Alarm.com Holdings, Inc.ALRM
Alarm.com Holdings, Inc. Income Taxes Disclosure
Income Taxes
The components of our income before income taxes are as follows (in thousands):
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Domestic | $ | 157,866 | $ | 138,111 | $ | 97,453 | |||||||||||
| Foreign | 8,740 | 3,563 | 372 | ||||||||||||||
| Total | $ | 166,606 | $ | 141,674 | $ | 97,825 | |||||||||||
The components of our income tax expense are as follows (in thousands):
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Current | |||||||||||||||||
| Federal | $ | (5,201) | $ | 40,131 | $ | 51,923 | |||||||||||
| State | 8,268 | 10,561 | 11,577 | ||||||||||||||
| Foreign | 4,579 | 3,098 | 1,715 | ||||||||||||||
| Total Current | 7,646 | 53,790 | 65,215 | ||||||||||||||
| Deferred | |||||||||||||||||
| Federal | 30,383 | (29,307) | (40,519) | ||||||||||||||
| State | (440) | (5,277) | (6,986) | ||||||||||||||
| Foreign | 31 | 88 | (225) | ||||||||||||||
| Total Deferred | 29,974 | (34,496) | (47,730) | ||||||||||||||
| Total | $ | 37,620 | $ | 19,294 | $ | 17,485 | |||||||||||
The difference between the income tax expense at the federal statutory rate and income tax expense in the consolidated statements of operations is as follows:
| Year Ended December 31, | |||||||||||||||||||||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||||||||||||||||||||
Amount | Percentage | Amount | Percentage | Amount | Percentage | ||||||||||||||||||||||||||||||
U.S. Federal Statutory Tax Rate | $ | 34,987 | 21.0 | % | $ | 29,779 | 21.0 | % | $ | 20,543 | 21.0 | % | |||||||||||||||||||||||
State and Local Income Taxes, Net of Federal Income Tax Effect(1) | 6,249 | 3.8 | 4,587 | 3.2 | 3,654 | 3.7 | |||||||||||||||||||||||||||||
Foreign Tax Effects | 2,924 | 1.8 | 2,553 | 1.8 | 1,442 | 1.6 | |||||||||||||||||||||||||||||
Effect on Changes in Tax Laws or Rates Enacted in Current Period | — | — | — | — | — | — | |||||||||||||||||||||||||||||
Effect of Cross-Border Tax Laws | 1,017 | 0.6 | (4,720) | (3.3) | (4,288) | (4.4) | |||||||||||||||||||||||||||||
Foreign Derived Intangible Income | 4 | — | (4,844) | (3.4) | (4,288) | (4.4) | |||||||||||||||||||||||||||||
Global Intangible Low-Taxed Income | 1,013 | 0.6 | 124 | 0.1 | — | — | |||||||||||||||||||||||||||||
Tax Credits | (11,279) | (6.7) | (14,236) | (10.0) | (7,005) | (7.2) | |||||||||||||||||||||||||||||
Federal Research and Development Tax Credits | (11,279) | (6.7) | (14,236) | (10.0) | (7,005) | (7.2) | |||||||||||||||||||||||||||||
Changes in Valuation Allowances | — | — | — | — | 44 | — | |||||||||||||||||||||||||||||
Nontaxable or Nondeductible Items | 3,072 | 1.8 | 1,637 | 1.2 | 2,819 | 2.9 | |||||||||||||||||||||||||||||
Changes in Unrecognized Tax Benefits | 83 | — | (320) | (0.3) | 261 | 0.3 | |||||||||||||||||||||||||||||
Other Adjustments | 567 | 0.3 | 14 | — | 15 | — | |||||||||||||||||||||||||||||
Effective Tax Rate | $ | 37,620 | 22.6 | % | $ | 19,294 | 13.6 | % | $ | 17,485 | 17.9 | % | |||||||||||||||||||||||
_______________
(1)In 2025, state taxes in Virginia, Illinois, Pennsylvania, Florida and Utah made up the majority (greater than 50%) of the tax effect in this category. In 2024, state taxes in Virginia, Florida, Illinois and New York made up the majority (greater than 50%) of the tax effect in this category. In 2023, state taxes in Virginia, Pennsylvania and Massachusetts made up the majority (greater than 50%) of the tax effect in this category.
The components of our cash paid for income taxes, net of refunds are as follows (in thousands):
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
Federal | $ | 30,080 | $ | 52,686 | $ | 50,973 | |||||||||||
State | 13,445 | 12,990 | 12,345 | ||||||||||||||
Foreign | 1,862 | 2,535 | 1,259 | ||||||||||||||
| Total | $ | 45,387 | $ | 68,211 | $ | 64,577 | |||||||||||
Income taxes paid (net of refunds) exceeded 5% of total income taxes paid (net of refunds) in the following jurisdictions (in thousands):
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
Virginia(2) | $ | 6,570 | $ | 4,787 | $ | — | |||||||||||
_______________
(2)In 2023, no state jurisdictions had income taxes paid (net of refunds) that exceeded 5%.
The components of our net deferred tax assets (liabilities) are as follows (in thousands):
| December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| Deferred tax assets, non-current | |||||||||||
| Provision for credit losses on accounts receivable | $ | 1,873 | $ | 1,459 | |||||||
| Depreciation | 316 | 292 | |||||||||
| Accrued expenses | 8,473 | 6,615 | |||||||||
| Deferred revenue | 3,451 | 2,997 | |||||||||
| Operating lease liabilities | 18,849 | 18,149 | |||||||||
| Stock-based compensation | 16,799 | 20,060 | |||||||||
| Acquisition costs | 1,803 | 1,852 | |||||||||
| Inventory reserve | 679 | 566 | |||||||||
| Net operating losses | 4,850 | 1,610 | |||||||||
| Tax credits | 4,470 | 4,334 | |||||||||
| Capitalized research and development expenditures | 113,933 | 135,619 | |||||||||
Capped call premium | 10,661 | 13,416 | |||||||||
| Other | 2,123 | 3,430 | |||||||||
| Total deferred tax assets, non-current prior to valuation allowance | 188,280 | 210,399 | |||||||||
| Valuation allowance | (5,632) | (5,012) | |||||||||
| Total deferred tax assets, non-current, net of valuation allowance | 182,648 | 205,387 | |||||||||
| Deferred tax liabilities, non-current | |||||||||||
| Intangible assets and prepaid patent licenses | (7,273) | (2,574) | |||||||||
| Operating lease right-of-use assets | (13,002) | (13,199) | |||||||||
| Depreciation | (7,787) | (5,953) | |||||||||
| Sales commissions | (1,858) | (1,706) | |||||||||
| Equity investments | (27) | (161) | |||||||||
Other deferred tax liabilities | (446) | (510) | |||||||||
| Total deferred tax liabilities, non-current | (30,393) | (24,103) | |||||||||
| Net deferred tax assets, non-current | $ | 152,255 | $ | 181,284 | |||||||
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, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Beginning balance | $ | 9,124 | $ | 9,063 | $ | 7,596 | |||||||||||
| Additions based on tax positions of the current year | 1,693 | 1,978 | 1,589 | ||||||||||||||
| Additions based on tax positions of prior year | 289 | 617 | 204 | ||||||||||||||
| Decreases based on tax positions of prior year | (57) | (2) | (205) | ||||||||||||||
Decreases for tax positions taken in the prior year due to settlement | — | (2,220) | — | ||||||||||||||
| Decreases due to lapse of applicable statute of limitations | (1,257) | (312) | (121) | ||||||||||||||
| Ending balance | $ | 9,792 | $ | 9,124 | $ | 9,063 | |||||||||||
On July 4, 2025, Public Law 119-21, commonly referred to as One Big Beautiful Bill Act, or OBBBA, was enacted in the United States. The OBBBA includes a broad range of tax provisions that impact the timing and the magnitude of certain key tax deductions. The most significant provisions to us are the permanent reinstatement of the full and immediate deduction for domestic research and development expenditures in the year such costs are incurred and the 100% first-year bonus depreciation
deduction, with both provisions reducing our associated deferred tax assets. We currently anticipate these provisions will significantly reduce our current federal income tax cash outlays over the next several years. Certain other international tax provisions may also be favorable to us beginning in 2026.
We recorded a current federal tax benefit of $47.9 million based on our intent to deduct all 2025 domestic research and development expenditures, which resulted in a reduction of the current income tax payable of approximately $47.9 million and a corresponding decrease in the deferred tax asset. In addition, we generated $5.8 million in excess federal research and development tax credits in 2025. We will carryback this excess credit to 2024 and offset 2024 federal taxes, resulting in a 2025 current tax benefit.
Our effective income tax rates were 22.6%, 13.6% and 17.9% for the years ended December 31, 2025, 2024 and 2023, respectively. For the year ended December 31, 2025, the effective tax rate was above the 21.0% statutory rate primarily due to the impact of state taxes, foreign withholding taxes and other nondeductible expenses, partially offset by the impact of 2025 research and development tax credits claimed and a favorable true-up adjustment of our 2024 income tax provision estimate associated with research and development tax credits. For the year ended December 31, 2024, the effective tax rate was below the 21.0% statutory rate primarily due to research and development tax credits claimed, the foreign derived intangible income deduction, tax windfall benefits from employee stock-based compensation and a favorable true-up adjustment of our 2023 income tax provision estimate associated with research and development tax credits, partially offset by the impact of state taxes, foreign withholding taxes and other nondeductible expenses. For the year ended December 31, 2023, the effective tax rate was below the 21.0% statutory rate primarily due to research and development tax credits claimed and the foreign derived intangible income deduction, partially offset by the impact of state taxes, foreign withholding taxes, federal estimated tax payment interest expense, other nondeductible expenses and a stock-based compensation tax shortfall.
We recognize a valuation allowance if, based on the weight of available evidence, both positive and negative, it is more likely than not that some portion, or all, of net deferred tax assets will not be realized. Our valuation allowance for state research and development tax credit carryforwards, net deferred tax assets of our EBS subsidiary, state net operating losses and an unrealized U.S. federal capital loss was $5.6 million, $5.0 million and $3.8 million as of December 31, 2025, 2024 and 2023, respectively.
We apply guidance for uncertainty in income taxes that requires the application of a more likely than not threshold to the recognition and de-recognition of uncertain tax positions. If the recognition threshold is met, this guidance permits us to recognize a tax benefit measured at the largest amount of the tax benefit that, in our judgment, is more likely than not to be realized upon settlement. We recorded a net increase to the unrecognized tax benefits liability, excluding penalties and interest, of $0.7 million primarily due to a liability for research and development tax credits claimed, partially offset by the release of a federal unrecognized tax benefit liability due to the statute of limitations expiration during the year ended December 31, 2025. We recorded a net increase to the unrecognized tax benefits liability of $0.1 million, primarily due to a liability for research and development tax credits claimed, partially offset by the closure of the 2018 and 2019 Internal Revenue Service federal income tax return examination and the release of a state unrecognized tax benefit liability due to the statute of limitations expiration during the year ended December 31, 2024. We recorded a net increase to the unrecognized tax benefits liability of $1.5 million primarily for research and development tax credits claimed during the years ended December 31, 2023.
Our unrecognized tax benefits as of December 31, 2025 and 2024 includes unrecognized tax benefits of $9.8 million and $9.1 million, respectively, that if recognized, would reduce our income tax expense and effective tax rate.
As of December 31, 2025 and 2024, our consolidated balance sheets included a $1.2 million and $0.9 million accrual for total interest expense related to unrecognized tax benefits and penalties, respectively. We recognize interest and penalties related to unrecognized tax benefits as a component of income tax expense.
As of December 31, 2025, we had gross U.S. federal net operating loss carryforwards of $16.1 million, which will begin to expire in 2031. As of December 31, 2025, we had state net operating loss carryforwards of $22.3 million, which will begin to expire in 2031. As of December 31, 2025, we had $0.1 million of federal research and development tax credit carryforwards that will begin to expire in 2041. As of December 31, 2025, we had state research and development tax credit carryforwards of $5.2 million, which will begin to expire in 2032. The federal net operating loss carryforward arose in connection with the 2013 acquisition of EnergyHub and the 2025 acquisitions of CHeKT and BTR. Utilization of the acquired EnergyHub, CHeKT and BTR net operating loss carryforwards are subject to annual limitations due to ownership change limitations as provided by the Internal Revenue Code of 1986, as amended.
Our tax returns are subject to on-going review and examination by various tax authorities. Tax authorities may not agree with the treatment of items reported in our tax returns, and therefore the outcome of tax reviews and examinations can be unpredictable. On October 13, 2021, the Internal Revenue Service commenced an examination of our federal income tax return for 2018 and on August 12, 2022, the Internal Revenue Service expanded the examination to include our federal income tax return for 2019. On January 25, 2024, the Internal Revenue Service notified us that the income tax examination of our 2018 and 2019 federal income tax returns has been closed. As a result, we paid $0.6 million in additional federal taxes, including interest,
during the three months ended June 30, 2024, and recognized a net income tax benefit of $1.7 million during the three months ended March 31, 2024.
As of December 31, 2025, we did not have material undistributed foreign earnings. We have not historically recorded a deferred tax liability on the undistributed earnings from our foreign subsidiaries, as such earnings are considered to be indefinitely reinvested. During the three months ended September 30, 2025, we changed this assertion with respect to a portion of the 2024 and 2025 current earnings of our Canadian business to begin providing deferred taxes on such earnings, the tax impact of which was not material.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 19, 2026 | Showing above |
| 2024 | Feb 20, 2025 | |
About Income Taxes Disclosures
The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.
Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.