Alarm.com executives addressed the company’s mounting legal troubles with Vivint during an earnings call with investors on Tuesday. 

On Nov. 1, Alarm.com announced that Vivint had notified the company it would stop paying royalty fees under a patent cross license agreement between the companies. Vivint has paid the required licensing fees to Alarm.com since the agreement was executed in 2013. 

Alarm.com has filed for arbitration per the agreement and is actively evaluating additional legal remedies. The company expects the arbitration process, which is confidential and not open to the public, will take about 12 to 16 months to play out. 

Beginning with the fourth quarter of 2022, Alarm.com said that quarterly SaaS and license revenue and total revenue will be impacted by approximately $6 million, or 2.8% of total revenue in Q4 2022. In addition, the company expects quarterly earnings and total revenue will be impacted by additional legal fees through 2023, Alarm.com CEO Steve Trundle said during the earnings call. 

“We intend to continue aggressively defending the investments we have made in our technology over the course of 20 years, including our global patent portfolio of over 600 issued patents and additional patents pending,” he said. 

Vivint has yet to respond to a request for comment by SDM.

The two companies have been embattled in patent disputes dating back to 2015 when Vivint sued Alarm.com in Utah federal court, alleging its security, automation and energy management products infringed four of its patents related to an electronic message delivery system. 

In 2018, Alarm.com prevailed in a patent dispute following a federal appeals court decision that invalidated claims by Vivint on technology for remotely controlling home appliances using a smartphone. 

During the earnings call, Trundle said revenue under licenses from Vivint represents more than 90 percent  of total revenue generated from Alarm.com’s patent portfolio. 

In the first half of 2022, the company’s SaaS and license revenue — excluding Vivint's royalty payments — grew 14.7% year-over-year. Trundle said the company has budgeted conservatively and assumed no license revenue from Vivint in 2023, along with planned for potential significant additional legal expenses in the range of $16 million to $20 million in 2023. 

“[W]e do not want to find our legal options constrained by our budget or our financial outlook. We want to be positioned to deploy a full legal budget without surprising our investors next year,” Trundle continued. “The combination of these potential expenses with the loss of patent license revenues meaningfully impacts our 2023 adjusted EBITDA estimates.” 

Trundle added the associated legal costs are not core to the business’s operation nor they will force the company to alter its strategic path moving forward.

“Since receiving Vivint's notification,” he said, “I've been asked several times, ‘What adjustments are you going to make in the rest of the business?’ I've answered by saying that I liked our growth strategy before I heard from Vivint and I still like our strategy today. This news doesn't change our core strategy in any way.” 

In Q4, Alarm.com (Nasdaq: ALRM) reported earnings of 55 cents per share, beating the Zacks Consensus Estimate of 50 cents share. This compares to earnings of 53 cents per share in the same period a year ago. The quarterly report represents an earnings surprise of 10%. 

Alarm.com, which belongs to the Zacks Security and Safety Services industry, posted revenues of $216.14 million in Q4, ended September 2022, surpassing the Zacks Consensus Estimate by 2.62%.