UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Tel: (877) 389-4033

(Registrant's telephone number, including area code)

PART I. FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS (unaudited)

See accompanying notes to the condensed consolidated financial statements.

See accompanying notes to the condensed consolidated financial statements.

See accompanying notes to the condensed consolidated financial statements.

See accompanying notes to the condensed consolidated financial statements.

Note 1. Organization

Note 2. Basis of Presentation

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements include our accounts and those of our majority-owned and controlled subsidiaries after elimination of intercompany accounts and transactions.

These unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States, (“GAAP”)or GAAP, for interim financial information and the applicable rules and regulations of the Securities and Exchange Commission, ("SEC").or SEC. Accordingly, they do not include all the information and footnotes required by GAAP for annual financial statements. They should be read together with our audited consolidated financial statements and related notes thereto for the year ended December 31, 20152016 appearing in our Annual Report on Form 10-K filed on February 29, 2016 with the SEC.SEC on March 16, 2017, or the 2016 Annual Report. The condensed consolidated balance sheet data as of December 31, 20152016 was derived from our audited financial statements, but does not include all disclosures required by GAAP for annual financial statements.

In the opinion of management, these condensed consolidated financial statements include all normal recurring adjustments necessary for a fair statement of the results of operations, financial position and cash flows. The results of operations for the three and ninesix months ended SeptemberJune 30, 20162017 are not necessarily indicative of the results that can be expected for our entire fiscal year ending December 31, 2016.2017.

Use of Estimates

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of our assets and liabilities as of 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 the use of estimates is inherent in the financial reporting process, actual results could differ from ourthose 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 liability,and goodwill and intangible assets.

We updated the fourthfollowing significant accounting policies as a result of acquiring the Connect line of business from Icontrol Networks, Inc., or Icontrol, during the first quarter of 2015, we identified an immaterial error2017: (i) internal-use software, (ii) external software, (iii) revenue recognition and deferred revenue and (iv) cost of revenue. We generate SaaS and license revenue from monthly fees charged to service providers on a per subscriber basis for access to our newly-acquired Connect software platform. The Connect software for interactive security, automation and related solutions is typically deployed and operated by the service provider in its own network operations center. Except for as disclosed herein, there have been no other material changes to our significant accounting policies during the amount of stock-based compensation expense that we recorded in the third quarter of 2015 and reported in our Quarterly Report on Form 10-Q for Septemberended June 30, 2015 which was filed with the SEC on November 10, 2015. We2017 from those disclosed the error in our Annual Report on Form 10-K filed on March 16, 2017 with the SEC.

We derive our revenue from three primary sources: the sale of cloud-based SaaS services on our integrated Alarm.com platform, the sale of licenses and services on the newly-acquired Connect software platform and the sale of hardware products. We sell our platform and hardware solutions to service provider partners that resell our solutions and hardware to 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, ended December 31, 2015,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.

We generate hardware and other revenue from the sale of cellular radio modules that provide access to our cloud-based platform, from the sale of video cameras and from the sale of other devices, including 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 reserve against revenue for hardware returns based on historical returns, which was filed with the SEC on February 29, 2016between 2.0% to 4.5% of hardware and have revised our previously reported financial results for the quarter ended September 30, 2015 to correct the error. We concluded that this correction had no impact on our previously issued quarterly financial statements or our 2015 audited consolidated financial statements. The financial resultsother revenue for the three and ninesix months ended SeptemberJune 30, 20152017. 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 within this Quarterly Report on Form 10-Qin 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

Our cost of SaaS and license revenue primarily includes the revised financial results.amounts paid to wireless network providers and, to a lesser extent, the costs of running our network operation centers. We record the salaries and benefits of the department dedicated to providing service exclusively to a specific service provider for the Connect platform to cost of SaaS and license revenue.

Recent Accounting Pronouncements

Note 3. Accounts Receivable, Net

The components of accounts receivable, net are as follows (in thousands):

For the three months ended June 30, 2017, we recorded a $0.2 million and a $0.4 millionreduction to provision for doubtful accounts receivableof $0.1 million. For the six months ended June 30, 2017, we recorded a provision for doubtful accounts of less than $0.1 million. For the three and ninesix months ended SeptemberJune 30, 2016, respectively, as compared to less thanwe recorded a provision for doubtful accounts of $0.1 million and $0.4 million for$0.3 million.

For the same periods in the prior year. Wethree and six months ended June 30, 2017, we recorded a $0.5$0.6 million and a $1.5$1.1 million reserve for product returns in our hardware and other revenue, for the three and nine months ended September 30, 2016, respectively, as compared to $0.3$0.5 million and $1.1$1.0 million for the same periods in the prior year. Historically, we have not experienced write-offs for uncollectible accounts or sales returns that have differed significantly from our estimates.

Note 4. Inventory

The components of inventory are as follows (in thousands):

Note 5. Acquisitions

During our second quarter of 2016,On March 8, 2017, in accordance with the asset purchase agreement we entered into a definitive agreement to acquire two business units, Connect and Piper, fromwith Icontrol Networks, Inc., or Icontrol, for a purchase priceon June 23, 2016, we acquired certain assets and assumed certain liabilities of approximately $140.0 million,the Connect line of business and all of the outstanding equity interests of the two subsidiaries through which Icontrol conducted its Piper line of business, or the Acquisition. Connect develops and sells a custom, on-premise software platform that powers several service providers' solutions forprovides an interactive security and home automation including ADT Pulse® which was estimated to have 1.6 million subscribers as of December 31, 2015.platform for service providers. Piper, developsdesigns, produces and sells a Wi-Fi-enabledan all-in-one video and home automation hub. We expect the proposed Acquisitionaddition of new technology infrastructure, talent, key relationships and hardware devices to contribute to revenue growthhelp accelerate our development of intelligent, data-driven smart home and be EPS accretive on a non-GAAP basisbusiness services.

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 the full year 2017. The proposed Acquisition is subject to customary closing conditions as well as certain events that we cannot control, including regulatory approvalsindemnifications obligations of Icontrol stockholders and the final determination of closing working capital. We used $81.5 million of cash on hand and drew $67.0 million under our

The Acquisition also included non-cash consideration. In accordance with the FTC’s review of the proposed Acquisition. On September 22, 2016, we and Icontrol entered into a timing agreement with the FTC and agreed not to consummate the proposed Acquisition before the 45th calendar day following the date of certifying substantial compliance with the second request, unless we have received prior notice that the FTC has concluded its review. We and Icontrol are in the process of responding to the second request but ongoing review at the FTC will likely result in the proposed Acquisition not closing until the first quarter of 2017. Further, on November 2, 2016, in response to questions raised by the FTC, we and Icontrol represented to the FTC that the terms of the asset purchase agreement, we were obligated to assume the Icontrol Networks, Inc. 2013 Equity Incentive Plan and Icontrol Networks, Inc. 2003 Stock Plan, or collectively the Icontrol Plans, and converted the 2,001,387 unvested employee stock options into 70,406 Alarm.com stock options using a conversion ratio stated in the agreement to convert the original exercise price and number of options. The fair value of the unvested stock options on the acquisition agreement woulddate was $1.7 million calculated using a Black-Scholes model with a volatility and risk-free interest rate over the expected term of the options and the closing price of the Alarm.com common stock on the date of acquisition. We applied our graded vesting accounting policy to the fair value of these assumed options and determined $1.4 million of the fair value was attributable to pre-combination services and was included as a component of total purchase consideration. The remaining $0.3 million of the fair value was determined to be modifiedattributable to ensure we do not exercise any controlpost-combination services and will be recognized over the remaining service periods of the stock options.

overThe table below sets forth the ongoing operationspurchase consideration and the preliminary allocation to estimated fair value of the Icontrol business until such timetangible and intangible net assets acquired (in thousands):

The purchase price allocation including the identification of tangible and intangible assets acquired and liabilities assumed, and the determination of the fair value of those assets acquired and liabilities assumed, as well as the waiting period underassignment of goodwill to reporting units was not finalized as of the Hart-Scott-Rodino Act expires or is terminated.filing date of this Quarterly Report.

In accordance with ASC 805, the business units acquired in the Acquisition constituted a business and the assets and liabilities were recorded at their respective fair values as of March 8, 2017. 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 and Icontrolthe relief-from-royalty method for the trade name.

We recorded the customer relationships intangible separately from goodwill based on determination of the length, strength and contractual nature of the relationship that Connect 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 attrition and renewal rate, margin and discount rate. We are also providing documents and informationamortizing the first customer relationship,

Developed technology primarily consists of intellectual property of proprietary software that is marketed for certain incentives and service obligations provided to ADT, Alarm.com will serve as the exclusive provider of servicessale. The Connect platform is software for ADT’s professionally installed residential interactive security, automation and videorelated solutions that was typically deployed and operated by the service offeringsprovider in its own network operations center. 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 royalty rate and discount rate. We are amortizing the Connect developed technology, valued at $4.4 million, on an attribution method based on the discounted cash flows of the model over an estimated useful life of three years. Other developed technologies, valued at $0.3 million, were also acquired.

The equity interests in the subsidiaries we acquired provided for a periodcarryover tax basis in goodwill and intangible assets that arose from a previous acquisition. We have recorded a deferred tax asset of up to five (5) years following$4.1 million that represents the Effective Date, subject to Alarm.com achieving certain performance conditions and with certain exclusions. The Amended MSA also includes certain installation, maintenance, support, indemnity and development requirements and can be terminated if such requirements are not satisfied, including without notice if certain events occur. The foregoing descriptionexcess of the material termscarryover tax basis in those previously acquired goodwill and intangible assets over the fair value of goodwill and intangible assets we recorded on the Amended MSA does not purport to be complete and is subject to, and is qualified in its entirety by, reference to the full terms of the Amended MSA. We have submitted a request for confidential treatment of certain portions of the Amended MSA to the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended.Acquisition date.

On March 13, 2015,January 1, 2017, in accordance with an asset purchase agreement, we completed our purchase ofacquired certain assets of HiValley Technology,ObjectVideo, Inc., (“SecurityTrax”)or ObjectVideo, that constituted a business. SecurityTraxbusiness now called ObjectVideo Labs, LLC, or ObjectVideo Labs, including products, technology portfolio and engineering team. ObjectVideo is a providerpioneer in the fields of SaaS-based customer relationship management software tailoredvideo 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 security system dealers.the federal government. The consideration included $5.6$6.0 million of cash paid at closingclosing.

The table below sets forth the purchase consideration and $0.4the preliminary allocation to estimated fair value of the tangible and intangible net assets acquired (in thousands):

Goodwill of $2.7 million reflects the value of cashacquired workforce and expected synergies from pairing ObjectVideo Labs' video analytics capabilities with our offerings. The goodwill will be deductible for tax purposes.

The purchase price allocation including the identification of tangible and intangible assets acquired and liabilities assumed, and the determination of the fair value of those assets acquired and liabilities assumed, as well as the assignment of goodwill to reporting units was not yet paid and established a contingent liabilityfinalized as of $0.7 million for earn-out considerations to be paidthe filing date of this Quarterly Report.

Developed technology recorded separately from goodwill consists of intellectual property such as proprietary software used internally for revenue producing activities. ObjectVideo Labs proprietary software consists of source code and video analytics testing programs used internally to provide video analytics consulting services and research and development to customers and for the SaaS Alarm.com platform. We valued the developed technology by applying the replacement cost method. We used several assumptions in this cost approach, which included analyzing costs that a company would expect to incur to recreate an asset of equivalent utility. We are amortizing the developed technology, valued at $3.4 million, in potential payments associatedon a straight-line basis over an estimated useful life of two years which coincides with the continued employmentrapidly developing technology of key employees through March 31, 2018 that will be accounted for as compensation expense over the period.video analytics.

The revenue and net income from SecurityTrax's operations since its acquisition date, March 13, 2015, were included in the Alarm.com segment for the three and nine months ended September 30, 2015 (see Note 16). The following unaudited pro forma data has been preparedis presented as if SecurityTrax wasthe Acquisition and ObjectVideo Labs were included in our historical consolidated statements of operations beginning on January 1, 2015.2016. These pro forma results do not necessarily represent what would have occurred if all the business combinations had taken place on January 1, 2016, nor do they represent the results that may occur in the future. We have

This pro forma financial information includes our historical financial statements and those of our business combinations with the following adjustments: (i) we adjusted the pro form amounts for income taxes, (ii) we applied interest expense as if the additional borrowing for the acquisitions were as of January 1, 2016, (iii) we adjusted for amortization expense assuming the fair value adjustments to intangible assets had been applied beginning January 1, 2014. We did not adjust2016 and (iv) we adjusted for transaction costs as the transaction costs were recorded in the period of acquisition. We also included adjustments for income taxes associated with these pro forma adjustments. fees incurred and reclassified them to January 1, 2016.

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. For the nine months ended September 30, 2015, our unaudited pro forma revenue was $152.2 million and our unaudited pro forma net income was $8.7 million.

The operations of each of the fair valuebusiness combinations discussed above were included in the consolidated financial statements as of intangible net assets using a multi-period excesseach of their respective acquisition dates. The following table presents the revenue and earnings method for customer relationships,of the relief from royalty methodbusiness combinations in the year of acquisition as reported within the consolidated financial statements 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.six months ended June 30, 2017 (in thousands):

We recorded the customer relationships intangible asset 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,Acquisition, 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.

Note 6. Goodwill and Intangible Assets, Net

The following table reflects changes in goodwill by operatingreportable segment for the nine months ended September 30, 2016are outlined below (in thousands):

On January 1, 2017, we acquired ObjectVideo Labs and preliminarily recorded $2.7 million of goodwill in the Alarm.com segment. On March 8, 2017, in connection with the Acquisition, we preliminarily recorded $36.7 million of goodwill in the Alarm.com segment. There were no impairments of goodwill recorded during the three and ninesix months ended SeptemberJune 30, 20162017 and 2015.2016.

The following table reflects changes in the net carrying amount of the components of intangible assets for the nine months ended September 30, 2016 (in thousands):

We recorded $0.4$3.5 million and $1.4$5.0 million of amortization related to our intangible assets for the three and ninesix months ended SeptemberJune 30, 2016,2017, respectively, as compared to $0.6$0.4 million and $1.6$0.9 million for the same periods in the prior year. There were no impairments of long-lived assets during the three and six months ended June 30, 2017 and 2016.

The following tables reflect the weighted average remaining life and carrying value of finite-lived intangible assets as of September 30, 2016 and December 31, 2015 (in thousands):

The following table reflects the future estimated amortization expense for intangible assets as of September 30, 2016 (in thousands):

Note 7. 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 SeptemberJune 30, 20162017 and December 31, 2015,2016, 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 condensed consolidated balance sheets and was $0.6 million as of SeptemberJune 30, 20162017 and $0.4 million as of December 31, 2015.2016.

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 investment that the installation partner was not a VIE. We accounted for this investment under the equity method because we have the ability to 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. The note was amended in September 2016 to extend its maturity date to September 2018. 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 recordrecorded 100% of its net losses, which amounted toor $0.2 million, against our $0.3 million note receivable. TheIn the second quarter of 2017, accumulated operating losses of our installation partner exceeded its equity contributions again, and we recorded 100% of its net losses, or $0.1 million, against the balance of the note was amended in Septemberreceivable of $0.1 million. As of June 30, 2017 and December 31, 2016, to extend the maturity date to September 2018. In our condensed consolidated balance sheets, the $0.1 million note receivable balance was zero and $0.1 million and was included in other assets as of September 30, 2016 and included in other current assets as of December 31, 2015.assets.

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 lossearnings and losses in other income, / (expense), net in our condensed consolidated statements of operations, which was less thanoperations. We recorded losses of $0.1 million for the three and ninesix months ended SeptemberJune 30, 20162017, as compared to losses of less than $0.1 million and $0.3 million for the same periods in the prior year. Our $1.2 million investment, net of equity losses, iswas included in other assets in our condensed consolidated balance sheets and was zero as of June 30, 2017 and less than $0.1 million as of September 30, 2016 and December 31, 2015.2016.

Investments in and Loans to a Platform Partner

We have invested in the form of loans and equity investment 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 connected home 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, 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 now hold an 8.6% interest in the platform partner on an as convertedas-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, 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 SeptemberJune 30, 20162017 and December 31, 2015,2016, 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.

Note 8. Other Assets

Patent Licenses

From time to time, we enter into agreements to license patents. The carrying value, net of amortization, was $2.8 million and $3.2 million as of June 30, 2017 and December 31, 2016 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 to eleven years. The net balance as of September 30, 2016 and December 31, 2015 was $3.4 million and $2.2 million. Amortization expense on patent licenses was $0.1$0.2 million and $0.4 million for the three and ninesix months ended SeptemberJune 30, 2016,2017, respectively, as compared to $0.2$0.1 million and $0.3 million for the threesame periods in the prior year and nine months ended September 30, 2015. Amortization expense on patent licenses iswas included in cost of SaaS and license revenue in our condensed consolidated statements of operations.

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 advance period for the loan has two advance periods which beginbegins each year in October and endends during the following January until August 31, 2019, the term date of the loan.January. Interest on the outstanding principal accrues at a rate per annum equal to the greater of 6% or the LIBOR rate plus 4%, as determined on the first date of each annual advance period. The repayment of principal and accrued interest is due in three installments beginning in July and ending in August following the advance period. The term date of the loan is August 31, 2019, however, the borrower has the option to extend the term of the loan for two successive terms of one year each.

The loan receivable balance, which is recorded in other current assets, was no outstanding balance for this loan$3.0 million as of SeptemberDecember 31, 2016 and increased to $4.0 million as of June 30, 2016. For2017 as the three months ended September 30, 2016, there was no revenue recognized underborrower drew an additional $1.0 million during the dealer agreement. first quarter of 2017. Interest accrues on the loan receivable at 6% per annum as calculated at the beginning of the advance period.

Subsequent to SeptemberJune 30, 2016 and prior to the filing of this Quarterly Report on Form 10-Q,2017, our distribution partner has drawn $2.0repaid $2.8 million of principal and interest related to this loan receivable in accordance with the provisions of the loan.

In April 2017, we entered into a subordinated credit agreement with an affiliated entity of the distribution partner and loaned the affiliated entity $3.0 million, with a maturity date of November 21, 2022. Interest on the outstanding principal balance accrues at a rate of 6%8.5% per annum.annum and requires monthly interest payments. The $3.0 million loan receivable balance was included in other assets as of June 30, 2017.

Note 9. Fair Value Measurements

The following table presents our assets and liabilities measured at fair value on a recurring basis as of September 30, 2016 and December 31, 2015 (in thousands):

The following table summarizes the change in fair value of the Level 3 liabilities for subsidiary unit awards and contingent consideration liability for the three months ended September 30, 2016 and 2015from acquisition (in thousands):

The money market account is included in our cash and cash equivalents in our condensed 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 threetwo 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. We establishedaccount for these subsidiary awards using fair value and establish liabilities for the future payment offor the repurchase of subsidiary units under the terms of the agreements bybased on estimating revenue, working capital, EBITDA and EBITDA margin of the subsidiary units over the periods of the threetwo 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 generalthe employee's compensation expense. One of the awards is subject to the employee's continued employment and administrative expense.therefore recorded on a straight-line basis over the remaining service period. The liability balances are included in either accounts payable, accrued expenses and other current liabilities or other liabilities line items in our condensed consolidated balance sheets (see Note 11).

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 condensed consolidated balance sheets (see Note 5).

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 three and ninesix months ended SeptemberJune 30, 20162017 and 2015.2016. 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 three and ninesix months ended SeptemberJune 30, 20162017 and 2015.2016.

Note 10. Liabilities

The components of accounts payable, accrued expenses and other current liabilities are as follows (in thousands):

The components of other liabilities are as follows (in thousands):

Note 11. Debt, Commitments and Contingencies

The debt, commitments and contingencies described below would require us, or our subsidiaries, to make payments to third parties under certain circumstances.

Debt

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 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 ninesix months ended SeptemberJune 30, 2015, we elected for the outstanding principal balance to accrue interest at LIBOR plus 2.25%, LIBOR plus 2.5%,2017 and LIBOR plus 2.75% when our consolidated leverage ratio was 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 nine months ended September 30, 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 was 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 ninesix months ended SeptemberJune 30, 20162017 and 2015,2016, the effective interest rate on the 2014 Facility was 2.73%3.34% and 2.54%2.64%.

On March 7, 2017, we drew $67.0 million under the 2014 Facility to partially fund the Acquisition. On June 28. 2017, we repaid $1.0 million of the outstanding balance of the 2014 Facility. The carrying value of the 2014 Facility was $72.7 million and $6.7 million as of SeptemberJune 30, 20162017 and December 31, 2015. 2016. Our outstanding amounts under the 2014 Facility are due at maturity in November 2018.

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 SeptemberJune 30, 2016.2017. The 2014 Facility 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 nine months ended SeptemberAs of June 30, 2016,2017, we were in compliance with all financial and non-financial covenants and there were no events of default.

Commitments and Contingencies

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 recordeddid not record a liability of zero and $0.1 million related to this commitment in other liabilities in our condensed consolidated balance sheets as of SeptemberJune 30, 20162017 and December 31, 2015.2016, as the fair value of this commitment was zero.

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. Since its formation, we granted awardsan award of subsidiary stock to two employees, a key employeethe founder and the president who is also the founder.president. The termsvesting of the awards, as amended, required a payment in cash onaward is based upon the fourth anniversary ofsubsidiary meeting certain minimum financial targets from the date that the subsidiary’s products and services first become commercially available,of commercial availability, which was determined to be June 1, 2013. The vesting2013, until the fourth anniversary. In 2016, we amended the term of the awards isaward, 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 subsidiary meeting certain minimum financial targets.valuation date. We recorded a liability of $2.2$2.6 million related to these commitments in accounts payable, accrued expenses and other current liabilities and $0.3 million in other liabilities related to this commitment in our condensed consolidated balance sheet as of SeptemberJune 30, 2016.2017. We recorded $0.5a 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 these commitments in other liabilitiesthis commitment in our condensed consolidated balance sheet as of December 31, 2015.2016.

At each reporting date until the respective payment dates, we will remeasure these liabilities, and we will record any changes in fair value in general and administrative expense (see Note 9).

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. This lease term ends in 2026 and 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 provideprovided for 30,662 square feet of additional office space and an additional $1.7 million in tenant improvement allowances.allowance. We will taketook possession of the additional space on January 1,in February 2017 and we arewere allowed to utilize the tenant improvement allowance for design prior to moving into the space.

As of SeptemberJune 30, 2016,2017, we have utilized $6.9 million of our totalthe entire $9.7 million tenant improvement allowance.allowances. Rent expense was $1.2$1.6 million and $3.8$2.9 million for the three and ninesix months ended SeptemberJune 30, 2016 and2017, as compared to $1.2 million and $3.6$2.5 million for the same periods in the prior year.

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.

As of SeptemberJune 30, 2017 and December 31, 2016, we had no outstanding letters of credit under our 2014 Facility to our manufacturing partners in the amount of $0.3 million. As of December 31, 2015, we had no letters of credit outstanding under our 2014 Facility.

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 (IPR) by the U.S. Patent Trial and Appeal Board (PTAB) of certainfive of the patents in suit.  In March of 2017, the PTAB issued final written decisions relating to two patents finding all challenged claims unpatentable. In May of 2017, the PTAB issued final written decisions relating to the remaining patents that found certain claims unpatentable, while certain other claims were not found to be unpatentable. Vivint has appealed the decisions to the U.S. Court of Appeals for the Federal Circuit, and we have cross-appealed. The U.S. District Court, District of Utah lifted the stay on the litigation on June 26, 2017, and Vivint is proceeding with its case on four of the six patents in its complaint. A trial date has not yet been scheduled.

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 itself violated the TCPA, but instead seeks to hold us responsible for the marketing activities of our service providersprovider 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 24, 2016, we filed aMay 5, 2017, the court granted plaintiffs' motion to transfer the matter to the U.S. District Court for the Northern District of West Virginia to be consolidated with 23 other similar and related pending TCPA actions. That motion was denied on June 2, 2016.class certification. Discovery has commenced,is underway, and the matter remains pending in the U.S. District Court for the Northern District of California. Based on the current schedule, we anticipate a trial will take place at the end of 2018. 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 providersprovider 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.

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.

Note 12. Stock-Based Compensation

Stock-based compensation expense is included in the following line items in the accompanying condensed consolidated statements of operations for the three and nine months ended September 30, 2016 and 2015 (in thousands):

The following table summarizes the components of non-cash stock-based compensation expense for the three and nine months ended September 30, 2016 and 2015 (in thousands):