Notes to the Consolidated Financial Statements
December 31, 2016
,
2015
and
2014
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. We offer a comprehensive suite of cloud-based solutions for the smart home and business, including interactive security, video monitoring, intelligent automation and energy management. Millions of property owners rely on our technology to intelligently secure, monitor and manage their homes and businesses. Our solutions are delivered through an established network of over
6,000
trusted service providers, 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, hardware, activation fees and other revenue. Our fiscal year ends on December 31
st
. We completed our initial public offering, or IPO, on July 1, 2015.
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 account for our unconsolidated investments in businesses under the cost or equity method dependent on factors such as percent ownership and factors that would determine significant influence. Our cost method investments are recorded at cost. Equity method investments are recorded at cost and adjusted to record our share of the company’s undistributed gains and losses in our consolidated statements of operations. We evaluate our cost and equity method investments for impairment whenever events or circumstances indicate that carrying amount of such investments may not be recoverable.
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 revenues and expenses during the reporting period. Our estimates, judgments and assumptions are continually evaluated based on available information and experience. Because of the use of estimates inherent in the financial reporting process, actual results could differ from those estimates. Estimates are used when accounting for revenue recognition, allowances for doubtful accounts receivable, allowance for hardware returns, estimates of obsolete inventory, long-term incentive compensation, stock-based compensation, income taxes, legal reserves, contingent consideration and goodwill and intangible assets.
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, 2016
and
2015
, we have invested
$135.2 million
and
$122.8 million
in cash equivalents in the form of money market funds with
one
financial institution. 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. Substantially all of our sales in Canada are transacted in U.S. dollars. During the years ended
December 31, 2016
,
2015
and
2014
, less than
1%
of our revenue was generated outside of North America and as of
December 31, 2016
and
2015
,
3%
and
2%
of accounts receivable balances were related to service providers partners outside of North America. Our accounts receivable are stated at estimated realizable value. We utilize the allowance method to provide for doubtful accounts based on management’s evaluation of the collectibility of the amounts due. Our estimate is based on historical collection experience and a review of the current status of accounts receivable. Each of our service provider partners is evaluated for creditworthiness through a credit review process at the inception of the arrangement or if risk indicators arise during our arrangement at such other time. Our terms for hardware sales to our service provider partners and distributors typically allow for returns for up to
one
year. We apply our estimate as a percentage of sales monthly, based on historical data, as a reserve against revenue to account for our provision
ALARM.COM HOLDINGS, INC.
Notes to the Consolidated Financial Statements - (Continued)
December 31, 2016, 2015 and 2014
for returns. We have not experienced write-offs for uncollectible accounts or sales returns that have differed significantly from our estimates.
Inventory
Our inventory, which is comprised of raw materials and finished goods, includes materials used to produce our wireless communications network enabled radios, video cameras, home automation system parts and peripherals, is stated at the lower of cost or market, and is charged to cost of sales 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 down when necessary.
Marketable Securities
In 2014, we had investments in marketable equity securities consisting of available for sale securities, which were stated at fair value, with unrealized gains and temporary unrealized losses reported as a component of other comprehensive income, net of tax, until realized. When realized, we recognized gains and losses on the sales of the securities on a specific identification method and include the realized gains or losses in
other income / (expense), net
in the consolidated statements of operations. We included interest, dividends, and amortization of premium or discount on securities classified as available for sale in
other income / (expense), net
in the consolidated statements of operations. As of
December 31, 2016
and
2015
, there were
no
investments in marketable equity securities.
Internal-Use Software
We capitalize the costs directly related to the design of internal-use software for development of our platform during the application development stage of the projects. The costs are primarily comprised of salaries, benefits and stock-based compensation expense of the projects’ engineers and product development teams. Our internally developed 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 platform. We depreciate the asset on a straight-line basis over a period of
three
years, which is the estimated useful life. We utilize continuous agile development methods to update our software for our SaaS multi-tenant platform on a weekly basis, 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 platform. Maintenance activities or minor upgrades are expensed in the period performed.
Revenue Recognition and Deferred Revenue
We derive our revenue from
two
primary sources: the sale of cloud-based SaaS services on our integrated 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 home and business owners, who are the service provider partners’ customers, and whom we refer to as our subscribers. 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 contracts typically have an initial term of
one
year, with subsequent renewal terms of
one
year. Our service provider partners typically enter into contracts with our subscribers, which our service provider partners have indicated range from
three
to
five
years in length.
Our hardware includes cellular radio modules that enable access to our cloud-based platform, as well as video cameras, image sensors and other peripherals. Our service provider partners may purchase our hardware in anticipation of installing the hardware in a home or business when they create a new subscriber account, or for use in an existing subscriber’s property. The purchase of hardware occurs in a transaction that is separate and typically in advance of the purchase of our platform services. 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. The purchase of platform solutions and the purchase of hardware are separate transactions because at the time of sale of the hardware, the service provider partner is not obligated to and may not purchase a platform solution for the hardware sold, and the level and duration of platform solutions, if any, to be provided through the hardware sold cannot be determined.
We recognize revenue with respect to our solutions when all of the following conditions are met:
|
|
•
|
Persuasive evidence of an arrangement exists;
|
|
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•
|
Delivery to the customer, which may be either a service provider partner, distributor or a subscriber, has occurred or service has been rendered;
|
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•
|
Fees are fixed or determinable; and
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ALARM.COM HOLDINGS, INC.
Notes to the Consolidated Financial Statements - (Continued)
December 31, 2016, 2015 and 2014
|
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•
|
Collection of the fees is reasonably assured.
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We consider a signed contract with a service provider partner to be persuasive evidence that an agreement exists, and the fees to be fixed or determinable if the fees are contractually agreed to with our service provider partners. Collectibility is evaluated based on a number of factors, including a credit review of new service provider partners, and the payment history of existing service provider partners. If collectibility is not reasonably assured, revenue is deferred until collection becomes reasonably assured, which is generally upon the receipt of payment.
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 terms in our contractual arrangements with our service provider partners, we are entitled to payment and recognize revenue based on a monthly fee that is billed in advance of the month 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. As there is neither a minimum required initial service term nor a stated renewal term in our contractual arrangements, we recognize revenue over the period of service, which is monthly. 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 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 service provider partners on a per customer basis for use of our patents. In addition, in some markets our EnergyHub subsidiary sells its demand response software with 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.
Hardware and Other Revenue
We generate hardware and other revenue primarily from the sale of cellular radio modules that provide access to our cloud-based platform and, to a lesser extent, the sale of other devices, including video cameras, image sensors and peripherals. We recognize hardware and other revenue when the hardware is received by our service provider partner or distributor, net of a reserve for estimated returns. 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. Our terms for hardware sales sold directly to either service provider partners or distributors typically allow for the return of hardware up to
one
year past the date of sale. Our distributors sell directly to our service provider partners under terms between the two parties. We record a percentage of hardware and other revenue of approximately
2
to
5%
, based on historical returns, as a reserve against revenue for hardware returns. 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.
Hardware and other revenue also includes activation fees charged to service provider partners for activation of a new subscriber account on our platform, as well as fees paid by service provider partners for our marketing services. Our service provider partners use services on our platform, such as support tools and applications, to assist in the installation of our solutions in a subscriber’s property. This installation marks the beginning of the service period on our platform 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 platform. 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
ten
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
ten
-year expected term is complete. The combined current and long-term balance for deferred revenue for activation fees was
$11.2 million
and
$11.0 million
as of
December 31, 2016
and
2015
.
ALARM.COM HOLDINGS, INC.
Notes to the Consolidated Financial Statements - (Continued)
December 31, 2016, 2015 and 2014
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 operation centers which are expensed as incurred. Our cost of hardware and other revenue primarily includes cost of raw materials 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, which we purchase from an original equipment manufacturer, and other devices. Our cost of revenue excludes amortization and depreciation.
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, accounts receivable and 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 2014, we had an available for sale investment and derivatives that were recorded at fair value on a recurring basis. In 2015 and 2016, we recorded at fair value on a recurring basis a liability for
two
subsidiary awards and a contingent consideration liability related to an acquisition.
Assets Measured at Fair Value on a Nonrecurring Basis - We measure certain assets, including property and equipment, goodwill, intangible and long-lived assets, cost and equity method investments at fair value on a nonrecurring basis. These assets are recognized at fair value when they are deemed to be other-than-temporarily impaired.
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 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 doubtful accounts. 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 geographic region and believe that 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, employees and consultants with incentive stock-based compensation plans under our 2015 Equity Incentive Plan, or 2015 Plan. We record stock-based compensation expense based upon the award’s grant date fair value and use an accelerated attribution method, net of estimated 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. Our equity awards generally vest over
five
years and are settled in shares of our common stock. During
2016
,
2015
and
2014
, we recognized compensation expense of
$4.0 million
,
$4.1 million
and
$3.3 million
, and associated income tax benefit of
$5.0 million
,
$0.7 million
, and
$0.8 million
, respectively, in connection with our stock-based compensation plans. We account for stock-based compensation arrangements with non-employees using a fair value approach. The fair value of these options is measured using the Black-Scholes option pricing model reflecting the same assumptions as applied to employee options in each of the reported periods, other than the expected life, which is assumed to be the remaining contractual life of the option. The compensation costs of these arrangements are subject to remeasurement over the vesting terms, as earned.
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
ALARM.COM HOLDINGS, INC.
Notes to the Consolidated Financial Statements - (Continued)
December 31, 2016, 2015 and 2014
for that year or the number of shares with a fair marked 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 forfeitures, over the
six
-month purchase period.
401(k) Defined Contribution Plan
We adopted the Alarm.com Holdings 401(k) Plan ("the Plan") on April 30, 2009. All of our employees are eligible to participate in the Plan. Our discretionary match is
100%
of employee contributions up to
6%
of salary and up to a
$3,000
maximum match. We recognized compensation expense of
$1.2 million
,
$1.0 million
and
$0.6 million
for the years ended
December 31, 2016
,
2015
and
2014
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 allocation and valuation require management to make significant estimates and assumptions, especially with respect to long-lived and intangible assets.
Critical estimates in valuing intangible assets include, but are not limited to, estimates about future expected cash flows from customer contracts, customer lists, proprietary technology and non-competition agreements, the acquired company’s brand awareness and market position, assumptions about the period of time the brand will continue to be used in our solutions, as well as expected costs to develop the in-process research and development into commercially viable products and estimated cash flows from the projects when completed, and discount rates. Our estimates of fair value are based upon assumptions we believe to be reasonable, but which are inherently uncertain and unpredictable. Assumptions may be incomplete or inaccurate, and unanticipated events and circumstances may occur.
Other estimates associated with the accounting for these acquisitions may change as additional information becomes available regarding the assets acquired and liabilities assumed.
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
st
and when a triggering event occurs between annual impairment tests. We test our goodwill at the reporting unit level. We perform a qualitative analysis every year and, at minimum, a quantitative analysis every
three years
. We review goodwill for impairment using the two-step process if, based on our assessment of the qualitative factors, we determine that it is more likely than not that the fair value of a reporting unit is less than its carrying value.
For our
2016
annual impairment review, we performed a qualitative assessment for our Alarm.com reporting unit, our only reporting unit with a goodwill balance. This reporting unit had a fair value that exceeded its carrying value by more than
100%
in the last quantitative assessment performed in 2014. We first assessed qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. 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. For the year ended
December 31, 2016
, we assessed the qualitative factors and determined that it was more likely than not that the fair value of the reporting unit exceeded the carrying value and that the two-step impairment test was not required. Our assessment was performed as of October 1,
2016
, and we have determined there have been no triggering events from our assessment date through
December 31, 2016
.
If a two-step impairment test is required, the fair value of the reporting unit is compared with its carrying value (including goodwill). If the fair value of the reporting unit is less than its carrying value, an indication of goodwill impairment exists for the reporting unit and step two is required to measure the amount of the impairment, if any. Under step two, an impairment loss is recognized for any excess of the carrying amount of the reporting unit’s goodwill over the implied fair value of that goodwill. The implied fair value of goodwill is determined by allocating the fair value of the reporting unit in a manner similar to a purchase price allocation and the residual fair value after this allocation is the implied fair value of the reporting unit goodwill. If the carrying value of goodwill exceeds the implied fair value, an impairment charge would be recorded to operating expenses in the period
ALARM.COM HOLDINGS, INC.
Notes to the Consolidated Financial Statements - (Continued)
December 31, 2016, 2015 and 2014
the determination is made. If the fair value of the reporting unit exceeds its carrying value, step two does not need to be performed.
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. The fair value of the intangible assets is compared with their carrying value and an impairment loss would be recognized for the amount by which the carrying amount exceeds the fair value.
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, 2016
, we determined there were
no
indicators of impairment of our intangible assets with definite lives or long-lived assets and there were
no
changes to the useful lives of our intangible assets.
Advertising Costs
We expense advertising costs as incurred. Advertising costs totaled
$4.6 million
,
$3.7 million
and
$5.9 million
for the years ended
December 31, 2016
,
2015
and
2014
. 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. During 2013, in connection with the EnergyHub acquisition, we acquired significant net operating losses, a deferred tax asset, which we recorded at its expected realizable value. Based on our historical and expected future taxable earnings, we believe it is more likely than not that we will realize all of the benefit of the existing deferred tax assets as of
December 31, 2016
and
2015
. Accordingly, we have
no
t recorded a valuation allowance as of
December 31, 2016
and
2015
.
We are subject to income taxes in the United States and other foreign 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.
Earnings per Share, or EPS
Our basic net income / (loss) 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 / (loss) 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 / (loss) per share calculation, options to purchase common stock, redeemable convertible preferred stock, and unvested shares issued upon the early exercise of options that are subject to repurchase are considered to be potential common stock.
We have issued securities other than common stock that participate in dividends (“participating securities”), and therefore utilize the two-class method to calculate net income / (loss) per share. These participating securities include redeemable convertible preferred stock and unvested shares issued upon the early exercise of options that are subject to repurchase, both of
ALARM.COM HOLDINGS, INC.
Notes to the Consolidated Financial Statements - (Continued)
December 31, 2016, 2015 and 2014
which have non-forfeitable rights to participate in any dividends declared on our common stock. The two-class method requires a portion of net income to be allocated to the participating securities to determine the net income / (loss) attributable to common stockholders. Net income / (loss) attributable to the common stockholders is equal to the net income less dividends paid on preferred stock and unvested shares with any remaining earnings allocated in accordance with the bylaws between the outstanding common and preferred stock as of the end of each period.
Recent Accounting Pronouncements
Adopted
On August 26, 2016, the FASB issued ASU 2016-15,
“Statement of Cash Flows (Topic 230) - Classification of Certain Cash Receipts and Cash Payments,”
which provides guidance on the classification of certain cash receipts and payments in the statement of cash flows with the objective of reducing existing diversity in practice. The amendment is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted and the amendment is required to be applied retrospectively to all periods presented. We adopted this pronouncement in the fourth quarter of 2016. We retrospectively reclassified
$417 thousand
from
business acquisitions, net of cash acquired
(an investing cash outflow) to
payments for long-term business acquisition liabilities
(a financing cash outflow) for the year ended December 31, 2015. There was
no
impact to the year ended December 31, 2014.
On August 27, 2014, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update, or ASU, 2014-15,
“Presentation of Financial Statements — Going Concern (Subtopic 205-4
0),” which requires us to perform interim and annual assessments regarding conditions or events that raise substantial doubt about a company’s ability to continue as a going concern and to provide related disclosures, if applicable. The amendment is effective for annual periods ending after December 15, 2016, and interim periods thereafter, with early adoption permitted. We adopted this pronouncement in the fourth quarter of 2016, and concluded there were
no
events or conditions that raise substantial doubt about our ability to continue as a going concern for the twelve month period after our financial statements are issued.
On September 25, 2015, the FASB, issued ASU 2015-16,
“Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments,”
which requires entities to apply the guidance prospectively to adjustments to provisional amounts that occur after the effective date. Under the previous guidance, the acquirer would retrospectively adjust provisional amounts recognized as of the acquisition date with a corresponding adjustment to goodwill. Adjustments were required when new information was obtained about facts and circumstances that existed as of the acquisition date that, if known, would have affected the measurement of the amounts initially recognized or would have resulted in the recognition of additional assets or liabilities. The amendments in ASU 2015-16 eliminate the requirement to retrospectively account for those adjustments. The amendment is effective for annual periods, including periods within those annual periods beginning after December 15, 2015 with early adoption permitted. We adopted this pronouncement prospectively in the first quarter of 2016, and it did
no
t have an impact on our financial statements.
On April 15, 2015, the FASB issued ASU 2015-05, “
Intangibles
-
Goodwill and Other
- Internal- Use Software (Subtopic 350-40):
Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement,”
which clarifies the accounting for fees paid by a customer in a cloud computing arrangement by providing guidance as to whether an arrangement includes the sale or license of software. The amendment requires a customer to determine whether a cloud computing arrangement contains a software license. If the arrangement contains a software license, the customer would account for the fees related to the software license element in a manner consistent with how the acquisition of other software licenses is accounted for under Accounting Standards Codification, or ASC, 350-40; if the arrangement does not contain a software license, the customer would account for the arrangement as a service contract. The guidance will not change GAAP for a customer’s accounting for service contracts. The amendment is effective for annual periods, including periods within those annual periods beginning after December 31, 2015 with early adoption permitted. We elected to adopt the amendments prospectively to all arrangements entered into or materially modified after the effective date. We adopted this pronouncement in the first quarter of 2016, and it did not have an impact on our financial statements.
On February 18, 2015, the FASB issued ASU 2015-02, “
Consolidation (Topic 810): Amendments to the Consolidation Analysis,”
which requires an entity to evaluate whether it should consolidate certain legal entities. All legal entities are subject to reevaluation under the revised consolidation model. The amendment modifies the evaluation of whether limited partnerships and similar legal entities are VIEs. The amendment eliminates the presumption that a general partner should consolidate a limited partnership. The amendment affects the consolidation analysis of reporting entities that are involved with VIEs particularly those that have fee arrangements and related party relationships. The amendment also provides a scope exception from consolidation guidance for reporting entities that comply with the requirements for registered money market funds. We adopted this pronouncement in the first quarter of 2016, and it did not have an impact on our financial statements.
On June 19, 2014, the FASB issued ASU 2014-12, “
Compensation - Stock Compensation (Topic 718),”
which affects any entity that grants its employees share-based payments in which the terms of the award stipulate that a performance target that affects vesting could be achieved after the requisite service period. The amendments require that a performance target that
ALARM.COM HOLDINGS, INC.
Notes to the Consolidated Financial Statements - (Continued)
December 31, 2016, 2015 and 2014
affects vesting and that could be achieved after the requisite service period be treated as a performance condition. As such, the performance target should not be reflected in estimating the grant-date fair value of the award. Compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the period(s) for which the requisite service has already been rendered. If the performance target becomes probable of being achieved before the end of the requisite service period, the remaining unrecognized compensation cost should be recognized prospectively over the remaining requisite service period. We adopted this pronouncement in the first quarter of 2016, and it did not have an impact on our financial statements.
Not yet adopted
Revenue from Contracts with Customers (Topic 606):
We are required to adopt ASU 2014-09,
"Revenue from Contracts with Customers (Topic 606)"
and its updates and amendments in the first quarter of 2018. We have developed a project plan for adoption focused first on the largest volume of contracts, our standard service provider partner agreement, in an effort to determine the impact of adoption on our revenue recognition policies, processes and systems. We expect to complete our evaluation of this standard service provider partner agreement in the first quarter of 2017. The next stages of our adoption plan will focus on assessing the impact of adopting this standard on our non-standard service provider partner agreements and sales commissions. The new standard requires significantly more disclosures and we anticipate putting processes in place to collect the data required for these additional disclosures. A summary of these standards and requirements are as follows:
On May 9, 2016, the FASB issued ASU 2016-12,
"Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients,"
and on April 14, 2016, the FASB issued ASU 2016-10,
“Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing”.
ASU 2016-12 and 2016-10 both amend the guidance in ASU 2014-09,
"Revenue from Contracts with Customers (Topic 606),"
which is not yet effective. ASU 2016-12 clarifies guidance on assessing collectibility, presentation of sales taxes, noncash consideration, and completed contracts and contract modification within Topic 606. ASU 2016-10 clarifies guidance related to identifying performance obligations and licensing implementation guidance. These updates are effective with the same transition requirements as ASU 2014-09, as amended.
On March 17, 2016, the FASB issued ASU 2016-08,
“Revenue from Contracts with Customers (Topic 606): Principal Versus Agent Considerations (Reporting Revenue Gross Versus Net)”
which amends the guidance in ASU 2014-09,
"Revenue from Contracts with Customers (Topic 606),"
which is not yet effective. The update clarifies the implementation guidance on principal versus agent considerations. The update is effective with the same transition requirements as ASU 2014-09, as amended.
On August 12, 2015, the FASB issued ASU 2015-14,
"Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date,"
which defers the effective date for all entities for one year of ASU 2014-09, “
Revenue from Contracts with Customers (Topic 606),”
issued on May 28, 2014. ASU 2014-09 affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards. The guidance supersedes the revenue recognition guidance in Topic 605,
“Revenue Recognition,”
and most industry-specific guidance throughout the Industry Topics of the FASB Accounting Standards Codification. The guidance also supersedes some cost guidance included in Subtopic 605-35, “
Revenue Recognition - Contract-Type and Production-Type Contracts."
ASU 2014-09, as amended, is effective for annual periods, and interim periods within those years, beginning after December 31, 2017. An entity is required to apply the amendments using one of the following two methods: (1) retrospectively to each prior period presented with three possible expedients: (a) for completed contracts that begin and end in the same reporting period no restatement is required; (b) for completed contract with variable consideration an entity may use the transaction price at completion rather than restating estimated variable consideration amounts in comparable reporting periods; and (c) for comparable reporting periods before date of initial application reduced disclosure requirements related to transaction price; (2) retrospectively with the cumulative effect of initially applying the amendment recognized at the date of initial application with additional disclosures for the differences of the prior guidance to the reporting periods compared to the new guidance and an explanation of the reasons for significant changes.
Other accounting standards:
On January 26, 2017, the FASB issued ASU 2017-04,
"Intangibles - Goodwill and Other (Topic 350) - Simplifying the Test for Goodwill Impairment,"
which removes step two of the goodwill impairment test, which requires a hypothetical purchase price allocation. A goodwill impairment amount will now be the amount by which a reporting unit's carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. The amendment is effective for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019 with early adoption permitted for goodwill impairment tests performed after January 1, 2017. Our goodwill impairment test is performed annually as of October 1
st
, therefore, we are required to adopt ASU 2017-04 no later than our fiscal year ending December 31, 2020.
ALARM.COM HOLDINGS, INC.
Notes to the Consolidated Financial Statements - (Continued)
December 31, 2016, 2015 and 2014
On January 5, 2017, the FASB issued ASU 2017-01,
"Business Combinations (Topic 805) - Clarifying the Definition of a Business,"
which provides guidance to assist entities in evaluating when a set of transferred assets and activities is a business. To be considered a business, an acquisition would have to include an input and a substantive process that together significantly contribute to the ability to create outputs. The amendment is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years, with early adoption permitted. We are required to adopt ASU 2017-01 no later than the first quarter of 2018.
On March 30, 2016, the FASB issued ASU 2016-09,
“Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting”
which simplifies several aspects of the accounting for employee share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The update is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years, with early adoption permitted. We are required to adopt ASU 2016-09 in the first quarter of 2017.
We anticipate that adoption of this standard will have the following impact on our financial statements:
|
|
•
|
Tax windfall benefits or deficiencies from stock-based awards will be recorded in income tax expense in the period incurred, whereas current guidance required the tax windfall benefits to be recorded in accumulated paid-in-capital. This change will be applied prospectively. The amounts recorded in accumulated paid-in-capital for the years ended
December 31, 2016
,
2015
and
2014
related to these tax windfall benefits were
$5.1 million
,
$0.9 million
and
$1.1 million
.
|
|
|
•
|
Tax windfall benefits from stock-based awards after adoption will be reported in cash flows from operating activities in the statement of cash flows, which will result in a reclassification for comparability to the prior year tax windfall benefits from cash flows from financing activities. After adoption on January 1, 2017, the tax windfall benefits from stock-based awards reclassification will increase cash flows from operating activities for the years ended
December 31, 2016
and
2015
by
$5.1 million
and
$0.9 million
with corresponding decreases in cash flows from financing activities.
|
|
|
•
|
Actual forfeitures will be used in the calculation of stock-based compensation expense instead of estimated forfeitures. We do not anticipate that the impact of this change will be material. The impact will be recorded in retained earnings as of January 1, 2017 using the modified retrospective method.
|
|
|
•
|
Cash flows from tax windfall benefits from stock-based awards will no longer factor into the calculation of the number of shares for diluted earnings per share. This change will be applied prospectively and is not expected to have a material impact on diluted earnings per share.
|
On February 25, 2016, the FASB issued ASU 2016-02,
“Leases (Topic 842),”
which requires lessees to recognize operating and financing lease liabilities and corresponding right-of-use assets on the balance sheet. The update also requires improved disclosures to help users of financial statements better understand the amount, timing and uncertainty of cash flows arising from leases. The update is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, with early adoption permitted. We are required to adopt ASU 2016-02 no later than the first quarter of 2019, and we are currently assessing the impact of this pronouncement on our financial statements. We have begun to evaluate our existing leases which all have been classified as operating leases under Topic 840. We anticipate using some of the available practical expedients upon adoption. We have not yet determined the amount of operating and financing lease liabilities and corresponding right-of-use assets we will record on our balance sheet, however, we anticipate that assets and liabilities will increase materially when our leases are recorded under the new standard.
On July 22, 2015, the FASB issued ASU 2015-11,
“Simplifying the Measurement of Inventory,”
which requires entities to measure most inventory "at the lower of cost and net realizable value," thereby simplifying the current guidance under which an entity must measure inventory at the lower of cost or market (market in this context is defined as one of three different measures). The guidance does not apply to inventories that are measured by using either the last-in, first-out method or the retail inventory method. Under current guidance, an entity subsequently measures inventory at the lower of cost or market, with market defined as replacement cost provided that it is not above the ceiling (net realizable value) or below the floor (net realizable value less an approximately normal profit margin) which is unnecessarily complex. The amendment does not change other guidance on measuring inventory. The amendment is effective for annual periods, including periods within those annual periods beginning after December 15, 2016 with early adoption permitted. We are required to adopt this pronouncement prospectively in the first quarter of 2017, and we do not anticipate that adoption of this pronouncement will have a material effect on our financial statements.
ALARM.COM HOLDINGS, INC.
Notes to the Consolidated Financial Statements - (Continued)
December 31, 2016, 2015 and 2014
Note 3. Accounts Receivable, Net
The components of accounts receivable are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2016
|
|
2015
|
Accounts receivable
|
$
|
33,406
|
|
|
$
|
24,779
|
|
Allowance for doubtful accounts
|
(1,282
|
)
|
|
(1,315
|
)
|
Allowance for product returns
|
(2,314
|
)
|
|
(2,116
|
)
|
Accounts receivable, net
|
$
|
29,810
|
|
|
$
|
21,348
|
|
For the years ended
December 31, 2016
,
2015
and
2014
, we recorded a
$0.6 million
,
$0.3 million
and
$1.4 million
provision for doubtful accounts receivable. For the years ended
December 31, 2016
,
2015
and
2014
, we recorded a
$2.1 million
,
$1.6 million
and
$1.9 million
reserve for product returns in our hardware and other revenue. Historically, we have not experienced write-offs for uncollectible accounts or sales returns that have differed significantly from our estimates.
Note 4. Inventory
The components of inventory are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2016
|
|
2015
|
Raw materials
|
$
|
4,313
|
|
|
$
|
3,026
|
|
Finished goods
|
6,230
|
|
|
3,448
|
|
Total inventory
|
$
|
10,543
|
|
|
$
|
6,474
|
|
Note 5. Property and Equipment, net
Furniture and fixtures, computer software and equipment and leasehold improvements are recorded at cost and presented net of depreciation. Furniture and fixtures and computer software and equipment are depreciated straight-line over lives ranging from
three
to
five
years. Internally developed internal-use software is amortized on a straight-line basis over a
three
-year period. During the application development phase we categorize capitalized costs in our construction in progress account until the build is put into production and we move the asset to internal-use software. We record land at historical cost. Leasehold improvements are amortized on a straight-line basis over the shorter of the lease terms or the asset lives.
The components of property and equipment are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2016
|
|
2015
|
Furniture and fixtures
|
$
|
3,090
|
|
|
$
|
2,257
|
|
Computer software and equipment
|
9,988
|
|
|
8,297
|
|
Internal-use software
|
1,514
|
|
|
975
|
|
Construction in progress
|
1,009
|
|
|
8,662
|
|
Leasehold improvements
|
13,466
|
|
|
3,387
|
|
Land
|
398
|
|
|
398
|
|
Total property and equipment
|
29,465
|
|
|
23,976
|
|
Accumulated depreciation
|
(9,285
|
)
|
|
(8,530
|
)
|
Property and equipment, net
|
$
|
20,180
|
|
|
$
|
15,446
|
|
Depreciation expense related to property and equipment for the years ended
December 31, 2016
,
2015
and
2014
was
$4.7 million
,
$3.6 million
and
$2.4 million
. Amortization expense related to internal-use software of
$0.4 million
,
$0.3 million
and
$0.1 million
for the years ended
December 31, 2016
,
2015
and
2014
was included in those expenses. For the years ended
December 31, 2016
and
2015
, we disposed of and wrote off
$4.1 million
and
$0.5 million
of primarily fully depreciated property and equipment.
ALARM.COM HOLDINGS, INC.
Notes to the Consolidated Financial Statements - (Continued)
December 31, 2016, 2015 and 2014
Note 6
. Acquisitions
Subsequent Events
Connect and Piper business units from Icontrol Networks
On March 8, 2017, in accordance with an asset purchase agreement we entered into on June 23, 2016, we acquired certain assets and assumed certain liabilities of the Connect line of business of Icontrol Networks, Inc., or Icontrol, and all of the outstanding equity interests of the two subsidiaries through which Icontrol conducts its Piper line of business. Connect provides an interactive security and home automation platform for ADT Pulse® and several other service providers. Piper, designs, produces and sells an all-in-one video and home automation hub. The addition of new technology infrastructure, talent, key relationships and hardware devices is expected to help accelerate our development of intelligent, data-driven smart home and business services. These
two
business units constituted a business. The cash consideration was
$148.5 million
, after the estimated working capital adjustment, of which
$14.5 million
was deposited in escrow in accordance with the asset purchase agreement for indemnifications obligations of Icontrol stockholders and the final determination of closing working capital. We used approximately
$81.5 million
of cash on hand and drew approximately
$67.0 million
under our senior line of credit with Silicon Valley Bank and a syndicate of lenders to fund the Acquisition. The purchase price allocation was not finalized as of the filing date of this Annual Report.
ObjectVideo
On January 1, 2017, in accordance with an asset purchase agreement, 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 is 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. We anticipate that the ObjectVideo Labs engineering team's capabilities and expertise will accelerate our research and development of video services and video analytic applications. In addition, ObjectVideo Labs will continue to perform advanced research and engineering services for the federal government. The consideration included
$6.0 million
of cash paid at closing. The purchase price allocation was not finalized as of the filing date of this Annual Report.
SecurityTrax Acquisition
On March 13, 2015, in accordance with an asset purchase agreement, we completed our purchase of certain assets of HiValley Technology, Inc., or SecurityTrax, that constituted a business. SecurityTrax is a provider of SaaS-based, customer relationship management software tailored for security system dealers. The consideration included
$5.6 million
cash paid at closing,
$0.4 million
of cash not yet paid and established a contingent liability of
$0.7 million
for earn-out considerations to be paid to the former owners. The agreement also contains
$2.0 million
in potential payments associated with the continued employment of key employees through March 31, 2018 that will be accounted for as compensation expense over the period. We included the results of SecurityTrax’s operations since its acquisition date in the Alarm.com segment. During 2015, we paid
$0.2 million
of the cash not yet paid and the remaining
$0.2 million
balance was included in other current liabilities on our consolidated balance sheet as of
December 31, 2015
. During 2016, we paid the remaining
$0.2 million
of the cash not yet paid balance and there was
no
outstanding balance as of
December 31, 2016
.
ALARM.COM HOLDINGS, INC.
Notes to the Consolidated Financial Statements - (Continued)
December 31, 2016, 2015 and 2014
The table below sets forth the consideration paid to SecurityTrax’s sellers and the estimated fair value of the tangible and intangible net assets acquired (in thousands):
|
|
|
|
|
|
2015
|
Calculation of Consideration:
|
|
Cash paid, net of working capital adjustment
|
$
|
5,612
|
|
Cash not yet paid
|
400
|
|
Contingent consideration liability
|
700
|
|
Total consideration
|
$
|
6,712
|
|
Estimated Tangible and Intangible Net Assets:
|
|
Current assets
|
$
|
14
|
|
Customer relationships
|
1,699
|
|
Developed technology
|
1,407
|
|
Trade name
|
271
|
|
Current liabilities
|
(7
|
)
|
Goodwill
|
3,328
|
|
Total estimated tangible and intangible net assets
|
$
|
6,712
|
|
Goodwill of
$3.3 million
reflects the value of acquired workforce and expected synergies from pairing SecurityTrax's solutions to security service provider partners with our offerings. The goodwill will be deductible for tax purposes. We developed our estimate of the fair value of intangible net assets using a multi-period excess earnings method for customer relationships, the relief from royalty method for the developed technology, replacement cost method for the developed technology home page and the relief from royalty method for the trade name. The purchase price allocation presented above was finalized in 2015.
Fair Value of Net Assets Acquired and Intangibles
In accordance with ASC 805, the assets and liabilities of SecurityTrax we acquired were recorded at their respective fair values as of March 13, 2015, the date of the acquisition.
Customer Relationships
We recorded the customer relationships intangible separately from goodwill based on determination of the length, strength and contractual nature of the relationship that SecurityTrax shared with its customers. We valued
two
groups of customer relationships using the multi-period excess earnings method, an income approach. We used several assumptions in the income approach, including revenue growth, operating expenses, charge for contributory assets, and a
22.5%
discount rate used to calculate the present value of the cash flows. For the second group of customer relationships, we used the same assumptions in addition to a customer retention rate of
90%
. We are amortizing the customer relationships, valued at
$1.7 million
, on a straight-line basis over a weighted-average estimated useful life of
seven
years.
Developed Technology
Developed technology recorded separately from goodwill consists of intellectual property such as proprietary software used internally for revenue producing activities. SecurityTrax’s proprietary software is offered for sale on a SaaS hosted basis to customers. We valued the developed technology by applying the relief from royalty method, an income approach. We used several assumptions in the relief from royalty method, which included revenue growth, a market royalty rate of
25%
and a
22.5%
discount rate used to the calculate the present value of the cash flows. An additional component of the developed technology which we refer to as the "home page" organized customer data and functioned as the billing and administration tool. We valued the home page component by applying the replacement cost model, a cost approach. We used several assumptions in the replacement cost approach, which included analyzing costs that a company would expect to incur to recreate an asset of equivalent utility. In addition, we made an adjustment for developer’s profit of
30.4%
which brought the asset to fair value on an exit-price basis. We are amortizing the developed technology, valued at
$1.4 million
, on a straight-line basis over a weighted-average estimated useful life of
eight
years.
ALARM.COM HOLDINGS, INC.
Notes to the Consolidated Financial Statements - (Continued)
December 31, 2016, 2015 and 2014
Contingent Consideration Liability
The amount of contingent consideration liability to be paid, up to a maximum of
$2.0 million
, to the former owners will be determined based on revenue and EBITDA of the acquired business for the year ended December 31, 2017. We estimated the fair value of the contingent consideration liability by using a Monte Carlo simulation model for determining projected revenue by using an expected distribution of potential outcomes. The fair value of contingent consideration liability is calculated with thousands of projected revenue outcomes, the results of which are averaged and then discounted to estimate the present value. We used several assumptions including an
8.45%
discount rate and a
7.5%
revenue risk adjustment. We recorded the contingent consideration, valued at
$0.7 million
, as a contingent consideration liability in other liabilities in our consolidated balance sheet. At each reporting date, we remeasure the liability and record any changes in general and administrative expense, until we pay the contingent consideration, if any, in the first quarter of 2018. The discount rate is based on the composite B rated yield as of the valuation date and has not changed, except for the additional discount rate for the difference between composite B rated yield and the CCC credit rating, which has increased from
3.8%
to
9.19%
in 2015. As of
December 31, 2016
, we adjusted the fair value of the contingent consideration liability to
zero
using the same method and an updated forecast with a
8.85%
discount rate and a
0.9%
revenue risk adjustment, which resulted in
$0.2 million
of income for the year ended
December 31, 2016
.
Secure-i Acquisition
On December 8, 2014, in accordance with an asset purchase agreement, we completed our purchase of certain assets of Secure-i, Inc., or Secure-i, that constituted a business. Secure-i is a provider of internet based remote video hosting services including off-site storage, viewing and management from web-based browsers and mobile applications. Total consideration included
$2.6 million
in cash and
$0.3 million
in cash not yet paid. We recorded
$0.7 million
of intangibles and
$2.2 million
of goodwill in connection with the acquisition. During the second quarter of 2015, we finalized the working capital adjustment and recorded an additional
$20,000
of goodwill. We included the results of Secure-i’s operations since its acquisition date in the Alarm.com segment. During 2015, we paid
$145,000
of the cash not yet paid and the remaining
$145,000
balance as of December 31, 2015 was included in other current liabilities on our consolidated balance sheet. During 2016, we paid the remaining
$145,000
of the cash not yet paid balance and there was
no
outstanding balance as of
December 31, 2016
.
The table below sets forth the consideration paid to Secure-i’s sellers and the estimated fair value of the tangible and intangible net assets received in the acquisition (in thousands):
|
|
|
|
|
|
2014
|
Calculation of Consideration:
|
|
Cash paid, net of working capital adjustment
|
$
|
2,610
|
|
Cash not yet paid
|
290
|
|
Total consideration
|
$
|
2,900
|
|
|
|
Estimated Tangible and Intangible Net Assets:
|
|
Current assets
|
$
|
16
|
|
Other long-term assets
|
43
|
|
Customer relationships
|
208
|
|
Developed technology
|
228
|
|
Other intangibles
|
262
|
|
Liabilities
|
(59
|
)
|
Goodwill
|
2,202
|
|
Total estimated tangible and intangible net assets
|
$
|
2,900
|
|
Goodwill of
$2.2 million
reflects the value of acquired workforce and expected synergies between Secure-i's commercial video services and our offerings. The goodwill will be deductible for tax purposes. Our estimate of the fair value of tangible and intangible net assets was developed using a multi-period excess earnings method for customer relationships and the replacement cost method for developed technology. Included in other intangibles is a vendor relationship valued using the relief from royalty method and best practices materials valued using replacement cost method and a trade name valued using the relief from royalty method.
Fair Value of Net Assets Acquired and Intangibles
In accordance with ASC 805, the assets and liabilities of Secure-i we acquired were recorded at their respective fair values as of December 8, 2014, the date of the acquisition.
ALARM.COM HOLDINGS, INC.
Notes to the Consolidated Financial Statements - (Continued)
December 31, 2016, 2015 and 2014
Customer Relationships
The customer relationships intangible was recorded separate from goodwill based on determination of the length, strength and contractual nature of the relationship that Secure-i shared with its customers. We valued this customer relationship information using the multi-period excess earnings method, an income approach. We used several assumptions in the income approach, including revenue growth, a customer retention rate of
90%
, operating expenses, charge for contributory assets, and a
20%
discount rate used to calculate the present value of the cash flows. The customer relationships, valued at
$0.2 million
, are being amortized on a straight-line basis over the estimated useful life of
12
years.
Developed Technology
Developed technology recorded separately from goodwill consists of intellectual property such as proprietary software used internally for revenue producing activities. Secure-i’s proprietary software is offered for sale on a SaaS hosted basis. The developed technology was valued by applying the replacement cost model, a cost approach. We used several assumptions in the replacement cost approach, which included analyzing costs that a company would expect to incur in order to recreate an asset of equivalent utility adjusted downward for by
20%
to account for inflation and technical, functional or economic obsolescence. In addition, there was an adjustment for developer’s profit of
35%
which brought the asset to fair value on an exit-price basis. The developed technology, valued at
$0.2 million
, is being amortized on a straight-line basis over an estimated useful life of
three
years.
Horizon Analog Acquisition
On December 10, 2014, in accordance with an asset purchase agreement, we completed our purchase of certain assets of Horizon Analog, Inc., or Horizon Analog, that constituted a business. Horizon Analog is a producer of research that focuses on cost-effective collection and analysis of data relating to energy usage and consumer behavior and energy disaggregation. Total consideration included
$0.6 million
in cash and
$0.1 million
in cash not yet paid. We recorded less than
$0.1 million
of property and equipment and
$0.7 million
of goodwill in connection with the acquisition, which reflects the acquired workforce and synergies expected from combining our operations with those of Horizon Analog. The goodwill is deductible for tax purposes. We included the results of Horizon Analog’s operations since its acquisition date in the Alarm.com segment . During 2015, we paid
$72,000
of the cash not yet paid and the remaining
$72,000
balance as of December 31, 2015 was included in other current liabilities on our consolidated balance sheet. During 2016, we paid the remaining
$72,000
of the cash not yet paid balance and there was
no
outstanding balance as of
December 31, 2016
.
Unaudited Pro Forma Information
The following pro forma data is presented as if (1) Secure-i and Horizon Analog were included in our historical consolidated statements of operations beginning January 1, 2013 and (2) SecurityTrax was included in our historical consolidated statements of operations beginning January 1, 2014. These pro forma results do not necessarily represent what would have occurred if all the business combinations had taken place on January 1, 2013 and 2014, as applicable, nor do they represent the results that may occur in the future.
This pro forma financial information includes our historical financial statements and those of our business combinations with the following adjustments: we adjusted the pro form adjustments for income taxes and we adjusted for amortization expense assuming the fair value adjustments to intangible assets had been applied beginning January 1, 2013 and 2014, as applicable.
The pro forma adjustments were based on available information and upon assumptions that we believe are reasonable to reflect the impact of these acquisitions on our historical financial information on a supplemental pro forma basis, as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
Pro forma
Year Ended
December 31,
|
|
2015
|
|
2014
|
Revenue
|
$
|
209,110
|
|
|
$
|
168,921
|
|
Net income
|
11,722
|
|
|
12,476
|
|
ALARM.COM HOLDINGS, INC.
Notes to the Consolidated Financial Statements - (Continued)
December 31, 2016, 2015 and 2014
Business Combinations in Operations
The operations of each of the business combinations discussed above were included in the consolidated financial statements as of each of their respective acquisition dates. The following table presents the revenue and earnings of the business combinations in the year of acquisition as reported within the consolidated financial statements for the years ended December 31, 2015 for SecurityTrax and December 31, 2014 for Secure-i and Horizon Analog (in thousands):
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2015
|
|
2014
|
Revenue
|
$
|
986
|
|
|
$
|
41
|
|
Net loss
|
(436
|
)
|
|
(140
|
)
|
Note 7. Goodwill and Intangible Assets, Net
The changes in goodwill by reportable segment are outlined below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alarm.com
|
|
Other
|
|
Total
|
Balance as of January 1, 2015
|
$
|
21,374
|
|
|
$
|
—
|
|
|
$
|
21,374
|
|
Goodwill acquired
|
3,349
|
|
|
—
|
|
|
3,349
|
|
Balance as of December 31, 2015
|
24,723
|
|
|
—
|
|
|
24,723
|
|
Goodwill acquired
|
—
|
|
|
—
|
|
|
—
|
|
Balance as of December 31, 2016
|
$
|
24,723
|
|
|
$
|
—
|
|
|
$
|
24,723
|
|
In March 2015, we acquired SecurityTrax and recorded
$3.3 million
of goodwill in the Alarm.com segment (See
Note 6
). There were
no
impairments of goodwill recorded during the
year
s ended
December 31, 2016
,
2015
or
2014
. As of
December 31, 2016
, 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
|
|
Other
|
|
Total
|
Balance as of January 1, 2015
|
$
|
3,853
|
|
|
$
|
918
|
|
|
$
|
94
|
|
|
$
|
227
|
|
|
$
|
5,092
|
|
Intangible assets acquired
|
1,699
|
|
|
1,407
|
|
|
271
|
|
|
—
|
|
|
3,377
|
|
Amortization
|
(1,103
|
)
|
|
(839
|
)
|
|
(92
|
)
|
|
(117
|
)
|
|
(2,151
|
)
|
Balance as of December 31, 2015
|
4,449
|
|
|
1,486
|
|
|
273
|
|
|
110
|
|
|
6,318
|
|
Intangible assets acquired
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Amortization
|
(1,086
|
)
|
|
(438
|
)
|
|
(116
|
)
|
|
(110
|
)
|
|
(1,750
|
)
|
Balance as of December 31, 2016
|
$
|
3,363
|
|
|
$
|
1,048
|
|
|
$
|
157
|
|
|
$
|
—
|
|
|
$
|
4,568
|
|
For the years ended
December 31, 2016
,
2015
and
2014
, we recorded $
1.8 million
, $
2.2 million
and
$1.6 million
of amortization related to our intangible assets. There were
no
impairments of long-lived assets during the years ended
December 31, 2016
,
2015
and
2014
.
ALARM.COM HOLDINGS, INC.
Notes to the Consolidated Financial Statements - (Continued)
December 31, 2016, 2015 and 2014
The following tables reflect the weighted-average remaining life and carrying value of finite-lived intangible assets (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net Carrying
Value
|
|
Weighted-
average
Remaining Life
|
Customer relationships
|
$
|
10,666
|
|
|
(7,303
|
)
|
|
$
|
3,363
|
|
|
3.8
|
Developed technology
|
5,390
|
|
|
(4,342
|
)
|
|
1,048
|
|
|
4.1
|
Trade name
|
914
|
|
|
(757
|
)
|
|
157
|
|
|
4.3
|
Other
|
234
|
|
|
(234
|
)
|
|
—
|
|
|
0.0
|
Total intangible assets
|
$
|
17,204
|
|
|
(12,636
|
)
|
|
$
|
4,568
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net
Carrying
Value
|
|
Weighted-
average
Remaining Life
|
Customer relationships
|
$
|
10,666
|
|
|
$
|
(6,217
|
)
|
|
$
|
4,449
|
|
|
4.5
|
Developed technology
|
5,390
|
|
|
(3,904
|
)
|
|
1,486
|
|
|
4.8
|
Trade name
|
914
|
|
|
(641
|
)
|
|
273
|
|
|
4.7
|
Other
|
234
|
|
|
(124
|
)
|
|
110
|
|
|
0.9
|
Total intangible assets
|
$
|
17,204
|
|
|
$
|
(10,886
|
)
|
|
$
|
6,318
|
|
|
|
The following table reflects the future estimated amortization expense for intangible assets (in thousands):
|
|
|
|
|
|
Year Ended December 31,
|
|
Amortization
|
2017
|
|
$
|
1,400
|
|
2018
|
|
1,329
|
|
2019
|
|
579
|
|
2020
|
|
475
|
|
2021 and thereafter
|
|
785
|
|
Total future amortization expense
|
|
$
|
4,568
|
|
Note 8
. Investments in Other Entities
Cost Method Investment in Connected Home Service Provider
Partner
We own
20,000
Series A Convertible Preferred Membership Units and
2,667
Series B Convertible Preferred Membership Units of a Brazilian connected home solutions provider, which represents an interest of
12.4%
on a fully diluted basis, and was purchased for
$0.4 million
. On April 15, 2015, we purchased
2,333
Series B-1 Convertible Preferred Membership Units at
$23.31
per unit, for a purchase price of
$0.1 million
, which increased our aggregate equity interest to
12.6%
on a fully diluted basis. On April 20, 2016, we purchased an additional
6,904
Series B-1 Convertible Preferred Membership Units at
$20.19
per unit, for a purchase prices of
$0.1 million
, which increased our aggregate equity interest to
14.3%
on a fully diluted basis. The entity resells our products and services to residential and commercial customers in Brazil. Based upon the level of equity investment at risk, the connected home service provider partner is a VIE. We do not control the marketing, sales, installation, or customer maintenance functions of the entity and therefore do not direct the activities of the entity that most significantly impact its economic performance. We have determined that we are not the primary beneficiary of the entity and do not consolidate its financial results into ours. We account for this investment using the cost method. As of
December 31, 2016
and
2015
, the fair value of this cost method investment was not estimated as there were
no
events or changes in circumstances that may have had a significant adverse effect on the fair value of the investment. The investment is included in other assets in our consolidated balance sheets and was
$0.6 million
and
$0.4 million
as of
December 31, 2016
and
2015
.
Investments in and Loans to an Installation Partner
We own
48,190
common units of an installation partner which represents an interest of
48.2%
on a fully diluted basis, and was purchased for
$1.0 million
. The entity performs installation services for security dealers, as well as subsidiaries reported in our Other segment. Based upon the level of equity investment at risk, we determined at the time of the investment that the installation partner was not a VIE. We accounted for this investment under the equity method because we have the ability to
ALARM.COM HOLDINGS, INC.
Notes to the Consolidated Financial Statements - (Continued)
December 31, 2016, 2015 and 2014
exercise significant influence over the operating and financial policies of the entity. Under the equity method, we recognize our share of the earnings or losses of the installation partner in other income / (expense), net in our condensed consolidated statements of operations in the periods they are reported by the installation partner.
In September 2014, we loaned
$0.3 million
to our installation partner under a secured promissory note that accrues interest at
8.0%
per annum. Interest is payable monthly with the entire principal balance plus any accrued but unpaid interest due on the note's maturity date. This event did not cause us to reconsider our conclusion that the installation partner has sufficient equity investment at risk and therefore was not a VIE. We have continued to account for the investment under the equity method. In the fourth quarter of 2015, accumulated operating losses of our installation partner exceeded its equity contributions, and we began to record
100%
of its net losses, which amounted to
$0.2 million
, against our
$0.3 million
note receivable. The note was amended in September 2016 to extend the maturity date to September 2018. In our consolidated balance sheets, the
$0.1 million
note receivable balance was included in other assets as of
December 31, 2016
and included in other current assets as of
December 31, 2015
.
On December 11, 2015, we purchased an additional
9,290
common units of the same company for
$0.2 million
, which did not change our proportional share of ownership interest. This event caused us to reconsider our conclusion that the installation partner has sufficient equity investment at risk and we now consider the installation partner to be a VIE. We do not control the ability to obtain funding, the annual operating plan, marketing, sales or cash management functions of the entity and therefore, do not direct the activities of the entity that most significantly impact its economic performance. We have determined that we are not the primary beneficiary of our installation partner and do not consolidate its financial results into ours. We continue to account for the investment under the equity method. Due to the terms of the investment, the investment partner received additional equity contributions, and we returned to recording our share of its earnings or losses against our investment.
We recorded our share of the installation partner's loss in
other income / (expense), net
in our consolidated statements of operations, which was less than
$0.1 million
,
$0.7 million
and
$0.5 million
for the years ended
December 31, 2016
,
2015
and
2014
. Our
$1.2 million
investment, net of equity losses, is included in other assets in our consolidated balance sheets and was less than
0.1 million
as of
December 31, 2016
and
$0.1 million
as of
December 31, 2015
.
Investments in and Loans to a Platform Partner
We have invested in the form of loans and equity investments in a platform partner which produces connected devices to provide it with the capital required to bring its devices to market and integrate them onto our intelligently connected property platform.
In 2013, we paid
$3.5 million
in cash to purchase
3,548,820
shares of our platform partner’s Series A convertible preferred shares, or an
18.7%
interest on as-converted and fully diluted basis. The terms of our investment in the convertible preferred shares included a freestanding option to make an additional investment in the platform partner, or the 2013 Option. The investment in Series A convertible preferred shares was recorded at its initial fair value of
$3.5 million
and was accounted for as a cost method investment. We also loaned the same platform partner
$2.0 million
in the form of a secured convertible note, or the 2013 Note. The 2013 Note converted automatically into equity at a
12.5%
discount from the price per share at which new shares of capital stock are issued by the platform partner in a qualified financing, or the Automatic Conversion Feature. We recorded the 2013 Option at its initial fair value of
$0.2 million
. The 2013 Option did not meet the definition of a derivative as it was private company stock that was not readily convertible into cash and therefore, was not measured at fair value at each reporting period. The 2013 Note was accounted for as an available for sale security and was recorded at fair value in marketable securities at an initial fair value of
$1.9 million
. The Automatic Conversion Feature was an embedded derivative that required bifurcation from the 2013 Note. It was recorded at its initial fair value of
$0.1 million
in other assets as a marketable security and was remeasured at fair value each reporting period with changes recorded in
other income / (expense), net
.
In 2014, we entered into a Series 1 Preferred Stock purchase agreement with the platform partner and another investor. The other investor invested cash to purchase shares of the platform partner’s Series 1 Preferred Stock. As a result of the purchase, our
3,548,820
shares of Series A convertible preferred shares converted into
3,548,820
shares of common stock, and we hold an
8.6%
interest in the platform partner on an as-converted and fully diluted basis. In conjunction with the transaction, we received a
$2.5 million
dividend that we recorded as a return of investment as it was in excess of the accumulated earnings and profits of the investee since the date of the investment. Additionally, the platform partner repaid the
$2.0 million
2013 Note and accrued interest of
$0.2 million
and as a result, the Automatic Conversion Feature expired. As a result of the transaction, we recorded
$0.1 million
realized gain on the 2013 Note, our 2013 Option and Automatic Conversion Feature expired and we recognized
$0.3 million
of impairment losses in
other income / (expense), net
in our consolidated statement of operations for the year ended
December 31, 2014
.
Based upon the level of equity investment at risk, the platform partner is a VIE. We have concluded that we are not the primary beneficiary of the platform partner VIE. We do not control the product design, software development, manufacturing, marketing, or sales functions of the platform partner and therefore, we do not direct the activities of the platform partner that most significantly impact its economic performance. We account for this investment under the cost method. As of
December 31, 2016
ALARM.COM HOLDINGS, INC.
Notes to the Consolidated Financial Statements - (Continued)
December 31, 2016, 2015 and 2014
and 2015, the fair value of this cost method investment was not estimated as there were
no
events or changes in circumstances that may have had a significant adverse effect on the fair value of the investment.
As of
December 31, 2016
and
2015
, our
$1.0 million
cost method investment in a platform partner was recorded in other assets in our consolidated balance sheets.
Note 9. Other Assets
Patent Licenses
From time to time, we enter into agreements to license patents. The balance, net of amortization, was
$3.2 million
and
$2.2 million
as of
December 31, 2016
and
2015
and was included in other assets. We have
$4.9 million
of historical cost in patent licenses related to such agreements. We are amortizing the patent licenses over the estimated useful lives of the patents, which range from
three
years to
eleven
years. Amortization expense on patent licenses was
$0.6 million
,
$0.4 million
and
$0.2 million
for the years ended
December 31, 2016
,
2015
and
2014
and was included in cost of SaaS and license revenue in our consolidated statements of operations.
2013 Loan to a Distribution Partner
In 2013, we entered into a revolving loan agreement with a distribution partner. The distribution partner is also a service provider partner with whom we have a standard agreement to resell our intelligently connected property SaaS and hardware. We had evaluated that our distribution partner had good credit quality through a credit review at the inception of the arrangement and by evaluating risk indications during the repayment period.
Under the terms of the revolving loan agreement, we agreed to loan our distribution partner up to
$2.8 million
, with the proceeds of the loan used to finance the creation of new customer accounts that use our products and services. The amount that our distribution partner could draw down on the loan was based on the number of its qualifying new customer accounts created each month. The loan accrued interest at a rate of
8.0%
per annum, and required monthly interest payments, with the entire principal balance due on the loan maturity date, July 24, 2018. The balance outstanding under the loan was collateralized by the customer accounts owned by our distribution partner, as well as all of the physical assets and accounts receivable associated with those customer accounts.
During the first quarter of 2016, our distribution partner repaid the loan and the revolving loan agreement was subsequently terminated. We received
$2.4 million
of cash, representing the entire balance outstanding and the accrued interest at the termination date. There was
no
outstanding balance as of
December 31, 2016
. As of
December 31, 2015
, our distribution partner's outstanding balance was
$2.4 million
and the note receivable was included in other assets on our condensed consolidated balance sheets.
2016 Loan to a Distribution Partner
In September 2016, we entered into dealer and loan agreements with a new distribution partner. The dealer agreement enables the distribution partner to resell our SaaS services and hardware to their subscribers. Under the loan agreements, we agreed to loan the distribution partner up to
$4.0 million
, collateralized by all assets owned by the distribution partner. The loan has
two
advance periods which begin each year in October and end during the following January until August 31, 2019, the term date of the loan. Interest on the outstanding principal accrues at a rate per annum equal to the greater of
6.0%
or the LIBOR rate plus
4.0%
, as determined on the first date of each annual advance period. The borrower has the option to extend the term of the loan for
two
successive terms of
one
year each.
During the fourth quarter of 2016, our distribution partner drew
$3.0 million
at a rate of
6.0%
per annum. As of
December 31, 2016
, the
$3.0 million
loan receivable balance was included in other current assets.
Subsequent to
December 31, 2016
and prior to the filing of this Annual Report on Form 10-K, our distribution partner drew an additional
$1.0 million
at a rate of
6.0%
per annum.
ALARM.COM HOLDINGS, INC.
Notes to the Consolidated Financial Statements - (Continued)
December 31, 2016, 2015 and 2014
Note 10
. Fair Value Measurements
The following presents our assets and liabilities measured at fair value on a recurring basis (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements on a Recurring Basis as of
December 31, 2016
|
Fair value measurements in:
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Assets:
|
|
|
|
|
|
|
|
Money market account
|
$
|
135,204
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
135,204
|
|
Total
|
$
|
135,204
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
135,204
|
|
Liabilities:
|
|
|
|
|
|
|
|
Subsidiary unit awards
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,768
|
|
|
$
|
2,768
|
|
Contingent consideration liability from acquisition
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,768
|
|
|
$
|
2,768
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements on a Recurring Basis as of
December 31, 2015
|
Fair value measurements in:
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Assets:
|
|
|
|
|
|
|
|
Money market account
|
$
|
122,818
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
122,818
|
|
Total
|
$
|
122,818
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
122,818
|
|
Liabilities:
|
|
|
|
|
|
|
|
Subsidiary unit awards
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
532
|
|
|
$
|
532
|
|
Contingent consideration liability from acquisition
|
—
|
|
|
—
|
|
|
230
|
|
|
230
|
|
Total
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
762
|
|
|
$
|
762
|
|
The following table summarizes the change in fair value of the Level 3 liabilities for subsidiary unit awards and the contingent consideration liability from acquisition (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using Significant Unobservable Inputs
|
|
Year Ended December 31, 2016
|
|
Year Ended December 31, 2015
|
|
Subsidiary Unit Awards
|
Contingent Consideration Liability from Acquisition
|
|
Subsidiary Unit Awards
|
Contingent Consideration Liability from Acquisition
|
Beginning of period balance
|
$
|
532
|
|
$
|
230
|
|
|
$
|
—
|
|
$
|
—
|
|
Total losses / (gains) included in earnings
|
2,236
|
|
(230
|
)
|
|
380
|
|
(470
|
)
|
Obligations assumed
|
—
|
|
—
|
|
|
—
|
|
700
|
|
Transfers into Level 3
|
—
|
|
—
|
|
|
152
|
|
—
|
|
Ending of period balance
|
$
|
2,768
|
|
$
|
—
|
|
|
$
|
532
|
|
$
|
230
|
|
The money market account is included in our cash and cash equivalents in our consolidated balance sheets. Our money market assets are valued using quoted prices in active markets.
The liability for the subsidiary unit awards relates to agreements established with
two
employees of our subsidiaries for cash awards contingent upon the subsidiary companies meeting certain financial milestones such as revenue, working capital, EBITDA and EBITDA margin. Before our IPO, we used the intrinsic method available to non-public companies under ASC 718,
"Compensation - Stock Compensation"
to account for our liability for our subsidiary units. After our IPO, we have accounted for these subsidiary awards using fair value. The effect of this change had an immaterial impact to our consolidated financial statements. We established liabilities for the future payment for the repurchase of subsidiary units under the terms of the agreements based on estimating revenue, working capital, EBITDA and EBITDA margin of the subsidiary units over the periods of the
two
awards through the anticipated repurchase dates. We estimated the fair value of each liability by using a Monte Carlo simulation model for determining each of the projected measures by using an expected distribution of potential outcomes. The fair value of each liability is calculated with thousands of projected outcomes, the results of which are averaged and then discounted to estimate the present value. At each reporting date until the respective payment dates, we will remeasure these liabilities, using the same valuation approach based on the applicable subsidiary's revenue, an unobservable input, and we will record any changes in the employee's compensation expense.
One
of the awards is subject to the employee's continued employment and therefore recorded on a straight-line basis over the remaining service period. The liability balances are included
ALARM.COM HOLDINGS, INC.
Notes to the Consolidated Financial Statements - (Continued)
December 31, 2016, 2015 and 2014
in either accounts payable, accrued expenses and other current liabilities or other liabilities in our consolidated balance sheets (See
Note 12
).
The amount of contingent consideration liability to be paid, up to a maximum of
$2.0 million
, from our acquisition of SecurityTrax in the first quarter of 2015, will be determined based on revenue and adjusted EBITDA for the year ended December 31, 2017. We estimated the fair value of the contingent consideration liability by using a Monte Carlo simulation model for determining projected revenue by using an expected distribution of potential outcomes. The fair value of contingent consideration liability is calculated with thousands of projected revenue outcomes, the results of which are averaged and then discounted to estimate the present value. At each reporting date until payment in first quarter of 2018, we will remeasure the contingent consideration liability, using the same valuation approach based on our subsidiary’s revenue, an unobservable input, and we will record any changes in general and administrative expense. The contingent consideration liability balance is included in our other liabilities in our consolidated balance sheets (See
Note 6
).
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. In such instances, the transfer is reported at the beginning of the reporting period. There were
no
transfers between Levels 1, 2 or 3 during the years ended
December 31, 2016
,
2015
and
2014
. We also monitor the value of the investments for other-than-temporary impairment on a quarterly basis.
No
other-than-temporary impairments occurred during the years ended
December 31, 2016
,
2015
and
2014
.
Note 11. Liabilities
The components of accounts payable, accrued expenses and other current liabilities are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2016
|
|
2015
|
Accounts payable
|
$
|
18,289
|
|
|
$
|
12,813
|
|
Accrued expenses
|
5,298
|
|
|
4,244
|
|
Subsidiary unit awards
|
2,506
|
|
|
—
|
|
Other current liabilities
|
2,207
|
|
|
2,219
|
|
Accounts payable, accrued expenses and other current liabilities
|
$
|
28,300
|
|
|
$
|
19,276
|
|
The components of other liabilities (in thousands):
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2016
|
|
2015
|
Deferred rent
|
$
|
11,056
|
|
|
$
|
8,435
|
|
Other liabilities
|
2,501
|
|
|
2,049
|
|
Other liabilities
|
$
|
13,557
|
|
|
$
|
10,484
|
|
Note 12
. Debt, Commitments and Contingencies
The debt, commitments and contingencies described below are currently in effect and would require us, or our subsidiaries, to make payments to third parties under certain circumstances.
Debt
In 2014, we repaid all of the outstanding principal and interest under a previous term loan, which was accounted for as an extinguishment of debt, and replaced it with a
$50.0 million
revolving credit facility, or the 2014 Facility, with Silicon Valley Bank, as administrative agent, and a syndicate of lenders. We utilized
$6.7 million
under the 2014 Facility to repay in full our indebtedness under the previous term loan. On August 10, 2016, the 2014 Facility was amended to (1) increase our current borrowing capacity from
$50.0 million
to
$75.0 million
, (2) provide for an option to further increase the borrowing capacity to
$125.0 million
with the consent of the lenders, (3) increase the maximum consolidated leverage ratio from
2.50
:1:00 to
3.00
:1.00, and (4) extend the maturity date of the 2014 Facility and the principal outstanding from May 2017 to November 2018. This amendment to the 2014 Facility was accounted for as a debt modification. The 2014 Facility is secured by substantially all of our assets, including our intellectual property.
The outstanding principal balance on the 2014 Facility accrues interest at a rate equal to either (1) the Eurodollar Base Rate, or LIBOR, plus an applicable margin based on our consolidated leverage ratio, or (2) the higher of (a) the Wall Street
ALARM.COM HOLDINGS, INC.
Notes to the Consolidated Financial Statements - (Continued)
December 31, 2016, 2015 and 2014
Journal prime rate and (b) the Federal Funds rate plus
0.50%
plus an applicable margin based on our consolidated leverage ratio, or ABR, at our option. For the year ended
December 31, 2016
, we elected for the outstanding principal balance to accrue interest at LIBOR plus
2.00%
, LIBOR plus
2.25%
, and LIBOR plus
2.50%
when our consolidated leverage ratio is less than
1.00
:1.00, greater than or equal to
1.00
:1.00 but less than
2.00
:1.00, and greater than or equal to
2.00
:1.00, respectively. For the years ended
December 31, 2015
and
2014
, we elected for the outstanding principal balance to accrue interest at LIBOR plus
2.25%
, LIBOR plus
2.5%
, and LIBOR plus
2.75%
when our consolidated leverage ratio is less than
1.00
:1.00, greater than or equal to
1.00
:1.00 but less than
2.00
:1.00, and greater than or equal to
2.00
:1.00, respectively. For the years ended
December 31, 2016
,
2015
and
2014
, the effective interest rate on the 2014 Facility was
2.82%
,
2.63%
and
2.62%
.
The carrying value of the 2014 Facility was
$6.7 million
as of
December 31, 2016
and
2015
. The 2014 Facility includes a variable interest rate that approximates market rates and, as such, we determined that the carrying amount of the 2014 Facility approximates its fair value as of
December 31, 2016
. The 2014 Facility also carries an unused line commitment fee of
0.20%
to
0.25%
depending on our consolidated leverage ratio. The 2014 Facility contains various financial and other covenants that require us to maintain a maximum consolidated leverage ratio not to exceed
3.00
:1.00 and a consolidated fixed charge coverage ratio of at least
1.25
:1.00. During the year ended
December 31, 2016
, we were in compliance with all financial and non-financial covenants and there were no events of default.
On March 8, 2017, in accordance with an asset purchase agreement, we acquired certain assets and assumed certain liabilities of the Connect line of business of Icontrol and all of the outstanding equity interests of the
two
subsidiaries through which Icontrol conducts its Piper line of business. The cash consideration was
$148.5 million
, after the estimated working capital adjustment. We used approximately
$81.5 million
of cash on hand and drew approximately
$67.0 million
under our senior line of credit with Silicon Valley Bank, or SVB, and a syndicate of lenders, or the 2014 Facility, to fund the Acquisition.
Commitments and Contingencies
Repurchase of Subsidiary Units
In 2012, we formed a subsidiary to develop and market home and commercial energy management devices and services. We granted an award of subsidiary stock to the founder and president. The terms of the award for the founder, who is also our employee, require a payment in cash on either the
third
or the
fourth
anniversary from the date the subsidiary first makes its products and services commercially available, which was determined to be April 1, 2014. The vesting of the award is based on the subsidiary meeting certain minimum financial targets. We recorded a liability of
zero
and
$0.1 million
related to this commitment in other liabilities in our consolidated balance sheets as of
December 31, 2016
and
2015
.
In 2011, we formed a subsidiary that offers to professional residential property management and vacation rental management companies technology solutions for remote monitoring and control of properties, including access control and energy management. We granted an award of subsidiary stock to the founder and president. The terms of the award, as amended, requires a payment in cash on the
fourth
anniversary of the date that the subsidiary’s products and services first become commercially available, which was determined to be June 1, 2013. The vesting of the award is based on the subsidiary meeting certain minimum financial targets. In 2016, we amended the term of the award, extending the valuation date for the payment in cash to December 31, 2017, amending the financial targets and allowing for payments in cash from 2018 through 2020 based on collection of financed customer receivables that existed as of the valuation date. We recorded a liability of
$2.5 million
in accounts payable, accrued expenses and other current liabilities and a liability of
$0.3 million
in other liabilities related to this commitment in our consolidated balance sheet as of
December 31, 2016
. We recorded
$0.4 million
related to this commitment in other liabilities in our consolidated balance sheet as of
December 31, 2015
.
At each reporting date until the respective payment dates, we will remeasure these liabilities, and we will record any changes in fair value as compensation expense (see
Note 10
).
Leases
We lease office space and office equipment under non-cancelable operating leases with various expiration dates through 2026. In August 2014, we signed a lease for new office space in Tysons, Virginia, where we relocated our headquarters in February 2016. The lease term ends in 2026 and the lease includes a
five
-year renewal option, an
$8.0 million
tenant improvement allowance and scheduled rent increases. During 2016, we entered into amendments to this lease which provide for
30,662
square feet of additional office space and an additional
$1.7 million
in tenant improvement allowances. We took possession of the additional space by February 1, 2017 and we were allowed to utilize the tenant improvement allowance for design prior to moving into the space.
As of
December 31, 2016
, we have utilized
$7.8 million
of our total
$9.7 million
tenant improvement allowance. Rent expense was
$4.8 million
,
$4.9 million
and
$2.8 million
for the years ended
December 31, 2016
,
2015
and
2014
.
ALARM.COM HOLDINGS, INC.
Notes to the Consolidated Financial Statements - (Continued)
December 31, 2016, 2015 and 2014
The following table presents the future minimum lease payments under the non-cancelable operating leases as of
December 31, 2016
(in thousands):
|
|
|
|
|
|
Year Ended December 31,
|
|
Minimum Lease Payments
|
2017
|
|
$
|
5,167
|
|
2018
|
|
5,110
|
|
2019
|
|
4,791
|
|
2020
|
|
4,803
|
|
2021
|
|
4,606
|
|
2022 and thereafter
|
|
21,371
|
|
Total
|
|
$
|
45,848
|
|
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.
Letters of Credit
As of
December 31, 2016
and
2015
, there were
no
outstanding letters of credit under our 2014 Facility to our manufacturing partners.
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. Vivint is seeking permanent injunctions, enhanced damages and attorney’s fees. We answered the complaint on July 23, 2015. Among other things, we asserted defenses based on non-infringement and invalidity of the patents in question. On August 19, 2016, the U.S. District Court, District of Utah stayed the litigation pending inter partes review by the U.S. Patent Trial and Appeal Board of certain patents in suit. Should Vivint prevail on its claims that
one
or more elements of our solution infringe one or more of its patents, we could be required to pay damages of Vivint’s lost profits and/or a reasonable royalty for sales of our solution, 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 required to pay ongoing royalties and comply with unfavorable terms if such a license is made available to us. The outcome of the legal claim and proceeding against us cannot be predicted with certainty. We believe we have valid defenses to Vivint’s claims. Based on currently available information, we determined a loss is not probable or reasonably estimable at this time.
On December 30, 2015, a putative class action lawsuit was filed against us in the U.S. District Court for the Northern District of California, alleging violations of the Telephone Consumer Protection Act, or TCPA. The complaint does not allege that Alarm.com violated the TCPA, but instead seeks to hold us responsible for the marketing activities of our service provider partners under principles of agency and vicarious liability. The complaint seeks monetary damages under the TCPA, injunctive relief, and other relief, including attorney’s fees. We answered the complaint on February 26, 2016. On March 7, 2017, plaintiffs filed their motion for class certification. Our response is due March 28, 2017. Discovery has commenced, and the matter remains pending in the U.S. District Court for the Northern District of California. Based on currently available information, we determined a loss is not probable or reasonably estimable at this time.
On February 9, 2016, we were sued along with one of our service provider partners in the Circuit Court for the City of Virginia Beach, Virginia by the estate of a deceased service provider partner customer alleging wrongful death, among other claims. The suit seeks a total of
$7 million
in compensatory damages and
$350,000
in punitive damages. We filed our answer on March 22, 2016. Discovery has commenced, and the matter remains pending. Based on currently available information, we determined a loss is not probable or reasonably estimable at this time.
On February 22, 2017, Honeywell International Inc., or Honeywell, filed an action in the U.S. District Court for the District of New Jersey against us and Icontrol Networks, Inc., or Icontrol, seeking to enjoin the completion of our acquisition of
two
business units from Icontrol. On March 3, 2017, we settled the litigation effective upon the closing of the acquisition of the business units from Icontrol, which occurred on March 8, 2017.
ALARM.COM HOLDINGS, INC.
Notes to the Consolidated Financial Statements - (Continued)
December 31, 2016, 2015 and 2014
In September, 2014, Icontrol Networks, Inc., or Icontrol, filed a Complaint in the United States District Court, District of Delaware, asserting that Zonoff Inc., or Zonoff, infringes certain U.S. Patents owned by Icontrol, all of which are now owned by Alarm.com through a subsidiary. In November, 2015, Icontrol filed a second lawsuit, also in the United States District Court, District of Delaware, alleging that Zonoff infringes additional U.S. Patents owned by Icontrol, now owned by Alarm.com through a subsidiary. The Court held a claim construction hearing in the first case on March 14, 2016 and consolidated the cases on August 1, 2016. Zonoff has not filed any proceedings at the United States Patent Office, or asserted any counterclaims. On March 8, 2017, the Court stayed the case for
60 days
pending the close of the Acquisition by Alarm.com.
In September, 2014, Icontrol filed a Complaint in the United States District Court, District of Delaware, asserting that SecureNet Technologies LLC, or SecureNet, infringes certain U.S. Patents owned by Icontrol, patents now owned by Alarm.com through a subsidiary. In March, 2015, Icontrol voluntarily agreed to dismiss the case, reserving the right to refile. In September, 2015, Icontrol refiled the case against SecureNet in the same district court alleging infringement of the same patents. SecureNet filed petitions for inter partes review of the patents-in-suit before the United States Patent Office's Patent Trial and Appeal Board. Only proceedings as to one of the patents in suit have thus far been instituted. These proceedings are currently pending before the Patent Trial and Appeal Board.
From time to time, we may 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 13
. 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 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.
IPO
Upon closing of our IPO on July 1, 2015, all outstanding shares of previously issued redeemable convertible preferred stock converted into an aggregate of
35,017,884
shares of common stock. Additionally, we issued
7,525,000
shares of common stock in our IPO.
Dividend
On June 12, 2015, our board of directors declared a cash dividend to our stockholders of record on our common and previously issued redeemable convertible preferred stock in the amount of (1)
$0.36368
per share of common stock and Series A preferred stock and (2)
$0.72736
per share of Series B preferred stock and Series B-1 preferred stock or
$20.0 million
in the aggregate. The dividends were paid in June 2015.
Common and Preferred Stock
As of
December 31, 2016
and
December 31, 2015
, there were
46,172,318
and
45,581,662
shares of common stock issued, and
46,142,483
and
45,485,294
shares of common stock outstanding, respectively. As of
December 31, 2016
and
December 31, 2015
, there were
no
preferred shares issued and outstanding. Each outstanding share of common stock is entitled to
one
vote per share.
ALARM.COM HOLDINGS, INC.
Notes to the Consolidated Financial Statements - (Continued)
December 31, 2016, 2015 and 2014
Note 14. Stock-Based Compensation
Stock-based compensation expense is included in the following line items in the accompanying consolidated statements of operations (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
Stock-based compensation expense data:
|
2016
|
|
2015
|
|
2014
|
Sales and marketing
|
$
|
536
|
|
|
$
|
372
|
|
|
$
|
338
|
|
General and administrative
|
1,430
|
|
|
2,486
|
|
|
1,862
|
|
Research and development
|
2,035
|
|
|
1,266
|
|
|
1,067
|
|
Total stock-based compensation expense
|
$
|
4,001
|
|
|
$
|
4,124
|
|
|
$
|
3,267
|
|
The following table summarizes the components of non-cash stock-based compensation expense (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2016
|
|
2015
|
|
2014
|
Stock options
|
$
|
3,783
|
|
|
$
|
3,154
|
|
|
$
|
3,181
|
|
Restricted stock units
|
141
|
|
|
—
|
|
|
—
|
|
Employee stock purchase plan
|
77
|
|
|
—
|
|
|
—
|
|
Compensation related to the sale of common stock
|
—
|
|
|
193
|
|
|
86
|
|
Compensation related to the cash settlement of stock options
|
—
|
|
|
777
|
|
|
—
|
|
Total stock-based compensation expense
|
$
|
4,001
|
|
|
$
|
4,124
|
|
|
$
|
3,267
|
|
Tax benefit from stock-based awards
|
$
|
5,048
|
|
|
$
|
700
|
|
|
$
|
782
|
|
2015 Equity Incentive Plan
We issue stock options pursuant to our 2015 Equity Incentive Plan (the "2015 Plan"). The 2015 Plan allows for the grant of incentive 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 and consultants.
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 (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
ten
years, commencing on January 1, 2016 through January 1, 2024, by
5%
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, 2016
,
6,320,370
shares remained available for future grant under the 2015 Plan.
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
ten
th 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
29,835
and
96,368
unvested shares of common stock outstanding subject to our right of repurchase as of
December 31, 2016
and
2015
. We repurchased
2,156
and
287
unvested shares of common stock related to early exercised stock options in connection with employee terminations during the years ended
December 31, 2016
and
2015
. As of
December 31, 2016
and
2015
, we recorded
$0.2 million
and
$0.4 million
in accounts payable, accrued expenses and other current liabilities on the consolidated balance sheets for the proceeds from the early exercise of the unvested stock options.
ALARM.COM HOLDINGS, INC.
Notes to the Consolidated Financial Statements - (Continued)
December 31, 2016, 2015 and 2014
Included in the stock-based compensation expense for the year ended December 31, 2015 was
$0.8 million
related to the cash settlement of recently exercised stock options of a terminated employee, at the company's election. We accounted for this cash settlement as a liability modification of the stock option awards.
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 estimated 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. The expected term represents the period of time the stock options are expected to be outstanding and is based on the “simplified method.” Under the “simplified method,” the expected term of an option is presumed to be the mid-point between the vesting date and the end of the contractual term. We use the “simplified method” due to the lack of sufficient historical exercise data to provide a reasonable basis upon which to otherwise estimate the expected term of the stock options. Expected volatility is based on historical volatilities for publicly traded stock of comparable companies over the estimated expected term of the stock options.
There were
653,900
and
540,548
stock options granted during the years ended
December 31, 2016
and
2015
. 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
zero
.
The following table summarizes the assumptions used for estimating the fair value of stock options granted during the years ended
December 31, 2016
,
2015
and
2014
:
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2016
|
|
2015
|
|
2014
|
Volatility
|
47.6 - 50.6%
|
|
|
48.5 - 51.8%
|
|
|
47.2 - 49.6%
|
|
Expected term
|
5.6 - 6.3 years
|
|
|
4.5 - 6.3 years
|
|
|
4.0 - 5.7 years
|
|
Risk-free interest rate
|
1.3 - 1.9%
|
|
|
1.3 - 1.9%
|
|
|
1.4 - 1.9%
|
|
Dividend rate
|
—
|
%
|
|
—
|
%
|
|
—
|
%
|
The following table summarizes stock option activity for the year ended
December 31, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Options
|
|
Weighted
Average Exercise
Price Per Share
|
|
Weighted Average
Remaining
Contractual Life
(in years)
|
|
Aggregate
Intrinsic Value
(in thousands)
|
Outstanding at December 31, 2015
|
3,547,913
|
|
|
$
|
4.17
|
|
|
6.6
|
|
$
|
44,411
|
|
Granted
|
653,900
|
|
|
17.87
|
|
|
|
|
|
Exercised
|
(561,015
|
)
|
|
1.88
|
|
|
|
|
14,114
|
|
Forfeited
|
(91,261
|
)
|
|
9.45
|
|
|
|
|
|
Expired
|
(2,009
|
)
|
|
9.79
|
|
|
|
|
|
Outstanding at December 31, 2016
|
3,547,528
|
|
|
$
|
6.91
|
|
|
6.4
|
|
$
|
74,267
|
|
Vested and expected to vest at December 31, 2016
|
3,502,351
|
|
|
$
|
6.81
|
|
|
6.4
|
|
$
|
73,621
|
|
Exercisable at December 31, 2016
|
2,144,142
|
|
|
$
|
3.36
|
|
|
5.2
|
|
$
|
52,460
|
|
The weighted average grant date fair value for our stock options granted during the years ended
December 31, 2016
,
2015
and
2014
was
$8.77
,
$5.90
and
$4.20
. The total fair value of stock options vested during the years ended
December 31, 2016
,
2015
and
2014
was
$2.2 million
,
$2.7 million
and
$1.5 million
. The aggregate intrinsic value of stock options exercised during the years ended
December 31, 2016
,
2015
and
2014
was
$14.1 million
,
$3.3 million
and
$7.3 million
. As of
December 31, 2016
, the total compensation cost related to nonvested awards not yet recognized was
$4.5 million
, which will be recognized over a weighted average period of
2.3
years.
ALARM.COM HOLDINGS, INC.
Notes to the Consolidated Financial Statements - (Continued)
December 31, 2016, 2015 and 2014
Restricted Stock Units
In 2016, we granted an aggregate of
61,482
Restricted Stock Units (RSUs) to certain of our employees. Each of these awards vest over a
five
-year period from the vesting commencement date, which is generally the grant date. We account for RSUs 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 estimated 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 RSUs condition for vesting is based on continued employment and a forfeiture rate is estimated for recognizing compensation expense based on historical forfeiture rates of stock-option awards. As of
December 31, 2016
, the total unrecognized compensation expense related to restricted stock unit awards granted amounted to
$1.5 million
, which is expected to be recognized over a weighted average period of
three
years.
The following table summarizes RSU activity for the year ended
December 31, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
RSUs
|
|
Weighted
Average Grant Date Fair Value
|
|
Aggregate
Intrinsic Value
(in thousands)
|
Outstanding at December 31, 2015
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Granted
|
61,482
|
|
|
30.00
|
|
|
1,844
|
|
Vested
|
—
|
|
|
—
|
|
|
—
|
|
Forfeited
|
—
|
|
|
—
|
|
|
—
|
|
Outstanding at December 31, 2016
|
61,482
|
|
|
$
|
30.00
|
|
|
$
|
1,711
|
|
Vested and expected to vest at December 31, 2016
|
55,673
|
|
|
$
|
30.00
|
|
|
$
|
1,549
|
|
Employee Stock Purchase Plan
Our board of directors adopted our 2015 ESPP in June 2015. As of
December 31, 2016
,
1,624,019
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. 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. For the year ended
December 31, 2016
, an aggregate of
31,797
shares were purchased by employees for which we recognized
$0.1 million
of compensation expense. There were
no
purchases of shares during the year ended
December 31, 2015
and less than
$0.1 million
compensation expense was recognized over the purchase period. Compensation expense is recognized for the amount of the discount, net of forfeitures, over the
six
-month purchase period.
Repurchase of Subsidiary Units
We have an agreement, as amended, with an employee, who is the president and founder of our subsidiary formed to offer professional property management and vacation rental management companies technology solutions for remote monitoring and control of properties, for the repurchase of subsidiary stock for cash. The vesting of the award is contingent upon the subsidiary meeting certain minimum financial targets from the date of commercial availability, which was determined as June 1, 2013, until the fourth anniversary. In 2016, we amended the term of the award, extending the valuation date for the payment in cash to December 31, 2017, amending the financial targets and allowing for payments in cash from 2018 through 2020 based on collection of financed customer receivables that existed as of the valuation date. We established a liability for the future payment for the repurchase of subsidiary units under the terms of the agreement based on estimating revenue, working capital, EBITDA and EBITDA margin of the subsidiary units over the period of the award through the repurchase date. We estimated the fair value of the liability by using a Monte Carlo simulation model for determining each of the projected measures by using an expected distribution of potential outcomes. The fair value of the liability is calculated with thousands of projected outcomes, the results of which are averaged and then discounted to estimate the present value. At each reporting date until the respective payment dates, we remeasure this liability, using the same valuation approach and record any changes in the employee's compensation expense in general and administrative expense.
We recorded a liability of
$2.5 million
in accounts payable, accrued expenses and other current liabilities and a liability of
$0.3 million
in other liabilities related to this commitment in our consolidated balance sheet as of
December 31, 2016
. We
ALARM.COM HOLDINGS, INC.
Notes to the Consolidated Financial Statements - (Continued)
December 31, 2016, 2015 and 2014
recorded
$0.4 million
related to this commitment in other liabilities in our consolidated balance sheet as of
December 31, 2015
. For the years ended
December 31, 2016
,
2015
and
2014
, we recorded compensation expense of
$2.4 million
,
$0.2 million
and
$0.1 million
related to this award in general and administrative expense. As this award is payable in cash, the expense was not recorded in stock-based compensation for any of the periods.
Warrants
On March 30, 2015, we issued performance-based warrants to
two
employees, which give these individuals the right to purchase up to
54,694
shares of our common stock in the aggregate if certain performance targets are achieved. The performance-based warrants, each for
27,347
shares of our common stock, have an exercise price of
$10.97
per share and we may elect to terminate the warrants in exchange for a one-time cash settlement in the event we have a change in control. If the warrants become exercisable, the number of shares that become exercisable which cannot exceed
27,347
shares for each warrant, is based upon the achievement of certain minimum annual revenue targets. These warrants will expire upon the earlier of March 2025 or the date upon which the holder of the warrant is no longer our employee or an employee of an affiliate of ours. We believe that the achievement of the minimum annual revenue targets is probable, and we began recognizing expense related to these performance-based warrants as of April 1, 2015. These warrants were
no
t exercisable as of
December 31, 2016
and
2015
because the performance requirements had not been met. We recorded
$0.1 million
and less than
$0.1 million
of expense associated with the performance-based warrants during the years ended
December 31, 2016
and
2015
. We did
no
t record expense associated with performance-based warrants during the year ended
December 31, 2014
.
Sale of Common Stock Subscriptions
In 2013, we sold
238,500
shares of our common stock to one of our executive officers for
$0.7 million
, or
$2.95
per share, an amount below fair value. Under the terms of the sale, we had the right to repurchase the shares for
$2.95
per share subject to certain triggering events prior to April 2, 2017. Our repurchase right expired on July 1, 2015, the date of the closing of our IPO. The excess of the fair value over the sale price was being recorded to stock-based compensation expense, on a straight-line basis, over the
four
-year term of the repurchase agreement. In 2015, we recognized the remaining unamortized expense upon the expiration of our repurchase right.
No
expense was recognized related to this sale for the year ended
December 31, 2016
. For the years ended
December 31, 2015
and
2014
, we recognized
$0.2 million
and less than
$0.1 million
related to this agreement in general and administrative expense in our consolidated statement of operations.
Note 15. Earnings Per Share
Basic and Diluted Earnings Per Share
The components of basic and diluted EPS are as follows (in thousands, except share and per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2016
|
|
2015
|
|
2014
|
Net income
|
$
|
10,154
|
|
|
$
|
11,768
|
|
|
$
|
13,502
|
|
Less: dividends paid to participating securities
|
—
|
|
|
(18,987
|
)
|
|
—
|
|
Less: income allocated to participating securities
|
(12
|
)
|
|
—
|
|
|
(12,939
|
)
|
Net income / (loss) available for common stockholders (A)
|
$
|
10,142
|
|
|
$
|
(7,219
|
)
|
|
$
|
563
|
|
Weighted average common shares outstanding — basic (B)
|
45,716,757
|
|
|
24,108,362
|
|
|
2,276,694
|
|
Dilutive effect of stock options and restricted stock units
|
2,158,765
|
|
|
—
|
|
|
1,613,427
|
|
Weighted average common shares outstanding — diluted (C)
|
47,875,522
|
|
|
24,108,362
|
|
|
3,890,121
|
|
Net income / (loss) per share:
|
|
|
|
|
|
Basic (A/B)
|
$
|
0.22
|
|
|
$
|
(0.30
|
)
|
|
$
|
0.25
|
|
Diluted (A/C)
|
$
|
0.21
|
|
|
$
|
(0.30
|
)
|
|
$
|
0.14
|
|
Diluted net loss per common share is the same as basic net loss per common share for the year ended December 31, 2015 because the effects of potentially dilutive items were anti-dilutive due to our net loss attributable to common stockholders. The following securities have been excluded from the calculation of diluted weighted average common shares outstanding because the effect is anti-dilutive:
ALARM.COM HOLDINGS, INC.
Notes to the Consolidated Financial Statements - (Continued)
December 31, 2016, 2015 and 2014
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2016
|
|
2015
|
|
2014
|
Redeemable convertible preferred stock:
|
|
|
|
|
|
Series A
|
—
|
|
|
—
|
|
|
1,998,257
|
|
Series B
|
—
|
|
|
—
|
|
|
1,809,685
|
|
Series B-1
|
—
|
|
|
—
|
|
|
82,934
|
|
Stock options
|
197,350
|
|
|
522,997
|
|
|
219,400
|
|
Restricted stock units
|
25,640
|
|
|
—
|
|
|
—
|
|
Common stock subject to repurchase
|
29,835
|
|
|
96,368
|
|
|
209,372
|
|
Note 16. Significant Service Provider
Partners
During the
year
s ended
December 31, 2016
,
2015
and
2014
our
10
largest revenue service provider partners accounted for
60%
,
63%
and
65%
of our revenue.
One
of our service provider partners individually represented greater than
10%
but not more than
15%
of our revenue for the year ended
December 31, 2016
.
One
of our service provider partners individually represented greater than
15%
but not more than
20%
of our revenue for the years ended December 31,
2015
and
2014
.
Two
of our service provider partners individually represented greater than
10%
but not more than
15%
of our revenue for the year ended
December 31, 2014
.
No
individual service provider partner represented more than
10%
of accounts receivable as of
December 31, 2016
. Trade accounts receivable from
two
service provider partners totaled
$3.1 million
and
$2.7 million
as of
December 31, 2015
.
No
other individual service provider partner represented more than
10%
of accounts receivable as of
December 31, 2015
.
Note 17. Income Taxes
The components of our income tax expense are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2016
|
|
2015
|
|
2014
|
Current
|
|
|
|
|
|
Federal
|
7,227
|
|
|
7,730
|
|
|
7,266
|
|
State
|
1,829
|
|
|
1,519
|
|
|
1,286
|
|
Total Current
|
9,056
|
|
|
9,249
|
|
|
8,552
|
|
Deferred
|
|
|
|
|
|
Federal
|
(4,283
|
)
|
|
(3,372
|
)
|
|
(1,702
|
)
|
State
|
(546
|
)
|
|
(180
|
)
|
|
(33
|
)
|
Total Deferred
|
(4,829
|
)
|
|
(3,552
|
)
|
|
(1,735
|
)
|
Total
|
4,227
|
|
|
5,697
|
|
|
6,817
|
|
The difference between the income tax expense at the Federal statutory rate and income tax expense in the accompanying consolidated statements of operations is as follows:
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2016
|
|
2015
|
|
2014
|
Federal statutory rate
|
35.0
|
%
|
|
35.0
|
%
|
|
35.0
|
%
|
State income tax expense, net of Federal benefits
|
4.9
|
|
|
4.5
|
|
|
4.0
|
|
Nondeductible meals and entertainment
|
1.6
|
|
|
1.2
|
|
|
0.9
|
|
Research and development tax credits
|
(10.8
|
)
|
|
(8.9
|
)
|
|
(6.2
|
)
|
Other
|
(1.3
|
)
|
|
0.8
|
|
|
(0.2
|
)
|
Effective Rate
|
29.4
|
%
|
|
32.6
|
%
|
|
33.5
|
%
|
ALARM.COM HOLDINGS, INC.
Notes to the Consolidated Financial Statements - (Continued)
December 31, 2016, 2015 and 2014
The components of our net deferred tax assets (liabilities) are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2016
|
|
2015
|
Deferred tax assets, non-current
|
|
|
|
Provision for doubtful accounts
|
$
|
1,046
|
|
|
$
|
1,345
|
|
Accrued expenses
|
2,622
|
|
|
2,936
|
|
Deferred revenue
|
3,627
|
|
|
3,416
|
|
Deferred rent
|
4,671
|
|
|
3,331
|
|
Stock-based compensation
|
3,468
|
|
|
2,233
|
|
Acquisition costs
|
4,482
|
|
|
126
|
|
Subsidiary unit compensation
|
1,566
|
|
|
425
|
|
Equity investments
|
182
|
|
|
180
|
|
Inventory reserve
|
—
|
|
|
123
|
|
Net operating losses
|
2,678
|
|
|
3,183
|
|
Other
|
107
|
|
|
—
|
|
Total deferred tax assets, non-current
|
24,449
|
|
|
17,298
|
|
Deferred tax liabilities, non-current
|
|
|
|
Intangible assets and prepaid patent licenses
|
(2,780
|
)
|
|
(2,098
|
)
|
Depreciation
|
(4,649
|
)
|
|
(3,105
|
)
|
Contingent Liability
|
(268
|
)
|
|
(180
|
)
|
Total deferred tax liabilities
|
$
|
(7,697
|
)
|
|
$
|
(5,383
|
)
|
Net deferred tax assets
|
$
|
16,752
|
|
|
$
|
11,915
|
|
A reconciliation of the beginning and ending amounts of unrecognized tax benefits (without related interest expense) is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2016
|
|
2015
|
|
2014
|
Beginning balance
|
$
|
506
|
|
|
$
|
208
|
|
|
$
|
—
|
|
Additions based on tax positions of the current year
|
197
|
|
|
152
|
|
|
69
|
|
Additions based on tax positions of prior year
|
79
|
|
|
146
|
|
|
139
|
|
Decreases related to settlements of prior year tax positions
|
(101
|
)
|
|
—
|
|
|
—
|
|
Ending balance
|
$
|
681
|
|
|
$
|
506
|
|
|
$
|
208
|
|
Our effective income tax rates were
29.4%
,
32.6%
and
33.5%
for the years ended
December 31, 2016
,
2015
and
2014
. For the years ended December 31, 2016, 2015 and 2014, our effective tax rates were below the statutory rate primarily due to the research and development tax credits claimed, partially offset by the impact of state taxes and non-deductible meal and entertainment expenses.
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. Based on our historical and expected future taxable earnings, we believe it is more likely than not that we will realize all of the benefit of the existing deferred tax assets as of
December 31, 2016
and
2015
. Accordingly, we have
no
t recorded a valuation allowance as of
December 31, 2016
and
2015
.
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 an unrecognized tax benefit of
$0.2 million
for research and development tax credits claimed during the year ended
December 31, 2016
,
$0.3 million
for research and development tax credits claimed during the year ended
December 31, 2015
and
$0.2 million
for research and development tax credits claimed during the year ended
December 31, 2014
. As of
December 31, 2016
and
2015
, we had accrued
$21,000
and
$4,000
of total interest related to unrecognized tax benefits. We recognize interest and penalties related to unrecognized tax benefits as a component of income tax expense.
ALARM.COM HOLDINGS, INC.
Notes to the Consolidated Financial Statements - (Continued)
December 31, 2016, 2015 and 2014
We are not aware of any events that make it reasonably possible that there would be a significant change in our unrecognized tax benefits over the next 12 months. As of
December 31, 2016
, all of the
$0.7 million
of unrecognized tax benefits, if recognized, would reduce our income tax expense and the effective tax rate.
We file income tax returns in the United States. We are no longer subject to U.S. income tax examinations for years prior to 2013, with the exception that operating loss carryforwards generated prior to 2013 may be subject to tax audit adjustment. We are generally no longer subject to state and local income tax examinations by tax authorities for years prior to 2013.
As of
December 31, 2016
, we had U.S. net operating loss carryforwards of approximately
$7.4 million
, which are scheduled to begin to expire in 2030. The net operating loss carryforward arose in connection with the EnergyHub acquisition. Utilization of 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.
Note 18
. Segment Information
We have
two
reportable segments:
•
Alarm.com segment
•
Other segment
Our chief operating decision maker is the chief executive officer. Management determined that 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 platform for the intelligently connected property and related solutions that contributed over
94%
of our revenue for the years ended
December 31, 2016
,
2015
and
2014
. Our Other segment is focused on researching and developing home and commercial automation, and energy management products and services for sale 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. The reportable segment operational data is presented in the table below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2016
|
|
Alarm.com
|
|
Other
|
|
Intersegment
Alarm.com
|
|
Intersegment
Other
|
|
Total
|
Revenue
|
$
|
247,781
|
|
|
$
|
18,826
|
|
|
$
|
(2,863
|
)
|
|
(2,638
|
)
|
|
$
|
261,106
|
|
Operating income / (loss)
|
21,282
|
|
|
(7,229
|
)
|
|
(312
|
)
|
|
317
|
|
|
14,058
|
|
Assets
|
246,798
|
|
|
14,447
|
|
|
—
|
|
|
—
|
|
|
261,245
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2015
|
|
Alarm.com
|
|
Other
|
|
Intersegment
Alarm.com
|
|
Intersegment
Other
|
|
Total
|
Revenue
|
$
|
202,752
|
|
|
$
|
9,052
|
|
|
$
|
(952
|
)
|
|
$
|
(1,964
|
)
|
|
$
|
208,888
|
|
Operating income / (loss)
|
38,437
|
|
|
(20,151
|
)
|
|
(279
|
)
|
|
(16
|
)
|
|
17,991
|
|
Assets
|
215,315
|
|
|
10,780
|
|
|
—
|
|
|
—
|
|
|
226,095
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2014
|
|
Alarm.com
|
|
Other
|
|
Intersegment
Alarm.com
|
|
Intersegment
Other
|
|
Total
|
Revenue
|
$
|
165,603
|
|
|
$
|
2,388
|
|
|
$
|
(646
|
)
|
|
$
|
(33
|
)
|
|
$
|
167,312
|
|
Operating income / (loss)
|
34,271
|
|
|
(13,255
|
)
|
|
(154
|
)
|
|
138
|
|
|
21,000
|
|
We derived substantially all revenue from North America for the years ended
December 31, 2016
,
2015
and
2014
. Substantially all our long-lived assets were in North America as of
December 31, 2016
and
December 31, 2015
.
ALARM.COM HOLDINGS, INC.
Notes to the Consolidated Financial Statements - (Continued)
December 31, 2016, 2015 and 2014
Note 19. Related Party Transactions
In September 2016, we entered into dealer and loan agreements with a new distribution partner. The dealer agreement enables the distribution partner to resell our SaaS services and hardware to their subscribers. Under the loan agreements, we agreed to loan the distribution partner up to
$4.0 million
, collateralized by all assets owned by the distribution partner. The loan has
two
advance periods which begin each year in October and end during the following January until August 31, 2019, the term date of the loan. Interest on the outstanding principal accrues at a rate per annum equal to the greater of
6.0%
or the LIBOR rate plus
4.0%
, as determined on the first date of each annual advance period. The borrower has the option to extend the term of the loan for
2
successive terms of
one
year each. During the fourth quarter of 2016, our distribution partner drew
$3.0 million
at a rate of
6.0%
per annum. As of
December 31, 2016
, the
$3.0 million
loan receivable balance was included in other current assets. Subsequent to
December 31, 2016
and prior to the filing of this Annual Report on Form 10-K, our distribution partner drew an additional
$1.0 million
at a rate of
6.0%
per annum. For the year ended
December 31, 2016
, we recorded
$28,500
of interest income related to this note receivable and we recognized less than
$0.1 million
of revenue. Our accounts receivable balance from this distribution partner was less than
$0.1 million
as of
December 31, 2016
.
Our installation partner in which we have a
48.2%
ownership interest performs installation services for security dealers and also provides installation services for us and certain of our subsidiaries. On December 11, 2015, we purchased an additional
9,290
common units of the same company for
$0.2 million
, which did not change our proportional share of ownership interest. We account for this investment using the equity method (see
Note 8
). During the years ended
December 31, 2016
,
2015
and
2014
, we recorded
$1.3 million
,
$0.8 million
and
$0.3 million
of cost of hardware and other revenue in connection with this installation partner. As of
December 31, 2016
and
December 31, 2015
, our accounts payable balance to our installation partner was
$0.1 million
and
$0.5 million
. In September 2014, we loaned
$0.3 million
to our installation partner under a secured promissory note that accrues interest at
8.0%
. Interest is payable monthly with the entire principal balance plus accrued but unpaid interest due at maturity in September 2016. For the years ended
December 31, 2016
,
2015
and
2014
, we recorded
$26,000
,
$26,000
and
$7,000
of interest income related to this note receivable.
In June 2015,
two
of our significant stockholders, entities affiliated with Technology Crossover Ventures ("TCV"), and entities affiliated with ABS Capital Partners ("ABS"), entered into a Securities Purchase Agreement (the "Secondary Sale Agreement"). Pursuant to the terms of the Secondary Sale Agreement, ABS agreed to sell to TCV, and TCV agreed to buy from ABS,
888,988
shares of our common stock at a purchase price of
$13.02
per share.
Note 20. Other Comprehensive Income
The table below presents the tax effects related to other comprehensive income and reclassifications made to the consolidated statements of operations (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale security
|
|
Before tax
|
|
Tax
|
|
After Tax
|
As of January 1, 2014
|
$
|
92
|
|
|
$
|
(36
|
)
|
|
$
|
56
|
|
Other comprehensive income / (loss) before reclassification
|
(30
|
)
|
|
11
|
|
|
(19
|
)
|
Amounts reclassified from accumulated other comprehensive income to other income / (expense), net
|
(62
|
)
|
|
25
|
|
|
(37
|
)
|
Net current period other comprehensive income
|
$
|
(92
|
)
|
|
$
|
36
|
|
|
$
|
(56
|
)
|
As of December 31, 2014
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
We disposed of our marketable securities during the year ended December 31, 2014 and there were
no
marketable securities outstanding as of
December 31, 2016
and
2015
. There were
no
components of other comprehensive income in
2016
and
2015
.
Note 21
. 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. Historical results are not necessarily indicative of results that may be achieved in future periods, and operating results for quarterly periods are not necessarily indicative of operating results for a full year. The selected consolidated statements of operation data in amounts are presented
ALARM.COM HOLDINGS, INC.
Notes to the Consolidated Financial Statements - (Continued)
December 31, 2016, 2015 and 2014
below (in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
March 31,
2015
|
|
June 30,
2015
|
|
September 30,
2015
|
|
December 31, 2015
|
|
March 31,
2016
|
|
June 30,
2016
|
|
September 30,
2016
|
|
December 31, 2016
|
|
|
(unaudited)
|
Total revenue
|
|
$
|
46,011
|
|
|
$
|
51,949
|
|
|
$
|
54,007
|
|
|
$
|
56,921
|
|
|
$
|
59,043
|
|
|
$
|
64,423
|
|
|
$
|
67,846
|
|
|
$
|
69,794
|
|
Total cost of revenue
|
|
16,809
|
|
|
20,487
|
|
|
19,969
|
|
|
20,109
|
|
|
21,116
|
|
|
25,183
|
|
|
26,366
|
|
|
26,715
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
3,041
|
|
|
$
|
2,509
|
|
|
$
|
2,943
|
|
|
$
|
3,275
|
|
|
$
|
2,738
|
|
|
$
|
1,873
|
|
|
$
|
2,567
|
|
|
$
|
2,976
|
|
Net income / (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.06
|
|
|
$
|
(6.09
|
)
|
|
$
|
0.06
|
|
|
$
|
0.07
|
|
|
$
|
0.06
|
|
|
$
|
0.04
|
|
|
$
|
0.06
|
|
|
$
|
0.06
|
|
Diluted
|
|
$
|
0.04
|
|
|
$
|
(6.09
|
)
|
|
$
|
0.06
|
|
|
$
|
0.07
|
|
|
$
|
0.06
|
|
|
$
|
0.04
|
|
|
$
|
0.05
|
|
|
$
|
0.06
|
|