Fair Value Measurements

6 Months Ended

Jun. 30, 2024

Fair Value Disclosures [Abstract]

Fair Value Measurements

Fair Value Measurements

The following tables present our assets and liabilities measured at fair value on a recurring basis (in thousands):

	Fair Value Measurements on a Recurring Basis
Assets:	Level 1		Level 2		Level 3		Total
Money market accounts as of June 30, 2024	$	1,093,874	$	—	$	—	$	1,093,874
Equity securities with readily determinable fair value as of June 30, 2024	1,427		—		—		1,427
Money market accounts as of December 31, 2023	679,734		—		—		679,734
Liabilities:
Contingent consideration liability from acquisition as of June 30, 2024	$	—	$	—	$	2,105	$	2,105
Contingent consideration liability from acquisition as of December 31, 2023	—		—		2,061		2,061

The following table summarizes the change in fair value of the Level 3 contingent consideration liability with significant unobservable inputs (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2024		2023		2024		2023
Beginning of period balance	$	2,092	$	2,006	$	2,061	$	—
Acquired liabilities	—		—		—		1,993
Changes in fair value included in earnings	13		14		44		27
End of period balance	$	2,105	$	2,020	$	2,105	$	2,020

As of June 30, 2024, $1.1 billion of our money market accounts was included in cash and cash equivalents, $5.2 million was included in other assets and $1.6 million was included in other current assets in our condensed consolidated balance sheets. As of December 31, 2023, $675.6 million of our money market accounts was included in cash and cash equivalents and $4.1 million was included in other assets in our condensed consolidated balance sheets. Our assets from money market accounts are valued using quoted prices in active markets. Our equity securities with readily determinable fair value represent our investments in publicly traded companies, which are valued using quoted prices in active markets. During the three and six months ended June 30, 2024, we recorded an unrealized loss on equity securities of less than $0.1 million. Our investments in public entities are recorded at fair value within other current assets in our condensed consolidated balance sheets and changes in fair value of the investments are recorded within other expense, net within our condensed consolidated statements of operations. See Note 12 for the carrying amounts and estimated fair values of our convertible senior notes as of June 30, 2024 and December 31, 2023.

The contingent consideration liability consists of the potential earn-out payment related to our acquisition of 100% of the issued and outstanding capital stock of EBS on January 18, 2023. The earn-out payment is contingent on the satisfaction of certain performance targets related to the integration of EBS's hardware into the Alarm.com platform by December 31, 2025 and has a maximum potential payment of up to $2.5 million. We account for the contingent consideration using fair value and established a liability for the future earn-out payment based on an estimation of the probability of the future achievement of the performance targets. The contingent consideration liability was valued with Level 3 unobservable inputs, including the probability of expected achievement of the performance targets. At January 18, 2023, the fair value of the liability was $2.0 million. At each reporting date until December 31, 2025, or the achievement of the performance targets, we will remeasure the liability, using the same valuation approach. The fair value of the contingent consideration liability is included within accounts payable, accrued expenses and other current liabilities as well as other liabilities within our condensed consolidated balance sheets. Changes in fair value resulting from information that existed subsequent to the acquisition date are recorded in general and administrative expense in the condensed consolidated statements of operations. During the three and six months ended June 30, 2024, the contingent consideration liability did not materially change from the acquisition date fair value of $2.0 million as there were minor changes in the expected probability of achievement for the performance targets. The unobservable inputs used in the valuation as of June 30, 2024 included a weighted average expected achievement percentage of 89.5%, weighted by the potential payout of the performance targets, including a range of 80.0% to 99.0%. The valuation also included a weighted average discount rate of 6.1%, weighted by the probability of achievement of the performance targets at various dates, including a range of 6.1% to 6.2%. Selecting another probability of expected achievement or discount rate within an acceptable range would not result in a significant change to the fair value of the contingent consideration liability.

We monitor the availability of observable market data to assess the appropriate classification of financial instruments within the fair value hierarchy. Changes in economic conditions or model-based valuation techniques may require the transfer of financial instruments from one fair value level to another. There were no transfers into or out of Level 3 or reclassifications between levels of the fair value hierarchy during the three and six months ended June 30, 2024 and 2023.