; and
provide that vacancies on our board of directors may be filled only by the vote of a majority of directors then in office,
even though less than a quorum.
These provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management
by making it more difficult for stockholders to replace members of our board of directors, which is responsible for appointing the
members of our management. In addition, because we are incorporated in Delaware, we are governed by the provisions of
Section 203 of the Delaware General Corporation Law, which generally prohibits a Delaware corporation from engaging in any of
a broad range of business combinations with any "interested" stockholder for a period of three years following the date on which
the stockholder became an "interested" stockholder. Any of the foregoing provisions could limit the price that investors might be
willing to pay in the future for shares of our common stock, and they could deter potential acquirers of our company, thereby
reducing the likelihood that you would receive a premium for your common stock in an acquisition.
Our amended and restated certificate of incorporation designates the Court of Chancery of the State of Delaware and,
to the extent enforceable, the federal district courts of the United States of America as the exclusive forums for certain
litigation that may be initiated by our stockholders, which could limit our stockholders’ ability to obtain a favorable
judicial forum for disputes with us.
Pursuant to our amended and restated certificate of incorporation, unless we consent in writing to the selection of an
alternative forum, the Court of Chancery of the State of Delaware is the sole and exclusive forum for the following types of
actions or proceedings under Delaware statutory or common law: (1) any derivative action or proceeding brought on our behalf,
(2) any action asserting a claim of breach of a fiduciary duty owed by any of our directors, officers or other employees to us or
our stockholders, (3) any action asserting a claim arising pursuant to any provision of the Delaware General Corporation Law,
our amended and restated certificate of incorporation or our amended and restated bylaws or (4) any action asserting a claim
governed by the internal affairs doctrine. Notwithstanding the foregoing, this choice of forum provision will not apply to suits
brought to enforce a duty or liability created by the Securities Exchange Act of 1934, as amended, or any other claim for which
the federal courts have exclusive jurisdiction. Accordingly, both state and federal courts have jurisdiction to entertain such claims.
Our amended and restated certificate of incorporation provides that any person or entity purchasing or otherwise acquiring any
interest in shares of our common stock is deemed to have notice of and consented to the foregoing provision. Furthermore, our
amended and restated bylaws provide that unless we consent in writing to the selection of an alternative forum, to the fullest
extent permitted by law, the federal district courts of the United States of America shall be the exclusive forum for the resolution
of any claims arising under the Securities Act. The forum selection clause in our amended and restated certificate of
incorporation may limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us.
49
Risks Related to our Outstanding Convertible Senior Notes
We may not have the ability to raise the funds necessary to settle cash conversions of the 2026 Notes or to repurchase
the 2026 Notes upon a fundamental change, and our future debt may contain limitations on our ability to pay cash upon
conversion or repurchase of the 2026 Notes.
On January 20, 2021, we issued the 2026 Notes. The terms of the 2026 Notes are governed by an Indenture, or the
Indenture, by and between Alarm.com Holdings, Inc. and U.S. Bank National Association, as trustee. The 2026 Notes are senior
unsecured obligations that do not bear regular interest and the principal amount of the 2026 Notes will not accrete. The 2026
Notes may bear special interest under specified circumstances related to our failure to comply with our reporting obligations
under the Indenture. Special interest, if any, will be payable semiannually in arrears on January 15 and July 15 of each year,
beginning on July 15, 2021. We received proceeds from the issuance of the 2026 Notes of $484.3 million, net of $15.7 million of
transaction fees and other debt issuance costs. Holders of the 2026 Notes will have the right, subject to certain conditions and
limited exceptions, to require us to repurchase all or a portion of their notes upon the occurrence of a fundamental change at a
fundamental change repurchase price equal to 100% of the principal amount of the 2026 Notes to be repurchased, plus accrued
and unpaid special interest, if any, as defined in the Indenture. In addition, upon conversion of the 2026 Notes, unless we elect to
deliver solely shares of our common stock to settle such conversion (other than paying cash in lieu of delivering any fractional
share), we will be required to make cash payments in respect of the 2026 Notes being converted as defined in the Indenture.
However, we may not have enough available cash or be able to obtain financing at the time we are required to make
repurchases of 2026 Notes surrendered therefor or pay cash with respect to 2026 Notes being converted. In addition, our ability
to repurchase the 2026 Notes or to pay cash upon conversions of the 2026 Notes may be limited by law, by regulatory authority
or by agreements governing our future indebtedness. Our failure to repurchase the 2026 Notes at a time when the repurchase is
required by the Indenture or to pay any cash payable on future conversions of the 2026 Notes as required by the Indenture
would constitute a default under the Indenture. A default under the Indenture governing the 2026 Notes or the fundamental
change itself could also lead to a default under agreements governing our future indebtedness. If the repayment of the related
indebtedness were to be accelerated after any applicable notice or grace periods, we may not have sufficient funds to repay the
indebtedness and repurchase the 2026 Notes or make cash payments upon conversions thereof.
The conditional conversion feature of the 2026 Notes, if triggered, may adversely affect our financial condition and
operating results.
In the event the conditional conversion feature of the 2026 Notes is triggered, holders of 2026 Notes will be entitled to
convert the 2026 Notes at any time during specified periods at their option. If one or more holders elect to convert their 2026
Notes, unless we elect to satisfy our conversion obligation by delivering solely shares of our common stock (other than paying
cash in lieu of delivering any fractional share), we would be required to settle a portion or all of our conversion obligation through
the payment of cash, which could adversely affect our liquidity. In addition, even if holders do not elect to convert their notes, we
could be required under applicable accounting rules to reclassify all or a portion of the outstanding principal of the notes as a
current rather than long-term liability, which would result in a material reduction of our net working capital.
Conversion of the 2026 Notes may dilute the ownership interest of our stockholders or may otherwise depress the price
of our common stock.
The conversion of some or all of the 2026 Notes may dilute the ownership interests of our stockholders. Upon conversion of
the 2026 Notes, we have the option to pay or deliver, as the case may be, cash, shares of our common stock, or a combination
of cash and shares of our common stock. If we elect to settle our conversion obligation in shares of our common stock or a
combination of cash and shares of our common stock, any sales in the public market of our common stock issuable upon such
conversion could adversely affect prevailing market prices of our common stock. In addition, the existence of the 2026 Notes
may encourage short selling by market participants because the conversion of the 2026 Notes could be used to satisfy short
positions, or anticipated conversion of the 2026 Notes into shares of our common stock could depress the price of our common
stock.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
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ITEM 1C. CYBERSECURITY
Our business is highly dependent on the processing and storage of significant amounts of data, and we have invested and
will continue to invest in measures to secure this data. We have implemented and maintain a comprehensive information security
program consisting of policies, procedures, and technology designed to maintain the privacy, security and integrity of our data,
intellectual property, confidential information, systems and networks. Our information security program is informed by externally
established sets of standards, such as those of the National Institute of Standards and Technology and the Center for Internet
Security. Among other things, the program includes controls designed to limit and monitor access to our systems, networks and
data, prevent inappropriate or unauthorized access or modification, and monitor for threats or vulnerability. We maintain disaster
recovery solutions and implement enhancements as necessary and also use technologies that assist in preventing theft and
abuse of credentials and sensitive data. We also have third parties perform penetration tests as well as security assessments of
mobile applications. Our information security program also includes third-party risk management processes that help us oversee
and identify risks from our use of third-party service providers. Additionally, we focus our efforts on education and training for
employees regarding cybersecurity and implementing security controls for contractors. We also engage consultants to conduct
cybersecurity assessments and preparedness analysis. We primarily conduct our business in the United States and are
expanding internationally in various other countries. Conducting expanded international operations subjects us to additional risks,
including our exposure to cybersecurity incidents.
The risks related to cybersecurity change rapidly, and we aim to update our information security program as frequently as
reasonably possible to achieve commercially accepted levels of preparedness. In addition to the core operating environment of
Alarm.com, we also have acquired businesses and subsidiaries that in some cases operate data infrastructure that is distinct
from the Alarm.com operating environment, and therefore have distinct data security vulnerabilities. The overall management of
cybersecurity risk involves coordination between Alarm.com and our acquired businesses and subsidiaries, and data security
risks in these entities may be heightened where the technology platform is less mature than the Alarm.com core platform.
We have established an Information Security team led by our Chief Information Officer, which is responsible for assessing,
identifying and managing risks from cybersecurity threats. Managing cybersecurity risk has been integrated into our overall risk
management system and is a priority that we monitor and review regularly with our Board of Directors. The Information Security
team works closely with our Legal team to make determinations whether a cybersecurity incident has occurred and whether the
incident has materially impacted or is reasonably likely to materially impact us. If a cybersecurity incident is deemed material, the
incident is communicated to various members of the Alarm.com leadership team and with the Board of Directors. The Board of
Directors oversees our overall risk management system, including cybersecurity risks. A member of the Information Security
team presents at quarterly Board meetings and discusses specific risk areas, including those relating to cybersecurity.
To date, there have not been any cybersecurity threats or incidents that have materially impacted or are reasonably likely to
materially impact our business strategy, results of operations or financial condition. In the ordinary course of business, we have
experienced and will continue to experience cyber threats and incidents of varying degrees. Refer to Item 1A. “Risk Factors” for a
discussion of risks related to data security and the associated risks to our business.
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ITEM 2. PROPERTIES
Our Facilities
Our principal office is located in Tysons, Virginia and is used by our Alarm.com segment for sales and marketing, research
and development, customer service and administrative purposes. As of December 31, 2023, we occupied 189,058 square feet of
commercial space in our principal office under a lease we entered into in August 2014 that is scheduled to expire in 2026. This
lease agreement has been periodically amended to expand our square footage as we have continued to grow.
Our Alarm.com segment also leases offices in Bloomington, Minnesota; Boston, Massachusetts; and Redwood City,
California as well as in other locations. Our Other segment leases an office in Brooklyn, New York as well as in other locations.
Our Alarm.com segment owns a commercial building located in Liberty Lake, Washington as well as buildings in other locations.
These facilities are used for sales and training, research and development, technical support, warehousing and administrative
purposes.
ITEM 3. LEGAL PROCEEDINGS
On June 2, 2015, Vivint, Inc., or Vivint, filed a lawsuit against us in U.S. District Court, District of Utah, alleging that our
technology directly and indirectly infringes six patents that Vivint purchased. On October 27, 2022, we filed a demand for
arbitration of a dispute arising under the Patent Cross License Agreement between Alarm.com and Vivint executed in November
2013. Vivint had stopped paying license fees to Alarm.com under the agreement. As a result of Vivint’s refusal to pay license fees
under the agreement, which began during the fourth quarter of 2022, SaaS and license revenue and total revenue through
December 31, 2023 were lower by approximately $6.0 million on a quarterly basis. Quarterly earnings and cash flow through
December 31, 2023 were also impacted by the aforementioned $6.0 million, plus additional legal fees.
We also filed a lawsuit against Vivint on January 4, 2023 in U.S. District Court, Eastern District of Texas, alleging that Vivint
infringed 15 of our patents. On March 8, 2023, Vivint filed counterclaims in the action alleging that Alarm.com’s products and
services directly and indirectly infringed 14 patents owned by Vivint. Most of Vivint’s counterclaims also named our service
provider ADT LLC as a defendant.
On December 21, 2023, Alarm.com and Vivint agreed to settle all outstanding litigation between the parties and to enter into
a long-term intellectual property license agreement under which Alarm.com will license to Vivint its intellectual property portfolio.
On January 10, 2022, EcoFactor, Inc., or EcoFactor, filed a lawsuit against us in U.S. District Court, District of Oregon,
alleging Alarm.com’s products and services directly and indirectly infringe five U.S. patents owned by EcoFactor. EcoFactor is
seeking a permanent injunction, enhanced damages and attorneys' fees. EcoFactor had previously asserted two of the same
patents against us in an October 2019 complaint with the U.S. International Trade Commission, or ITC. In July 2021, the ITC
found in favor of Alarm.com. EcoFactor appealed the decision but withdrew its appeal in December 2021. We moved to dismiss
the Oregon case for failure to state a claim on March 28, 2022. Three of the asserted patents are in ex parte reexamination
proceedings at the PTO, and ex parte reexamination of a fourth patent concluded on August 23, 2023 after the claims were
amended. On April 18, 2022, all claims of a fifth patent were found unpatentable by the U.S. Patent Trial and Appeal Board, or
PTAB, in an inter partes review, and the parties expect that all claims of that patent will be canceled because EcoFactor's appeal
of that PTAB decision was dismissed. On April 18, 2022, the district court stayed the case at the request of the parties pending
the disposition of PTAB and other proceedings involving the asserted patents, and the parties filed a joint status report on
January 2, 2024.
Should EcoFactor prevail in its lawsuit we could be required to pay damages and/or a reasonable royalty for sales of our
solution, we could be enjoined from making, using and selling our solution if a license or other right to continue selling such
elements is not made available to us, and we could be required to pay ongoing royalties and comply with unfavorable terms if
such a license is made available to us. While we believe we have valid defenses to EcoFactor’s claims, the outcome of these
legal claims cannot be predicted with certainty and any of these outcomes could result in an adverse effect on our business.
On July 22, 2021, Causam Enterprises, Inc., or Causam, filed a lawsuit against us in U.S. District Court, Western District of
Texas, alleging that Alarm.com’s smart thermostats infringe four U.S. patents owned by Causam. Causam is seeking preliminary
and permanent injunctions, enhanced damages and attorneys’ fees. We have not yet responded to the complaint. On September
3, 2021, the court issued an order staying the lawsuit until the ITC investigation described below is finally resolved.
On July 28, 2021, Causam filed a complaint with the ITC naming Alarm.com Incorporated, Alarm.com Holdings, Inc., and
EnergyHub, Inc., among others, as proposed respondents. The complaint alleges infringement of the same four patents Causam
asserted in district court. Causam is seeking a permanent limited exclusion order and permanent cease and desist order. On
August 27, 2021, the ITC instituted an investigation into Causam’s allegations naming Alarm.com Incorporated, Alarm.com
Holdings, Inc., EnergyHub Inc. and others as respondents. We answered the complaint on October 4, 2021. Among other things,
52
we asserted defenses based on non-infringement and invalidity of the patents in question. An evidentiary hearing in the
investigation was held from June 28, 2022 through July 1, 2022. On February 16, 2023, the ITC issued a final decision in favor of
Alarm.com and EnergyHub. Causam filed an appeal of the ITC decision on April 14, 2023. Causam did not appeal the ITC
decision with respect to Alarm.com and EnergyHub.
Should Causam prevail in its district court lawsuit we could be required to pay damages and/or a reasonable royalty for
sales of our solution, we could be enjoined from making, using and selling our solution if a license or other right to continue
selling such elements is not made available to us, and we could be required to pay ongoing royalties and comply with
unfavorable terms if such a license is made available to us. While we believe we have valid defenses to Causam’s claims, the
outcome of these legal claims cannot be predicted with certainty, and any of these outcomes could result in an adverse effect on
our business.
In addition to the matters described above, we may be required to provide indemnification to certain of our service provider
partners for certain claims regarding our solutions. For example, we incurred costs associated with the indemnification of our
service provider ADT, LLC.
On February 25, 2021, Vivint filed a lawsuit against ADT LLC a/k/a ADT LLC of Delaware d/b/a ADT Security Services in
U.S. District Court, District of Utah, alleging that ADT Pulse, Control, and Blue each infringe one or more patents owned by
Vivint. Vivint is seeking damages and attorneys’ fees. Vivint filed a second amended complaint on March 8, 2022. Pursuant to the
December 21, 2023 settlement agreement between Alarm.com and Vivint, the allegations regarding ADT Pulse and Control will
be dismissed, ending Alarm.com’s indemnification obligations in this matter.
We also incurred costs associated with the indemnification of our service provider Monitronics International, Inc. d/b/a Brinks
in patent infringement suits. On November 4, 2022, January 13, 2023 and April 18, 2023, IOT Innovations LLC, or IOT, sued
Monitronics in U.S. District Court, Eastern District of Texas, alleging patent infringement of certain products and services sold by
Monitronics. Together, IOT asserted infringement of 26 patents and sought permanent injunctions, enhanced damages and
attorneys' fees. On October 3, 2023, IOT filed a stipulation of dismissal of all three cases, ending the cases and the Company's
involvement therein.
We also incur costs associated with the indemnification of our service provider, Central Security Group – Nationwide, Inc. (d/
b/a Alert 360), or CSG, in an ongoing patent litigation. In 2018, Ubiquitous Connectivity, LP, or Ubiquitous, brought suit against
CSG in U.S. District Court, Northern District of Oklahoma, alleging infringement of two US patents. The case was stayed by
agreement of the parties for several years while the patents in suit were challenged before the PTAB. In January 2021, the PTAB
deemed 42 out of 46 claims of the two asserted patents unpatentable. Ubiquitous appealed a portion of the PTAB’s findings to
the United States Court of Appeals for the Federal Circuit. The Federal Circuit affirmed the PTAB’s ruling on August 8, 2023. As a
result, only four patent claims remain at issue and the Northern District of Oklahoma case is no longer stayed. A claim
construction hearing is scheduled for December 12, 2024. A hearing on dispositive motions, including for summary judgment, is
scheduled for April 15, 2026. A trial is scheduled for June 22, 2026.
Should Ubiquitous prevail on its infringement claims, we could be required to indemnify CSG for damages in the form of a
reasonable royalty or of Ubiquitous’s lost profits. CSG could be enjoined from making, using, and selling our solution if a license
or other right to continue selling our technology is not made available or if we are unable to design around such patents, and we
could be required to pay ongoing royalties and comply with unfavorable terms if such a license is made available to us. The
outcome of these legal claims cannot be predicted with certainty.
We may also be a party to litigation and subject to claims incident to the ordinary course of business. Although the results of
litigation and claims cannot be predicted with certainty, we currently believe that the final outcome of these ordinary course
matters will not have a material adverse effect on our business. Regardless of the outcome, litigation can have an adverse
impact on us because of defense and settlement costs, diversion of management resources and other factors. For a description
of our legal proceedings, see Note 13 to our consolidated financial statements for additional information.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
53
PART II.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
Market Information
Our common stock commenced trading on The Nasdaq Global Select Market on June 26, 2015 and trades under the
symbol “ALRM.” Prior to June 26, 2015, there was no public market for our common stock. On February 15, 2024, the closing
price of our common stock on The Nasdaq Global Select Market was $71.00 per share.
Holders
As of February 15, 2024, there were 19 stockholders of record of our common stock, one of which is Cede & Co., a nominee
for Depository Trust Company, or DTC. All of the shares of common stock held by brokerage firms, banks and other financial
institutions as nominees for beneficial owners are deposited into participant accounts at DTC, and are considered to be held of
record by Cede & Co. as one stockholder.
Dividends
We cannot provide any assurance that we will declare or pay cash dividends on our common stock in the future. We
currently anticipate that we will retain all of our future earnings, if any, for use in the operation and expansion of our business and
we do not anticipate paying cash dividends in the foreseeable future. Payment of future cash dividends, if any, will be at the
discretion of the board of directors after taking into account various factors, including our financial condition, operating results,
current and anticipated cash needs, the requirements of current or then-existing debt instruments and other factors the board of
directors deems relevant.
Stock Performance Graph
This performance graph shall not be deemed "soliciting material" or to be "filed" with the SEC for purposes of Section 18 of
the Exchange Act, or otherwise subject to the liabilities under that Section, and shall not be deemed to be incorporated by
reference into any of our filings under the Securities Act.
The following graph shows a comparison for the period from December 31, 2018 through December 31, 2023 of the
cumulative total return for (i) our common stock, (ii) the Nasdaq Composite Index and (iii) Standard & Poor's 500 Index, or S&P
500 Index, assuming an initial investment of $100 on the last trading day for the fiscal year ended December 31, 2018 and
reinvestment of all dividends. The returns in the graph are not intended to forecast or be indicative of possible future
performance of our common stock.
54
$300
$250
$200
$150
$100
$50
D ec 31, 2018
D ec 31, 2019
D ec 31, 2020
D ec 31, 2021
D ec 31, 2022
D ec 31, 2023
Alarm.com Holdings, Inc.
Nasdaq Composite
S&P 500
Recent Sales of Unregistered Securities
In January 2021, we issued $500.0 million aggregate principal amount of 0% convertible senior notes due January 15, 2026,
or the 2026 Notes, in a private offering pursuant to Rule 144A under the Securities Act. The offer and sale of the 2026 Notes to
the initial purchasers for the 2026 Notes was made in reliance on the exemption from registration provided by Section 4(a)(2) of
the Securities Act. We relied on this exemption from registration based in part on representations made by the initial purchasers,
including that such initial purchasers would only offer, sell or deliver the 2026 Notes to persons whom they reasonably believe to
be qualified institutional buyers within the meaning of Rule 144A under the Securities Act.
For more information related to the 2026 Notes, see Note 13 to our consolidated financial statements included in this Annual
Report on Form 10-K.
Use of Proceeds
None.
Issuer Purchases of Equity Securities
On February 15, 2023, our board of directors authorized a stock repurchase program, effective February 23, 2023, under
which we are authorized to purchase up to an aggregate of $100.0 million of our outstanding common stock during the two-year
period ending February 23, 2025. We utilize our stock repurchase program in an effort to return surplus cash to stockholders
efficiently. Our board of directors determines repurchase program amounts through an analysis of projected capital needs to
sustain growth as well as to meet other investing and financing criteria. In determining whether to authorize repurchases and the
size of the repurchase program, our board of directors considers whether we have funds legally available to repurchase shares
of common stock and various alternative uses for our cash and cash equivalents.
The stock repurchase program is designed to enable us to make both opportunistic repurchases based on market conditions
at management’s discretion and consistent repurchases over time. Stock repurchases may be made through a variety of
methods, including open-market transactions (including pursuant to a trading plan adopted in accordance with Rule 10b5-1 of the
Exchange Act), privately negotiated transactions, block trades, tender offers and by any combination of the foregoing.
Our Insider Trading and Trading Window Policy prohibits our directors, officers and other employees from trading in
Alarm.com securities while they are aware of material nonpublic information about Alarm.com, which would include unannounced
material stock repurchase plans. The prohibition does not apply to trades made pursuant to a Rule 10b5-1 trading plan.
55
During the year ended December 31, 2023, we repurchased 487,918 shares of our common stock under our stock
repurchase program for $27.3 million, which includes applicable commissions and fees. The following table contains information
relating to the repurchases of our common stock made by us in the quarter ended December 31, 2023:
Period
October 1 to October 31, 2023
November 1 to November 30, 2023
December 1 to December 31, 2023
Total
Total Number
of Shares
Purchased
Average
Price Paid per
Share
— $
248,378
—
248,378 $
—
58.15
—
58.15
Total Number of Shares
Purchased as a Part of a
Publicly Announced
Program
Approximate Dollar
Value of Shares that
May Yet Be Purchased
Under the Program
— $
248,378
—
248,378
87,145,286
72,701,660
72,701,660
We withhold shares of common stock in connection with the vesting of restricted stock unit awards issued to employees to
satisfy applicable tax withholding requirements. These withheld shares are not issued or considered common stock repurchases
under our stock repurchase program and therefore, are excluded from our repurchase activity.
As of January 1, 2023, we are subject to a 1.0% excise tax on the value of net corporate stock repurchases under the
Inflation Reduction Act of 2022. When applicable, the excise tax will be included as part of the cost basis of shares acquired and
is presented within stockholders’ equity in the consolidated balance sheets and will be excluded from amounts presented above.
ITEM 6. [RESERVED]
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis of our financial condition and results of operations together with our
consolidated financial statements and the related notes and other financial information included elsewhere in this Annual Report.
Some of the information contained in this discussion and analysis or set forth elsewhere in this Annual Report, including
information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and
uncertainties. You should review Item 1A. "Risk Factors" and "Special Note Regarding Forward-Looking Statements" in this
Annual Report for a discussion of important factors that could cause actual results to differ materially from the results described
in or implied by the forward-looking statements contained in the following discussion and analysis.
Overview
Alarm.com is the leading platform for the intelligently connected property. Our cloud-based platform offers an expansive
suite of IoT solutions addressing opportunities in the residential, multi-family, small business and enterprise commercial markets.
Alarm.com’s solutions include security, video and video analytics, energy management, access control, electric utility grid
management, indoor gunshot detection, water management, health and wellness and data-rich emergency response. During
2023, our platforms processed more than 325 billion data points generated by over 150 million connected devices. We believe
this scale of subscribers, connected devices and data operations makes us the leader in the connected property market.
Our solutions are delivered through an established network of trusted service providers, who are experts at selling, installing
and supporting our solutions. We primarily generate SaaS and license revenue through our service provider partners, who resell
these services and pay us monthly fees. These service provider contracts typically have an initial term of one year, with
subsequent renewal terms of one year. Our service provider partners have indicated that they typically have three to five-year
service contracts with residential and commercial property owners who use our solutions. We also generate hardware and other
revenue, primarily from our service provider partners and distributors. Our hardware sales include connected devices that enable
our services, such as video cameras, video recorders, gunshot detection sensors, gateway modules and smart thermostats. We
believe our network of service providers and the length of our service relationships with residential and commercial property
owners, combined with our robust SaaS platforms and over 20 years of operating experience, contribute to a compelling
business model.
Our solutions are designed to make both residential and commercial properties safer, smarter and more efficient. Our
technology platforms support property owners who subscribe to our services, the hardware partners who manufacture devices
that integrate with our platforms and the service provider partners who install and maintain our solutions.
The Alarm.com platform enables our service provider partners to deploy our interactive security, video monitoring, intelligent
automation, access control, energy management and wellness solutions as stand-alone offerings or as combined solutions to
address the needs of a broad range of customers.
56
Executive Overview and Highlights of 2023 and 2022 Results
We primarily generate SaaS and license revenue, our largest source of revenue, through our service provider partners who
resell our services and pay us monthly fees. Our service provider partners sell, install and support Alarm.com solutions that
enable residential and commercial property owners to intelligently secure, connect, control and automate their properties. Our
subscribers consist of all of the properties maintained by those residential and commercial property owners to which we are
delivering at least one of our solutions. We derive a portion of our revenue from licensing our intellectual property to third parties
on a per customer basis. SaaS and license revenue represented 65%, 62% and 61% of our revenue in 2023, 2022 and 2021,
respectively.
We also generate SaaS and license revenue from monthly fees charged to service providers on a per subscriber basis for
access to our non-hosted software platform, or Software platform. The non-hosted software for interactive security, automation
and related solutions is typically deployed and operated by the service provider in its own network operations center. Software
license revenue represented 3%, 3% and 4% of our revenue in 2023, 2022 and 2021, respectively.
We also generate revenue from the sale of many types of hardware, including video cameras, video recorders, cellular radio
modules, smart thermostats, image sensors, gunshot detection sensors and other peripherals, that enable our solutions. Our
hardware and other revenue also includes our revenue from the sale of perpetual licenses that provide our customers in the
commercial market the right to use our video surveillance software for an indefinite period of time in exchange for a one-time
license fee. Additionally, our hardware and other revenue includes our revenue from the sale of licenses that provide our
customers the right to use our gunshot detection solution in exchange for license fees. Hardware and other revenue represented
35%, 38% and 39% of our revenue in 2023, 2022 and 2021, respectively. We typically expect hardware and other revenue to
fluctuate as a percentage of total revenue.
Highlights of our financial performance for the periods covered in this Annual Report include:
•
•
•
•
SaaS and license revenue increased 9% to $569.2 million in 2023 from $520.4 million in 2022. SaaS and license
revenue increased 13% to $520.4 million in 2022 from $460.4 million in 2021. Software license revenue decreased to
$23.2 million in 2023 from $26.8 million in 2022. Software license revenue decreased to $26.8 million in 2022 from
$32.3 million in 2021.
Total revenue increased 5% to $881.7 million in 2023 from $842.6 million in 2022. Total revenue increased 12% to
$842.6 million in 2022 from $749.0 million in 2021.
Net income increased 44% to $80.3 million in 2023 from $55.6 million in 2022. Net income increased 9% to $55.6
million in 2022 from $51.2 million in 2021. Net income attributable to common stockholders increased 44% to $81.0
million in 2023 from $56.3 million in 2022. Net income attributable to common stockholders increased 8% to $56.3
million in 2022 from $52.3 million in 2021.
Non-GAAP adjusted EBITDA, a non-GAAP measurement of operating performance, increased to $154.0 million in 2023
from $146.8 million in 2022. Non-GAAP adjusted EBITDA increased to $146.8 million in 2022 from $142.5 million in
2021.
Please see Non-GAAP Measures below in this section of this Annual Report for a discussion of the limitations of non-GAAP
adjusted EBITDA (a non-GAAP measure) and a reconciliation of non-GAAP adjusted EBITDA from net income, the most directly
comparable GAAP measure, for the years ended December 31, 2023, 2022 and 2021.
Historical Trends within the Financial Results
Information about current period and prior period acquisitions that may affect the comparability of our historical financial
information is included in Item 1. Business – Governance – Corporate Information. Information about the 2026 Notes issued in
January 2021 and the related interest expense as well as changes in costs for freight shipments and inventory component costs,
which may affect the comparability of historical financial information, is disclosed in the Comparison of Years Ended
December 31, 2023 to December 31, 2022 section below within Item 7. "Management’s Discussion and Analysis of Financial
Condition and Results of Operations."
57
Geographic Areas
We believe there is significant opportunity to expand our international business, as 4% of our total revenue during the year
ended December 31, 2023 originated from customers located outside of North America. Our products are currently localized and
available in over 50 countries outside of North America. On January 18, 2023, we acquired 100% of the issued and outstanding
shares of capital stock of EBS, an international producer of universal smart communicator devices, headquartered in Warsaw,
Poland. We believe this acquisition will assist in the continued expansion of our international operations as well as benefit our
supply chain operations.
Recent Developments
The global economy, credit markets and financial markets have and may continue to experience significant volatility as a
result of the Macroeconomic Conditions. These Macroeconomic Conditions have and may continue to create supply chain
disruptions, inventory disruptions, and fluctuations in economic growth, including fluctuations in employment rates, inflation,
energy prices and consumer sentiment. It remains difficult to assess or predict the ultimate duration and economic impact of the
Macroeconomic Conditions. Prolonged uncertainty with respect to the Macroeconomic Conditions could cause further economic
slowdown or cause other unpredictable events, each of which could adversely affect our business, results of operations or
financial condition.
Other Business Metrics
We regularly monitor a number of financial and operating metrics in order to measure our current performance and estimate
our future performance. Our other business metrics may be calculated in a manner different from the way similar business
metrics used by other companies are calculated and include the following (dollars in thousands):
SaaS and license revenue
Non-GAAP adjusted EBITDA
SaaS and license revenue renewal rate
SaaS and License Revenue
Year Ended December 31,
2023
2022
2021
$
569,200
$
520,377
$
460,372
153,967
146,848
142,472
94 %
94 %
94 %
SaaS and license revenue is a GAAP measure that we use to measure our current performance and estimate our future
performance. We believe SaaS and license revenue is an indicator of the productivity of our existing service provider partners
and their ability to activate and maintain subscribers using our intelligently connected property solutions, our ability to add new
service provider partners reselling our solutions, the demand for our intelligently connected property solutions and the pace at
which the market for these solutions is growing.
Non-GAAP Adjusted EBITDA
Non-GAAP adjusted EBITDA is a non-GAAP measure that represents our net income before interest expense, interest
income, certain activity within other income / (expense), net, provision for / (benefit from) income taxes, amortization and
depreciation expense, stock-based compensation expense, acquisition-related expense, legal costs and settlement fees incurred
and received in connection with non-ordinary course litigation and other disputes, particularly costs involved in ongoing
intellectual property litigation. We do not consider these items to be indicative of our core operating performance. The non-cash
items include amortization and depreciation expense, amortization of debt discount and debt issuance costs for the 2026 Notes
included in interest expense and stock-based compensation expense related to restricted stock units and other forms of equity
compensation, including, but not limited to, the sale of common stock. We do not adjust for ordinary course legal expenses
resulting from maintaining and enforcing our intellectual property portfolio and license agreements.
We record interest expense primarily related to our 2026 Notes. We exclude interest expense in calculating non-GAAP
adjusted EBITDA because we believe the exclusion of interest expense will provide for more meaningful information about our
financial performance. We exclude interest income and certain activity within other income / (expense), net including gains,
losses or impairments on investments and other assets, gains on settlement fees and losses on the early extinguishment of debt,
when applicable, from non-GAAP adjusted EBITDA because we do not consider it part of our ongoing results of operations. We
exclude the impact related to our provision for / (benefit from) income taxes from non-GAAP adjusted EBITDA because we do
not consider this tax adjustment to be part of our ongoing results of operations.
58
GAAP requires that operating expenses include the amortization of acquired intangible assets, which principally include
acquired customer relationships, developed technology and trade names. We exclude amortization of intangibles from non-
GAAP adjusted EBITDA because we do not consider amortization expense when we evaluate our ongoing business operations,
nor do we factor amortization expense into our evaluation of potential acquisitions, or our measurement of the performance of
those acquisitions. We believe the exclusion of amortization expense enables the comparison of our performance to other
companies in our industry as other companies may be more or less acquisitive than we are, and therefore, amortization expense
may vary significantly by company based on their acquisition history. Although we exclude amortization of acquired intangible
assets from non-GAAP adjusted EBITDA, management believes that it is important for investors to understand that such
intangible assets were recorded as part of purchase accounting and contribute to revenue generation.
We record depreciation primarily for investments in property and equipment. We exclude depreciation in calculating non-
GAAP adjusted EBITDA because we do not consider depreciation when we evaluate our ongoing business operations.
We exclude stock-based compensation expense, which relates to restricted stock units and other forms of equity incentives
primarily awarded to employees of Alarm.com, because they are non-cash charges that we do not consider when assessing the
operating performance of our business. Additionally, the determination of stock-based compensation expense can be calculated
using various methodologies and is dependent upon subjective assumptions and other factors that vary on a company-by-
company basis. Therefore, we believe excluding stock-based compensation expense from non-GAAP adjusted EBITDA
improves the comparability of our results to the results of other companies in our industry.
Included in operating expenses are incremental costs directly related to business and asset acquisitions as well as changes
in the fair value of contingent consideration liabilities, when applicable. We exclude acquisition-related expense from non-GAAP
adjusted EBITDA because we believe the exclusion of this expense allows us to better provide meaningful information about our
operating performance, facilitates comparisons to our historical operating results, improves the comparability of our results to the
results of other companies in our industry, and ultimately, we believe helps investors better understand the acquisition-related
expense and the effects of the transaction on our results of operations.
We exclude non-ordinary course litigation expense because we do not consider legal costs and settlement fees incurred and
received in litigation and litigation-related matters of non-ordinary course lawsuits and other disputes, particularly costs incurred
in ongoing intellectual property litigation, to be indicative of our core operating performance. We do not adjust for ordinary course
legal expenses, including those expenses resulting from maintaining and enforcing our intellectual property portfolio and license
agreements.
Non-GAAP adjusted EBITDA is a key measure our management uses to understand and evaluate our core operating
performance and trends to generate future operating plans, to make strategic decisions regarding the allocation of capital, and to
make investments in initiatives that are focused on cultivating new markets for our solutions. In particular, the exclusion of certain
expenses in calculating non-GAAP adjusted EBITDA facilitates comparisons of our operating performance on a period-to-period
basis and, in the case of exclusion of acquisition-related adjustments and certain historical legal expenses, excludes items that
we do not consider to be indicative of our core operating performance. Non-GAAP adjusted EBITDA is not a measure calculated
in accordance with GAAP and should not be considered in isolation from, or as a substitute for, financial information prepared in
accordance with GAAP. Please see Non-GAAP Measures in this section for a discussion of the limitations of non-GAAP adjusted
EBITDA and a reconciliation of non-GAAP adjusted EBITDA from net income, the most directly comparable GAAP measurement,
for the years ended December 31, 2023, 2022 and 2021.
SaaS and License Revenue Renewal Rate
Our SaaS and license revenue renewal rate is an operating metric. We measure our SaaS and license revenue renewal rate
on a trailing 12-month basis by dividing (a) the total SaaS and license revenue recognized during the trailing 12-month period
from our subscribers on our Alarm.com platform who were subscribers on the first day of the period, by (b) total SaaS and
license revenue we would have recognized during the period from those same subscribers assuming no terminations, or service
level upgrades or downgrades. The SaaS and license revenue renewal rate represents both residential and commercial
properties. Our SaaS and license revenue renewal rate is expressed as an annualized percentage and it is calculated across our
entire subscriber base on the Alarm.com platform excluding subscribers of service providers that may use one of our other
platforms as a substitute for the Alarm.com platform. Our service provider partners have indicated that they typically have three
to five-year service contracts with residential and commercial property owners who use our solutions. Our SaaS and license
revenue renewal rate includes subscribers whose contract with their service provider reached the end of its contractual term
during the measurement period, as well as subscribers whose contract with their service provider has not reached the end of its
contractual term during the measurement period, and is not intended to estimate the rate at which our subscribers renew their
contracts with our service provider partners. We believe our SaaS and license revenue renewal rate allows us to measure our
ability to retain and grow our SaaS and license revenue and serves as an indicator of the lifetime value of our subscriber base.
59
Components of Operating Results
Our fiscal year ends on December 31. The key elements of our operating results include:
Revenue
We derive our revenue from three primary sources: the sale of cloud-based SaaS services on our integrated Alarm.com
platform, the sale of licenses and services on the Software platform and the sale of hardware products. We sell our platform and
hardware solutions to service provider partners that resell our solutions and hardware to residential and commercial property
owners, who are the service provider partners’ customers.
SaaS and License Revenue. We generate the majority of our SaaS and license revenue primarily from monthly fees
charged to our service provider partners on a per subscriber basis for access to our cloud-based intelligently connected property
platform and related solutions. Our fees per subscriber vary based upon the service plan and features utilized.
We offer multiple service level packages for our platform solutions including a range of solutions and a range of a la carte
add-ons for additional features. The fee paid by our service provider partners each month for the delivery of our solutions is
based on the combination of packages and add-ons enabled for each subscriber. We utilize tiered pricing plans where our
service provider partners may receive prospective pricing discounts driven by volume.
We also generate SaaS and license revenue from the fees paid to us when we license our intellectual property to third
parties for use of our patents. In addition, in certain markets, our EnergyHub subsidiary sells its demand response service for an
annual service fee, with pricing based on the number of subscribers or amount of aggregate electricity demand made available
for a utility’s or market’s control.
On October 27, 2022, we filed a demand for arbitration of a dispute arising under the Patent Cross License Agreement
between Alarm.com and Vivint executed in November 2013. Vivint had stopped paying license fees to Alarm.com under the
agreement. Vivint had been paying the required license fees to Alarm.com since the agreement was executed in November
2013. As a result of Vivint’s refusal to pay license fees under the agreement, which began during the fourth quarter of 2022,
SaaS and license revenue and total revenue through December 31, 2023 were lower by approximately $6.0 million on a
quarterly basis. Quarterly earnings and cash flow through December 31, 2023 were also impacted by the aforementioned
$6.0 million, plus additional legal fees. On December 21, 2023, Alarm.com and Vivint agreed to settle all outstanding litigation
between the parties and to enter into a long-term intellectual property license agreement under which Alarm.com will license to
Vivint its intellectual property portfolio.
Software License Revenue. Our SaaS and license revenue also includes our software license revenue from monthly fees
charged to service providers on a per subscriber basis for access to our Software platform. The non-hosted software for
interactive security, automation and related solutions is typically deployed and operated by the service provider in its own
network operations center. Our agreements for the Software platform solution typically include software and services, such as
post-contract customer support, or PCS. Software license revenue included in SaaS and license revenue is expected to continue
to decline over time as we transition subscribers to our cloud-based hosted platform.
Hardware and Other Revenue. We generate hardware and other revenue primarily from the sale of video cameras, video
recorders, smart thermostats and cellular radio modules that provide access to our cloud-based platforms and, to a lesser extent,
the sale of other devices, including image sensors, gunshot detection sensors and peripherals. We primarily transfer hardware to
our customers upon delivery to the customer, which corresponds with the time at which the customer obtains control of the
hardware. We record a reserve against revenue for hardware returns based on historical returns.
Our hardware and other revenue also includes our revenue from the sale of perpetual licenses that provide our customers in
the commercial market the right to use our video surveillance software for an indefinite period of time in exchange for a one-time
license fee. Additionally, our hardware and other revenue includes our revenue from the sale of licenses that provide our
customers the right to use our indoor gunshot detection solution in exchange for license fees. Hardware and other revenue may
also include activation fees charged to some of our service provider partners for activation of a new subscriber account on our
platforms, as well as fees paid by service provider partners for our marketing services. The decision whether to charge an
activation fee is based in part on the expected number of subscribers to be added by our service provider partners and as a
result, many of our largest service provider partners do not pay an activation fee.
Our revenue, and in particular our hardware revenue, has in the past and may in the future be negatively affected by the
Macroeconomic Conditions and their related impacts. It remains difficult to assess or predict the ultimate duration and economic
impact of the Macroeconomic Conditions.
60
Cost of Revenue
Our cost of SaaS and license revenue primarily includes the amounts paid to wireless network providers and, to a lesser
extent, the costs of running our network operations centers which are expensed as incurred, as well as patent and royalty costs
in connection with technology licensed from third-party providers and amounts paid to distributed energy resource providers. Our
cost of SaaS and license revenue also includes our cost of software license revenue, which primarily includes the payroll and
payroll-related costs of the department dedicated to providing service exclusively to those service providers that host the
Software platform. Our cost of hardware and other revenue primarily includes cost of raw materials, tooling, freight shipments
and amounts paid to our third-party manufacturer for production and fulfillment of our cellular radio modules and image sensors,
and procurement costs for our video cameras, video recorders, smart thermostats and gunshot detection sensors, which we
purchase from an original equipment manufacturer, and other devices. Cost of hardware and other revenue also includes
material costs and labor cost related to our employees who manufacture hardware for our suite of IoT solutions. Additionally, our
cost of hardware and other revenue includes royalty costs in connection with technology licensed from third-party providers.
We record the cost of SaaS and license revenue as expenses are incurred, which corresponds to the delivery period of our
services to our subscribers. We record the cost of hardware and other revenue primarily when the hardware and other services
are delivered to the service provider partner, which occurs when control of the hardware and other services transfers to the
service provider partner. Our cost of revenue excludes amortization and depreciation shown in operating expenses.
Since 2019, the U.S. government has implemented and imposed significant changes to U.S. trade policy with respect to
China. Tariffs have subjected certain Alarm.com products manufactured overseas to additional import duties of up to 25%. The
amount of the import tariff and the number of products subject to tariffs have changed numerous times based on action by the
U.S. government. Approximately one-fifth to one-half of the hardware products that we sell to our service provider partners are
imported from China and could be subject to increased tariffs. While the additional import duties resulted in an increase to our
cost of hardware revenue, these import duties had a modest impact on hardware revenue margins. If tariffs are increased or are
expanded to apply to more of our products, such actions may increase our cost of hardware revenue and reduce our hardware
revenue margins in the future. We continue to monitor the changes in tariffs.
Our costs of hardware revenue increased during the second half of 2021 primarily due to an increase in costs for freight
shipments, including expedited shipping costs, as well as an increase in inventory component costs. We currently expect our
hardware revenue margins in 2024 to approximate the hardware revenue margins experienced during 2023.
Operating Expenses
Our operating expenses consist of sales and marketing, general and administrative, research and development and
amortization and depreciation expenses. Salaries, bonuses, stock-based compensation, benefits and other personnel related
costs are the most significant components of each of these expense categories, excluding amortization and depreciation. We
include stock-based compensation expense in connection with the grant of restricted stock units and other forms of equity
compensation, including equity compensation with performance conditions, in the applicable operating expense category based
on the respective equity award recipient’s function (sales and marketing, general and administrative or research and
development). We grew from 1,733 employees as of January 1, 2023 to 1,989 employees as of December 31, 2023, including 77
employees who manufacture hardware for our suite of IoT solutions. We expect to continue to hire new employees to support the
projected future growth of our business.
Sales and Marketing Expense. Sales and marketing expense consists primarily of personnel and related expenses for our
sales and marketing teams, including salaries, bonuses, stock-based compensation, benefits, travel, and commissions. Our
sales and marketing teams engage in sales, account management, service provider partner support, advertising, promotion of
our products and services and marketing.
The number of employees in sales and marketing functions increased from 511 as of January 1, 2023 to 565 as of
December 31, 2023. We expect to continue to invest in our sales and marketing activities to expand our business both
domestically and internationally and we expect to increase our marketing expense in 2024 as compared to 2023. We intend to
increase the size of our sales force and our service provider partner support team to provide additional support to our existing
service provider partner base to drive their productivity in selling our solutions as well as to enroll new service provider partners
in North America and in international markets.
General and Administrative Expense. General and administrative expense consists primarily of personnel and related
expenses for our administrative, legal, human resources, finance and accounting personnel, including salaries, bonuses, stock-
based compensation, benefits and other personnel costs. Additional expenses included in this category are legal costs, including
those that are incurred to defend and license our intellectual property, as well as non-personnel costs, such as travel related
expenses, rent, subcontracting and professional fees, audit fees, tax services, and insurance expenses. Also included in general
and administrative expenses are credit losses and acquisition-related expenses, which consist primarily of legal, accounting and
professional service fees directly related to acquisitions and valuation gains or losses on acquisition-related contingent liabilities.
61
The number of employees in general and administrative functions increased from 218 as of January 1, 2023 to 229 as of
December 31, 2023. Excluding intellectual property litigation and acquisition-related expense, we expect general and
administrative costs to increase prospectively as our business grows. This includes cost increases related to human resources,
accounting, finance, and legal personnel, additional external legal, audit fees and other expenses associated with regulations
governing public companies. While somewhat unpredictable, we also expect to continue to incur costs related to litigation
involving intellectual property. See the section of this Annual Report titled "Legal Proceedings" for additional information
regarding litigation matters.
Research and Development Expense. Research and development expense consists primarily of personnel and related
expenses for our employees working on our product development and software and device engineering teams, including
salaries, bonuses, stock-based compensation, benefits and other personnel costs. Also included are non-personnel costs such
as consulting and professional fees paid to third-party development resources.
The number of employees in research and development functions increased from 1,004 as of January 1, 2023 to 1,118 as of
December 31, 2023. Our research and development efforts are focused on innovating new features and enhancing the
functionality of our platforms and the solutions we offer to our service provider partners and subscribers. We will also continue to
invest in efforts to extend our platforms to adjacent markets and internationally to maintain our leadership position in the
development of intelligently connected property technology, and continued enhancement of our Partner Services Platform, a
comprehensive suite of enterprise-grade business management solutions for our service provider partners.
Amortization and Depreciation. Amortization and depreciation consists of amortization of intangible assets originating from
our acquisitions as well as our internally-developed capitalized software. Our depreciation expense is related to investments in
property and equipment. Acquired intangible assets include developed technology, customer related intangibles, trademarks and
trade names. We expect in the near term that amortization and depreciation may fluctuate based on our acquisition activity,
development of our platforms and capitalized expenditures.
Interest Expense
We record interest expense associated with our 2026 Notes and acquired debt. Interest expense in 2024 is expected to
remain relatively consistent with the interest expense in 2023.
Interest Income
Interest income consists of interest income earned on our cash and cash equivalents, our notes receivable and our
restricted cash. Interest income in 2024 will depend, in part, on our use of cash and fluctuations in interest rates.
Other Income / (Expense), Net
Other income / (expense), net primarily consists of non-operating and miscellaneous expense and income.
Provision for / (Benefit from) Income Taxes
We are subject to U.S. federal, state and local income taxes as well as foreign income taxes. During the ordinary course of
business, there are many transactions and calculations for which the ultimate tax determination is uncertain. As a result, we
recognize tax liabilities based on estimates of whether additional taxes will be due. Our effective tax rates were below the 21.0%
statutory rate primarily due to research and development tax credits claimed and the foreign derived intangible income
deduction, partially offset by the impact of state taxes, foreign withholding taxes, federal estimated tax payment interest expense,
other nondeductible expenses and, for 2023, a stock-based compensation tax shortfall. We recognize stock-based compensation
tax shortfalls and excess tax windfall benefits on a discrete basis during the quarter in which they occur, and we anticipate our
effective tax rate will vary from quarter to quarter depending on our stock price as well as the vesting and exercises of various
forms of equity compensation under our equity incentive plans each period, including restricted stock units and stock options.
62
Results of Operations
The following table sets forth our selected consolidated statements of operations (in thousands) and data as a percentage of
revenue for the periods presented:
Consolidated Statements of Operations
Year Ended December 31,
2023
2022
2021
Revenue:
SaaS and license revenue
Hardware and other revenue
Total revenue
Cost of revenue(1):
Cost of SaaS and license revenue
Cost of hardware and other revenue
Total cost of revenue
Operating expenses:
Sales and marketing (2)
General and administrative (2)
Research and development (2)
Amortization and depreciation
Total operating expenses
Operating income
Interest expense
Interest income
Other income / (expense), net
Income before income taxes
Provision for / (benefit from) income taxes
Net income
_______________
$ 569,200
65 % $ 520,377
62 % $ 460,372
61 %
312,482
35
322,182
38
288,597
39
881,682
100
842,559
100
748,969
100
85,898
239,261
325,159
100,226
112,930
245,114
31,424
489,694
66,829
(3,429)
29,801
4,624
97,825
17,485
10
27
37
11
13
28
4
56
7
—
3
1
11
2
73,897
268,684
342,581
92,748
106,688
218,635
30,870
448,941
51,037
(3,144)
8,759
(59)
56,593
962
9
32
41
11
13
26
3
53
6
—
1
—
7
—
66,758
239,141
305,899
86,664
87,406
177,713
29,715
381,498
61,572
9
32
41
11
12
24
4
51
8
(15,956)
(2)
587
(134)
46,069
—
—
6
(5,106)
(1)
$ 80,340
9 % $ 55,631
7 % $ 51,175
7 %
(1) Excludes amortization and depreciation shown in operating expenses below.
(2) Operating expenses include stock-based compensation expense as follows (in thousands):
Stock-based compensation expense data:
Cost of hardware and other revenue
Sales and marketing
General and administrative
Research and development
Total stock-based compensation expense
Year Ended December 31,
2023
2022
2021
$
$
5 $
— $
3,522
13,028
4,342
15,037
30,728
47,283 $
33,275
52,654 $
—
4,432
9,941
24,321
38,694
63
The following table sets forth the components of cost of revenue as a percentage of revenue:
Components of cost of revenue as a percentage of revenue:
Cost of SaaS and license revenue as a percentage of SaaS and license revenue
Cost of hardware and other revenue as a percentage of hardware and other revenue
Total cost of revenue as a percentage of total revenue
Comparison of Years Ended December 31, 2023 to December 31, 2022
Year Ended December 31,
2023
2022
2021
15 %
77
37 %
14 %
83
41 %
15 %
83
41 %
The following tables in this section set forth our selected consolidated statements of operations (in thousands), data for the
percentage change and data as a percentage of revenue for the years ended December 31, 2023 and 2022.
Revenue
Revenue:
SaaS and license revenue
Hardware and other revenue
Total revenue
Year Ended December 31,
% Change
2023
2022
2023 vs. 2022
$
$
569,200 $
312,482
881,682 $
520,377
322,182
842,559
9 %
(3)
5 %
The $39.1 million increase in total revenue in 2023 as compared to 2022 was the result of a $48.8 million, or 9%, increase in
our SaaS and license revenue and a $9.7 million, or 3%, decrease in our hardware and other revenue. Our software license
revenue included within SaaS and license revenue decreased $3.6 million to $23.2 million in 2023 as compared to $26.8
million during 2022, primarily due to the result of the continuing transition of customers from non-hosted software to our cloud
based hosted platform. The SaaS and license revenue for the Alarm.com segment increased $36.5 million in 2023 as compared
to 2022 primarily due to growth in our subscriber base, including the revenue impact from subscribers we added in 2022. The
increase in SaaS and license revenue for the Alarm.com segment includes the impact from Vivint license revenue of $16.6
million in 2022 that did not occur in 2023. The SaaS and license revenue for our Other segment increased $12.3 million in 2023
as compared to 2022 primarily due to an increase in sales of our energy management and demand response solutions as well as
our property management solution. The decrease in hardware and other revenue in 2023 as compared to 2022 was primarily
from the $7.3 million decrease in hardware and other revenue, net of intersegment eliminations, for the Alarm.com segment
arising from a decrease in the volume of cellular radio modules sold due to the shut down of 3G and CDMA wireless networks in
2022 by certain cellular carriers, as well as a decrease in the volume of thermostats and video cameras sold. Hardware and
other revenue, net of intersegment eliminations, in our Other segment decreased $2.4 million, in 2023 as compared to 2022
primarily due to an decreased sales related to our property management and Heating, Ventilation and Air Conditioning solutions.
Cost of Revenue
Cost of revenue(1):
Cost of SaaS and license revenue
Cost of hardware and other revenue
Total cost of revenue
% of total revenue
_______________
Year Ended December 31,
% Change
2023
2022
2023 vs. 2022
$
85,898
$
73,897
239,261
268,684
$
325,159
$
342,581
37 %
41 %
16 %
(11)
(5) %
(1) Excludes amortization and depreciation shown in operating expenses.
The $17.4 million decrease in cost of revenue in 2023 as compared to 2022 was the result of a $29.4 million, or 11%,
decrease in cost of hardware and other revenue and a $12.0 million, or 16%, increase in cost of SaaS and license revenue. Our
cost of software license revenue included within cost of SaaS and license revenue increased $0.1 million to $0.6 million during
2023 as compared to $0.5 million during 2022. The cost of hardware and other revenue for the Alarm.com segment decreased
$27.5 million in 2023 as compared to 2022 primarily due to a decrease in the number of hardware units shipped, a decrease in
inventory component costs and a decrease in costs for freight shipments. The cost of SaaS and license revenue for the
64
Alarm.com segment increased $8.5 million in 2023 as compared to 2022 primarily due to the growth in our subscriber base,
which drove a corresponding increase in amounts paid to wireless network providers. The cost of hardware and other revenue
for the Other segment decreased $1.9 million in 2023 as compared to 2022 primarily due to a decrease in the number of
hardware units shipped, a decrease in inventory component costs and a decrease in costs for freight shipments. The cost of
SaaS and license revenue for the Other segment increased $3.5 million in 2023 as compared to 2022 primarily due to an
increase in sales of our energy management and demand response solutions, which drove a corresponding increase in amounts
paid to distributed energy resource providers.
Cost of hardware and other revenue as a percentage of hardware and other revenue was 77% in 2023 and 83% in 2022.
The decrease in cost of hardware and other revenue as a percentage of hardware and other revenue in 2023 as compared to
2022 is primarily due to a decrease in inventory component and freight shipment costs, price increases we have implemented on
some of our products as well as a reflection of the mix of product sales during the periods. Cost of SaaS and license revenue as
a percentage of SaaS and license revenue was 15% and 14% in 2023 and 2022, respectively. The increase in cost of SaaS and
license revenue as a percentage of SaaS and license revenue in 2023 as compared to 2022 is a reflection of the mix of sales of
services during the periods. Cost of software license revenue as a percentage of software license revenue was 3% and 2% in
2023 and 2022, respectively.
Sales and Marketing Expense
Sales and marketing
% of total revenue
Year Ended December 31,
% Change
2023
2022
2023 vs. 2022
$
100,226
$
92,748
8 %
11 %
11 %
The $7.5 million increase in sales and marketing expense in 2023 as compared to 2022 was primarily due to a $7.2 million
increase in personnel and related costs for our Alarm.com segment, attributable in part to increases in the headcount for our
sales team to support our growth, partially offset by a $3.1 million decrease in marketing expense, including advertising cost.
Personnel and related costs includes salary, benefits, stock-based compensation and travel expenses. Sales and marketing
expense for our Alarm.com segment also increased by $1.0 million in 2023 as compared to 2022 due to an increase in our
expenses for external consultants. Sales and marketing expense from our Other segment increased $1.7 million in 2023 as
compared to 2022, primarily due to increases in personnel and related costs, attributable in part to increases in the headcount for
our sales team. The overall number of employees in our sales and marketing teams increased from 511 as of December 31,
2022 to 565 as of December 31, 2023.
General and Administrative Expense
General and administrative
% of total revenue
Year Ended December 31,
% Change
2023
2022
2023 vs. 2022
$
112,930
$
106,688
6 %
13 %
13 %
The $6.2 million increase in general and administrative expense in 2023 as compared to 2022 was primarily due to a $2.4
million increase in personnel and related costs for our Alarm.com segment and a $2.0 million increase in our expenses for
external consultants. Additionally, the provision for credit losses increased $1.6 million, rent expense increased $0.9 million and
insurance-related costs increased $0.4 million for our Alarm.com segment in 2023 as compared to 2022. General and
administrative expenses from our Other segment decreased by $2.1 million during 2023 as compared to 2022, primarily due to a
$1.3 million decrease in the provision for credit losses and a $0.7 million decrease in personnel and related costs. The overall
number of employees in general and administrative functions increased from 218 as of December 31, 2022 to 229 as of
December 31, 2023.
Research and Development Expense
Research and development
% of total revenue
Year Ended December 31,
% Change
2023
2022
2023 vs. 2022
$
245,114
$
218,635
12 %
28 %
26 %
65
The $26.5 million increase in research and development expense in 2023 as compared to 2022 was primarily due to a $20.2
million increase in personnel and related costs for our Alarm.com segment, attributable in part to an increase in headcount of
employees in research and development functions as well as a $1.8 million increase in our expenses for external consultants.
Research and development expense from our Other segment increased by $4.5 million in 2023 as compared to 2022 primarily
due to an increase in our personnel and related costs. The overall number of employees in research and development functions
increased from 1,004 as of December 31, 2022 to 1,118 as of December 31, 2023.
Amortization and Depreciation
Amortization and depreciation
% of total revenue
Year Ended December 31,
% Change
2023
2022
2023 vs. 2022
$
31,424
$
30,870
2 %
4 %
3 %
Amortization and depreciation increased $0.6 million in 2023 as compared to 2022, primarily due to the intangible assets
that were acquired in connection with the purchase of EBS on January 18, 2023.
Interest Expense
Interest expense
% of total revenue
Year Ended December 31,
% Change
2023
2022
2023 vs. 2022
$
(3,429)
$
(3,144)
9 %
— %
— %
Interest expense increased $0.3 million in 2023 as compared to 2022, primarily due to the interest expense incurred on the
assumed debt from the acquisition of EBS on January 18, 2023.
Interest Income
Interest income
% of total revenue
Year Ended December 31,
% Change
2023
2022
2023 vs. 2022
$
29,801
$
8,759
240 %
3 %
1 %
Interest income increased $21.0 million in 2023 as compared to 2022, primarily due to an increase in interest income earned
on cash and cash equivalents from higher interest rates during the year ended December 31, 2023.
Other Income / (Expense), Net
Other income / (expense), net
% of total revenue
Year Ended December 31,
% Change
2023
2022
2023 vs. 2022
$
4,624
$
1 %
(59)
— %
(7,937) %
Other income / (expense), net increased $4.7 million in 2023 as compared to 2022, primarily due to a gain recorded from the
settlement of a legal matter, partially offset by an increase in non-operating and miscellaneous expenses.
Provision for / (Benefit from) Income Taxes
Provision for / (benefit from) income taxes
% of total revenue
Year Ended December 31,
% Change
2023
2022
2023 vs. 2022
$
17,485
$
2 %
962
— %
1,718 %
The provision for / (benefit from) income taxes increased $16.5 million in 2023 as compared to 2022. Our effective tax rate
was 17.9% in 2023 as compared to 1.7% in 2022. The increase in the provision for / (benefit from) income taxes was primarily
66
due to an increase in income before income taxes, foreign withholding taxes, a stock-based compensation tax shortfall and a
decrease in research and development tax credits.
Comparison of Years Ended December 31, 2022 to December 31, 2021
A comparison of the years ended December 31, 2022 and 2021 has been omitted from this Form 10-K, but may be found in
“Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Form 10-K for the fiscal
year ended December 31, 2022, filed with the SEC on February 24, 2023.
Segment Information
We have two reportable segments: Alarm.com and Other. Our Alarm.com segment represents our cloud-based and
Software platforms for the intelligently connected property and related solutions that contributed 93%, 94% and 95% of our
revenue, net of intersegment eliminations, for the years ended December 31, 2023, 2022 and 2021, respectively. Our Other
segment is focused on researching, developing and offering residential and commercial automation solutions and energy
management products and services in adjacent markets. The consolidated subsidiaries that make up our Other segment are in
the investment stage and have incurred significant operating expenses relative to their revenue.
Our Alarm.com segment increased from 1,563 employees as of January 1, 2023 to 1,776 employees as of December 31,
2023. Our Other segment increased from 170 employees as of January 1, 2023 to 213 employees as of December 31, 2023.
Inter-segment revenue includes sales of hardware between our segments.
The following table presents our revenue, inter-segment revenue and operating expenses by segment (in thousands):
SaaS and
License
Revenue
2023
Hardware
and Other
Revenue
Operating
Expenses
Year Ended December 31,
2022
Hardware
and Other
Revenue
SaaS and
License
Revenue
Operating
Expenses
SaaS and
License
Revenue
2021
Hardware
and Other
Revenue
Operating
Expenses
Alarm.com
Other
Intersegment
Alarm.com
Intersegment Other
$ 514,673 $ 309,778 $ 440,590 $ 478,134 $ 317,937 $ 403,774 $ 426,823 $ 284,721 $ 348,700
54,527
6,501
49,584
42,243
9,097
45,647
33,549
9,275
33,214
—
—
(3,201)
(480)
(596)
—
—
—
(4,067)
(480)
(785)
—
—
—
(3,089)
(2,310)
(416)
—
Total
$ 569,200 $ 312,482 $ 489,694 $ 520,377 $ 322,182 $ 448,941 $ 460,372 $ 288,597 $ 381,498
Our SaaS and license revenue for the Alarm.com segment included software license revenue of $23.2 million, $26.8 million
and $32.3 million for the years ended December 31, 2023, 2022 and 2021, respectively. There was no software license revenue
recorded for the Other segment during the years ended December 31, 2023, 2022 and 2021.
Critical Accounting Estimates
Our management’s discussion and analysis of our financial condition and results of operations is based on our consolidated
financial statements, which have been prepared in accordance with GAAP. The preparation of these consolidated financial
statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure
of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue,
costs and expenses during the reported period. In accordance with GAAP, we base our estimates on historical experience and
on various other assumptions that we believe are reasonable under the circumstances. Because of the use of estimates inherent
in the financial reporting process in light of the continuing uncertainty arising from the Macroeconomic Conditions actual results
could differ from those estimates and any such differences may be material. To the extent that there are differences between our
estimates and actual results, our future financial statement presentation, financial condition, results of operations and cash flows
will be affected. Our most critical accounting estimates are summarized below. See Note 2 to our consolidated financial
statements for a description of the following critical accounting estimates and our other significant accounting estimates.
Revenue
We derive our revenue from three primary sources: the sale of cloud-based SaaS services on our integrated Alarm.com
platform, the sale of licenses and services on the Software platform and the sale of hardware products. We sell our platform and
hardware solutions to service provider partners that resell our solutions and hardware to residential and commercial property
owners, who are the service provider partners’ customers.
67
We have variable consideration primarily in the form of rebate incentives, which contain uncertainties and require us to make
estimates of the amount of consideration to which we will be entitled. The significant inputs related to our estimates of variable
consideration include the volume and amount of products and services sold historically and expected to be sold in the future, the
availability and performance of our services and the historical and expected number of returns. We record a reserve against
revenue for hardware returns based on historical returns. For each of the years ended December 31, 2023, 2022 and 2021, our
reserve against revenue for hardware returns was 1% of hardware and other revenue. We evaluate our hardware reserve on a
quarterly basis or if there is an indication of significant changes in return experience. Historically, our returns of hardware have
not significantly differed from our estimated reserve.
If we enter into contracts that contain multiple promised services, we evaluate which of the promised services represent
separate performance obligations based on whether or not the promised services are distinct and whether or not the services are
separable from other promises in the contract. If these criteria are met, then we allocate the transaction price to the performance
obligations using the relative stand-alone selling price method at contract inception. In determining the relative estimated selling
prices, we consider market conditions, entity-specific factors and information about the customer or class of customer. Any
discount within the contract is allocated proportionately to all of the separate performance obligations in the contract unless the
terms of discount relate specifically to the entity’s efforts to satisfy some but not all of the performance obligations.
While variable consideration assumptions and assumptions regarding the relative stand-alone selling price are specific to
each contract, we did not make any material changes to these assumptions for the year ended December 31, 2023. We do not
expect any material changes in the near term to the underlying assumptions used to recognize revenue during the year
ended December 31, 2023. However, if changes in these assumptions occur, and, should those changes be significant, they
could have a material impact on our SaaS and license revenue as well as our hardware and other revenue.
Fair Value Measurements
The accounting standard for fair value measurements provides a framework for measuring fair value and requires
disclosures regarding fair value measurements. Fair value is defined as the price that would be received for an asset or the exit
price that would be paid to transfer a liability in the principal or most advantageous market in an orderly transaction between
market participants on the measurement date.
We previously maintained a subsidiary long-term incentive plan and recorded a liability based on the potential cash payment
contingent upon meeting certain financial milestones related to the agreement established with certain employees of one of our
subsidiaries. During 2021 and until the termination of the subsidiary long-term incentive plan in May of 2022, we estimated the
fair value of the liability by using a Monte Carlo simulation model which involves several Level 3 unobservable inputs. Concurrent
with the termination of the subsidiary long-term incentive plan, we granted performance-based restricted stock units to those
employees who previously participated in the subsidiary long-term incentive plan. We accounted for the termination of the
subsidiary long-term incentive plan and concurrent grant of performance-based restricted stock units as a modification of the
original subsidiary long-term incentive plan. As a result, no further estimates related to the subsidiary long-term incentive plan
were necessary as of December 31, 2023. See the Stock-Based Compensation section below for details on the judgment
required in determining the probable outcome of performance conditions related to performance-based restricted stock units.
Accounting estimates are also used for the contingent consideration liability related to the potential earn-out payment from
our acquisition of 100% of the issued and outstanding capital stock of EBS on January 18, 2023. The earn-out payment is
contingent on the satisfaction of certain performance targets related to the integration of EBS's hardware into the Alarm.com
platform by December 31, 2025 and has a maximum potential payment of up to $2.5 million. We account for the contingent
consideration using fair value and established a liability for the future earn-out payment based on an estimation of the probability
of the future achievement of the performance targets. The contingent consideration liability was valued with Level 3
unobservable inputs, including the probability of expected achievement of the performance targets. At each reporting date until
December 31, 2025, or the achievement of the performance targets, we will remeasure the liability, using the same valuation
approach. We did not make any material changes in the accounting methodology used to determine the fair value of the
contingent consideration liability for the year ended December 31, 2023. We do not expect any material changes in the near term
to the underlying assumptions used to determine the significant unobservable inputs used to calculate the fair value of the
contingent consideration and, if changes in these assumptions occur, we do not expect those changes to have a material impact
on our general and administrative operating expenses.
Business Combinations
We are required to allocate the purchase price of acquired companies to the identifiable tangible and intangible assets
acquired and liabilities assumed at the acquisition date based upon their estimated fair values. This valuation contains
uncertainties and requires management to apply significant judgment in estimating the fair value of long-lived and intangible
assets acquired, which involves the use of significant estimates and assumptions.
68
Significant estimates and assumptions in valuing certain acquired customer relationship intangible assets include estimates
about future expected cash flows and discount rates. Significant estimates and assumptions in valuing acquired developed
technology intangible assets include estimates about future expected cash flows, obsolescence factors and discount rates.
Significant estimates and assumptions in valuing acquired trade name intangible assets include estimates about future expected
cash flows, royalty rates and discount rates.
We did not make any material changes to the underlying assumptions used as of the acquisition date to calculate the
purchase price of the business combinations that occurred during 2023 and 2022. We do not expect any material changes in the
near term to the underlying assumptions used to calculate the purchase price of those business combinations. However, if
changes in these assumptions occur, and, should those changes be significant, they could have a material impact on our
purchase price allocation for the business combinations.
Goodwill, Intangible Assets and Long-lived Assets
Goodwill
We perform our annual impairment review of goodwill on October 1 and when a triggering event occurs between annual
impairment tests. We test our goodwill at the reporting unit level. We perform either a qualitative analysis or a quantitative
analysis every year depending on the changes to our goodwill balance as well as changes in our business and the economy.
Significant estimates and assumptions when we perform a quantitative assessment include estimates about future expected
cash flows and discount rates. Qualitative factors we consider when we perform a qualitative analysis include, but are not limited
to, macroeconomic conditions, industry and market conditions, company specific events, changes in circumstances and market
capitalization.
For our 2023 annual impairment review, we performed a qualitative assessment for our Alarm.com reporting unit, our only
reporting unit with a goodwill balance. There were no triggering events that occurred between our qualitative annual impairment
test performed as of October 1, 2023 and December 31, 2023. If triggering events arise in the future that require changes in the
underlying assumptions used in our assessment of our goodwill, and, should those changes be significant, they could have a
material impact on our goodwill and potentially our other income / (expense), net, if those significant changes result in an
impairment.
Intangible Assets and Long-lived Assets
Intangible assets are initially valued at fair value using generally accepted valuation methods appropriate for the type of
intangible asset. Intangible assets with definite lives are amortized over their estimated useful lives and are reviewed for
impairment if indicators of impairment arise.
We evaluate the recoverability of our long-lived assets for impairment whenever events or circumstances indicate that the
carrying amount of the assets may not be recoverable. Recoverability of long-lived assets are measured by comparison of the
carrying amount of the asset to the future undiscounted cash flows the asset is expected to generate. If the asset is considered
to be impaired, the amount of any impairment is measured as the difference between the carrying value and the fair value of the
impaired asset.
For the year ended December 31, 2021, we determined there was an impairment of $0.1 million for an intangible asset
acquired in 2014 related to customer relationships that no longer existed after December 31, 2021. There were no indicators of
impairment of our intangible assets with definite lives or long-lived assets during the years ended December 31, 2023 and 2022.
If triggering events arise in the future, depending on the significance of the underlying assumptions in the impairment analysis,
they could have a material impact on our intangible assets and long-lived assets and potentially our other income / (expense),
net, if those significant changes result in an impairment.
Accounting for Income Taxes
We account for income taxes under the asset and liability method as required by Accounting Standards Codification, or ASC
740, "Income Taxes," which requires the recognition of deferred tax assets and liabilities for the expected future tax
consequences of events that are included in the financial statements.
We record net deferred tax assets to the extent we believe these assets will more likely than not be realized. In making such
a determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary
differences, projected future taxable income, tax-planning strategies and results of recent operations.
We are subject to income taxes in the United States and foreign jurisdictions based upon our business operations in those
jurisdictions. Significant judgment is required in evaluating uncertain tax positions. We record uncertain tax positions in
accordance with ASC 740-10 on the basis of a two-step process whereby (1) we determine whether it is more likely than not that
69
the tax positions will be sustained based on the technical merits of the position, and (2) with respect to those tax positions that
meet the more-likely-than-not recognition threshold, we recognize the largest amount of tax benefit that is greater than 50% likely
to be realized upon ultimate settlement with the related tax authority.
We did not make any material changes to the underlying assumptions used to calculate deferred tax assets and liabilities as
well as uncertain tax positions for the year ended December 31, 2023 and we do not expect any material changes in the near
term to the underlying assumptions used to calculate deferred tax assets and liabilities as well as uncertain tax positions for the
year ended December 31, 2023. However, if changes in these assumptions occur, and, should those changes be significant, they
could have a material impact on our deferred tax assets and liabilities as well as our provision for / (benefit from) income taxes.
Stock-Based Compensation
We compensate our executive officers, board of directors and employees with stock-based compensation plans under our
2015 Equity Incentive Plan. We record stock-based compensation expense related to performance-based restricted stock units
based on management’s determination of the probable outcome of the performance conditions, which requires considerable
judgment. We estimate the fair value of each option granted on the date of the grant using the Black-Scholes option-pricing
model, which contains uncertainties and requires us to estimate the risk-free interest rate, expected term, expected stock price
volatility and dividend yield. In 2021 and years prior to 2021, we used the "simplified method" to calculate the expected term,
which was presumed to be the mid-point between the vesting date and the end of the contractual term. Beginning upon the first
grant of options in 2022, the expected term for options granted is estimated using our historical experience, including information
related to options we have granted.
Recent Accounting Pronouncements
See Note 2 of our consolidated financial statements for information related to recently issued accounting standards.
Liquidity and Capital Resources
Working Capital
The following table summarizes our cash and cash equivalents, accounts receivable, net and working capital, for the periods
indicated (in thousands):
Cash and cash equivalents
Accounts receivable, net
Working capital
As of December 31,
2023
2022
$
696,983 $
130,626
781,443
622,165
124,283
726,152
We define working capital as current assets minus current liabilities. Our cash and cash equivalents as of December 31,
2023 are available for working capital purposes. Our investment policy defines allowable investments and establishes guidelines
relating to credit quality, diversification and maturities of our investments to preserve capital, maintain liquidity and limit the
amount of credit risk exposure. As of December 31, 2023, our cash and cash equivalents were primarily held in money market
accounts.
Liquidity and Capital Resources
As of December 31, 2023, we had $697.0 million in cash and cash equivalents. We consider all highly liquid instruments
purchased with an original maturity from the date of purchase of three months or less to be cash equivalents. To date, we have
principally financed our operations through cash generated by operating activities and through private and public equity and debt
financings. We mitigate the risk of loss for our cash and cash equivalents by depositing funds with a number of reputable
financial institutions and monitoring risk profiles and investment strategies of money market funds.
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On October 27, 2022, we filed a demand for arbitration of a dispute arising under the Patent Cross License Agreement
between Alarm.com and Vivint executed in November 2013. Vivint had stopped paying license fees to Alarm.com under the
agreement. Vivint had been paying the required license fees to Alarm.com since the agreement was executed in November
2013. As a result of Vivint’s refusal to pay license fees under the agreement, which began during the fourth quarter of 2022, cash
flows from operating activities through December 31, 2023 were lowered by approximately $6.0 million on a quarterly basis, plus
additional legal fees. On December 21, 2023, Alarm.com and Vivint agreed to settle all outstanding litigation between the parties
and to enter into a long-term intellectual property license agreement under which Alarm.com will license to Vivint its intellectual
property portfolio.
Beginning in 2022, the Tax Cuts and Jobs Act of 2017 amended Internal Revenue Code Section 174, or Section 174, to
eliminate the option to immediately deduct research and development expenditures in the year incurred, requiring these
expenditures to be capitalized and amortized over five years for domestic expenditures and over 15 years for foreign
expenditures. While we calculated the 2022 federal and state cash tax increase from Section 174 to be $38.1 million, we did not
pay this additional cash tax liability as part of our 2022 estimated tax payments due to the possible deferral, modification or
repeal of Section 174. The additional 2022 federal cash tax liability was included in current income taxes payable as of
December 31, 2022, and was paid in February 2023. The increased 2022 state tax liability was paid in April 2023 in the amount
of $7.5 million. We calculated the 2023 federal and state cash tax increase from Section 174 to be $43.5 million, which we
expect to pay in April 2024 if Section 174 is not deferred, modified or repealed. The Section 174 impact on 2024 cash flows from
operating activities will depend on, among other factors, our 2024 operating results and the level of 2024 research and
development activity. Based on information currently available to us, we estimate the increased 2024 Section 174 federal and
state cash tax payable for our 2024 taxable income to be in the range of $35.0 million to $40.0 million if the requirement to
capitalize and amortize research and development expenditures is not deferred, modified or repealed. This estimate is based on
the limited information that is currently available and is subject to change. While the largest impact will be to cash flow from
operating activities, the impact for domestic research and development expenditures would continue over the five-year
amortization period, but would decrease over that period and is expected to be immaterial beginning in year six.
On January 31, 2024, the U.S. House of Representatives passed H.R. 7024, which, among other provisions, would
retroactively change the effective date of the requirement to capitalize Section 174 domestic research and development
expenditures from January 1, 2022 to January 1, 2026. Foreign research and development expenditures would continue to be
capitalized and amortized over 15 years as of January 1, 2022. If the bill is passed by the Senate and signed into law by the
President as currently drafted, the bill would allow us to receive a partial refund of the 2022 Section 174 federal income tax paid,
the amount and timing of which cannot be estimated at this time. Any state impact would depend on the relevant individual state
laws.
We believe our existing cash and cash equivalents and our future cash flows from operating activities will be sufficient to
meet our anticipated operating cash needs for at least the next 12 months. Over the next 12 months, we expect our capital
expenditure requirements to be between $4.5 million and $6.5 million, primarily related to purchases of computer software and
equipment as well as the continued build out of our leased and owned office space. As of December 31, 2023, maturities of lease
liabilities for our various leases are as follows: $13.7 million in 2024, $11.6 million in 2025, $7.0 million in 2026, $1.6 million in
2027, $0.9 million in 2028 and $1.5 million in 2029 and thereafter.
Our future working capital, capital expenditure and cash requirements will depend on many factors, including the impact of
the Macroeconomic Conditions on the economy and our operations, the rate of our revenue growth, the amount and timing of our
investments in human resources and capital equipment, future acquisitions and investments, and the timing and extent of our
introduction of new solutions and platform and solution enhancements. As the impact of the Macroeconomic Conditions on the
economy and our operations evolves, we will continue to assess our liquidity needs. To the extent our cash and cash equivalents
and cash flows from operating activities are insufficient to fund our future activities, we may need to borrow additional funds or
raise funds from public or private equity or debt financings. If we raise additional funds through the incurrence of indebtedness,
such indebtedness would likely have rights that are senior to holders of our equity securities and could contain covenants that
restrict our operations. Any additional equity financing would be dilutive to our current stockholders.
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The following discussion summarizes our current and long-term material cash requirements as of December 31, 2023, which
we expect to fund primarily with operating cash flows:
Convertible Notes:
Principal payments
Special interest
Operating lease commitments
Other long-term liabilities1
Other commitments2
Total
Material Cash Requirements (in thousands)
1 Year
2 to 3 Years
4 to 5 Years
More Than
5 Years
Total
$
— $
500,000 $
— $
— $
500,000
—
14,041
64
3,137
—
20,004
3,481
2,029
—
4,271
1,210
—
—
3,117
57
—
—
41,433
4,812
5,166
$
17,242 $
525,514 $
5,481 $
3,174 $
551,411
_______________
1.
See Note 12 to our consolidated financial statements for details on the components of other long-term liabilities. As of December 31,
2023, we recorded a liability for long-term accrued taxes and interest payable of $7.9 million. Due to the uncertainty in the timing of
future payments, we have excluded the liability related to these uncertain tax positions from the table above. See Note 18 to our
consolidated financial statements for additional information regarding income taxes.
2. Represents amounts due under multi-year, non-cancelable contracts with third-party vendors, as well as other commitments.
The commitment amounts in the table above are associated with contracts that are enforceable and legally binding and that
specify all significant terms, including fixed or minimum services to be used, fixed, minimum or variable price provisions, and the
approximate timing of the actions under the contracts. The table does not include obligations under agreements that we can
cancel without a significant penalty. Future events could cause actual payments to differ from these estimates.
Convertible Senior Notes
On January 20, 2021, we issued $500.0 million aggregate principal amount of 0% convertible senior notes due January 15,
2026 in a private placement to qualified institutional buyers, or the 2026 Notes. The terms of the 2026 Notes are governed by an
Indenture, or the Indenture, by and between Alarm.com Holdings, Inc. and U.S. Bank National Association, as trustee. The 2026
Notes are senior unsecured obligations that do not bear regular interest and the principal amount of the 2026 Notes will not
accrete. The 2026 Notes may bear special interest under specified circumstances related to our failure to comply with our
reporting obligations under the Indenture. Special interest, if any, will be payable semiannually in arrears on January 15 and July
15 of each year, beginning on July 15, 2021. We received proceeds from the issuance of the 2026 Notes of $484.3 million, net of
$15.7 million of transaction fees and other debt issuance costs.
We may not redeem the 2026 Notes prior to January 20, 2024. We may redeem for cash, all or any portion of the 2026
Notes, at our option, on or after January 20, 2024, at a redemption price equal to 100% of the principal amount of the 2026 Notes
to be redeemed, plus accrued and unpaid special interest, if any, to, but excluding, the redemption date, if the last reported sale
price of our common stock has been at least 130% of the conversion price for the 2026 Notes then in effect for at least 20 trading
days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period)
ending on, and including, the trading day immediately preceding the date on which we provide notice of redemption. No sinking
fund is provided for the 2026 Notes.
The 2026 Notes will be convertible at the option of the holders at any time prior to the close of business on the business day
immediately preceding August 15, 2025, only under the following circumstances: (1) during any calendar quarter commencing
after the calendar quarter ending on June 30, 2021 (and only during such calendar quarter), if the last reported sale price of our
common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending
on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the
conversion price for the 2026 Notes on each applicable trading day; (2) during the five business day period immediately after any
10 consecutive trading day period in which, for each trading day of that period, the trading price per $1,000 principal amount of
2026 Notes for such trading day was less than 98% of the product of the last reported sale price of our common stock and the
conversion rate for the 2026 Notes on each such trading day; (3) if we call any or all of the 2026 Notes for redemption, at any
time prior to the close of business on the scheduled trading day immediately preceding the redemption date, but only with
respect to the 2026 Notes called (or deemed called) for redemption; or (4) upon the occurrence of specified corporate events as
set forth in the Indenture.
On or after August 15, 2025, until the close of business on the second scheduled trading day immediately preceding the
maturity date of the 2026 Notes, holders of the 2026 Notes may convert all or any portion of their 2026 Notes at any time,
regardless of the foregoing conditions. Upon conversion, we may satisfy our conversion obligation by paying or delivering, as the
case may be, cash, shares of our common stock or a combination of cash and shares of our common stock, at our election. It is
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our current intent to settle the principal amount of the 2026 Notes with cash. The initial conversion rate for the 2026 Notes is
6.7939 shares of our common stock per $1,000 principal amount of 2026 Notes, which is equivalent to an initial conversion price
of $147.19 per share of our common stock, subject to adjustment under certain circumstances in accordance with the terms of
the Indenture. In addition, following certain corporate events that occur prior to the maturity date of the 2026 Notes or if we
deliver a notice of redemption in respect of the 2026 Notes, we will, under certain circumstances, increase the conversion rate of
the 2026 Notes for a holder who elects to convert its 2026 Notes (or any portion thereof) in connection with such a corporate
event or convert its 2026 Notes called (or deemed called) for redemption during the related redemption period (as defined in the
Indenture), as the case may be.
If we undergo a fundamental change (as defined in the Indenture), subject to certain exceptions and except as described in
the Indenture, holders may require us to repurchase for cash all or any portion of their 2026 Notes at a fundamental change
repurchase price equal to 100% of the principal amount of the 2026 Notes to be repurchased, plus accrued and unpaid special
interest, if any, to, but excluding, the fundamental change repurchase date.
The Indenture includes customary covenants and sets forth certain events of default after which the 2026 Notes may be
declared immediately due and payable and sets forth certain types of bankruptcy or insolvency events of default involving us
after which the 2026 Notes become automatically due and payable.
We used some of the proceeds to repay the $110.0 million outstanding principal balance under our credit facility and also
used some of the proceeds to pay accrued interest, fees and expenses related to our credit facility, which was terminated
effective January 20, 2021. We are using the remaining net proceeds from the issuance of the 2026 Notes for working capital
and other general corporate purposes, which may include acquisitions or strategic investments in complementary businesses or
technologies.
Sources of Liquidity
On January 20, 2021, we issued $500.0 million aggregate principal amount of 0% convertible senior notes due January 15,
2026 in a private placement to qualified institutional buyers and received proceeds of $484.3 million, net of $15.7 million of
transaction fees and other debt issuance costs. The 2026 Notes are discussed in more detail above under “Convertible Senior
Notes.”
Dividends
We did not declare or pay dividends during the years ended December 31, 2023, 2022 or 2021. We cannot provide any
assurance that we will declare or pay cash dividends on our common stock in the future. We currently anticipate that we will
retain all of our future earnings, if any, for use in the operation and expansion of our business and we do not anticipate paying
cash dividends in the foreseeable future. Payment of future cash dividends, if any, will be at the discretion of the board of
directors after taking into account various factors, including our financial condition, operating results, current and anticipated cash
needs, the requirements of current or then-existing debt instruments and other factors the board of directors deems relevant.
Stock Repurchase Programs
On December 3, 2020, our board of directors authorized a stock repurchase program, under which we were authorized to
purchase up to an aggregate of $100.0 million of our outstanding common stock during the three-year period ending
December 3, 2023. On February 15, 2023, our board of directors authorized the cancellation of the balance under the stock
repurchase program ending December 3, 2023 and also authorized a stock repurchase program, effective February 23, 2023,
under which we are authorized to purchase up to an aggregate of $100.0 million of our outstanding common stock during the
two-year period ending February 23, 2025.
During the years ended December 31, 2023 and 2022, we repurchased 487,918 and 1,385,592 shares of our common stock
under these programs for $27.3 million and $78.8 million, respectively, which includes applicable commissions and fees. We did
not repurchase any shares of our common stock under these programs in 2021. As of January 1, 2023, we are subject to a 1.0%
excise tax on the value of net corporate stock repurchases under the Inflation Reduction Act of 2022. When applicable, the
excise tax will be included as part of the cost basis of shares acquired and is presented within stockholders’ equity in the
consolidated balance sheets.
Shares Withheld
As permitted under the terms of the 2015 Equity Incentive Plan, or 2015 Plan, in 2021 the Compensation Committee
authorized the withholding of shares of common stock in connection with the vesting of restricted stock unit awards issued to
employees to satisfy applicable tax withholding requirements. These withheld shares are not issued or considered common stock
repurchases under our stock repurchase program. We paid $2.6 million and $4.5 million of tax withholdings related to vesting of
restricted stock units during the years ended December 31, 2023 and 2021, respectively. No tax withholdings related to the
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vesting of restricted stock units were paid during the year ended December 31, 2022. We also utilized the sell-to-cover method in
which shares of our restricted stock unit awards were sold into the market on behalf of the employee upon vesting to cover tax
withholding liabilities. We may utilize either the withholding method or sell-to-cover method in the future.
Historical Cash Flows
The following table sets forth our cash flows for the periods indicated (in thousands):
Cash flows from operating activities
Cash flows used in investing activities
Cash flows (used in) / from financing activities
Operating Activities
Year Ended December 31,
2023
2022
2021
$
135,965 $
56,901 $
103,157
(25,966)
(31,865)
(68,319)
(76,324)
(20,365)
374,370
Cash flows from operating activities have typically been generated from our net income and by changes in our operating
assets and liabilities, particularly from accounts receivable and inventory, adjusted for non-cash expense items such as
amortization and depreciation, deferred income taxes and stock-based compensation.
For 2023, cash flows from operating activities were $136.0 million, compared to $56.9 million for 2022. This $79.1
million increase in cash flows from operating activities was due to a $49.3 million increase in cash from operating assets and
liabilities, a $24.7 million increase in net income and a $5.1 million increase in non-cash and other reconciling items.
The $49.3 million increase in cash from operating assets and liabilities was primarily due to a $61.3 million change in
inventory resulting from a decrease in purchased inventory following prior year purchase activity to reduce risks and uncertainties
in our supply chain as well as differences in the timing of disbursements and the collection of receipts in 2023 as compared to
2022. The $5.1 million increase in non-cash and other reconciling items was primarily due to a $7.3 million change in deferred
income taxes, which was primarily driven by the capitalization and amortization of research and development expenditures under
Section 174, as well as a $1.4 million inventory write-down during 2023, which did not occur in 2022. These increases in non-
cash and other reconciling items were partially offset by a $5.4 million decrease in stock-based compensation in 2023 as
compared to 2022.
For 2022, cash flows from operating activities were $56.9 million, compared to $103.2 million for 2021. This $46.3
million decrease in cash flows from operating activities was due to a $38.3 million decrease in non-cash and other reconciling
items and a $12.4 million decrease in cash from operating assets and liabilities, partially offset by a $4.4 million increase in net
income. The $38.3 million decrease in non-cash and other reconciling items was primarily due to a $44.9 million change in
deferred income taxes, which was driven by an increase in estimated taxable income during 2022 pursuant to the capitalization
requirements under Section 174 of the Internal Revenue Code, as compared to 2021. The decrease in non-cash and other
reconciling items during 2022 as compared to 2021 was also due to a $12.7 million decrease in amortization of the debt discount
and debt issuance costs related to the adoption of Accounting Standards Update, or ASU, 2020-06, "Debt—Debt with
Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic
815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity," for the 2026 Notes. These decreases
in non-cash and other reconciling items were partially offset by a $14.0 million increase in stock-based compensation resulting
from additional grants of restricted stock units during 2022 as well as an increase in the changes to the provision for credit losses
and reserve for product returns of $4.1 million during 2022 as compared to 2021. The $12.4 million decrease in cash from
operating assets and liabilities was primarily due to a $8.9 million change in inventory resulting from an increase in purchased
inventory as we seek to reduce risks and uncertainties in our supply chain as well as a $6.5 million change in accounts payable,
accrued expenses and other liabilities primarily due to differences in the timing of disbursements during 2022 as compared to
2021.
Investing Activities
Our investing activities typically include acquisitions, capital expenditures, investments in unconsolidated entities, notes
receivable issued to companies with offerings complementary to ours and proceeds from the repayment of those notes
receivable. Our capital expenditures have primarily been for general business use, including leasehold improvements as we
have expanded our office space to accommodate our growth in headcount, computer equipment used internally and expansion
of our network operations centers.
For 2023, cash flows used in investing activities was $26.0 million, compared to $68.3 million in 2022. The $42.3
million decrease in cash used in investing activities was primarily due to the $31.9 million paid to purchase 85% of the issued
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and outstanding shares of capital stock of Noonlight and the $21.8 million paid for developable land during 2022, which did not
occur during 2023. These decreases in cash used in investing activities were partially offset by $9.7 million paid to purchase
100% of the issued and outstanding shares of capital stock of EBS, net of cash acquired, and the $5.9 million paid to purchase
certain assets from Vintra, including direct transaction costs, in 2023, which did not occur in 2022.
For 2022, cash flows used in investing activities was $68.3 million, compared to $20.4 million in 2021. The $47.9
million increase in cash used in investing activities was primarily due to the $31.9 million paid to purchase 85% of the issued and
outstanding shares of capital stock of Noonlight and the $21.8 million paid for developable land during 2022, which did not occur
during 2021. These increases in cash used in investing activities were partially offset by $4.4 million paid for developed
technology in 2021, which did not occur during 2022.
Financing Activities
Cash generated by financing activities includes proceeds from the 2026 Notes and proceeds from the issuance of common
stock from employee stock option exercises and from our employee stock purchase plan. Cash used in financing activities
typically includes repurchases of common stock and repayments of debt.
For 2023, cash flows used in financing activities was $31.9 million, compared to $76.3 million in 2022. The $44.4
million decrease in cash flows used in financing activities was primarily due to the $51.5 million decrease in purchases of shares
of our common stock in 2023 as compared to 2022, partially offset by $3.0 million in debt payments related to the debt assumed
in the acquisition of EBS as well as $2.6 million of tax withholdings paid related to vesting of restricted stock units in 2023, which
did not occur in 2022.
For 2022, cash flows used in financing activities was $76.3 million, compared to cash flows from financing activities of
$374.4 million in 2021. The $450.7 million decrease in cash flows from financing activities was primarily due to $484.3 million in
proceeds from the issuance of the 2026 Notes, net of issuance costs paid during 2021 that did not occur during 2022. The
decrease in cash flows from financing activities was also due to the repurchase of 1,385,592 shares of our common stock for
$78.8 million during 2022 that did not occur during 2021. These decreases in cash flows from financing activities were partially
offset by the repayment of $110.0 million to terminate our credit facility in 2021 that did not occur in 2022.
Non-GAAP Measures
We define non-GAAP adjusted EBITDA as our net income before interest expense, interest income, certain activity within
other income / (expense), net, provision for / (benefit from) income taxes, amortization and depreciation expense, stock-based
compensation expense, acquisition-related expense, legal costs and settlement fees incurred and received in connection with
non-ordinary course litigation and other disputes, particularly costs involved in ongoing intellectual property litigation. We do not
consider these items to be indicative of our core operating performance. The non-cash items include amortization and
depreciation expense, amortization of debt discount and debt issuance costs for the 2026 Notes included in interest expense,
stock-based compensation expense related to restricted stock units and other forms of equity compensation, including, but not
limited to, the sale of common stock. We do not adjust for ordinary course legal expenses resulting from maintaining and
enforcing our intellectual property portfolio and license agreements. Non-GAAP adjusted EBITDA is not a measure calculated in
accordance with GAAP. See the table below for a reconciliation of non-GAAP adjusted EBITDA from net income, the most
directly comparable financial measure calculated and presented in accordance with GAAP.
We have included non-GAAP adjusted EBITDA in this report because it is a key measure our management uses to
understand and evaluate our core operating performance and trends, to generate future operating plans, to make strategic
decisions regarding the allocation of capital and to make investments in initiatives that are focused on cultivating new markets for
our solutions. We also use non-GAAP adjusted EBITDA, a non-GAAP financial measure, as a performance measure under our
executive bonus plan. Further, we believe the exclusion of certain expenses in calculating non-GAAP adjusted EBITDA facilitates
comparisons of our operating performance on a period-to-period basis and, in the case of exclusion of acquisition-related
expense and certain historical legal expenses, excludes items that we do not consider to be indicative of our core operating
performance. Accordingly, we believe non-GAAP adjusted EBITDA provides useful information to investors and others in
understanding and evaluating our operating results in the same manner as our management and board of directors.
Our use of non-GAAP adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation or as
a substitute for analysis of our financial results as reported under GAAP. Some of these limitations are: (a) although amortization
and depreciation are non-cash charges, the assets being amortized and depreciated may have to be replaced in the future, and
non-GAAP adjusted EBITDA does not reflect cash capital expenditure requirements for such replacements or for new capital
expenditure requirements; (b) non-GAAP adjusted EBITDA does not reflect changes in, or cash requirements for, our working
capital needs; (c) non-GAAP adjusted EBITDA does not reflect the potentially dilutive impact of equity-based compensation; (d)
non-GAAP adjusted EBITDA does not reflect tax payments that may represent a reduction in cash available to us; and (e) other
companies, including companies in our industry, may calculate non-GAAP adjusted EBITDA or similarly titled measures
differently, which reduces its usefulness as a comparative measure.
75
Because of these and other limitations, you should consider non-GAAP adjusted EBITDA alongside our other GAAP-based
financial performance measures, net income and our other GAAP financial results. The following table presents a reconciliation
of non-GAAP adjusted EBITDA from net income, the most directly comparable GAAP measure, for each of the periods indicated
(in thousands):
Non-GAAP adjusted EBITDA:
Net income
Adjustments:
Year Ended December 31,
2023
2022
2021
$
80,340 $
55,631 $
51,175
Interest expense, interest income and certain activity within other income / (expense), net
(32,229)
(5,768)
15,503
Provision for / (benefit from) income taxes
Amortization and depreciation expense
Stock-based compensation expense
Acquisition-related expense
Litigation expense
Total adjustments
Non-GAAP adjusted EBITDA
17,485
31,424
47,283
621
9,043
73,627
962
30,870
52,654
1,059
11,440
91,217
(5,106)
29,715
38,694
29
12,462
91,297
$ 153,967 $ 146,848 $ 142,472
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market
prices and rates. Our market risk exposure is primarily the result of inflation and foreign exchange rates.
The uncertainty that exists with respect to the economic impact of the Macroeconomic Conditions continues to create
significant volatility in the financial markets subsequent to the year ended December 31, 2023.
Market Risk
On January 20, 2021, we issued the 2026 Notes. We carry these instruments at face value less unamortized issuance costs.
However, the fair value of the 2026 Notes fluctuates when the market price of our common stock fluctuates.
Inflation Risk
We do not believe that inflation has had a material effect on our business, financial condition or results of operations. While
we have experienced inflationary pressures on our inventory component and freight costs, we implemented price increases on
certain products in 2022 to partially offset these increases in costs. If our costs become subject to significant inflationary
pressures, we may not be able to fully offset such higher costs through price increases. Our inability or failure to do so could
harm our business, financial condition and results of operations.
Foreign Currency Exchange Risk
Because substantially all of our revenue and operating expenses are denominated in U.S. dollars, we do not believe our
exposure to foreign currency exchange risk is material to our business, financial condition or results of operations. If a significant
portion of our revenue and operating expenses becomes denominated in currencies other than U.S. dollars, we may not be able
to effectively manage this risk, and our business, financial condition and results of operations could be adversely affected by
translation and by transactional foreign currency conversions.
76
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ALARM.COM HOLDINGS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm (PCAOB ID 238)
Consolidated Financial Statements
Consolidated Statements of Operations
Consolidated Statements of Comprehensive Income
Consolidated Balance Sheets
Consolidated Statements of Cash Flows
Consolidated Statements of Equity
Notes to the Consolidated Financial Statements
Schedule II - Valuation and Qualifying Accounts for the Years Ended December 31, 2023, 2022 and 2021
Page
78
80
81
82
83
85
86
124
77
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of Alarm.com Holdings, Inc.
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Alarm.com Holdings, Inc. and its subsidiaries (the
“Company”) as of December 31, 2023 and 2022, and the related consolidated statements of operations, of comprehensive
income, of equity and of cash flows for each of the three years in the period ended December 31, 2023, including the related
notes and financial statement schedule listed in the accompanying index (collectively referred to as the “consolidated financial
statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2023, based on
criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of
the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position
of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three
years in the period ended December 31, 2023 in conformity with accounting principles generally accepted in the United States of
America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting
as of December 31, 2023, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.
Change in Accounting Principle
As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts for
convertible instruments and earnings per share in 2022.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control
over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in
Management’s Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express
opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting
based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United
States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities
laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement,
whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material
respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement
of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.
Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated
financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control
over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a
material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the
assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We
believe that our audits provide a reasonable basis for our opinions.
As described in Management’s Report on Internal Control over Financial Reporting, management has excluded EBS Spółka z
ograniczoną odpowiedzialnością ("EBS") from its assessment of internal control over financial reporting as of December 31,
2023, because it was acquired by the Company in a purchase business combination during 2023. We have also excluded EBS
from our audit of internal control over financial reporting. EBS is a wholly-owned subsidiary whose total assets and total revenues
excluded from management’s assessment and our audit of internal control over financial reporting represent less than 1% and
1%, respectively, of the related consolidated financial statement amounts as of and for the year ended December 31, 2023.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that
(i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions
of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit
78
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial
statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or
disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or
complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated
financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate
opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Revenue recognition
As described in Note 2 to the consolidated financial statements, the Company’s revenue is generated from the sale of cloud-
based SaaS services on its integrated Alarm.com platform, the sales of licenses and services on its non-hosted software
platform, and the sale of hardware products. Cloud-based SaaS services are billed monthly in advance and revenue is
recognized on a monthly basis as the performance obligation is satisfied. Licenses on non-hosted services are billed monthly
and revenue is recognized on a monthly basis as the services are performed. Hardware revenue is recognized when the
customer obtains control. The Company’s total revenue was $881.7 million for the year ended December 31, 2023.
The principal considerations for our determination that performing procedures relating to revenue recognition is a critical audit
matter are the significant audit effort in performing procedures and evaluating audit evidence related to the accuracy and
occurrence of revenue transactions.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall
opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the
revenue recognition process, including controls over the accuracy and occurrence of revenue transactions. These procedures
also included, among others, evaluating, on a test basis, the accuracy and occurrence of transactions recognized as revenue by
obtaining and inspecting, where applicable, invoices, customer purchase orders, dealer and license agreements, shipping
documents and cash receipts from customers.
/s/ PricewaterhouseCoopers LLP
Washington, District Of Columbia
February 22, 2024
We have served as the Company’s auditor since 2009.
79
ALARM.COM HOLDINGS, INC.
Consolidated Statements of Operations
(in thousands, except share and per share data)
Year Ended December 31,
2023
2022
2021
Revenue:
SaaS and license revenue
Hardware and other revenue
Total revenue
Cost of revenue(1):
Cost of SaaS and license revenue
Cost of hardware and other revenue
Total cost of revenue
Operating expenses:
Sales and marketing
General and administrative
Research and development
Amortization and depreciation
Total operating expenses
Operating income
Interest expense
Interest income
Other income / (expense), net
Income before income taxes
Provision for / (benefit from) income taxes
Net income
Net loss attributable to redeemable noncontrolling interests
$
569,200 $
520,377 $
312,482
881,682
85,898
239,261
325,159
100,226
112,930
245,114
31,424
489,694
66,829
(3,429)
29,801
4,624
97,825
17,485
80,340
703
322,182
842,559
73,897
268,684
342,581
92,748
106,688
218,635
30,870
448,941
51,037
(3,144)
8,759
(59)
56,593
962
55,631
707
Net income attributable to common stockholders
$
81,043 $
56,338 $
460,372
288,597
748,969
66,758
239,141
305,899
86,664
87,406
177,713
29,715
381,498
61,572
(15,956)
587
(134)
46,069
(5,106)
51,175
1,084
52,259
Per share information attributable to common stockholders:
Net income per share:
Basic
Diluted
Weighted average common shares outstanding:
Basic
Diluted
_______________
(1) Exclusive of amortization and depreciation shown in operating expenses below.
$
$
1.63 $
1.53 $
1.13 $
1.07 $
1.05
1.01
49,818,448
54,625,434
49,926,236
54,932,757
49,869,857
51,919,902
See accompanying notes to the consolidated financial statements.
80
ALARM.COM HOLDINGS, INC.
Consolidated Statements of Comprehensive Income
(in thousands)
Net income
Other comprehensive income
Foreign currency translation adjustment
Total other comprehensive income
Comprehensive income
Comprehensive loss attributable to redeemable noncontrolling interests
Year Ended December 31,
2023
2022
2021
$
80,340 $
55,631 $
51,175
1,398
1,398
81,738
703
—
—
55,631
707
—
—
51,175
1,084
52,259
Comprehensive income attributable to common stockholders
$
82,441 $
56,338 $
See accompanying notes to the consolidated financial statements.
81
ALARM.COM HOLDINGS, INC.
Consolidated Balance Sheets
(in thousands, except share and per share data)
Assets
Current assets:
Cash and cash equivalents
Accounts receivable, net of allowance for credit losses of $3,864 and $2,835, and net of allowance for
product returns of $2,279 and $1,551, as of December 31, 2023 and 2022, respectively
Inventory
Other current assets, net
Total current assets
Property and equipment, net
Intangible assets, net
Goodwill
Deferred tax assets
Operating lease right-of-use assets
Other assets, net of allowance for credit losses of $5 and $2 as of December 31, 2023 and 2022,
respectively
Total assets
Liabilities, redeemable noncontrolling interests and stockholders’ equity
Current liabilities:
December 31,
2023
2022
$
696,983 $
622,165
130,626
96,140
33,031
956,780
54,164
78,564
154,498
131,815
24,242
124,283
115,584
29,056
891,088
57,172
82,458
148,183
84,185
28,933
39,500
37,356
$ 1,439,563 $ 1,329,375
Accounts payable, accrued expenses and other current liabilities
$
124,475 $
119,657
Accrued compensation
Deferred revenue
Operating lease liabilities
Total current liabilities
Deferred revenue
Convertible senior notes, net
Operating lease liabilities
Other liabilities
Total liabilities
Commitments and contingencies (Note 13)
Redeemable noncontrolling interests
Stockholders’ equity
Preferred stock, $0.001 par value, 10,000,000 shares authorized; no shares issued and outstanding as of
December 31, 2023 and 2022
Common stock, $0.01 par value, 300,000,000 shares authorized; 51,888,838 and 50,985,454 shares issued;
and 49,868,175 and 49,452,709 shares outstanding as of December 31, 2023 and 2022, respectively
Additional paid-in capital
Treasury stock, at cost; 2,020,663 and 1,532,745 shares as of December 31, 2023 and 2022, respectively
Accumulated other comprehensive income
Retained earnings
Total stockholders’ equity
28,626
10,193
12,043
175,337
12,692
493,515
20,468
12,697
25,582
7,540
12,157
164,936
10,792
490,370
27,380
13,050
714,709
706,528
36,308
23,988
—
519
531,734
(111,291)
1,398
266,186
688,546
—
510
497,199
(83,993)
—
185,143
598,859
Total liabilities, redeemable noncontrolling interests and stockholders’ equity
$ 1,439,563 $ 1,329,375
See accompanying notes to the consolidated financial statements.
82
ALARM.COM HOLDINGS, INC.
Consolidated Statements of Cash Flows
(in thousands)
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash flows from operating activities:
Provision for / (recovery of) credit losses on accounts receivable
Reserve for product returns
Provision for / (recovery of) credit losses on notes receivable
Inventory write-down
Amortization on patents and tooling
Amortization and depreciation
Amortization of debt issuance costs and debt discount
Amortization of operating leases
Deferred income taxes
Change in fair value of contingent liability
Stock-based compensation
(Gain on) / impairment of investment or intangible assets
Loss on early extinguishment of debt
Changes in operating assets and liabilities (net of business acquisitions):
Accounts receivable
Inventory
Other current and non-current assets
Accounts payable, accrued expenses and other current liabilities
Deferred revenue
Operating lease liabilities
Other liabilities
Cash flows from operating activities
Cash flows used in investing activities:
Business acquisition, net of cash acquired
Additions to property and equipment
Issuances of notes receivable
Capitalized software development costs
Receipt of payments on notes receivable
Purchase of investment in unconsolidated entity
Proceeds from sale of investment
Purchases of developed technology and other assets
Cash flows used in investing activities
Cash flows (used in) / from financing activities:
Repayments of credit facility
Proceeds from issuance of convertible senior notes
Payments of debt issuance costs
Payments of deferred consideration for acquisitions
Purchases of treasury stock, including transaction costs
Purchases of redeemable noncontrolling interest
Payments of acquired debt
Payments of tax withholdings related to vesting of restricted stock units
Issuances of common stock from equity-based plans
Cash flows (used in) / from financing activities
Effect of exchange rate changes on cash, cash equivalents and restricted cash
Net increase / (decrease) in cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash at beginning of the period
Cash, cash equivalents and restricted cash at end of the period
83
Year Ended December 31,
2022
2021
2023
$
80,340 $
55,631 $
51,175
1,508
4,399
3
1,420
1,213
31,424
3,145
11,484
(47,730)
68
47,283
—
—
(10,536)
20,961
(1,338)
4,613
4,553
(13,947)
(2,898)
135,965
(9,696)
(7,517)
(450)
(743)
55
(1,700)
—
(5,915)
(25,966)
1,156
4,746
(78)
—
1,359
30,870
3,126
10,499
(55,039)
—
52,654
(140)
—
(24,346)
(40,308)
(8,952)
32,938
3,428
(12,723)
2,080
56,901
(31,730)
(28,640)
(3,000)
—
61
(5,150)
140
—
(68,319)
—
—
—
(1,672)
(27,298)
(832)
(3,040)
(2,621)
3,598
(31,865)
66
78,200
622,879
701,079 $
—
—
—
(1,500)
(78,844)
—
—
—
4,020
(76,324)
—
(87,742)
710,621
622,879 $
$
(775)
2,494
(9)
448
1,240
29,715
15,823
9,692
(10,115)
—
38,694
86
185
(23,941)
(31,443)
(11,912)
39,418
2,308
(11,809)
1,883
103,157
—
(11,062)
—
—
59
(5,000)
—
(4,362)
(20,365)
(110,000)
500,000
(15,698)
(1,160)
—
—
—
(4,476)
5,704
374,370
—
457,162
253,459
710,621
ALARM.COM HOLDINGS, INC.
Consolidated Statements of Cash Flows — (Continued)
(in thousands)
Reconciliation of cash, cash equivalents and restricted cash:
Cash and cash equivalents
Restricted cash included in other current assets and other assets
Total cash, cash equivalents and restricted cash
Supplemental disclosures:
Cash paid for interest
Cash paid for income taxes, net of refunds
Noncash investing and financing activities:
Cash not yet paid for capital expenditures
Cash not yet paid for business and asset acquisitions - holdback
Contingent liability from business acquisition
$
$
$
Year Ended December 31,
2022
2021
2023
696,983 $
4,096
701,079 $
622,165 $
714
622,879 $
710,621
—
710,621
192 $
— $
64,577
7,453
630
2,780
2,061
1,047
4,833
—
114
4,146
1,082
850
—
See accompanying notes to the consolidated financial statements.
84
Balance as of December 31,
2020
Common stock issued in
connection with equity-based
plans
Tax withholding related to
vesting of restricted stock units
Stock-based compensation
expense
Equity component of
convertible senior notes, net
Accretion adjustments of
redeemable noncontrolling
interest to redemption value
Net income / (loss) attributable
to common stockholders
Balance as of December 31,
2021
Adoption of accounting
standard on debt with
conversion and other options
Common stock issued in
connection with equity-based
plans
Purchases of treasury stock
Reclassification of subsidiary
long-term incentive plan liability
related to modification
Stock-based compensation
expense
Noncontrolling interest
assumed through acquisition
Accretion adjustments of
redeemable noncontrolling
interest to redemption value
Net income / (loss) attributable
to common stockholders
Balance as of December 31,
2022
Common stock issued in
connection with equity-based
plans
Purchase of treasury stock
Tax withholdings related to
vesting of restricted stock units
Stock-based compensation
expense
Purchases of redeemable
noncontrolling interest
Accretion adjustments of
redeemable noncontrolling
interest to redemption value
Net income / (loss) attributable
to common stockholders
Other comprehensive income
Balance as of December 31,
2023
ALARM.COM HOLDINGS, INC.
Consolidated Statements of Equity
(in thousands)
Redeemable
Noncontrolling
Interests
Common Stock
Shares
Amount
Additional
Paid-In
Capital
Treasury Stock
Shares
Amount
Accumulated
Other
Comprehensive
Income
Retained
Earnings
Total
Stockholders’
Equity
$
10,691
49,631 $
496 $ 405,831
147 $
(5,149) $
— $ 66,574 $
467,752
—
—
—
—
3,281
(1,084)
776
—
—
—
—
—
8
—
—
—
—
—
5,696
(4,476)
38,694
56,515
(3,281)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
5,704
(4,476)
38,694
56,515
(3,281)
52,259
52,259
$
12,888
50,407 $
504 $ 498,979
147 $
(5,149) $
— $ 118,833 $
613,167
—
—
(56,515)
—
—
—
—
—
—
6,770
5,037
(707)
578
—
—
—
—
—
—
6
—
—
—
—
—
—
—
—
4,014
—
—
1,386
(78,844)
3,104
52,654
—
(5,037)
—
—
—
—
—
—
—
—
—
—
—
—
9,972
(46,543)
—
—
—
—
—
—
—
—
—
—
—
—
—
4,020
(78,844)
3,104
52,654
—
(5,037)
56,338
56,338
$
23,988
50,985 $
510 $ 497,199
1,533 $ (83,993) $
— $ 185,143 $
598,859
—
—
—
—
(1,238)
14,261
(703)
—
904
—
—
—
—
—
—
—
9
—
—
—
—
—
—
—
3,589
—
(2,621)
47,422
406
(14,261)
—
—
—
488
—
(27,298)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
1,398
—
—
—
—
—
—
81,043
—
3,598
(27,298)
(2,621)
47,422
406
(14,261)
81,043
1,398
$
36,308
51,889 $
519 $ 531,734
2,021 $ (111,291) $
1,398 $ 266,186 $
688,546
See accompanying notes to the consolidated financial statements.
85
ALARM.COM HOLDINGS, INC.
Notes to the Consolidated Financial Statements
December 31, 2023, 2022 and 2021
Note 1. Organization
Alarm.com Holdings, Inc. (referred to herein as Alarm.com, the Company, or we) is the leading platform for the intelligently
connected property. Our cloud-based platform offers an expansive suite of Internet of Things, or IoT, solutions addressing
opportunities in the residential, multi-family, small business and enterprise commercial markets. Alarm.com’s solutions include
security, video and video analytics, energy management, access control, electric utility grid management, indoor gunshot
detection, water management, health and wellness and data-rich emergency response. Our solutions are delivered through an
established network of trusted service provider partners, who are experts at selling, installing and supporting our solutions. We
derive revenue from the sale of our cloud-based Software-as-a-Service, or SaaS, services, license fees, software, hardware,
activation fees and other revenue. Our fiscal year ends on December 31.
Note 2. Summary of Significant Accounting Policies
Principles of Consolidation
Our consolidated financial statements include our accounts and those of our majority-owned and controlled subsidiaries
after elimination of intercompany accounts and transactions. Equity investments over which we are able to exercise significant
influence but do not control the investee are accounted for using the equity method.
We determine whether we have a controlling financial interest in an entity by first evaluating whether the entity is a voting
interest entity or a variable interest entity, or VIE. Voting interest entities are entities that have sufficient equity and provide equity
investor voting rights that give them power to make significant decisions relating to the entity’s operations. The usual condition for
a controlling financial interest in a voting interest entity is ownership of a majority voting interest. In VIEs, a controlling financial
interest is attained through means other than voting rights and the entities lack one or more of the characteristics of a voting
entity.
We have unconsolidated equity investments in third-party businesses. Equity investments with readily determinable fair
values are recorded at fair value. Equity investments without readily determinable fair values are recorded using the
measurement alternative. Under the measurement alternative, we measure investments without readily determinable fair values
at cost, less impairment, adjusted for observable price changes from orderly transactions for identical or similar investments. We
make a separate election to use the measurement alternative for each eligible investment, and reassess whether an investment
qualifies for the alternative at each reporting period. Adjustments resulting from impairment, fair value or observable price
changes are recorded in other income / (expense), net in our consolidated statements of operations.
Use of Estimates
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the
United States of America, or GAAP, requires management to make estimates and assumptions that affect the reported amounts
of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the
reporting period. As of the date of issuance of these financial statements, we are not aware of any specific event or circumstance
that would require us to update our estimates, assumptions and judgments or revise the carrying value of our assets or liabilities.
However, our estimates, judgments and assumptions are continually evaluated based on available information and experience
and may change as new events occur and additional information is obtained. The global economy, credit markets and financial
markets have and may continue to experience significant volatility as a result of significant worldwide events, including public
health crises, and geopolitical upheaval, such as Russia’s incursion into Ukraine and the war between Israel and Hamas,
disruptions to global supply chains, rising interest rates, risk of recession and inflation (collectively, the Macroeconomic
Conditions). Because of the use of estimates inherent in the financial reporting process and in light of the continuing uncertainty
arising from the Macroeconomic Conditions, actual results could differ from those estimates and any such differences may be
material. Estimates are used when accounting for revenue recognition, allowances for credit losses, allowance for hardware
returns, estimates of obsolete inventory, long-term incentive compensation, the lease term and incremental borrowing rates for
leases, stock-based compensation, income taxes, legal reserves, goodwill, intangible assets and other long-lived assets.
Reclassifications
Certain previously reported amounts in the income taxes footnote for the year ended December 31, 2022 have been
reclassified to conform to our current presentation, including the reclassification for income tax underpayment interest, net of tax
benefit, within the reconciliation between the federal statutory rate and the effective income tax rate.
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Notes to the Consolidated Financial Statements — (Continued)
December 31, 2023, 2022 and 2021
Cash and Cash Equivalents
We consider all highly liquid instruments purchased with an original maturity from the date of purchase of three months or
less to be cash equivalents. As of December 31, 2023 and 2022, we have invested $679.7 million and $510.3 million in cash
equivalents in the form of money market funds with a number of financial institutions, respectively. We consider these money
market funds to be Level 1 financial instruments (see Note 10).
Accounts Receivable
Accounts receivable are principally derived from sales to customers located in the United States and Canada. The majority
of our sales in Canada are transacted in U.S. dollars. Revenue in countries outside of North America accounted for 4%, 4% and
3% of our total revenue for the years ended December 31, 2023, 2022 and 2021, respectively. Accounts receivable balances
related to service providers partners outside of North America were 7% and 5% as of December 31, 2023 and 2022, respectively.
Our accounts receivable are stated at estimated realizable value.
Restricted Cash
We consider all cash reserved for a specific use and not available for immediate or general business use to be restricted
cash. As of December 31, 2023, we had a total of $4.1 million of restricted cash, of which less than $0.1 million was included in
other current assets and $4.1 million was included in other assets within our consolidated balance sheets. As of December 31,
2022, we had a total of $0.7 million of restricted cash, of which less than $0.1 million was included in other current assets and
$0.7 million was included in other assets within our consolidated balance sheets.
Notes Receivable
Notes receivable are presented net of an allowance for uncollectibility, if any. We accrue interest on notes receivable based
on the contractual terms of the note. Outstanding notes receivable that are aged 30 days or more from the contractual payment
date are considered past due. Notes receivable are evaluated for impairment at least quarterly. Impairment occurs when it is
deemed probable that we will not be able to collect all amounts due according to the contractual terms of the loan. Factors
considered in determining impairment include payment status, collateral value and the probability of collecting payments when
due. See Note 9 for further details on loans provided to one of our distribution partners, technology partners and service provider
partners.
Credit Losses
The allowance for credit losses is a valuation account that is deducted from the accounts receivable and notes receivable
amortized cost basis to present the net amount expected to be collected. We estimate the allowance balance by applying the
loss-rate method using relevant available information from internal and external sources, including historical write-off activity,
current conditions and reasonable and supportable forecasts. Historical credit loss experience provides the basis for the
estimation of expected credit losses. Adjustments to historical loss information are made for changes in economic conditions,
such as changes in unemployment rates. We use projected economic conditions over a period no more than twelve months
based on data from external sources. For periods beyond the twelve-month reasonable and supportable forecast period, we
revert to historical loss information immediately.
The allowance for credit losses is measured on a pooled basis when similar risk characteristics exist. When assessing
whether to measure certain financial assets on a pooled basis, we considered various risk characteristics, including the financial
asset type, size and the historical or expected credit loss pattern. These risk characteristics are relevant to accounts receivable
and notes receivable. We identified the following two portfolio segments for our accounts receivable: (i) outstanding accounts
receivable balances within Alarm.com and certain subsidiaries and (ii) outstanding accounts receivable balances within all other
subsidiaries. We identified the following two portfolio segments for our notes receivable: (i) loan receivables and (ii) hardware
financing receivables. There were no changes to our portfolio segments during the years ended December 31, 2023 and 2022,
and no changes to our policies or practices involving the issuance of notes receivable, customer acquisitions or any other factors
that influenced our estimate of expected credit losses. Additionally, there were no significant changes in the amount of accounts
receivable or notes receivable write-offs during the year ended December 31, 2023 as compared to historical periods other than
a partial accounts receivable write-off of $0.7 million related to one of our distribution partners' outstanding balance during the
year ended December 31, 2021. There were no purchases or sales of financial assets during the years ended December 31,
2023 and 2022. There were no hardware financing receivables outstanding as of December 31, 2023 and 2022.
Expected credit losses are estimated over the contractual term of the financial assets and we adjust the term for expected
prepayments when appropriate. For the years ended December 31, 2023 and 2022 we recorded credit loss expense of $1.0
million and $0.8 million in general and administrative expense in our consolidated statements of operations, respectively. For the
year ended December 31, 2021, we recorded a reduction to credit loss expense of $1.0 million in general and administrative
expense in our consolidated statements of operations. The contractual term excludes expected extensions, renewals and
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Notes to the Consolidated Financial Statements — (Continued)
December 31, 2023, 2022 and 2021
modifications because extension and renewal options are unconditionally cancelable by us. Write-offs of the amortized cost basis
are recorded to the allowance for credit losses. Any subsequent recoveries of previously written off balances are recorded as a
reduction to credit loss expense.
We do not accrue interest on notes receivable that are considered impaired or are 90 days or greater past due based on
their contractual payment terms. Notes receivable that are 90 days or greater past due are placed on nonaccrual status. Notes
receivable may be placed on nonaccrual status earlier if, in management’s opinion, a timely collection of the full principal and
interest becomes uncertain. After a note receivable has been placed on nonaccrual status, interest will be recognized when cash
is received. A note receivable may be returned to accrual status after all of the customer’s delinquent balances of principal and
interest have been settled, and collection of all remaining contractual amounts due is reasonably assured. We have elected not
to measure an allowance for credit losses for accrued interest receivables. We write-off any accrued interest on notes receivable
that are considered impaired or are 90 days or greater past due based on their contractual payment terms by reversing interest
income. The accrued interest receivable as of December 31, 2023 and 2022 was $0.1 million and less than $0.1 million,
respectively, and is reflected in other current assets and other assets within our consolidated balance sheets and excluded from
the amortized cost basis of the notes receivable. We did not write-off any accrued interest receivable during the years ended
December 31, 2023, 2022 and 2021.
Inventory
Our inventory, which is comprised of raw materials, work-in-process and finished goods, includes materials used to produce
our wireless communications network enabled radios, video cameras, video recorders, smart thermostats, gunshot detection
sensors, home automation system parts and peripherals, is stated at the lower of cost or net realizable value, and is charged to
cost of sales primarily on a first in, first out, or FIFO, basis when the inventory is shipped from our manufacturer and received by
our service provider partners. We periodically evaluate our inventory quantities for obsolescence based on criteria such as
customer demand and changing technology and record an obsolescence write-off when necessary.
Leases
We determine if an arrangement contains a lease at the inception of the arrangement. As part of the lease determination
process, we assess several factors, including, but not limited to, whether we have the right to control and direct the use of the
asset and whether the other party has a substantive substitution right. If we enter into leases that contain multiple components,
we identify separate lease components based on whether or not the right to use the underlying assets is distinct and either highly
dependent or highly interrelated with other rights in the contract. We also evaluate whether there are any non-lease components
in the arrangement. For certain classes of underlying assets, such as data centers, we have elected not to separate non-lease
components from lease components. For all other classes of underlying assets, if separate lease and non-lease components are
identified, we allocate the consideration in the contract to the lease and non-lease components using the relative stand-alone
selling price method at the lease inception.
Many of our leases include options to renew at our sole discretion. We also have several leases that provide us an option to
terminate the lease prior to the end of the lease term. These renewal and termination options are included in the lease term at
the commencement date when we are reasonably certain the options will be exercised. When assessing the likelihood of electing
these options, we consider the length of the renewal period, market conditions, our expansion plans, the existence of a
termination penalty, as well as other factors. Our lease agreements do not contain any material residual value guarantees,
restrictive covenants or variable lease payments.
Right-of-use, or ROU, assets represent our right to use an underlying asset for the term of the lease and lease liabilities
represent our obligation to make lease payments throughout the term of the lease. ROU assets and lease liabilities are
recognized as of the commencement date of the lease based on the present value of contractual lease payments due over the
term of the lease. We use our incremental borrowing rate to determine the present value of the lease payments, as our leases do
not state the rate implicit in the lease. Our incremental borrowing rate is determined on a collateralized basis at the
commencement date of the lease.
ROU assets and lease liabilities resulting from operating leases are recorded on our consolidated balance sheets. We did
not have any finance leases or subleases as of December 31, 2023 and 2022.
Lease expense is recognized on a straight-line basis over the term of the lease. Office and equipment lease expense is
recorded in general and administrative expense and data center lease expense recorded in cost of SaaS and license revenue as
well as research and development expense. Some of our leases include tenant improvement allowances, which are recorded
when we are reasonably certain to utilize the allowance and are amortized on a straight-line basis over the shorter of the lease
terms or the asset lives. Leases with an initial lease term of twelve months or less are considered short-term leases. Short-term
leases are not recorded on our consolidated balance sheets. Expenses associated with short-term leases are recognized on a
straight-line basis over the term of the lease and are recorded in general and administrative expense. Short-term lease costs
were immaterial for the years ended December 31, 2023 and 2022.
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Notes to the Consolidated Financial Statements — (Continued)
December 31, 2023, 2022 and 2021
Convertible Senior Notes
On January 20, 2021, we issued $500.0 million aggregate principal amount of 0% convertible senior notes due January 15,
2026 in a private placement to qualified institutional buyers, or the 2026 Notes. Prior to the January 1, 2022 adoption of
Accounting Standards Update, or ASU, 2020-06, "Debt—Debt with Conversion and Other Options (Subtopic 470-20) and
Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and
Contracts in an Entity’s Own Equity," we separated the 2026 Notes into liability and equity components. In accounting for the
issuance of our convertible senior notes, the carrying amount of the liability component was calculated by measuring the fair
value of a similar liability that did not have an associated convertible feature, using a discounted cash flow model with a risk
adjusted yield. The carrying amount of the equity component representing the conversion option was determined by deducting
the fair value of the liability component from the par value of the 2026 Notes as a whole. This difference between the aggregate
principal amount and the liability component represented a debt discount that was amortized to interest expense using the
effective interest method over the term of the notes. Transaction costs attributable to the liability component were netted with the
liability component and amortized to interest expense using the effective interest method over the term of the 2026 Notes.
Transaction costs attributable to the equity component were netted with the equity component of the notes in additional paid-in
capital in the consolidated balance sheets. The equity component was not remeasured as long as it continued to meet the
conditions for equity classification.
We adopted ASU 2020-06 effective January 1, 2022, using a modified retrospective adoption method, which required us to
record the initial effect of this guidance as a cumulative-effect adjustment to retained earnings on January 1, 2022. Upon
adoption of ASU 2020-06, we recombined the liability and equity components of the 2026 Notes assuming that the instrument
was accounted for as only a liability from inception to the date of adoption. We also recombined the liability and equity
components of the debt issuance costs. We also removed the temporary difference between the book and tax treatment of the
debt discount and adjusted the temporary difference between the book and tax treatment of the debt issuance costs of the 2026
Notes. The issuance costs are presented as a deduction from the outstanding principal balance of the 2026 Notes and are
amortized to interest expense using the effective interest method over the contractual term of the 2026 Notes.
Comprehensive Income
Comprehensive income consists of net income and other comprehensive income. Other comprehensive income refers to
gains and losses that are recorded as an element of stockholders' equity and excluded from net income. Our other
comprehensive income consists of foreign currency translation adjustments.
Foreign Currency
For foreign operations where substantially all monetary transactions are in the local currency, we use the local currency as
the functional currency. For these foreign operations, assets and liabilities are translated at period-end exchange rates and
revenue and expense items are translated at average exchange rates prevailing during the periods being reported. The effects of
translating financial statements of foreign operations into our reporting currency are recognized as a cumulative translation
adjustment within accumulated other comprehensive (loss) / income, a separate component of stockholders’ equity. Gains or
losses from foreign currency remeasurements that arise from exchange rate fluctuations on transactions denominated in
a currency other than the functional currency are included in our results of operations.
Redeemable Noncontrolling Interests
Noncontrolling interests with redemption features that are not solely within our control are considered redeemable
noncontrolling interests. Our redeemable noncontrolling interests relate to our 86% equity ownership interest in PC Open
Incorporated, a Washington corporation, doing business as OpenEye and our 85% equity ownership interest in Noonlight, Inc., or
Noonlight, a Delaware corporation (see Note 7). The OpenEye and Noonlight stockholder agreements contain a put option that
gives the minority stockholders the right to sell their shares to us based on the fair value of the shares and also contain a call
option that gives us the right to purchase the remaining shares from the minority stockholders based on the fair value of the
shares. The next put and call options related to OpenEye can each be exercised beginning in the first quarter of 2024. The put
and call options related to Noonlight can each be exercised beginning in the first quarter of 2026. These redeemable
noncontrolling interests are considered temporary equity and we report them between liabilities and stockholders’ equity in the
consolidated balance sheets. The amount of the net income or loss attributable to the redeemable noncontrolling interests is
recorded in the consolidated statements of operations and the accretion of the redemption values is recorded as an adjustment
to additional paid-in capital. We account for purchases of redeemable noncontrolling interest as a component of stockholders'
equity when control is maintained. We recognize the difference between the consideration paid for the acquired redeemable
noncontrolling interest and the fair value of the acquired redeemable noncontrolling interest as an adjustment to additional paid-
in capital. The aggregate redemption values of the of the noncontrolling interest was $36.3 million and $24.0 million as of
December 31, 2023 and 2022, respectively.
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Notes to the Consolidated Financial Statements — (Continued)
December 31, 2023, 2022 and 2021
Internal-Use Software
We capitalize the costs directly related to the development of internal-use software for our platforms during the application
development stage of the projects. Such costs primarily include payroll and payroll-related costs for engineers and product
development employees directly associated with the development project. Our internal-use software is reported at cost less
accumulated depreciation. Depreciation begins once the project is ready for its intended use, which is usually when the code
goes into production in weekly software builds on our platforms. We depreciate the asset on a straight-line basis over a period of
three years, which is the estimated useful life. We update our software for our SaaS multi-tenant platforms on a weekly basis
utilizing continuous agile development methods, which primarily consists of bug-fixes and user interface changes. We evaluate
whether a project should be capitalized if it adds significant functionality to our platforms. Maintenance activities or minor
upgrades are expensed in the period performed.
External Software
Costs incurred in researching and developing a computer software product that will be marketed and sold are charged to
expense when incurred until technological feasibility is established. Technological feasibility is established upon completion of a
detailed program design or, in its absence, completion of a working model. After technological feasibility is established, certain
payroll and payroll-related costs are capitalized for engineers and product development employees directly associated with the
development project. Cost capitalization ceases when the product is available for general release. Our non-hosted software is
typically developed in an agile environment with frequent revisions to product release features and functions. Agile development
results in a short duration between completion of the detailed program design and beta release. As of December 31, 2023, our
capitalized software development costs included in the consolidated balance sheets were $0.9 million. There were no capitalized
software development costs included in the consolidated balance sheets as of December 31, 2022.
Revenue Recognition
We derive our revenue from three primary sources: the sale of cloud-based SaaS services on our integrated Alarm.com
platform, the sale of licenses and services on our non-hosted software platform, or Software platform, and the sale of hardware
products. We sell our platform and hardware solutions to service provider partners that resell our solutions and hardware to
residential and commercial property owners, who are the service provider partners’ customers. Our subscribers consist of all of
the properties maintained by those residential and commercial property owners to which we are delivering at least one of our
solutions. We also sell our hardware to distributors who resell the hardware to service provider partners. We enter into contracts
with our service provider partners that establish pricing for access to our platform solutions and for the sale of hardware. These
service provider contracts typically have an initial term of one year, with subsequent renewal terms of one year. Our service
provider partners have indicated that they typically have three to five-year service contracts with residential and commercial
property owners who use our solutions.
Our hardware includes cellular radio modules that enable access to our cloud-based platforms, as well as video cameras,
video recorders, smart thermostats, image sensors, gunshot detection sensors and other peripherals. Our service provider
partners may purchase our hardware in anticipation of installing the hardware in a residential or commercial property when they
create a new subscriber account, or for use in existing subscriber properties. The purchase of hardware occurs in a transaction
that is separate and typically in advance of the purchase of our platform services. The performance obligation is primarily
satisfied when the hardware is received by our service provider partner or distributor. Service provider partners transact with us
to purchase our platform solutions and resell our solutions to a new subscriber, or to upgrade or downgrade the solutions of an
existing subscriber, at which time the subscriber’s access to our platform solutions is enabled and the delivery of the services
commences. Our performance obligation related to providing our platform solutions is satisfied on a daily basis as the subscriber
uses the platform services. The purchase of platform solutions and the purchase of hardware are separate transactions as
revenue is recognized when control of the promised goods or services are transferred to our customers, in an amount that
reflects the consideration that we expect to receive in exchange for those goods or services. We generate all of our revenue from
contracts with customers.
SaaS and license revenue associated with our contracts is invoiced and revenue is recognized at an amount that
corresponds directly with the value of the performance completed to date. Additionally, the consideration received from hardware
sales corresponds directly with the stand-alone selling price of the hardware. As a result, we have elected to use the practical
expedient related to the amount of transaction price allocated to the unsatisfied performance obligations and therefore, we have
not disclosed the total remaining revenue expected to be recognized on all contracts or the expected period over which the
remaining revenue would be recognized.
To determine the transaction price, we analyze all of the performance obligations included in the contract. We consider the
terms of the contract and our customary business practices, which typically do not include financing components or non-cash
consideration. We have variable consideration primarily in the form of rebate incentives. The significant inputs related to our
estimates of variable consideration include the volume and amount of products and services sold historically and expected to be
sold in the future, the availability and performance of our services and the historical and expected number of returns. Depending
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Notes to the Consolidated Financial Statements — (Continued)
December 31, 2023, 2022 and 2021
on the type of variable consideration and its predictability, we may apply an "expected value" approach or a "most likely amount"
approach. We estimate the variable consideration at the onset of a contract and include the variable consideration within the
transaction price if it is probable that a significant reversal of the variable consideration would not occur in the future. When
determining whether the amount of variable consideration included in the transaction price should be constrained, we look at the
history of hardware purchased and subscribers added by our service provider partners to estimate the likelihood of those service
provider partners obtaining the rebates. At times, our contracts include consideration payable to a customer in the form of fixed
discounts or rebates. We record the consideration payable to a customer as a reduction to the transaction price resulting in a
reduction to revenue over the service period.
If we enter into contracts that contain multiple promised services, we evaluate which of the promised services represent
separate performance obligations based on whether or not the promised services are distinct and whether or not the services are
separable from other promises in the contract. If these criteria are met, then we allocate the transaction price to the performance
obligations using the relative stand-alone selling price method at contract inception.
In determining the relative estimated selling prices, we consider market conditions, entity-specific factors and information
about the customer or class of customer. Any discount within the contract is allocated proportionately to all of the separate
performance obligations in the contract unless the terms of discount relate specifically to the entity’s efforts to satisfy some but
not all of the performance obligations.
For our standard service provider agreements, we have used a portfolio approach for purposes of revenue recognition, as
each agreement has similar characteristics and we do not expect the effects of applying this approach would have a material
impact on our financial statements as compared to assessing each agreement individually.
SaaS and License Revenue
We generate the majority of our SaaS and license revenue primarily from monthly fees charged to our service provider
partners sold on a per subscriber basis for access to our cloud-based intelligently connected property platform and related
solutions. Our fees per subscriber vary based upon the service plan and features utilized.
Under the terms of our contractual arrangements with our service provider partners, we bill a monthly fee to our service
provider partners in advance of the month of service, with the exception of the initial partial month of service, which is paid in
arrears. Due to the limited period of time between receipt of payment and delivery of service, we have not accounted for these
advance payments as significant financing components. We typically transfer the promised SaaS services to our customers over
time, which is evidenced by the fact that the customers receive and consume the benefits provided by our performance of the
services as such services are rendered. As a result, we recognize revenue from SaaS services on a monthly basis as we satisfy
our performance obligations over the period of service. We have demonstrated that we can sell our SaaS offering on a stand-
alone basis, as it can be sold separately from hardware and activation services. Our service provider partners typically incur and
pay the same monthly fee per subscriber account for the entire period a subscriber account is active.
We offer multiple service level packages for our platform solutions including a range of solutions and a range of a la carte
add-ons for additional features. The fee paid by our service provider partners each month for the delivery of our solutions is
based on the combination of packages and add-ons enabled for each subscriber. We utilize tiered pricing plans where our
service provider partners may receive prospective pricing discounts driven by volume.
We also generate SaaS and license revenue from the fees paid to us when we license our intellectual property to third
parties for use of our patents. We bill a monthly fee to third parties based on the number of customers that were active during the
prior month. We apply the usage-based royalty exception to recognize license revenue because the sole or predominant item to
which the royalty relates is the license of intellectual property. Under the usage-based royalty exception, we recognize revenue
on a monthly basis over the period of service. In addition, in certain markets, our EnergyHub subsidiary sells its demand
response service for an annual service fee, with pricing based on the number of subscribers or amount of aggregate electricity
demand made available for a utility’s or market’s control.
Software License Revenue
Our SaaS and license revenue also includes our software license revenue from monthly fees charged to service providers
on a per subscriber basis for access to our Software platform. The non-hosted software for interactive security, automation and
related solutions is typically deployed and operated by the service provider in its own network operations center. Our agreements
for the Software platform solution typically include software and services, such as post-contract customer support, or PCS.
Software sales that include multiple elements are typically allocated to the various elements using the relative stand-alone selling
price method. We apply the usage-based royalty exception to recognize license revenue associated with software hosted by our
customers because the predominant item to which the royalty relates is the license of intellectual property. Under the usage-
based royalty exception, we recognize revenue on a monthly basis over the period during which the services are expected to be
performed. Under the terms of our contractual arrangements with our service provider partners, we are entitled to payment of a
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Notes to the Consolidated Financial Statements — (Continued)
December 31, 2023, 2022 and 2021
monthly fee that is billed per subscriber for the month of service. Our software license revenue during the years ended
December 31, 2023, 2022 and 2021 was $23.2 million, $26.8 million and $32.3 million, respectively.
Hardware and Other Revenue
We generate hardware and other revenue primarily from the sale of video cameras, video recorders, smart thermostats and
cellular radio modules that provide access to our cloud-based platforms and, to a lesser extent, the sale of other devices,
including image sensors, gunshot detection sensors and other peripherals. We primarily transfer hardware to our customers
upon delivery to the customer, which corresponds with the time at which the customer obtains control of the hardware. As a
result, we recognize hardware and other revenue as we satisfy our performance obligations, which primarily occurs when the
hardware is received by our service provider partner or distributor, net of a reserve for estimated returns. There are a few
contracts in which we provide shipping and handling services to the customer after control of the hardware transfers to the
customer. In these instances, we have elected to account for shipping and handling costs as activities performed to fulfill the
promise to transfer hardware to the customer and not as a separate promised service.
Amounts due from the sale of hardware are payable in accordance with the terms of our agreements with our service
provider partners or distributors, and are not contingent on resale to end-users, or to service provider partners in the case of
sales of hardware to distributors. Payment for our hardware is typically due within 30 days from shipment. Our distributors sell
directly to our service provider partners under terms between the two parties.
When determining the amount of consideration we expect to be entitled to for the sale of our hardware, we estimate the
variable consideration associated with customer returns. We record a reserve against revenue for hardware returns based on
historical returns. For each of the years ended December 31, 2023, 2022 and 2021, our reserve against revenue for hardware
returns was 1% of hardware and other revenue. We evaluate our hardware reserve on a quarterly basis or if there is an
indication of significant changes in return experience. Historically, our returns of hardware have not significantly differed from our
estimated reserve. Additionally, we provide warranties related to the intended functionality of the products and services provided
and those warranties typically allow for the return of hardware up to one year past the date of sale. We determined that these
warranties are not separate performance obligations as they cannot be purchased separately and do not provide a service in
addition to an assurance the hardware will function as expected.
Our hardware and other revenue also includes our revenue from the sale of perpetual licenses that provide our customers in
the commercial market the right to use our video surveillance software for an indefinite period of time in exchange for a one-time
license fee. Our hardware and other revenue also includes our revenue from the sale of licenses that provide our customers the
right to use our indoor gunshot detection solution in exchange for license fees. Our perpetual licenses and licenses to our indoor
gunshot detection solution provide a right to use intellectual property that is functional in nature and has significant stand-alone
functionality. Accordingly, for licenses of functional intellectual property, revenue is recognized at the point-in-time when control
has been transferred to the customer, which occurs once the software has been made available to the customer.
Hardware and other revenue may also include activation fees charged to some of our service provider partners for activation
of a new subscriber account on our platforms, as well as fees paid by service provider partners for our marketing services. Our
service provider partners use services on our platforms, such as support tools and applications, to assist in the installation of our
solutions in subscriber properties. This installation marks the beginning of the service period on our platforms and, on occasion,
we earn activation revenue for fees charged for this service. The activation fee is non-refundable, separately negotiated and
specified in our contractual arrangements with our service provider partners and is charged to the service provider partner for
each subscriber activated on our platforms. The decision whether to charge an activation fee is based in part on the expected
number of subscribers to be added by our service provider partners and as a result, many of our largest service provider partners
do not pay an activation fee. Activation fees are not offered on a stand-alone basis separate from our SaaS offering and are
billed and received at the beginning of the arrangement. We record activation fees initially as deferred revenue and we recognize
these fees ratably over the expected term of the subscribers’ account which we estimate is 10 years based on our annual attrition
rate. The portion of these activation fees included in current and long-term deferred revenue as of our balance sheet date
represents the amounts that will be recognized ratably as revenue over the following twelve months, or longer as appropriate,
until the 10-year expected term is complete. The balance of deferred revenue for activation fees was $4.8 million and $5.3 million
as of December 31, 2023 and 2022, respectively, which combines current and long-term balances.
92
ALARM.COM HOLDINGS, INC.
Notes to the Consolidated Financial Statements — (Continued)
December 31, 2023, 2022 and 2021
Cost of Revenue
Our cost of SaaS and license revenue primarily includes the amounts paid to wireless network providers and, to a lesser
extent, the costs of running our network operations centers which are expensed as incurred, as well as patent and royalty costs
in connection with technology licensed from third-party providers and amounts paid to distributed energy resource providers. Our
cost of SaaS and license revenue also includes our cost of software license revenue, which primarily includes the payroll and
payroll-related costs of the department dedicated to providing service exclusively to those service providers that host the
Software platform. Our cost of software license revenue during the years ended December 31, 2023, 2022 and 2021 was $0.6
million, $0.5 million and $1.1 million, respectively. Our cost of hardware and other revenue primarily includes cost of raw
materials, tooling, freight shipments and amounts paid to our third-party manufacturer for production and fulfillment of our cellular
radio modules and image sensors, and procurement costs for our video cameras, video recorders, smart thermostats and
gunshot detection sensors, which we purchase from an original equipment manufacturer, and other devices. Cost of hardware
and other revenue also includes material costs and labor cost related to our employees who manufacture hardware for our suite
of IoT solutions. Additionally, our cost of hardware and other revenue includes royalty costs in connection with technology
licensed from third-party providers.
We record the cost of SaaS and license revenue as expenses are incurred, which corresponds to the delivery period of our
services to our subscribers. We record the cost of hardware and other revenue primarily when the hardware and other services
are delivered to the service provider partner, which occurs when control of the hardware and other services transfers to the
service provider partner. Our cost of revenue excludes amortization and depreciation shown in operating expenses.
Contract Asset and Contract Liability Balances
At contract inception, we assess the goods and services promised in our contracts with customers and identify a
performance obligation for each distinct promise to transfer a good or service, or bundle of goods or services. To identify the
performance obligations, we consider all of the goods or services promised in the contract, whether explicitly stated or implied
based on customary business practices. We record a contract asset when we satisfy a performance obligation by transferring a
promised good or service. Contract assets can be conditional or unconditional depending on whether another performance
obligation must be satisfied before payment can be received. We receive payments from our service provider partners based on
the billing schedule established in our contracts. All of the accounts receivable presented in the consolidated balance sheets
represent unconditional rights to consideration. We do not have any assets from contracts containing conditional rights and we
do not have any assets from satisfied performance obligations that have not been invoiced.
We recognize an asset related to the costs incurred to obtain a contract only if we expect to recover those costs and we
would not have incurred those costs if the contract had not been obtained. We recognize an asset from the costs incurred to fulfill
a contract if the costs (i) are specifically identifiable to a contract, (ii) enhance resources that will be used in satisfying
performance obligations in future and (iii) are expected to be recovered. Our assets related to costs incurred to obtain a contract
consist of capitalized commission costs and upfront payments made to a customer. Based on the policy above, we capitalize a
portion of our commission costs as an incremental cost of obtaining a contract. When calculating the incremental cost of
obtaining a contract, we exclude any commission costs related to metrics that could be satisfied without obtaining a contract,
including training-related metrics. We amortize our commission costs over a period of three years, which is consistent with the
period over which the products and services related to the commission are transferred to the customer. The three-year period
was determined based on our review of historical enhancements and upgrades to our products and services. We applied the
portfolio approach to account for the amortization of contract costs for those contracts that have similar characteristics. Upfront
payments made to a customer are capitalized and amortized over the expected period of benefit and are recorded as a reduction
to revenue.
Contract liabilities include payments received in advance of performance under the contract and are realized with the
associated revenue recognized under the contract. All of the deferred revenue presented in the consolidated balance sheets
represents contract liabilities resulting from advance cash receipts from customers or amounts billed in advance to customers
from the sale of services. Changes in deferred revenue are due to our performance under the contract as well as to cash
received from new contracts for which services have not been provided.
Research and Development
Our research and development costs consist primarily of personnel and related expenses for our employees working on our
product development and software and device engineering teams, including salaries, bonuses, stock-based compensation,
benefits and other personnel costs. Our research and development of new products and services is a multidisciplinary effort
across our product management, program management, software engineering, device engineering, quality engineering,
configuration management and network operations teams. Also included are non-personnel costs, such as consulting and
professional fees paid to third-party development resources. We invest substantial resources in research and development to
enhance our platforms and applications, support our technology infrastructure, develop new capabilities and conduct quality
assurance testing.
93
ALARM.COM HOLDINGS, INC.
Notes to the Consolidated Financial Statements — (Continued)
December 31, 2023, 2022 and 2021
Fair Value Measurements
The accounting standard for fair value measurements provides a framework for measuring fair value and requires
disclosures regarding fair value measurements. Fair value is defined as the price that would be received for an asset or the exit
price that would be paid to transfer a liability in the principal or most advantageous market in an orderly transaction between
market participants on the measurement date. This accounting standard established a fair value hierarchy, which requires an
entity to maximize the use of observable inputs, where available. The following summarizes the three levels of inputs:
Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity can access at
the measurement date;
Level 2 - Inputs other than quoted prices included within Level 1 that are observable for similar assets and liabilities, either
directly or indirectly; quoted prices in markets that are not active; and
Level 3 - Unobservable inputs supported by little or no market activity.
The carrying amount of financial assets, including cash and cash equivalents and accounts receivable, as well as accounts
payable approximates fair value because of the short maturity and liquidity of those instruments.
Assets and Liabilities Measured at Fair Value on a Recurring Basis - In 2023 and 2022, we recorded assets for our money
market accounts. In 2023, we recorded liabilities for a contingent consideration liability related to acquisitions at fair value on a
recurring basis. Prior to the termination of the long-term incentive plan with one of our subsidiaries in May 2022, we recorded
liabilities for the long-term incentive plan at fair value on a recurring basis.
Assets Measured at Fair Value on a Nonrecurring Basis - We measure certain assets, including property and equipment,
goodwill and intangible and long-lived assets at fair value on a nonrecurring basis. These assets are recognized at fair value
when they are deemed to be other-than-temporarily impaired. Additionally, equity investments without readily determinable fair
values are recognized at fair value on a nonrecurring basis when observable price changes from orderly transactions for identical
or similar investments become available.
Concentration of Credit Risk
The financial instruments that potentially subject us to concentrations of credit risk consists principally of cash and cash
equivalents and accounts receivables. All of our cash and cash equivalents are held at financial institutions that management
believes to be of high credit quality. Our cash and cash equivalent accounts may exceed federally insured limits at times. We
mitigate the risk of loss for our cash and cash equivalents by depositing funds with a number of reputable financial institutions
and monitoring risk profiles and investment strategies of money market funds. We have not experienced any losses on cash and
cash equivalents to date. To manage accounts receivable risk, we evaluate the credit worthiness of our service provider partners
and maintain an allowance for credit losses. The majority of our accounts receivable balance is due from our service provider
partners in North America. We assess the concentrations of credit risk with respect to accounts receivables based on one
industry and one geographic region and believe our reserve for uncollectible accounts is appropriate based on our history and
this concentration.
Stock-Based Compensation
We compensate our executive officers, board of directors and employees with stock-based compensation plans under our
2015 Equity Incentive Plan, or 2015 Plan. We record stock-based compensation expense related to time-based restricted stock
units based upon the award’s grant date fair value and use an accelerated attribution method, net of actual forfeitures, in which
compensation cost for each vesting tranche in an award is recognized ratably from the service inception date to the vesting date
for that tranche. We record stock-based compensation expense related to performance-based restricted stock units based on
management’s determination of the probable outcome of the performance conditions and we record a cumulative adjustment in
periods in which there is a change in the estimated number of shares expected to vest. Our equity awards generally vest over
five years and are settled in shares of our common stock. During 2023, 2022 and 2021, we recognized compensation expense of
$47.3 million, $52.7 million and $38.7 million, respectively. During 2022 and 2021 we recognized an associated tax windfall
benefit from stock-based awards of $2.0 million and $10.1 million, respectively. During 2023, we recognized a tax shortfall from
stock-based awards of $0.5 million. We account for stock-based compensation arrangements with non-employees based upon
the award’s grant date fair value. We estimate the fair value of each option granted on the date of the grant using the Black-
Scholes option-pricing model, which contains uncertainties and requires us to estimate the risk-free interest rate, expected term,
expected stock price volatility and dividend yield. In 2021 and years prior to 2021, we used the "simplified method" to calculate
the expected term, which was presumed to be the mid-point between the vesting date and the end of the contractual term.
Beginning upon the first grant of options in 2022, the expected term for options granted is estimated using our historical
experience, including information related to options we have granted.
94
ALARM.COM HOLDINGS, INC.
Notes to the Consolidated Financial Statements — (Continued)
December 31, 2023, 2022 and 2021
Our Employee Stock Purchase Plan, or 2015 ESPP, allows eligible employees to purchase shares of our common stock at
90% of the fair market value of the closing price on the purchase date. The maximum number of shares of our common stock
that a participant may purchase during any calendar year is limited to the lesser of 10% of the participant's base compensation
for that year or the number of shares with a fair market value of $15,000. The 2015 ESPP is considered compensatory for
purposes of share-based compensation expense. Compensation expense is recognized for the amount of the discount, net of
actual forfeitures, over the six-month purchase period.
401(k) Defined Contribution Plan
We adopted the Alarm.com Holdings 401(k) Plan, or the Plan, on April 30, 2009. All of our employees are eligible to
participate in the Plan. For the years ended December 31, 2023, 2022 and 2021, our discretionary match was 100% of employee
contributions up to 10% of salary and up to a $5,000 maximum match. We recognized compensation expense of $7.2 million,
$6.4 million and $5.5 million for the years ended December 31, 2023, 2022 and 2021, respectively, related to our matching
contributions.
Business Combinations
We are required to allocate the purchase price of acquired companies to the identifiable tangible and intangible assets
acquired and liabilities assumed at the acquisition date based upon their estimated fair values. The net assets and results of
operations of an acquired entity are included in our consolidated financial statements from the acquisition date. Acquisition-
related costs are expensed as incurred. Goodwill as of the acquisition date represents the excess of the purchase consideration
of an acquired business over the fair value of the underlying net tangible and intangible assets acquired net of liabilities
assumed. This valuation requires management to apply significant judgment in estimating the fair value of long-lived and
intangible assets acquired, which involves the use of significant estimates and assumptions.
Significant estimates and assumptions in valuing certain acquired customer relationship intangible assets include estimates
about future expected cash flows and discount rates. Significant estimates and assumptions in valuing acquired developed
technology intangible assets include estimates about future expected cash flows, obsolescence factors and discount rates.
Significant estimates and assumptions in valuing acquired trade name intangible assets include estimates about future expected
cash flows, royalty rates and discount rates.
During the measurement period, we may record adjustments to the assets acquired and liabilities assumed. Any
adjustments to provisional amounts that are identified during the measurement period are recorded in the reporting period in
which the adjustment amounts are determined. Upon the conclusion of the measurement period, any subsequent adjustments
are recorded to earnings.
Some acquisitions may include contingent consideration, which is an obligation to make future payments to the seller
contingent upon the achievement of future operational or financial targets. The fair value of the contingent consideration is
estimated on a quarterly basis and changes in the fair value of the contingent consideration resulting from information that
existed subsequent to the acquisition date are recorded in the consolidated statements of operations.
Goodwill, Intangible Assets and Long-lived Assets
Goodwill
Goodwill represents the excess of (1) the aggregate of the fair value of consideration transferred in a business combination,
over (2) the fair value of assets acquired, net of liabilities assumed. Goodwill is allocated to our reporting units, which are our
operating segments or one level below our operating segments. Goodwill is not amortized, but is subject to annual impairment
tests. We perform our annual impairment review of goodwill on October 1 and when a triggering event occurs between annual
impairment tests. We test our goodwill at the reporting unit level. We perform either a qualitative analysis or a quantitative
analysis every year depending on the changes to our goodwill balance as well as changes in our business and the economy.
Qualitative factors we consider include, but are not limited to, macroeconomic conditions, industry and market conditions,
company specific events, changes in circumstances and market capitalization. The amount of goodwill impairment is calculated
as the amount by which a reporting unit's carrying value exceeds its fair value, not to exceed the carrying amount of goodwill.
For our 2023 annual impairment review, we performed a qualitative assessment for our Alarm.com reporting unit, our only
reporting unit with a goodwill balance. Based on the results of our qualitative assessment, we determined that it was not more
likely than not that the fair value of our reporting unit was less than its carrying amount, including goodwill. Therefore, we
concluded that there was no goodwill impairment as of October 1, 2023. Our assessment was performed as of October 1, 2023,
and we have determined there has been no triggering events that resulted in goodwill impairment from our assessment date
through December 31, 2023.
95
ALARM.COM HOLDINGS, INC.
Notes to the Consolidated Financial Statements — (Continued)
December 31, 2023, 2022 and 2021
Intangible Assets and Long-lived Assets
Intangible assets are initially valued at fair value using generally accepted valuation methods appropriate for the type of
intangible asset. Intangible assets with definite lives are amortized over their estimated useful lives. We evaluate the
recoverability of our intangible assets with definite lives and long-lived assets for impairment whenever events or circumstances
indicate that the carrying amount of the assets may not be recoverable. Recoverability of intangible assets with definite lives and
long-lived assets are measured by comparison of the carrying amount of the asset to the future undiscounted cash flows the
asset is expected to generate. If the asset is considered to be impaired, the amount of any impairment is measured as the
difference between the carrying value and the fair value of the impaired asset.
For the years ended December 31, 2023 and 2022, we determined there were no impairments of our intangible assets with
definite lives or other long-lived assets. For the year ended December 31, 2021, we determined there was an impairment of $0.1
million for an intangible asset acquired in 2014 related to customer relationships that no longer existed after December 31, 2021.
There were no impairments of any other long-lived assets for the year ended December 31, 2021.
Advertising Costs
We expense advertising costs as incurred. Advertising costs totaled $2.9 million, $6.1 million and $9.6 million for the years
ended December 31, 2023, 2022 and 2021, respectively. Advertising costs are included within sales and marketing expenses on
our consolidated statements of operations.
Accounting for Income Taxes
We account for income taxes under the asset and liability method as required by Accounting Standards Codification, or ASC
740, "Income Taxes," which requires the recognition of deferred tax assets and liabilities for the expected future tax
consequences of events that are included in the financial statements. Under this method, deferred tax assets and liabilities are
determined based on the differences between the financial statements and tax basis of assets and liabilities using enacted tax
rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax
assets and liabilities is recognized in income in the period that includes the enactment date.
We record net deferred tax assets to the extent we believe these assets will more likely than not be realized. In making such
a determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary
differences, projected future taxable income, tax-planning strategies and results of recent operations.
We are subject to income taxes in the United States and foreign jurisdictions based upon our business operations in those
jurisdictions. Significant judgment is required in evaluating uncertain tax positions. We record uncertain tax positions in
accordance with ASC 740-10 on the basis of a two-step process whereby (1) we determine whether it is more likely than not that
the tax positions will be sustained based on the technical merits of the position, and (2) with respect to those tax positions that
meet the more-likely-than-not recognition threshold, we recognize the largest amount of tax benefit that is greater than 50% likely
to be realized upon ultimate settlement with the related tax authority. We record interest and penalties as a component of our
income tax provision.
Treasury Stock
We account for treasury stock under the cost method and present treasury stock, including any applicable commissions and
fees, as a component of stockholders’ equity in the consolidated balance sheets and statements of equity. As of January 1, 2023,
we are subject to a 1.0% excise tax on the value of net corporate stock repurchases under the Inflation Reduction Act of 2022.
When applicable, the excise tax will be included as part of the cost basis of shares acquired and is presented within stockholders’
equity in the consolidated balance sheets. Treasury stock held by us may be retired or reissued in the future.
Earnings per Share
Our basic net income per share attributable to common stockholders is calculated by dividing the net income attributable to
common stockholders by the weighted-average number of shares of common stock outstanding for the period.
Our diluted net income per share attributable to common stockholders is calculated by giving effect to all potentially dilutive
common stock when determining the weighted-average number of common shares outstanding. For purposes of the diluted net
income per share calculation, restricted stock units, options to purchase common stock and unvested shares issued upon the
early exercise of options that are subject to repurchase are considered to be potential common stock. We use the treasury stock
method when calculating the dilutive impact of the stock options and restricted stock units on net income per share.
96
ALARM.COM HOLDINGS, INC.
Notes to the Consolidated Financial Statements — (Continued)
December 31, 2023, 2022 and 2021
On January 20, 2021, we issued the 2026 Notes. Prior to the adoption of ASU 2020-06, since we expected to settle the
principal amount on our outstanding 2026 Notes in cash and any excess in cash or shares of our common stock, we used the
treasury stock method for calculating any potential dilutive effect of the conversion spread on diluted net income per share, if
applicable. The conversion spread had a dilutive impact on diluted net income per share of common stock when the average
market price of our common stock for a given period exceeded the conversion price of $147.19 per share for the 2026 Notes.
Upon adoption of ASU 2020-06 on January 1, 2022, we began using the if-converted method when calculating the dilutive
impact of the 2026 Notes on net income per share. As a result, we included 3,396,950 shares related to the 2026 Notes within
the weighted average shares outstanding when calculating the diluted net income per share. Additionally, we included debt
issuance cost amortization, net of tax, within the numerator of the diluted net income per share.
Our redeemable noncontrolling interests are related to our 86% equity ownership interest in OpenEye and our 85% equity
ownership interest in Noonlight. When calculating net income attributable to the common stockholders, net loss attributable to
our redeemable noncontrolling interests should be excluded from net income. As a result, net income attributable to the common
stockholders is equal to the net income less (i) dividends paid on unvested shares with any remaining earnings allocated in
accordance with the bylaws between the outstanding common and preferred stock and (ii) net loss attributable to redeemable
noncontrolling interests as of the end of each period.
Recent Accounting Pronouncements
Adopted
During the year ended December 31, 2023, we did not adopt any new accounting pronouncements.
Not Yet Adopted
On November 27, 2023, the Financial Accounting Standards Board, or FASB, issued ASU 2023-07, "Segment Reporting
(Topic 280),” which revises the disclosure requirements about a public entity’s reportable segments and a reportable segment’s
expenses. This amendment requires a public entity to (i) disclose significant segment expense that are regularly provided to the
chief operating decision maker and included within each reported measure of segment profit or loss, (ii) disclose an amount for
other segment items by reportable segment and a description of its composition and (iii) provide annual disclosures about a
reportable segment’s profit or loss and assets currently required by Topic 280 in interim periods. The amendment is effective for
fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early
adoption is permitted. This amendment is required to be applied retrospectively to all prior periods presented. We are currently
assessing the impact this pronouncement will have on our consolidated financial statement disclosures.
On December 14, 2023, the FASB issued ASU 2023-09, "Income Taxes (Topic 740)," which requires additional annual
disclosures regarding specific categories in the income tax rate reconciliation as well additional information for reconciling items
that meet a quantitative threshold. This amendment also requires annual disclosures regarding the amount of income taxes paid,
including income taxes paid disaggregated by (i) federal, state and foreign taxes as well as (ii) individual jurisdictions in which
income taxes paid is equal to or greater than five percent of total income taxes paid. Additionally, this amendment requires
annual disclosures for income from continuing operations before income tax expense (or benefit) disaggregated between
domestic and foreign as well as income tax expense (or benefit) disaggregated between federal, state and foreign. The
amendment is effective for annual periods beginning after December 15, 2024, and early adoption is permitted. This amendment
should be applied on a prospective basis, but retrospective application is permitted. We are currently assessing the impact this
pronouncement will have on our consolidated financial statement disclosures.
Note 3. Revenue from Contracts with Customers
Contract Assets
Our assets related to costs incurred to obtain a contract consist of capitalized commission costs and upfront payments made
to customers. The current portion of capitalized commission costs and upfront payments made to customers is included in other
current assets within our consolidated balance sheets. The non-current portion of capitalized commission costs and upfront
payments made to customers is reflected in other assets within our consolidated balance sheets.
We review the capitalized costs for impairment at least annually. Impairment exists if the carrying amount of the asset
recognized from contract costs exceeds the remaining amount of consideration we expect to receive in exchange for providing
the goods and services to which such asset relates, less the costs that relate directly to providing those good and services and
that have not been recognized as an expense. We did not record an impairment loss on our contract assets during the years
ended December 31, 2023, 2022 and 2021.
97
ALARM.COM HOLDINGS, INC.
Notes to the Consolidated Financial Statements — (Continued)
December 31, 2023, 2022 and 2021
The changes in our contract assets are as follows (in thousands):
Beginning of period balance
Commission costs and upfront payments to a customer capitalized in period
Reimbursement of previously capitalized upfront payments to customers
Amortization of contract assets
End of period balance
Year Ended December 31,
2023
2022
2021
$
13,975 $
4,520 $
7,837
(6,774)
(5,939)
14,270
—
(4,815)
$
9,099 $
13,975 $
4,306
3,779
—
(3,565)
4,520
On July 27, 2023, we received $6.9 million in cash related to the reimbursement of previously capitalized upfront payments
to a customer. On the date of the payment, the $6.8 million unamortized portion of the contract asset balance was reduced to
zero and the remaining amount of $0.1 million was recorded as an increase to SaaS and license revenue.
Contract Liabilities
Contract liabilities include payments received in advance of performance under the contract and are realized with the
associated revenue recognized under the contract. The changes in our contract liabilities are as follows (in thousands):
Beginning of period balance
Revenue deferred and acquired in period
Revenue recognized from amounts included in contract liabilities
End of period balance
Year Ended December 31,
2023
2022
2021
$
18,332 $
14,837 $
22,861
18,617
(18,308)
(15,122)
$
22,885 $
18,332 $
12,529
13,947
(11,639)
14,837
The revenue recognized from amounts included in contract liabilities primarily relates to prepayment contracts with
customers as well as payments of activation fees.
Note 4. Accounts Receivable, Net
The components of accounts receivable, net are as follows (in thousands):
Accounts receivable
Allowance for credit losses
Allowance for product returns
Accounts receivable, net
December 31,
2023
2022
$
$
136,769 $
(3,864)
(2,279)
130,626 $
128,669
(2,835)
(1,551)
124,283
For the years ended December 31, 2023 and 2022, we recorded a provision for credit losses on our accounts receivable of
$1.5 million and $1.2 million, respectively. For the year ended December 31, 2021, we recorded a reduction to the provision for
credit losses on our accounts receivable of $0.8 million.
For the years ended December 31, 2023, 2022 and 2021, we recorded a $4.4 million, $4.7 million and $2.5 million reserve
for product returns in our hardware and other revenue, respectively. Historically, we have not experienced write-offs for
uncollectible accounts or sales returns that have differed significantly from our estimates.
98
ALARM.COM HOLDINGS, INC.
Notes to the Consolidated Financial Statements — (Continued)
December 31, 2023, 2022 and 2021
Allowance for Credit Losses - Accounts Receivable
The changes in our allowance for credit losses for accounts receivable are as follows (in thousands):
Beginning of period balance
(Provision for) / recovery of expected credit losses
Write-offs
End of period balance
Note 5. Inventory
The components of inventory are as follows (in thousands):
Raw materials
Work-in-process
Finished goods
Total inventory
Year Ended December 31, 2023 Year Ended December 31, 2022
Alarm.com
and Certain
Subsidiaries
All Other
Subsidiaries
Alarm.com
and Certain
Subsidiaries
All Other
Subsidiaries
$
$
(2,755) $
(1,399)
431
(80) $
(109)
48
(2,035) $
(1,199)
479
(3,723) $
(141) $
(2,755) $
(133)
43
10
(80)
December 31,
2023
2022
$
$
30,452 $
275
65,413
96,140 $
38,098
—
77,486
115,584
Inventory values include a write-down of $1.4 million during the year ended December 31, 2023, which is reflected in cost of
hardware and other revenue within our consolidated statements of operations. The inventory write-down is the result of a lower
of cost or net realizable value adjustment for finished goods.
Note 6. Property and Equipment, Net
Furniture, fixtures and office equipment, computer software and hardware, internal-use software, construction in progress,
leasehold improvements and real property and improvements are recorded at cost and presented net of depreciation on the
consolidated balance sheets. We record land at historical cost. Furniture, fixtures and office equipment and computer software
and hardware are depreciated on a straight-line basis over lives ranging from three to five years. Internal-use software is
amortized on a straight-line basis over a three-year period. Leasehold improvements are amortized on a straight-line basis over
the shorter of the lease terms or the asset lives. Real property is amortized on a straight-line basis over lives ranging from 15 to
39 years and the improvements related to real property are amortized on a straight-line basis over the shorter of the life of the
underlying real property or the asset lives.
The components of property and equipment, net are as follows (in thousands):
Furniture, fixtures and office equipment
Computer software and hardware
Internal-use software
Construction in progress
Leasehold improvements
Real property and improvements
Land
Total property and equipment
Accumulated depreciation
Property and equipment, net
December 31,
2023
2022
$
$
9,839 $
34,913
8,949
3,581
33,555
12,079
22,693
125,609
(71,445)
54,164 $
9,078
32,560
8,949
1,864
31,532
10,495
22,502
116,980
(59,808)
57,172
Depreciation expense related to property and equipment for the years ended December 31, 2023, 2022 and 2021 was $11.2
million, $11.6 million and $10.4 million, respectively. Amortization expense related to internal-use software of zero, $0.6 million
99
ALARM.COM HOLDINGS, INC.
Notes to the Consolidated Financial Statements — (Continued)
December 31, 2023, 2022 and 2021
and $2.0 million was included in those expenses for the years ended December 31, 2023, 2022 and 2021, respectively. We had
no disposals and write-offs of property and equipment that impacted the consolidated statements of operations during the years
ended December 31, 2023, 2022 and 2021.
Note 7. Acquisitions
Asset Acquisitions
On April 21, 2023, Alarm.com Incorporated, one of our wholly-owned subsidiaries, acquired certain assets of Vintra, Inc., or
Vintra. Substantially all of the acquired assets consisted of developed technology. We believe the acquisition of the developed
technology will expand Alarm.com's learning program and accelerate deployment of advanced video analytics solutions for the
Alarm.com and OpenEye platforms.
In consideration for the purchase of the acquired assets, we paid $5.5 million in cash on April 21, 2023, after deducting $0.3
million related to the settlement of an outstanding loan issued to Vintra during March 2023 and $1.0 million related to an agreed
holdback provision. The holdback is expected to be paid by the third quarter of 2024, subject to offset for any indemnification
obligations. Additionally, we incurred $0.4 million in direct transaction costs related to legal fees during 2023 that were capitalized
as a component of the consideration transferred. The $7.1 million purchase price consideration allocated to developed
technology was recorded as an intangible asset at the time of the asset acquisition and is being amortized on a straight-line
basis over an estimated useful life of five years. The remaining $0.1 million purchase price consideration was allocated to
property and equipment.
On December 16, 2021, EnergyHub, Inc., one of our wholly-owned subsidiaries, acquired certain assets of an unrelated
third party. Substantially all of the acquired assets consisted of developed technology. We believe the acquisition of the
developed technology will continue to advance our load-shaping energy management solution allowing additional devices to
participate in utility programs that reduce or shift power consumption during peak demand periods.
In consideration for the purchase of the developed technology, we paid $4.2 million in cash in December 2021, with the
remaining $0.9 million paid in June 2023. Additionally, we incurred $0.2 million in direct transaction costs related to legal fees
during 2021 that were capitalized as a component of the consideration transferred. The combined $5.3 million consideration
related to developed technology was recorded as an intangible asset at the time of the asset acquisition and is being amortized
on a straight-line basis over an estimated useful life of seven years.
Acquisition of a Business – EBS
On January 18, 2023, one of our wholly-owned subsidiaries acquired 100% of the issued and outstanding shares of capital
stock of EBS Spółka z ograniczoną odpowiedzialnością, or EBS, an international producer of universal smart communicator
devices, headquartered in Warsaw, Poland. We believe this acquisition will assist in the continued expansion of our international
operations as well as benefit our supply chain operations.
In consideration for the purchase of EBS, we paid $9.8 million in cash on January 18, 2023, after deducting $2.2 million
related to agreed holdback provisions. An earn-out up to an additional $2.5 million is payable if certain performance targets are
met, which was initially recorded at the acquisition date fair value of $2.0 million. The acquisition was accounted for as a
business combination within our Alarm.com segment. The purchase price allocation was finalized during the third quarter of
2023. The overall impacts to our consolidated financial statements were not considered material for the year ended December
31, 2023.
Acquisition of a Business – Noonlight
On September 23, 2022, Alarm.com Incorporated acquired 85% of the issued and outstanding shares of capital stock of
Noonlight. Noonlight provides a connected safety and event management software and services platform that enables new
applications and provides enhanced emergency response capabilities. We believe the acquisition of Noonlight will enhance our
comprehensive suite of interactive cloud-based services and allow us to expand markets for emergency response services as
well as accelerate innovation in those services.
In consideration for the purchase of 85% of the issued and outstanding shares of capital stock of Noonlight, we paid $31.9
million in cash on September 23, 2022, after deducting $1.5 million related to an outstanding loan issued to Noonlight during May
of 2022 and $4.9 million related to agreed holdback provisions. The working capital adjustment was finalized during the first
quarter of 2023 and $0.4 million was paid during the second quarter of 2023. The remaining amount of the holdback of $4.6
million is expected to be paid to the stockholders of Noonlight by the end of the first quarter of 2024, subject to offset for any
indemnification obligations.
100
ALARM.COM HOLDINGS, INC.
Notes to the Consolidated Financial Statements — (Continued)
December 31, 2023, 2022 and 2021
The table below sets forth the purchase consideration and the fair value allocation of the tangible and intangible net assets
acquired (in thousands):
September 23, 2022
Calculation of Purchase Consideration:
Cash paid, net of working capital adjustment
Outstanding principal and interest of loan provided to Noonlight
Holdback consideration
Total consideration
Tangible and Intangible Net Assets:
Cash
Accounts receivable
Other current and non-current assets
Property and equipment
Deferred tax assets
Developed technology
Trade names
Accounts payable
Accrued expenses and other current liabilities
Deferred revenue
Redeemable noncontrolling interest
Goodwill
Total tangible and intangible net assets
$
$
$
$
31,805
1,537
4,910
38,252
188
291
200
45
424
9,335
150
(321)
(318)
(67)
(6,770)
35,095
38,252
Goodwill of $35.1 million reflects the value of acquired workforce and synergies we expect to achieve from integrating
Noonlight's suite of emergency response cloud-managed application program interfaces into our existing comprehensive suite of
interactive cloud-based services. None of the goodwill recognized is expected to be deductible for income tax purposes in future
periods. We allocate goodwill to reporting units based on expected benefit from synergies and have allocated the goodwill to the
Alarm.com segment.
Fair Value of Net Assets Acquired and Intangibles
The acquired activities and assets in the purchase of Noonlight constituted a business and with the exception of contract
liabilities accounted for under Topic 606, in accordance with ASC 805, "Business Combinations," the assets and liabilities were
recorded at their respective fair values as of September 23, 2022. We developed the fair value of intangible net assets using a
multi-period excess earnings method for developed technology and the relief from royalty method for the trade name.
Developed Technology
Developed technology primarily consists of intellectual property of proprietary software that is marketed for sale. We valued
the developed technology using the multi-period excess earnings method, an income approach. The significant assumptions
used in the income approach include estimates about future expected cash flows from the developed technology, the
obsolescence factor and the discount rate. We are amortizing the Noonlight developed technology, valued at $9.3 million, on an
attribution method based on the discounted cash flows of the model over an estimated useful life of seven years.
Trade Names
We valued the trade names acquired using a relief from royalty method. The significant assumptions used in the income
approach include future expected cash flows from the trade name, the royalty rate and the discount rate. We are amortizing the
trade names, valued at $0.2 million, on an attribution basis derived from the discounted cash flows of the model over an
estimated useful life of five years.
101
ALARM.COM HOLDINGS, INC.
Notes to the Consolidated Financial Statements — (Continued)
December 31, 2023, 2022 and 2021
Redeemable Noncontrolling Interests
We have a redeemable noncontrolling interest related to our 85% equity ownership interest in Noonlight. The Noonlight
stockholder agreement contains a put option that gives the minority Noonlight stockholders the right to sell their remaining 15%
equity ownership interest to us based on the fair value of the shares and also contains a call option that gives us the right to
purchase the remaining Noonlight shares from the minority Noonlight stockholders based on the fair value of the shares. The put
and call options can each be exercised beginning in the first quarter of 2026. This redeemable noncontrolling interest was
recorded at fair value on September 23, 2022, by applying the income approach using unobservable inputs for projected cash
flows, including projected financial results and a discount rate, which are considered Level 3 inputs. This redeemable
noncontrolling interest is considered temporary equity and we report it between liabilities and stockholders’ equity in the
consolidated balance sheets. The redemption value of the Noonlight noncontrolling interest was $6.8 million as of September 23,
2022 and $6.4 million as of December 31, 2023.
Business Combinations in Operations - Noonlight
The operations of the Noonlight business combination discussed above were included in the consolidated financial
statements as of the acquisition date. The pro forma information as well as the revenue and net losses of the business
combination were not material to the consolidated financial statements in the year of acquisition.
Note 8. Goodwill and Intangible Assets, Net
The changes in goodwill by reportable segment are outlined below (in thousands):
Balance as of January 1, 2022
Goodwill acquired - initial measurement
Measurement period adjustment
Balance as of December 31, 2022
Goodwill acquired - initial measurement
Measurement period adjustment
Foreign currency translation adjustment
Balance as of December 31, 2023
Alarm.com
Other
Total
$
112,901 $
— $
112,901
37,907
(2,625)
148,183
7,200
(1,509)
624
—
—
—
—
—
—
37,907
(2,625)
148,183
7,200
(1,509)
624
$
154,498 $
— $
154,498
On January 18, 2023, we acquired 100% of the issued and outstanding shares of capital stock of EBS and initially recorded
$7.2 million of goodwill in the Alarm.com segment. The 2023 measurement period adjustments related to the Noonlight and EBS
working capital and tax adjustments during the year ended December 31, 2023. On September 23, 2022, we acquired 85% of
the issued and outstanding shares of capital stock of Noonlight and initially recorded $37.9 million of goodwill in the Alarm.com
segment. Additionally, during 2022, we recorded a measurement period adjustment related to the assessment of the net
operating losses acquired, which resulted in us recording a decrease to goodwill of $2.6 million. There were no impairments of
goodwill recorded during the years ended December 31, 2023, 2022 or 2021. As of December 31, 2023, the accumulated
balance of goodwill impairments was $4.8 million, which is related to our acquisition of EnergyHub in 2013.
The following table reflects changes in the net carrying amount of the components of intangible assets (in thousands):
Customer
Relationships
Developed
Technology
Trade Name
Capitalized
Software
Development
Costs
Balance as of January 1, 2022
$
59,426 $
30,157 $
1,823 $
— $
Intangible assets acquired
Amortization
Balance as of December 31, 2022
Intangible assets acquired
Capitalized software development costs
Amortization
—
(11,904)
47,522
2,395
—
(10,623)
9,335
(5,939)
33,553
11,583
—
(7,962)
150
(590)
1,383
537
—
(703)
—
—
—
—
882
(3)
Balance as of December 31, 2023
$
39,294 $
37,174 $
1,217 $
879 $
Total
91,406
9,485
(18,433)
82,458
14,515
882
(19,291)
78,564
102
ALARM.COM HOLDINGS, INC.
Notes to the Consolidated Financial Statements — (Continued)
December 31, 2023, 2022 and 2021
We recorded $19.3 million, $18.4 million and $17.1 million of amortization related to our intangible assets for the years
ended December 31, 2023, 2022 and 2021, respectively. There were no impairments of long-lived intangible assets during the
years ended December 31, 2023 and 2022. We determined there was an impairment of $0.1 million for the remaining value of an
intangible asset in the Alarm.com segment that was acquired in 2014 related to customer relationships that no longer existed
after December 31, 2021, which was included in other income / (expense), net in our consolidated statements of operations for
the year ended December 31, 2021. During the year ended December 31, 2022, we wrote-off $0.7 million in fully amortized
intangible assets in the Alarm.com segment that were acquired in 2014 related to customer relationships, developed technology,
trade name and other intangible assets that no longer existed as of January 1, 2022.
The following tables reflect the weighted-average remaining life and carrying value of finite-lived intangible assets (in
thousands, except weighted-average remaining life):
Customer relationships
Developed technology
Trade name
Capitalized software development costs
Total intangible assets
Customer relationships
Developed technology
Trade name
Total intangible assets
December 31, 2023
Gross
Carrying
Amount
Accumulated
Amortization
$
128,280 $
70,061
(88,986) $
(32,887)
4,474
882
(3,257)
(3)
$
203,697 $
(125,133) $
Net
Carrying
Value
Weighted-
Average
Remaining Life
(in years)
39,294
37,174
1,217
879
78,564
6.2
4.7
2.6
3.3
5.4
December 31, 2022
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Value
$
125,885 $
(78,363) $
58,478
3,937
(24,925)
(2,554)
$
188,300 $
(105,842) $
47,522
33,553
1,383
82,458
Weighted-
Average
Remaining Life
(in years)
7.0
5.8
2.4
6.5
Amortization
$
$
18,370
17,575
16,045
13,787
8,839
3,948
78,564
The following table reflects the future estimated amortization expense for intangible assets (in thousands):
Year Ended December 31,
2024
2025
2026
2027
2028
2029 and thereafter
Total future amortization expense
Note 9. Other Assets
Loan to a Distribution Partner
In December 2022, we amended a subordinated credit agreement with the affiliated entity of one of our distribution partners.
The amended subordinated credit agreement with the affiliated entity of the distribution partner matures on June 18, 2027 and
interest on the outstanding principal balance accrues at a rate of 12.0% per annum and is payable in kind. Under the amended
terms, the distribution partner paid us $1.0 million in paid-in-kind interest in December 2022. As of December 31, 2023 and 2022,
$4.5 million and $4.0 million of the notes receivable balance related to the subordinated credit agreement was included in other
assets in our consolidated balance sheets, respectively.
103
ALARM.COM HOLDINGS, INC.
Notes to the Consolidated Financial Statements — (Continued)
December 31, 2023, 2022 and 2021
For the years ended December 31, 2023, 2022 and 2021, we recognized $3.0 million, $2.7 million and $3.0 million of
revenue from the distribution partner associated with these loans, respectively.
Loan to a Service Provider Partner
In July 2020, we entered into a loan agreement with a service provider partner, under which we agreed to loan the service
provider partner up to $2.5 million, collateralized by the assets of the service provider partner. Interest on the outstanding
principal accrues at a rate per annum equal to 9.0% and monthly interest and principal payments began in April 2021. The
maturity date of the loan is July 24, 2025. As of December 31, 2023 and 2022, $1.0 million and $1.1 million of principal was
outstanding from the service provider partner under the loan agreement, respectively.
For each of the years ended December 31, 2023, 2022 and 2021, we recognized $0.2 million of revenue from the service
provider partner associated with this loan.
Loan to a Technology Partner
In June 2022, we entered into a convertible promissory note with a technology partner, under which we agreed to loan the
technology partner $1.5 million. Interest on the outstanding principal accrues at a rate per annum equal to 6.5%, starting one
year from the effective date of the loan. Interest and principal payments are due on the maturity date of the loan, which is June
27, 2029, unless the loan is converted prior to the maturity date, which may occur upon a qualified financing event, as defined in
the convertible promissory note, upon a sale of the technology partner or upon our election on the maturity date of the loan. As of
December 31, 2023 and 2022, $1.5 million of principal was outstanding from the technology partner under the convertible
promissory note.
For the years ended December 31, 2023, 2022 and 2021, we did not record any revenue from the technology partner
associated with this convertible promissory note.
Investment in a Hardware Supplier
In October 2018, we entered into a subordinate convertible promissory note with one of our hardware suppliers. In July
2019, we converted the outstanding notes receivable balance of $5.6 million into 9,520,832 shares of Series B preferred stock in
the hardware supplier. We concluded that the $5.6 million equity investment, which is included in the Alarm.com segment, does
not meet the criteria for consolidation and will be accounted for using the measurement alternative. Under the alternative, we
measure investments without readily determinable fair values at cost, less impairment, adjusted for observable price changes
from orderly transactions for identical or similar investments. As of December 31, 2023 and 2022, our investment in the hardware
supplier was $5.6 million.
Investments in Technology Partners
In February 2021, we paid $5.0 million in cash to purchase 1,000,000 shares of Series B-2 Preferred Stock from a
technology partner as part of a financing round that included other investors. The $5.0 million equity investment, which is
included in the Alarm.com segment, does not meet the criteria for consolidation and is accounted for using the measurement
alternative. Under the measurement alternative, we measure investments without readily determinable fair values at cost, less
impairment, adjusted for observable price changes from orderly transactions for identical or similar investments. As of
December 31, 2023 and 2022, our investment in the technology partner was $5.7 million.
In December 2022, we paid $5.1 million in cash to another technology partner to purchase 4,231,717 shares of its Series A
Preferred Stock. The $5.1 million equity investment, which is included in the Alarm.com segment, does not meet the criteria for
consolidation and is accounted for using the measurement alternative. As of December 31, 2023 and 2022, our investment in the
technology partner was $5.1 million.
104
ALARM.COM HOLDINGS, INC.
Notes to the Consolidated Financial Statements — (Continued)
December 31, 2023, 2022 and 2021
Allowance for Credit Losses - Notes Receivable
The changes in our allowance for credit losses for notes receivable are as follows (in thousands):
Year Ended December 31, 2023
Year Ended December 31, 2022
Loan
Receivables
Loan
Receivables
Hardware
Financing
Receivables
Beginning of period balance
(Provision for) / recovery of expected credit losses
Write-offs
End of period balance
$
$
(2) $
(3)
—
(5) $
(79) $
77
—
(2) $
(1)
1
—
—
We manage our notes receivables using delinquency as a key credit quality indicator. The following tables reflect the current
and delinquent notes receivable by class of financing receivables and by year of origination (in thousands):
Loan Receivables:
Current
30-59 days past due
60-89 days past due
90-119 days past due
120+ days past due
Total
Loan Receivables:
Current
30-59 days past due
60-89 days past due
90-119 days past due
120+ days past due
Total
December 31, 2023
2023
2022
2021
2020
2019
Prior
Total
$
150 $
1,500 $
— $
1,039 $
— $
4,524 $
7,213
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
$
150 $
1,500 $
— $
1,039 $
— $
4,524 $
7,213
December 31, 2022
2022
2021
2020
2019
2018
Prior
Total
$
1,500 $
— $
1,093 $
1 $
— $
4,015 $
6,609
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
$
1,500 $
— $
1,093 $
1 $
— $
4,015 $
6,609
There were no notes receivable placed on nonaccrual status as of December 31, 2023 and 2022. During the years ended
December 31, 2023, 2022 and 2021, there was no interest income recognized related to notes receivables that were in
nonaccrual status.
As of December 31, 2023 and 2022, there were no notes receivable placed in nonaccrual status for which there
was not a related allowance for credit losses. As of December 31, 2023 and 2022, there were no notes receivables that
were 90 days or greater past due for which we continued to accrue interest income.
Prepaid Expenses
As of December 31, 2023 and 2022, $14.6 million and $14.5 million of prepaid expenses were included in other current
assets, respectively, primarily related to software licenses, long lead-time parts related to our inventory and insurance.
105
ALARM.COM HOLDINGS, INC.
Notes to the Consolidated Financial Statements — (Continued)
December 31, 2023, 2022 and 2021
Note 10. Fair Value Measurements
The following tables present our assets and liabilities measured at fair value on a recurring basis (in thousands):
Assets:
Money market accounts as of December 31, 2023
Money market accounts as of December 31, 2022
Fair Value Measurements on a Recurring Basis
Level 1
Level 2
Level 3
Total
$ 679,734 $
510,326
— $
—
— $ 679,734
—
510,326
Liabilities:
Contingent consideration liability from acquisition as of December 31, 2023 $
— $
— $
2,061 $
2,061
The following table summarizes the change in fair value of the Level 3 liabilities with significant unobservable inputs (in
thousands):
Year Ended December 31,
2023
2022
2021
Contingent
Consideration Liability
from Acquisition
Subsidiary Long-
Term Incentive
Plan
Subsidiary Long-
Term Incentive
Plan
Beginning of period balance
Acquired liabilities
Changes in fair value included in earnings
Reclassification to additional paid in capital upon
modification
End of period balance
$
$
— $
1,993
68
—
2,061 $
3,351 $
—
(247)
(3,104)
— $
1,000
—
2,351
—
3,351
As of December 31, 2023, $675.6 million of our money market accounts was included in cash and cash equivalents and
$4.1 million was included in other assets in our consolidated balance sheets. As of December 31, 2022, $509.6 million of our
money market accounts was included in cash and cash equivalents and $0.7 million was included in other assets in our
consolidated balance sheets. Our money market accounts are valued using quoted prices in active markets. See Note 13 for the
carrying amount and estimated fair value of the 2026 Notes as of December 31, 2023 and 2022.
We previously maintained a subsidiary long-term incentive plan and recorded a liability based on the potential cash payment
contingent upon meeting certain financial milestones related to the agreement established with certain employees of one of our
subsidiaries. This incentive plan was established in November 2017 and the amount of compensation awarded to employees
depended on the fair market value of the subsidiary, which was determined in part by the subsidiary’s projected financial results.
We accounted for the subsidiary long-term incentive plan using fair value and established liabilities for the future payments under
the terms of the incentive plan based on estimating revenue, EBITDA and EBITDA margin of the subsidiary over the period of the
incentive plan through the anticipated achievement of the milestones. We estimated the fair value of the liability by using a Monte
Carlo simulation model which involves several Level 3 unobservable inputs. The significant unobservable inputs used in the
valuation included a weighted average revenue volatility and the revenue risk adjustment. The revenue volatility was weighted
using revenue volatility results from the subsidiary’s peer group as well as market transaction metrics. The revenue risk
adjustment was calculated using capital structure allocations from the subsidiary’s peer group, market transaction metrics as well
as United States Treasury yields.
In May 2022, we terminated the subsidiary long-term incentive plan. The fair value of the liability related to the subsidiary
long-term incentive plan as of the termination date was consistent with the liability as of March 31, 2022. Concurrent with the
termination of the subsidiary long-term incentive plan, we granted performance-based restricted stock units to those employees
who previously participated in the subsidiary long-term incentive plan. We accounted for the termination of the subsidiary long-
term incentive plan and concurrent grant of performance-based restricted stock units as a modification of the original subsidiary
long-term incentive plan. As a result, we reclassified the $3.1 million liability related to the subsidiary long-term incentive plan to
additional paid-in capital during the three months ended June 30, 2022. Additionally, we recorded $1.2 million in incremental
compensation costs as additional stock-based compensation expense to the applicable operating expense category based on
the respective employee’s function (sales and marketing, general and administrative or research and development) during the
three months ended June 30, 2022. The incremental compensation costs represented the excess of the fair value of the
106
ALARM.COM HOLDINGS, INC.
Notes to the Consolidated Financial Statements — (Continued)
December 31, 2023, 2022 and 2021
performance-based restricted stock units over the fair value of the subsidiary long-term incentive plan as of the modification date
of the subsidiary long-term incentive plan.
The contingent consideration liability consists of the potential earn-out payment related to our acquisition of 100% of the
issued and outstanding capital stock of EBS on January 18, 2023. The earn-out payment is contingent on the satisfaction of
certain performance targets related to the integration of EBS's hardware into the Alarm.com platform by December 31, 2025 and
has a maximum potential payment of up to $2.5 million. We account for the contingent consideration using fair value and
established a liability for the future earn-out payment based on an estimation of the probability of the future achievement of the
performance targets. The contingent consideration liability was valued with Level 3 unobservable inputs, including the probability
of expected achievement of the performance targets. At January 18, 2023, the fair value of the liability was $2.0 million. At each
reporting date until December 31, 2025, or the achievement of the performance targets, we will remeasure the liability, using the
same valuation approach. Changes in fair value resulting from information that existed subsequent to the acquisition date are
recorded in general and administrative expense in the consolidated statements of operations. In 2023, the contingent
consideration liability did not materially change from the acquisition date fair value of $2.0 million as there were minor changes in
the expected probability of achievement for the performance targets. The unobservable inputs used in the valuation as of
December 31, 2023 included a weighted average expected achievement percentage of 89.5%, weighted by the potential payout
of the performance targets, including a range of 80.0% to 99.0%. The valuation also included a weighted average discount rate
of 5.5%, which also represented the low and high range of the discount rates. Selecting another probability of expected
achievement or discount rate within an acceptable range would not result in a significant change to the fair value of the
contingent consideration liability.
We monitor the availability of observable market data to assess the appropriate classification of financial instruments within
the fair value hierarchy. Changes in economic conditions or model-based valuation techniques may require the transfer of
financial instruments from one fair value level to another. There were no transfers into Level 3 or reclassifications between levels
of the fair value hierarchy during the years ended December 31, 2023, 2022 and 2021.
Note 11. Leases
As of December 31, 2023, we leased office space, data centers and office equipment under non-cancelable operating
leases with various expiration dates through 2030. In August 2014, we signed a lease for office space in Tysons, Virginia, where
we relocated our headquarters to in February 2016. We have subsequently entered into amendments to this lease to provide us
with additional office space. The lease term ends in 2026, includes a five-year renewal option and includes a cumulative tenant
improvement allowance of $12.1 million as of December 31, 2023.
Supplemental information related to leases is presented in the table below (in thousands, except weighted-average term and
discount rate):
Operating lease cost
Cash paid for amounts included in the measurement of operating lease liabilities
Operating lease right-of-use assets obtained in exchange for new operating lease
liabilities
Weighted-average remaining lease term — operating leases
Weighted-average discount rate — operating leases
Year Ended December 31,
2023
2022
2021
$
11,484 $
10,499 $
13,947
12,723
9,692
11,809
5,262
7,474
5,158
December 31, 2023
December 31, 2022
3.0 years
4.9 %
3.4 years
3.9 %
107
ALARM.COM HOLDINGS, INC.
Notes to the Consolidated Financial Statements — (Continued)
December 31, 2023, 2022 and 2021
Maturities of lease liabilities are as follows (in thousands):
Year Ended December 31,
Operating Leases(1)
2024
2025
2026
2027
2028
2029 and thereafter
Total lease payments
Less: imputed interest(2)
Present value of lease liabilities
$
$
13,736
11,609
6,962
1,610
925
1,461
36,303
3,792
32,511
_______________
(1) Operating lease payments exclude $5.1 million of legally binding minimum lease payments for leases executed but not yet commenced
and do not include any options to extend lease terms that were reasonably certain of being exercised.
(2) Imputed interest was calculated using the incremental borrowing rate applicable for each lease.
Note 12. Liabilities
The components of accounts payable, accrued expenses and other current liabilities are as follows (in thousands):
Accounts payable
Accrued expenses
Income taxes payable
Holdback liability from business combinations and asset acquisitions
Other current liabilities
December 31,
2023
December 31,
2022
$
39,038 $
21,559
42,501
7,340
14,037
53,121
17,539
43,576
—
5,421
Accounts payable, accrued expenses and other current liabilities
$
124,475 $
119,657
The components of other liabilities are as follows (in thousands):
Holdback liability from business combination
Contingent consideration liability from acquisition
Other liabilities
Other liabilities
Note 13. Debt, Commitments and Contingencies
December 31,
2023
December 31,
2022
$
$
— $
2,061
10,636
12,697 $
4,560
—
8,490
13,050
The debt, commitments and contingencies described below would require us, or our subsidiaries, to make payments to third
parties under certain circumstances.
Convertible Senior Notes
On January 20, 2021, we issued $500.0 million aggregate principal amount of 0% convertible senior notes due January 15,
2026 in a private placement to qualified institutional buyers. The terms of the 2026 Notes are governed by an Indenture, or the
Indenture, by and between Alarm.com Holdings, Inc. and U.S. Bank National Association, as trustee. The 2026 Notes are senior
unsecured obligations that do not bear regular interest and the principal amount of the 2026 Notes will not accrete. The 2026
Notes may bear special interest under specified circumstances related to our failure to comply with our reporting obligations
under the Indenture. Special interest, if any, will be payable semiannually in arrears on January 15 and July 15 of each year,
beginning on July 15, 2021. We received proceeds from the issuance of the 2026 Notes of $484.3 million, net of $15.7 million of
transaction fees and other debt issuance costs.
108
ALARM.COM HOLDINGS, INC.
Notes to the Consolidated Financial Statements — (Continued)
December 31, 2023, 2022 and 2021
We may not redeem the 2026 Notes prior to January 20, 2024. We may redeem for cash, all or any portion of the 2026
Notes, at our option, on or after January 20, 2024, at a redemption price equal to 100% of the principal amount of the 2026 Notes
to be redeemed, plus accrued and unpaid special interest, if any, to, but excluding, the redemption date, if the last reported sale
price of our common stock has been at least 130% of the conversion price for the 2026 Notes then in effect for at least 20 trading
days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period)
ending on, and including, the trading day immediately preceding the date on which we provide notice of redemption. No sinking
fund is provided for the 2026 Notes.
The 2026 Notes will be convertible at the option of the holders at any time prior to the close of business on the business day
immediately preceding August 15, 2025, only under the following circumstances: (1) during any calendar quarter commencing
after the calendar quarter ending on June 30, 2021 (and only during such calendar quarter), if the last reported sale price of our
common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending
on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the
conversion price for the 2026 Notes on each applicable trading day; (2) during the five business day period immediately after any
10 consecutive trading day period in which, for each trading day of that period, the trading price per $1,000 principal amount of
2026 Notes for such trading day was less than 98% of the product of the last reported sale price of our common stock and the
conversion rate for the 2026 Notes on each such trading day; (3) if we call any or all of the 2026 Notes for redemption, at any
time prior to the close of business on the scheduled trading day immediately preceding the redemption date, but only with
respect to the 2026 Notes called (or deemed called) for redemption; or (4) upon the occurrence of specified corporate events as
set forth in the Indenture.
On or after August 15, 2025, until the close of business on the second scheduled trading day immediately preceding the
maturity date of the 2026 Notes, holders of the 2026 Notes may convert all or any portion of their 2026 Notes at any time,
regardless of the foregoing conditions. Upon conversion, we may satisfy our conversion obligation by paying or delivering, as the
case may be, cash, shares of our common stock or a combination of cash and shares of our common stock, at our election. It is
our current intent to settle the principal amount of the 2026 Notes with cash. The initial conversion rate for the 2026 Notes is
6.7939 shares of our common stock per $1,000 principal amount of 2026 Notes, which is equivalent to an initial conversion price
of $147.19 per share of our common stock, subject to adjustment under certain circumstances in accordance with the terms of
the Indenture. In addition, following certain corporate events that occur prior to the maturity date of the 2026 Notes or if we
deliver a notice of redemption in respect of the 2026 Notes, we will, under certain circumstances, increase the conversion rate of
the 2026 Notes for a holder who elects to convert its 2026 Notes (or any portion thereof) in connection with such a corporate
event or convert its 2026 Notes called (or deemed called) for redemption during the related redemption period (as defined in the
Indenture), as the case may be.
If we undergo a fundamental change (as defined in the Indenture), subject to certain exceptions and except as described in
the Indenture, holders may require us to repurchase for cash all or any portion of their 2026 Notes at a fundamental change
repurchase price equal to 100% of the principal amount of the 2026 Notes to be repurchased, plus accrued and unpaid special
interest, if any, to, but excluding, the fundamental change repurchase date.
The Indenture includes customary covenants and sets forth certain events of default after which the 2026 Notes may be
declared immediately due and payable and sets forth certain types of bankruptcy or insolvency events of default involving us
after which the 2026 Notes become automatically due and payable.
We used some of the proceeds to repay the $110.0 million outstanding principal balance under our credit facility and also
used some of the proceeds to pay accrued interest, fees and expenses related to our credit facility, which was terminated
effective January 20, 2021. We are using the remaining net proceeds from the issuance of the 2026 Notes for working capital
and other general corporate purposes, which may include acquisitions or strategic investments in complementary businesses or
technologies.
As discussed in Note 2, we adopted ASU 2020-06 effective January 1, 2022, using a modified retrospective adoption
method. Prior to the adoption of the standard, the 2026 Notes were separated into liability and equity components. The carrying
amount of the liability component was calculated by measuring the fair value of a similar debt instrument that did not have an
associated convertible feature. The carrying amount of the equity component representing the conversion option was determined
by deducting the fair value of the liability component from the par value of the 2026 Notes. The equity component was recorded
in additional paid-in capital and was not remeasured as it continued to meet the conditions for equity classification. The debt
discount for conversion option, debt issuance costs and net carrying amount of the equity component was $77.2 million, $2.4
million and $74.8 million, respectively, as of December 31, 2021. The excess of the principal amount of the liability component
over its carrying amount was amortized to interest expense over the contractual term of the 2026 Notes at an effective interest
rate of 4.0%.
Prior to the adoption of ASU 2020-06, the difference between the book and tax treatment of the debt discount and debt
issuance costs of the 2026 Notes resulted in a difference between the carrying amount and tax basis of the 2026 Notes. This
109
ALARM.COM HOLDINGS, INC.
Notes to the Consolidated Financial Statements — (Continued)
December 31, 2023, 2022 and 2021
taxable temporary difference resulted in the recognition of a $18.3 million net deferred tax liability which was recorded as an
adjustment to additional paid-in capital during the three months ended March 31, 2021.
Upon adoption of ASU 2020-06 on January 1, 2022, we recombined the liability and equity components of the 2026 Notes
assuming that the instrument was accounted for as only a liability from inception to the date of adoption. We also recombined the
liability and equity components of the debt issuance costs. The issuance costs are presented as a deduction from the
outstanding principal balance of the 2026 Notes and are amortized to interest expense using the effective interest method over
the contractual term of the 2026 Notes at a rate of 0.6%.
Upon adoption of ASU 2020-06 on January 1, 2022, we also removed the temporary difference between the book and tax
treatment of the debt discount and adjusted the temporary difference between the book and tax treatment of the debt issuance
costs of the 2026 Notes.
As of December 31, 2023 and 2022, the fair value of our 2026 Notes was $444.8 million and $411.5 million, respectively.
The fair value was determined based on the quoted price of the 2026 Notes in an inactive market on the last traded day of the
quarter and has been classified as Level 2 in the fair value hierarchy. Based on the closing price of our common stock of $64.62
on the last trading day of the quarter, the if-converted value of the 2026 Notes did not exceed the principal amount of $500.0
million as of December 31, 2023.
The net carrying amount of the liability component of the 2026 Notes is as follows (in thousands):
Principal
Unamortized debt issuance costs
Net carrying amount
Interest expense related to the 2026 Notes is as follows (in thousands):
December 31,
2023
December 31,
2022
$
$
500,000 $
500,000
(6,485)
(9,630)
493,515 $
490,370
Amortization of debt discount
Amortization of debt issuance costs
Total interest expense
Acquired Debt - EBS
Year Ended December 31,
2023
2022
2021
$
$
— $
3,145
3,145 $
— $
3,126
3,126 $
13,678
2,139
15,817
On January 18, 2023, one of our wholly-owned subsidiaries acquired 100% of the issued and outstanding shares of capital
stock of EBS. As part of this acquisition we acquired $2.9 million of outstanding debt, which had decreased to zero as of
December 31, 2023.
Commitments and Contingencies
Indemnification Agreements
We have various agreements that may obligate us to indemnify the other party to the agreement with respect to certain
matters. Generally, these indemnification provisions are included in contracts arising in the normal course of business. Although
we cannot predict the maximum potential amount of future payments that may become due under these indemnification
agreements, we do not believe any potential liability that might arise from such indemnity provisions is probable or material.
Legal Proceedings
On June 2, 2015, Vivint, Inc., or Vivint, filed a lawsuit against us in U.S. District Court, District of Utah, alleging that our
technology directly and indirectly infringes six patents that Vivint purchased. On October 27, 2022, we filed a demand for
arbitration of a dispute arising under the Patent Cross License Agreement between Alarm.com and Vivint executed in November
2013. Vivint had stopped paying license fees to Alarm.com under the agreement. As a result of Vivint’s refusal to pay license fees
under the agreement, which began during the fourth quarter of 2022, SaaS and license revenue and total revenue through
December 31, 2023 were lower by approximately $6.0 million on a quarterly basis. Quarterly earnings and cash flow through
December 31, 2023 were also impacted by the aforementioned $6.0 million, plus additional legal fees.
110
ALARM.COM HOLDINGS, INC.
Notes to the Consolidated Financial Statements — (Continued)
December 31, 2023, 2022 and 2021
We also filed a lawsuit against Vivint on January 4, 2023 in U.S. District Court, Eastern District of Texas, alleging that Vivint
infringed 15 of our patents. On March 8, 2023, Vivint filed counterclaims in the action alleging that Alarm.com’s products and
services directly and indirectly infringed 14 patents owned by Vivint. Most of Vivint’s counterclaims also named our service
provider ADT LLC as a defendant.
On December 21, 2023, Alarm.com and Vivint agreed to settle all outstanding litigation between the parties and to enter into
a long-term intellectual property license agreement under which Alarm.com will license to Vivint its intellectual property portfolio.
On January 10, 2022, EcoFactor, Inc., or EcoFactor, filed a lawsuit against us in U.S. District Court, District of Oregon,
alleging Alarm.com’s products and services directly and indirectly infringe five U.S. patents owned by EcoFactor. EcoFactor is
seeking a permanent injunction, enhanced damages and attorneys' fees. EcoFactor had previously asserted two of the same
patents against us in an October 2019 complaint with the U.S. International Trade Commission, or ITC. In July 2021, the ITC
found in favor of Alarm.com. EcoFactor appealed the decision but withdrew its appeal in December 2021. We moved to dismiss
the Oregon case for failure to state a claim on March 28, 2022. Three of the asserted patents are in ex parte reexamination
proceedings at the PTO, and ex parte reexamination of a fourth patent concluded on August 23, 2023 after the claims were
amended. On April 18, 2022, all claims of a fifth patent were found unpatentable by the U.S. Patent Trial and Appeal Board, or
PTAB, in an inter partes review, and the parties expect that all claims of that patent will be canceled because EcoFactor's appeal
of that PTAB decision was dismissed. On April 18, 2022, the district court stayed the case at the request of the parties pending
the disposition of PTAB and other proceedings involving the asserted patents, and the parties filed a joint status report on
January 2, 2024.
Should EcoFactor prevail in its lawsuit we could be required to pay damages and/or a reasonable royalty for sales of our
solution, we could be enjoined from making, using and selling our solution if a license or other right to continue selling such
elements is not made available to us, and we could be required to pay ongoing royalties and comply with unfavorable terms if
such a license is made available to us. While we believe we have valid defenses to EcoFactor’s claims, the outcome of these
legal claims cannot be predicted with certainty and any of these outcomes could result in an adverse effect on our business.
Based on currently available information, we have determined a loss is not probable or reasonably estimable at this time.
On July 22, 2021, Causam Enterprises, Inc., or Causam, filed a lawsuit against us in U.S. District Court, Western District of
Texas, alleging that Alarm.com’s smart thermostats infringe four U.S. patents owned by Causam. Causam is seeking preliminary
and permanent injunctions, enhanced damages and attorneys’ fees. We have not yet responded to the complaint. On September
3, 2021, the court issued an order staying the lawsuit until the ITC investigation described below is finally resolved.
On July 28, 2021, Causam filed a complaint with the ITC naming Alarm.com Incorporated, Alarm.com Holdings, Inc., and
EnergyHub, Inc., among others, as proposed respondents. The complaint alleges infringement of the same four patents Causam
asserted in district court. Causam is seeking a permanent limited exclusion order and permanent cease and desist order. On
August 27, 2021, the ITC instituted an investigation into Causam’s allegations naming Alarm.com Incorporated, Alarm.com
Holdings, Inc., EnergyHub Inc. and others as respondents. We answered the complaint on October 4, 2021. Among other things,
we asserted defenses based on non-infringement and invalidity of the patents in question. An evidentiary hearing in the
investigation was held from June 28, 2022 through July 1, 2022. On February 16, 2023, the ITC issued a final decision in favor of
Alarm.com and EnergyHub. Causam filed an appeal of the ITC decision on April 14, 2023. Causam did not appeal the ITC
decision with respect to Alarm.com and EnergyHub.
Should Causam prevail in its district court lawsuit we could be required to pay damages and/or a reasonable royalty for
sales of our solution, we could be enjoined from making, using and selling our solution if a license or other right to continue
selling such elements is not made available to us, and we could be required to pay ongoing royalties and comply with
unfavorable terms if such a license is made available to us. While we believe we have valid defenses to Causam’s claims, the
outcome of these legal claims cannot be predicted with certainty, and any of these outcomes could result in an adverse effect on
our business. Based on currently available information, we have determined a loss is not probable or reasonably estimable at
this time.
In addition to the matters described above, we may be required to provide indemnification to certain of our service provider
partners for certain claims regarding our solutions. For example, we incurred costs associated with the indemnification of our
service provider ADT, LLC.
On February 25, 2021, Vivint filed a lawsuit against ADT LLC a/k/a ADT LLC of Delaware d/b/a ADT Security Services in
U.S. District Court, District of Utah, alleging that ADT Pulse, Control, and Blue each infringe one or more patents owned by
Vivint. Vivint is seeking damages and attorneys’ fees. Vivint filed a second amended complaint on March 8, 2022. Pursuant to the
December 21, 2023 settlement agreement between Alarm.com and Vivint, the allegations regarding ADT Pulse and Control will
be dismissed, ending Alarm.com’s indemnification obligations in this matter.
We also incurred costs associated with the indemnification of our service provider Monitronics International, Inc. d/b/a Brinks
in patent infringement suits. On November 4, 2022, January 13, 2023 and April 18, 2023, IOT Innovations LLC, or IOT, sued
111
ALARM.COM HOLDINGS, INC.
Notes to the Consolidated Financial Statements — (Continued)
December 31, 2023, 2022 and 2021
Monitronics in U.S. District Court, Eastern District of Texas, alleging patent infringement of certain products and services sold by
Monitronics. Together, IOT asserted infringement of 26 patents and sought permanent injunctions, enhanced damages and
attorneys' fees. On October 3, 2023, IOT filed a stipulation of dismissal of all three cases, ending the cases and the Company's
involvement therein.
We also incur costs associated with the indemnification of our service provider, Central Security Group – Nationwide, Inc. (d/
b/a Alert 360), or CSG, in an ongoing patent litigation. In 2018, Ubiquitous Connectivity, LP, or Ubiquitous, brought suit against
CSG in U.S. District Court, Northern District of Oklahoma, alleging infringement of two US patents. The case was stayed by
agreement of the parties for several years while the patents in suit were challenged before the PTAB. In January 2021, the PTAB
deemed 42 out of 46 claims of the two asserted patents unpatentable. Ubiquitous appealed a portion of the PTAB’s findings to
the United States Court of Appeals for the Federal Circuit. The Federal Circuit affirmed the PTAB’s ruling on August 8, 2023. As a
result, only four patent claims remain at issue and the Northern District of Oklahoma case is no longer stayed. A claim
construction hearing is scheduled for December 12, 2024. A hearing on dispositive motions, including for summary judgment, is
scheduled for April 15, 2026. A trial is scheduled for June 22, 2026.
Should Ubiquitous prevail on its infringement claims, we could be required to indemnify CSG for damages in the form of a
reasonable royalty or of Ubiquitous’s lost profits. CSG could be enjoined from making, using, and selling our solution if a license
or other right to continue selling our technology is not made available or if we are unable to design around such patents, and we
could be required to pay ongoing royalties and comply with unfavorable terms if such a license is made available to us. The
outcome of these legal claims cannot be predicted with certainty. Based on currently available information, we have determined a
loss is not probable or reasonably estimable at this time.
We may also be a party to litigation and subject to claims incident to the ordinary course of business. Although the results of
litigation and claims cannot be predicted with certainty, we currently believe that the final outcome of these ordinary course
matters will not have a material adverse effect on our business.
Other than the preceding matters, we are not a party to any lawsuit or proceeding that, in the opinion of management, is
reasonably possible or probable of having a material adverse effect on our financial position, results of operations or cash flows.
We reserve for contingent liabilities based on ASC 450, "Contingencies," when it is determined that a liability, inclusive of defense
costs, is probable and reasonably estimable. Litigation is subject to many factors that are difficult to predict, so there can be no
assurance that, in the event of a material unfavorable result in one or more claims, we will not incur material costs.
Note 14. Stockholders' Equity
Authorized shares
We are authorized to issue two classes of stock, common stock and preferred stock. On June 9, 2015, the board of directors
amended and restated our Amended and Restated Certificate of Incorporation, effective upon the closing of our initial public
offering, or IPO, on July 1, 2015, and authorized us to issue up to 300,000,000 shares of common stock and 10,000,000 shares
of undesignated preferred stock.
Common and Preferred Stock
As of December 31, 2023 and 2022, there were 51,888,838 and 50,985,454 shares of common stock issued, and
49,868,175 and 49,452,709 shares of common stock outstanding, respectively. As of December 31, 2023 and 2022, there were
no preferred shares issued and outstanding. Each outstanding share of common stock is entitled to one vote per share.
Stock Repurchase Programs
On December 3, 2020, our board of directors authorized a stock repurchase program, under which we were authorized to
purchase up to an aggregate of $100.0 million of our outstanding common stock during the three-year period ending
December 3, 2023. On February 15, 2023, our board of directors authorized the cancellation of the balance under the stock
repurchase program ending December 3, 2023 and also authorized a stock repurchase program, effective February 23, 2023
under which we are authorized to purchase up to an aggregate of $100.0 million of our outstanding common stock during the
two-year period ending February 23, 2025.
112
ALARM.COM HOLDINGS, INC.
Notes to the Consolidated Financial Statements — (Continued)
December 31, 2023, 2022 and 2021
During the years ended December 31, 2023 and 2022, we repurchased 487,918 and 1,385,592 shares of our common stock
under these programs for $27.3 million and $78.8 million, respectively, which includes applicable commissions and fees. We did
not repurchase any shares of our common stock under these programs in 2021. As of January 1, 2023, we are subject to a 1.0%
excise tax on the value of net corporate stock repurchases under the Inflation Reduction Act of 2022. When applicable, the
excise tax will be included as part of the cost basis of shares acquired and is presented within stockholders’ equity in the
consolidated balance sheets.
Shares Withheld
As permitted under the terms of the 2015 Plan, in 2021 the Compensation Committee authorized the withholding of shares
of common stock in connection with the vesting of restricted stock unit awards issued to employees to satisfy applicable tax
withholding requirements. These withheld shares are not issued or considered common stock repurchases under our stock
repurchase program. We paid $2.6 million and $4.5 million of tax withholdings related to vesting of restricted stock units during
the years ended December 31, 2023 and 2021, respectively. No tax withholdings related to the vesting of restricted stock units
were paid during the year ended December 31, 2022. We also utilize the sell-to-cover method in which shares of our restricted
stock unit awards were sold into the market on behalf of the employee upon vesting to cover tax withholding liabilities. We may
utilize either the withholding method or sell-to-cover method in the future.
Note 15. Stock-Based Compensation
Stock-based compensation expense is included in the following line items in the consolidated statements of operations (in
thousands):
Cost of hardware and other revenue
Sales and marketing
General and administrative
Research and development
Year Ended December 31,
2023
2022
2021
$
5 $
— $
3,522
13,028
30,728
4,342
15,037
33,275
—
4,432
9,941
24,321
Total stock-based compensation expense
$
47,283 $
52,654 $
38,694
The following table summarizes the components of non-cash stock-based compensation expense (in thousands):
Stock options
Restricted stock units
Employee stock purchase plan
Total stock-based compensation expense
Tax (shortfall) / windfall benefit from stock-based awards
2015 Equity Incentive Plan
Year Ended December 31,
2023
2022
2021
$
4,166 $
3,654 $
42,924
193
48,798
202
$
$
47,283 $
52,654 $
(508) $
2,022 $
3,707
34,799
188
38,694
10,063
We issue stock options pursuant to our 2015 Plan. The 2015 Plan allows for the grant of stock options to employees and for
the grant of nonqualified stock options, stock appreciation rights, restricted stock awards, restricted stock unit awards, or RSUs,
performance-based stock awards, and other forms of equity compensation to our employees, directors and non-employee
directors.
In June 2015, our board of directors adopted and our stockholders approved our 2015 Plan pursuant to which we initially
reserved a total of 4,700,000 shares of common stock for issuance under the 2015 Plan, which included shares of our common
stock previously reserved for issuance under our Amended and Restated 2009 Stock Incentive Plan, or the 2009 Plan. The
number of shares of common stock reserved for issuance under the 2015 Plan will automatically increase on January 1 each
year, for a period of not more than 10 years, commencing on January 1, 2016 through January 1, 2024, by 5.0% of the total
number of shares of common stock outstanding on December 31 of the preceding calendar year, or a lesser number of shares
as may be determined by the board of directors. As a result of the adoption of the 2015 Plan, no further grants may be made
under the 2009 Plan. As of December 31, 2023, 9,526,427 shares remained available for future grant under the 2015 Plan. In
December 2023, our board of directors determined that the January 1, 2024 increase in the number of shares reserved for
113
ALARM.COM HOLDINGS, INC.
Notes to the Consolidated Financial Statements — (Continued)
December 31, 2023, 2022 and 2021
issuance under the 2015 Plan would be 5.0% of the total number of shares of common stock outstanding on December 31,
2023, or 2,493,408 shares. In November 2022, our board of directors determined that the January 1, 2023 increase in the
number of shares reserved for issuance under the 2015 Plan would be 5.0% of the total number of shares of common stock
outstanding on December 31, 2022, or 2,472,635 shares. In December 2021, our board of directors determined that the January
1, 2022 increase in the number of shares reserved for issuance under the 2015 Plan would be 5.0% of the total number of
shares of common stock outstanding on December 31, 2021, or 2,512,972 shares.
Stock Options
Stock options under the 2015 Plan have been granted at exercise prices based on the closing price of our common stock on
the date of grant. Stock options under the 2009 Plan were granted at exercise prices as determined by the board of directors to
be the fair market value of our common stock. Our stock options generally vest over a five-year period and each option, if not
exercised or forfeited, expires on the tenth anniversary of the grant date.
Certain stock options granted under the 2015 Plan and previously granted under the 2009 Plan may be exercised before the
options have vested. Unvested shares issued as a result of early exercise are subject to repurchase by us upon termination of
employment or services at the original exercise price. The proceeds from the early exercise of stock options are initially recorded
as a current liability and are reclassified to common stock and additional paid-in capital as the awards vest and our repurchase
right lapses. There were no unvested shares of common stock outstanding subject to our right of repurchase as of December 31,
2023 and 2022. We did not repurchase any unvested shares of common stock related to early exercised stock options in
connection with employee terminations during the years ended December 31, 2023, 2022 and 2021. There were no proceeds
from the early exercise of the unvested stock options reflected in accounts payable, accrued expenses and other current
liabilities on our consolidated balance sheets as of December 31, 2023 and 2022.
We account for stock-based compensation options based on the fair value of the award as of the grant date. We recognize
stock-based compensation expense using the accelerated attribution method, net of actual forfeitures, in which compensation
cost for each vesting tranche in an award is recognized ratably from the service inception date to the vesting date for that
tranche.
We value our stock options using the Black-Scholes option pricing model, which requires the input of subjective
assumptions, including the risk-free interest rate, expected term, expected stock price volatility and dividend yield. The risk-free
interest rate assumption is based upon observed interest rates for constant maturity U.S. Treasury securities consistent with the
expected term of our stock options. In 2021 and years prior to 2021, we used the "simplified method" to calculate the expected
term, which was presumed to be the mid-point between the vesting date and the end of the contractual term. Beginning upon the
first grant of options in 2022, the expected term for options granted is estimated using our historical experience, including
information related to options we have granted. The expected volatility for options granted is based on historical volatilities of our
stock over the estimated expected term of the stock options.
There were 237,400, 184,500 and 143,700 stock options granted during the years ended December 31, 2023, 2022 and
2021, respectively. We declared and paid dividends in June 2015 in anticipation of our IPO, which we closed on July 1, 2015.
Subsequent to the IPO, we do not expect to declare or pay dividends on a recurring basis. As such, we assume that the dividend
rate is 0%.
The following table summarizes the assumptions used for estimating the fair value of stock options granted:
Volatility
Expected term
Risk-free interest rate
Dividend rate
Year Ended December 31,
2023
2022
2021
40.9 - 41.9%
40.2 - 41.8%
41.8 - 42.6%
5.4 - 5.6 years
5.2 - 5.3 years
6.2 - 6.7 years
3.3 - 4.4%
2.9 - 3.9%
1.0 - 1.2%
— %
— %
— %
114
ALARM.COM HOLDINGS, INC.
Notes to the Consolidated Financial Statements — (Continued)
December 31, 2023, 2022 and 2021
The following table summarizes stock option activity:
Outstanding as of December 31, 2022
Granted
Exercised
Forfeited
Expired
Outstanding as of December 31, 2023
Vested and expected to vest as of December 31,
2023
Exercisable as of December 31, 2023
Number of
Options
Weighted
Average Exercise
Price Per Share
1,186,651 $
237,400
(140,952)
(11,571)
(750)
1,270,778 $
1,270,778 $
743,664 $
40.60
52.56
13.87
38.57
4.00
45.84
45.84
36.94
Weighted Average
Remaining
Contractual Life
(in years)
Aggregate
Intrinsic Value
(in thousands)
5.6 $
18,309
5,595
5.9 $
26,360
5.9 $
4.2 $
26,360
21,590
The weighted average grant date fair value for our stock options granted during the years ended December 31, 2023, 2022
and 2021 was $23.01, $24.68 and $36.63, respectively. The total fair value of stock options vested during the years ended
December 31, 2023, 2022 and 2021 was $3.3 million, $3.3 million and $3.4 million, respectively. The aggregate intrinsic value of
stock options exercised during the years ended December 31, 2023, 2022 and 2021 was $5.6 million, $5.7 million and $21.9
million, respectively. As of December 31, 2023, the total compensation cost related to nonvested awards not yet recognized was
$6.8 million, which will be recognized over a weighted average period of 2.7 years. Cash received from exercises of stock
options was $2.0 million, $2.5 million and $4.2 million during the years ended December 31, 2023, 2022 and 2021, respectively.
115
ALARM.COM HOLDINGS, INC.
Notes to the Consolidated Financial Statements — (Continued)
December 31, 2023, 2022 and 2021
Restricted Stock Units
There was an aggregate of 558,747, 1,123,076 and 837,576 RSUs without performance conditions granted to certain of our
employees and directors during the years ended December 31, 2023, 2022 and 2021, respectively. There were no RSUs with
performance conditions granted during the year ended December 31, 2023. There was an aggregate of 168,223 and 120,314
RSUs with performance conditions granted to certain of our employees during the years ended December 31, 2022 and 2021,
respectively. The time-based RSUs vest over a five-year period from the vesting commencement date, which is generally the
grant date. The performance-based RSUs vest when the related performance conditions are met. Vested RSUs include the
amount of shares withheld to satisfy tax withholding requirements to be paid by us on behalf of our employees, when applicable.
We account for RSUs based on the fair value of the award as of the grant date. We recognize stock-based compensation
expense for time-based RSUs using the accelerated attribution method, net of actual forfeitures, in which compensation cost for
each vesting tranche in an award is recognized ratably from the grant date to the vesting date for that tranche. The condition for
vesting of the RSUs is based on continued employment. We recognize stock-based compensation expense for performance-
based RSUs based on management’s determination of the probable outcome of the performance conditions and we record a
cumulative adjustment in periods in which there is a change in the estimated number of shares expected to vest. As of
December 31, 2023, the total unrecognized compensation expense related to RSUs without performance conditions was $63.1
million, which is expected to be recognized over a weighted average period of 2.4 years. As of December 31, 2023, the total
unrecognized compensation expense related to RSUs with performance conditions was $6.8 million, which is expected to be
recognized over a weighted average period of 2.8 years.
The following table summarizes RSU activity:
RSUs without Performance Conditions
RSUs with Performance Conditions
Weighted
Average
Grant Date
Fair Value
Aggregate
Intrinsic
Value
(in thousands)
Number of
RSUs
Weighted
Average
Grant Date
Fair Value
Aggregate
Intrinsic
Value
(in thousands)
Number of
RSUs
Outstanding as of December 31, 2022
2,267,854 $
65.67 $
112,213
294,922 $
73.94 $
14,593
Granted
Vested
Forfeited
558,747
(722,979)
(143,941)
55.40
62.72
66.76
39,328
—
(48,406)
(28,322)
—
65.52
81.18
2,556
Outstanding as of December 31, 2023
1,959,681 $
63.75 $
126,635
218,194 $
74.86 $
14,100
Vested and expected to vest as of
December 31, 2023
1,959,681 $
63.75 $
126,635
206,047 $
74.12 $
13,315
The weighted average grant date fair value for our RSUs without performance conditions granted during the years ended
December 31, 2023, 2022 and 2021 was $55.40, $63.76 and $86.35, respectively. The weighted average grant date fair value
for our RSUs with performance conditions granted during the years ended December 31, 2022 and 2021 was $71.64 and
$87.53, respectively. The total fair value of RSUs without performance conditions vested during the years ended December 31,
2023, 2022 and 2021 was $45.3 million, $24.3 million and $20.9 million, respectively. The total fair value of RSUs with
performance conditions vested during the years ended December 31, 2023, 2022 and 2021 was $3.2 million, zero and $1.1
million, respectively.
Employee Stock Purchase Plan
Our board of directors adopted our 2015 ESPP in June 2015. As of December 31, 2023, 1,895,990 shares have been
reserved for future grant under the 2015 ESPP, with provisions established to increase the number of shares available on
January 1 of each subsequent year for nine years. The annual automatic increase in the number of shares available for issuance
under the 2015 ESPP is the lesser of 1% of each class of common stock outstanding as of December 31 of the preceding fiscal
year, 1,500,000 shares of common stock, or such lesser number as determined by the board of directors. There was no increase
to the number of shares of common stock reserved for issuance under the 2015 ESPP in any of 2021, 2022 or 2023 nor will the
number of shares be increased in 2024. The 2015 ESPP allows eligible employees to purchase shares of our common stock at
90% of the fair market value, rounded up to the nearest cent, based on the closing price of our common stock on the purchase
date. The maximum number of shares of our common stock that a participant may purchase during any calendar year shall not
exceed such number of shares having a fair market value equal to the lesser of $15,000 or 10% of the participant's base
compensation for that year.
The 2015 ESPP is considered compensatory for purposes of share-based compensation expense due to the 10% discount
on the fair market value of the common stock. An aggregate of 33,639, 24,994 and 19,628 shares were purchased by employees
for the years ended December 31, 2023, 2022 and 2021, respectively, for which we recognized $0.2 million of compensation
116
ALARM.COM HOLDINGS, INC.
Notes to the Consolidated Financial Statements — (Continued)
December 31, 2023, 2022 and 2021
expense during each of those years. Compensation expense is recognized for the amount of the discount, net of actual
forfeitures and voluntary withdrawals, over the six-month purchase period.
Note 16. Earnings Per Share
Basic and Diluted Earnings Per Share
The components of basic and diluted earnings per share are as follows (in thousands, except share and per share
amounts):
Numerator:
Net income
Net loss attributable to redeemable noncontrolling interests
Net income attributable to common stockholders - basic (A)
Add back interest expense, net of tax, attributable to convertible senior notes
Net income attributable to common stockholders - diluted (B)
Denominator:
Weighted average common shares outstanding — basic (C)
Dilutive effect of convertible senior notes, stock options and restricted stock
units
Weighted average common shares outstanding — diluted (D)
Net income per share:
Basic (A/C)
Diluted (B/D)
Year Ended December 31,
2022
2023
2021
$
80,340 $
55,631 $
703
81,043
2,367
707
56,338
2,352
51,175
1,084
52,259
—
$
83,410 $
58,690 $
52,259
49,818,448
49,926,236
49,869,857
4,806,986
5,006,521
2,050,045
54,625,434
54,932,757
51,919,902
$
$
1.63 $
1.53 $
1.13 $
1.07 $
1.05
1.01
The following securities have been excluded from the calculation of diluted weighted average common shares outstanding
as the inclusion of these securities would have an anti-dilutive effect:
Stock options
Restricted stock units
Year Ended December 31,
2023
2022
2021
626,976
255,325
393,042
242,842
142,660
11,630
Our redeemable noncontrolling interests relate to our 86% equity ownership interest in OpenEye, and our 85% equity
ownership interest in Noonlight. See Note 2 for details on the put options and call options contained in the OpenEye and
Noonlight stockholder agreements.
Prior to the adoption of ASU 2020-06, since we expected to settle the principal amount on our outstanding 2026 Notes in
cash and any excess in cash or shares of our common stock, we used the treasury stock method for calculating any potential
dilutive effect of the conversion spread on diluted net income per share, if applicable. The conversion spread had a dilutive
impact on diluted net income per share of common stock when the average market price of our common stock for a given period
exceeded the conversion price of $147.19 per share for the 2026 Notes. Based on the initial conversion price and the average
market price of our common stock for the year ended December 31, 2021, there was no dilutive effect of the 2026 Notes on our
earnings per share during the year ended December 31, 2021.
Upon adoption of ASU 2020-06 on January 1, 2022, we began using the if-converted method when calculating the dilutive
impact of the 2026 Notes on net income per share. As a result, we included 3,396,950 shares related to the 2026 Notes within
the weighted average shares outstanding when calculating the diluted net income per share for the years ended December 31,
2023 and 2022. Additionally, we included $2.4 million of debt issuance cost amortization, net of tax, within the numerator of the
diluted net income per share for each of the years ended December 31, 2023 and 2022. We use the treasury stock method when
calculating the dilutive impact of the stock options and restricted stock units on net income per share.
117
ALARM.COM HOLDINGS, INC.
Notes to the Consolidated Financial Statements — (Continued)
December 31, 2023, 2022 and 2021
Note 17. Significant Service Providers and Distributors
During the years ended December 31, 2023, 2022 and 2021, our 10 largest revenue service provider partners or distributors
accounted for 50%, 49% and 47% of our consolidated revenue, respectively. One of our service provider partners within the
Alarm.com segment individually represented greater than 15% but not more than 20% of our revenue for the years ended
December 31, 2023, 2022 and 2021.
One of our service provider partners in the Alarm.com segment represented more than 10% of accounts receivable as of
December 31, 2023. Two of our service provider partners in the Alarm.com segment represented more than 10% of accounts
receivable as of December 31, 2022.
Note 18. Income Taxes
The components of our income before income taxes are as follows (in thousands):
Year Ended December 31,
2023
2022
2021
$ 97,453 $ 56,531 $ 46,019
372
50
$ 97,825 $ 56,593 $ 46,069
62
Year Ended December 31,
2023
2022
2021
$ 51,923 $ 44,591 $
11,577
1,715
65,215
10,730
680
56,001
2,678
1,437
894
5,009
(40,519)
(45,609)
(9,295)
(6,986)
(9,271)
(225)
(159)
(820)
—
(47,730)
(55,039)
(10,115)
$ 17,485 $
962 $
(5,106)
Domestic
Foreign
Total
The components of our income tax expense are as follows (in thousands):
Current
Federal
State
Foreign
Total Current
Deferred
Federal
State
Foreign
Total Deferred
Total
118
ALARM.COM HOLDINGS, INC.
Notes to the Consolidated Financial Statements — (Continued)
December 31, 2023, 2022 and 2021
The difference between the income tax expense at the federal statutory rate and income tax expense in the consolidated
statements of operations is as follows:
Federal statutory rate
State income tax expense, net of federal benefits
Foreign tax rate differential
Nondeductible meals and entertainment
Foreign-derived intangible income deduction
Valuation allowance
Research and development tax credits
Tax shortfall / (windfall benefits)
Foreign withholding tax
Nondeductible compensation
Income tax underpayment interest, net of tax benefit
Other
Effective rate
Year Ended December 31,
2023
2022
2021
21.0 %
21.0 %
3.0
0.1
0.2
(4.4)
0.7
(7.2)
0.4
1.3
1.0
1.1
0.7
1.0
—
0.9
(7.0)
0.4
(16.5)
(3.0)
1.2
1.8
0.7
1.2
21.0 %
(1.0)
—
0.5
(1.7)
1.1
(17.7)
(18.8)
1.9
1.9
—
1.7
17.9 %
1.7 %
(11.1) %
119
ALARM.COM HOLDINGS, INC.
Notes to the Consolidated Financial Statements — (Continued)
December 31, 2023, 2022 and 2021
The components of our net deferred tax assets (liabilities) are as follows (in thousands):
Deferred tax assets, non-current
Provision for credit losses on accounts receivable
Depreciation
Accrued expenses
Deferred revenue
Operating lease liabilities
Stock-based compensation
Acquisition costs
Inventory reserve
Net operating losses
Tax credits
Capitalized research and development expenditures
Other
Total deferred tax assets, non-current prior to valuation allowance
Valuation allowance
Total deferred tax assets, non-current, net of valuation allowance
Deferred tax liabilities, non-current
Intangible assets and prepaid patent licenses
Operating lease right-of-use assets
Depreciation
Sales commissions
Equity investments
Other deferred tax liabilities
Total deferred tax liabilities, non-current
Net deferred tax assets, non-current
December 31,
2023
2022
$
1,500 $
1,073
401
6,324
2,681
8,107
21,040
2,107
529
2,600
3,535
99,799
2,873
445
5,288
2,274
9,757
22,191
2,363
654
3,492
3,085
53,901
786
151,496
105,309
(3,754)
(2,591)
147,742
102,718
(3,552)
(5,983)
(4,267)
(1,477)
(161)
(487)
(4,354)
(7,134)
(5,828)
(1,138)
(79)
—
(15,927)
(18,533)
$ 131,815 $ 84,185
A reconciliation of the beginning and ending amounts of unrecognized tax benefits (without related interest expense) is as
follows (in thousands):
Beginning balance
Additions based on tax positions of the current year
Additions based on tax positions of prior year
Decreases based on tax positions of prior year
Decreases due to lapse of applicable statute of limitations
Ending balance
Year Ended December 31,
2023
2022
2021
$
7,596 $
5,541 $
1,589
1,881
204
(205)
(121)
225
(51)
—
4,228
1,526
15
(10)
(218)
$
9,063 $
7,596 $
5,541
Our effective income tax rates were 17.9%, 1.7% and (11.1)% for the years ended December 31, 2023, 2022 and 2021,
respectively. For the year ended December 31, 2023, the effective tax rate was below the 21.0% statutory rate primarily due to
research and development tax credits claimed and the foreign derived intangible income deduction, partially offset by the impact
of state taxes, foreign withholding taxes, federal estimated tax payment interest expense, other nondeductible expenses and a
stock-based compensation tax shortfall. For the years ended December 31, 2022 and 2021, the effective tax rates were below
the 21.0% statutory rate primarily due to research and development tax credits claimed, foreign derived intangible income
deductions and tax windfall benefits from employee stock-based payment transactions, partially offset by the impact of
nondeductible expenses, foreign withholding taxes and state taxes.
120
ALARM.COM HOLDINGS, INC.
Notes to the Consolidated Financial Statements — (Continued)
December 31, 2023, 2022 and 2021
We recognize a valuation allowance if, based on the weight of available evidence, both positive and negative, it is more
likely than not that some portion, or all, of net deferred tax assets will not be realized. Our valuation allowance for state research
and development tax credit carryforwards and net deferred tax assets of our EBS subsidiary were $3.8 million, $2.6 million and
$1.9 million as of December 31, 2023, 2022 and 2021, respectively.
We apply guidance for uncertainty in income taxes that requires the application of a more likely than not threshold to the
recognition and de-recognition of uncertain tax positions. If the recognition threshold is met, this guidance permits us to
recognize a tax benefit measured at the largest amount of the tax benefit that, in our judgment, is more likely than not to be
realized upon settlement. We recorded a net increase to the unrecognized tax benefits liability of $1.5 million, $2.1 million and
$1.4 million primarily for research and development tax credits claimed during the years ended December 31, 2023, 2022 and
2021, respectively. We believe it is reasonably possible within the next 12 months that a decrease of up to $2.5 million in
unrecognized tax benefits may be recognized as a result of a lapse of the statute of limitations.
Our unrecognized tax benefits as of December 31, 2023 and 2022 includes unrecognized tax benefits of $8.9 million and
$7.4 million, respectively, that if recognized, would reduce our income tax expense and effective tax rate.
As of December 31, 2023 and 2022, our consolidated balance sheets included a $0.8 million and $0.3 million accrual for
total interest expense related to unrecognized tax benefits, respectively. We recognize interest and penalties related to
unrecognized tax benefits as a component of income tax expense.
As of December 31, 2023, we had gross U.S. federal net operating loss carryforwards of $10.0 million, which will begin to
expire in 2031, Canadian federal net operating loss carryforwards of $0.4 million, which are scheduled to begin to expire in 2034
and Polish federal net operating loss carryforwards of $0.7 million, which are scheduled to begin to expire in 2025. As of
December 31, 2023, we had state net operating loss carryforwards of $5.5 million, which will begin to expire in 2031. As of
December 31, 2023, we had less than $0.1 million of federal research and development tax credit carryforwards that will begin to
expire in 2041. As of December 31, 2023, we had state research and development tax credit carryforwards of $4.0 million, which
will begin to expire in 2030. The federal net operating loss carryforward arose in connection with the 2013 acquisition of
EnergyHub and the 2022 acquisition of Noonlight. Utilization of the acquired EnergyHub and Noonlight net operating loss
carryforwards may be subject to annual limitations due to ownership change limitations as provided by the Internal Revenue
Code of 1986, as amended.
Our tax returns are subject to on-going review and examination by various tax authorities. Tax authorities may not agree with
the treatment of items reported in our tax returns, and therefore the outcome of tax reviews and examinations can be
unpredictable. On October 13, 2021, the Internal Revenue Service commenced an examination of our federal income tax return
for 2018 and on August 12, 2022, the Internal Revenue Service expanded the examination to include our federal income tax
return for 2019. On January 25, 2024, the Internal Revenue Service notified us that the income tax examination of our 2018 and
2019 federal income tax returns has been closed. As a result, we expect to pay approximately $1.5 million in additional federal
taxes and recognize an income tax benefit of approximately $0.9 million during the three months ending March 31, 2024.
As of December 31, 2023, we did not have material undistributed foreign earnings. We have not recorded a deferred tax
liability on the undistributed earnings from our foreign subsidiaries, as such earnings are considered to be indefinitely reinvested.
In August 2022, the Inflation Reduction Act of 2022 was enacted in the United States which, among other provisions,
includes a minimum 15.0% tax on companies that have a three-year average annual adjusted financial statement income of
more than $1.0 billion and a 1.0% excise tax on the value of net corporate stock repurchases. Both provisions became effective
on January 1, 2023 and the provisions did not have a material impact on our financial condition or results of operations as of
December 31, 2023.
Note 19. Segment Information
We have two reportable segments:
•
•
Alarm.com segment
Other segment
Our chief operating decision maker is our chief executive officer. Management determined the operational data used by the
chief operating decision maker is that of the two reportable segments. Management bases strategic goals and decisions on
these segments and the data presented below is used to measure financial results.
Our Alarm.com segment represents our cloud-based and Software platforms for the intelligently connected property and
related solutions that contributed 93%, 94% and 95% of our revenue, net of intersegment eliminations, for the years ended
121
ALARM.COM HOLDINGS, INC.
Notes to the Consolidated Financial Statements — (Continued)
December 31, 2023, 2022 and 2021
December 31, 2023, 2022 and 2021, respectively. Our Other segment is focused on researching, developing and offering
residential and commercial automation solutions and energy management products and services in adjacent markets. Inter-
segment revenue includes sales of hardware between our segments.
Management evaluates the performance of its segments and allocates resources to them based on operating income / (loss)
as compared to prior periods and current performance levels. The reportable segment operational data is presented in the tables
below (in thousands):
SaaS and license revenue
Hardware and other revenue
Total revenue
Operating income / (loss)
Assets
SaaS and license revenue
Hardware and other revenue
Total revenue
Operating income / (loss)
Assets
SaaS and license revenue
Hardware and other revenue
Total revenue
Operating income / (loss)
$
$
$
Alarm.com
514,673 $
309,778
824,451
74,562
1,477,674
Alarm.com
478,134 $
317,937
796,071
66,744
1,366,343
Alarm.com
Year Ended December 31, 2023
Intersegment
Alarm.com
Intersegment
Other
Other
54,527 $
6,501
61,028
(12,168)
73,621
— $
— $
(3,201)
(3,201)
4,017
(111,725)
(596)
(596)
418
(7)
Year Ended December 31, 2022
Intersegment
Alarm.com
Intersegment
Other
Other
42,243 $
9,097
51,340
(16,255)
53,927
— $
— $
(4,067)
(4,067)
417
(90,929)
(785)
(785)
131
34
Year Ended December 31, 2021
Intersegment
Alarm.com
Intersegment
Other
Other
426,823 $
284,721
711,544
70,646
33,549 $
9,275
42,824
(9,590)
— $
— $
(3,089)
(3,089)
766
(2,310)
(2,310)
(250)
Total
569,200
312,482
881,682
66,829
1,439,563
Total
520,377
322,182
842,559
51,037
1,329,375
Total
460,372
288,597
748,969
61,572
Our SaaS and license revenue for the Alarm.com segment included software license revenue of $23.2 million, $26.8 million
and $32.3 million for the years ended December 31, 2023, 2022 and 2021, respectively. There was no software license revenue
recorded for the Other segment during the years ended December 31, 2023, 2022 and 2021.
Amortization and depreciation expense was $30.3 million, $29.6 million and $29.3 million for the Alarm.com segment for the
years ended December 31, 2023, 2022 and 2021, respectively. Amortization and depreciation expense was $1.1 million, $1.2
million and $0.4 million for the Other segment for the years ended December 31, 2023, 2022 and 2021, respectively. Additions to
property and equipment were $8.9 million, $28.4 million and $9.7 million for the Alarm.com segment for the years ended
December 31, 2023, 2022 and 2021, respectively. Additions to property and equipment were $0.2 million, $0.3 million and $0.5
million for the Other segment for the years ended December 31, 2023, 2022 and 2021, respectively.
We derived substantially all revenue from North America for the years ended December 31, 2023, 2022 and 2021.
Substantially all of our long-lived assets were in North America as of December 31, 2023 and 2022.
122
ALARM.COM HOLDINGS, INC.
Notes to the Consolidated Financial Statements — (Continued)
December 31, 2023, 2022 and 2021
Note 20. Quarterly Financial Data (unaudited)
The following table shows selected unaudited quarterly consolidated statement of operations data for each of our eight most
recently completed quarters. In the opinion of management, the information for each of these quarters has been prepared on the
same basis as our audited financial statements and include all adjustments, consisting of normal recurring adjustments and
accruals, necessary for the fair statement of financial information in accordance with GAAP. However, the global economy, credit
markets and financial markets have and may continue to experience significant volatility as a result of Macroeconomic
Conditions. These Macroeconomic Conditions have and may continue to create supply chain disruptions, inventory disruptions,
and fluctuations in economic growth, including fluctuations in employment rates, inflation, energy prices and consumer
sentiment. It remains difficult to assess or predict the ultimate duration and economic impact of the Macroeconomic Conditions.
Additionally, increases in freight shipment and inventory component costs resulted in an increase to our cost of hardware
revenue during portions of 2022.
Information about current and prior period acquisitions that may affect the comparability of the selected financial information
presented below is included in Note 7, and information about current and prior period legal matters that may affect the
comparability of the selected financial information presented below is included in Note 13. The selected consolidated statements
of operation data in amounts are presented below (in thousands, except per share data):
Three Months Ended
Mar. 31,
2022
June 30,
2022
Sept. 30,
2022
Dec. 31,
2022
Mar. 31,
2023
June 30,
2023
Sept. 30,
2023
Dec. 31,
2023
$ 205,437 $ 212,845 $ 216,138 $ 208,139 $ 209,716 $ 223,875 $ 221,854 $ 226,237
90,087
87,336
85,586
79,572
76,172
86,367
81,405
81,215
8,903
10,828
18,110
17,790
14,207
15,611
19,351
31,171
9,079
10,842
18,332
18,085
14,416
15,799
19,524
31,304
Total revenue
Total cost of revenue
Net income
Net income attributable to common
stockholders
Net income per share attributable
to common stockholders
Basic
Diluted
$
$
0.18 $
0.22 $
0.37 $
0.36 $
0.29 $
0.32 $
0.39 $
0.18 $
0.21 $
0.35 $
0.34 $
0.28 $
0.30 $
0.37 $
0.63
0.58
123
Schedule II – Valuation and Qualifying Accounts and Reserves
Alarm.com Holdings, Inc.
Schedule II
Valuation and Qualifying Accounts and Reserves
(In thousands)
Description
Year Ended December 31, 2023
Balance at
Beginning of
Year
Additions
Charged
Against
Revenue
Additions
Charged to
Other
Accounts
Deductions
Balance at
End of Year
Allowance for credit losses on accounts receivable
$
2,835 $
— $
1,508 $
(479) $
Allowance for product returns
Allowance for credit losses on notes receivable
Deferred tax valuation allowance
Year Ended December 31, 2022
1,551
2
2,591
4,399
—
—
—
3
(3,671)
—
2,204
(1,041)
Allowance for credit losses on accounts receivable
$
2,168 $
— $
1,156 $
(489) $
Allowance for product returns
Allowance for credit losses on notes receivable
Deferred tax valuation allowance
Year Ended December 31, 2021
1,181
80
2,209
4,746
—
—
—
(78)
1,337
(4,376)
—
(955)
Allowance for credit losses on accounts receivable
$
4,696 $
— $
(775) $
(1,753) $
Allowance for product returns
Allowance for credit losses on notes receivable
Deferred tax valuation allowance
1,480
89
1,568
2,494
—
—
—
(9)
641
(2,793)
—
—
3,864
2,279
5
3,754
2,835
1,551
2
2,591
2,168
1,181
80
2,209
124
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We maintain "disclosure controls and procedures," as defined in Rules 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934, as amended, or the Exchange Act, that are designed to ensure that information required to be disclosed
by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported,
within the time periods specified in the Securities and Exchange Commission's rules and forms, and that such information is
accumulated and communicated to the company’s management, including its chief executive officer and chief financial officer, as
appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures,
no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and
management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the
effectiveness of our disclosure controls and procedures as of December 31, 2023. Based on the evaluation of our disclosure
controls and procedures as of December 31, 2023, our Chief Executive Officer and Chief Financial Officer concluded that, as of
such date, our disclosure controls and procedures were effective at the reasonable assurance level.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as
defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act. Our management, under the supervision and with the participation
of our Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of our internal control
over financial reporting as of December 31, 2023 based on the framework in Internal Control-Integrated Framework (2013)
issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on the results of its evaluation,
management concluded our internal control over financial reporting was effective as of December 31, 2023.
Our independent registered public accounting firm, PricewaterhouseCoopers LLP, has audited our financial statements
included in this Annual Report on Form 10-K and the effectiveness of our internal control over financial reporting as of
December 31, 2023. The report of PricewaterhouseCoopers LLP is incorporated by reference into Item 8 of this Annual Report
on Form 10-K.
On January 18, 2023, we acquired 100% of the issued and outstanding shares of capital stock of EBS. In accordance with
guidance issued by the Securities and Exchange Commission, management's assessment of the effectiveness of our internal
control over financial reporting excluded the internal control activities of EBS, which is included in our December 31, 2023
consolidated financial statements, for which EBS represented 1% of total assets and 1% of total revenue of the related
consolidated financial statement amounts as of and for the year ended December 31, 2023.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the
Exchange Act, during our most recent fiscal quarter ended December 31, 2023 that have materially affected, or are reasonably
likely to materially affect, our internal control over financial reporting.
Inherent Limitations on Effectiveness of Controls
Our management, including our Chief Executive Officer and Chief Financial Officer, believes our disclosure controls and
procedures and internal control over financial reporting are designed to provide reasonable assurance of achieving their
objectives and are effective at the reasonable assurance level. However, our management does not expect our disclosure
controls and procedures or our internal control over financial reporting will prevent all errors and all fraud. A control system, no
matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control
system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits
of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of
controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These
inherent limitations include the realities that judgments in decision making can be faulty, and that breakdowns can occur because
of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of
two or more people or by management override of the controls. The design of any system of controls also is based in part upon
certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in
achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes
125
in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a
cost-effective control system, misstatements due to error or fraud may occur and not be detected.
ITEM 9B. OTHER INFORMATION
Insider Trading Arrangements
During the three months ended December 31, 2023, the following directors or officers (as defined in Rule 16a-1(f) under the
Exchange Act) adopted, modified or terminated a Rule 10b5-1 trading arrangement (as defined in Item 408(a) of Regulation S-K)
intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) under the Exchange Act:
Name and Title
Daniel Kerzner,
President, Platforms
Business
Action
Total Number of Shares to be
Sold Pursuant to the Trading
Arrangement
Adoption Date
Expiration Date
Adoption
Sale of up to 28,433 shares
of common stock
November 15, 2023
March 14, 2025
During the three months ended December 31, 2023, none of our directors or officers adopted, modified or terminated a non-
Rule 10b5-1 trading arrangement (as defined in Item 408(c) of Regulation S-K).
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.
126
PART III.
We will file a definitive Proxy Statement for our Annual Meeting, or our 2024 Proxy Statement, with the SEC, pursuant to
Regulation 14A, not later than 120 days after the end of our fiscal year. Accordingly, certain information required by Part III has
been omitted under General Instruction G(3) to Form 10-K. Only those sections of the 2024 Proxy Statement that specifically
address the items set forth herein are incorporated by reference.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by Item 10 is hereby incorporated by reference to the sections of our 2024 Proxy Statement under
the captions "Information Regarding Committees of the Board of Directors," "Election of Directors" and "Executive Officers."
We have adopted a written Code of Business Conduct and Ethics, or the Code of Conduct, applicable to all of our
employees, executive officers and directors, including our principal executive officer, principal financial officer, principal
accounting officer or controller, or persons performing similar functions. A current copy of the Code of Conduct is available on the
Investors section of our website, www.alarm.com, under "Corporate Governance." We intend to disclose on our website any
amendments to, or waivers from, our Code of Conduct that are required to be disclosed pursuant to SEC rules.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 is hereby incorporated by reference to the sections of our 2024 Proxy Statement under
the captions "Executive Compensation" (other than the information appearing under the heading “Pay Versus Performance”),
"Director Compensation" and “Information Regarding Committees of the Board of Directors."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
The information required by Item 12 is hereby incorporated by reference to the sections of our 2024 Proxy Statement under
the captions "Security Ownership of Certain Beneficial Owners and Management" and "Equity Compensation Plan Information."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
The information required by Item 13 is hereby incorporated by reference to the sections of our 2024 Proxy Statement under
the captions "Transactions with Related Persons" and "Independence of the Board of Directors."
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by Item 14 is hereby incorporated by reference to the section of our 2024 Proxy Statement under
the caption "Principal Accountant Fees and Services" and “Pre-Approval Policies and Procedures.”
127
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a) The following documents are filed as part of this Annual Report:
PART IV.
(1) Consolidated Financial Statements and Reports of Independent Registered Public Accounting Firm
(2) Consolidated Financial Statement Schedule
(3) Exhibits are incorporated herein by reference or are filed with this Annual Report as indicated below
(b) Exhibits
Exhibit
Description
2.1
2.2
3.1
3.2
4.1
4.2
4.3
4.4
4.5
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
Asset Purchase Agreement by and among ICN Acquisition, LLC,
Icontrol Networks, Inc., the Seller Stockholders, Fortis Advisors
LLC, and the Registrant as Guarantor, dated as of June 23, 2016
Amendment No. 1 to Asset Purchase Agreement by and among
ICN Acquisition, LLC, Icontrol Networks, Inc., the Seller
Stockholders, Fortis Advisors LLC, and the Registrant as
Guarantor, dated November 15, 2016
Amended and Restated Certificate of Incorporation of the
Registrant
Amended and Restated Bylaws of the Registrant
Indenture, dated as of January 20, 2021, by and between
Alarm.com Holdings, Inc. and U.S. Bank National Association, as
Trustee
Form of Global Note, representing Alarm.com Holdings, Inc.’s 0%
Convertible Senior Notes due 2026 (included as Exhibit A to the
Indenture filed as Exhibit 4.1)
Form of Common Stock Certificate of the Registrant
Amended and Restated Registration Rights Agreement by and
among the Registrant and certain of its stockholders, dated July
11, 2012
Description of Securities Registered Pursuant To Section 12 of the
Securities Exchange Act of 1934, As Amended
Deed of Office Lease Agreement between Registrant and Marshall
Property LLC, dated August 8, 2014
First Amendment to Deed of Office Lease Agreement by and
between Alarm.com Incorporated and Marshall Property LLC,
dated May 29, 2015
Second Amendment to Deed of Office Lease Agreement by and
between Alarm.com Incorporated and Marshall Property LLC,
dated October 19, 2015
Third Amendment to Deed of Office Lease Agreement by and
between Alarm.com Incorporated and Marshall Property LLC,
dated May 6, 2016
Fourth Amendment to Deed of Office Lease Agreement by and
between Alarm.com Incorporated and Marshall Property LLC,
dated September 15, 2016
Fifth Amendment to Deed of Office Lease Agreement by and
between Alarm.com Incorporated and Marshall Property LLC,
dated January 31, 2017
Sixth Amendment to Deed of Office Lease Agreement by and
between Alarm.com Incorporated and TMG TMC 3, L.L.C., dated
October 10, 2018
Seventh Amendment to Deed of Office Lease Agreement by and
between Alarm.com Incorporated and TMG TMC 3,
L.L.C., dated May 16, 2019
Eighth Amendment to Deed of Office Lease Agreement by and
between Alarm.com Incorporated and TMG TMC 3, L.L.C.,
dated July 17, 2019
128
Incorporated by Reference
File Number Exhibit
File Date
Schedule /
Form
8-K
001-37461
2.1
June 23, 2016
8-K
001-37461
2.1
November 16,
2016
001-37461
3.1
June 10, 2021
8-K
8-K
8-K
001-37461
001-37461
3.1
4.1
March 16,
2023
January 20,
2021
January 20,
2021
8-K
001-37461
4.2
S-1
S-1
333-204428
333-204428
4.1
4.2
May 22, 2015
May 22, 2015
10-K
001-37461
4.5
February 24,
2022
S-1
333-204428
10.2 May 22, 2015
10-Q
001-37461
10.1
10-Q
001-37461
10.2
10-Q
001-37461
10.3
10-Q
001-37461
10.3
10-K
001-37461
10.7
August 15,
2016
August 15,
2016
August 15,
2016
November 14,
2016
March 16,
2017
10-K
001-37461
10.8 March 1, 2019
10-Q
001-37461
10.1
August 9, 2019
10-Q
001-37461
10.2
August 9, 2019
Exhibit
Description
10.10
10.11
10.12
10.13
10.14
Ninth Amendment to Deed of Office Lease Agreement by and
between Alarm.com Incorporated and TMG TMC 3, L.L.C., dated
March 12, 2020
Tenth Amendment to Deed of Office Lease Agreement by and
between Alarm.com Incorporated and TMG TMC 3, L.L.C., dated
December 17, 2020
Eleventh Amendment to Deed of Office Lease Agreement by and
between Alarm.com Incorporated and TMG TMC 3, L.L.C., dated
December 21, 2021
Twelfth Amendment to Deed of Office Lease Agreement by and
between Alarm.com Incorporated and TMG TMC 3, L.L.C., dated
January 12, 2022
Thirteenth Amendment to Deed of Office Lease Agreement by and
between Alarm.com Incorporated and TMG TMC 3, L.L.C., dated
July 26, 2023
10.15†
Amended and Restated 2009 Stock Incentive Plan, Form of Non-
Qualified Stock Option Agreement and Form of Early Exercise
Notice and Restricted Stock Purchase Agreement thereunder
Incorporated by Reference
File Number Exhibit
File Date
Schedule /
Form
10-Q
001-37461
10.1
May 7, 2020
10-K
001-37461
10.11
10-K
001-37461
10.12
10-K
001-37461
10.13
10-Q
001-37461
10.1
February 25,
2021
February 24,
2022
February 24,
2022
November 9,
2023
S-1
333-204428
10.3 May 22, 2015
10.16†
2015 Equity Incentive Plan
10-Q
001-37461
10.1
10.17†
Form of Option Grant Package under 2015 Equity Incentive Plan
10.18†
Form of RSU Notice and Agreement under 2015 Equity Incentive
Plan
10-Q
10-Q
001-37461
001-37461
10.1
10.2
10.19†
Form of Early Exercise Restricted Stock Purchase Agreement
10-K
001-37461
10.7
10.20†
2015 Employee Stock Purchase Plan
10-Q
001-37461
10.2
August 14,
2015
May 5, 2022
May 5, 2022
February 29,
2016
August 14,
2015
10-Q
S-1/A
001-37461
10.1
May 9, 2019
333-204428
10.9
June 11, 2015
8-K
001-37461
10.1
10-Q
001-37461
10.2
November 14,
2016
November 14,
2016
10-K
001-37461
10.27 March 1, 2019
10-K
001-37461
10.23
10-K
001-37461
10.24
10-K
001-37461
10.27
10-Q
001-37461
10.1
10-Q
001-37461
10.2
February 26,
2020
February 26,
2020
February 25,
2021
November 4,
2021
November 9,
2023
10.21†
Alarm.com Holdings, Inc. Executive Bonus Plan
10.22†
10.23†
10.24^
10.25
10.26^
10.27
10.28^
10.29^
10.30
21.1*
23.1*
31.1*
Form of Indemnity Agreement by and between Registrant and each
of its directors and executive officers
Offer Letter by and between the Registrant and Steve Valenzuela
dated October 12, 2016
Reformed Master Services Agreement by and between Alarm.com
Incorporated and ADT LLC, effective as of August 19, 2016
Class Action Settlement Agreement by and between Alarm.com
Holdings, Inc., Alarm.com Incorporated, Abante Rooter and
Plumbing, Inc., Mark Hankins and Philip J. Charvat, individually
and on behalf of all others similarly situated
First Amendment to Reformed Master Services Agreement by and
between Alarm.com Incorporated and ADT LLC, effective as of
December 9, 2019
Indemnity Agreement by and between Alarm.com Holdings, Inc.
and Simone Wu
Second Amendment to Reformed Master Services Agreement by
and between Alarm.com Incorporated and ADT LLC, effective as of
November 4, 2020
Third Amendment to Reformed Master Services Agreement by and
between Alarm.com Incorporated and ADT LLC, effective as of July
1, 2021
Fourth Amendment to Reformed Master Services Agreement by
and between Alarm.com Incorporated and ADT LLC, effective as of
September 27, 2023
Subsidiaries of the Registrant
Consent of PricewaterhouseCoopers LLP, independent registered
public accounting firm
Certification of Principal Executive Officer Pursuant to Rules
13a-14(a) and 15d-14(a) under the Securities Exchange Act of
1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
129
Exhibit
31.2*
Description
Incorporated by Reference
File Number Exhibit
File Date
Schedule /
Form
Certification of Principal Financial Officer Pursuant to Rules
13a-14(a) and 15d-14(a) under the Securities Exchange Act of
1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
32.1**
Certification of Principal Executive Officer and Principal Financial
Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002
97.1*†
Alarm.com Clawback Policy
101.INS
Inline XBRL Instance Document - the instance document does not
appear in the Interactive Data File because its XBRL tags are
embedded within the Inline XBRL document
101.SCH*
Inline XBRL Taxonomy Extension Schema Document
101.CAL*
Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*
Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*
Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE*
Inline XBRL Taxonomy Extension Presentation Linkbase Document
104*
Cover Page Interactive Data File - the cover page interactive data
is embedded within the Inline XBRL document or included within
the Exhibit 101 attachments
* Filed herewith.
** Furnished herewith.
† Indicates management contract or compensatory plan or arrangement.
^ Portions of this document (indicated by "[***]") have been omitted because they are not material and are the type that
Alarm.com Holdings, Inc. treats as private and confidential.
ITEM 16. FORM 10-K SUMMARY
Not applicable.
130
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
Date: February 22, 2024
Alarm.com Holdings, Inc.
By:
/s/ Stephen Trundle
Stephen Trundle
Chief Executive Officer
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature
Title
Date
/s/ Stephen Trundle
Stephen Trundle
Chief Executive Officer
(Principal Executive Officer)
February 22, 2024
/s/ Steve Valenzuela
Steve Valenzuela
Chief Financial Officer
(Principal Financial Officer and Principal Accounting Officer)
February 22, 2024
/s/ Timothy McAdam
Timothy McAdam
Chairman of the Board of Directors
February 22, 2024
February 22, 2024
February 22, 2024
February 22, 2024
February 22, 2024
February 22, 2024
/s/ Donald Clarke
Donald Clarke
Director
/s/ Rear Admiral Stephen
Evans
Rear Admiral (Ret.)
Stephen Evans
Director
/s/ Darius G. Nevin
Director
Darius G. Nevin
/s/ Timothy J. Whall
Timothy J. Whall
Director
/s/ Simone Wu
Simone Wu
Director
131
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BOARD OF DIRECTORS
CORPORATE INFORMATION
Stephen Trundle
Chief Executive Officer
Alarm.com
Timothy McAdam
General Partner
Technology Crossover Ventures
Donald Clarke
Director
BigCommerce Holdings, Inc. and BrainEvolved, Inc.
Stephen Evans
Rear Admiral (Ret), USN
Owner
Flag Bridge Global Solutions, LLC
Darius G. Nevin
Member
G3 Capital Partners, LLC
Timothy Whall
Director
Consumer Cellular, Inc. and Curbio, Inc.
Simone Wu
Senior Vice President, General Counsel,
Corporate Secretary & External Affairs,
Choice Hotels International, Inc.
EXECUTIVE OFFICERS
Stephen Trundle
Chief Executive Officer
Steve Valenzuela
Chief Financial Officer
and Principal Accounting Officer
Jeffrey Bedell
President, Ventures Business and Corporate Strategy
Daniel Kerzner
President, Platforms Business
Daniel Ramos
Chief Legal and Compliance Officer
Senior Vice President, Corporate Operations
Corporate Headquarters
Alarm.com Holdings, Inc.
8281 Greensboro Drive, Suite 100
Tysons, VA 22102
Phone: 877.389.4033
Stock Listing
Alarm.com Holdings Inc. stock is publicly traded
on The Nasdaq Global Select Market under the
ticker symbol: ALRM
Investor Relations
Our investor relations website is located at
investors.alarm.com
Contact ir@alarm.com
Independent Registered Public Accounting Firm
PricewaterhouseCoopers LLP
655 New York Avenue NW
Washington, DC 20001
Transfer Agent
Equiniti Trust Company, LLC
PO Box 64856
St. Paul, MN 55164-9442
Phone: 800.356.5343
www.equiniti.com
Annual Meeting of Stockholders
June 5, 2024 at 9:00 a.m. ET
COMMITTEE COMPOSITION
Nominating
& Corporate
Governance
Audit
Compensation
Timothy McAdam
Donald Clarke
Stephen Evans
Darius G. Nevin
Timothy Whall
Simone Wu
Chairman
of the Board
Chair
Member
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