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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
| | | | | |
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2024
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 | | 26-4247032 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification Number) |
8281 Greensboro Drive | Suite 100 | Tysons | Virginia | | 22102 |
(Address of principal executive offices) | | (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 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. þ Yes ¨ No
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). þ Yes ¨ No
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 | þ | | Accelerated Filer | ¨ |
Non-Accelerated Filer | ¨ | | Smaller Reporting Company | ¨ |
| Emerging Growth Company | ¨ |
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 is a shell company (as defined in Rule 12b-2 of the Exchange Act). ¨ Yes þ No
As of August 1, 2024, there were 49,248,750 outstanding shares of the registrant's common stock, par value $0.01 per share.
ALARM.COM HOLDINGS, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE FISCAL QUARTER ENDED JUNE 30, 2024
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS (unaudited)
ALARM.COM HOLDINGS, INC.
Condensed Consolidated Statements of Operations
(in thousands, except share and per share data)
(unaudited)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2024 | | 2023 | | 2024 | | 2023 |
Revenue: | | | | | | | |
SaaS and license revenue | $ | 155,927 | | | $ | 140,432 | | | $ | 306,271 | | | $ | 275,826 | |
Hardware and other revenue | 77,880 | | | 83,443 | | | 150,819 | | | 157,765 | |
Total revenue | 233,807 | | | 223,875 | | | 457,090 | | | 433,591 | |
Cost of revenue(1): | | | | | | | |
Cost of SaaS and license revenue | 22,094 | | | 21,576 | | | 42,522 | | | 41,159 | |
Cost of hardware and other revenue | 59,188 | | | 64,791 | | | 115,275 | | | 121,380 | |
Total cost of revenue | 81,282 | | | 86,367 | | | 157,797 | | | 162,539 | |
Operating expenses: | | | | | | | |
Sales and marketing | 27,837 | | | 23,772 | | | 53,291 | | | 50,417 | |
General and administrative | 26,104 | | | 28,799 | | | 55,400 | | | 57,298 | |
Research and development | 65,730 | | | 60,918 | | | 131,686 | | | 122,826 | |
Amortization and depreciation | 7,080 | | | 7,860 | | | 14,417 | | | 15,533 | |
Total operating expenses | 126,751 | | | 121,349 | | | 254,794 | | | 246,074 | |
Operating income | 25,774 | | | 16,159 | | | 44,499 | | | 24,978 | |
Interest expense | (1,968) | | | (827) | | | (2,764) | | | (1,695) | |
Interest income | 10,856 | | | 7,417 | | | 19,396 | | | 12,599 | |
Other expense, net | (1,258) | | | (631) | | | (1,576) | | | (779) | |
Income before income taxes | 33,404 | | | 22,118 | | | 59,555 | | | 35,103 | |
Provision for income taxes | 884 | | | 6,507 | | | 3,631 | | | 5,285 | |
Net income | 32,520 | | | 15,611 | | | 55,924 | | | 29,818 | |
Net loss attributable to redeemable noncontrolling interests | 991 | | | 188 | | | 1,182 | | | 397 | |
Net income attributable to common stockholders | $ | 33,511 | | | $ | 15,799 | | | $ | 57,106 | | | $ | 30,215 | |
| | | | | | | |
Per share information attributable to common stockholders: | | | | | | | |
Net income per share: | | | | | | | |
Basic | $ | 0.67 | | | $ | 0.32 | | | $ | 1.14 | | | $ | 0.61 | |
Diluted | $ | 0.62 | | | $ | 0.30 | | | $ | 1.06 | | | $ | 0.58 | |
Weighted average common shares outstanding: | | | | | | | |
Basic | 49,832,503 | | | 49,859,615 | | | 49,897,884 | | | 49,723,012 | |
Diluted | 56,680,355 | | | 54,446,275 | | | 55,868,047 | | | 54,423,047 | |
_______________
(1)Exclusive of amortization and depreciation shown in operating expenses below.
See accompanying notes to the condensed consolidated financial statements.
ALARM.COM HOLDINGS, INC.
Condensed Consolidated Statements of Comprehensive Income
(in thousands)
(unaudited)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2024 | | 2023 | | 2024 | | 2023 |
Net income | $ | 32,520 | | | $ | 15,611 | | | $ | 55,924 | | | $ | 29,818 | |
Other comprehensive (loss) / income | | | | | | | |
Foreign currency translation adjustment | (156) | | | 658 | | | (303) | | | 828 | |
Total other comprehensive (loss) / income | (156) | | | 658 | | | (303) | | | 828 | |
Comprehensive income | 32,364 | | | 16,269 | | | 55,621 | | | 30,646 | |
Comprehensive loss attributable to redeemable noncontrolling interests | 991 | | | 188 | | | 1,182 | | | 397 | |
Comprehensive income attributable to common stockholders | $ | 33,355 | | | $ | 16,457 | | | $ | 56,803 | | | $ | 31,043 | |
See accompanying notes to the condensed consolidated financial statements.
ALARM.COM HOLDINGS, INC.
Condensed Consolidated Balance Sheets
(in thousands, except share and per share data)
(unaudited)
| | | | | | | | | | | |
| June 30, 2024 | | December 31, 2023 |
Assets | | | |
Current assets: | | | |
Cash and cash equivalents | $ | 1,104,539 | | | $ | 696,983 | |
| | | |
Accounts receivable, net of allowance for credit losses of $3,766 and $3,864, and net of allowance for product returns of $2,608 and $2,279 as of June 30, 2024 and December 31, 2023, respectively | 123,551 | | | 130,626 | |
Inventory | 79,582 | | | 96,140 | |
Other current assets, net | 35,074 | | | 33,031 | |
Total current assets | 1,342,746 | | | 956,780 | |
Property and equipment, net | 54,784 | | | 54,164 | |
Intangible assets, net | 69,928 | | | 78,564 | |
Goodwill | 154,356 | | | 154,498 | |
Deferred tax assets | 172,421 | | | 131,815 | |
Operating lease right-of-use assets | 22,025 | | | 24,242 | |
Other assets, net of allowance for credit losses of $1 and $5 as of June 30, 2024 and December 31, 2023, respectively | 38,987 | | | 39,500 | |
Total assets | $ | 1,855,247 | | | $ | 1,439,563 | |
Liabilities, redeemable noncontrolling interests and stockholders’ equity | | | |
Current liabilities: | | | |
Accounts payable, accrued expenses and other current liabilities | $ | 96,075 | | | $ | 124,475 | |
Accrued compensation | 24,920 | | | 28,626 | |
Deferred revenue | 12,181 | | | 10,193 | |
Operating lease liabilities | 12,039 | | | 12,043 | |
Total current liabilities | 145,215 | | | 175,337 | |
Deferred revenue | 13,726 | | | 12,692 | |
Convertible senior notes, net | 980,492 | | | 493,515 | |
| | | |
Operating lease liabilities | 18,098 | | | 20,468 | |
Other liabilities | 14,314 | | | 12,697 | |
Total liabilities | 1,171,845 | | | 714,709 | |
Commitments and contingencies (Note 12) | | | |
Redeemable noncontrolling interests | 37,933 | | | 36,308 | |
Stockholders’ equity | | | |
Preferred stock, $0.001 par value, 10,000,000 shares authorized; no shares issued and outstanding as of June 30, 2024 and December 31, 2023 | — | | | — | |
Common stock, $0.01 par value, 300,000,000 shares authorized; 52,321,569 and 51,888,838 shares issued; and 49,183,838 and 49,868,175 shares outstanding as of June 30, 2024 and December 31, 2023, respectively | 523 | | | 519 | |
Additional paid-in capital | 506,850 | | | 531,734 | |
Treasury stock, at cost; 3,137,731 and 2,020,663 shares as of June 30, 2024 and December 31, 2023, respectively | (186,291) | | | (111,291) | |
Accumulated other comprehensive income | 1,095 | | | 1,398 | |
Retained earnings | 323,292 | | | 266,186 | |
Total stockholders’ equity | 645,469 | | | 688,546 | |
Total liabilities, redeemable noncontrolling interests and stockholders’ equity | $ | 1,855,247 | | | $ | 1,439,563 | |
See accompanying notes to the condensed consolidated financial statements.
ALARM.COM HOLDINGS, INC.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
| | | | | | | | | | | |
| Six Months Ended June 30, |
Cash flows from operating activities: | 2024 | | 2023 |
Net income | $ | 55,924 | | | $ | 29,818 | |
Adjustments to reconcile net income to net cash flows from operating activities: | | | |
| | | |
Provision for credit losses on accounts receivable | 357 | | | 616 | |
Reserve for product returns | 2,022 | | | 2,498 | |
Provision for credit losses on notes receivable | 3,996 | | | — | |
Inventory write-down | — | | | 1,181 | |
Amortization on patents and tooling | 417 | | | 637 | |
Amortization and depreciation | 14,417 | | | 15,533 | |
Amortization of debt issuance costs | 1,811 | | | 1,570 | |
Amortization of operating leases | 5,953 | | | 5,621 | |
Deferred income taxes | (24,992) | | | (36,870) | |
Change in fair value of contingent liability | 44 | | | 27 | |
Stock-based compensation | 22,481 | | | 24,617 | |
| | | |
| | | |
Loss from investment in unconsolidated entity | 23 | | | — | |
| | | |
| | | |
| | | |
Changes in operating assets and liabilities (net of business acquisitions): | | | |
Accounts receivable | 4,668 | | | (583) | |
Inventory | 16,484 | | | (523) | |
Other current and non-current assets | 601 | | | 432 | |
Accounts payable, accrued expenses and other current liabilities | (30,437) | | | (4,696) | |
Deferred revenue | 3,022 | | | 3,105 | |
Operating lease liabilities | (6,751) | | | (6,796) | |
Other liabilities | 2,776 | | | (2,920) | |
Cash flows from operating activities | 72,816 | | | 33,267 | |
Cash flows used in investing activities: | | | |
Business acquisition, net of cash acquired | — | | | (9,696) | |
| | | |
| | | |
Additions to property and equipment | (5,058) | | | (3,393) | |
| | | |
Issuances of notes receivable | (500) | | | (300) | |
Receipt of payments on notes receivable | 26 | | | 28 | |
Capitalized software development costs | (632) | | | (115) | |
Purchase of investment in unconsolidated entities | (2,950) | | | (200) | |
| | | |
Purchases of other intangible assets | (45) | | | (5,915) | |
Cash flows used in investing activities | (9,159) | | | (19,591) | |
Cash flows from / (used in) financing activities: | | | |
| | | |
| | | |
Proceeds from issuance of convertible senior notes | 500,000 | | | — | |
Payments of debt issuance costs | (13,946) | | | — | |
Purchases of capped calls related to convertible senior notes | (63,050) | | | — | |
Payments of deferred consideration for acquisitions | (4,569) | | | (1,655) | |
Purchases of treasury stock, including transaction costs | (75,000) | | | (6,726) | |
Payments of tax withholdings related to vesting of restricted stock units | (3,401) | | | — | |
Purchases of redeemable noncontrolling interest | — | | | (832) | |
Payments of acquired debt | — | | | (389) | |
Issuances of common stock from equity-based plans | 6,734 | | | 1,513 | |
Cash flows from / (used in) financing activities | 346,768 | | | (8,089) | |
Effect of exchange rate changes on cash, cash equivalents and restricted cash | (133) | | | (124) | |
Net increase in cash, cash equivalents and restricted cash | 410,292 | | | 5,463 | |
Cash, cash equivalents and restricted cash at beginning of the period | 701,079 | | | 622,879 | |
Cash, cash equivalents and restricted cash at end of the period | $ | 1,111,371 | | | $ | 628,342 | |
| | | |
Reconciliation of cash, cash equivalents and restricted cash: | | | |
Cash and cash equivalents | $ | 1,104,539 | | | $ | 627,041 | |
Restricted cash included in other current assets and other assets | 6,832 | | | 1,301 | |
Total cash, cash equivalents and restricted cash | $ | 1,111,371 | | | $ | 628,342 | |
See accompanying notes to the condensed consolidated financial statements.
ALARM.COM HOLDINGS, INC.
Condensed Consolidated Statements of Equity
(in thousands)
(unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Redeemable Noncontrolling Interests | | | | | | | Additional Paid-In Capital | | | | Accumulated Other Comprehensive Income / (Loss) | | Retained Earnings | | Total Stockholders’ Equity |
| | | | | Common Stock | | | Treasury Stock |
| | | | | | | Shares | | Amount | | | Shares | | Amount |
Balance as of December 31, 2023 | $ | 36,308 | | | | | | | | 51,889 | | | $ | 519 | | | $ | 531,734 | | | 2,021 | | | $ | (111,291) | | | $ | 1,398 | | | $ | 266,186 | | | $ | 688,546 | |
Common stock issued in connection with equity-based plans | — | | | | | | | | 224 | | | 2 | | | 6,354 | | | — | | | — | | | — | | | — | | | 6,356 | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
Stock-based compensation expense | — | | | | | | | | — | | | — | | | 11,339 | | | — | | | — | | | — | | | — | | | 11,339 | |
Accretion adjustments of redeemable noncontrolling interest to redemption value | 1,595 | | | | | | | | — | | | — | | | (1,595) | | | — | | | — | | | — | | | — | | | (1,595) | |
Net income / (loss) attributable to common stockholders | (191) | | | | | | | | — | | | — | | | — | | | — | | | — | | | — | | | 23,595 | | | 23,595 | |
Other comprehensive loss | — | | | | | | | | — | | | — | | | — | | | — | | | — | | | (147) | | | — | | | (147) | |
Balance as of March 31, 2024 | $ | 37,712 | | | | | | | | 52,113 | | | $ | 521 | | | $ | 547,832 | | | 2,021 | | | $ | (111,291) | | | $ | 1,251 | | | $ | 289,781 | | | $ | 728,094 | |
Common stock issued in connection with equity-based plans | — | | | | | | | | 209 | | | 2 | | | 376 | | | — | | | — | | | — | | | — | | | 378 | |
Purchase of treasury stock, including transaction costs and excise tax | — | | | | | | | | — | | | — | | | (559) | | | 1,117 | | | (75,000) | | | — | | | — | | | (75,559) | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
Tax withholding related to vesting of restricted stock units | — | | | | | | | | — | | | — | | | (3,401) | | | — | | | — | | | — | | | — | | | (3,401) | |
Stock-based compensation expense | — | | | | | | | | — | | | — | | | 11,250 | | | — | | | — | | | — | | | — | | | 11,250 | |
| | | | | | | | | | | | | | | | | | | | | | |
Accretion adjustments of redeemable noncontrolling interest to redemption value | 1,212 | | | | | | | | — | | | — | | | (1,212) | | | — | | | — | | | — | | | — | | | (1,212) | |
Purchases of capped calls related to convertible senior notes, net of tax | — | | | | | | | | — | | | — | | | (47,436) | | | — | | | — | | | — | | | — | | | (47,436) | |
Net income / (loss) attributable to common stockholders | (991) | | | | | | | | — | | | — | | | — | | | — | | | — | | | — | | | 33,511 | | | 33,511 | |
Other comprehensive loss | — | | | | | | | | — | | | — | | | — | | | — | | | — | | | (156) | | | — | | | (156) | |
Balance as of June 30, 2024 | $ | 37,933 | | | | | | | | 52,322 | | | $ | 523 | | | $ | 506,850 | | | 3,138 | | | $ | (186,291) | | | $ | 1,095 | | | $ | 323,292 | | | $ | 645,469 | |
| | | | | | | | | | | | | | | | | | | | | | |
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ALARM.COM HOLDINGS, INC.
Condensed Consolidated Statements of Equity — (Continued)
(in thousands)
(unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Redeemable Noncontrolling Interests | | | | | Common Stock | | Additional Paid-In Capital | | Treasury Stock | | Accumulated Other Comprehensive Income | | Retained Earnings | | Total Stockholders’ Equity |
| | | | | | | Shares | | Amount | | | Shares | | Amount | |
Balance as of December 31, 2022 | $ | 23,988 | | | | | | | | 50,985 | | | $ | 510 | | | $ | 497,199 | | | 1,533 | | | $ | (83,993) | | | $ | — | | | $ | 185,143 | | | $ | 598,859 | |
Common stock issued in connection with equity-based plans | — | | | | | | | | 270 | | | 3 | | | 1,308 | | | — | | | — | | | — | | | — | | | 1,311 | |
| | | | | | | | | | | | | | | | | | | | | | |
Stock-based compensation expense | — | | | | | | | | — | | | — | | | 12,686 | | | — | | | — | | | — | | | — | | | 12,686 | |
| | | | | | | | | | | | | | | | | | | | | | |
Accretion adjustments of redeemable noncontrolling interest to redemption value | 2,061 | | | | | | | | — | | | — | | | (2,061) | | | — | | | — | | | — | | | — | | | (2,061) | |
Net income / (loss) attributable to common stockholders | (209) | | | | | | | | — | | | — | | | — | | | — | | | — | | | — | | | 14,416 | | | 14,416 | |
Other comprehensive income | — | | | | | | | | — | | | — | | | — | | | — | | | — | | | 170 | | | — | | | 170 | |
Balance as of March 31, 2023 | $ | 25,840 | | | | | | | | 51,255 | | | $ | 513 | | | $ | 509,132 | | | 1,533 | | | $ | (83,993) | | | $ | 170 | | | $ | 199,559 | | | $ | 625,381 | |
Common stock issued in connection with equity-based plans | — | | | | | | | | 270 | | | 2 | | | 200 | | | — | | | — | | | — | | | — | | | 202 | |
Purchase of treasury stock | — | | | | | | | | — | | | — | | | — | | | 134 | | | (6,726) | | | — | | | — | | | (6,726) | |
| | | | | | | | | | | | | | | | | | | | | | |
Stock-based compensation expense | — | | | | | | | | — | | | — | | | 11,965 | | | — | | | — | | | — | | | — | | | 11,965 | |
Purchases of redeemable noncontrolling interest | (1,238) | | | | | | | | — | | | — | | | 406 | | | — | | | — | | | — | | | — | | | 406 | |
Accretion adjustments of redeemable noncontrolling interest to redemption value | 3,454 | | | | | | | | — | | | — | | | (3,454) | | | — | | | — | | | — | | | — | | | (3,454) | |
Net income / (loss) attributable to common stockholders | (188) | | | | | | | | — | | | — | | | — | | | — | | | — | | | — | | | 15,799 | | | 15,799 | |
Other comprehensive income | — | | | | | | | | — | | | — | | | — | | | — | | | — | | | 658 | | | — | | | 658 | |
Balance as of June 30, 2023 | $ | 27,868 | | | | | | | | 51,525 | | | $ | 515 | | | $ | 518,249 | | | 1,667 | | | $ | (90,719) | | | $ | 828 | | | $ | 215,358 | | | $ | 644,231 | |
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See accompanying notes to the condensed consolidated financial statements.
ALARM.COM HOLDINGS, INC.
Notes to the Condensed Consolidated Financial Statements (Unaudited)
June 30, 2024 and 2023
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. Basis of Presentation and Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements include our accounts and those of our majority-owned and controlled subsidiaries after elimination of intercompany accounts and transactions.
These unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States, or GAAP, for interim financial information and the applicable rules and regulations of the Securities and Exchange Commission, or SEC. Accordingly, they do not include all the information and footnotes required by GAAP for annual financial statements. They should be read together with our audited consolidated financial statements and related notes thereto for the year ended December 31, 2023 included in our Annual Report on Form 10-K filed with the SEC on February 22, 2024, or the Annual Report. The condensed consolidated balance sheet as of December 31, 2023 was derived from our audited financial statements but does not include all disclosures required by GAAP for annual financial statements.
In the opinion of management, these condensed consolidated financial statements include all normal recurring adjustments necessary for a fair statement of the results of operations, financial position and cash flows for the periods presented. However, 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 conflict between Israel and regional adversaries, disruptions to global supply chains, rising interest rates, risk of recession and inflation (collectively, 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. The results of operations for the three and six months ended June 30, 2024 are not necessarily indicative of the results that can be expected for our entire fiscal year ending December 31, 2024, which is increasingly true in periods of extreme uncertainty, such as the uncertainty caused by the Macroeconomic Conditions. Prolonged uncertainties could cause further economic slowdown or cause other unpredictable events, each of which could adversely affect our business, results of operations or financial condition.
Use of Estimates
The preparation of consolidated financial statements in conformity with 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. 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.
Significant Accounting Policies
Other than those disclosed herein, there have been no other material changes to our significant accounting policies during the three and six months ended June 30, 2024 from those disclosed in our Annual Report.
ALARM.COM HOLDINGS, INC.
Notes to the Condensed Consolidated Financial Statements (Unaudited) — (Continued)
June 30, 2024 and 2023
Capped Call Transactions
On May 31, 2024, we issued $500.0 million aggregate principal amount of 2.25% convertible senior notes due June 1, 2029 in a private placement to qualified institutional buyers, or the 2029 Notes. In connection with the offering of the 2029 Notes, we entered into privately negotiated capped call transactions with one of the initial purchasers and certain other financial institutions, at a cost of $63.1 million. The capped call transactions cover, subject to customary adjustments substantially similar to those applicable to the 2029 Notes, the number of shares of our common stock initially underlying the 2029 Notes. As the capped call options are both legally detachable and separately exercisable from the 2029 Notes, we account for the capped call options separately from the 2029 Notes. The capped call options are indexed to our own common stock and classified in stockholders’ equity. As such, the premiums paid for the capped call options were included as a net reduction to additional paid-in capital in the condensed consolidated balance sheets. The capped call transactions will not be remeasured as long as they continue to meet the conditions for equity classification.
We elected to integrate the capped call options with the 2029 Notes for federal income tax purposes pursuant to applicable U.S. Treasury Regulations. Accordingly, the $63.1 million cost of the purchased capped calls will be deductible for income tax purposes. The original issue discount is accreted over the term of the 2029 Notes.
Recent Accounting Pronouncements
Adopted
During the three and six months ended June 30, 2024, 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.
ALARM.COM HOLDINGS, INC.
Notes to the Condensed Consolidated Financial Statements (Unaudited) — (Continued)
June 30, 2024 and 2023
Note 3. Revenue from Contracts with Customers
Contract Assets
The changes in our contract assets are as follows (in thousands):
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| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2024 | | 2023 | | 2024 | | 2023 |
Beginning of period balance | $ | 10,466 | | | $ | 13,879 | | | $ | 9,099 | | | $ | 13,975 | |
Commission costs and upfront payments to a customer capitalized in period | 2,235 | | | 1,547 | | | 5,347 | | | 3,220 | |
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Amortization of contract assets | (1,796) | | | (1,845) | | | (3,541) | | | (3,614) | |
End of period balance | $ | 10,905 | | | $ | 13,581 | | | $ | 10,905 | | | $ | 13,581 | |
Contract Liabilities
The changes in our contract liabilities are as follows (in thousands):
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| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2024 | | 2023 | | 2024 | | 2023 |
Beginning of period balance | $ | 24,212 | | | $ | 20,231 | | | $ | 22,885 | | | $ | 18,332 | |
Revenue deferred in period | 7,549 | | | 5,719 | | | 13,973 | | | 11,659 | |
Revenue recognized from amounts included in contract liabilities | (5,854) | | | (4,490) | | | (10,951) | | | (8,531) | |
End of period balance | $ | 25,907 | | | $ | 21,460 | | | $ | 25,907 | | | $ | 21,460 | |
Note 4. Accounts Receivable, Net
The components of accounts receivable, net are as follows (in thousands):
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| June 30, 2024 | | December 31, 2023 |
Accounts receivable | $ | 129,925 | | | $ | 136,769 | |
Allowance for credit losses | (3,766) | | | (3,864) | |
Allowance for product returns | (2,608) | | | (2,279) | |
Accounts receivable, net | $ | 123,551 | | | $ | 130,626 | |
For the three and six months ended June 30, 2024, we recorded a provision for credit losses of $0.1 million and $0.4 million, respectively, as compared to $0.1 million and $0.6 million for the same periods in the prior year.
For the three and six months ended June 30, 2024, we recorded a reserve for product returns of $0.9 million and $2.0 million in our hardware and other revenue, respectively, as compared to $1.3 million and $2.5 million for the same periods in the prior year. Historically, we have not experienced write-offs for uncollectible accounts or sales returns that have differed significantly from our estimates.
Allowance for Credit Losses
The allowance for credit losses is a valuation account that is deducted from the accounts receivable and notes receivable amortized cost basis (see Note 8) 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.
ALARM.COM HOLDINGS, INC.
Notes to the Condensed Consolidated Financial Statements (Unaudited) — (Continued)
June 30, 2024 and 2023
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.
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 three and six months ended June 30, 2024, we recorded credit loss expense for accounts receivable and notes receivable of $0.2 million and $4.2 million, respectively, in general and administrative expense in our condensed consolidated statements of operations. For the three and six months ended June 30, 2023, we recorded credit loss expense for accounts receivable and notes receivable of less than $0.1 million and $0.5 million, respectively, in general and administrative expense in our condensed consolidated statements of operations. The contractual term excludes expected extensions, renewals and 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.
Allowance for Credit Losses - Accounts 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. There were no changes to our portfolio segments for our accounts receivable during the three and six months ended June 30, 2024, and no changes to our policies or practices that influenced our estimate of expected credit losses for accounts receivable. Additionally, there were no significant changes in the amount of accounts receivable write-offs during the three and six months ended June 30, 2024, as compared to historical periods.
The changes in our allowance for credit losses for accounts receivable are as follows (in thousands):
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| Three Months Ended June 30, 2024 | | Three Months Ended June 30, 2023 | | Six Months Ended June 30, 2024 | | Six Months Ended June 30, 2023 |
| Alarm.com and Certain Subsidiaries | | All Other Subsidiaries | | Alarm.com and Certain Subsidiaries | | All Other Subsidiaries | | Alarm.com and Certain Subsidiaries | | All Other Subsidiaries | | Alarm.com and Certain Subsidiaries | | All Other Subsidiaries |
Beginning of period balance | $ | (3,966) | | | $ | (88) | | | $ | (3,102) | | | $ | (97) | | | $ | (3,723) | | | $ | (141) | | | $ | (2,755) | | | $ | (80) | |
(Provision for) / recovery of expected credit losses | (101) | | | (2) | | | 19 | | | (96) | | | (388) | | | 31 | | | (487) | | | (130) | |
Write-offs | 390 | | | 1 | | | 115 | | | 2 | | | 434 | | | 21 | | | 274 | | | 19 | |
End of period balance | $ | (3,677) | | | $ | (89) | | | $ | (2,968) | | | $ | (191) | | | $ | (3,677) | | | $ | (89) | | | $ | (2,968) | | | $ | (191) | |
Note 5. Inventory
The components of inventory are as follows (in thousands):
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| June 30, 2024 | | December 31, 2023 |
Raw materials | $ | 26,228 | | | $ | 30,452 | |
Work-in-process | 686 | | | 275 | |
Finished goods | 52,668 | | | 65,413 | |
Total inventory | $ | 79,582 | | | $ | 96,140 | |
Inventory values are net of 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 condensed consolidated statements of operations. The inventory write-down was the result of a lower of cost or net realizable value adjustment for finished goods.
ALARM.COM HOLDINGS, INC.
Notes to the Condensed Consolidated Financial Statements (Unaudited) — (Continued)
June 30, 2024 and 2023
Note 6. Acquisitions
Asset Acquisition
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.
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 condensed consolidated financial statements were not considered material during the year of the acquisition.
Note 7. Goodwill and Intangible Assets, Net
The changes in goodwill by reportable segment are outlined below (in thousands):
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| Alarm.com | | Other | | Total |
Balance as of January 1, 2024 | $ | 154,498 | | | $ | — | | | $ | 154,498 | |
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Foreign currency translation adjustment | (142) | | | — | | | (142) | |
Balance as of June 30, 2024 | $ | 154,356 | | | $ | — | | | $ | 154,356 | |
The following table reflects changes in the net carrying amount of the components of intangible assets (in thousands):
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| Customer Relationships | | Developed Technology | | Trade Name | | Capitalized Software Development Costs | | Other | | Total |
Balance as of January 1, 2024 | $ | 39,294 | | | $ | 37,174 | | | $ | 1,217 | | | $ | 879 | | | $ | — | | | $ | 78,564 | |
Intangible assets acquired | — | | | — | | | — | | | — | | | 45 | | | 45 | |
Capitalized software development costs | — | | | — | | | — | | | 740 | | | — | | | 740 | |
Amortization | (4,837) | | | (4,106) | | | (414) | | | (64) | | | — | | | (9,421) | |
Balance as of June 30, 2024 | $ | 34,457 | | | $ | 33,068 | | | $ | 803 | | | $ | 1,555 | | | $ | 45 | | | $ | 69,928 | |
During the three and six months ended June 30, 2024, we paid less than $0.1 million for the purchase of domain names. We recorded $4.7 million and $9.4 million of amortization related to our intangible assets for the three and six months ended June 30, 2024, respectively, as compared to $4.7 million and $9.3 million for the same periods in the prior year. There were no impairments of long-lived intangible assets during the three and six months ended June 30, 2024 and 2023. During the six months ended June 30, 2024, $0.3 million of fully amortized developed technology intangible assets previously acquired were written-off in the Alarm.com segment as the technology was no longer in use.
ALARM.COM HOLDINGS, INC.
Notes to the Condensed Consolidated Financial Statements (Unaudited) — (Continued)
June 30, 2024 and 2023
The following tables reflect the weighted average remaining life and carrying value of finite-lived intangible assets (in thousands, except weighted-average remaining life):
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| June 30, 2024 |
| Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Value | | Weighted- Average Remaining Life (in years) |
Customer relationships | $ | 128,280 | | | $ | (93,823) | | | $ | 34,457 | | | 5.7 |
Developed technology | 69,731 | | | (36,663) | | | 33,068 | | | 4.3 |
Trade name | 4,474 | | | (3,671) | | | 803 | | | 2.6 |
Capitalized software development costs | 1,622 | | | (67) | | | 1,555 | | | 3.0 |
Other | 45 | | | — | | | 45 | | | 5.0 |
Total intangible assets | $ | 204,152 | | | $ | (134,224) | | | $ | 69,928 | | | 4.9 |
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| December 31, 2023 |
| Gross Carrying Amount | | | | Accumulated Amortization | | Net Carrying Value | | Weighted- Average Remaining Life (in years) |
Customer relationships | $ | 128,280 | | | | | $ | (88,986) | | | $ | 39,294 | | | 6.2 |
Developed technology | 70,061 | | | | | (32,887) | | | 37,174 | | | 4.7 |
Trade name | 4,474 | | | | | (3,257) | | | 1,217 | | | 2.6 |
Capitalized software development costs | 882 | | | | | (3) | | | 879 | | | 3.3 |
Total intangible assets | $ | 203,697 | | | | | $ | (125,133) | | | $ | 78,564 | | | 5.4 |
Note 8. 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, or the Affiliate. The amended subordinated credit agreement with the Affiliate 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. In March 2024, the Affiliate was in default on a loan arrangement with one of its third party secured lenders. Based on this information from the Affiliate, during the three months ended March 31, 2024, we recorded a credit loss expense of $4.0 million in general and administrative expense and recorded a reduction to our interest income of $0.5 million related to the reversal of payable in kind interest associated with the subordinated credit agreement. We placed this loan in nonaccrual status and recorded a full allowance for credit losses for this note receivable as of March 31, 2024. During the three months ended June 30, 2024, we wrote off the entire $4.0 million outstanding note receivable balance and reversed the previously recorded allowance for credit losses. As of December 31, 2023, $4.5 million of the notes receivable balance related to the subordinated credit agreement was included in other assets in our condensed consolidated balance sheet.
For the three and six months ended June 30, 2024, we recognized $0.6 million and $1.3 million of revenue from the distribution partner associated with this loan, respectively, as compared to $0.8 million and $1.6 million for the same periods in the prior year.
ALARM.COM HOLDINGS, INC.
Notes to the Condensed Consolidated Financial Statements (Unaudited) — (Continued)
June 30, 2024 and 2023
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 June 30, 2024 and December 31, 2023, $1.0 million of principal was outstanding from the service provider partner under the loan agreement.
For the three and six months ended June 30, 2024 and 2023, we recognized less than $0.1 million and $0.1 million, respectively, 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 June 30, 2024 and December 31, 2023, $1.5 million of principal was outstanding from the technology partner under the convertible promissory note.
For the three and six months ended June 30, 2024 and 2023, 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 June 30, 2024 and December 31, 2023, 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 June 30, 2024 and December 31, 2023, 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 June 30, 2024 and December 31, 2023, our investment in the technology partner was $5.1 million.
Allowance for Credit Losses - Notes Receivable
We identified one portfolio segment, loan receivables, for our notes receivable. We previously disclosed a hardware financing receivable portfolio segment; however, there has been no activity within that portfolio segment since 2022. There were 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 for notes receivable during the three and six months ended June 30, 2024.
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
ALARM.COM HOLDINGS, INC.
Notes to the Condensed Consolidated Financial Statements (Unaudited) — (Continued)
June 30, 2024 and 2023
income. The accrued interest receivable as of June 30, 2024 and December 31, 2023 was $0.1 million, and is reflected in other current assets and other assets within our condensed consolidated balance sheets and excluded from the amortized cost basis of the notes receivable. During the six months ended June 30, 2024, we recorded a reduction to our interest income of $0.5 million related to the reversal of payable in kind interest associated with a subordinated credit agreement with the Affiliate. We did not write off any accrued interest receivable during the three months ended June 30, 2024 or the three and six months ended June 30, 2023.
There were no purchases or sales of financial assets during the three and six months ended June 30, 2024 and 2023. During the three and six months ended June 30, 2024, we wrote off $4.0 million related to a note receivable that originated in 2017 with the Affiliate and reversed the previously recorded allowance for credit losses.
The changes in our allowance for credit losses for notes receivable are as follows (in thousands):
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| Three Months Ended June 30, 2024 | | | | Three Months Ended June 30, 2023 | | | | Six Months Ended June 30, 2024 | | | | Six Months Ended June 30, 2023 | | |
Beginning of period balance | $ | (4,003) | | | | | $ | (2) | | | | | $ | (5) | | | | | $ | (2) | | | |
Recover of / (provision for) expected credit losses | 2 | | | | | — | | | | | (3,996) | | | | | — | | | |
Write-offs | 4,000 | | | | | — | | | | | 4,000 | | | | | — | | | |
End of period balance | $ | (1) | | | | | $ | (2) | | | | | $ | (1) | | | | | $ | (2) | | | |
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):
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| June 30, 2024 |
Loan Receivables: | 2024 | | 2023 | | 2022 | | 2021 | | 2020 | | Prior | | Total |
Current | $ | 500 | | | $ | 150 | | | $ | 1,500 | | | $ | — | | | $ | 1,014 | | | $ | — | | | $ | 3,164 | |
30-59 days past due | — | | | — | | | — | | | — | | | — | | | — | | | — | |
60-89 days past due | — | | | — | | | — | | | — | | | — | | | — | | | — | |
90-119 days past due | — | | | — | | | — | | | — | | | — | | | — | | | — | |
120+ days past due | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Total | $ | 500 | | | $ | 150 | | | $ | 1,500 | | | $ | — | | | $ | 1,014 | | | $ | — | | | $ | 3,164 | |
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| December 31, 2023 |
Loan Receivables: | 2023 | | 2022 | | 2021 | | 2020 | | 2019 | | Prior | | Total |
Current | $ | 150 | | | $ | 1,500 | | | $ | — | | | $ | 1,039 | | | $ | — | | | $ | 4,524 | | | $ | 7,213 | |
30-59 days past due | — | | | — | | | — | | | — | | | — | | | — | | | — | |
60-89 days past due | — | | | — | | | — | | | — | | | — | | | — | | | — | |
90-119 days past due | — | | | — | | | — | | | — | | | — | | | — | | | — | |
120+ days past due | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Total | $ | 150 | | | $ | 1,500 | | | $ | — | | | $ | 1,039 | | | $ | — | | | $ | 4,524 | | | $ | 7,213 | |
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There were no notes receivable placed on nonaccrual status as of June 30, 2024 and December 31, 2023. During the three and six months ended June 30, 2024 and 2023, there was no interest income recognized related to notes receivable that were in nonaccrual status.
As of June 30, 2024 and December 31, 2023, there were no notes receivable placed in nonaccrual status for which there was not a related allowance for credit losses. As of June 30, 2024 and December 31, 2023, there were no notes receivable that were 90 days or greater past due for which we continued to accrue interest income.
Prepaid Expenses
As of June 30, 2024 and December 31, 2023, $15.6 million and $14.6 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 our office leases.
ALARM.COM HOLDINGS, INC.
Notes to the Condensed Consolidated Financial Statements (Unaudited) — (Continued)
June 30, 2024 and 2023
Note 9. Fair Value Measurements
The following tables present our assets and liabilities measured at fair value on a recurring basis (in thousands):
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| Fair Value Measurements on a Recurring Basis |
Assets: | Level 1 | | Level 2 | | Level 3 | | Total |
Money market accounts as of June 30, 2024 | $ | 1,093,874 | | | $ | — | | | $ | — | | | $ | 1,093,874 | |
Equity securities with readily determinable fair value as of June 30, 2024 | 1,427 | | | — | | | — | | | 1,427 | |
Money market accounts as of December 31, 2023 | 679,734 | | | — | | | — | | | 679,734 | |
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Liabilities: | | | | | | | |
Contingent consideration liability from acquisition as of June 30, 2024 | $ | — | | | $ | — | | | $ | 2,105 | | | $ | 2,105 | |
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 contingent consideration liability with significant unobservable inputs (in thousands):
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| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2024 | | 2023 | | 2024 | | 2023 |
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Beginning of period balance | $ | 2,092 | | | $ | 2,006 | | | $ | 2,061 | | | $ | — | |
Acquired liabilities | — | | | — | | | — | | | 1,993 | |
Changes in fair value included in earnings | 13 | | | 14 | | | 44 | | | 27 | |
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End of period balance | $ | 2,105 | | | $ | 2,020 | | | $ | 2,105 | | | $ | 2,020 | |
As of June 30, 2024, $1.1 billion of our money market accounts was included in cash and cash equivalents, $5.2 million was included in other assets and $1.6 million was included in other current assets in our condensed consolidated balance sheets. 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 condensed consolidated balance sheets. Our assets from money market accounts are valued using quoted prices in active markets. Our equity securities with readily determinable fair value represent our investments in publicly traded companies, which are valued using quoted prices in active markets. During the three and six months ended June 30, 2024, we recorded an unrealized loss on equity securities of less than $0.1 million. Our investments in public entities are recorded at fair value within other current assets in our condensed consolidated balance sheets and changes in fair value of the investments are recorded within other expense, net within our condensed consolidated statements of operations. See Note 12 for the carrying amounts and estimated fair values of our convertible senior notes as of June 30, 2024 and December 31, 2023.
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. The fair value of the contingent consideration liability is included within accounts payable, accrued expenses and other current liabilities as well as other liabilities within our condensed consolidated balance sheets. Changes in fair value resulting from information that existed subsequent to the acquisition date are recorded in general and administrative expense in the condensed consolidated statements of operations. During the three and six months ended June 30, 2024, 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 June 30, 2024 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 6.1%, weighted by the probability of achievement of the performance targets at various dates, including a range of 6.1% to 6.2%. 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.
ALARM.COM HOLDINGS, INC.
Notes to the Condensed Consolidated Financial Statements (Unaudited) — (Continued)
June 30, 2024 and 2023
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 or out of Level 3 or reclassifications between levels of the fair value hierarchy during the three and six months ended June 30, 2024 and 2023.
Note 10. Leases
As of June 30, 2024, 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 a cumulative tenant improvement allowance of $12.1 million.
Supplemental information related to leases is presented in the table below (in thousands, except weighted-average term and discount rate):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2024 | | 2023 | | 2024 | | 2023 |
Operating lease cost | $ | 2,977 | | | $ | 2,871 | | | $ | 5,953 | | | $ | 5,621 | |
Cash paid for amounts included in the measurement of operating lease liabilities | 3,530 | | | 3,434 | | | 6,751 | | | 6,796 | |
Operating lease right-of-use assets obtained in exchange for new operating lease liabilities | 272 | | | 188 | | | 2,915 | | | 4,115 | |
| | | | | | | |
| June 30, 2024 | | December 31, 2023 | | | | |
Weighted-average remaining lease term — operating leases | 3.0 years | | 3.0 years | | | | |
Weighted-average discount rate — operating leases | 5.3 | % | | 4.9 | % | | | | |
Maturities of lease liabilities are as follows (in thousands):
| | | | | | | | |
Year Ended December 31, | | Operating Leases(1) |
Remainder of 2024 | | $ | 7,093 | |
2025 | | 12,598 | |
2026 | | 7,827 | |
2027 | | 2,500 | |
2028 | | 1,841 | |
2029 and thereafter | | 1,904 | |
Total lease payments | | 33,763 | |
Less: imputed interest(2) | | 3,626 | |
Present value of lease liabilities | | $ | 30,137 | |
_______________
(1)Excludes $6.4 million of legally binding minimum lease payments for leases executed but not yet commenced. There are no options to extend lease terms that were reasonably certain of being exercised included in these balances.
(2)Imputed interest was calculated using the incremental borrowing rate applicable for each lease.
We did not have any finance leases or subleases as of June 30, 2024 or December 31, 2023. Our lease agreements do not contain any material residual value guarantees, restrictive covenants or variable lease payments. Short-term lease costs were immaterial for the three and six months ended June 30, 2024 and 2023.
ALARM.COM HOLDINGS, INC.
Notes to the Condensed Consolidated Financial Statements (Unaudited) — (Continued)
June 30, 2024 and 2023
Note 11. Liabilities
The components of accounts payable, accrued expenses and other current liabilities are as follows (in thousands):
| | | | | | | | | | | |
| June 30, 2024 | | December 31, 2023 |
Accounts payable | $ | 50,905 | | | $ | 39,038 | |
Accrued expenses | 19,096 | | | 21,559 | |
Income taxes payable | 10,887 | | | 42,501 | |
Holdback liability from business combinations and asset acquisitions | 2,700 | | | 7,340 | |
Contingent consideration liability from acquisition | 1,192 | | | — | |
Other current liabilities | 11,295 | | | 14,037 | |
Accounts payable, accrued expenses and other current liabilities | $ | 96,075 | | | $ | 124,475 | |
The components of other liabilities are as follows (in thousands):
| | | | | | | | | | | |
| June 30, 2024 | | December 31, 2023 |
| | | |
| | | |
Contingent consideration liability from acquisition | $ | 913 | | | $ | 2,061 | |
Other liabilities | 13,401 | | | 10,636 | |
Other liabilities | $ | 14,314 | | | $ | 12,697 | |
Note 12. Debt, Commitments and Contingencies
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 - 2026 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 2026 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 2026 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 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 2026 Indenture.
ALARM.COM HOLDINGS, INC.
Notes to the Condensed Consolidated Financial Statements (Unaudited) — (Continued)
June 30, 2024 and 2023
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 2026 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 2026 Indenture), as the case may be.
If we undergo a fundamental change (as defined in the 2026 Indenture), subject to certain exceptions and except as described in the 2026 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 2026 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.
We account for the 2026 Notes as a liability. The debt 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%.
As of June 30, 2024 and December 31, 2023, the fair value of our 2026 Notes was $457.0 million and $444.8 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 $63.54 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 June 30, 2024.
The net carrying amount of the liability component of the 2026 Notes is as follows (in thousands):
| | | | | | | | | | | |
| June 30, 2024 | | December 31, 2023 |
Principal | $ | 500,000 | | | $ | 500,000 | |
| | | |
Unamortized debt issuance costs | (4,904) | | | (6,485) | |
Net carrying amount | $ | 495,096 | | | $ | 493,515 | |
Interest expense related to the 2026 Notes is as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2024 | | 2023 | | 2024 | | 2023 |
| | | | | | | |
Amortization of debt issuance costs | $ | 791 | | | $ | 786 | | | |